Webster Financial (WBS) Q2 Earnings Top Estimates, Stock Up

Webster Financial WBS reported adjusted earnings per share of 61 cents in second-quarter 2020, beating the Zacks Consensus Estimate of 54 cents. The reported figure excluded discrete negative adjustment related to customer derivatives.

Higher non-interest expenses and provision for loan losses, along with a shrinking net interest margin (NIM), acted as major headwinds. Nonetheless, growth in loan and deposit balances as well as impressive capital ratios were positives. The company’s shares appreciated 2.6% following the release most likely due to these positives.

The company reported earnings applicable to common shareholders of $50.7 million, down from the prior-year quarter’s $96.2 million.

Revenues Decline, Expenses Rise, Loans & Deposits Improve

Webster Financial’s total revenues declined 22.7% year over year to $284.5 million. Moreover, the top-line figure missed the Zacks Consensus Estimate of $298.7 million.

Net interest income slid 7.2% year over year to $224.4 million.  Moreover, NIM shrunk 64 basis points (bps) to 2.99%.

Non-interest income was $60.1 million, down 20.8% year over year. This fall resulted from lower other income and deposit service fees, partly offset by an increase in mortgage banking activities.

Non-interest expenses of $176.6 million dipped 2.3% from the year-ago quarter. The decline mainly resulted from fall in all components except for technology expenses and compensation and benefits due to annual merit increases.

Efficiency ratio (on a non-GAAP basis) was 60.0% compared with 56.09% as of Jun 30, 2019. A higher ratio indicates lower profitability.

The company’s total loans and leases as of Jun 30, 2020, were $21.8 billion, up 4.3% sequentially. Also, total deposits increased 7.8% from the previous quarter to $26.4 billion.

Credit Quality Deteriorates

Total non-performing assets were $178.4 million as of Jun 30, 2020, up 16.4% from the year-ago quarter. In addition, the ratio of net charge-offs to annual average loans was 0.30%, down 6 bps year over year. Also, the provision for loan and lease losses increased to $40 million as of Jun 30, 2020, compared with the prior year’s $11.9 million.

Moreover, allowance for loan losses represented 1.64% of total loans, up 54 bps from Jun 30, 2019.

Capital & Profitability Ratios Deteriorate

As of Jun 30, 2020, Tier 1 risk-based capital ratio was 11.84% compared with 12.09% as of Jun 30, 2019. Additionally, total risk-based capital ratio was 13.44% compared with the prior-year quarter’s 13.48%. Tangible common equity ratio was 7.69% compared with the year-ago figure of 8.31%.

Return on average assets was 0.65% in the reported quarter compared with the year-ago quarter’s 1.38%. As of Jun 30, 2020, return on average common stockholders' equity came in at 6.79%, down from 13.47% year over year.

Our Viewpoint

Webster Financial’s performance during the April-June period witnessed rise in loan and deposit balances, which makes it well poised for growth.

However, rise in provisions and lower interest rates hurt the bank’s earnings. Also, escalating expenses and lower NIM will likely keep depressing its bottom-line growth in the near term.

Webster Financial Corporation Price, Consensus and EPS Surprise

Webster Financial Corporation Price, Consensus and EPS Surprise

Webster Financial Corporation price-consensus-eps-surprise-chart | Webster Financial Corporation Quote

Webster Financial currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Signature Bank SBNY reported second-quarter 2020 earnings per share of $2.21, missing the Zacks Consensus Estimate of $2.27. Also, the bottom line decreased 18.5% from the prior-year quarter’s reported tally.

Zions Bancorporation’s ZION net earnings of 34 cents per share missed the Zacks Consensus Estimate of 37 cents in the June-end quarter. Moreover, the bottom line compared unfavorably with the year-ago quarter’s 99 cents.

BancorpSouth Bank BXS delivered an earnings surprise of a whopping 90.3% in second-quarter 2020 on higher interest income. Net operating earnings of 59 cents per share outpaced the Zacks Consensus Estimate of 31 cents. However, the bottom line compared unfavorably with the year-ago quarter’s 61 cents.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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