Shares of Webster Financial WBS gained 3.4% after it delivered a positive earnings surprise of 2% in second-quarter 2019. Earnings per share of $1.05 surpassed the Zacks Consensus Estimate of $1.03. Also, the bottom line increased 22.1% from the prior-year quarter.

Results reflect growth in revenues, with support from higher loans and improving interest margin. Further, fee income showed considerable improvement. Also, the company’s strong capital position was a tailwind. However, higher expenses and provisions were headwinds.

The company reported earnings applicable to common shareholders of $96.2 million, up from $79.5 million in the prior-year quarter.

Revenue Growth Mitigates Higher Expenses, Loans Increase

Webster Financial’s total revenues increased 8.3% year over year to $317.6 million. Also, the top line surpassed the Zacks Consensus Estimate of $314.2 million.

Net interest income grew 7.5% year over year to $241.8 million. Moreover, net interest margin expanded 6 basis points (bps) to 3.63%.

Non-interest income was around $75.9 million, up 10.9% year over year. The upswing mainly resulted from rise in all components except mortgage banking income.

Non-interest expenses of $180.6 million increased slightly from the year-ago quarter. This upswing mainly resulted from higher compensation and benefits expenses, technology and equipment, along with other expenses, partially offset by a fall in marketing and occupancy costs.

Efficiency ratio (on a non-GAAP basis) came in at 56.09% compared with 57.78% as of Jun 30, 2018. A lower ratio indicates improved profitability.

The company’s total loans and leases as of Jun 30, 2019 were $19.27 billion, up 2.4% sequentially. However, total deposits decreased slightly from the previous quarter to $22.6 billion.

Credit Quality: A Mixed Bag

Total non-performing assets were $153.2 million, up 4.9% from the year-ago quarter. In addition, the ratio of net charge-offs to annualized average loans came in at 0.24%, up 5 bps year over year. Also, the provision for loan and lease losses increased13.3% to $11.9 million.

However, allowance for loan losses represented 1.10% of total loans as of Jun 30, 2019, down 5 bps from Jun 30, 2018.

Improved Capital & Profitability Ratios

As of Jun 30, 2019, Tier 1 risk-based capital ratio was 12.15% compared with 11.74% as of Jun 30, 2018. Additionally, total risk-based capital ratio came in at 13.54% compared with 13.21% in the prior-year quarter. Tangible common equity ratio was 8.31%, up from 7.75% as of Jun 30, 2018.

Return on average assets was 1.38% in the reported quarter compared with the year-ago quarter’s 1.22%. As of Jun 30, 2019, return on average common stockholders’ equity came in at 13.47%, up from 12.22% as of Jun 30, 2018.

Our Viewpoint

Webster Financial is well positioned on revenue growth and strong loan balance. Further, the company’s capital position is strong. Nonetheless, escalating expenses might partially impede 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 and EPS Surprise

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

Webster Financial currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

SunTrust Banks’ STI second-quarter 2019 adjusted earnings of $1.44 per share reflect a decline of 3.4% from the year-ago quarter. The Zacks Consensus Estimate for earnings for the quarter was pegged at $1.46.

BancorpSouth BXS reported second-quarter 2019 net operating earnings of 61 cents per share, which came in line with the Zacks Consensus Estimate. Also, the bottom line increased 8.9% from the prior-year quarter.

Driven by top-line strength, U.S. Bancorp’s USB second-quarter 2019 earnings per share of $1.09 surpassed the Zacks Consensus Estimate of $1.07. Also, the reported figure is up 6.9% from the prior-year quarter.

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