Webster Fails to Exceed Forecasts Despite Strong Q2 Growth
Despite a strong second quarter, Webster Financial failed to beat analysts’ estimates. However, the company is driven by a few value added factors, which investors should focus on more than any weaknesses Webster may exhibit considering that it is these factors that can offer an excellent performance opportunity. The company’s strong points reside in a number of areas, including revenue increases, net income increases, generation of a higher EPS, increasing profit margins, along with an increase in share price. So, while the company may have not quite delivered in terms of consensus estimates for Q2 revenues and estimates, analysts feel that the company’s strong points more than offset any problems.
Thus, Webster posted growth for commercial loans and commercial real estate loans, which rose to $985.2 million, translating into a 15.5 percent growth year over year. The company’s entire loan portfolio increased to $1.0 billion, representing an 8.4 percent growth year over year. These figures were the result of a growth in the consumer, commercial real estate and commercial lending markets. Webster’s net income for Q2 was $45.8 million, or $0.50 per diluted share, which rose from $43.7 million or $0.48 per diluted share from the same quarter of the previous year.
Deposits went up by 2.5 percent year over year or by $367.3 million, with core revenues growing by 1.9 percent compared to the previous year. The net interest margin declined from 3.26 percent in Q1 to 3.19 percent due to the decline in yields for investment securities. Non-performing loans shrank to 1.09 percent of total loans, or $144.5 million, compared to 1.12 percent in the previous quarter. The lower level of non-performing loans allowed Webster to maintain its provisions for loan loss under $9.2 million, which is the equivalent of 0.28 percent of all loans.
The company is committed to risk management, which they have proved by continuously improving essential asset quality metrics. The company stuck to a disciplined approach to business investments, supported by the fact that their operating leverage grew and their efficiency ratio declined. The efficiency ratio was 59.3 percent at the end of Q2, which isn’t such a significant difference to the forecasted efficiency ratio of 60 percent. Despite this, the company’s allowance for losses from loans declined from 1.18 percent of overall loans in the previous quarter to 1.17 percent thanks to strong loan growth.
The better credit quality resulted in the company reducing costs and increasing their operating results. Thus, analysts are rating Webster Financial as “Market Perform” and lowering their price target per share from $35 to $33. Shares were trading at 13 times the 2014 EPS estimate, namely at $29.59.