Webster Financial (WBS Quick QuoteWBS - Free Report) reported second-quarter 2023 adjusted earnings per share of $1.50, which surpassed the Zacks Consensus Estimate of $1.47. The figure excludes 18 cents of charges related to the merger with Sterling Bancorp on Jan 31, 2022.

Shares of the company have gained 2.8% following the better-than-expected results.

Due to higher rates and loan growth, net interest income (NII) increased. Also, a decline in expenses drove the efficiency ratio. However, lower non-interest income created a hindrance.

WBS reported net income applicable to common shareholders of $230.8 million, up 30% from the prior-year quarter.

Revenues Increase & Expenses Decline

Webster Financial’s total revenues in the quarter climbed 10.8% year over year to $673.2 million. However, the top line lagged the Zacks Consensus Estimate of $690.9 million.

The NII increased 20% year over year to $583.8 million. The net interest margin was 3.35%, up 7 basis points.

Non-interest income was $89.4 million, down 26.1% year over year. The primary reason for this fall was a decrease in deposit service fees, loan and lease-related fees, and wealth and investment services income.

Non-interest expenses were $344.1 million, down 3.9% from the year-ago quarter. A decrease in compensation and benefits, and occupancy drove the fall.

The efficiency ratio (on a non-GAAP basis) was 42.2% compared with 45.25% in the prior-year quarter. A lower ratio indicates higher profitability.

Webster Financial’s total loans and leases as of Jun 30, 2023, were $51.62 billion, up 1.4% sequentially. Also, total deposits were up 6.2% from the previous quarter to $58.74 billion.

Credit Quality Mixed

Total non-performing assets were $222.2 million as of Jun 30, 2023, down 11.2% from the year-ago quarter’s level. In addition, allowance for loan losses represented 1.22% of the total loans, having shrunk 3 bps on a year-over-year basis.

However, the company recorded a provision for credit losses of $31.49 million compared with $12.24 million seen in the prior-year quarter. Also, the ratio of net charge-offs to annualized average loans came in at 0.16% compared with the 0.9% reported in the year-ago quarter.

Capital Ratios Decrease, Profitability Ratios Improve

As of Jun 30, 2023, the Tier 1 risk-based capital ratio was 11.17% compared with 11.65% as of Jun 30, 2022. Additionally, the total risk-based capital ratio was 13.26% compared with the prior-year quarter’s 13.91%.

Return on average assets was 1.23% in the reported quarter, up from 1.10% in the prior-year quarter. As of Jun 30, 2023, the return on average common stockholders' equity was 11.38%, up from 9.09% in the prior-year quarter. However, the tangible common equity ratio was 7.23%, down from 7.68%.

Our Viewpoint

Webster Financial’s results reflect strong growth in NII, backed by higher rates and loans. The improving profitability ratios were other positives.

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

First Horizon Corporation’s (FHN Quick QuoteFHN - Free Report) second-quarter 2023 adjusted earnings per share (excluding notable items) of 39 cents surpassed the Zacks Consensus Estimate. The figure also improved 14.7% year over year.

FHN’s results benefited from higher NII and non-interest income. Also, improving loan and deposit balances were tailwinds. However, higher provisions and rising expenses were the undermining factors.

Zions Bancorporation’s (ZION Quick QuoteZION - Free Report) second-quarter 2023 net earnings per share of $1.11 lagged the Zacks Consensus Estimate of $1.13. The bottom line decreased 14% from the year-ago quarter.

ZION’s results were adversely impacted by a decline in NII, a rise in non-interest expenses and higher provisions. However, higher rates, decent loan demand and a rise in deposit balances were the major positives. Nevertheless, non-interest income increased for the quarter.