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Webster Financial Rides on Top-Line Growth Amid Higher Expenses
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Webster Financial Corporation’s (WBS - Free Report) revenue strength, increasing net interest income (NII) and diversified fee income sources support its growth prospects. Solid balance sheet position is another positive. However, elevated expense levels and high debt remain areas of concern.
Growth Catalysts for Webster Financial
Solid Balance Sheet Position: Webster Financial has a healthy balance sheet position. Deposits and loans witnessed a four-year (2019-2023) CAGR of 27.1% and 26.1%, respectively. The uptrend continued for both metrics in the first nine months of 2024.
In January 2024, WBS acquired Ametros to diversify its low-cost and long-duration deposits. Management expects acquisition of Ametros will allow deposit to witness a CAGR of 25% over the next five years.
Strategic acquisitions, including interLINK in 2023 and Bend Financial and Sterling Bancorp in 2022, have bolstered HSA deposits and contributed to overall deposit growth. Such strategic acquisitions have fortified the company’s balance sheet. Going forward, growth in deposit and loan balances will keep supporting the company’s financials.
Top-Line Expansion: Webster Financial has an impressive revenue growth story. NII and non-interest income witnessed a compound annual growth rate (CAGR) of 25.1% and 2.5%, respectively, over the last four years (2019-2023). Both metrics declined in the first nine months of 2024. Nonetheless, NII is expected to witness improvement in the upcoming period as the central bank has started lowering interest rates, which is expected to stabilize funding costs eventually. Further, the company's efforts to strengthen its balance sheet and reposition its securities portfolio will drive NII growth.
Additionally, the bank’s joint venture with Marathon Asset will add a new source of fee income, which will likely support Webster Financial’s non-interest income growth in the coming months.
Superior Return on Equity (ROE): Webster Financial’s trailing 12-month return on equity (ROE) reflects its superiority in utilizing shareholders' funds. The company's ROE of 11.03% compares favorably with the industry's 8.2%.
Headwinds for Webster Financial
Elevated Expenses: Elevated non-interest expenses due to incremental costs related to the acquired businesses and higher employee compensation and service contract expenses are a major concern for Webster Financial. The metric saw a CAGR of 18.6% over the last four years (2019-2023), with the uptrend continuing in the first nine months of 2024.
The company’s ongoing investments in talent, operational support and technology are likely to keep the expense base under pressure in the short term.
High Debt Level: As of Sept. 30, 2024, Webster Financial’s total debt (comprising long-term debt and federal home loan bank advances) was $4.02 billion. In contrast, cash and due from banks, as well as interest-bearing deposits, aggregated $3.19 billion.
Hence, we believe that Webster Financial might be unable to meet its debt obligations if the economic situation worsens.
WBS’ Price Performance & Zacks Rank
Over the past six months, WBS’ shares have gained 26.2%, outperforming the industry's 20% growth.
Earnings estimates for CAC for the current year have remained unchanged over the past seven days. The company’s shares have gained 29.5% in the past six months.
Earnings estimates for FMAO for the current year have remained unchanged over the past seven days. The company’s shares have gained 27% in the past six months.
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Webster Financial Rides on Top-Line Growth Amid Higher Expenses
Webster Financial Corporation’s (WBS - Free Report) revenue strength, increasing net interest income (NII) and diversified fee income sources support its growth prospects. Solid balance sheet position is another positive. However, elevated expense levels and high debt remain areas of concern.
Growth Catalysts for Webster Financial
Solid Balance Sheet Position: Webster Financial has a healthy balance sheet position. Deposits and loans witnessed a four-year (2019-2023) CAGR of 27.1% and 26.1%, respectively. The uptrend continued for both metrics in the first nine months of 2024.
In January 2024, WBS acquired Ametros to diversify its low-cost and long-duration deposits. Management expects acquisition of Ametros will allow deposit to witness a CAGR of 25% over the next five years.
Strategic acquisitions, including interLINK in 2023 and Bend Financial and Sterling Bancorp in 2022, have bolstered HSA deposits and contributed to overall deposit growth. Such strategic acquisitions have fortified the company’s balance sheet. Going forward, growth in deposit and loan balances will keep supporting the company’s financials.
Top-Line Expansion: Webster Financial has an impressive revenue growth story. NII and non-interest income witnessed a compound annual growth rate (CAGR) of 25.1% and 2.5%, respectively, over the last four years (2019-2023). Both metrics declined in the first nine months of 2024. Nonetheless, NII is expected to witness improvement in the upcoming period as the central bank has started lowering interest rates, which is expected to stabilize funding costs eventually. Further, the company's efforts to strengthen its balance sheet and reposition its securities portfolio will drive NII growth.
Additionally, the bank’s joint venture with Marathon Asset will add a new source of fee income, which will likely support Webster Financial’s non-interest income growth in the coming months.
Superior Return on Equity (ROE): Webster Financial’s trailing 12-month return on equity (ROE) reflects its superiority in utilizing shareholders' funds. The company's ROE of 11.03% compares favorably with the industry's 8.2%.
Headwinds for Webster Financial
Elevated Expenses: Elevated non-interest expenses due to incremental costs related to the acquired businesses and higher employee compensation and service contract expenses are a major concern for Webster Financial. The metric saw a CAGR of 18.6% over the last four years (2019-2023), with the uptrend continuing in the first nine months of 2024.
The company’s ongoing investments in talent, operational support and technology are likely to keep the expense base under pressure in the short term.
High Debt Level: As of Sept. 30, 2024, Webster Financial’s total debt (comprising long-term debt and federal home loan bank advances) was $4.02 billion. In contrast, cash and due from banks, as well as interest-bearing deposits, aggregated $3.19 billion.
Hence, we believe that Webster Financial might be unable to meet its debt obligations if the economic situation worsens.
WBS’ Price Performance & Zacks Rank
Over the past six months, WBS’ shares have gained 26.2%, outperforming the industry's 20% growth.
Image Source: Zacks Investment Research
At present, WBS carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks from the banking space are Camden National Corporation (CAC - Free Report) and Farmers & Merchants Bancorp, Inc. (FMAO - Free Report) , each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Earnings estimates for CAC for the current year have remained unchanged over the past seven days. The company’s shares have gained 29.5% in the past six months.
Earnings estimates for FMAO for the current year have remained unchanged over the past seven days. The company’s shares have gained 27% in the past six months.