Webster Posts Profit on Strong Loan Growth (Update 1)

Second-quarter net interest income totaled $144.4 million, increasing from $143.4 million in the first quarter, and $140.9 million, in the second quarter of 2011.

Second-quarter noninterest income totaled $47.4 million, increasing from $44.0 million the previous quarter, and $46.2 million a year earlier. The second-quarter results included $2.5 million in securities gains and "an increase of $1.0 million in corporate finance products revenue included in other income." Second-quarter deposit service fees totaled $23.7 million, increasing from $23.4 million during the first quarter, but declining from $26.1 million a year earlier, because of the cap place on debit card interchange fees during the fourth quarter, when the Durbin Amendment became effective.

The company's second-quarter efficiency ratio was 63.75, improving from 65.63 the previous quarter, and 65.02 a year earlier. The efficiency ratio is, essentially, the number of pennies of overhead expenses for each dollar of revenue earned. Webster's management is seeking to lower the efficiency ratio to 60% by the end of 2012.

Webster's second-quarter return on average assets (ROA) was 0.85%. Over the previous four quarters, the ROA ranged from 0.76% to 0.90%, according to Thomson Reuters Bank Insight. The company's second-quarter return on average tangible equity was 11.81%, increasing from 11.65% the previous quarter, and 10.55% a year earlier.

CEO James Smith said, "Webster turned in a solid second quarter by most any measure," as "loan growth, asset quality, operating efficiency, and earnings all showed meaningful improvement as the southern New England economy continues to recover."

Webster's shares closed at $21.44 Thursday, returning 6% year-to-date, following a 4% decline during 2011 WBS data by YCharts

The shares trade for 1.4 times their reported June 30 tangible book value of $15.53, and for 13 times the consensus 2013 earnings estimate of $1.81 a share. The consensus 2012 EPS estimate is $1.76.

Based on a 10-cent quarterly the shares have a dividend yield of 1.87%.

Jefferies analyst Casey Haire rates Webster a "Hold," with a $22 price target, and said on Friday that the company "demonstrated nice acceleration in commercial loan growth," and that loan "yields held up relatively well (down 4bp), which suggests WBS is still taking share without compromising on price," but also called the improvement in the efficiency ratio "underwhelming," and called "into question achievability of a 60% target by 4Q in a difficult revenue environment."

The analyst also said that "core fees also increased despite lower mortgage banking thanks to a $2.5mm increase in "other" income, which may not be sustainable."

Interested in more on Webster Financial? See TheStreet Ratings' report card for this stock.

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-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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