Financial Performance

Webster Financial Corporation is a bank holding company that provides banking, financial, and investment services through its subsidiary Webster Bank.

In the first quarter of 2024, Webster reported net income of $216 million, compared to $221 million in the first quarter of 2023, a decrease of 2%. Earnings per share was $1.23, compared to $1.24 in the prior year quarter.

The company’s return on average assets was 1.15% in the first quarter of 2024, down from 1.22% in the first quarter of 2023. Return on average equity also decreased from 10.94% to 10.01% over the same period.

A key driver of the lower profitability ratios was a decrease in net interest income, which is the difference between interest earned on loans and investments and interest paid on deposits and borrowings. Net interest income declined by $28 million or 4.6% from the prior year quarter, primarily due to higher rates paid on deposits.

Revenue Trends

Webster’s total revenue, consisting of net interest income and non-interest income, was $667 million in the first quarter of 2024, down from $666 million in the prior year quarter.

Net interest margin, which measures the difference between interest income generated versus interest expense paid, was 3.35% in the first quarter of 2024 compared to 3.66% in the first quarter of 2023. The decrease was largely driven by higher rates paid on deposits.

Non-interest income increased by $28 million or 40% over the prior year quarter. Key factors included an $11.7 million gain on the sale of mortgage servicing rights, higher income from bank-owned life insurance policies, and incremental fee income from the acquired Ametros business.

Balance Sheet Analysis

Total assets increased by $1.3 billion from December 2023 to March 2024, ending the quarter at $76.2 billion. The increase was largely driven by the acquisition of Ametros and growth in loans and investment securities.

Total loans grew from $50.7 billion at December 2023 to $51.1 billion at March 2024, an increase of $373 million or 0.7%. Loan growth occurred across commercial and industrial, commercial real estate, and residential real estate portfolios. This was partially offset by runoff in home equity and consumer loan balances.

Total deposits remained relatively flat quarter-over-quarter at $60.7 billion. Noninterest-bearing deposits declined while interest-bearing deposits increased slightly. The company continues to focus on growing low-cost core deposits.

The allowance for loan losses increased by $6 million or 0.9% during the first quarter to $641 million. This represents 1.26% of total loans, up slightly from 1.25% at December 2023. The allowance growth reflects the impact of the current economic environment on credit quality and loan growth.

Strengths and Weaknesses

Key strengths for Webster include its diversified loan portfolio, strong core deposit franchise, robust capital and liquidity levels, and solid asset quality metrics.

At March 31, 2024, nonperforming assets made up only 0.57% of total loans and foreclosed assets. Net charge-offs represented just 0.29% of average loans on an annualized basis. These metrics demonstrate the overall health of the loan book.

An area of relative weakness for Webster is its net interest margin compression over the past four quarters due to a rising rate environment. While this is an industry-wide challenge, Webster’s margin may face further pressure if interest rates continue to increase. The company is focused on adjusting its asset-liability mix to mitigate the impact.

Future Outlook

Webster’s management team expects gradual improvement in financial performance over the course of 2024 based on current forecasts. However, there are a number of risks that could alter the outlook, including higher than anticipated inflation and interest rates hikes, a potential recession, and ongoing economic impacts from the 2023 banking crisis.

The company will remain focused on generating organic loan growth, expanding fee income opportunities, controlling expenses, and maintaining sound risk management practices.

Continued execution of Webster’s strategic plan combined with a stabilization of the operating environment could result in improved profitability metrics and shareholder returns by the end of 2024. However, the path forward is highly dependent on economic and industry variables largely outside of the company’s control.

”` Assets March 31, 2024: $76.2 billion December 31, 2023: $74.9 billion

Loans and Leases March 31, 2024: $51.1 billion December 31, 2023: $50.7 billion

Deposits
March 31, 2024: $60.7 billion December 31, 2023: $60.8 billion

Allowance for Loan Losses March 31, 2024: $641 million (1.26% of total loans) December 31, 2023: $636 million (1.25% of total loans)

Nonperforming Assets March 31, 2024: 0.57% of total loans and foreclosed assets
December 31, 2023: 0.43% of total loans and foreclosed assets “`