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Webster Financial (WBS) Estimates Lifted By RBC Capital After Q1, 'Sector Perform' Maintained

 April 18, 2012 08:29 PM

(By Bala Sheshan) RBC Capital Markets analyst Gerard Cassidy increased his earnings estimates for Webster Financial Corp. (NYSE:WBS) after the company's first quarter results.

The brokerage, which maintained its "Sector Perform" rating and $23 price target, lifted its Q2-2012 EPS estimate to $0.45 from $0.42, Q3 estimate to $0.46 from $0.45, Q4 forecast to $0.49 from $0.48, its 2012 estimate to $1.83 from $1.73 and its 2013 forecast to $1.91 from $1.86.

WBS reported core Q1 EPS of $0.43, ahead of Cassidy's $0.38 estimate and consensus of $0.40. First quarter results were better than his estimate due to higher growth in average earning assets that led to higher net interest income, higher than expected wealth and investment services income and lower than expected non-interest expense.

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The analyst's revised earnings estimates reflect the company's aggressive cost-rationalization strategy in combating continued pressure on the NIM, and incorporate continued strong loan growth.

Net interest income of $147 million was 0.9% higher than Cassidy's estimate and 1.4% higher than the prior quarter as a 3 basis point sequential decline in the NIM was partially offset by a 2.8% sequential increase in average earning assets to $17.5 billion.

Non-interest income increased 4.1% from the prior quarter to $44.0 million, 7.1% higher than the analyst's estimate of $41.1 million primarily due to stronger wealth and investment services fees and higher gains sale of loans and securities.

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Non-interest expense increased 1.0% sequentially to $127.8 million, and was in line with the analyst's estimate. The company's efficiency ratio decreased to 65.6% from 65.8% in Q4-2011.

Total NPAs (including accruing TDRs) as a percentage of loans plus OREO declined to 4.27% compared to 4.67% in the prior quarter as lower TDR balances offset higher new C&I non-accruals.

Total portfolio new non-accrual loans increased to $75.2 million in Q1-2012 from $58.9 million in the prior quarter driven by a commercial loan and commercial real estate mortgage. Net charge-offs to average loans remained consistent at 0.96% (0.95% in Q4-2011).

WBS currently trades at stated book value, which is slightly below fair value given Cassidy's view that: the company is over-capitalized; a quarterly dividend increase is likely in the near  term to an estimated $0.08-0.10 per share; and, loan growth trends are positive. He would expect the shares to trade at 1.1 times to book value which by using today's book value equates to $23 per share.

WBS closed Wednesday's regular trading down 0.56% at $21.45.



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