Webster Financial on Tuesday reported a steep rise in nonperforming loans and leases, but executives said the double-digit increase does not signal widespread credit problems ahead.
Instead, the first-quarter surge in default loans and leases — which are up 53% year-over-year — involves just five credits, four in the commercial-and-industrial loan book and one in commercial real estate, President and CEO John Ciulla told analysts during a call to discuss quarter earnings. The loans were spread across sectors, such as retail, food and health care.
"These were really idiosyncratic across, you know, five different categories," Ciulla said on the call. "Nothing we've seen has suggested that there's a pocket of weakness — poor underwriting, asset class, business line or geography — that has us particularly concerned."
Webster's net charge-offs also increased during the quarter, rising to $37.5 million from $24.5 million in the same quarter last year, the company said. The ratio of net charge-offs to average loans and leases came in at 0.29%, compared with the 0.20% ratio in the year-earlier period.
The fact that Webster is seeing a pickup in problem loans may be notable, but not devastating, Mark Fitzgibbon, an analyst at Piper Sandler, wrote in a research note. The $76.2 billion-asset firm "has been perceived as a credit darling for bank stock investors for some time," so there could be "some sell-off in the stock" as investors weigh the risk in the balance sheet, he wrote.
Indeed, the stock price closed Tuesday at $44.88, down 4.9% for the day. Shares are down 11% so far this year.
Still, "we remain firmly in the camp that, while not immune to industrywide credit challenges, Webster should outperform peers over time from a credit perspective," Fitzgibbon wrote.
Webster, based in Stamford, Connecticut, is among the U.S. banks that have reported an increase in problem loans in the first quarter, largely due to credit trends that continue to get back to normal after a long period of pristine credit quality during and after the pandemic.
Last week, Texas Capital Bancshares in Dallas
Fifth Third Bancorp in Cincinnati said its nonperforming loans and leases totaled $743 million for the quarter, up more than 19% from the first quarter of 2023, while net charge-offs rose year-over-year to $110 million from $78 million. Still, the firm's "asset quality trends remain well behaved and below historical averages," Chief Financial Officer Bryan Preston said on its April 19 earnings call.
Comerica, meanwhile, reported that nonperforming business loans rose to $171 million during the quarter, an increase of 4.3% from the year-earlier period. During the Dallas-based company's recent earnings call, CFO Melinda Chausse said credit overall is "in really good shape" and said that the firm's problem-loan metrics "still are meaningfully below" Comerica's long-term average, including nonperforming assets, which "are less than half" of the normal range.
"So those are very, very well controlled," she added.
Through March 31, Webster reported net income of $212.2 million, down 2% year-over-year. Earnings per share fell below Wall Street's expectations, coming in at $1.23, the company said.
Taking out the quarter's nonrecurring items, such as costs related to the acquisition of the medical funds custodian and administrator Ametros Financial, earnings per share were $1.35, six cents below the average estimate of $1.41 from analysts surveyed by FactSet Research Systems.
The slide was largely the result of a lower net interest margin, which came in at 3.35%, a decline of 31 basis points compared to the first quarter of 2023. Net interest income slipped to $567.7 million from $595.3 million in the same quarter last year — a decline of 4.6%.
Ciulla noted the decrease, saying that "interest income performance was softer than originally anticipated." He cited lower loan yields and ongoing, though moderating, deposit repricing.
Despite the quarterly decline, the company only slightly tweaked its guidance for full-year net interest income, saying it now expects to generate about $2.4 billion instead of the original $2.4 billion to $2.45 billion it laid out in January. The new guidance assumes two interest rate cuts.
On the call, analyst Matthew Breese of Stephens Research wondered if the company's expectations around net interest income suggest "at some point this year … a material snapback in the overall quarterly cadence" of net interest income. In response, CFO Glenn MacInnes said there are a few factors that give the company confidence in achieving its target.
Year-over-year loan growth is
"Obviously, we're trying desperately not to overpromise and underdeliver," Ciulla added. "If dynamics continue to change … obviously we'll mix up the guidance, but it's our best view right now, quite frankly."
During the quarter, Webster completed its acquisition of Ametros. Announced in December,
