As earnings season gets underway in the next few weeks, there are early indications that at least one Connecticut bank will be unveiling strong third quarter numbers.
Raymond James bank analyst Anthony Polini recently upgraded the stock of Waterbury-based Webster Financial from “outperform” to “strong buy” indicating that the regional lender is likely to report better than expected results in the third quarter.
In fact, according to a research note recently published by Polini, the analyst said he expects Webster’s third quarter earnings per share to reach 47 cents, compared to Wall Street estimates of 45 cents per share.
Polini also raised his 2012 and 2013 earnings per share outlook for Webster Bank by 10 cents and 12 cents respectively, to $1.80 and $1.92 cents.
Polini said the favorable outlook is a result of several factors including expected gains Webster is making from higher noninterest income and lower expenses. He said he also expects Webster to continue to expand its loan portfolio, particularly in the commercial and industrial sectors.
Webster’s residential mortgage loan volume, which grew by $278 million in the second quarter, is also expected to continue to rise, Polini said
“The earning asset mix is expected to improve with the lion’s share of the growth in loans,” Polini said.
Webster Financial, which is the parent to Webster Bank, has had an impressive turnaround since the depths of the 2008 financial crisis, which caused credit quality of the lender’s loan portfolio to deteriorate significantly.
Webster eventually took a $400 million bailout from the federal government. But the bank has repaid those funds, with interest, and has been reporting improved earnings for a few years.
The improving economy has helped drive improvements in the bank’s credit quality, but Webster also implemented an aggressive strategy to confront bad loans. That included setting up strong reserves to provide a buffer against deteriorating credit quality and modifying loans for borrowers who were experiencing problems.
In his research note, Polini said Webster’s credit quality is expected to continue to improve. The bank’s net charge-offs will fall to a low rate of 0.64 percent of average loans and nonperforming assets will shrink to 1.33 percent of total loans by year-end 2012, Polini said.
Polini raised his stock price target for Webster to $28 and he said he also expects the bank to hike its dividend 5 cents by the second quarter of 2013.
Webster’s stock price has been trading in the $23 to $24 range recently, well above its 52-week low price of just over $14.
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The number of troubled and problematic banks in Connecticut held steady at the end of the second quarter, a sign that the state’s banking sector remains on stable ground despite rough economic headwinds, according to financial health rankings by BauerFinancial, an independent bank analysis firm based in Florida.
Five out of the 51, or 9.8 percent, of Connecticut-based banks reviewed by BauerFinancial were rated as problematic, and all of those are located in southwest Connecticut. They include Wilton Bank, Community’s Bank in Bridgeport, Connecticut Community Bank in Westport, New Haven’s The Bank of Southern Connecticut, and Start Community Bank in New Haven.
BauerFinancial rates banks on a zero-to-five-star system. Banks with two stars or less are considered troubled or problematic.
Wilton Bank and Community’s Bank had the lowest ratings of zero stars, while the remaining problematic financial institutions had two-star ratings.
Nationally, 10 percent of banks were listed as problematic by BauerFinancial, and nearly 67 percent of lenders earned a four- or five-star rating, the highest rate since March 2008.
Capital levels and profits are both on the rise and delinquent loans are finally on the mend, which is boosting bank’s financial performance, according to BauerFinancial.
All banks in Greater Hartford were given at least satisfactory ratings. Among the best performing banks are Rockville Bank, People’s United Bank, Savings Institute Bank and Trust Co. in Willimantic, and Thomaston Savings Bank. They each got five-star ratings.
On the credit union front, financial performance remained steady. Only 5.5 percent, or seven of 127 Connecticut nonprofit cooperatives, were listed as “troubled” or “problematic” in the second quarter. Those numbers were about the same in the first quarter of this year.
The credit unions on the problematic list include the Greater Norwalk Area Credit Union, New Haven Employees Federal Credit Union, United Shoreline Federal Credit Union, Western Connecticut Federal Credit Union, Connecticut Transit Federal Credit Union, New Haven County Credit Union, and the Workers Federal Credit Union
BauerFinancial bases its ratings on financial institutions capital ratios, income and nonperforming loans.
Greg Bordonaro writes the Financial Sense column every other week. Reach him at gbordonaro@HartfordBusiness.com.
