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Webster Financial Corp.
(NASDAQ: WBST),
Webster Plaza, Waterbury 06702 (203-753-2921, http://www.websterbank.com)
Chairman, president and CEO:
James C. Smith
Market capitalization: $800 million
Net income before acquisition charges (3rd quarter 1997):
$14.7 million
Net income after acquisition charges (3rd quarter 1997):
$9.7 million
Employees: 969
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Business New Haven
1/26/1998
By: BNH
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Webster Financial Corporation, the parent of Webster Bank, has been acting more like a high-tech growth stock than the second-largest Connecticut-based bank. Webster more than doubled its share price in the last year before retreating slightly in the wake of October's market turmoil. Despite this setback, Webster has placed itself on a path to expansion.
The acquisition of other regional banks has been a key path to growth for Webster. Most recently, in 1996 Webster acquired 20 bank branches spun off when Shawmut Bank merged with Fleet. Webster also bought out DS Bancor, parent company of the $1.2 billion Derby Savings Bank, in early 1997. Last October Webster agreed to purchase Eagle Financial Corp. in a stock swap worth more than $360 million.
Before these most recent acquisitions, Webster made purchases of other regional banks totalling $2.2 billion in assets.
Compared to its aggressive program of growth through acquisition, Webster's loan portfolio is relatively conservative, with more than three-quarters of its $3.7 billion of outstanding loans being home mortgages. Only half the remainder, or 12 percent of all loans, is in commercial lending. That is probably for the best: Of Webster's $49 million in bad (non-accrual) loans, a much-higher proportion (one-third) went to commercial borrowers.
Webster's exposure to American consumers' mounting burden of credit-card debt is similarly limited. Though credit extended through cards has doubled from $14.9 million at the end of 1996 to $29.5 million through nine months of 1997, that still only amounts to less than one percent of all loans.
Owning bank stocks in today's market can be a play for gains in two ways. First, one can buy a bank stock for the same reasons as any other: buy at a reasonable price and wait for sales and profits to rise. Webster has shown an ability to grow itself through acquisition, and has steadily increased dividends over the last few years. Profits have been less regular in their growth, and acquisition expenses have made trends hard to spot, but net income has still climbed substantially from $18.3 million in 1995 to $25.6 million in 1996.
Profits over the first nine months of 1997, excluding one-time charges, totaled $39 million, up 26 percent from the previous year.
This is an age of consolidation in the financial services market. The other way to make money on a bank stock is therefore to buy in hopes that a larger institution will see the value in a smaller one and gobble it up. The market seems to have rationally priced Webster, however, making it less of a bargain than some other bank stocks. Currently priced at 28 times earnings and 2.2 times book value, it would seem there are cheaper takeover targets.
Banks have been bought at more extravagant prices, but the safer course is to judge Webster on its considerable merits, not in hopes of imminent takeover.
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