Webster Financial Q2 Earnings Miss Estimates, Expenses Rise Y/Y

Results excluded transaction expenses. After considering these, net income applicable to common shareholders (GAAP basis) was $249.4 million, down 0.9% from the prior-year quarter.

WBS’ Q2 Revenues & Expenses Increase Y/Y

Total revenues came in at $740 million, missing the consensus mark of $749.32 million by 1.3%. The metric rose 3.4% year over year.

NII increased 1.9% year over year to $632.7 million. The net interest margin was 3.26%, down 18 basis points.

Non-interest income was $107.2 million, up 13.3% from the year-ago quarter’s reported figure of $94.7 million. The increase was primarily driven by other miscellaneous income and higher loan and lease-related fees.

Non-interest expenses were $385 million, up 11.4% from the year-ago quarter. In the second quarter of 2026, the figure included $8.7 million in transaction expenses. The rise was primarily caused by higher compensation and benefit costs.

The efficiency ratio was 47.74% compared with 45.40% in the prior-year quarter. An increase in the efficiency ratio indicates a decline in profitability.

WBS’ Balance Sheet Expands

Period-end loans and leases grew 1.1% sequentially to $57.9 billion. Commercial loans and leases increased $450.6 million, commercial real estate loans rose $224 million and residential mortgages were relatively stable. Consumer loans declined $54.9 million.

Total deposits increased 1.8% from the prior quarter to $70.3 billion. The rise was primarily driven by brokered certificates of deposit and interest-bearing checking balances, partially offset by lower money market and health savings account deposits.

The loan-to-deposit ratio was 82.3%, up from 80.9% in the year-ago quarter. Total borrowings were $4.5 billion, down 3.2% year over year.

Webster Financial’s Credit Quality: Mixed Bag

Total non-performing assets were $430.2 million as of June 30, 2026, down 19.9% from the year-ago quarter. Allowance for loan losses was 1.25% of total loans, down from 1.35% reported in the second quarter of 2025.

The ratio of net charge-offs to annualized average loans was 0.30%, up from 0.27% in the year-ago period.

The provision for credit losses was $31.5 million, down 32.3% year over year. Past-due loans and leases totaled $117.3 million, up from $54.8 million a year ago, primarily due to commercial real estate loans.

WBS’ Capital Ratios Improve

As of June 30, 2026, the Tier 1 risk-based capital ratio was 12.17%, up from 11.86% as of June 30, 2025. The total risk-based capital ratio was 14.13%, up from the prior-year quarter’s 14.05%.

The common equity Tier 1 ratio was 11.69%, up from 11.35% in the year-ago quarter. The tangible common equity ratio was 7.60% compared with 7.46% a year earlier.

Tangible book value per common share rose to $38.81 from $35.13 in the prior-year quarter.

Webster Financial’s Profitability Ratios Decline

Return on average assets was 1.19%, down from 1.29% in the prior-year quarter. At the end of the second quarter, the return on average common stockholders’ equity was 10.73%, down from 11.31% in the prior-year quarter.

Return on average tangible common stockholders’ equity was 16.67%, down from 17.96% a year ago.

WBS’ Santander Deal Progresses

Webster Financial’s proposed acquisition by Banco Santander received approval from WBS’ stockholders, the Office of the Comptroller of the Currency and the European Central Bank. The transaction remains subject to customary closing conditions, including approval from the Federal Reserve Board, and is expected to close in the second half of 2026.

Under the agreement, Webster Financial’s shareholders will receive $48.75 in cash and 2.0548 Banco Santander ordinary shares, delivered as American Depository Receipts, for each WBS share. In light of the proposed transaction, Webster Financial will no longer provide a forward-looking financial outlook.

Our Take on Webster Financial

Webster Financial’s second-quarter results reflected continued balance-sheet growth, higher NII and solid growth in non-interest income. Lower provision expenses and a substantial decline in non-performing assets were positives.

However, higher operating expenses, margin compression and an increase in past-due loans remain areas to monitor. Further, the modest earnings and revenue misses may dampen investor sentiment. With the Santander transaction advancing through the regulatory process, deal completion remains the key near-term focus for WBS.

Webster Financial currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Bank Stocks

WaFd Inc.’s WAFD third-quarter fiscal 2026 (ended June 30) adjusted earnings of 81 cents per share lagged the Zacks Consensus Estimate by a penny. However, the bottom line jumped 11% year over year.

WAFD’s results were hurt by a substantial rise in provisions and higher expenses. Further, lower loan and deposit balances acted as a spoilsport. These were partially offset by higher net interest income and non-interest income. 

Citizens Financial Group CFG reported second-quarter 2026 earnings per share of $1.30, which surpassed the Zacks Consensus Estimate of $1.25. The metric rose 41% from the year-ago quarter.

CFG’s results benefited from a rise in net interest income (NII) and non-interest income. Growth in loan and deposit balances and an improvement in credit quality were also encouraging. However, a rise in expenses and a weaker capital position were major headwinds.

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