Earnings of Webster Financial Corporation (WBS) are likely to plummet this year because the company’s net interest margin is highly sensitive to interest rates. WBS has a high proportion of floating-rate loans in total loans, which will make the average yield plunge this year following the recent federal funds rate cuts. At the same time, non-interest-bearing deposits constitute a large portion of total deposits, which results in a low deposit beta.
Consequently, the average yield will likely fall more than average funding cost this year, leading to a sharp decline in margin. I’m