Webster Reports Increased 2012 Third Quarter Earnings Net Income Grows by 9 Percent over Second Quarter

WATERBURY, Conn., Oct. 12, 2012 /PRNewswire/ -- Webster Financial Corporation (NYSE: WBS), the holding company for Webster Bank, N.A., today announced net income available to common shareholders of $44.4 million, or $.48 per diluted share, for the quarter ended September 30, 2012 compared to $40.6 million, or $.44 per diluted share, for the quarter ended June 30, 2012 and $41.4 million, or $.45 per diluted share, for the quarter ended September 30, 2011. 

Highlights for the quarter or at September 30 include:

Combined growth in commercial and commercial real estate loans of $229.3 million or 4.1 percent from June 30, and $649.2 million or 12.7 percent from a year ago.

Deposit growth of $439.5 million or 3.1 percent linked quarter and $827.5 million or 6.1 percent over prior year. Transaction account deposits now represent an all time high of 39.3 percent of total deposits.

Continued improvement in asset quality as evidenced by a 3.5 percent reduction in nonperforming assets and an 11.9 percent decline in commercial classified loans, both from June 30, and reductions of 30.2 percent and 38.3 percent from a year ago.

Continued achievement of positive operating leverage of 2.5 percent as core revenue grew by 1.8 percent and core expenses declined by 0.7 percent from the second quarter.

Return on assets, return on equity and return on tangible equity improved to 0.92 percent, 9.18 percent and 12.65 percent, respectively, compared to 0.86 percent, 8.62 percent and 11.99 percent, respectively, in the second quarter

Webster Chairman and Chief Executive Officer James C. Smith said, "Webster's momentum continued to build in the third quarter. Loans and deposits grew, revenues increased while expenses declined, asset quality trends remain favorable and earnings regained pre-recession levels. Our investments in business banking, mortgage banking and other relationship development initiatives are positively influencing operating results."

Net interest income

  • Net interest income was $144.9 million for the quarter compared to $144.4 million in the second quarter.
  • Net interest margin was 3.28 percent compared to 3.32 percent in the second quarter as the yield on interest-earning assets declined 12 basis points, primarily on securities, and the cost of funds declined 9 basis points.  
  • Average interest-earning assets grew by 1.4 percent from the second quarter and totaled $18.1 billion compared to $17.8 billion in the second quarter. 
  • Average loans grew by $187.6 million or 1.6 percent from the second quarter.

Webster President and Chief Operating Officer Jerry Plush noted, "A double-digit increase in commercial and commercial real estate loans over the past year and growth in lower-cost transaction deposits have contributed to improving operating results. We achieved positive operating leverage again and continued improvement in our efficiency ratio from 63.7 percent in the second quarter to 62.3 percent as a result of increased revenue and disciplined expense management."

Provision for loan losses

  • The Company recorded a provision of $5.0 million in the quarter, the same as in the second quarter and in the year ago period.
  • Net charge-offs were $17.7 million in the quarter compared to $16.5 million for the second quarter and $28.9 million a year ago.
  • The allowance for loan losses represented 114 percent of nonperforming loans compared to 117 percent in the prior quarter.

Noninterest income

  • Total noninterest income increased $1.1 million compared to the second quarter. Included in noninterest income is $0.8 million of securities gains in the third quarter and $2.5 million in the second quarter.
  • The $2.9 million increase in core noninterest income compared to the second quarter reflects an increase of $2.9 million in mortgage banking activities attributable to favorable spreads on loans originated for sale. Deposit service fees increased by $1.0 million. Loan fees increased by $0.5 million.
  • Other income decreased $1.6 million primarily from $0.5 million of direct investment write-downs compared to $0.5 million of direct investment income in the second quarter.

Noninterest expense

  • Total noninterest expense decreased $3.3 million compared to the second quarter. Included in noninterest expense are net one time costs of $0.6 million in the third quarter and $3.2 million in the second quarter.
  • Total noninterest expense excluding one time costs decreased $0.6 million from the second quarter and increased $3.6 million from a year ago. The decrease compared to the second quarter is driven by a combined reduction of $2.6 million in technology, marketing, professional services and loan workout expenses offset by an increase of $2.5 million in compensation and benefits expense. The increase in compensation and benefits is primarily the result of compensation tied to stock valuation, including increases of $0.6 million in cash award plan expense and $0.5 million in deferred compensation. The cash award plan vests during the fourth quarter, which will eliminate expense volatility from this plan in future quarters. Gains on foreclosed and repossessed assets were $0.4 million in the third quarter and $0.7 million in the second quarter.

Income taxes

  • The Company recorded $19.5 million of income tax expense in the quarter on the $64.5 million of pre-tax income applicable to continuing operations in the period. The effective tax rate for the quarter was 30.2 percent, compared to 30.7 percent for the second quarter, and reflects a net tax benefit of $0.3 million that was specific to the period.

Investment securities

  • Total investment securities were $6.3 billion at September 30, 2012 and $6.2 billion at June 30, 2012. The carrying value of the available for sale portfolio included $68.9 million in net unrealized gains compared to net unrealized gains of $46.7 million at June 30, while the carrying value of the held to maturity portfolio does not reflect $179.2 million in net unrealized gains compared to net unrealized gains of $158.4 million at June 30.

Loans

  • Total loans were $11.7 billion at September 30, 2012 compared to $11.5 billion at June 30, 2012 and are reflective of continued growth in commercial and commercial real estate loans. In the quarter, commercial and commercial real estate loans increased by $152.8 million and $76.5 million, respectively. Residential mortgage and consumer loans decreased by $7.7 million and $34.0 million, respectively.
  • Loan originations for portfolio in the third quarter were $835.6 million compared to $973.0 million in the second quarter and $716.2 million a year ago. In addition to loan originations for portfolio, $207.7 million of residential loans were originated and sold with servicing retained in the quarter compared to $198.3 million in the second quarter and $69.5 million a year ago.

Asset quality

  • Total nonperforming loans declined to $162.6 million, or 1.39 percent of total loans, at September 30, 2012 compared to $169.2 million, or 1.47 percent, at June 30, 2012. Included in nonperforming loans were paying loans totaling $16.8 million at September 30 compared to $17.0 million at June 30. Also included in nonperforming loans are $4.6 million in consumer liquidating loans compared to $4.5 million at June 30.
  • Past due loans increased to $67.4 million at September 30 compared to $65.9 million at June 30 attributable to one commercial real estate loan that is no longer past due subsequent to the end of the third quarter. Past due loans represented 0.57 percent of total loans at both September 30 and June 30. Past due loans for the continuing portfolios were $62.5 million at September 30 compared to $61.5 million at June 30. Past due loans for the liquidating portfolio were $4.9 million at September 30 compared to $4.4 million at June 30.
  • Other real estate owned (OREO) totaled $4.9 million compared to $4.4 million at June 30.

Deposits and borrowings

  • Total deposits were $14.4 billion at September 30, 2012 compared to $14.0 billion at June 30, 2012. Increases of $175.2 million in demand, $20.1 million in interest-bearing checking and $406.6 million in money market deposits were offset by declines of $74.3 million in savings and $88.2 million in certificates of deposit. Core to total deposits and loans to deposits were 81.8 percent and 81.4 percent, respectively, compared to 80.6 percent and 82.6 percent at June 30.
  • Total borrowings were $3.1 billion at September 30 compared to $3.2 billion at June 30.

Capital

  • The tangible common equity and Tier 1 common equity to risk-weighted assets ratios were 7.39 percent and 11.09 percent, respectively, at September 30, 2012 compared to 7.22 percent and 10.97 percent, respectively, at June 30, 2012.
  • Book value and tangible book value per common share were $22.24 and $16.13, respectively, at September 30 compared to $21.65 and $15.53, respectively, at June 30.
  • Return on average shareholders' equity and return on average tangible equity were 9.18 percent and 12.65 percent, respectively, at September 30 compared to 8.62 percent and 11.99 percent, respectively, at June 30.

Webster Financial Corporation is the holding company for Webster Bank, National Association. With $20 billion in assets, Webster provides business and consumer banking, mortgage, financial planning, trust and investment services through 167 banking offices, 466 ATMs, 293 of which are owned by Webster and 173 of which are branded, telephone banking, mobile banking, and the Internet. Webster Bank owns the asset based lending firm Webster Business Credit Corporation; the equipment finance firm Webster Capital Finance Corporation; and provides health savings account trustee and administrative services through HSA Bank, a division of Webster Bank. Member FDIC and equal housing lender. For more information about Webster, including past press releases and the latest annual report, visit the Webster website at www.websterbank.com.

Conference Call

A conference call covering Webster's third quarter earnings announcement will be held today, Friday, October 12, at 9:00 a.m. (Eastern) and may be heard through Webster's Investor Relations website at www.wbst.com, or in listen-only mode by calling 1-877-407-8289 or 201-689-8341 internationally. The call will be archived on the website and available for future retrieval.

Forward-Looking Statements

This release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act"). Forward-looking statements can be identified by words such as "believes," "anticipates," "expects," "intends," "targeted," "continue," "remain," "will," "should," "may," "plans," "estimates," and similar references to future periods; however, such words are not the exclusive means of identifying such statements.  Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, expenses, income or loss, earnings or loss per share, and other financial items; (ii) statements of plans, objectives, and expectations of Webster or its management or Board of Directors; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Forward-looking statements are based on Webster's current expectations and assumptions regarding its business, the economy, and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. Webster's actual results may differ materially from those contemplated by the forward-looking statements, which are neither statements of historical fact nor guarantees or assurances of future performance. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to: (1) local, regional, national, and international economic conditions and the impact they may have on us and our customers and our assessment of that impact; (2) volatility and disruption in national and international financial markets; (3) government intervention in the U.S. financial system; (4) changes in the level of non-performing assets and charge-offs; (5) changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements; (6) adverse conditions in the securities markets that lead to impairment in the value of securities in our investment portfolio; (7) inflation, interest rate, securities market, and monetary fluctuations; (8) the timely development and acceptance of new products and services and perceived overall value of these products and services by customers; (9) changes in consumer spending, borrowings, and savings habits; (10) technological changes; (11) the ability to increase market share and control expenses; (12) changes in the competitive environment among banks, financial holding companies, and other financial service providers; (13) the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities, and insurance) with which we and our subsidiaries must comply, including those under the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Basel III update to the Basel Accords that is under development; (14) the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board, and other accounting standard setters; (15) the costs and effects of legal and regulatory developments including the resolution of legal proceedings or regulatory or other governmental inquiries and the results of regulatory examinations or reviews; and (16) our success at managing the risks involved in the foregoing items and (17) the other factors that are described in the Company's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q under the heading "Risk Factors."  Any forward-looking statement made by the Company in this release speaks only as of the date on which it is made. Factors or events that could cause the Company's actual results to differ may emerge from time to time, and it is not possible for the Company to predict all of them. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

Non-GAAP Financial Measures

In addition to results presented in accordance with GAAP, this press release contains certain non-GAAP financial measures. A reconciliation of net income and other performance ratios, as adjusted, is included in the accompanying selected financial highlights table.

We believe that providing certain non-GAAP financial measures provides investors with information useful in understanding our financial performance, our performance trends and financial position. Specifically, we provide measures based on what we believe are our operating earnings on a consistent basis and exclude non-core operating items which affect the GAAP reporting of results of operations. We utilize these measures for internal planning and forecasting purposes. We, as well as securities analysts, investors, and other interested parties, also use these measures to compare peer company operating performance. We believe that our presentation and discussion, together with the accompanying reconciliations, provides a complete understanding of factors and trends affecting our business and allows investors to view performance in a manner similar to management. These non-GAAP measures should not be considered a substitute for GAAP basis measures and results, and we strongly encourage investors to review our consolidated financial statements in their entirety and not to rely on any single financial measure. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names.

 

WEBSTER FINANCIAL CORPORATION

Selected Financial Highlights (unaudited)










At or for the Three Months Ended






Sept. 30,

June 30,

March 31,

Dec. 31,


Sept. 30,


(In thousands, except per share data)

2012

2012

2012

2011


2011


Income and performance ratios, (annualized):















Income attributable to Webster Financial Corp.

$        44,993


$        41,240


$        38,938


$       40,384


$       42,231


Net income available to common shareholders

44,378


40,625


38,323


39,591


41,400


Net income per diluted common share 

0.48


0.44


0.42


0.43


0.45


Return on average shareholders' equity

9.18

%

8.62

%

8.30

%

8.67

%

9.14

%

Return on average tangible equity

12.65


11.99


11.65


12.21


12.92


Return on average assets

0.92


0.86


0.82


0.88


0.94


Noninterest income as a percentage of total revenue

25.07


24.70


23.48


23.05


23.98


Efficiency ratio


62.25


63.75


65.63


65.83


62.22
















Asset quality:

























Allowance for loan losses

$   186,089


$   198,757


$   210,288


$   233,487


$   257,352


Nonperforming assets

167,524


173,621


184,218


193,047


239,945


Allowance for loan losses / total loans

1.59

%

1.72

%

1.86

%

2.08

%

2.33

%

Net charge-offs / average loans (annualized)

0.61


0.58


0.96


0.95


1.05


Nonperforming loans / total loans

1.39


1.47


1.58


1.68


2.00


Nonperforming assets / total loans plus OREO

1.43


1.50


1.63


1.72


2.17


Allowance for loan losses / nonperforming loans

114.44


117.44


117.96


124.14


116.43
















Other ratios (annualized):

























Tangible equity ratio

7.54

%

7.38

%

7.29

%

7.18

%

7.32

%

Tangible common equity ratio

7.39


7.22


7.14


7.03


7.16


Tier 1 risk-based capital ratio(b)

11.89


12.82


12.86


13.05


13.04


Total risk-based capital(b)

13.15


14.08


14.12


14.61


14.60


Tier 1 common equity / risk-weighted assets(b)

11.09


10.97


10.96


11.08


11.01


Shareholders' equity / total assets

10.05


9.94


9.90


9.86


10.08


Interest rate spread

3.26


3.29


3.33


3.36


3.45


Net interest margin

3.28


3.32


3.36


3.39


3.49
















Share and equity related:

























Common equity

$ 1,954,739


$  1,902,609


$ 1,866,003


$ 1,816,835


$ 1,807,330


Book value per common share

22.24


21.65


21.24


20.74


20.65


Tangible book value per common share

16.13


15.53


15.10


14.57


14.47


Common stock closing price

23.70


21.66


22.67


20.39


15.30


Dividends declared per common share 

0.10


0.10


0.05


0.05


0.05
















Common shares outstanding

87,899


87,885


87,849


87,600


87,507


Basic shares (weighted average)

87,394


87,291


87,216


87,097


87,046


Diluted shares ( weighted average)

91,884


91,543


91,782


90,929


91,205






























Footnotes:

(a)

For purposes of the yield computation, unrealized gains (losses) on securities available for sale are excluded from the average balance.

(b)

The ratios presented are projected for September 30, 2012 and actual for the remaining periods presented.

(c)

Certain previously reported information has been corrected to reflect the deferment of certain commercial loan fees.

 

 

WEBSTER FINANCIAL CORPORATION



Consolidated Balance Sheets  (unaudited)






September 30,


June 30,


September 30,

(In thousands)

2012


2012


2011










Assets:















Cash and due from banks

$        164,556


$        197,229


$        168,776


Interest-bearing deposits

79,763


73,598


87,240










Investment securities:







  Available for sale, at fair value

3,120,354


3,153,580


2,500,151


  Held to maturity

3,142,160


3,076,226


3,106,013



Total securities

6,262,514


6,229,806


5,606,164










Loans held for sale

91,207


89,228


28,266










Loans:







  Commercial

3,138,807


2,985,993


2,841,242


  Commercial real estate

2,627,893


2,551,427


2,276,295


  Residential mortgages

3,292,948


3,300,617


3,150,286


  Consumer

2,668,004


2,701,960


2,782,263



Total loans

11,727,652


11,539,997


11,050,086


Allowance for loan losses

(186,089)


(198,757)


(257,352)



Loans, net

11,541,563


11,341,240


10,792,734










Prepaid FDIC premiums

21,673


27,062


42,424


Federal Home Loan Bank and Federal Reserve Bank stock

142,595


142,595


143,874


Premises and equipment, net

135,394


137,420


148,274


Goodwill and other intangible assets, net

541,399


542,783


546,974


Cash surrender value of life insurance policies

414,797


312,117


305,901


Deferred tax asset, net

74,098


79,011


98,588


Accrued interest receivable and other assets

260,103


257,660


254,796










Total Assets

$ 19,729,662


$    19,429,749


$    18,224,011










Liabilities and Equity:















Deposits:







  Demand

$     2,786,525


$     2,611,297


$     2,292,673


  Interest-bearing checking

2,883,216


2,863,076


2,440,464


  Money market

2,340,717


1,934,137


2,225,841


  Savings

3,776,280


3,850,549


3,689,377


  Certificates of deposit

2,507,647


2,595,816


2,818,527


  Brokered certificates of deposit

119,052


119,052


119,052



 Total deposits

14,413,437


13,973,927


13,585,934










Securities sold under agreements to repurchase and other short-term borrowings

 

1,310,015


1,203,378


1,220,905



Federal Home Loan Bank advances

1,452,660


1,529,102


760,964


Long-term debt

335,678


472,928


554,478


Accrued expenses and other liabilities

234,194


318,866


255,884



Total liabilities

17,745,984


17,498,201


16,378,165










Webster Financial Corporation shareholders' equity

1,983,678


1,931,548


1,836,269


Noncontrolling interests

-


-


9,577



Total equity

1,983,678


1,931,548


1,845,846


















Total Liabilities and Equity

$ 19,729,662


$    19,429,749


$    18,224,011










See Selected Financial Highlights for footnotes.