Webster Reports Strong 2012 Second Quarter Earnings Net Income Grows by 22 Percent over Prior Year

WATERBURY, Conn., July 13, 2012 /PRNewswire/ -- Webster Financial Corporation (NYSE: WBS), the holding company for Webster Bank, N.A., today announced net income available to common shareholders of $40.6 million, or $.44 per diluted share, for the quarter ended June 30, 2012 compared to $38.3 million, or $.42 per diluted share, for the quarter ended March 31, 2012 and $33.4 million, or $.36 per diluted share, for the quarter ended June 30, 2011. 

Highlights for the quarter or at June 30 include:

Combined growth in commercial and commercial real estate loans of $222.6 million or 4.2 percent from March 31, and $467.2 million or 9.2 percent from a year ago.

Growth of $176.0 million or 3.3 percent in transaction account deposits from March 31 and $673.5 million or 14.0 percent from a year ago, which represent 39.2 percent of total deposits compared to 38.0 percent at March 31 and 35.0 percent a year ago.

Net interest income increased $1.0 million compared to the first quarter and $3.5 million from a year ago; net interest margin was 3.32 percent compared to 3.36 percent in the first quarter and 3.48 percent a year ago.

Core noninterest income increased $0.8 million in the quarter and $0.3 million from a year ago reflecting expanded revenues from corporate finance products in franchise activities.

Noninterest expense before one time costs of $123.9 million compared to $126.6 million in the first quarter and $126.0 million a year ago; continued achievement of positive operating leverage as core revenue grew 1.0 percent and core expenses declined 1.9 percent from the first quarter.

Continued improvement in asset quality as evidenced by a 5.8 percent reduction in nonperforming assets and a 12.0 percent decline in commercial classified loans, both from March 31, and reductions of 30.6 percent and 36.2 percent from a year ago.

Provision for loan losses of $5.0 million compared to $4.0 million in the first quarter and $5.0 million a year ago, reflective of continued portfolio growth and asset quality improvement.

Webster Chairman and Chief Executive Officer James C. Smith said, "Webster turned in a solid second quarter by most any measure. Loan growth, asset quality, operating efficiency, and earnings all showed meaningful improvement as the southern New England economy continues to recover."

Net interest income

  • Net interest income was $144.4 million for the quarter compared to $143.4 million in the first quarter.
  • Net interest margin was 3.32 percent compared to 3.36 percent in the first quarter as the yield on interest-earning assets declined 6 basis points, primarily on securities, and the cost of funds declined 2 basis points.  
  • Average interest-earning assets grew by 1.8 percent from the first quarter and totaled $17.8 billion compared to $17.5 billion in the first quarter. 

Webster President and Chief Operating Officer Jerry Plush noted, "Loan originations were 69 percent higher than a year ago and totaled over $1 billion in the quarter. We ended the quarter with strong loan pipelines, which should bode well for the balance of the year. Our emphasis on growing transaction accounts continues to pay off as demand and interest-bearing checking deposits now represent almost 40 percent of total deposits. The growth in our loan portfolio, coupled with an increase in lower cost transaction deposits, enabled us to grow net interest income in a challenging interest rate environment."

Provision for loan losses

  • The Company recorded a provision of $5.0 million in the quarter compared to $4.0 million in the first quarter and $5.0 million a year ago.
  • Net charge-offs were $16.5 million in the quarter compared to $27.2 million for the first quarter and $21.7 million a year ago.
  • The allowance for loan losses represented 117 percent of nonperforming loans compared to 118 percent in the prior quarter.

Noninterest income

  • Total noninterest income increased $3.4 million compared to the first quarter. Included in noninterest income in the second quarter is $2.5 million of securities gains.
  • The $0.8 million increase in core noninterest income compared to the first quarter reflects an increase of $1.0 million in corporate finance products revenue included in other income. Direct investment income was $1.3 million higher as the first quarter included write-downs of $0.8 million. Deposit service fees increased $0.4 million compared to the first quarter while loan fees and mortgage banking decreased $1.3 million and $0.8 million, respectively. The lower loan fees were due in part to fewer prepayment penalties and a mortgage servicing right impairment of $0.3 million in the quarter.

Noninterest expense

  • Total noninterest expense decreased $0.6 million compared to the first quarter. Included in noninterest expense are net one time costs of $3.2 million in the second quarter and $1.2 million in the first quarter. Included in net one time costs in the second quarter is $2.5 million in debt prepayment expense in connection with the prepayment of $49.0 million in FHLB advances.
  • Total noninterest expense excluding one time costs decreased $2.7 million from the first quarter and $2.0 million from a year ago. The decrease compared to the first quarter is driven by a reduction of $5.0 million in compensation and benefits offset by an increase of $1.0 million in marketing and additional expense in technology. Gains on foreclosed and repossessed assets were $0.7 million in both the second and the first quarters.

Income taxes

  • The Company recorded $18.3 million of income tax expense in the quarter on the $59.6 million of pre-tax income applicable to continuing operations in the period. The effective tax rate for the quarter was 30.7 percent compared to 29.9 percent for the first quarter, which included $0.5 million of tax benefits specific to that period.

Investment securities

  • Total investment securities were $6.2 billion at both June 30, 2012 and March 31, 2012. The carrying value of the available for sale portfolio included $46.7 million in net unrealized gains compared to net unrealized gains of $43.4 million at March 31, while the carrying value of the held to maturity portfolio does not reflect $158.4 million in net unrealized gains compared to net unrealized gains of $154.9 million at March 31.

Loans

  • Total loans were $11.5 billion at June 30, 2012 compared to $11.3 billion at March 31, 2012 and are reflective of continued growth in commercial, commercial real estate and residential mortgages. In the quarter, commercial and commercial real estate loans increased by $97.0 million and $125.6 million, respectively. Residential mortgage loans increased by $30.4 million while consumer loans declined by $25.2 million.
  • Loan originations for portfolio in the second quarter were $973.0 million compared to $790.8 million in the first quarter and $643.3 million a year ago. Originations for the second quarter consisted of $393.0 million in commercial, $261.0 million in commercial real estate, $162.0 million in residential and $157.0 million in consumer.
  • In addition to loan originations for portfolio, $198.3 million of residential loans were originated and sold with servicing retained in the quarter compared to $131.4 million in the first quarter and $47.1 million a year ago.

Asset quality

  • Total nonperforming loans declined to $169.2 million, or 1.47 percent of total loans, at June 30, 2012 compared to $178.3 million, or 1.58 percent, at March 31, 2012. Included in nonperforming loans were paying loans totaling $17.0 million at June 30 compared to $18.1 million at March 31. Also included in nonperforming loans are $4.5 million in consumer liquidating loans compared to $3.9 million at March 31.
  • Past due loans increased to $65.9 million at June 30 compared to $60.0 million at March 31. Past due loans for the continuing portfolios were $61.5 million at June 30 compared to $54.7 million at March 31. Past due loans for the liquidating portfolio were $4.4 million at June 30 compared to $5.3 million at March 31.
  • Other real estate owned (OREO) totaled $4.4 million compared to $6.0 million at June 30.

Deposits and borrowings

  • Total deposits were $14.0 billion at June 30, 2012 compared to $13.9 billion at March 31, 2012. Increases of $119.9 million in demand, $56.1 million in interest-bearing checking and $15.3 million in savings deposits were offset by declines of $110.9 in money market and $51.0 million in certificates of deposit. Core to total deposits and loans to deposits were 81 percent and 83 percent, respectively, compared to 80 percent and 81 percent at March 31.
  • Total borrowings were $3.2 billion at June 30 compared to $3.1 billion at March 31. Borrowings represented 16 percent of total assets at both June 30 and March 31.

Capital

  • The tangible common equity and Tier 1 common equity to risk-weighted assets ratios were 7.22 percent and 10.95 percent, respectively, at June 30, 2012 compared to 7.14 percent and 10.96 percent, respectively, at March 31, 2012.
  • Book value and tangible book value per common share were $21.65 and $15.53, respectively, at June 30 compared to $21.24 and $15.10, respectively, at March 31.
  • Return on average shareholders' equity and return on average tangible equity were 8.49 percent and 11.81 percent, respectively, at June 30 and 8.17 percent and 11.46 percent, respectively, at March 31.

Webster Financial Corporation is the holding company for Webster Bank, National Association. With $19 billion in assets, Webster provides business and consumer banking, mortgage, financial planning, trust and investment services through 167 banking offices, 464 ATMs, 290 of which are owned by Webster and 174 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 second quarter earnings announcement will be held today, Friday, July 13, 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


June 30,


March 31,


Dec. 31,


Sept. 30,


June 30,


(In thousands, except per share data)

2012


2012


2011


2011


2011













Income and performance ratios, (annualized):






















Net income available to common shareholders

$       40,625


$       38,323


$       39,591


$      41,400


$       33,353


Net income per diluted common share 

0.44


0.42


0.43


0.45


0.36


Return on average shareholders' equity

8.49

%

8.17

%

8.50

%

8.96

%

7.27

%

Return on average tangible equity

11.81


11.46


11.97


12.67


10.31


Return on average assets

0.85


0.81


0.86


0.92


0.74


Noninterest income as a percentage of total revenue

24.70


23.48


23.05


23.98


24.69


Efficiency ratio

63.75


65.63


65.83


62.22


65.02













Asset quality:






















Allowance for loan losses

$      198,757


$      210,288


$      233,487


$     257,352


$     281,243


Nonperforming assets

173,621


184,218


193,047


239,945


250,084


Allowance for loan losses / total loans

1.72

%

1.86

%

2.08

%

2.33

%

2.55

%

Net charge-offs / average loans (annualized)

0.58


0.96


0.95


1.05


0.79


Nonperforming loans / total loans

1.47


1.58


1.68


2.00


2.07


Nonperforming assets / total loans plus OREO

1.50


1.63


1.72


2.17


2.27


Allowance for loan losses / nonperforming loans

117.44


117.96


124.14


116.43


123.22













Other ratios (annualized):






















Tangible equity ratio

7.38

%

7.29

%

7.18

%

7.32

%

7.46

%

Tangible common equity ratio

7.22


7.14


7.03


7.16


7.29


Tier 1 risk-based capital ratio(b)

12.80


12.86


13.05


13.04


12.89


Total risk-based capital(b)

14.06


14.12


14.61


14.60


14.47


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

10.95


10.96


11.08


11.01


10.74


Shareholders' equity / total assets

9.94


9.90


9.86


10.08


10.27


Interest rate spread

3.29


3.33


3.36


3.45


3.44


Net interest margin

3.32


3.36


3.39


3.49


3.48













Share and equity related:






















Common equity

$   1,902,609


$   1,866,003


$   1,816,835


$  1,807,330


$  1,800,215


Book value per common share

21.65


21.24


20.74


20.65


20.57


Tangible book value per common share

15.53


15.10


14.57


14.47


14.38


Common stock closing price

21.66


22.67


20.39


15.30


21.02


Dividends declared per common share 

0.10


0.05


0.05


0.05


0.05













Common shares issued and outstanding

87,885


87,849


87,600


87,507


87,532


Basic shares (average)

87,291


87,216


87,097


87,046


86,986


Diluted shares (average)

91,543


91,782


90,929


91,205


92,184















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 June 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)










June 30,


March 31,


June 30,


(In thousands)

2012


2012


2011(c)












Assets:

















Cash and due from banks

$ 197,229


$ 173,027


$ 196,181



Interest-bearing deposits

73,598


77,921


57,863












Investment securities:









    Available for sale, at fair value

3,153,580


3,144,867


2,143,072




    Held to maturity

3,076,226


3,079,654


3,123,510




Total securities

6,229,806


6,224,521


5,266,582












Loans held for sale

89,228


59,615


21,650












Loans:








    Commercial

2,985,993


2,888,977


2,846,699



    Commercial real estate

2,551,427


2,425,797


2,223,477



    Residential mortgages

3,300,617


3,270,213


3,139,408



    Consumer

2,701,960


2,727,163


2,802,907




Total loans

11,539,997


11,312,150


11,012,491



Allowance for loan losses

(198,757)


(210,288)


(281,243)




Loans, net

11,341,240


11,101,862


10,731,248












Prepaid FDIC premiums

27,062


32,507


46,546



Federal Home Loan Bank and Federal Reserve Bank stock

142,595


142,595


143,874



Premises and equipment, net

137,420


141,088


152,009



Goodwill and other intangible assets, net

542,783


544,180


548,370



Cash surrender value of life insurance policies

312,117


309,556


303,258



Deferred tax asset, net

79,011


81,676


92,127



Accrued interest receivable and other assets

257,660


245,594


243,173












Total Assets

$ 19,429,749


$ 19,134,142


$ 17,802,881












Liabilities and Equity:

















Deposits:








          Demand

$ 2,611,297


$ 2,491,442


$ 2,323,266




Interest-bearing checking

2,863,076


2,806,950


2,477,625



          Money market

1,934,137


2,045,090


2,081,503



          Savings

3,850,549


3,835,180


3,773,417



          Certificates of deposit

2,595,816


2,646,783


2,939,648



          Brokered certificates of deposit

119,052


119,052


121,068




Total deposits

13,973,927


13,944,497


13,716,527












Securities sold under agreements to repurchase and









other short-term borrowings

1,203,378


1,268,589


1,079,866



Federal Home Loan Bank advances

1,529,102


1,352,466


403,131



Long-term debt

472,928


474,318


566,677



Accrued expenses and other liabilities

318,866


199,330


197,949




Total liabilities

17,498,201


17,239,200


15,964,150












Webster Financial Corporation shareholders' equity

1,931,548


1,894,942


1,829,154



Noncontrolling interests

-


-


9,577




Total equity

1,931,548


1,894,942


1,838,731





















Total Liabilities and Equity

$ 19,429,749


$ 19,134,142


$ 17,802,881












See Selected Financial Highlights for footnotes.