Webster Reports 2010 Fourth Quarter Profit

WATERBURY, Conn., Jan. 14, 2011 /PRNewswire/ -- Webster Financial Corporation (NYSE: WBS), the holding company for Webster Bank, N.A., today announced consolidated net income of $32.6 million for the quarter ended December 31, 2010. Net income available to common shareholders after $7.6 million of preferred dividends was $25.0 million, or $.30 per diluted share, for the quarter ended December 31, 2010.  

Key points for the quarter:

Net loan growth of $116 million, with total originations of $979 million compared to $644 million for the third quarter.

Improved net interest margin of 3.40 percent compared to 3.36 percent for the third quarter.

Continued improvement in asset quality as indicated by a reduced level of non-performing and past due loans, which improved by 12.1 percent and 12.4 percent, respectively, compared to the third quarter.

Reduced levels of provision for loan losses of $15.0 million compared to $25.0 million for the third quarter; improved coverage ratio of allowance to non-performing loans of 117.6 percent compared to 109.4 percent at September 30, 2010.

Repurchase of the remaining $300 million of preferred stock that was issued to the U.S. Department of the Treasury under its Capital Purchase Program ($100 million in October and $200 million in December.)

Webster Chairman and Chief Executive Officer James C. Smith said, "We are pleased to report that credit metrics, profitability and other key performance metrics showed meaningful improvement in the fourth quarter. The growth in loans in the quarter, most particularly middle market and commercial real estate originations, is a positive sign of quality financing opportunities in our core lines of business, and reflects a gradually improving regional economy. Our recent successful capital raise and repayment of the U.S. Treasury's investment in Webster underscores Webster's capital strength and positions us well for future growth."

Net interest income

• The net interest margin increased by 4 basis points to 3.40 percent in the quarter, reflecting a 10 basis point decline in the cost of funds partially offset by a 4 basis point decline in the yield on interest-earning assets.

• Average interest-earning assets for the quarter totaled $16.4 billion, down from $16.5 billion last quarter.

Provision for loan losses

• $12.5 million of the $15.0 million provision for loan losses recorded in the quarter was related to the Company's continuing portfolios, and $2.5 million was related to the liquidating portfolio. In the third quarter, $22.4 million of the $25.0 million provision for loan losses recorded in the quarter was related to the Company's continuing portfolios, and $2.6 million was related to the liquidating portfolio.

• Net charge-offs were $33.7 million in the quarter compared to $28.7 million for the quarter ended September 30, 2010; $27.4 million was related to the continuing portfolios compared to $23.0 million for the previous quarter and $6.3 million was related to the liquidating portfolio compared to $5.7 million for the previous quarter.

“There was continued improvement in key asset quality indicators in the quarter,” noted Webster Vice Chairman and Chief Operating Officer Jerry Plush. "As a result, we recorded net charge-offs in excess of provision for loan losses given the adequacy of allowance for loan losses and also have improved coverage of the allowance to non-performing loans at quarter end."

Non-interest income

• Total non-interest income was comparable to the third quarter. Included in non-interest income for the fourth quarter was the impact of $1.8 million in reduced deposit service fees from the adoption of Regulation E compared to the third quarter. Fourth quarter results also include higher loan related fees of $0.4 million, higher wealth management fees of $0.4 million and increased income from mortgage banking activities of $0.6 million compared to the third quarter. In addition, there was a $2.3 million positive fair value adjustment on common stock classified as trading compared to $1.2 million in the third quarter while the third quarter also included a $1.0 million credit related other-than-temporary impairment loss on the write-down of investments to fair value.

Non-interest expenses

• Non-interest expenses decreased $1.8 million from the third quarter. Included in non-interest expense in the fourth quarter was the recovery of $5.2 million in insurance proceeds, offset by $4.3 million of branch and facilities optimization and $0.6 million in severance and other costs, while the third quarter included a $2.8 million expense related to the previously announced settlement of a class action lawsuit related to the assessment and collection of overdraft fees on customer checking accounts and $0.3 million of severance expenses. Compensation expenses rose by $3.9 million compared to the third quarter, primarily relating to $1.1 million from higher group insurance claims experience, $1.1 million in deferred compensation and stock related expense, and to a lesser extent, $0.5 million from increased incentives and $0.5 million from recent hiring initiatives. Also included in non-interest expenses in the fourth quarter were foreclosed and repossessed asset write-downs of $0.1 million compared to $2.2 million for the third quarter. Loan workout expenses were also lower in the fourth quarter by $1.3 million.

Income taxes

• The Company recorded $8.0 million of income tax expense in the quarter on the $40.4 million of pre-tax income applicable to continuing operations in the period. The effective tax rate for the quarter was 20 percent.

Investment securities

• Total investment securities were $5.5 billion at December 31, 2010 compared to $5.4 billion at September 30, 2010. The carrying value of the available for sale portfolio included $30 million in net unrealized gains compared to net unrealized gains of $36 million at September 30, while the carrying value of the held to maturity portfolio does not reflect $69 million in net unrealized gains compared to net unrealized gains of $136 million at September 30.

Loans

• Total loans were $11.0 billion at December 31, 2010 compared to $10.9 billion at September 30, 2010. Originations for the fourth quarter consisted of $373.5 million in residential, $331.9 million in commercial non-mortgage, $68.3 million in consumer, $42.0 million in equipment finance, $6.6 million in asset-based lending, and $157.2 million in commercial real estate. In the quarter, commercial loans increased by $2.6 million, commercial real estate increased by $90.3 million and residential mortgage loans increased by $52.4 million, while consumer loans declined by $28.7 million. The increase in commercial loans reflects an increase of $92.0 million in middle market loans, offset by reductions in equipment finance and asset based loans of $48.5 million and $40.9 million, respectively.

Asset quality

• Total non-performing loans were $273.6 million or 2.48 percent of total loans at December 31, 2010 compared to $311.1 million or 2.85 percent at September 30, 2010. The decrease in non-performing loans reflects a combined decrease of $41.3 million in nonaccrual loans in all loan categories except performing nonaccrual residential mortgages and consumer loans, which increased by a combined amount of $3.8 million. Paying non-performing loans totaled $95.8 million at December 31 compared to $111.0 million at September 30.

• Past due loans for the continuing portfolios decreased to $67.4 million at December 31 compared to $75.8 million at September 30.  Past due loans for the liquidating portfolio were $6.1 million at December 31 compared to $8.1 million at September 30.

Deposits and borrowings

• Total deposits were $13.6 billion at both December 31, 2010 and September 30, 2010.  Increases of $376.1 million in non-interest bearing deposits and $82.8 million in savings accounts were offset by declines of $155.4 million, $150.2 million, and $153.1 million in NOW accounts, money market deposit accounts and certificates of deposits, respectively. Non-interest bearing deposits to total deposits increased to 16 percent of total deposits at December 31 compared to 14 percent at September 30.

• Total borrowings were $2.4 billion at December 31 compared to $2.1 billion at September 30. Borrowings represented 14 percent of total assets at December 31 compared to 12 percent at September 30.

Capital

The tangible common equity and Tier 1 common equity to risk weighted assets ratios increased to 6.82 percent and 9.87 percent, respectively, compared to 5.91 percent and 8.19 percent at September 30, 2010.

Webster Financial Corporation is the holding company for Webster Bank, National Association. With $18.0 billion in assets, Webster provides business and consumer banking, mortgage, financial planning, trust and investment services through 181 banking offices, 497 ATMs, telephone banking and the Internet. Webster Bank owns the asset-based lending firm Webster Business Credit Corporation; the equipment finance firm Webster Capital Finance; 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 fourth quarter earnings announcement will be held today, Friday, January 14, at 9:00 a.m. EST 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 recently enacted 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.