Webster Reports 2010 Second Quarter Profit

WATERBURY, Conn., July 16 /PRNewswire-FirstCall/ -- Webster Financial Corporation (NYSE: WBS), the holding company for Webster Bank, N.A., today announced consolidated net income of $17.6 million for the quarter ended June 30, 2010. Net income available to common shareholders after $4.9 million of preferred dividends was $12.7 million, or $.15 per diluted share, for the quarter ended June 30, 2010.  

Key points for the quarter:

Core pre-tax, pre-provision earnings were $57.0 million compared to $57.3 million for the first quarter of 2010.

Reduced levels of provision for loan losses and net charge-offs of $32.0 million and $31.8 million, respectively, compared to $43.0 million and $40.3 million in the first quarter.

Non-performing loans declined by 9 percent to $317.3 million compared to $348.8 million at March 31, 2010.

Past due loans declined by 17 percent to $95.4 million compared to $114.9 million at March 31, 2010.  

Stable net interest margin of 3.27 percent compared to 3.28 percent for the first quarter.

Core to total deposit ratio of 74 percent, comparable to the first quarter.

Webster Chairman and Chief Executive Officer James C. Smith said, “Webster’s performance continues to strengthen as credit trends and earnings have improved. Our results signal clearly that the regional economy is slowly recovering. Loan originations increased 46 percent in the quarter and the pipeline is strong as we fulfill our pledge to help finance the economic recovery. Our service quality ratings are on the rise as measured by J.D. Power, and our extended hours in our branches and Customer Care Center have been positively received by our customers.”

Net interest income

• The net interest margin declined by 1 basis point to 3.27 percent in the quarter, reflecting a 4 basis point decline in the cost of funds offset by a 5 basis point decline in the yield on interest-earning assets. The margin also includes a 4 basis point negative impact from accelerated Fannie Mae loan buybacks from mortgage backed securities during the second quarter based on a recently announced policy change. For comparison, the first quarter margin included a 3 basis point negative impact from Freddie Mac buybacks related to a similar policy change.
• Average interest-earning assets totaled $16.6 billion, up from $16.5 billion last quarter.

Provision for loan losses

• $27.5 million of the $32.0 million provision for loan losses recorded in the quarter was related to the Company’s continuing portfolios, and $4.5 million was related to the liquidating portfolio.
• Net charge-offs were $31.8 million in the quarter compared to $40.3 million for the quarter ended March 31, 2010; $24.5 million was related to the continuing portfolios compared to $31.4 million and $7.3 million was related to the liquidating portfolio compared to $8.9 million.

“Asset quality continued to improve in the second quarter, reflected by a lower level of non- performing loans, reduced charge-offs and a further decline in delinquency levels,” noted Webster Senior Executive Vice President and Chief Financial Officer/Chief Risk Officer Jerry Plush. “As a result, our provision for losses recorded for the quarter was significantly below recent periods. While we remain cautious, if such asset quality trends were to continue in coming quarters, this could bode well for reduced provisioning.”

Non-interest income

• Non-interest income includes a net gain on sale of investment securities of $4.4 million compared to a net gain of $4.3 million in the first quarter. Second quarter results also include a $1.2 million credit related other-than-temporary impairment loss on the write-down of investments to fair value compared to a credit related impairment loss of $3.7 million in the first quarter. In addition, second quarter results include a gain of $15.0 million related to the previously announced sale of 594,107 shares in the Higher One initial public offering and the recognition of an unrealized gain on 605,893 Higher One shares still held.

Non-interest expenses

• Non-interest expenses, inclusive of other costs, increased $14.0 million from the first quarter and included a $19.7 million accrual related to a previously announced litigation reserve, an addition of $3.5 million to the reserve for loan repurchases, and $0.9 million of severance expenses. Foreclosed and repossessed asset write-downs of $0.9 million and $2.1 million are also included in non-interest expenses in the respective periods.

Income taxes

• The Company recorded $0.6 million of income tax expense in the quarter on the $18.2 million of pre-tax income applicable to continuing operations in the period. A tax benefit of approximately $6.9 million on the previously announced $19.7 million reserve for litigation established by the Company in the second quarter is reflected in the $0.6 million of income tax expense that was recorded in the quarter and otherwise based on an estimated annual effective tax rate of 19 percent.

Investment securities

• Total investment securities were $5.4 billion at June 30, 2010 compared to $5.3 billion at March 31, 2010. The carrying value of the available for sale portfolio included $28.2 million in net unrealized gains compared to net unrealized losses of $0.8 million at March 31, while the carrying value of the held to maturity portfolio does not reflect $134.3 million in net unrealized gains compared to net unrealized gains of $77.0 million at March 31.

Loans

• Total loans were $10.9 billion at both June 30, 2010 and March 31, 2010. Total originations for the quarter were $579 million compared to $383 million in the first quarter. Originations consisted of $225 million in residential, $199 million in commercial non-mortgage, $51 million in consumer, $53 million in Equipment Finance, $12 million in asset-based lending, and $39 million in commercial mortgage. In the quarter, residential mortgage loans increased by $86.7 million while commercial, commercial real estate and consumer loans declined by $58.7 million, $27.7 million and $40.3 million, respectively. The decline in commercial loans reflects reductions of $41.7 million in equipment finance loans and $16.0 million in asset based loans while core franchise loan balances were essentially flat. The decline in commercial real estate reflects reductions of $14.6 million in residential development and net payoffs in the core portfolio, while the decline in consumer reflects net pay-downs and continued pricing discipline on new production.
• The liquidating portfolio of indirect home equity and national construction loans, included in the consumer and residential loan portfolios, declined by $13.4 million from March 31 to $194.7 million and $2.4 million, respectively.
• National construction loans that have converted to permanent financing and are included in the residential loan portfolio declined by $4.1 million from March 31 to $28.5 million.

Asset quality

• Total non-performing loans were $317.3 million or 2.92 percent of total loans at June 30, 2010 compared to $348.8 million or 3.20 percent at March 31, 2010. The decrease in nonperforming loans reflects a combined decrease of $36.6 million in nonaccrual loans in all loan categories except commercial and commercial real estate, which increased $2.0 million and $3.1 million, respectively. Paying nonperforming loans totaled $105.3 million at June 30 compared to $103.4 million at March 31.
• Past due loans for the continuing portfolios decreased to $86.8 million at June 30 compared to $105.6 million at March 31.  Past due loans for the liquidating portfolio decreased to $6.5 million at June 30 compared to $8.6 million at March 31. The decrease in past due loans in the continuing portfolios at June 30 includes two commercial credits, aggregating $14 million, which cured shortly after the end of the first quarter.

Deposits and borrowings

• Total deposits were $13.5 billion at June 30, 2010 compared to $14.0 billion at March 31, 2010. The decline was due to expected outflows of municipal deposits at quarter end from NOW accounts. Increases of $101.7 million in non-interest bearing deposits and $149.3 million in savings accounts were offset by declines of $405.1, $193.7, and $166.2 million in NOW accounts, money market deposit accounts and certificates of deposits, respectively. Non-interest bearing deposits increased to 13 percent of total deposits at June 30 compared to 12 percent at March 31.
• Total borrowings were $2.2 billion at June 30 compared to $2.0 billion at March 31. The increase consisted entirely of short term funding at quarter end to offset net outflows of municipal deposits. Borrowings represented 12 percent of total assets at June 30 and 11 percent at March 31.

Capital

The tangible common equity and Tier 1 common equity to risk weighted assets ratios increased to 5.79 percent and 8.12 percent, respectively, compared to 5.53 percent and 7.90 percent at March 31, 2010.

Webster Financial Corporation is the holding company for Webster Bank, National Association. With $17.7 billion in assets, Webster provides business and consumer banking, mortgage, financial planning, trust and investment services through 181 banking offices, 500 ATMs, telephone banking and the Internet.  Webster Bank owns the asset-based lending firm Webster Business Credit Corporation, and 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 Webster’s website at www.websterbank.com.

Conference Call

A conference call covering Webster’s second quarter earnings announcement will be held today, Friday, July 16, at 9:00 a.m. EDT 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; (2) government intervention in the U.S. financial system; (3) changes in the level of non-performing assets and charge-offs; (4) inflation, interest rate, securities market and monetary fluctuations, and management’s estimates and projections of such fluctuations; (5) the timely development and acceptance of new products and services and perceived overall value of these products and services by users; (6) changes in management’s estimate of the adequacy of the allowance for loan losses; (7) the risks associated with the continued diversification of assets and adverse changes to credit quality; (8) technological changes; (9) the Company’s ability to increase market share and control expenses; (10) changes in laws, regulations and policies (including tax, banking, securities and insurance laws, regulations and policies); (11) changes in applicable accounting policies and practice; (12) legal and regulatory developments including the resolution of legal proceedings or regulatory or other governmental inquiries and the results of regulatory examinations or reviews; (13) the Company’s success at managing the risks involved in the foregoing items; and (14) the other factors that are described in the Company’s Annual Report on Form 10-K 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.