Webster Reports 2010 Third Quarter Profit

WATERBURY, Conn., Oct. 15 /PRNewswire-FirstCall/ -- Webster Financial Corporation (NYSE: WBS), the holding company for Webster Bank, N.A., today announced consolidated net income of $22.7 million for the quarter ended September 30, 2010. Net income available to common shareholders after $4.9 million of preferred dividends was $17.8 million, or $.22 per diluted share, for the quarter ended September 30, 2010.  

Key points for the quarter:

• Improved net interest margin of 3.36 percent compared to 3.27 percent for the second quarter.

• Reduced levels of provision for loan losses and net charge-offs of $25.0 million and $28.7 million, respectively, compared to $32.0 million and $31.8 million in the second quarter.

• Continued improvement in the level of non-performing loans and delinquencies, which declined by 1.9 percent and 11.9 percent, respectively, compared to the second quarter.

• Improved core to total deposit ratio of 76 percent compared to 74 percent for the second quarter.

Webster Chairman and Chief Executive Officer James C. Smith said, "We are pleased to report higher earnings for the third quarter. Our operating fundamentals remained strong and credit trends showed further improvement. Expansion in the net interest margin was a key contributor to our performance, and we continued to build core deposit balances. The origination of $644 million in loans during the third quarter, which was up 11 percent from last quarter, shows our success in helping finance the economic recovery in our markets."

Net interest income

• The net interest margin increased by 9 basis points to 3.36 percent in the quarter, reflecting a 10 basis point decline in the cost of funds offset by a 1 basis point decline in the yield on interest-earning assets.

• Average interest-earning assets for the quarter totaled $16.5 billion, down from $16.6 billion last quarter.

Provision for loan losses

• $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. In the second quarter, $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 $28.7 million in the quarter compared to $31.8 million for the quarter ended June 30, 2010; $23.0 million was related to the continuing portfolios compared to $24.5 million for the previous quarter and $5.7 million was related to the liquidating portfolio compared to $7.3 million for the previous quarter.

"Given improvement in key asset quality indictors in the quarter, including the level of non-performing loans, charge-offs and delinquencies, we were able to report a lower provision for loan losses compared to the second quarter," noted Webster Senior Executive Vice President and Chief Financial Officer Jerry Plush. "If a continuation of such positive trends occurs in coming quarters, reduced provisioning is a likely outcome."

Non-interest income

• Non-interest income reflects the impact of $2.4 million in reduced deposit service fees from the adoption of Regulation E compared to the second quarter. Other changes include a net gain on sale of investment securities of $1.0 million compared to a net gain of $4.4 million in the second quarter. Third quarter results also include a $1.2 million positive fair value adjustment on common stock classified as trading, and a $1.0 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 $1.2 million in the second quarter.

Non-interest expenses

• Non-interest expenses, inclusive of other costs, decreased $17.9 million from the second quarter. Included in non-interest expense in the third quarter was a $2.8 million expense related to the previously announced settlement of a class action lawsuit related to the assessment and collection of over draft fees on customer checking accounts, and $0.3 million of severance expenses, while second quarter results included $19.7 million in provision for litigation reserves. Also included in non-interest expenses in the third quarter were foreclosed and repossessed asset write-downs of $2.2 million compared to $0.9 million for the second quarter. Loan workout expenses were also higher in the third quarter by $1.3 million.

Income taxes

• The Company recorded $4.6 million of income tax expense in the quarter on the $27.3 million of pre-tax income applicable to continuing operations in the period. Tax expense is based on an estimated 20 percent annual effective tax rate.

Investment securities

• Total investment securities were $5.4 billion at both September 30, 2010 and June 30, 2010. The carrying value of the available for sale portfolio included $36.3 million in net unrealized gains compared to net unrealized gains of $28.2 million at June 30, while the carrying value of the held to maturity portfolio does not reflect $136.3 million in net unrealized gains compared to net unrealized gains of $134.3 million at June 30.

Loans

• Total loans were $10.9 billion at both September 30, 2010 and June 30, 2010. Total originations for the quarter were $644 million compared to $579 million in the second quarter. Originations consisted of $304 million in residential, $178 million in commercial non-mortgage, $48 million in consumer, $42 million in equipment finance, $35 million in asset-based lending, and $37 million in commercial real estate. In the quarter, residential mortgage loans in the continuing portfolio increased by $115.0 million, while consumer, commercial, and commercial real estate loans declined by $19.4 million, $14.3 million, and $19.1 million, respectively. The decrease in commercial loans reflects a reduction of $45.5 million in equipment finance loans, net of increases in asset based loans and middle market loans of $7.5 million and $23.7 million, respectively. The decline in commercial real estate reflects reductions of $16.1 million in residential development and net payoffs in the core portfolio.

• The liquidating portfolio of indirect home equity and national construction loans, included in the consumer and residential loan portfolios, declined by $9.7 million and $0.8 million from June 30 to $185.0 million and $1.6 million, respectively.

• National construction loans that have converted to permanent financing and are included in the residential loan portfolio declined by $1.5 million from June 30 to $27.0 million.

Asset quality

• Total non-performing loans were $311.1 million or 2.85 percent of total loans at September 30, 2010 compared to $317.3 million or 2.92 percent at June 30, 2010. The decrease in non-performing loans reflects a combined decrease of $22.6 million in nonaccrual loans in all loan categories except residential, consumer, and commercial real estate, which increased $4.4 million, $3.2 million, and $8.8 million, respectively. Paying non-performing loans totaled $111.0 million at September 30 compared to $105.3 million at June 30.

• Past due loans for the continuing portfolios decreased to $75.8 million at September 30 compared to $86.8 million at June 30.  Past due loans for the liquidating portfolio were $8.1 million at September 30 compared to $6.5 million at June 30.

Deposits and borrowings

• Total deposits were $13.6 billion at September 30, 2010 compared to $13.5 billion at June 30, 2010.  Increases of $77.1 million in non-interest bearing deposits and $420.5 million in money market deposit accounts were offset by declines of $155.0 million, $17.6 million, and $223.4 million in NOW accounts, savings accounts and certificates of deposits, respectively. Non-interest bearing deposits to total deposits increased to approximately 14 percent of total deposits at September 30 compared to 13 percent at June 30.

• Total borrowings were $2.1 billion at September 30 compared to $2.2 billion at June 30. Borrowings represented 12 percent of total assets at both September 30 and June 30.

Capital

The tangible common equity and Tier 1 common equity to risk weighted assets ratios increased to 5.91 percent and 8.19 percent, respectively, compared to 5.79 percent and 8.12 percent at June 30, 2010.

Webster Financial Corporation is the holding company for Webster Bank, National Association. With $17.8 billion in assets, Webster provides business and consumer banking, mortgage, financial planning, trust and investment services through 181 banking offices, 497 ATMs, mobile banking, the Customer Care Center, 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 third quarter earnings announcement will be held today, Friday, October 15, 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.