Webster Reports 2011 Fourth Quarter Results

In the news release, "Webster Reports 2011 Fourth Quarter Results," issued today, Jan. 19, 2012 by Webster Financial Corporation over PR Newswire, we are advised by the company that the release and corresponding tabular material have been updated. Complete, corrected release follows.

Webster Reports 2011 Fourth Quarter Results

Net Income Grows by 63 Percent over Prior Year

WATERBURY, Conn., Jan. 19, 2012 /PRNewswire/ -- Webster Financial Corporation (NYSE: WBS), the holding company for Webster Bank, N.A., today announced net income available to common shareholders of $39.6 million, or $.43 per diluted share, for the quarter ended December 31, 2011 compared to $41.4 million, or $.45 per diluted share, for the quarter ended September 30, 2011 and $24.3 million, or $.29 per diluted share, for the quarter ended December 31, 2010. 

Highlights for the quarter or at December 31 include:

Significant improvement in asset quality as evidenced by a 19.5 percent reduction in nonperforming assets and a 12.2 percent decline in commercial classified loans, both from September 30, and reductions of 36.0 percent and 34.0 percent from a year ago.

Combined growth in commercial non-mortgage and commercial real estate loans of $239.8 million or 5.9 percent from September 30, and $491.3 million or 13.0 percent from a year ago.

Growth of $319.1 million or 6.7 percent in transaction account deposits from September 30 and $641.0 million or 14.5 percent from a year ago, which represent 37.0 percent of total deposits compared to 34.8 percent in the third quarter and 32.4 percent a year ago.

Net interest income was down $0.7 million in the quarter, and net interest margin was 3.39 percent compared to 3.49 percent in the third quarter and 3.42 percent a year ago.

Noninterest expense before one time costs of $125.3 million compared to $119.7 million in the third quarter and $128.2 million a year ago. The 2011 fourth quarter included $5.6 million in higher compensation expense tied to stock valuation, a significant portion of which was driven by Webster's rising stock price in the quarter.

Provision for loan losses of $2.5 million compared to $5.0 million in the third quarter and $15.0 million a year ago, reflective of continued improvement in asset quality.

Webster Chairman and Chief Executive Officer James C. Smith said, "Fourth quarter results cap a year of meaningful, across-the-board progress for Webster, with particularly strong improvement in credit metrics. Among our strategic priorities, higher transaction balances are funding business loan growth, and our emphasis on relationship banking over account acquisition is producing more value for our clients. We are winning business banking customers across our footprint. Still, we have much to do to sustain our progress and improve financial performance in 2012, with special emphasis on improving the ratio of expenses to revenue."

Prior period information

• Certain previously reported information has been corrected to reflect the deferral of certain commercial loan fees. Comparisons to prior periods in this press release reflect this correction.

Net interest income

• Net interest income was $141.0 million for the quarter compared to $141.7 million in the third quarter.
• Net interest margin was 3.39 percent compared to 3.49 percent in the third quarter; the yield on interest-earning assets declined 14 basis points, primarily on securities, and the cost of funds declined 5 basis points, each as compared to the third quarter.  
• Average interest-earning assets grew by 2.4 percent from September 30, 2011 and totaled $17.0 billion compared to $16.6 billion in the third quarter. 

Provision for loan losses

• The Company recorded a provision of $2.5 million in the quarter compared to $5.0 million in the third quarter and $15.0 million a year ago, reflective of continued improvement in asset quality trends.
• Net charge-offs were $26.4 million in the quarter compared to $28.9 million for the third quarter and $33.7 million a year ago.
• The allowance for loan losses represented 124 percent of nonperforming loans compared to 116 percent in the prior quarter.

Webster President and Chief Operating Officer Jerry Plush noted, "The continued favorable trend in all asset quality measures enabled us to record provision expense well below net charge-offs this quarter while maintaining even stronger coverage ratios. The emphasis we have placed in reducing nonperforming loan, OREO and classified asset levels has resulted in reduced provision and other workout related expenses compared to prior quarters. While we believe that further improvement in classified asset levels is likely in future periods and may favorably influence provision expense, the provision necessary each quarter will be dependent on economic outcomes and the level of risk inherent in continued loan growth."

Noninterest income

• Total noninterest income decreased $2.4 million compared to the third quarter, of which $2.8 million occurred in deposit service fees. This decline in deposit services fees reflects Federal Reserve Board rules implementing the Durbin Amendment in the Dodd-Frank Act that took effect on October 1, 2011.

Noninterest expense

• Total noninterest expense increased $3.4 million compared to the third quarter. Included in noninterest expense is $1.2 million of net one time costs in the fourth quarter and $3.5 million of such costs in the third quarter.
• The $5.6 million increase in noninterest expense apart from one time costs compared to the third quarter is primarily the result of a $6.2 million increase in compensation and benefits. This increase in compensation and benefits is primarily the result of compensation tied to stock valuation, including increases of $3.4 million in cash award plan expense and $2.2 million in deferred compensation. Volatility around cash award plan expense should be less in future quarters given the maturity of a portion of the plan during the fourth quarter. In addition, included in noninterest expense was $0.1 million in gains on foreclosed and repossessed assets compared to $0.7 million of such gains in the third quarter.

Income taxes

• The Company recorded $13.8 million of income tax expense in the quarter on the $54.2 million of pre-tax income applicable to continuing operations in the period. The effective tax rate for the quarter was 25.5 percent compared to 27.4 percent for the third quarter, while the effective rate for all of 2011 was 28.0 percent. The lower rates in the fourth and third quarters reflect tax benefits specific to each of $1.9 million and $1.6 million, respectively.

Investment securities

• Total investment securities were $5.8 billion at December 31, 2011 compared to $5.6 billion at September 30, 2011. The carrying value of the available for sale portfolio included $25.3 million in net unrealized gains compared to net unrealized gains of $30.0 million at September 30, while the carrying value of the held to maturity portfolio does not reflect $156.8 million in net unrealized gains compared to net unrealized gains of $155.7 million at September 30.

Loans

• Total loans were $11.2 billion at December 31, 2011 compared to $11.1 billion at September 30, 2011 and are reflective of strong growth in commercial, commercial real estate and residential mortgages. In the quarter, commercial non-mortgage and commercial real estate loans increased by $119.9 million and $120.0 million, respectively, while equipment finance, asset based lending and residential development loans declined by $43.6 million, $56.9 million and $11.4 million, respectively. Residential mortgage loans increased by $69.6 million, while consumer loans in the continuing portfolio declined by $14.9 million and consumer loans in the liquidating portfolio declined by $7.3 million.
• Originations for the fourth quarter were $971.7 million compared to $716.2 million in the third quarter, an increase of 35.7 percent. Originations for the fourth quarter consisted of $275.2 million in commercial non-mortgage, $23.9 million in equipment finance, $39.5 million in asset based lending, $294.3 million in commercial real estate, $1.7 million in residential development, $205.2 million in residential and $131.9 million in consumer. Total originations for the year were $2.9 billion compared to $2.5 billion in 2010.

Asset quality

• Total nonperforming loans declined to $188.1 million, or 1.68 percent of total loans, at December 31, 2011 compared to $221.0 million, or 2.00 percent, at September 30, 2011. Included in nonperforming loans were paying loans totaling $32.4 million at December 31 compared to $55.8 million at September 30. Also included in nonperforming loans are $5.1 million in consumer liquidating loans compared to $5.5 million at September 30.
• Past due loans declined to $61.7 million at December 31 compared to $64.1 million at September 30. Past due loans for the continuing portfolios were $57.1 million at December 31 compared to $59.5 million at September 30. Past due loans for the liquidating portfolio were $4.5 million at December 31 compared to $4.7 million at September 30.
• Other real estate owned (OREO) declined to $5.0 million compared to $18.9 million at September 30.

Deposits and borrowings

• Total deposits were $13.7 billion at December 31, 2011 compared to $13.6 billion at September 30, 2011. Increases of $181.0 million in demand, $138.1 million in interest-bearing checking and $58.7 million in savings deposits were offset by declines of $204.8 million in money market deposits and $102.9 million in certificates of deposit. Core to total deposits and loans to deposits were 79 percent and 82 percent, respectively, compared to 78 percent and 81 percent at September 30.
• Total borrowings were $3.0 billion at December 31 compared to $2.5 billion at September 30. The increase in borrowings funded growth in loans and investment securities in the quarter. Borrowings represented 16 percent of total assets at December 31 compared to 14 percent at September 30.

Capital

• The tangible common equity and Tier 1 common equity to risk-weighted assets ratios were 7.00 percent and 11.00 percent, respectively, as of December 31.

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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 168 banking offices, 473 ATMs, 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.

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Conference Call

A conference call covering Webster's fourth quarter earnings announcement will be held today, Thursday, January 19, 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 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.

SOURCE Webster Financial Corporation