Webster Reports First Quarter Results

WATERBURY, Conn., April 22 /PRNewswire-FirstCall/ -- Webster Financial Corporation (NYSE: WBS), the holding company for Webster Bank, N.A., today announced consolidated net income of $1.4 million for the quarter ended March 31, 2010.  The net loss to common shareholders was $6.1 million for the quarter ended March 31, 2010 and included $5.9 million of preferred dividends and $1.6 million from accelerated accretion of a discount related to Webster's repurchase of $100 million, or 25 percent, of the Series B preferred shares issued under the Capital Purchase Program.

Key points for the quarter:

Core pre-tax, pre-provision earnings were $57.3 million, comparable to the fourth quarter of 2009.

Reduced levels of provision for loan losses and net charge-offs of $43.0 million and $40.3 million, respectively, compared to $67.0 million and $51.8 million in the fourth quarter of 2009.

Nonperforming loans declined by 6.5 percent to $348.8 million compared to $373.0 million at December 31, 2009.  

Improved net interest margin of 3.28 percent compared to 3.26 percent for the fourth quarter of 2009.

Improved core to total deposit ratio of 74 percent compared to 71 percent at December 31, 2009, reflecting core deposit growth of $613 million.

Loan-to-deposit ratio of 78 percent compared to 81 percent at December 31, 2009.

Webster Chairman and Chief Executive Officer James C. Smith said, "We are pleased to report that Webster returned to profitability from continuing operations in the quarter as our operating fundamentals improved, led by positive credit metrics, expansion in the net interest margin and strong core deposit growth. Business loan originations expanded nearly 60 percent in the quarter as we deliver on our pledge to finance the region's economic recovery."

Net interest income

• Net interest margin improved to 3.28 percent in the quarter with the increase reflecting an 11 basis point decline in the cost of funds offsetting an 8 basis point decline in the yield on interest-earning assets. The margin includes a 3 basis point negative impact from accelerated Freddie Mac loan buybacks from mortgage backed securities during the first quarter based on a recently announced policy change.

• Average interest-earning assets totaled $16.46 billion, up from $16.35 billion last quarter.

Provision for loan losses

• $34.8 million of the $43.0 million provision for loan losses recorded in the quarter was related to the Company's continuing portfolios, and $8.2 million was related to the liquidating portfolio.

• Net charge-offs were $40.3 million in the quarter compared to $51.8 million for the quarter ended December 31, 2009; $31.4 million was related to the continuing portfolios compared to $43.2 million and $8.9 million was related to the liquidating portfolio compared to $8.5 million.

"Improvement was seen in several key asset quality indicators in the quarter, including reduced charge-off levels, lower provision for loan losses as well as lower levels of non-performing loans and assets, the result of reduced inflow of new nonaccrual loans and higher levels of cures and exits from nonperforming status," noted Webster Senior Executive Vice President and Chief Financial Officer/Chief Risk Officer Jerry Plush. "While we remain cautious with regard to credit, these positive outcomes favorably impacted our results in the quarter."

Non-interest income

• Non-interest income includes a net gain on sale of investment securities of $4.3 million compared to a net gain of $53,000 in the fourth quarter. First quarter results also include a loss of $3.7 million on the write-down of investments to fair value. Fourth quarter results included a net gain of $3.6 million on the fair value accounting mark on warrants issued in connection with the Warburg Pincus investment.

Non-interest expenses

• Non-interest expenses, inclusive of other costs, increased $1.4 million from the fourth quarter and included $11.1 million related to previously announced fraud-related costs. Foreclosed and repossessed asset write-downs of $2.1 million and $2.7 million are also included in non-interest expenses in the respective periods.

Income taxes

• The Company recorded $0.4 million of income tax expense in the quarter on the $1.8 million of pre-tax income applicable to continuing operations in the period based on an estimated annual effective tax rate of 20.0%.

Investment securities

• Total investment securities were $5.3 billion at March 31, 2010 compared to $4.8 billion at December 31, 2009. The carrying value of the available for sale portfolio included $0.8 million in net unrealized losses compared to net unrealized losses of $2.8 million at December 31, 2009, while the carrying value of the held to maturity portfolio does not reflect $77.0 million in net unrealized gains compared to net unrealized gains of $61.3 million at December 31, 2009.

Loans

• Total loans were $10.9 billion at March 31, 2010 compared to $11.0 billion at December 31, 2009. Total originations for the quarter were $383 million compared to $472 million in the fourth quarter of 2009, as a $42 million increase in commercial non-mortgage originations was offset by a $115 million decline in residential mortgage lending. In the quarter, commercial, commercial real estate, residential mortgage and consumer loans declined by $39.9 million, $27.6 million, $9.3 million and $63.4 million, respectively. The decline in commercial loans reflects an increase of $34.0 million in core franchise lending offset by reductions of $51.2 million in equipment finance loans and $22.7 million in asset based loans. The decline in commercial real estate mostly reflects a reduction of $17.1 million in residential development outstandings while the decline in consumer reflects seasonal paydowns as well as 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 December 31, 2009 to $207.3 million and $3.3 million, respectively.

• National construction loans that have converted to permanent financing and are included in the residential loan portfolio declined by $4.2 million from December 31, 2009 to $32.6 million.

Asset quality

• Total nonperforming loans were $348.8 million or 3.20 percent of total loans at March 31, 2010 compared to $373.0 million or 3.38 percent at December 31, 2009. The decrease in nonperforming loans reflects a combined decrease of $41.6 million in nonaccrual loans in all loan categories except asset based lending and equipment financing, which increased $14.7 million and $2.8 million respectively. Paying nonperforming loans totaled $103 million at March 31, 2010 compared to $114 million at December 31, 2009.

• Past due loans for the continuing portfolios increased to $105.6 million at March 31, 2010 compared to $90.5 million at December 31, 2009.  Past due loans for the liquidating portfolio decreased to $8.6 million at March 31, 2010 compared to $10.4 million at December 31, 2009. The increase in past due loans in the continuing portfolios at March 31, 2010 included two commercial credits, aggregating $14 million, which cured subsequent to the quarter end.

Deposits and borrowings

• Total deposits were $14.0 billion at March 31, 2010 compared to $13.6 billion at December 31, 2009. The core categories of non-interest bearing, NOW, money market and savings increased by a combined amount of $612.9 million while certificates of deposit and brokered deposits decreased by $217.1 million and $34.4 million, respectively.

• Total borrowings of $2.0 billion were essentially flat compared to December 31, 2009. Borrowings represented 11 percent of total assets at both March 31, 2010 and December 31, 2009.

Capital

• On March 3, 2010, Webster repurchased $100 million, or 25%, of the Series B Preferred Stock issued to the U.S. Treasury and recorded a $1.6 million reduction in retained earnings in the first quarter of 2010 from accelerated accretion of a discount related to the repurchased shares. Also in the first quarter, the Company downstreamed $100 million from the holding company to Webster Bank to improve bank-level leverage and total capital ratios to 8.00% and 13.33%, respectively, which exceed OCC individual minimum capital requirements of 7.5% and 12%, respectively, that go into effect on June 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, 500 ATMs, telephone banking and the Internet.  Webster Bank owns the asset-based lending firm Webster Business Credit Corporation, Webster Capital Finance (formerly Center Capital Corporation), an equipment finance company headquartered in Farmington, Conn., 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 first quarter earnings announcement will be held today, Thursday, April 22, 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.