WEBSTER REPORTS INCREASED 2012 FOURTH QUARTER EARN WEBSTER REPORTS INCREASED 2012 FOURTH QUARTER EARNINGS
Net Income Grows by 8 Percent over Third Quarter and 21 Percent over Prior Year
WATERBURY, Conn., January 18, 2013 – Webster Financial Corporation (NYSE: WBS), the holding company for Webster Bank, N.A., today announced net income available to common shareholders of $47.9 million, or $0.52 per diluted share, for the quarter ended December 31, 2012 compared to $44.4 million, or $0.48 per diluted share, for the quarter ended September 30, 2012 and $39.6 million, or $0.43 per diluted share, for the quarter ended December 31, 2011.
Highlights for the quarter or at December 31 include:
Combined growth in commercial and commercial real estate loans of $339.4 million, or 5.9 percent, from September 30, and $860.6 million, or 16.4 percent, from a year ago.
Deposit growth of $117.4 million, or 0.8 percent, linked quarter and $874.8 million, or 6.4 percent, over prior year. Transaction account deposits, which had a cost of 0.13 percent in the quarter, now represent an all time high of 41.0 percent of total deposits.
Continued improvement in asset quality as evidenced by a 7.2 percent reduction in commercial classified loans from September 30 and a reduction of 34.8 percent from a year ago; nonperforming assets increased 18.3 percent from September 30 and 2.7 percent from a year ago and otherwise would have decreased compared to each date as a net of $39.5 million of residential and consumer loans were reclassified as nonaccrual in the quarter under regulatory guidance.
Continued achievement of positive operating leverage of 4.6 percent as core revenue grew by 3.5 percent and core expenses declined by 1.1 percent from the third quarter, which resulted in achievement of a 60 percent operating efficiency ratio in the fourth quarter.
Return on assets, return on common equity, and return on total equity improved to 0.98 percent, 9.74 percent, and 9.54 percent, respectively, compared to 0.92 percent, 9.19 percent, and 9.18 percent, respectively, in the third quarter.
“Our record fourth quarter results cap a year of strong performance for Webster,” Chairman and Chief Executive Officer James C. Smith said. “Core net income reached an all-time high in the fourth quarter. Loan originations rose 40 percent in the fourth quarter from a year ago and 46 percent for the full year to set a new record, and our loans to businesses now comprise more than half of our total loan portfolio. Webster’s solid capital position and earnings momentum will enable us to return capital to our shareholders over time by gradually increasing the dividend payout ratio and repurchasing additional common shares. We are deeper, stronger, and able to meet our customers’ financial needs better than ever before.”
Net interest income
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Net interest income was $146.3 million for the quarter compared to $144.9 million in the third quarter.
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Net interest margin was 3.27 percent compared to 3.28 percent in the third quarter as the yield on interest-earning assets declined 4 basis points and the cost of funds declined 3 basis points.
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Average interest-earning assets grew by 1.1 percent from the third quarter and totaled $18.3 billion compared to $18.1 billion in the third quarter.
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Average loans grew by $184.4 million or 1.6 percent from the third quarter.
Webster President and Chief Operating Officer Jerry Plush noted, “Some other significant business achievements in the quarter include the completion of the upgrade to our entire ATM network to envelope-free, image-capture technology, the rollout of our mobile app, the opening of a new retail office in Simsbury, and completion of a new retail and private banking office in Greenwich, Connecticut that opened this month. In 2013, we will continue to invest in additional improvements to our physical and electronic distribution network. This will make banking with Webster easier and convenient while meeting the changing preferences of our customers."
Provision for loan losses
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The Company recorded a provision of $7.5 million in the quarter compared to $5.0 million in the third quarter and $2.5 million in the year ago period; the increased level of the provision over the past year reflects growth in the loan portfolio.
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Net charge-offs were $16.5 million in the quarter compared to $17.7 million for the third quarter and $26.4 million a year ago.
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The allowance for loan losses represented 91 percent of nonperforming loans compared to 114 percent in the prior quarter, with the reduction reflecting the reclassification of a net $39.5 million of residential and consumer loans as nonaccrual in the quarter under regulatory guidance.
Noninterest income
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Total noninterest income increased $4.5 million compared to the third quarter; there were no securities gains in the fourth quarter, while the third quarter included $0.8 million of securities gains.
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The $5.3 million increase in core noninterest income compared to the third quarter reflects increases of $2.0 million in mortgage banking activities, $1.5 million in loan fees, $0.8 million in bank-owned life insurance, and $0.7 million in wealth and investment services.
Noninterest expense
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Total noninterest expense decreased $1.0 million compared to the third quarter. Included in noninterest expense are net one time costs of $0.8 million in the fourth quarter and $0.6 million in the third quarter.
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Total noninterest expense excluding one time costs decreased $1.2 million from the third quarter with a combined decrease of $2.3 million in compensation and benefits, occupancy, marketing, and professional services expenses offset by a combined increase of $1.0 million in technology and equipment and loan workout expenses. Noninterest expense declined $3.3 million from a year ago, primarily reflecting a reduction of $2.4 million in compensation and benefits expense. The decrease in compensation and benefits expense compared to a year ago reflects a reduction of $2.6 million in cash award expense under a plan that fully vested in the fourth quarter of 2012.
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Foreclosed and repossessed asset expenses were $0.3 million in the quarter compared to $0.1 million in the third quarter, while gains on foreclosed and repossessed assets were $0.4 million in both quarters.
Income taxes
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The Company recorded $20.3 million of income tax expense in the quarter on the $68.8 million of pre-tax income applicable to continuing operations in the period. The effective tax rate for the quarter was 29.5 percent compared to 30.2 percent for the third quarter and reflects a net tax benefit of $0.7 million specific to the quarter compared to $0.3 million specific to the third quarter.
Investment securities
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Total investment securities were $6.2 billion at December 31, 2012 and $6.3 billion at September 30, 2012. The carrying value of the available for sale portfolio included $68.2 million in net unrealized gains compared to net unrealized gains of $68.9 million at September 30, while the carrying value of the held to maturity portfolio does not reflect $157.2 million in net unrealized gains compared to net unrealized gains of $179.2 million at September 30.
Loans
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Total loans were $12.0 billion at December 31, 2012 compared to $11.7 billion at September 30, 2012 and are reflective of continued growth in commercial and commercial real estate loans. In the quarter, commercial and commercial real estate loans increased by $184.2 million and $155.2 million, respectively. Residential mortgage and consumer loans decreased by $1.2 million and $37.1 million, respectively.
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Loan originations for portfolio in the fourth quarter were $1.279 billion compared to $835.6 million in the third quarter and $971.7 million a year ago. In addition to loan originations for portfolio, $221.8 million of residential loans were originated and sold with servicing retained in the quarter compared to $207.7 million in the third quarter and $100.0 million a year ago.
Asset quality
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Total nonperforming loans increased to $194.8 million, or 1.62 percent of total loans, at December 31, 2012 compared to $162.6 million, or 1.39 percent, at September 30, 2012. The increase reflects the reclassification of a net $14.9 million of residential and a net $24.6 million of consumer loans as nonaccrual in the quarter under regulatory guidance. Total paying nonperforming loans at December 31 were $46.5 million compared to $16.8 million at September 30. At December 31, $28.8 million of the total paying nonperforming loans related to loans reclassified in the quarter.
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Apart from the reclassification, nonperforming loans decreased by $6.6 million, or 4.1 percent, from September 30 and $32.1 million, or 17.1 percent, from a year ago.
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Other real estate owned (OREO) totaled $3.4 million compared to $4.9 million at September 30.
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Past due loans increased to $74.3 million at December 31 compared to $67.4 million at September 30 as past due commercial real estate loans increased by $7.6 million. Past due loans represented 0.62 percent of total loans at December 31 and 0.57 percent at September 30. Past due loans for the continuing portfolios were $70.7 million at December 31 compared to $62.5 million at September 30. Past due loans for the liquidating portfolio were $3.6 million at December 31 compared to $4.9 million at September 30.
Deposits and borrowings
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Total deposits were $14.5 billion at December 31, 2012 compared to $14.4 billion at September 30, 2012. Increases of $94.6 million in demand, $196.6 million in interest-bearing checking, and $43.4 million in savings deposits were offset by declines of $135.6 million in money market deposits and $81.5 million in certificates of deposit. Core to total deposits and loans to deposits were 82.5 percent and 82.8 percent, respectively, compared to 81.8 percent and 81.4 percent at September 30.
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Total borrowings were $3.2 billion at December 31 compared to $3.1 billion at September 30.
Capital
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On November 27, 2012, $126.5 million of Webster Financial Corporation 6.40 % Series E Non-Cumulative Perpetual Preferred Stock was issued through an underwritten public offering.
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On December 6, 2012, a $100 million common stock authorization was announced with $50.0 million of the authorization utilized later in the quarter in connection with an underwritten secondary offering of 10 million shares of Webster’s common stock by a selling shareholder.
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The tangible common equity and Tier 1 common equity to risk-weighted assets ratios were 7.17 percent and 10.78 percent, respectively, at December 31, 2012 compared to 7.39 percent and 11.10 percent, respectively, at September 30, 2012.
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Book value and tangible book value per common share were $22.75 and $16.47, respectively, at December 31 compared to $22.24 and $16.13, respectively, at September 30.
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Return on average common shareholders’ equity and return on average total equity were 9.74 percent and 9.54 percent, respectively, at December 31 compared to 9.19 percent and 9.18 percent, respectively, at September 30.
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