Webster Reports 2013 Second Quarter Earnings

WATERBURY, Conn., July 12, 2013 /PRNewswire/ -- Webster Financial Corporation (NYSE: WBS), the holding company for Webster Bank, N.A., today announced net income available to common shareholders of $43.7 million, or $0.48 per diluted share, for the quarter ended June 30, 2013 compared to $40.6 million, or $0.44 per diluted share, for the quarter ended June 30, 2012. 

Highlights for the quarter or at June 30 include:

Combined growth in commercial and commercial real estate loans of $837.3 million, or 15.1 percent, from a year ago.

Deposit growth of $861.6 million, or 6.2 percent, from a year ago.

Positive operating leverage of 6.6 percent compared to a year ago as core revenue grew by 5.2 percent and core expenses declined by 1.4 percent; as a result, the efficiency ratio improved by 377 basis points to 59.98% from a year ago.

Continued improvement in asset quality as evidenced by a reduction of $155 million, or 34.8 percent, in commercial classified loans from a year ago, while past due loans declined $16.0 million, or 24.4 percent, from a year ago. Nonperforming assets increased $16.9 million, or 9.7 percent, from a year ago and otherwise would have decreased by $26.0 million, or 14.9%, had $42.9 million of residential and consumer loans not been required to be classified as nonaccrual under regulatory guidance that took effect in the fourth quarter of 2012.

Return on average assets and return on average tangible common equity were 0.92 percent and 12.26 percent, respectively, in the quarter compared to 0.86 percent and 12.38 percent, respectively, in the year ago quarter.

"Webster delivered another solid quarterly performance, marked by higher loan originations, strong revenue growth, further gains in operating efficiency and improved asset quality," James C. Smith, Chairman and Chief Executive Officer, said.  "Core revenue growth exceeded 5% as net interest income reached its highest level ever, and expenses declined year over year.  Looking ahead, our loan pipeline remains strong and is a positive indicator for the region's economic prospects." 

Net interest income

• Net interest income was $147.1 million in the second quarter of 2013 compared to $144.4 million a year ago.
• Net interest margin was 3.23 percent compared to 3.32 percent a year ago. The yield on interest-earning assets declined 27 basis points, and the cost of funds declined 19 basis points from the year ago quarter.  
• Average interest-earning assets totaled $18.6 billion in the quarter and grew by $769 million, or 4.3 percent, from the year ago quarter. 
• Average loans grew by $640.8 million, or 5.6 percent, from the year ago quarter.

Provision for loan losses

• The Company recorded a provision for loan losses of $8.5 million in the second quarter of 2013 compared to $7.5 million in the first quarter of 2013 and $5.0 million in the year ago period.
• Net charge-offs were $12.9 million in the quarter compared to $16.8 in the first quarter of 2013 and $16.5 million in the year ago period. The ratio of net charge-offs to average loans on an annualized basis was 0.43 percent in the quarter compared to 0.58 percent a year ago.
• The allowance for loan losses represented 1.33 percent of total loans at June 30, 2013 compared to 1.40 percent at March 31, 2013 and 1.72 percent at June 30, 2012.

Noninterest income

• Total noninterest income of $52.3 million in the second quarter of 2013 increased $4.9 million compared to a year ago; there were $0.3 million of securities gains in the quarter compared to the year ago quarter which had $2.5 million of securities gains.
• Excluding securities gains, the $7.1 million increase in core noninterest income compared to a year ago reflects increases of $2.3 million in mortgage banking activities, $1.9 million in loan related fees, $1.7 million from wealth and investment services, $0.9 million in deposit service fees, and $0.9 million from an increase in the cash surrender value of life insurance policies. Other income was $0.6 million lower than in the year ago quarter.

Webster President and Chief Operating Officer Jerry Plush noted, "Stronger core non interest income this quarter included record results from our Webster Investment Services division, which posted $6.4 million in fee income. Higher revenue, along with lower non interest expense, contributed to a positive operating leverage of 6.6% versus prior year."

Noninterest expense

• Total noninterest expense of $123.6 million in the second quarter of 2013 decreased $3.6 million compared to the year ago period. Included in noninterest expense in the second quarter of 2013 are $0.9 million of net one-time costs that amounted to $0.01 per diluted share on an after-tax basis. These costs consisted primarily of stock registration costs, contract termination, and severance expenses. There were $3.2 million of net one-time costs in the year ago quarter that amounted to $0.02 per diluted share.
• Total noninterest expense excluding one-time costs decreased $1.3 million from the second quarter of 2012. The decrease reflects declines of $1.9 million in professional and outside services, $1.3 million in marketing, $0.7 million in occupancy expenses, $0.6 million in loan workout expense, and $0.5 million in technology and equipment expense.  These decreases were partially offset by increases of $2.2 million in compensation and benefits and $1.4 million in other expenses.
• Foreclosed and repossessed asset expenses were $0.3 million in the quarter compared to $0.2 million a year ago, while gains on foreclosed and repossessed assets were $0.3 million and $0.7 million in the respective periods.

Income taxes

• The Company recorded $20.8 million of income tax expense in the second quarter of 2013 on the $67.2 million of pre-tax income in the period. The effective tax rate was 31.0 percent compared to 30.8 percent a year ago.

Investment securities

• Total investment securities were $6.4 billion at June 30, 2013 and $6.2 billion a year ago. The carrying value of the available for sale portfolio included $4.4 million in net unrealized gains compared to net unrealized gains of $46.7 million a year ago, while the carrying value of the held to maturity portfolio does not reflect $44.3 million in net unrealized gains compared to net unrealized gains of $158.4 million a year ago.

Loans

• Total loans were $12.2 billion at June 30, 2013 compared to $12.0 billion at March 31, 2013 and $11.5 billion at June 30, 2012. In the quarter, commercial, commercial real estate, and residential mortgage loans increased by $161.4 million, $75.9 million, and $26.8 million, respectively.  Consumer loans decreased by $19.8 million.
• Compared to a year ago, commercial, commercial real estate, and residential mortgage loans increased by $521.9 million, $315.4 million, and $13.2 million, respectively. Consumer loans decreased by $144.2 million.
• Loan originations for portfolio in the second quarter were $1,204 million compared to $690 million in the first quarter and $973 million a year ago. In addition, $206 million of residential loans were originated and sold with servicing retained in the quarter compared to $229 million in the first quarter and $198 million a year ago.

Asset quality

• Past due loans were $49.8 million at June 30, 2013 compared to $40.0 million at March 31, 2013 and $65.9 million at June 30, 2012. Compared to March 31, 2013, past due commercial non-mortgage and consumer loans increased by $7.1 million and $1.4 million, respectively. Compared to June 30, 2012, all loan categories contributed to the decline except commercial non-mortgage and residential development, which totaled $11.6 million compared to $6.5 million a year ago.
• Past due loans represented 0.41 percent of total loans at June 30, 2013, 0.33 percent at March 31, 2013, and 0.57 percent at June 30, 2012. Past due loans for the continuing portfolios were $46.4 million at June 30 compared to $37.2 million at March 31 and $60.4 million a year ago. Past due loans for the liquidating portfolio were $1.9 million at June 30 compared to $2.8 million at March 31 and $4.4 million a year ago.
• Total nonperforming loans decreased to $186.7 million, or 1.52 percent of total loans, at June 30, 2013 compared to $198.8 million, or 1.66 percent, at March 31, 2013 and $169.2 million, or 1.47 percent, at June 30, 2012. Included in nonperforming loans at June 30 and March 31 are $42.9 million and $44.0 million, respectively, of residential and consumer loans classified as nonaccrual under regulatory guidance that took effect in the fourth quarter of 2012. Total paying nonperforming loans at June 30 were $61.9 million compared to $55.3 million at March 31 and $17.0 million a year ago, with the increase consisting primarily of the loans classified as such due to the regulatory guidance.

Deposits and borrowings

• Total deposits were $14.8 billion at June 30, 2013 compared to $14.6 billion at March 31, 2013 and $14.0 billion at June 30, 2012. Compared to March 31, increases of $107.0 million in demand deposits, $102.0 million in interest-bearing checking deposits, and $101.7 million in money market deposits were offset by a decline of $101.3 million in certificates of deposit.  Compared to a year ago, increases of $525.4 million in interest-bearing checking, $345.0 in demand deposits, and $333.3 million in money market deposits were offset by a decline of $404.6 million in certificates of deposit.
• Core to total deposits and loans to deposits were 84.2 percent and 82.6 percent, respectively, compared to 83.3 percent and 82.1 percent at March 31, and 80.6 percent and 82.6 percent a year ago.
• Total borrowings were $3.1 billion at June 30 compared to $3.2 billion at both March 31 and a year ago.

Capital

• The tangible equity and tangible common equity ratios were 8.03 percent and 7.27 percent, respectively, at June 30, 2013 compared to 7.35 percent and 7.20 percent, respectively, a year ago. The Tier 1 common equity to risk-weighted assets ratio was 11.22 percent at June 30 compared to 10.97 percent a year ago.
• Book value and tangible book value per common share were $21.88 and $15.93, respectively, at June 30, 2013 compared to $21.65 and $15.47, respectively a year ago.
• Return on average tangible common shareholders' equity and return on average common shareholders' equity were 12.26 percent and 8.78 percent, respectively, in the second quarter compared to 12.38 percent and 8.62 percent, respectively, a year ago.

Webster Financial Corporation is the holding company for Webster Bank, National Association. With $20 billion in assets, Webster provides business and consumer banking, mortgage, financial planning, trust and investment services through 168 banking centers, 296 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 HSA Bank, a division of Webster Bank, which provides health savings account trustee and administrative services. Webster Bank is a member of the FDIC and an 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.

Conference Call

A conference call covering Webster's 2013 second quarter earnings announcement will be held today, Friday, July 12, 2013 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 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.