Webster Reports 2013 Third Quarter Earnings

WATERBURY, Conn., Oct. 11, 2013 /PRNewswire/ -- Webster Financial Corporation (NYSE: WBS), the holding company for Webster Bank, N.A., today announced net income available to common shareholders of $44.7 million, or $0.49 per diluted share, for the quarter ended September 30, 2013 compared to $44.4 million, or $0.48 per diluted share, for the quarter ended September 30, 2012. 

Highlights for the quarter or at September 30 include:

Combined growth in commercial and commercial real estate loans of $828.4 million, or 14.4 percent, from a year ago. Overall loan growth of $750.3 million, or 6.4 percent, from a year ago.

Deposit growth of $586.1 million, or 4.1 percent, from a year ago.

Positive operating leverage of 3.9 percent compared to a year ago as core revenue grew by 1.8 percent and core expenses declined by 2.1 percent. The efficiency ratio improved by 218 basis points to 60.07 percent from a year ago.

Significant reduction in mortgage banking pipeline resulting in a $5.9 million decline in mortgage banking activities from a year ago.

Continued improvement in asset quality as evidenced by a reduction of 33.5 percent in commercial classified loans and a 28.4 percent reduction in past due loans from a year ago. Nonperforming assets increased 10.8 percent from a year ago and otherwise would have decreased by 15.2 percent, had $43.5 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 0.93 percent and 12.43 percent, respectively, in the quarter compared to 0.92 percent and 13.03 percent, respectively, in the year ago quarter.

"Robust commercial loan growth, favorable asset quality trends, and continued tight expense control combined to produce solid operating results for the quarter despite the sharp slowdown in residential mortgage refinance activity," said James C. Smith, chairman and chief executive officer. "Notable milestones in the quarter included record net interest income once again and stellar performance in our health savings account business whose footings crossed $2 billion. Looking ahead, our strong commercial loan pipeline bodes well for the region's economic recovery and future performance."

Net interest income (compared to prior year)

• Net interest income was $150.0 million compared to $144.9 million.
• Net interest margin was 3.23 percent compared to 3.28 percent. The yield on interest-earning assets declined 20 basis points, and the cost of funds declined 14 basis points.  
• Average interest-earning assets totaled $18.8 billion and grew by $764 million, or 4.2 percent. 
• Average loans grew by $694.1 million, or 6.0 percent.

Provision for loan losses

• The Company recorded a provision for loan losses of $8.5 million in the third quarter of 2013 compared to $8.5 million in the second quarter of 2013 and $5.0 million in the year ago period.
• Net charge-offs were $14.4 million in the quarter compared to $12.9 million in the second quarter of 2013 and $17.7 million in the year ago period. The ratio of net charge-offs to average loans on an annualized basis was 0.47 percent in the quarter compared to 0.43 percent in the second quarter of 2013 and 0.61 percent a year ago.
• The allowance for loan losses represented 1.26 percent of total loans at September 30, 2013 compared to 1.33 percent at June 30, 2013 and 1.59 percent at September 30, 2012. The allowance for loan losses represented 88.7 percent of nonperforming loans at September 30, 2013 compared to 87.6 percent at June 30, 2013 and 114.4 percent at September 30, 2012.

Noninterest income (compared to prior year)

• Total noninterest income was $46.3 million compared to $48.5 million, a decrease of $2.2 million; there were $0.3 million of securities gains in the quarter compared to $0.8 million a year ago.
• Excluding securities gains, a $1.7 million year over year decrease in core noninterest income reflects a decrease of $5.9 million in mortgage banking activities, which was offset by increases of $1.8 million in loan related fees, $0.9 million in wealth and investment services, $0.8 million from an increase in the cash surrender value of life insurance policies, $0.4 million in deposit service fees, and $0.2 million in other income.

Noninterest expense (compared to prior year)

• Total noninterest expense of $122.3 million compared to $123.9 million, a decrease of $1.6 million. Included in noninterest expense in the third quarter of 2013 are $1.5 million of net one-time costs that amounted to $0.01 per diluted share on an after-tax basis. These costs consisted primarily of contract termination and severance expenses. There were $0.6 million of net one-time costs in the year ago quarter.
• Total noninterest expense excluding one-time costs decreased $2.5 million. The decrease reflects declines of $1.3 million in compensation and benefits, $0.9 million in marketing, $0.5 million in professional and outside services, and $0.5 million in occupancy expenses.  These decreases were partially offset by an increase of $1.6 million in other expenses.
• Foreclosed and repossessed asset expenses were $0.4 million compared to $0.1 million, while net gains on foreclosed and repossessed assets were $0.5 million compared to $0.4 million.

Webster Chief Financial Officer Glenn MacInnes noted, "The net interest margin has been stable for three consecutive quarters in a challenging interest rate environment. Coupled with ongoing expense discipline, we have again achieved positive operating leverage and an improvement in our efficiency ratio of more than 200 basis points compared to a year ago."

Income taxes

• The Company recorded $18.2 million of income tax expense in the third quarter of 2013. The effective tax rate was 27.7 percent compared to 30.2 percent a year ago and reflects a $2.1 million net tax benefit specific to the quarter compared to $0.3 million a year ago.
• The $2.1 million net benefit in the current period included a $1.7 million correction applicable to prior periods identified in the quarter and $0.5 million applicable to a reduction of the Company's estimated annual effective tax rate for 2013, from 31.0 to 30.75 percent, primarily as a result of an increase in tax credits during the year.

Investment securities

• Total investment securities were $6.4 billion at September 30, 2013 and $6.3 billion a year ago. The carrying value of the available for sale portfolio included $12.4 million in net unrealized gains compared to net unrealized gains of $68.9 million a year ago, while the carrying value of the held to maturity portfolio does not reflect $42.6 million in net unrealized gains compared to net unrealized gains of $179.2 million a year ago.

Loans

• Total loans were $12.5 billion at September 30, 2013 compared to $12.2 billion at June 30, 2013 and $11.7 billion at September 30, 2012. In the quarter, commercial, commercial real estate, and residential mortgage loans increased by $103.3 million, $117.0 million, and $36.7 million, respectively.  Consumer loans decreased by $25.4 million.
• Compared to a year ago, commercial, commercial real estate, and residential mortgage loans increased by $472.4 million, $356.0 million, and $57.6 million, respectively. Consumer loans decreased by $135.7 million.
• Loan originations for portfolio in the third quarter were $1,144 million compared to $1,204 million in the second quarter and $836 million a year ago. In addition, $157 million of residential loans were originated for sale in the quarter compared to $206 million in the second quarter and $208 million a year ago.

Asset quality

• Past due loans were $48.3 million at September 30, 2013 compared to $49.8 million at June 30, 2013 and $67.4 million at September 30, 2012. Compared to June 30, past due commercial non-mortgage and commercial real estate loans decreased $7.9 million and $1.4 million, respectively.  Past due residential mortgages increased $4.7 million, and loans past due 90 days and still accruing increased $3.3 million.  Compared to September 30, 2012, all loan categories contributed to the decline except loans past due 90 days or more and still accruing, which increased $4.6 million.
• Past due loans represented 0.39 percent of total loans at September 30, 2013, 0.41 percent at June 30, 2013, and 0.57 percent at September 30, 2012. Past due loans for the continuing portfolios were $45.6 million at September 30 compared to $47.9 million at June 30 and $62.5 million a year ago. Past due loans for the liquidating portfolio were $2.7 million at September 30 compared to $1.9 million at June 30 and $4.9 million a year ago.
• Total nonperforming loans decreased to $177.6 million, or 1.42 percent of total loans, at September 30, 2013 compared to $186.7 million, or 1.52 percent, at June 30, 2013 and $162.6 million, or 1.39 percent, at September 30, 2012. Included in nonperforming loans at September 30 and June 30 are $43.5 million and $42.9 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 September 30 were $55.8 million compared to $61.9 million at June 30 and $16.8 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 $15.0 billion at September 30, 2013 compared to $14.8 billion at June 30, 2013 and $14.4 billion at September 30, 2012. Compared to June 30, increases of $304.2 million in money market deposits and $12.4 million in demand deposits were offset by declines of $67.1 million in certificates of deposit, $55.3 million in savings, $15.9 million in brokered certificates of deposit, and $14.4 million in interest-bearing checking.  Compared to a year ago, increases of $490.1 million in interest-bearing checking, $182.2 in demand deposits, and $231.0 million in money market deposits were offset by a decline of $383.6 million in certificates of deposit.
• Core to total deposits were 85.0 percent compared to 84.2 percent at June 30, and 81.8 percent a year ago. Loans to deposits were 83.2 percent compared to 82.6 percent at June 30, and 81.4 percent a year ago.
• Total borrowings were $3.2 billion at September 30 compared to $3.1 billion at both June 30 and a year ago.

Capital

• The tangible equity and tangible common equity ratios were 8.13 percent and 7.37 percent, respectively, at September 30, 2013 compared to 7.52 percent and 7.37 percent, respectively, a year ago. The Tier 1 common equity to risk-weighted assets ratio was 11.33 percent at September 30 compared to 11.10 percent a year ago.
• Book value and tangible book value per common share were $22.34 and $16.40, respectively, at September 30, 2013 compared to $22.24 and $16.08, respectively, a year ago.
• Return on average tangible common shareholders' equity and return on average common shareholders' equity were 12.43 percent and 8.93 percent, respectively, in the third quarter compared to 13.03 percent and 9.19 percent, respectively, a year ago.

Webster Financial Corporation is the holding company for Webster Bank, National Association. With $21 billion in assets, Webster provides business and consumer banking, mortgage, financial planning, trust and investment services through 169 banking centers, 308 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 third quarter earnings announcement will be held today, Friday, October 11, 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.