Webster Reports 2013 Fourth Quarter Earnings

WATERBURY, Conn., Jan. 17, 2014 /PRNewswire/ -- Webster Financial Corporation (NYSE: WBS), the holding company for Webster Bank, N.A., today announced net income available to common shareholders of $41.1 million, or $0.45 per diluted share, for the quarter ended December 31, 2013 compared to $47.9 million, or $0.52 per diluted share, for the quarter ended December 31, 2012. 

Highlights for the quarter or at December 31 include:

• Earnings per diluted share, excluding one-time items, would be $0.52 compared to $0.50 in the prior quarter and $0.53 a year ago.
• Combined growth in commercial and commercial real estate loans of $695.6 million, or 11.4 percent, from a year ago. Overall loan growth of $671.1 million, or 5.6 percent, from a year ago.
• Deposit growth of $323.6 million, or 2.2 percent, from a year ago.
• The efficiency ratio of 59.30 percent improved by 38 basis points from a year ago. Positive operating leverage of 1.6 percent from the linked quarter and 0.9 percent year-over-year.
• Record core revenue of $205.4 million including record net interest income of $153.9 million.
• Continued improvement in asset quality as evidenced by a reduction of 37.6 percent in commercial classified loans and a 28.8 percent reduction in past due loans from a year ago. Nonperforming assets decreased 13.4 percent from a year ago.
• $7.3 million pre-tax impact from other-than-temporary impairment ("OTTI") charge on certain investment securities (CDO's and CLO's) which was required due to the recently released interagency guidance on permissible investments under the Volcker Rule in the Dodd-Frank Act. The after-tax effect was $4.7 million or $0.05 per diluted share in the quarter.
• Excluding the OTTI charge, return on average assets and return on average tangible common equity were 0.94 percent and 12.38 percent, respectively, in the quarter compared to 0.98 percent and 13.66 percent, respectively, in the year ago quarter.

"Webster posted a solid quarter with record core pre-provision net revenue of $80 million. Total core revenue exceeded $200 million for the first time in our history," said James C. Smith, chairman and chief executive officer. "Commercial Banking once again led the way in the quarter with continued double-digit loan growth, and wealth management achieved record revenue."

Net interest income (compared to prior year)

• Net interest income was $153.9 million compared to $146.3 million.
• Net interest margin was 3.27 percent for both periods. The yield on interest-earning assets and the cost of funds both declined by 12 basis points.
• Average interest-earning assets totaled $19.1 billion and grew by $811 million, or 4.4 percent. 
• Average loans grew by $755.5 million, or 6.4 percent.

Provision for loan losses

• The Company recorded a provision for loan losses of $9.0 million as total loans grew, compared to $8.5 million in the prior quarter and $7.5 million a year earlier.
• Net charge-offs were $14.0 million compared to $14.4 million in the third quarter and $16.5 million in the year ago period. The ratio of net charge-offs to average loans on an annualized basis was 0.45 percent compared to 0.47 percent in the third quarter and 0.56 percent a year ago.
• The allowance for loan losses represented 1.20 percent of total loans at year end compared to 1.26 percent at September 30 and 1.47 percent at year end 2012. The allowance for loan losses represented 93.65 percent of nonperforming loans at year end compared to 88.7 percent at September 30 and 90.9 percent at year end 2012.

Noninterest income (compared to prior year)

• Total noninterest income was $44.3 million compared to $52.9 million, a decrease of $8.7 million; of this decrease, $7.3 million was related to the OTTI charge for certain investment securities related to the Volcker Rule of the Dodd-Frank Act.
• Excluding the OTTI charge and securities gains, a $1.4 million year-over-year decrease in core noninterest income reflects a decrease of $5.7 million in mortgage banking activities, which was offset by increases of $2.1 million in wealth and investment services, $1.6 million in other income which included $1.1 million in client swap fees, $0.4 million in loan related fees, and $0.4 million in deposit service fees.

Noninterest expense (compared to prior year)

• Total noninterest expense of $126.6 million compared to $122.9 million, an increase of $3.7 million. Included in noninterest expense in the fourth quarter of 2013 are $1.6 million of net one-time costs that amounted to $0.01 per diluted share on an after-tax basis. These costs consisted primarily of a write-down on assets held for disposition as part of our banking office optimization and severance expenses. There were $0.8 million of net one-time costs in the year ago quarter.
• Total noninterest expense excluding one-time costs increased $3.0 million. This reflects increases of $2.4 million in compensation and benefits primarily related to group medical and share-price increase expenses; $1.6 million in other expenses; $1.1 million in professional and outside services; and $0.3 million in foreclosed and repossessed asset expenses, net of gains. These increases were partially offset by decreases of $1.0 million in loan workout expenses, $0.9 million in technology and equipment expenses, $0.5 million in deposit insurance, and $0.1 million in occupancy expenses.
• Foreclosed and repossessed asset expenses were $0.4 million compared to $0.3 million, while net gains on foreclosed and repossessed assets were $0.2 million compared to $0.4 million.

Glenn MacInnes, chief financial officer, said, "The fourth quarter results reflect our ongoing commitment to operating efficiency, pricing discipline on both loans and deposits, prudent management of interest rate and credit risk, and continued attention to asset quality."  

Income taxes

• The Company recorded $18.8 million of income tax expense in the fourth quarter. The effective tax rate was 30.0 percent compared to 29.5 percent a year ago and reflects a $0.3 million net tax benefit specific to the quarter compared to $0.7 million a year ago.

Investment securities

• Total investment securities were $6.5 billion at year end and $6.2 billion a year ago. The carrying value of the available for sale portfolio included $4.0 million in net unrealized losses compared to net unrealized gains of $67.0 million a year ago, while the carrying value of the held to maturity portfolio does not reflect $12.2 million in net unrealized gains compared to net unrealized gains of $157.2 million a year ago.

Loans

• Total loans were $12.7 billion at year end compared to $12.5 billion at September 30 and $12.0 billion at year end 2012. In the quarter, commercial, commercial real estate, residential mortgage, and consumer increased by $132.1 million, $74.5 million, $10.8 million, and $4.4 million, respectively.
• Compared to a year ago, commercial, commercial real estate, and residential mortgage loans increased by $420.3 million, $275.3 million, and $69.7 million, respectively. Consumer loans decreased by $94.2 million.
• Loan originations for portfolio in the quarter were $1,094 million compared to $1,144 million in the prior quarter and $1,279 million a year ago. In addition, $95 million of residential loans were originated for sale in the quarter compared to $157 million in the third quarter and $222 million a year ago.

Asset quality

• Past due loans were $52.9 million at year end compared to $48.3 million at September 30 and $74.3 million a year ago. Compared to September 30, past due commercial non-mortgage, commercial real estate, and consumer loans increased $1.1 million, $4.4 million, and $2.0 million, respectively.  Past due residential mortgages decreased $2.5 million, and loans past due 90 days and still accruing decreased $0.3 million.  Compared to a year ago, all loan categories contributed to the decline except commercial non-mortgage and loans past due 90 days or more and still accruing, which increased $1.3 million and $3.3 million, respectively.
• Past due loans represented 0.42 percent of total loans at year end, 0.39 percent at September 30, and 0.62 percent a year ago. Past due loans for the continuing portfolios were $51.1 million at year end compared to $45.6 million at September 30 and $70.7 million a year ago. Past due loans for the liquidating portfolio were $1.8 million at December 31 compared to $2.7 million at September 30 and $3.6 million a year ago.
• Total nonperforming loans decreased to $162.9 million, or 1.28 percent of total loans, at year end compared to $177.6 million, or 1.42 percent, at September 30, and $194.8 million, or 1.62 percent, at year end 2012. Included in nonperforming loans at year end were $43.7 million of residential and consumer loans classified as nonaccrual under regulatory guidance that took effect in the fourth quarter of 2012. This compares to $43.5 million of such loans at September 30 and $39.5 million a year ago. Total paying nonperforming loans at December 31 were $48.8 million compared to $55.8 million at September 30 and $46.5 million a year ago.

Deposits and borrowings

• Total deposits were $14.9 billion at year end compared to $15.0 billion at September 30 and $14.5 billion at year end 2012. Compared to September 30, increases of $159.4 million in demand, $93.5 million in interest bearing checking, $36.6 million in savings, and $14.6 million in brokered certificates of deposit were offset by declines of $404.1 million in money market deposits due to a seasonal decline in government deposits, and $45.0 million in certificates of deposit. Compared to a year ago, increases of $387.8 million in interest-bearing checking, $247.0 million in demand deposits, $44.2 million in savings, and $21.8 million in brokered certificates of deposit were offset by a decline of $339.8 million in certificates of deposit and $37.5 million in money market deposits.
• Core to total deposits were 85.0 percent compared to the same level at September 30 and 82.5 percent a year ago. Loans to deposits were 85.5 percent compared to 83.2 percent at September 30 and 82.8 percent a year ago.
• Total borrowings were $3.6 billion at year end compared to $3.2 billion at both September 30 and a year ago.

Capital (compared to prior year)

• The tangible equity and tangible common equity ratios were 8.24 percent and 7.49 percent, respectively, at year end compared to 7.92 percent and 7.15 percent, respectively, a year ago. The Tier 1 common equity to risk-weighted assets ratio was 11.43 percent at year end compared to 10.78 percent a year ago.
• Book value and tangible book value per common share were $22.77 and $16.85, respectively, at year end compared to $22.75 and $16.42, respectively, a year ago.
• Excluding the OTTI charge, return on average tangible common shareholders' equity and return on average common shareholders' equity were 12.38 percent and 8.98 percent, respectively, in the fourth quarter compared to 13.66 percent and 9.74 percent, respectively, a year ago.

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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, 309 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.

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Conference Call
A conference call covering Webster's 2013 fourth quarter earnings announcement will be held today, Friday, January 17, 2014 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.