Webster Reports 2014 First Quarter Earnings

WATERBURY, Conn., April 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 $47.8 million, or $0.53 per diluted share, for the quarter ended March 31, 2014 compared to $39.2 million, or $0.44 per diluted share, for the quarter ended March 31, 2013.

Highlights for the quarter or at March 31 include:

• Earnings per diluted share, excluding security gains and one-time items, would be $0.50 compared to $0.45 a year ago.
• Combined growth in commercial and commercial real estate loans of $975.7 million, or 15.9 percent, from a year ago. Overall loan growth of $992.7 million, or 8.3 percent, from a year ago.
• Deposit growth of $416.1 million, or 2.9 percent, from a year ago.
• An efficiency ratio of 60.34 percent improved by 182 basis points from a year ago. Positive operating leverage of 3.4 percent year over year.
• Record net interest income of $155.3 million.  Highest pre-tax income since the third quarter of 2004.

"Webster reported a solid first quarter performance as net income topped $50 million for the first time," said James C. Smith, chairman and chief executive officer. "Commercial loan growth continues to lead the way, propelling net interest income to another new high. Transaction account balances grew, and asset quality improved further. Our continued loan growth reflects the gradually improving economy and our success in building deep, lasting customer relationships."

Net interest income (compared to prior year)

• Net interest income was $155.3 million compared to $145.8 million.
• Net interest margin was 3.26 percent compared to 3.23 percent. The yield on interest-earning assets declined by 4 basis points, while the cost of funds declined by 6 basis points.
• Average interest-earning assets totaled $19.5 billion and grew by $920.1 million, or 5.0 percent. 
• Average loans grew by $828.8 million, or 6.9 percent.

Provision for loan losses

• The Company recorded a provision for loan losses of $9.0 million compared to $9.0 million in the prior quarter and $7.5 million a year earlier.
• Net charge-offs were $8.0 million compared to $14.0 million in the fourth quarter and $16.8 million in the year-ago period. The ratio of net charge-offs to average loans on an annualized basis was 0.25 percent compared to 0.45 percent in the fourth quarter and 0.56 percent a year ago.
• The allowance for loan losses represented 1.18 percent of total loans at March 31, 2014 compared to 1.20 percent at December 31, 2013 and 1.40 percent at March 31, 2013. The allowance for loan losses represented 106 percent of nonperforming loans at March 31, 2014 compared to 94 percent at December 31 and 84 percent a year ago, with the increase reflecting the reclassification of $17.6 million of residential and consumer loans as accruing in the quarter under regulatory guidance.

Non-interest income (compared to prior year)

• Total non-interest income was $49.8 million compared to $48.3 million, an increase of $1.5 million; of this increase, $4.3 million was related to the sale of certain investment securities that Webster recorded impairment on in the prior quarter due to the Volcker Rule of the Dodd-Frank Act.
• Excluding the securities gains and a nominal other than temporary impairment charge, a $2.6 million year-over-year decrease in core non-interest income reflects a decrease of $6.3 million in mortgage banking activities, which was offset by increases of $2.1 million in other income which included $1.4 million increase in client transactions, $1.1 million in wealth and investment services, and $0.7 million in deposit service fees.

Non-interest expense (compared to prior year)

• Total non-interest expense of $124.6 million compared to $125.5 million, a decrease of $0.9 million. Included in non-interest expense are $0.2 million of net one-time costs. These costs primarily consisted of branch and facility optimization and severance expenses. There were $1.6 million of net one-time costs in the year-ago quarter.
• Foreclosed and repossessed asset expenses were $0.5 million compared to $0.2 million, while net gains on foreclosed and repossessed assets were flat compared to the prior year at $0.3 million.

Glenn MacInnes, chief financial officer, said, "Year-over-year positive operating leverage of 3.4 percent resulted in an improvement of 182 basis points in our efficiency ratio to 60.3 percent. We continue to be disciplined in our investments in order to enhance operating results."  

Income taxes

• The Company recorded $21.1 million of income tax expense in the first quarter. The effective tax rate was 29.5 percent compared to 31.0 percent a year ago and reflects a $2.0 million net tax benefit specific to the quarter.

Investment securities

• Total investment securities were $6.5 billion at March 31, 2014 and $6.4 billion a year ago. The carrying value of the available-for-sale portfolio included $8.8 million in net unrealized gains compared to $64.5 million a year ago, while the carrying value of the held-to-maturity portfolio does not reflect $30.2 million in net unrealized gains compared to $130.9 million a year ago.

Loans

• Total loans were $13.0 billion at March 31, 2014 compared to $12.7 billion at December 31, 2013 and $12.0 billion at March 31, 2013. In the quarter, commercial and commercial real estate loans increased by $226.2 million and $85.3 million, respectively, while residential mortgage and consumer loans decreased by $4.9 million and $11.6 million, respectively.
• Compared to a year ago, commercial, commercial real estate, and residential mortgage loans increased by $623.0 million, $352.7 million, and $69.5 million, respectively. Consumer loans decreased by $52.4 million.
• Loan originations for portfolio in the first quarter were $880 million compared to $1,094 million in the fourth quarter and $690 million a year ago. In addition, $59 million of residential loans were originated for sale in the quarter compared to $95 million in the prior quarter and $229 million a year ago.

Asset quality

• Past due loans were $48.0 million at quarter end compared to $52.9 million at December 31 and $40.0 million a year ago. Compared to December 31, past due consumer and commercial real estate loans decreased $3.9 million and $2.2 million, respectively.  Past due commercial non-mortgage, residential mortgage loans, and equipment financing increased $3.8 million, $0.7 million, and $0.3 million, respectively. Loans past due 90 days and still accruing decreased $3.7 million. Compared to a year ago, all loan categories contributed to the increase except for equipment financing, which decreased $0.3 million.
• Past due loans represented 0.37 percent of total loans at quarter end, 0.42 percent at December 31, and 0.33 percent a year ago. Past due loans for the continuing portfolio were $45.7 million at quarter end compared to $51.1 million at December 31 and $37.2 million a year ago. Past due loans for the liquidating portfolio were $2.3 million at March 31 compared to $1.8 million at December 31 and $2.8 million a year ago.
• Total nonperforming loans decreased to $145.1 million, or 1.12 percent of total loans, at year end compared to $162.9 million, or 1.28 percent, at December 31, and $198.8 million, or 1.66 percent, a year ago. Included in nonperforming loans at quarter end were $26.8 million of residential and consumer loans classified as nonaccrual under regulatory guidance that took effect in the fourth quarter of 2012. This compares to $43.7 million of such loans at December 31 and $44.0 million a year ago. The decrease reflects the reclassification of $17.6 million of residential and consumer loans as accruing in the quarter under regulatory guidance. Total paying nonperforming loans at March 31 were $35.7 million compared to $48.8 million at December 31 and $55.3 million a year ago.

Deposits and borrowings

• Total deposits were $15.0 billion at quarter end compared to $14.9 billion at December 31 and $14.6 billion a year ago. Compared to December 31, increases of $210.3 million in interest-bearing checking, $77.6 million inbrokered certificates of deposit, and $56.2 million in savings, were offset by declines of $99.5 million in demand, $34.6 million in money market deposits, and $24.5 million in certificates of deposit. Compared to a year ago, increases of $391.4 million in interest-bearing checking, $179.3 million in demand deposits, $81.3 million in brokered certificates of deposit, and $34.8 million in savings were offset by declines of $237.9 million in certificates of deposit and $32.7 million in money market deposits.
• Core to total deposits were 84.8 percent compared to 85.0 percent at December 31 and 83.3 percent a year ago. Loans to deposits were 86.4 percent compared to 85.5 percent at December 31 and 82.1 percent a year ago.
• Total borrowings were $3.7 billion at quarter end compared to $3.6 billion at December 31 and $3.2 billion a year ago.

Capital (compared to prior year)

• The tangible equity and tangible common equity ratios were 8.26 percent and 7.53 percent, respectively, at quarter end compared to 8.12 percent and 7.35 percent, respectively. The Tier 1 common equity to risk-weighted assets ratio was 11.46 percent at quarter end compared to 11.06 percent.
• Book value and tangible book value per common share were $23.13 and $17.21, respectively, at quarter end compared to $21.90 and $15.93, respectively.

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 168 banking centers, 310 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 2014 first quarter earnings announcement will be held today, Thursday, April 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.