Webster Reports 2014 Third Quarter Earnings

WATERBURY, Conn., Oct. 16, 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 September 30, 2014 compared to $44.7 million, or $0.49 per diluted share, for the quarter ended September 30, 2013.

Highlights for the quarter or at September 30 (compared to prior year):

• Record net interest income of $157.4 million, core revenue of $208.4 million, core pre-tax, pre-provision income of $83.5 million, pre-tax income of $74.1 million, and net income of $50.5 million.
• Combined growth in commercial and commercial real estate loans of $881.2 million, or 13.4 percent. Overall loan growth of $1.0 billion, or 8.3 percent.
• Deposit growth of $547.4 million, or 3.7 percent.
• Core revenue improved 6.3 percent from a year ago, while core expenses increased by 3.3 percent leading to core pre-tax pre-provision net revenue growth of 11.2 percent.
• Continued improvement in asset quality: annualized net charge-off rate at 24 basis points of average total loans; nonperforming loans as a percentage of total loans at the lowest level since the end of 2007.
• Efficiency ratio of 58.98 percent, an improvement of 109 basis points. Positive operating leverage of 3.0 percent.
• Return on average tangible common shareholders' equity of 11.86 percent.

"Webster reported record net income in the quarter as record revenue and continuing expense discipline produced an 8 percent increase in earnings per share," said James C. Smith, chairman and chief executive officer. "Led by strong performance of lending to businesses once again, loan balances grew in every key category, as our bankers excel in service to our customers. Credit quality trends remain favorable, a sign of the strengthening economy, and business confidence is on the rise."

Net interest income (compared to prior year)

• Net interest income was $157.4 million compared to $150.0 million.
• Net interest margin was 3.17 percent compared to 3.23 percent. The yield on interest-earning assets declined by 6 basis points, while the cost of funds declined by 1 basis point.
• Average interest-earning assets totaled $20.0 billion and grew by $1.2 billion, or 6.4 percent.
• Average loans grew by $1.1 billion, or 8.9 percent.

Provision for loan losses

• The Company recorded a provision for loan losses of $9.5 million compared to $9.25 million in the prior quarter and $8.5 million a year ago.
• Net charge-offs were $7.9 million compared to $8.0 million in the prior quarter and $14.4 million a year ago. The ratio of net charge-offs to average loans on an annualized basis was consistent with the second quarter at 0.24 percent compared to 0.47 percent a year ago.
• The allowance for loan losses represented 1.16 percent of total loans at September 30, 2014 compared to 1.17 percent at June 30, 2014 and 1.26 percent at September 30, 2013. The allowance for loan losses represented 112 percent of nonperforming loans at September 30 compared to 107 percent at June 30 and 89 percent a year ago.

Non-interest income (compared to prior year)

• Total non-interest income was $50.9 million compared to $46.3 million, an increase of $4.6 million. Excluding securities gains and a nominal other-than-temporary impairment charge, a $5.0 million year-over-year increase in core non-interest income reflects an increase of $1.3 million in deposit service fees, an increase of $1.1 million in mortgage banking activities, and an increase of $2.4 million in other income.

Non-interest expense (compared to prior year)

• Total non-interest expense was $124.6 million compared to $122.3 million, an increase of $2.3 million. Included in non-interest expense are branch and facility optimization costs, which include a $1.0 million gain on a building disposition offset by a $0.4 million building write-down for a net benefit of $0.6 million. There were $1.5 million of net one-time costs in the year-ago quarter.
• Foreclosed and repossessed asset expenses were flat to a year ago at $0.4 million, while net gains on foreclosed and repossessed assets were $0.2 million compared to $0.5 million in the year ago quarter.
• "We have now had twenty consecutive quarters of year-over-year core revenue growth and fourteen consecutive quarters of year-over-year positive operating leverage," said Glenn MacInnes, executive vice president and chief financial officer. "We have accomplished this while continuing to invest in revenue generating initiatives."

Income taxes

• The Company recorded $23.7 million of income tax expense in the third quarter. The effective tax rate was 31.9 percent compared to 27.7 percent a year ago, which included a $2.1 million net tax benefit specific to that period, and reflects primarily the effects of increased pre-tax income and decreased benefits from tax-exempt interest income.

Investment securities

• Total investment securities were $6.5 billion at both September 30 and June 30, 2014 and $6.4 billion a year ago. The carrying value of the available-for-sale portfolio included $20.8 million of net unrealized gains compared to $33.6 million at June 30 and $12.4 million a year ago, while the carrying value of the held-to-maturity portfolio does not reflect $57.8 million of net unrealized gains compared to $73.7 million at June 30 and $42.6 million a year ago.

Loans

• Total loans were $13.5 billion at September 30, 2014 compared to $13.3 billion at June 30, 2014 and $12.5 billion at September 30, 2013. In the quarter, commercial, commercial real estate, residential mortgage, and consumer loans increased by $54.1 million, $62.2 million, $89.3 million, and $32.6 million, respectively.
• Compared to a year ago, commercial, commercial real estate, residential mortgage, and consumer loans increased by $510.9 million, $370.2 million, $104.8 million, and $49.6 million, respectively.
• Loan originations for portfolio in the third quarter were $1,168 million compared to $1,069 million in the second quarter and $1,144 million a year ago. In addition, $78 million of residential loans were originated for sale in the quarter compared to $73 million in the prior quarter and $157 million a year ago.

Asset quality

• Past due loans were $45.3 million at September 30, 2014 compared to $46.9 million at June 30, 2014 and $48.3 million a year ago. Compared to June 30, past due consumer, residential mortgage, and liquidating consumer loans decreased $3.1 million, $1.8 million, and $0.7 million, respectively, while past due commercial non-mortgage, and equipment finance loans increased $3.8 million and $0.1 million, respectively. Loans past due 90 days and still accruing increased $0.1 million. Compared to a year ago, past due residential mortgages, loans past due 90 days and still accruing, and liquidating consumer loans decreased $4.8 million, $3.6 million, and 1.3 million, respectively, while commercial non-mortgage and commercial real estate loans increased $5.8 million and $1.1 million, respectively.
• Past due loans represented 0.34 percent of total loans at quarter end, 0.35 percent at June 30, and 0.39 percent a year ago. Past due loans for the continuing portfolio were $43.9 million at quarter end compared to $44.8 million at June 30 and $45.6 million a year ago. Past due loans for the liquidating portfolio were $1.4 million at September 30 compared to $2.1 million at June 30 and $2.7 million a year ago.
• Total nonperforming loans decreased to $139.8 million, or 1.03 percent of total loans, at quarter end compared to $144.5 million, or 1.09 percent, at June 30, and $177.6 million, or 1.42 percent, a year ago. Total paying nonperforming loans at September 30 were $35.0 million compared to $37.6 million at June 30 and $55.8 million a year ago.

Deposits and borrowings

• Total deposits were $15.5 billion at September 30, 2014 compared to $15.2 billion at June 30, 2014 and $15.0 billion a year ago. Compared to June 30, increases of $395.1 million in money market deposits, $42.5 million in interest-bearing checking, $16.2 million in brokered certificates of deposit, and $6.7 million in demand deposits were offset by declines of $95.4 million in savings, and $21.1 million in certificates of deposit. Compared to a year ago, increases of $497.0 million in interest-bearing checking, $288.0 million in demand deposits, $160.8 million in brokered certificates of deposit, and $50.3 million in savings were offset by declines of $332.6 million in money market deposits and $116.1 million in certificates of deposit.
• Core to total deposits were consistent with June 30 and a year ago at 85.0 percent. Loans to deposits were 86.9 percent compared to 87.3 percent at June 30 and 83.2 percent a year ago.
• Total borrowings were $3.8 billion at quarter end and at June 30 compared to $3.2 billion a year ago.

Capital (compared to prior year)

• The return on average tangible common shareholders' equity and the return on average common shareholders' equity were 11.86 percent and 8.88 percent, respectively, for the third quarter of 2014 compared to 12.43 percent and 8.93 percent, a year ago.
• The tangible equity and tangible common equity ratios were 8.35 percent and 7.64 percent, respectively, at September 30 compared to 8.13 percent and 7.37 percent, a year ago. The Tier 1 common equity to risk-weighted assets ratio was 11.44 percent at September 30 compared to 11.38 percent a year ago.
• Book value and tangible book value per common share were $23.93 and $18.02, respectively, at quarter end compared to $22.34 and $16.40, respectively.

***

Webster Financial Corporation is the holding company for Webster Bank, National Association. With $22 billion in assets, Webster provides business and consumer banking, mortgage, financial planning, trust and investment services through 166 banking centers, 311 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 third quarter earnings announcement will be held today, Thursday, October 16, 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 nonperforming 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.