Webster Reports 2015 First Quarter Earnings

WATERBURY, Conn., April 16, 2015 /PRNewswire/ -- Webster Financial Corporation (NYSE: WBS), the holding company for Webster Bank, N.A., today announced net income available to common shareholders of $47.1 million, or $0.52 per diluted share, for the quarter ended March 31, 2015 compared to $47.8 million, or $0.53 per diluted share, for the quarter ended March 31, 2014.

"Webster's solid first quarter results mark our 22nd consecutive quarter of year-over-year revenue growth, a clear reflection of our bankers' success in serving our customers and communities," said James C. Smith, chairman and chief executive officer. "Commercial Banking once again recorded double-digit loan growth, while HSA Bank opened a record number of new health savings accounts, as consumers increasingly reap the rewards of taking ownership for their health care costs."

Highlights for the first quarter of 2015 compared to the first quarter of 2014:

• Excluding security gains, earnings per diluted share of $0.52 compared to $0.50 a year ago.
• Growth in commercial and commercial real estate loans of $993.4 million, or 14.0 percent. Overall loan growth of $1.3 billion, or 9.8 percent.
• Successful closing of acquired HSA business resulted in the addition of $1.4 billion in low-cost, long duration health savings account deposits (HSAs), reinforcing HSA Bank's position as a market leader in this fast growing segment.
• Overall deposit growth of $2.5 billion, or 16.7 percent, primarily reflecting the HSA acquisition.
• Record core revenue of $217.6 million increased 8.3 percent, while core expenses increased by 7.1 percent resulting in core pre-provision net revenue of $84.7 million, or a 10.3 percent improvement.
• Efficiency ratio of 59.76 percent, an improvement of 51 basis points. Positive operating leverage of 1.2 percent.
• Annualized return on average tangible common shareholders' equity of 11.82 percent.

"We've now completed eight consecutive quarters with the efficiency ratio at or below 60 percent," said Glenn MacInnes, executive vice president and chief financial officer. "In addition, the annualized net charge-off ratio has been 25 basis points or less for five consecutive quarters as we maintain credit discipline in a competitive market."

Quarterly net interest income compared to the first quarter of 2014:

• Net interest income was $159.8 million, compared to $155.3 million.
• Net interest margin was 3.10 percent compared to 3.26 percent. The yield on interest-earning assets declined by 18 basis points, while the cost of funds declined by 3 basis points.
• Average interest-earning assets totaled $21.0 billion and grew by $1.6 billion, or 8.0 percent.
• Average loans grew by $1.1 billion, or 8.9 percent.

Quarterly provision for loan losses:

• The Company recorded a provision for loan losses of $9.75 million in the first quarter of 2015 compared to $9.5 million in the fourth quarter of 2014 and $9.0 million in the first quarter of 2014.
• Net charge-offs were $7.0 million compared to $6.7 million in the prior quarter and $8.0 million a year ago. The ratio of net charge-offs to average loans on an annualized basis was 0.20 percent compared to 0.20 percent in the prior quarter and 0.25 percent a year ago.
• The allowance for loan losses represented 1.14 percent of total loans at March 31, 2015 compared to 1.15 percent at December 31, 2014 and 1.18 percent at March 31, 2014. The allowance for loan losses represented 106 percent of nonperforming loans at March 31 compared to 123 percent at December 31 and 106 percent a year ago.

Quarterly non-interest income compared to the first quarter of 2014:

• Total non-interest income was $57.9 million compared to $49.8 million, an increase of $8.1 million. Excluding securities gains and other-than-temporary impairment charges, a $12.3 million year-over-year increase in core non-interest income reflects increases of $7.9 million in deposit service fees of which $6.7 million resulted from the HSA acquisition, $1.2 million in loan related fees, $0.8 million in mortgage banking activities, and $3.4 million in other income, offset by a $0.9 million reduction in wealth and investment services.

Quarterly non-interest expense compared to the first quarter of 2014:

• Total non-interest expense was $134.1 million compared to $124.5 million, an increase of $9.6 million. Included in non-interest expense are $0.5 million of net one-time costs, which consisted primarily of costs related to the HSA acquisition. There were $0.2 million of net one-time costs in the year-ago quarter.
• Non-interest expense, excluding one-time costs, increased $9.4 million. This increase is attributable to an increase of $4.5 million in compensation and benefits primarily related to staff additions and an increase of $4.2 million in technology and equipment expense at HSA Bank primarily from the acquisition.
• Foreclosed and repossessed asset expenses were $0.2 million compared to $0.5 million, while net losses on foreclosed and repossessed assets were $0.5 million compared to net gains of $0.3 million a year ago.

Quarterly income taxes compared to the first quarter of 2014:

• The Company recorded $24.1 million of income tax expense compared to $21.2 million, an increase of $2.9 million. The effective tax rate was 32.6 percent compared to 29.6 percent. The year ago quarter reflected a $2.0 million net tax benefit compared to a net benefit of $0.5 million in the current quarter.

Investment securities:

• Total investment securities were $6.9 billion at March 31, 2015 compared to $6.7 billion at December 31, 2014 and $6.5 billion a year ago. The carrying value of the available-for-sale portfolio included $36.9 million of net unrealized gains compared to $25.9 million at December 31 and $8.8 million a year ago, while the carrying value of the held-to-maturity portfolio does not reflect $99.8 million of net unrealized gains compared to $75.8 million at December 31 and $30.2 million a year ago.

Loans:

• Total loans were $14.3 billion at March 31, 2015 compared to $13.9 billion at December 31, 2014 and $13.0 billion a year ago. Compared to December 31, commercial, commercial real estate, residential mortgage, and consumer loans increased by $156.4 million, $108.6 million, $85.1 million, and $20.0 million, respectively.
• Compared to a year ago, commercial real estate, commercial, residential mortgage, and consumer loans increased by $519.5 million, $473.9 million, $237.7 million, and $44.4 million, respectively.
• Loan originations for portfolio in the first quarter were $1.062 billion compared to $1.378 billion in the fourth quarter and $879 million a year ago. In addition, $87 million of residential loans were originated for sale in the quarter compared to $87 million in the prior quarter and $59 million a year ago.

Asset quality:

• Past due loans were $45.1 million at March 31, 2015 compared to $42.3 million at December 31, 2014 and $48.5 million a year ago. Compared to December 31, past due consumer, commercial non-mortgage, commercial real estate, liquidating consumer, and equipment financing loans increased $2.6 million, $1.9 million, $1.2 million, $0.2 million, and $0.1 million, respectively, while past due residential mortgage loans decreased $3.2 million. Loans past due 90 days and still accruing increased $22 thousand. Compared to a year ago, past due residential mortgage, commercial non-mortgage, and liquidating consumer loans decreased $5.0 million, $3.9 million, and $0.1 million, respectively, while past due consumer, commercial real estate, and equipment financing loans increased $3.9 million, $1.3 million, and $0.1 million, respectively. Loans past due 90 days and still accruing increased $0.7 million.
• Past due loans represented 0.32 percent of total loans at quarter end, 0.30 percent at December 31, and 0.37 percent a year ago. Past due loans for the continuing portfolio were $43.3 million at quarter end compared to $40.7 million at December 31 and $46.2 million a year ago. Past due loans for the liquidating portfolio were $1.8 million at March 31 compared to $1.7 million at December 31 and $2.3 million a year ago.
• Total nonperforming loans increased to $152.2 million, or 1.07 percent of total loans, at quarter end compared to $129.9 million, or 0.93 percent, at December 31, and $144.6 million, or 1.11 percent, a year ago. Total paying nonperforming loans at March 31 were $53.8 million compared to $30.5 million at December 31 and $48.8 million a year ago.

Deposits and borrowings:

• Total deposits were $17.5 billion at March 31, 2015 compared to $15.7 billion at December 31, 2014 and $15.0 billion a year ago. Compared to December 31, increases of $1.7 billion in health savings accounts, $205.8 million in money market, $112.3 million in interest-bearing checking, and $85.9 million in savings deposits, were offset by declines of $148.6 million in demand deposits, $65.6 million in certificates of deposit, and $235 thousand in brokered certificates of deposit. Compared to a year ago, increases of $1.8 billion in health savings accounts, $421.7 million in demand deposits, $309.3 million in interest-bearing checking, $74.1 million in brokered certificates of deposit, and $58.5 million in savings deposits, were offset by declines of $148.6 million in certificates of deposit and $18.7 million in money market deposits.
• Core to total deposits were 87.4 percent at quarter end, 85.5 percent at December 31, and 84.8 percent a year ago. Loans to deposits were 81.3 percent compared to 88.8 percent at December 31 and 86.4 percent a year ago.
• Total borrowings were $2.9 billion at March 31 compared to $4.3 billion at December 31 and $3.7 billion a year ago.

Capital:

• The return on average tangible common shareholders' equity and the return on average common shareholders' equity were 11.82 percent and 8.57 percent, respectively, for the first quarter of 2015 compared to 12.51 percent and 9.16 percent, respectively, in the first quarter of 2014.
• The tangible equity and tangible common equity ratios were 7.87 percent and 7.20 percent, respectively, at March 31, 2015 compared to 8.26 percent and 7.53 percent, respectively, at March 31, 2014. The Tier 1 common equity to risk-weighted assets ratio was 10.93 percent at March 31 compared to 11.45 percent a year ago.
• Book value and tangible book value per common share were $24.29 and $17.87, respectively, at March 31, 2015 compared to $23.13 and $17.22, respectively, at March 31, 2014.

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Webster Financial Corporation is the holding company for Webster Bank, National Association. With $23.1 billion in assets, Webster provides business and consumer banking, mortgage, financial planning, trust, and investment services through 164 banking centers, 313 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 2015 first quarter earnings announcement will be held today, Thursday, April 16, 2015 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.