Webster Reports First Quarter 2018 Earnings

WATERBURY, Conn., April 19, 2018 /PRNewswire/ -- Webster Financial Corporation (NYSE: WBS), the holding company for Webster Bank, N.A. and its HSA Bank division, today announced earnings applicable to common shareholders of $78.1 million, or $0.85 per diluted share, for the quarter ended March 31, 2018 compared to $57.3 million, or $0.62 per diluted share, for the quarter ended March 31, 2017.

"Webster's first quarter results demonstrate the meaningful progress we are making on the execution of our strategic priorities," said John Ciulla, president and chief executive officer. "Total revenues increased more than 10 percent from a year ago, driven by a 22 basis point increase in the net interest margin. Revenue growth, continuing investment, and effective risk management are enabling Webster to produce increasing levels of economic profit."

Highlights for the first quarter of 2018:

• Revenue of $282.9 million, an increase of 10.6 percent from a year ago, including net interest income of $214.2 million, an increase of 11.2 percent from a year ago.
• Loan growth of $711 million, or 4.2 percent from a year ago, with growth of $654 million, or 6.4 percent, in commercial and commercial real estate loans.
• Deposit growth of $1.1 billion, or 5.6 percent from a year ago, with growth of $694 million, or 14.5 percent, in health savings account deposits.
• Net interest margin of 3.44 percent, up 22 basis points from a year ago.
• Pre-tax, pre-provision net revenue growth of $19.4 million, or 21.1 percent from a year ago, led by HSA Bank's growth of 59.6 percent.
• Annualized return on average common shareholders' equity of 12.15 percent compared to 9.43 percent a year ago; annualized return on average tangible common shareholders' equity (non-GAAP) of 15.73 percent compared to 12.47 percent a year ago.

"Our ongoing balance sheet transformation is producing tangible results," said Glenn MacInnes, executive vice president and chief financial officer. "Our loan portfolio yield is 40 basis points higher than a year ago as 52 percent of our loans reprice in 30 days or less. The cost of deposits has increased only 7 basis points as 57 percent of our deposits are in low-costing transactional and health savings accounts."

Line of Business performance compared to the first quarter of 2017:

Commercial Banking
Webster's Commercial Banking segment serves middle market, commercial real estate, asset-based lending, equipment finance, private banking, and treasury and payment solutions clients. As of March 31, 2018, Commercial Banking had $9.7 billion in loans and leases and $4.0 billion in deposit balances.

Commercial Banking Operating Results:

Pre-tax, pre-provision net revenue increased $5.2 million to $58.7 million in the quarter as compared to prior year. Net interest income increased $6.4 million to $84.7 million, primarily due to loan growth and higher deposit margin.  Non-interest income increased $1.9 million to $15.3 million, primarily due to greater client interest rate hedging activity in the quarter as compared to prior year. Non-interest expense increased $3.1 million to $41.2 million, primarily due to investments in people and technology.

HSA Bank
Webster's HSA Bank division offers a comprehensive consumer-directed healthcare solution that includes health savings accounts, health reimbursement arrangements, flexible spending accounts and commuter benefits. Health savings accounts are distributed nationwide directly to employers and individual consumers, as well as through national and regional insurance carriers, benefit consultants and financial advisors. As of March 31, 2018, HSA Bank had $6.9 billion in total footings comprising $5.5 billion in deposit balances and $1.4 billion in assets under administration through linked investment accounts.

HSA Bank Operating Results:

Pre-tax net revenue increased $9.0 million to $24.1 million in the quarter as compared to prior year. Net interest income increased $8.9 million to $32.9 million, primarily due to growth in deposits and improved deposit spreads. Non-interest income increased $3.4 million to $22.7 million, primarily due to growth in accounts over the past year. Non-interest expense increased $3.3 million to $31.5 million, primarily due to account growth and continued investment in the business including expanded distribution.

Community Banking
Community Banking serves consumer and business banking customers primarily throughout southern New England and into Westchester County, New York. Community Banking is comprised of the Personal Banking and Business Banking operating segments, as well as a distribution network consisting of 167 banking centers and 333 ATMs, a customer care center, and a full range of web and mobile-based banking services.

As of March 31, 2018, Community Banking had $8.1 billion in loans and $11.6 billion in deposit balances.

Community Banking Operating Results:

Pre-tax, pre-provision net revenue increased $3.5 million to $27.3 million in the quarter as compared to prior year. Net interest income increased $5.3 million to $98.9 million, primarily due to growth in loan and deposit balances, as well as improved interest rate spreads on deposits. Non-interest income decreased $0.2 million primarily driven by lower mortgage production and related returns on mortgage banking activities, offset by growth in fees from investment services, credit cards and client interest rate hedging activities. Non-interest expense increased $1.7 million as a result of higher compensation expenses coupled with investments in technology and risk management, partially offset by lower direct marketing expenses.

Consolidated financial performance:

Quarterly net interest income compared to the first quarter of 2017:

• Net interest income was $214.2 million compared to $192.7 million.
• Net interest margin was 3.44 percent compared to 3.22 percent. The yield on interest-earning assets increased by 28 basis points, and the cost of funds increased by 7 basis points.
• Average interest-earning assets totaled $25.1 billion and grew by $717 million, or 2.9 percent.
• Average loans totaled $17.8 billion and grew by $714 million, or 4.2 percent.

Quarterly provision for loan losses:

• The Company recorded a provision for loan losses of $11.0 million, compared to $13.0 million in the prior quarter and $10.5 million a year ago.
• Net charge-offs were $5.6 million, compared to $14.8 million in the prior quarter and $5.7 million a year ago. The decrease to prior quarter is primarily due to decreased commercial charge-offs. The ratio of net charge-offs to average loans on an annualized basis was 0.13 percent, compared to 0.34 percent in the prior quarter and 0.13 percent a year ago.
• The allowance for loan losses represented 1.15 percent of total loans at March 31, 2018 compared to 1.14 percent at December 31, 2017 and 1.16 percent at March 31, 2017. The allowance for loan losses represented 153 percent of nonperforming loans compared to 158 percent at December 31, 2017 and 115 percent at March 31, 2017.

Quarterly non-interest income compared to the first quarter of 2017:

• Total non-interest income was $68.7 million compared to $63.0 million, an increase of $5.7 million. This reflects increases of $3.4 million driven by account growth and $2.9 million related to client hedging and break-funding revenue, offset by a decrease of $1.1 million in mortgage banking activities driven by lower originations.

Quarterly non-interest expense compared to the first quarter of 2017:

• Total non-interest expense was $171.6 million compared to $163.8 million, an increase of $7.8 million. This reflects an increase of $7.3 million in compensation and benefits along with an increase of $2.3 million in technology and equipment, offset by a decrease of $1.9 million in marketing. 

Quarterly income taxes compared to the first quarter of 2017:

• Income tax expense was $20.1 million compared to $22.0 million and the effective tax rate was 20.0 percent compared to 27.0 percent.
• The lower effective tax rate in the quarter primarily reflects the reduction of the U.S. corporate tax rate effective in 2018 as a result of the Tax Cuts and Jobs Act enacted in 2017.

Investment securities:

• Total investment securities were $7.2 billion compared to $7.1 billion at December 31, 2017 and $7.1 billion at March 31, 2017. The carrying value of the available-for-sale portfolio included $74.0 million of net unrealized losses compared to $37.1 million at December 31, 2017 and $28.2 million at March 31, 2017. The carrying value of the held-to-maturity portfolio does not reflect $111.3 million of net unrealized losses compared to $31.0 million at December 31, 2017, and $41.6 million at March 31, 2017.

Loans:

• Total loans were $17.8 billion compared to $17.5 billion at December 31, 2017 and $17.1 billion at March 31, 2017. Compared to December 31, 2017, commercial loans increased by $359.6 million and commercial real estate loans increased by $21.0 million, while consumer loans decreased by $67.8 million and residential loans decreased by $31.0 million.
• Compared to a year ago, commercial loans increased by $639.3 million, residential loans increased by $169.2 million, and commercial real estate loans increased by $14.3 million, while consumer loans decreased by $111.7 million.
• Loan originations for portfolio were $1.111 billion compared to $1.302 billion in the prior quarter and $1.107 billion a year ago. In addition, $43 million of residential loans were originated for sale in the quarter compared to $60 million in the prior quarter and $73 million a year ago.

Asset quality:

• Total nonperforming loans were $134.3 million, or 0.75 percent of total loans, compared to $126.6 million, or 0.72 percent, at December 31, 2017 and $173.8 million, or 1.02 percent, at March 31, 2017. Total paying nonperforming loans were $32.2 million compared to $33.2 million at December 31, 2017 and $73.5 million at March 31, 2017.
• Past due loans were $41.6 million compared to $45.8 million at December 31, 2017 and $32.1 million at March 31, 2017.

Deposits and borrowings:

• Total deposits were $21.4 billion compared to $21.0 billion at December 31, 2017 and $20.2 billion at March 31, 2017. Core deposits to total deposits were 88.1 percent compared to 88.2 percent at December 31, 2017 and 90.0 percent at March 31, 2017. The loan to deposit ratio was 83.3 percent compared to 83.5 percent at December 31, 2017 and 84.5 percent at March 31, 2017.
• Total borrowings were $2.4 billion compared to $2.5 billion at December 31, 2017 and $3.0 billion at March 31, 2017.

Capital:

• The return on average common shareholders' equity and the return on average tangible common shareholders' equity were 12.15 percent and 15.73 percent, respectively, compared to 9.43 percent and 12.47 percent, respectively, in the first quarter of 2017.
• The tangible equity and tangible common equity ratios were 8.21 percent and 7.65 percent, respectively, compared to 7.82 percent and 7.34 percent, respectively, at March 31, 2017. The common equity tier 1 risk-based capital ratio was 10.99 percent compared to 10.75 percent at March 31, 2017.
• Book value and tangible book value per common share were $27.94 and $21.78 respectively, compared to $26.45 and $20.26, respectively, at March 31, 2017.

Webster Financial Corporation is the holding company for Webster Bank, National Association and its HSA Bank division. With $26.8 billion in assets, Webster provides business and consumer banking, mortgage, financial planning, trust, and investment services through 167 banking centers and 333 ATMs. Webster also provides mobile and Internet banking. 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 2018 first quarter earnings announcement will be held today, Thursday, April 19, 2018 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 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 and cyber-security matters; (11) the ability to increase market share and control expenses; (12) changes in the competitive environment among banks, financial holding companies, and other financial services 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 the Dodd-Frank Wall Street Reform and Consumer Protection Act; (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; (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 headings "Risk Factors" and 'Management Discussion and Analysis of Financial Condition and Results of Operation." 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. 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.