WATERBURY, Conn., April 18 - Webster Financial Corporation (NYSE: WBS), the holding company for Webster Bank, N.A., today announced net income of $43.9 million in the first quarter compared to $47.5 million a year ago. Net income per diluted share was $.82 compared to $.88 a year ago.
Performance in the quarter was impacted by a flattened yield curve resulting from the interest rate environment of the past year, which reduced wholesale spread revenues from our investment securities activities. Revenues from these activities were $.04 per share in the first quarter compared to $.15 a year ago with the reduction attributable to the cost of borrowed funds rising faster than the yield on securities over the past year.
Cash net income, which adds stock-based compensation and intangible amortization expenses back to net income, was $48.1 million compared to $52.1 million in the year-ago quarter. Cash net income per share was $.90 in the first quarter compared to $.96 a year ago.
"Webster's first quarter results reflect solid performance in a challenging interest rate environment. We continue to have success in growing loans and deposits, building a stronger balance sheet and delivering higher quality earnings consistent with our strategic plan for growth," stated Webster Chairman and Chief Executive Officer James C. Smith. "We have become a strong competitive force as we deliver more services to more customers across a broader franchise."
Revenues
Total revenues, consisting of net interest income plus total noninterest income, were $185.4 million in the first quarter compared to $181.3 million a year ago, an increase of 2 percent. Net interest income totaled $130.2 million in the first quarter compared to $128.2 million in the year-ago period, an increase of 2 percent. This increase reflects strong growth in higher yielding loans funded by deposits, partially offset by reduced wholesale spread revenue from the securities portfolio.
Webster's net interest margin (annualized tax-equivalent net interest income as a percentage of average earning assets) was 3.24 percent in the first quarter compared to 3.32 percent a year ago. The flattening of the yield curve and rise in short-term rates caused our deposit and borrowing costs to increase faster than the yield on earning assets over the past year.
Total noninterest income was $55.2 million in the first quarter compared to $53.0 million a year ago. Excluding securities gains of $1.0 million and $0.8 million in the respective periods, noninterest income totaled $54.2 million and increased 4 percent from a year ago. Deposit service fees totaled $21.9 million and increased 14 percent from a year ago reflecting an increased contribution from HSA Bank and growth in retail banking activities. Wealth management fees totaled $6.4 million and increased 18 percent based on equally strong performances from trust fees and investment product sales. These increases were partially offset by declines of $1.1 million each in insurance revenue and loan servicing fees.
The provision for credit losses totaled $2.0 million in the first quarter and exceeded net loan charge-offs by $0.3 million. The provision was $3.5 million a year ago which exceeded net loan charge-offs by $2.4 million. The annualized net loan charge-off ratio was 0.05 percent of average loans in the first quarter compared to 0.04 percent a year ago.
Expenses
Total noninterest expenses were $119.2 million in the first quarter compared to $107.8 million a year ago. Contributing to this increase were investments in de novo branch expansion, HSA Bank and the higher net cost of our new core systems. Further adjusting for expenses that were particular to each quarter, noninterest expenses increased by 5 percent to $108.5 million compared to $103.0 million a year ago. This increase reflects new revenue- generating personnel in Webster's lines of business, build-out of the compliance function and other employee-related costs.
Balance Sheet Trends
Total assets were $17.9 billion at March 31, 2006 and increased 3 percent from a year ago. Total loans were $12.6 billion and increased $0.9 billion, or 8 percent, from a year ago. Deposits were $12.1 billion and increased $1.0 billion, or 9 percent, from a year ago aided by our de novo branching program and continued growth in health savings account deposits at HSA Bank. The ratio of loans to deposits improved to 104 percent at March 31 compared to 106 percent a year ago.
"Our client relationship-driven model with tailored products and services resulted in another strong increase in commercial loans during the quarter," stated Webster President and Chief Operating Officer William T. Bromage. "Webster has become a commercial bank financial services provider fully capable of serving the breadth of needs of the many small and mid-sized businesses in our markets."
Commercial loans, consisting of commercial and industrial and commercial real estate, were $4.9 billion at March 31, 2006, up 12 percent from a year ago. Commercial and industrial loans were $3.0 billion, up 14 percent, and commercial real estate loans were $1.9 billion, up 9 percent. Consumer loans, primarily home equity loans and lines, increased 8 percent to $2.8 billion compared to $2.6 billion a year ago. Commercial and consumer loans grew at a combined rate of 10 percent from a year ago while residential loans, which totaled $4.9 billion, grew by 4 percent.
Demand and NOW deposits grew by 6 percent compared to a year ago while certificates of deposit balances grew by 24 percent as customers continued to shift balances to this product category. Deposit growth in excess of loan growth combined with a reduction in the securities portfolio contributed to a $600 million reduction in wholesale borrowings over the past year. As a result, wholesale borrowings declined to 22 percent of total assets at March 31 compared to 27 percent a year ago.
"First quarter performance reflects more loans and deposits and fewer securities and borrowings, resulting in more franchise earnings and less wholesale contribution," stated Webster Chief Financial Officer William J. Healy. "Webster continues to make significant progress in strengthening the balance sheet and increasing earnings from our core banking activities."
Book value per common share of $31.09 at March 31, 2006 increased from $29.07 a year ago. Tangible book value per share of $18.18 at March 31 increased from $16.26 last year. The ratio of tangible equity to tangible assets increased to 5.48 percent at March 31 compared to 5.08 percent a year ago. Return on average tangible equity was 17.8 percent in the first quarter compared to 21.4 percent a year ago while the cash return on average tangible equity was 19.6 percent and 23.4 percent in the respective periods.
Asset Quality
Nonperforming assets declined during the quarter and totaled $61.9 million, or 0.35 percent of total assets, at March 31, 2006 compared to $73.0 million, or 0.41 percent, at December 31 and $49.1 million, or 0.28 percent, a year ago.
The allowance for credit losses, which consists of the allowance for loan losses and the reserve for unfunded commitments, was $156.0 million, or 1.24 percent of total loans, at March 31 compared to $152.5 million, or 1.30 percent, a year ago. The ratio of the allowance to nonperforming loans was 263 percent at March 31 compared to 334 percent a year ago.
Webster Financial Corporation is the holding company for Webster Bank, National Association and Webster Insurance. With $17.9 billion in assets, Webster provides business and consumer banking, mortgage, insurance, financial planning, trust and investment services through 158 banking offices, 306 ATMs, telephone banking and the Internet. Webster Bank owns the asset-based lending firm Webster Business Credit Corporation, the insurance premium finance company Budget Installment Corp., Center Capital Corporation, an equipment finance company headquartered in Farmington, Connecticut and provides health savings account trustee and administrative services through HSA Bank, a division of Webster Bank.
For more information about Webster, including past press releases and the latest Annual Report, visit the Webster website at http://www.websteronline.com.
Conference Call
A conference call covering Webster's 2006 first quarter earnings announcement will be held today, Tuesday, April 18, at 11:00 a.m. Eastern Time and may be heard through Webster's investor relations website at http://www.wbst.com, or in listen-only mode by calling 1-877-407-3980 or 201-689-8475 internationally. The call will be archived on the website and available for future retrieval.
Forward-looking Statements
Statements in this press release regarding Webster Financial Corporation's business that are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of such risks and uncertainties that could cause actual results to differ from those contained in the forward-looking statement, see "Forward Looking Statements" in Webster's Annual Report for 2005. Except as required by law, Webster does not undertake to update any such forward-looking information.
Non-GAAP Financial Measures
In addition to results presented in accordance with GAAP, this press release contains certain non-GAAP financial measures. We believe that providing certain non-GAAP financial measures, such as cash basis net income, provides investors with information useful in understanding our financial performance, our performance trends and financial position. A reconciliation of cash basis net income to net income is included in the accompanying financial tables, elsewhere in this report.
WEBSTER FINANCIAL CORPORATION
Selected Financial Highlights (unaudited)
At or for the Three
Months Ended March 31,
(In thousands, except per share data) 2006 2005
Net income and performance ratios
(annualized):
Net income $43,852 $47,495
Net income per diluted common share 0.82 0.88
Return on average shareholders'
equity 10.55 % 12.13 %
Return on average tangible equity 17.83 21.37
Return on average assets 0.99 1.11
Noninterest income as a percentage of
total revenue 29.78 29.26
Efficiency ratio (a,d) 64.29 59.46
Cash income and performance ratios
(annualized) (b):
Net income $43,852 $47,495
Stock-based compensation, net of tax 1,387 1,420
Intangible amortization, net of tax 2,845 3,186
Cash income 48,084 52,101
Cash income per diluted common share 0.90 0.96
Cash return on average shareholders'
equity 11.56 % 13.31 %
Cash return on average tangible
equity 19.55 23.44
Cash return on average assets 1.08 1.22
Asset quality:
Allowance for credit losses 155,957 $152,519
Nonperforming assets 61,892 49,130
Allowance for credit losses / total
loans 1.24 % 1.30 %
Net charge-offs/ average loans
(annualized) 0.05 0.04
Nonperforming loans / total loans 0.47 0.39
Nonperforming assets / total assets 0.35 0.28
Allowance for credit losses /
nonperforming loans 262.72 334.21
Other ratios (annualized):
Tangible capital ratio 5.48 % 5.08 %
Shareholders' equity / total assets 9.16 8.98
Interest-rate spread 3.19 3.28
Net interest margin 3.24 3.32
Share related:
Book value per common share $31.09 $29.07
Tangible book value per common share 18.18 16.26
Common stock closing price 48.46 45.41
Dividends declared per common share 0.25 0.23
Common shares issued and outstanding 52,776 53,787
Basic shares (average) 53,094 53,571
Diluted shares (average) 53,703 54,217
Footnotes:
(a) Noninterest expense as a percentage of net interest income plus
noninterest income.
(b) Cash income represents net income excluding the after tax effects of
non-cash charges related to the amortization of intangible assets and
stock-based compensation, which includes stock options and restricted
stock.
(c) For purposes of this computation, unrealized gains (losses) are
excluded from the average balance for rate calculations.
(d) Excluding conversion and infrastructure costs, the efficiency ratio
would have been 58.83% for the three months ended March 31, 2005.
(e) Effective December 31, 2005, Webster transferred the portion of the
allowance for loan losses related to commercial and consumer lending
commitments and letters of credit to the reserve for unfunded credit
commitments.
Consolidated Statements of Condition (unaudited)
March 31, December 31, March 31,
(In thousands) 2006 2005 2005
Assets:
Cash and due from depository
institutions $267,541 $293,706 $266,088
Short-term investments 11,889 36,302 79,676
Securities:
Trading, at fair value 1,042 2,257 1,038
Available for sale, at fair
value 2,472,699 2,555,419 2,591,270
Held-to-maturity securities 1,116,386 1,142,909 1,212,934
Total securities 3,590,127 3,700,585 3,805,242
Loans held for sale 201,210 267,919 352,233
Loans:
Residential mortgages 4,890,887 4,828,564 4,722,897
Commercial 3,038,930 2,876,528 2,674,901
Commercial real estate 1,851,035 1,808,494 1,690,973
Consumer 2,809,785 2,771,700 2,608,303
Total loans 12,590,637 12,285,286 11,697,074
Allowance for loan losses (146,383) (146,486) (152,519)
Loans, net 12,444,254 12,138,800 11,544,555
Accrued interest receivable 94,602 85,779 67,953
Premises and equipment, net 184,831 182,856 161,635
Goodwill and intangible assets 698,557 698,570 714,490
Cash surrender value of life
insurance 240,426 237,822 230,823
Prepaid expenses and other assets 173,749 194,223 190,133
Total Assets $17,907,186 $17,836,562 $17,412,828
Liabilities and Shareholders'
Equity:
Deposits:
Demand deposits $1,459,855 $1,546,096 $1,426,798
NOW accounts 1,683,677 1,622,403 1,535,595
Money market deposit accounts 1,761,016 1,789,781 1,904,158
Savings accounts 2,004,375 2,015,045 2,276,623
Certificates of deposit 4,392,731 4,249,874 3,545,287
Treasury deposits 776,623 407,946 295,073
Deposits held in divested
branches - - 48,301
Total deposits 12,078,277 11,631,145 11,031,835
Federal Home Loan Bank advances 2,383,118 2,214,010 2,319,722
Securities sold under agreements
to repurchase and other
short-term debt 1,007,439 1,522,381 1,670,950
Other long-term debt 631,568 640,906 674,240
Reserve for unfunded commitments (e) 9,574 9,146 -
Accrued expenses and other
liabilities 146,871 162,171 142,910
Total liabilities 16,256,847 16,179,759 15,839,657
Preferred stock of subsidiary
corporation 9,577 9,577 9,577
Shareholders' equity 1,640,762 1,647,226 1,563,594
Total Liabilities and
Shareholders' Equity $17,907,186 $17,836,562 $17,412,828
See Selected Financial Highlights for footnotes.
Consolidated Statements of Income (unaudited)
Three Months Ended
March 31,
(In thousands, except per share data) 2006 2005
Interest income:
Loans $195,574 $158,787
Securities and short-term investments 41,595 40,899
Loans held for sale 3,339 2,732
Total interest income 240,508 202,418
Interest expense:
Deposits 62,354 35,868
Borrowings 47,995 38,318
Total interest expense 110,349 74,186
Net interest income 130,159 128,232
Provision for credit losses 2,000 3,500
Net interest income after provision
for credit losses 128,159 124,732
Noninterest income:
Deposit service fees 21,869 19,129
Insurance revenue 10,724 11,802
Loan and loan servicing fees 7,824 8,929
Wealth and investment services 6,354 5,395
Gain on sale of loans and loan
servicing, net 3,273 2,536
Increase in cash surrender value of
life insurance 2,371 2,238
Other 1,775 2,243
54,190 52,272
Gain on sale of securities, net 1,012 756
Total noninterest income 55,202 53,028
Noninterest expenses:
Compensation and benefits 65,003 57,902
Occupancy 12,182 10,859
Furniture and equipment 13,595 10,798
Intangible amortization 4,377 4,902
Marketing 3,624 3,283
Professional services 3,544 3,770
Conversion and infrastructure costs - 1,134
Other 16,846 15,126
Total noninterest expenses 119,171 107,774
Income before income taxes 64,190 69,986
Income taxes 20,338 22,491
Net income $43,852 $47,495
Diluted shares (average) 53,703 54,217
Net income per common share:
Basic $0.83 $0.89
Diluted 0.82 0.88
See Selected Financial Highlights for footnotes.
Consolidated Statements of Income (unaudited)
Three Months Ended
March 31, Dec. 31, Sept. 30, June 30, March 31,
(In thousands, except 2006 2005 2005 2005 2005
per share data)
Interest income:
Loans $195,574 $187,607 $175,680 $166,967 $158,787
Securities and short-
term investments 41,595 42,503 43,775 42,684 40,899
Loans held for sale 3,339 3,563 3,686 2,964 2,732
Total interest income 240,508 233,673 223,141 212,615 202,418
Interest expense:
Deposits 62,354 57,132 51,338 44,099 35,868
Borrowings 47,995 46,879 42,191 38,681 38,318
Total interest expense 110,349 104,011 93,529 82,780 74,186
Net interest income 130,159 129,662 129,612 129,835 128,232
Provision for credit
losses 2,000 2,000 2,000 2,000 3,500
Net interest income
after provision for
credit losses 128,159 127,662 127,612 127,835 124,732
Noninterest income:
Deposit service fees 21,869 22,909 22,182 21,747 19,129
Insurance revenue 10,724 10,678 10,973 10,562 11,802
Loan and loan servicing
fees 7,824 9,290 7,739 7,274 8,929
Wealth and investment
services 6,354 6,174 5,554 6,028 5,395
Gain on sale of loans
and loan servicing, net 3,273 2,322 3,703 3,012 2,536
Increase in cash
surrender value of life
insurance 2,371 2,360 2,341 2,302 2,238
Other 1,775 3,470 2,347 2,013 2,243
54,190 57,203 54,839 52,938 52,272
Gain on sale of
securities, net 1,012 1,026 1,141 710 756
Total noninterest
income 55,202 58,229 55,980 53,648 53,028
Noninterest expenses:
Compensation and
benefits 65,003 64,905 60,808 57,854 57,902
Occupancy 12,182 11,141 10,482 10,810 10,859
Furniture and equipment 13,595 14,810 13,009 11,611 10,798
Intangible amortization 4,377 5,001 5,001 5,009 4,902
Marketing 3,624 3,981 3,339 3,664 3,283
Professional services 3,544 3,594 3,626 3,972 3,770
Conversion and
infrastructure costs - 1,281 2,217 3,506 1,134
Other 16,846 14,646 16,450 17,079 15,126
Total noninterest
expenses 119,171 119,359 114,932 113,505 107,774
Income before income
taxes 64,190 66,532 68,660 67,978 69,986
Income taxes 20,338 21,032 22,058 21,720 22,491
Net income $43,852 $45,500 $46,602 $46,258 $47,495
Diluted shares (average) 53,703 54,129 54,310 54,278 54,217
Net income per common
share:
Basic $0.83 $0.85 $0.87 $0.86 $0.89
Diluted 0.82 0.84 0.86 0.85 0.88
See Selected Financial Highlights for footnotes.
Retail and Wholesale Interest-Rate Spreads (unaudited)
Three Months Ended, March December September June March
2006 2005 2005 2005 2005
Interest-rate spread
Yield on interest-earning assets 5.97 % 5.73 % 5.55 % 5.40 % 5.22 %
Cost of interest-bearing
liabilities 2.78 2.55 2.33 2.11 1.94
Interest-rate spread 3.19 % 3.18 % 3.22 % 3.29 % 3.28 %
Net interest margin 3.24 3.22 3.26 3.32 3.32
Retail interest-rate spread
Yield on loans and loans held
for sale 6.32 % 6.02 % 5.83 % 5.66 % 5.44 %
Cost of deposits 2.16 1.94 1.76 1.57 1.37
Spread 4.16 % 4.08 % 4.07 % 4.09 % 4.07 %
Wholesale interest-rate spread
Yield on securities and short-
term investments 4.76 % 4.75 % 4.67 % 4.62 % 4.52 %
Cost of borrowings 4.44 4.19 3.84 3.54 3.23
Spread 0.32 % 0.56 % 0.83 % 1.08 % 1.29 %
Consolidated Average Statements of Condition (unaudited)
Three Months Ended March 31, 2006
Fully tax-
Average equivalent
(Dollars in thousands) balance Interest yield/rate
Assets:
Interest-earning assets:
Loans $12,392,022 $195,574 6.33 %
Securities 3,630,986 43,819 4.77 (c)
Loans held for sale 228,695 3,339 5.84
Short-term investments 15,181 112 2.95
Total interest-earning assets 16,266,884 242,844 5.97
Noninterest-earning assets 1,500,627
Total assets $17,767,511
Liabilities and Shareholders'
Equity:
Interest-bearing liabilities:
Demand deposits $1,451,677 $ - - %
Savings, NOW and money market
deposit accounts 5,309,282 19,808 1.51
Time deposits 4,906,912 42,546 3.52
Total deposits 11,667,871 62,354 2.16
Federal Home Loan Bank advances 2,397,872 24,496 4.09
Repurchase agreements and other
short-term debt 1,289,102 11,830 3.67
Other long-term debt 640,804 11,669 7.28
Total borrowings 4,327,778 47,995 4.44
Total interest-bearing
liabilities 15,995,649 110,349 2.78
Noninterest-bearing liabilities 98,991
Total liabilities 16,094,640
Preferred stock of subsidiary
corporation 9,577
Shareholders' equity 1,663,294
Total liabilities and
shareholders' equity $17,767,511
132,495
Less: tax-equivalent adjustment (2,336)
Net interest income $130,159
Interest-rate spread 3.19 %
Net interest margin 3.24 %
See Selected Financial Highlights for footnotes.
Three Months Ended March 31, 2005
Fully tax-
Average equivalent
(Dollars in thousands) balance Interest yield/rate
Assets:
Interest-earning assets:
Loans $11,685,261 $158,787 5.45 %
Securities 3,750,867 42,690 4.54 (c)
Loans held for sale 213,952 2,732 5.11
Short-term investments 26,855 141 2.10
Total interest-earning assets 15,676,935 204,350 5.22
Noninterest-earning assets 1,401,298
Total assets $17,078,233
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Demand deposits $1,345,366 - -
Savings, NOW and money market
deposit accounts 5,604,282 12,959 0.94
Time deposits 3,692,642 22,909 2.52
Total deposits 10,642,290 35,868 1.37
Federal Home Loan Bank advances 2,407,150 18,587 3.09
Repurchase agreements and other
short-term debt 1,659,605 9,543 2.30
Other long-term debt 681,120 10,188 5.98
Total borrowings 4,747,875 38,318 3.23
Total interest-bearing
liabilities 15,390,165 74,186 1.94
Noninterest-bearing liabilities 112,679
Total liabilities 15,502,844
Preferred stock of subsidiary
corporation 9,577
Shareholders' equity 1,565,812
Total liabilities and
shareholders' equity $17,078,233
130,164
Less: tax-equivalent adjustment (1,932)
Net interest income $128,232
Interest-rate spread 3.28 %
Net interest margin 3.32 %
See Selected Financial Highlights for footnotes.
At or for the Three Months Ended
(Unaudited) March 31, Dec. 31, Sept. 30, June 30, March 31,
(Dollars in thousands) 2006 2005 2005 2005 2005
Asset Quality
Nonperforming loans:
Commercial:
Commercial $20,721 $32,678 $27,544 $19,073 $17,112
Equipment financing 2,864 3,065 3,209 3,466 3,800
Total commercial 23,585 35,743 30,753 22,539 20,912
Commercial real estate 24,012 22,678 19,650 11,654 15,609
Residential 8,891 6,979 6,436 6,690 7,528
Consumer 2,875 1,829 1,699 1,019 1,586
Total nonperforming loans 59,363 67,229 58,538 41,902 45,635
Loans held for sale - - 181 - 492
Other real estate owned and
repossessed assets:
Commercial 1,712 5,126 1,408 2,217 2,472
Residential 456 232 218 112 446
Consumer 361 427 10 10 85
Total other real estate owned
and repossessed assets 2,529 5,785 1,636 2,339 3,003
Total nonperforming assets $61,892 $73,014 $60,355 $44,241 $49,130
Allowance for Credit Losses
Beginning balance $155,632 $155,052 $154,822 $152,519 $150,112
Provision 2,000 2,000 2,000 2,000 3,500
Charge-offs:
Commercial 1,629 3,272 2,204 1,432 2,155
Residential 75 110 378 178 167
Consumer 362 153 137 201 142
Total charge-offs 2,066 3,535 2,719 1,811 2,464
Recoveries (391) (2,115) (949) (2,114) (1,371)
Net loan charge-offs
(recoveries) 1,675 1,420 1,770 (303) 1,093
Ending balance $155,957 $155,632 $155,052 $154,822 $152,519
Components: (e)
Allowance for loan
losses $146,383 $146,486 $155,052 $154,822 $152,519
Reserve for unfunded
credit commitments 9,574 9,146 - - -
Allowance for credit
losses $155,957 $155,632 $155,052 $154,822 $152,519
Asset Quality Ratios:
Allowance for loan losses
/ total loans 1.16 % 1.19 % 1.27 % 1.31 % 1.30 %
Allowance for credit losses
/ total loans 1.24 1.27 1.27 1.31 1.30
Net charge-offs (recoveries) /
average loans (annualized) 0.05 0.05 0.06 (0.01) 0.04
Nonperforming loans /
total loans 0.47 0.55 0.48 0.35 0.39
Nonperforming assets /
total assets 0.35 0.41 0.34 0.25 0.28
Allowance for credit losses /
nonperforming loans 262.72 231.50 264.87 369.49 334.21
See Selected Financial Highlights for footnotes. Media Contact Clark Finley 203-578-2287 cfinley@websterbank.com or Investor Contact Terry Mangan 203-578-2318 tmangan@websterbank.com
