WBS Webster Financial Corporation

WATERBURY, Conn., Jan. 22, 2015 /PRNewswire/ -- Webster Financial Corporation (NYSE: WBS), the holding company for Webster Bank, N.A., today announced net income available to common shareholders of $48.4 million, or $0.53 per diluted share, for the quarter ended December 31, 2014 compared to $41.1 million, or $0.45 per diluted share, for the quarter ended December 31, 2013. The quarter ended December 31, 2013 included a $0.05 per diluted share negative impact from the Volcker Rule.

For the full year 2014, net income available to common shareholders was $189.2 million, or $2.08 per diluted share, compared to $168.7 million, or $1.86 per diluted share, for the full year 2013.

"Strong loan demand boosted revenue and profit in the fourth quarter and full year 2014. Revenue grew for the twenty-first consecutive quarter and net income reached record levels," said James C. Smith, chairman and chief executive officer. "Record lending to businesses once again led the way, as Webster bankers excelled in service to our customers and communities. Further strength in credit quality reflects our customers' solid financial condition amid a gradually improving economy."

Highlights for the fourth quarter of 2014 compared to the fourth quarter of 2013:

• Core revenue of $214.2 million, a record, increased 4.3 percent, while core expenses increased by 2.2 percent leading to record core pre-provision net revenue of $86.6 million, or a 7.5 percent improvement.
• Record level of net income at $51.0 million, up 16.6 percent.
• Efficiency ratio of 58.65 percent, an improvement of 65 basis points. Positive operating leverage of 2.1 percent.
• Continued improvement in asset quality: annualized net charge-off rate at 20 basis points of average total loans is at the lowest level since the third quarter of 2007; nonperforming loans as a percentage of total loans at December 31, 2014 is at the lowest level since the end of 2007.
• Annualized return on average tangible common shareholders' equity of 11.75 percent.

Year-over-year highlights:

• Growth in commercial and commercial real estate loans of $1.0 billion, or 15.3 percent. Overall loan growth of $1.2 billion, or 9.5 percent.
• Deposit growth of $797.2 million, or 5.4 percent.

"Webster's consistent achievement of revenue growth while strategically investing in our businesses resulted in the efficiency ratio improving a full percentage point to 59.30 percent in 2014," said Glenn MacInnes, executive vice president and chief financial officer. "Webster's recent Health Savings Account acquisition underscores our ability to invest in businesses that achieve Economic Profit."

Quarterly net interest income compared to fourth quarter of 2013:

• Net interest income was $160.6 million, a record, compared to $153.9 million.
• Net interest margin was 3.17 percent compared to 3.27 percent. The yield on interest-earning assets declined by 11 basis points, while the cost of funds was unchanged.
• Average interest-earning assets totaled $20.5 billion and grew by $1.4 billion, or 7.4 percent. 
• Average loans grew by $1.2 billion, or 9.3 percent.

Quarterly provision for loan losses:

• The Company recorded a provision for loan losses of $9.5 million in the fourth quarter of 2014 compared to $9.5 million in the third quarter of 2014 and $9.0 million in the fourth quarter of 2013.
• Net charge-offs were $6.7 million compared to $7.9 million in the prior quarter and $14.0 million a year ago. The ratio of net charge-offs to average loans on an annualized basis was 0.20 percent compared to 0.24 percent in the prior quarter and 0.45 percent a year ago.
• The allowance for loan losses represented 1.15 percent of total loans at December 31, 2014 compared to 1.16 percent at September 30, 2014 and 1.20 percent at December 31, 2013. The allowance for loan losses represented 121 percent of nonperforming loans at December 31 compared to 112 percent at September 30 and 94 percent a year ago.

Quarterly non-interest income compared to the fourth quarter of 2013:

• Total non-interest income was $53.8 million compared to $44.3 million, an increase of $9.5 million. Excluding securities gains and other-than-temporary impairment charges, a $2.0 million year-over-year increase in core non-interest income reflects an increase of $2.4 million in loan related fees, an increase of $2.3 million in other income, and a $0.7 million increase in deposit service fees offset by a $1.8 million reduction in mortgage banking activities and a $1.5 million reduction in wealth and investment services.

Quarterly non-interest expense compared to the fourth quarter of 2013:

• Total non-interest expense was $130.3 million compared to $126.6 million, an increase of $3.7 million. Included in non-interest expense are $2.7 million of net one-time costs. These costs primarily consist of a provision for a litigation reserve and other costs. There were $1.6 million of net one-time costs in the year-ago quarter.
• Non-interest expense, excluding one-time costs, increased $2.5 million.  This increase is attributable to an increase of $3.1 million in compensation and benefits primarily related to annual merit increases and an increase of $1.2 million in technology and equipment expense primarily due to the installation of a new core system at the company's HSA Bank division offset by a $1.7 million reduction in professional and outside services.
• Foreclosed and repossessed asset expenses were $0.2 million compared to $0.4 million, while net gains on foreclosed and repossessed assets were flat to a year ago at $0.2 million.

Quarterly income taxes compared to the fourth quarter of 2013:

• The Company recorded $23.6 million of income tax expense in the fourth quarter. The effective tax rate was 31.6 percent compared to 30.0 percent a year ago, reflecting a $0.3 million net tax expense specific to the quarter, compared to a $0.3 million net tax benefit a year ago, and the effects of increased pre-tax income and decreased benefits from tax-exempt interest income

Investment securities:

• Total investment securities were $6.7 billion at December 31, 2014 compared to $6.5 billion at September 30, 2014 and a year ago. The carrying value of the available-for-sale portfolio included $25.9 million of net unrealized gains compared to $20.8 million at September 30 and $3.9 million a year ago, while the carrying value of the held-to-maturity portfolio does not reflect $75.8 million of net unrealized gains compared to $57.8 million at September 30 and $12.2 million a year ago.

Loans:

• Total loans were $13.9 billion at December 31, 2014 compared to $13.5 billion at September 30, 2014 and $12.7 billion at December 31, 2013. In the quarter, commercial, commercial real estate, and residential mortgage loans increased by $164.9 million, $200.3 million, and $53.8 million, respectively, while consumer loans decreased by $32.5 million.
• Compared to a year ago, commercial, commercial real estate, residential mortgage, and consumer loans increased by $543.7 million, $496.1 million, $147.8 million, and $12.7 million, respectively.
• Loan originations for portfolio in the fourth quarter were $1.319 billion compared to $1.168 billion in the third quarter and $1.094 billion a year ago. In addition, $87 million of residential loans were originated for sale in the quarter compared to $78 million in the prior quarter and $95 million a year ago.

Asset quality:

• Past due loans were $40.3 million at December 31, 2014 compared to $45.3 million at September 30, 2014 and $52.9 million a year ago. Compared to September 30, past due commercial non-mortgage loans decreased $6.7 million while past due residential mortgage, commercial real estate, equipment financing, and liquidating consumer loans increased $1.2 million, $1.1 million, $0.3 million, and $0.2 million, respectively. Loans past due 90 days and still accruing decreased $1.2 million. Compared to a year ago, past due consumer, commercial real estate, commercial non-mortgage, residential mortgages, and consumer liquidating loans decreased $3.1 million, $2.2 million, $2.0 million, $1.1 million, and $0.1 million, respectively, while past due equipment financing loans increased $0.3 million. Loans past due 90 days and still accruing decreased $4.5 million.
• Past due loans represented 0.29 percent of total loans at year end, 0.34 percent at September 30, and 0.42 percent a year ago. Past due loans for the continuing portfolio were $38.6 million at year end compared to $43.9 million at September 30 and $51.1 million a year ago. Past due loans for the liquidating portfolio were $1.7 million at December 31 compared to $1.4 million at September 30 and $1.8 million a year ago.
• Total nonperforming loans decreased to $131.9 million, or 0.95 percent of total loans, at quarter end compared to $139.8 million, or 1.03 percent, at September 30, and $162.9 million, or 1.28 percent, a year ago. Total paying nonperforming loans at December 31 were $30.5 million compared to $35.0 million at September 30 and $48.8 million a year ago.

Deposits and borrowings:

• Total deposits were $15.7 billion at December 31, 2014 compared to $15.5 billion at September 30, 2014 and $14.9 billion a year ago. Compared to September 30, increases of $342.1 million in demand deposits, $108.7 million in interest-bearing checking, $15.1 million in savings, and $5.7 million in brokered certificates of deposit were offset by declines of $330.6 million in money market deposits and $36.4 million in certificates of deposit. Compared to a year ago, increases of $512.2 million in interest-bearing checking, $470.7 million in demand deposits, $151.9 million in brokered certificates of deposit, and $28.8 million in savings were offset by declines of $259.1 million in money market deposits and $107.5 million in certificates of deposit.
• Core to total deposits were 85.5 percent at December 31, 85.2 percent at September 30, and 85.0 percent a year ago. Loans to deposits were 88.8 percent compared to 86.9 percent at September 30 and 85.5 percent a year ago.
• Total borrowings were $4.3 billion at year end compared to $3.8 billion at September 30 and $3.6 billion a year ago.

Capital:

• The return on average tangible common shareholders' equity and the return on average common shareholders' equity were 11.75 percent and 8.84 percent, respectively, for the fourth quarter of 2014 compared to 11.14 percent and 8.06 percent, respectively, in the fourth quarter of 2013.
• The tangible equity and tangible common equity ratios were 8.14 percent and 7.45 percent, respectively, at December 31, 2014 compared to 8.24 percent and 7.49 percent, respectively, at December 31, 2013. The Tier 1 common equity to risk-weighted assets ratio was 11.44 percent at December 31 compared to 11.43 percent a year ago.
• Book value and tangible book value per common share were $23.99 and $18.10, respectively, at December 31, 2014 compared to $22.77 and $16.85, respectively, at December 31, 2013.

Webster Financial Corporation is the holding company for Webster Bank, National Association. With $22.5 billion in assets, Webster provides business and consumer banking, mortgage, financial planning, trust and investment services through 164 banking centers, 314 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 fourth quarter earnings announcement will be held today, Thursday, January 22, 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.