Webster Net Income Increases 12 Percent in First Quarter

WATERBURY, Conn., April 19 /PRNewswire-FirstCall/ -- Webster Financial Corporation , the holding company for Webster Bank, N.A., today announced a 12 percent increase in net income to $47.5 million in the first quarter from $42.3 million a year ago. Net income per diluted share was $.88 in the first quarter compared to $.90 a year ago. Net income per share included $.01 from gains on the sale of securities in the first quarter while the year-ago period included $.08 of gains. Diluted shares outstanding in the first quarter include 6.7 million shares issued in last year's second quarter acquisition of FIRSTFED AMERICA BANCORP, INC. (FIRSTFED).

Cash net income, which adds stock-based compensation and intangible amortization expenses back to net income, increased by 14 percent to $52.1 million from $45.6 million a year ago. Cash net income per share was $.96 in the first quarter compared to $.97 a year ago while the cash return on average tangible equity improved to 23.4 percent from 20.9 percent a year ago.

"We are pleased with the high quality of first quarter results and the measurable progress toward achieving our strategic and financial goals," said Webster Chairman and Chief Executive Officer James C. Smith. "Strong performance included improvement in the net interest margin, solid asset quality and expense control even as we continue to invest in our de novo branching initiative and our information technology platform. In addition, Webster entered the rapidly growing health savings account market with the acquisition of an established industry leader, HSA Bank."

Revenues

Total revenues (net interest income plus total noninterest income) were $181.3 million in the first quarter, compared to $160.5 million a year ago, an increase of 13 percent. Adjusting for securities gains in both periods and for the sale of Duff & Phelps in the first quarter of 2004, total revenues would have grown by 19 percent.

Net interest income was $128.2 million in the first quarter of 2005, compared to $105.8 million in the year-ago period and $127.6 million in the fourth quarter. The increase over the prior year reflects double-digit growth in the loan portfolio and a higher net interest margin, while the increase over the fourth quarter is due to a higher net interest margin partially offset by lower earning assets attributable to the balance sheet de-leveraging in the fourth quarter.

Webster's net interest margin (annualized tax-equivalent net interest income as a percentage of average earning assets) improved 23 basis points to 3.32 percent from 3.09 percent in the year-ago period and compares to 3.25 percent in the fourth quarter. The increases reflect the benefit of the de- leveraging and the impact of higher interest rates on earning asset yields.

The provision for loan losses totaled $3.5 million in the first quarter and exceeded net-charge-offs by $2.4 million. This compares to a provision of $5.0 million a year ago, which exceeded net charge-offs by $1.9 million. The reduction in the provision is due to Webster's improved asset quality and the reduced level of net charge-offs. The annualized net charge-off ratio was 0.04 percent of average loans in the first quarter compared to 0.13 percent a year ago.

In the first quarter of 2005, total noninterest income was $53.0 million compared to $54.7 million in the year-ago period. Excluding securities gains and the sale of Duff & Phelps, noninterest income increased in the first quarter to $52.3 million from $45.4 million in the year-ago period.

Webster's core fee revenues reflect growth in our businesses over the past year and the acquisition of FIRSTFED. Revenues from deposit service fees, insurance, loan and loan servicing and wealth management totaled $45.3 million in the first quarter and grew by 11 percent compared to a year ago. Deposit service fees totaled $19.1 million and grew by 11 percent from a year ago. Consistent with an industry trend, deposit service fees on a linked-quarter basis declined by $1.6 million, a larger than normal amount than in prior years. Gains on sales of loans and loan servicing totaled $2.5 million in the quarter and increased by $1.5 million from a year ago primarily as a result of increased volumes of mortgage loan originations through Webster's People's Mortgage Corporation subsidiary. Other income of $2.2 million in the first quarter included $1.2 million of non-recurring insurance proceeds.

Expenses

Total noninterest expenses for the 2005 first quarter were $107.8 million, which includes $1.1 million of non-recurring charges under Webster's core infrastructure conversion project, compared to $92.1 million in the year-ago period. Adjusting each period for acquisitions, Duff & Phelps, investments in de novo branch expansion and the core infrastructure conversion, total noninterest expenses were $90.8 million in the first quarter and $86.6 million a year ago for an increase of 5 percent.

Further adjusting the $90.8 million for $12.0 million of FIRSTFED operating expenses in the first quarter, expenses totaled $102.8 million and were flat with the fourth quarter when $45.8 million in debt prepayment penalties and $3.4 million of non-recurring items are removed from that quarter. The deceleration of expense growth reflects Webster's ongoing efforts to streamline processes and control discretionary costs while continuing to invest for the future.

Balance Sheet Trends

At March 31, 2005, total assets were $17.4 billion, up 15 percent from $15.1 billion a year ago. Total loans of $11.7 billion at March 31, 2005 increased 23 percent from $9.5 billion the prior year, while deposits were $11.0 billion, up 28 percent from $8.6 billion a year ago. Excluding the FIRSTFED and HSA Bank acquisitions, total loans increased by 7 percent over the past year while total deposits increased 8 percent.

"The acquisition of HSA Bank on March 1 brought Webster $155 million in deposits, and our de novo branch expansion program generated $53 million in new deposits during the quarter," stated Webster President and Chief Operating Officer William T. Bromage. "As a result, we are able to reduce our reliance on borrowed money at a time of rising interest rates and improve our overall balance sheet structure."

At the end of the first quarter, commercial loans including commercial real estate were $4.4 billion, up 29 percent from $3.4 billion a year ago. Commercial real estate loans were $1.7 billion, up 31 percent from last year. Consumer loans, primarily home equity loans and lines, increased 20 percent to $2.6 billion compared to $2.2 billion a year ago. Excluding FIRSTFED, commercial loans including commercial real estate were up 13 percent, commercial real estate loans were up 16 percent, and consumer loans increased 9 percent. Commercial and consumer loans comprised 60 percent of total loans at March 31, 2005 compared to 58 percent a year ago.

Core deposits (consisting of checking, money market and savings accounts) of $7.1 billion at March 31, 2005 increased by 22 percent from a year ago and represented 65 percent of total deposits. Excluding FIRSTFED and HSA Bank, core deposits grew 10 percent. Webster's overall growth in deposits has been driven in part by its High Performance Checking products and continued growth of its de novo branches in Fairfield County, Connecticut and Westchester County, New York.

Book value per common share of $29.07 at March 31, 2005 increased from $26.18 a year ago. Tangible book value per share of $16.26 at March 31, 2005 decreased from $19.60 last year, principally reflecting an increase in intangible assets related to the FIRSTFED acquisition.

Asset Quality

Nonperforming assets totaled $49.1 million or 0.28 percent of total assets at March 31, 2005, compared to $41.3 million or 0.27 percent a year ago and $39.2 million or 0.23 percent at December 31, 2004.

"Webster's disciplined approach to credit risk management has resulted in strong reserve coverage and a low net charge-off ratio that ranks among the best in our peer group," stated Webster Chief Financial Officer William J. Healy. "Our adherence to consistent standards allows us to manage and control risk in the loan portfolio."

The allowance for loan losses was $152.5 million, or 1.30 percent of total loans at March 31, 2005, compared to $123.6 million, or 1.30 percent, a year ago and $150.1 million, or 1.28 percent, at December 31, 2004. The ratio of the allowance to nonperforming loans at March 31, 2005 was 334 percent compared to 338 percent a year ago and 416 percent at December 31, 2004.

Strategic Actions

On March 1, 2005, Webster completed the acquisition of Eastern Wisconsin Bancshares, Inc., the holding company of State Bank of Howards Grove, which operates under the trade name HSA Bank. Webster is divesting State Bank's retail branches and related loans and deposits and retaining the bank's HSA operation and HSA deposits, which totaled $169 million at March 31, 2005 compared to $95 million when the acquisition was announced on September 7, 2004.

Webster completed the organizational phase of its integration of the former FIRSTFED division on April 5, 2005. The Webster brand was officially introduced to the Massachusetts and Rhode Island markets with a signage unveiling ceremony at its Swansea-based regional headquarters.

During the first quarter, Webster opened new branches in Norwalk and Bridgeport, Connecticut, increasing its presence in Fairfield County. Webster now operates 21 branch locations in 14 Fairfield County towns.

Webster Financial Corporation is the holding company for Webster Bank, National Association and Webster Insurance. With $17.4 billion in assets, Webster provides business and consumer banking, mortgage, insurance, financial planning, trust and investment services through 153 banking offices, 291 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 2005 first quarter earnings announcement will be held today, Tuesday, April 19, 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 1-877-407-8291 or 201-689-8345 internationally. The call will be archived on the website and available for future retrieval.

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 2004.

For reconciliation of cash basis income to net income, see accompanying financial tables elsewhere in this report.

Selected Financial Highlights (unaudited) At or for the Three Months Ended March 31, (In thousands, except per share data) 2005 2004 Net income and performance ratios (annualized): Net income $47,495 $42,323 Net income per diluted common share 0.88 0.90 Return on average shareholders' equity 12.13% 14.28% Return on average tangible equity 21.37 19.34 Return on average assets 1.11 1.15 Noninterest income as a percentage of total revenue 29.26 34.09 Efficiency Ratio (a) 59.46 57.40 Cash income and performance ratios (annualized)(b): Net income $47,495 $42,323 Stock-based compensation, net of tax 1,420 647 Intangible amortization, net of tax 3,186 2,660 Cash income 52,101 45,630 Cash income per diluted common share 0.96 0.97 Cash return on average shareholders' equity 13.31% 15.40% Cash return on average tangible equity 23.44 20.85 Cash return on average assets 1.22 1.24 Asset quality: Allowance for loan losses $152,519 $123,613 Nonperforming assets 49,130 41,262 Allowance for loan losses / total loans 1.30% 1.30% Net charge-offs/ average loans (annualized) 0.04 0.13 Nonperforming loans / total loans 0.39 0.38 Nonperforming assets / total assets 0.28 0.27 Allowance for loan losses / nonperforming loans 334.21 338.30 Other ratios (annualized): Tangible capital ratio 5.08% 6.02% Shareholders' equity / total assets 8.98 8.03 Interest-rate spread 3.28 3.04 Net interest margin 3.32 3.09 Share related: Book value per common share $29.07 $26.18 Tangible book value per common share 16.26 19.60 Common stock closing price 45.41 50.71 Dividends declared per common share 0.23 0.21 Common shares issued and outstanding 53,787 46,299 Basic shares (average) 53,571 46,146 Diluted shares (average) 54,217 47,059 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. Consolidated Statements of Condition (unaudited) March 31, December 31, March 31, (In thousands) 2005 2004 2004 Assets: Cash and due from depository institutions $266,088 $248,825 $230,137 Short-term investments 79,676 17,629 22,130 Securities: Trading, at fair value 1,038 - 2,845 Available for sale, at fair value 2,591,270 2,494,406 4,231,102 Held-to-maturity securities 1,212,934 1,229,613 200,531 Total securities 3,805,242 3,724,019 4,434,478 Loans held for sale 352,233 147,211 135,771 Loans: Residential mortgages 4,722,897 4,775,344 3,972,123 Commercial 2,674,901 2,584,738 2,101,195 Commercial real estate 1,690,973 1,715,047 1,288,509 Consumer 2,608,303 2,637,646 2,169,011 Total loans 11,697,074 11,712,775 9,530,838 Allowance for loan losses (152,519) (150,112) (123,613) Loans, net 11,544,555 11,562,663 9,407,225 Accrued interest receivable 67,953 63,406 51,297 Premises and equipment, net 161,635 149,069 99,866 Goodwill and intangible assets 714,490 694,165 322,483 Cash surrender value of life insurance 230,823 228,120 182,511 Prepaid expenses and other assets 190,133 185,490 204,372 Total Assets $17,412,828 $17,020,597 $15,090,270 Liabilities and Shareholders' Equity: Deposits: Demand deposits $1,426,798 $1,409,682 $1,081,455 NOW accounts 1,535,595 1,368,213 1,098,972 Money market deposit accounts 1,904,158 1,996,918 1,779,468 Savings accounts 2,276,623 2,253,073 1,891,298 Certificates of deposit 3,545,287 3,376,718 2,676,910 Total retail deposits 10,688,461 10,404,604 8,528,103 Treasury deposits 295,073 166,684 109,979 Deposits held in divested branches 48,301 - - Total deposits 11,031,835 10,571,288 8,638,082 Federal Home Loan Bank advances 2,319,722 2,590,335 2,437,014 Securities sold under agreements to repurchase and other short-term debt 1,670,950 1,428,483 2,150,719 Other long-term debt 674,240 680,015 532,760 Accrued expenses and other liabilities 142,910 196,925 110,156 Total liabilities 15,839,657 15,467,046 13,868,731 Preferred stock of subsidiary corporation 9,577 9,577 9,577 Shareholders' equity 1,563,594 1,543,974 1,211,962 Total Liabilities and Shareholders' Equity $17,412,828 $17,020,597 $15,090,270 Consolidated Statements of Income (unaudited) Three Months Ended March 31, (In thousands, except per share data) 2005 2004 Interest income: Loans $158,787 $118,591 Securities and short-term investments 40,899 44,608 Loans held for sale 2,732 1,070 Total interest income 202,418 164,269 Interest expense: Deposits 35,868 25,830 Borrowings 38,318 32,633 Total interest expense 74,186 58,463 Net interest income 128,232 105,806 Provision for loan losses 3,500 5,000 Net interest income after provision for loan losses 124,732 100,806 Noninterest income: Deposit service fees 19,129 17,185 Insurance revenue 11,802 11,638 Loan and loan servicing fees 8,929 6,649 Wealth and investment services 5,395 5,116 Financial advisory services - 3,808 Gain on sale of loans and loan servicing, net 2,536 1,025 Increase in cash surrender value of life insurance 2,238 1,954 Other 2,243 1,848 52,272 49,223 Gain on sale of securities 756 5,500 Total noninterest income 53,028 54,723 Noninterest expenses: Compensation and benefits 57,902 53,127 Occupancy 10,859 8,365 Furniture and equipment 10,798 7,641 Intangible amortization 4,902 4,092 Marketing 3,283 2,984 Professional services 3,770 2,899 Conversion and infrastructure costs 1,134 - Acquisition costs 178 - Other 14,948 13,033 Total noninterest expenses 107,774 92,141 Income before income taxes 69,986 63,388 Income taxes 22,491 21,065 Net income $47,495 $42,323 Diluted shares (average) 54,217 47,059 Net income per common share: Basic $0.89 $0.92 Diluted 0.88 0.90 Consolidated Statements of Income (unaudited) Three Months Ended March 31, Dec. 31, Sept. 30, June 30, March 31, (In thousands, except 2005 2004 2004 2004 2004 per share data) Interest income: Loans $158,787 $154,177 $145,456 $129,084 $118,591 Securities and short- term investments 40,899 42,807 45,541 45,162 44,608 Loans held for sale 2,732 1,718 1,755 2,139 1,070 Total interest income 202,418 198,702 192,752 176,385 164,269 Interest expense: Deposits 35,868 32,993 32,611 29,172 25,830 Borrowings 38,318 38,109 38,853 33,746 32,633 Total interest expense 74,186 71,102 71,464 62,918 58,463 Net interest income 128,232 127,600 121,288 113,467 105,806 Provision for loan losses 3,500 4,000 4,000 5,000 5,000 Net interest income after provision for loan losses 124,732 123,600 117,288 108,467 100,806 Noninterest income: Deposit service fees 19,129 20,712 20,596 19,250 17,185 Insurance revenue 11,802 10,348 10,924 10,596 11,638 Loan and loan servicing fees 8,929 7,727 6,893 7,305 6,649 Wealth and investment services 5,395 5,198 6,044 5,849 5,116 Financial advisory services - - - - 3,808 Gain on sale of loans and loan servicing, net 2,536 2,492 4,467 5,321 1,025 Increase in cash surrender value of life insurance 2,238 2,283 2,421 2,177 1,954 Other 2,243 2,692 1,912 964 1,848 52,272 51,452 53,257 51,462 49,223 Gain (loss) on sale of securities 756 (2,646) 5,843 5,616 5,500 Total noninterest income 53,028 48,806 59,100 57,078 54,723 Noninterest expenses: Compensation and benefits 57,902 57,128 55,406 53,659 53,127 Occupancy 10,859 9,909 9,144 8,402 8,365 Furniture and equipment 10,798 10,889 10,103 8,993 7,641 Intangible amortization 4,902 4,844 4,827 4,582 4,092 Marketing 3,283 2,533 4,233 3,630 2,984 Professional services 3,770 5,523 4,294 2,938 2,899 Conversion and infrastructure costs 1,134 300 200 - - Acquisition cost 178 426 - 265 - Debt prepayment penalties - 45,761 - - - Other 14,948 16,735 15,562 14,710 13,033 Total noninterest expenses 107,774 154,048 103,769 97,179 92,141 Income before income taxes 69,986 18,358 72,619 68,366 63,388 Income taxes 22,491 2,052 23,258 22,523 21,065 Net income $47,495 $16,306 $49,361 $45,843 $42,323 Diluted shares (average) 54,217 54,045 53,767 50,475 47,059 Net income per common share: Basic $0.89 $0.31 $0.93 $0.92 $0.92 Diluted 0.88 0.30 0.92 0.91 0.90 Retail and Wholesale Interest-Rate Spreads (unaudited) Three Months Ended, March December September June March 2005 2004 2004 2004 2004 Interest-rate spread Total interest-earning assets 5.22% 5.02% 4.82% 4.68% 4.78% Total interest-bearing liabilities 1.94 1.80 1.78 1.69 1.74 Interest-rate spread 3.28% 3.22% 3.04% 2.99% 3.04% Net interest margin 3.32 3.25 3.06 3.02 3.09 Retail interest-rate spread Yield on loans and loans held for sale 5.44% 5.25% 5.07% 4.93% 5.05% Cost of deposits 1.37 1.25 1.25 1.23 1.24 Spread 4.07% 4.00% 3.82% 3.70% 3.81% Wholesale interest-rate spread Yield on securities and short- term investments 4.52% 4.37% 4.18% 4.09% 4.19% Cost of borrowings 3.23 2.91 2.80 2.50 2.56 Spread 1.29% 1.46% 1.38% 1.59% 1.63% Consolidated Average Statements of Condition (unaudited) Three Months Ended March 31, (Dollars in thousands) 2005 2004 Fully tax- Fully tax- Average equivalent Average equivalent balance Interest yield/ balance Interest yield/ rate rate Assets: Interest-earning assets: Loans $11,685,261 $158,787 5.45% $9,368,169 $118,591 5.05% Securities 3,750,867 42,690 4.54(c) 4,331,501 45,161 4.22(c) Loans held for sale 213,952 2,732 5.11 85,276 1,070 5.02 Short-term investments 26,855 141 2.10 35,759 66 0.73 Total interest- earning assets 15,676,935 204,350 5.22 13,820,705 164,888 4.78 Noninterest- earning assets 1,401,298 889,392 Total assets $17,078,233 $14,710,097 Liabilities and Shareholders' Equity: Interest-bearing liabilities: Demand deposits $1,345,366 - - $1,058,849 - - Savings, NOW and money market deposit accounts 5,604,282 12,959 0.94 4,539,038 8,984 0.80 Time deposits 3,692,642 22,909 2.52 2,789,750 16,846 2.43 Total deposits 10,642,290 35,868 1.37 8,387,637 25,830 1.24 Federal Home Loan Bank advances 2,407,150 18,587 3.09 2,428,829 19,004 3.10 Repurchase agreements and other short-term debt 1,659,605 9,543 2.30 2,093,519 5,431 1.03 Other long-term debt 681,120 10,188 5.98 532,760 8,198 6.16 Total borrowings 4,747,875 38,318 3.23 5,055,108 32,633 2.56 Total interest- bearing liabilities 15,390,165 74,186 1.94 13,442,745 58,463 1.74 Noninterest- bearing liabilities 112,679 72,405 Total liabilities 15,502,844 13,515,150 Preferred stock of subsidiary corporation 9,577 9,577 Shareholders' equity 1,565,812 1,185,370 Total liabilities and shareholders' equity $17,078,233 $14,710,097 130,164 106,425 Less: tax-equivalent adjustment (1,932) (619) Net interest income $128,232 $105,806 Interest-rate spread 3.28% 3.04% Net interest margin 3.32% 3.09% See Selected Financial Highlights for footnotes. At or for the Three Months Ended March 31, Dec. 31, Sept. 30, June 30, March 31, (Dollars in thousands) 2005 2004 2004 2004 2004 Asset Quality Nonperforming loans: Commercial: Commercial $17,112 $14,624 $12,407 $15,895 $16,851 Equipment financing 3,800 3,383 4,501 5,021 5,561 Total commercial 20,912 18,007 16,908 20,916 22,412 Commercial real estate 15,609 8,431 11,157 13,757 5,583 Residential 7,528 7,796 7,695 8,599 7,941 Consumer 1,586 1,894 1,204 826 604 Total nonperforming loans 45,635 36,128 36,964 44,098 36,540 Loans held for sale 492 - - - - Other real estate owned and repossessed assets: Commercial 2,472 2,824 2,482 3,192 4,273 Residential 446 100 527 238 325 Consumer 85 114 20 130 124 Total other real estate owned and repossessed assets 3,003 3,038 3,029 3,560 4,722 Total nonperforming assets $49,130 $39,166 $39,993 $47,658 $41,262 Allowance for Loan Losses Beginning balance $150,112 $148,179 $146,511 $123,613 $121,674 Allowance for purchased loans - 617 - 20,081 - Provision 3,500 4,000 4,000 5,000 5,000 Charge-offs: Commercial 2,155 3,432 3,556 2,646 3,075 Residential 167 367 92 187 983 Consumer 142 147 195 174 97 Total charge-offs 2,464 3,946 3,843 3,007 4,155 Recoveries (1,371) (1,262) (1,511) (824) (1,094) Net loan charge-offs 1,093 2,684 2,332 2,183 3,061 Ending balance $152,519 $150,112 $148,179 $146,511 $123,613 Asset Quality Ratios: Allowance for loan losses/ total loans 1.30% 1.28% 1.28% 1.30% 1.30% Net charge-offs/average loans (annualized) 0.04 0.09 0.08 0.08 0.13 Nonperforming loans/ total loans 0.39 0.31 0.32 0.39 0.38 Nonperforming assets/ total assets 0.28 0.23 0.22 0.28 0.27 Allowance for loan losses/ nonperforming loans 334.21 415.50 400.87 332.24 338.30 Media Contact Investor Contact Meghan Thompson 203-578-2287 Terry Mangan 203-578-2318 mthompson@websterbank.com tmangan@websterbank.com