WATERBURY, Conn., July 24 — Webster Financial Corp., the holding company for Webster Bank, N.A., today announced net income of $35.5 million or $.63 per diluted share for the second quarter of 2007, compared to $35.0 million or $.62 per share for the first quarter of 2007 and $43.1 million or $.81 per share for the second quarter of 2006. As shown in the earnings reconciliation below, second quarter 2007 net income includes charges of $13.0 million ($8.5 million, net of tax) or $.15 per diluted share while the first quarter includes charges of $5.2 million ($3.4 million, net of tax) or $.06 per share. For the first six months of 2007, net income totaled $70.5 million, or $1.25 per share, compared to $87.0 million, or $1.63 per share in the year-agoperiod. Earnings Reconciliation For the Three Months Ended June 30, 2007 March 31, 2007 (In thousands Pre- Tax Pre- Tax except per share Tax Effected EPS Tax Effected EPS data) Reported Net Income $51,997 $35,467 $0.63 $51,222 $35,036 $0.62 Adjustments: Gain on Webster Capital Trust I and II securities (2,130) (1,384) (0.02) - - - Debt redemption premium 8,940 5,811 0.10 - - - Software development cost write-off 3,403 2,212 0.04 - - - Severance costs 1,888 1,227 0.02 2,200 1,430 0.02 Write-down of construction loan(s) held for sale 948 616 0.01 700 455 0.01 Closure of Peoples Mortgage Company (PMC) - - - 2,322 1,509 0.03 Total adjustments 13,049 8,482 0.15 5,222 3,394 0.06 Adjusted net income $65,046 $43,949 $0.78 $56,444 $38,430 $0.68(A) (A) Excludes $4.7 million pre-tax of seasonally higher expenses in the first quarter of 200 primarily related to payroll taxes and 401(k) match. As previously disclosed, Webster prepaid its Capital Trust I andCapital Trust II securities on April 2, 2007, at call prices of 104.7percent and 105.0 percent, respectively, plus accrued and unpaid interest.Webster recorded a net pre-tax charge to income in the second quarter of2007 of $6.8 million ($8.9 million related to the redemption premiums andunamortized issuance costs, partially offset by a $2.1 million gain onWebster Capital Trust I and II securities held by Webster), or $4.4 millionnet of tax. Also, Webster incurred severance and other charges of $5.3million, or $3.4 million net of tax, in connection with actions during thesecond quarter under the recently concluded strategic and organizationalreview process. In addition, residential construction loans previously heldfor sale were transferred into portfolio and were written down in value by$0.9 million, or $0.6 million net of tax. This write-down is reflected inmortgage banking activities as a reduction in noninterest income in thesecond quarter. Webster will provide a detailed update on its strategic andorganizational reviews during its second quarter earnings conference calllater today (refer to details for the conference call at the end of thisrelease). Additional details regarding the strategic and organizationalreviews are also available on our website at http://www.wbst.com. "We are pleased to announce solid results in a challenging operatingenvironment. Additionally, we have completed our strategic review and havetaken many steps to implement the decisions made over the last twoquarters," stated Webster Chairman and Chief Executive Officer James C.Smith. "Our recently completed organizational review will improve theexecution of our business plans in a well structured, more efficientcompany as we pursue our vision to become New England's bank." Commercial loans (consisting of commercial and industrial andcommercial real estate loans) and consumer loans grew strongly year overyear to $8.7 billion at June 30, 2007, up 11 percent from June 30, 2006.Commercial and consumer loans represent 70 percent of total loans at June30, 2007 compared to 62 percent a year ago. Commercial and industrial loansincreased by $110 million, or 13 percent annualized, from March 31, 2007."We are seeing the focus on commercial and consumer lending positivelyaffect our earnings," stated Webster President and Chief Operating OfficerWilliam T. Bromage. "Going forward, we will increase our emphasis ongrowing small business relationships, which we believe have significantloan and deposit growth potential." Revenues Total revenue, which consists of net interest income plus total non-interest income, reached a record quarterly level of $194.3 million in thesecond quarter, compared to $185.5 million in the first quarter and $183.9million a year ago. Net interest income also reached a record level of $130.4 million inthe second quarter compared to $128.1 million in the first quarter and$126.8 million a year ago. Average interest-earning assets were lower inthe second quarter of 2007 compared to a year ago as a result of Webster'srecent balance sheet repositioning actions; however, Webster's net interestmargin (annualized tax-equivalent net interest income as a percentage ofaverage earning assets) increased to 3.47 percent compared to 3.41 percentin the first quarter and 3.13 percent a year ago. Webster's balance sheetrepositioning actions have positively impacted the net interest margin asproceeds from the sales of securities were used to pay down high-costborrowings. Slightly offsetting the positive effect of the balance sheetrestructuring is continued consumer preference for higher yieldingcertificates of deposit as well as the impact of the inverted yield curveduring much of the second quarter. The spread between the yield on loansand the cost of deposits was 3.93 percent in the second quarter compared to3.87 percent in the first quarter and 4.11 percent a year ago. Total noninterest income was $64.0 million in the second quarter,including the $2.1 million gain on Webster Capital Trust I and IIsecurities held by Webster, compared to $57.4 million in the first quarterand $57.1 million a year ago. Deposit service fees totaled $28.8 millioncompared to $25.4 million in the first quarter and $24.2 million a yearago, with growth partly reflecting the growth in deposits and the recentimplementation of a new consumer fee structure. Insurance revenue was $9.1million in the quarter compared to $10.1 million in the first quarter and$10.0 million a year ago. Loan-related fees were $7.9 million in both thesecond and first quarters of 2007 compared to $9.2 million a year ago.Wealth management fees totaled $7.6 million compared to $6.9 million inboth the first quarter and the comparable period a year ago. Income frommortgage banking activities increased to $4.0 million in the second quarterinclusive of a $948,000 write-down on $96.3 million of loans previouslyheld for sale that were transferred into portfolio, compared to income of$2.2 million from mortgage banking activities in the first quarter, whichreflected a $700,000 write-down in value of one construction loan held forsale, income of $2.5 million a year ago. Other non- interest income was$1.4 million compared to $1.8 million in the first quarter and $1.3 milliona year ago. Provision For Credit Losses The provision for credit losses was $4.25 million in the second quartercompared to $3.0 million in both the first quarter of 2007 and the secondquarter of 2006. Net loan charge-offs totaled $4.2 million compared to $5.3million in the first quarter and $2.5 million a year ago. Included incharge- offs in the second quarter of 2007 were $0.6 million of consumeroverdraft losses. Prior to the second quarter, overdraft losses were shownas a reduction of deposit fee income. Net charge-offs in the first quarterof 2007 reflected $2.1 million of previously-announced net charge-offs inconnection with 13 residential construction loans in Florida. The allowancefor credit losses, which consists of the allowance for loan losses and thereserve for unfunded credit commitments, was $152.8 million, or 1.23percent of total loans at June 30, 2007 compared to $152.7 million, or 1.24percent at March 31, 2007 and $156.5 million, or 1.23 percent at June 30,2006. Noninterest Expenses Total noninterest expenses were $138.1 million in the second quarterincluding $8.9 million of debt redemption premium costs related toprepayment of the capital trust securities and $5.3 million of charges inconnection with Webster's recently completed strategic review (consistingof a $3.4 million write-off of software development costs due to thecancellation of a technology project and $1.9 million in severance costs)compared to total noninterest expenses of $131.3 million in the firstquarter and $117.3 million a year ago. The first quarter of 2007 includedseverance-related charges from ongoing restructuring in insurance and otherlines of business of $2.2 million and closing costs of $2.3 million relatedto the remaining operations of PMC. Balance Sheet Trends Total assets were $16.9 billion at June 30, 2007 compared to $18.0billion a year ago, with the decrease primarily related to balance sheetrepositioning actions. Total loans were $12.4 billion, a decrease of $0.3billion, or 2 percent, from a year ago, due primarily to the securitizationof $371 million in residential loans, the sale of $250 million inresidential loans in the fourth quarter of 2006 and the securitization ofanother $633 million in residential loans in the first quarter of 2007.Securities totaled $2.5 billion and declined by $0.9 billion, or 28 percentfrom a year ago. Total deposits were $12.8 billion, an increase of $0.6billion, or 5 percent from a year ago which includes a $438 million declinein brokered deposits. Retail deposits increased $1.0 billion, withcontributions from the branches acquired from the NewMil Bank acquisition,organic growth from our branch network and growth in health savings accountdeposits at HSA Bank. The $0.9 billion reduction in securities and $0.6 billion of totaldeposit growth, each compared to a year ago, contributed to a $1.9 billionreduction in wholesale borrowings over the past year. Wholesale borrowingsdeclined to 12 percent of total assets at June 30 compared to 22 percent ayear ago. The loan to deposit ratio improved to 97 percent at June 30, 2007 from98 percent at March 31 and 104 percent a year ago. Improvement in thisratio reflects completion of balance sheet repositioning actions and theincrease in deposits over the past year. Book value per common share of $33.63 at June 30, 2007 increased from$31.22 a year ago. Tangible book value per share of $18.96 at June 30, 2007increased from $18.31 last year. The ratio of tangible equity to tangibleassets increased to 6.32 percent at June 30, 2007 compared to 5.47 percenta year ago. Capital Webster prepaid $105 million of its Capital Trust I and II securitiesthat paid 9.57 percent pre-tax on April 2, 2007, at call prices of 104.68percent and 105.0 percent, respectively, plus accrued and unpaid interest.As previously noted, Webster recorded a net pretax charge to income in thesecond quarter of 2007 of $6.8 million ($8.9 million related to theredemption premiums and unamortized issuance costs, partially offset by a$2.1 million gain on Webster Capital Trust I and II securities held byWebster). On June 13, 2007, Webster issued $200 million of enhanced capitaltrust securities at an all-in cost of 7.50 percent pre-tax under WebsterCapital Trust IV. Also during the second quarter, Webster repurchased over 1.9 millionshares of its common stock. Webster still has 1.8 million shares that canbe purchased under the 2.8 million share repurchase authorization that wasannounced on June 5, 2007. Webster Chief Financial Officer Jerry Plush noted: "Our intent now thatthe enhanced capital trust securities deal is complete is to focus on ourleverage and risk-based capital ratios (which are 8.31 percent and 11.99percent, respectively) and target a tangible capital ratio level of 6.00%.The enhanced capital trust issuance provides Webster with significantcapital management flexibility to selectively buy back shares or to pursuegrowth opportunities including acquisitions. We believe repurchasing ourstock has been an attractive opportunity, and as such we elected tore-initiate the share repurchase program in the second quarter." Asset Quality Nonperforming assets totaled $78.7 million, or 0.63 percent of totalloans and other real estate owned at June 30, 2007 compared to $64.8million, or 0.53 percent, at March 31 and $61.8 million, or 0.49 percent, ayear ago. The majority of the second quarter increase relates to Webster'sprevious disclosure in its first quarter release and Form 10-Q that as ofApril 2007 it had placed on nonaccrual status $11 million in constructionloans previously held for sale. The allowance for credit losses, which consist of the allowance forloan losses and the reserve for unfunded credit commitments, was $152.8million, or 1.23 percent of total loans, at June 30, 2007 compared to$152.7 million, or 1.24 percent at March 31, 2007 and $156.5 million, or1.23 percent at June 30, 2006. The ratio of the allowance for credit lossesto nonperforming loans was 211 percent at June 30, 2007 compared to 264percent a year ago and 259 percent at March 31, 2007. Webster Financial Corporation is the holding company for Webster Bank,National Association and Webster Insurance. With $16.9 billion in assets,Webster provides business and consumer banking, mortgage, insurance,financial planning, trust and investment services through 177 bankingoffices, 334 ATMs, telephone banking and the Internet. Webster Bank ownsthe asset-based lending firm Webster Business Credit Corporation, theinsurance premium finance company Budget Installment Corp., Center CapitalCorporation, an equipment finance company headquartered in Farmington,Connecticut and provides health savings account trustee and administrativeservices through HSA Bank, a division of Webster Bank. For more information about Webster, including past press releases andthe latest Annual Report, visit the Webster website athttp://www.websteronline.com. Conference Call A conference call covering Webster's 2007 second quarter earningsannouncement will be held today, Tuesday, July 24, at 9:00 a.m. EDT and maybe heard through Webster's investor relations website at http://www.wbst.com, orin listen-only mode by calling 1-877-407-8293 or 201-689-8349internationally. The call will be archived on the website and available forfuture retrieval. Forward-looking Statements Statements in this press release regarding Webster FinancialCorporation's business that are not historical facts are "forward-lookingstatements" that involve risks and uncertainties. For a discussion of suchrisks and uncertainties that could cause actual results to differ fromthose contained in the forward-looking statement, see "Forward LookingStatements" in Webster's Annual Report for 2006. 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 pressrelease contains certain non-GAAP financial measures. We believe thatproviding certain non-GAAP financial measures provides investors withinformation useful in understanding our financial performance, ourperformance trends and financial position. A reconciliation of net incomeand other performance ratios, as adjusted is included in the accompanyingselected financial highlights table, elsewhere in this report. We believe that providing certain non-GAAP financial measures providesinvestors with information useful in understanding our financialperformance, our performance trends and financial position. Specifically,we provide measures based on what we believe are our operating earnings ona consistent basis and exclude non-core operating items which affect theGAAP reporting of results of operations. We utilize these measures forinternal planning and forecasting purposes. We, as well as securitiesanalysts, investors and other interested parties, also use these measuresto compare peer company operating performance. We believe that ourpresentation and discussion, together with the accompanyingreconciliations, provides a complete understanding of factors and trendsaffecting our business and allows investors to view performance in a mannersimilar to management. These non-GAAP measures should not be considered asubstitute for GAAP basis measures and results and we strongly encourageinvestors to review our consolidated financial statements in their entiretyand not to rely on any single financial measure. Because non-GAAP financialmeasures are not standardized, it may not be possible to compare thesefinancial measures with other companies' non-GAAP financial measures havingthe same or similar names.
