Long-term strategic investments helped Webster Bank to a strong second quarter, even as the company continued to see fierce competition from nonbank lenders in commercial real estate.
The company reported net income of $79.5 million, or $0.86 per diluted share, compared to $59.5 million, or $0.64 per diluted share, for the second quarter of 2017. Net interest income for the quarter was about $88.5 million, up almost $10 million from the second quarter of last year. The margin ended the quarter at 3.57 percent, up 30 basis points from one year ago.
“Webster’s second quarter results reflect continued progress in executing on our strategic priorities,” John R. Ciulla, president and CEO of the company, said in a statement. “We achieved record levels of performance as a result of double-digit pre-provision net revenue growth in all three lines of business.”
Total assets at the end of the quarter cleared $27 billion, up about $860 million from the same time last year. Total deposits were $21.3 billion, compared to $20.5 billion at the end of the second quarter of 2017.
The cost of deposits was only up 9 basis points from last year, reflecting the bank’s large amount of deposits in the health savings accounts – Webster now has $7 billion in deposits from over 2.7 million HSA accounts.
The HSA business had a nice quarter, with total accounts 13 percent higher (119,000 accounts opened in Q2) than one year ago and footings per count of just $2,600, or 5 percent higher.
“This consists of $5.5 billion in low-cost, long-duration deposits that help fund Webster’s earning assets and $1.5 billion in linked investment balances,” Ciulla said. “We continue to be excited about the long-term growth prospects for HSA and we’re encouraged to see the House Ways and Mean Committee mark up a comprehensive package of bills last week that support the usability and expansion of HSA plans and limits.”
The other benefit of having a high concentration of HSA accounts is that they see relatively little deposit pressure compared to other types of deposits.
“I think as employers look at the HSA plan their first priority is the functionality, the technology, consumer experience and investment options, things like that, so interest rates seem to fall to a little bit lower level,” said Chad Wilkins, head of the HSA Bank at Webster. “So we really haven’t seen much pressure from our employers.”
Total loans at the end of the quarter were about $18.03 billion, compared to $17.27 billion at the end of the second quarter last year. The bank had a nice quarter with commercial loans, which were up roughly $775 million from one year ago. However, the company lost ground in consumer loans as a result of pay downs on home equity loans.
Commercial real estate gains were modest, a result of intense competition from nonbank lenders.
“People are willing to go out longer with fixed rates particularly the permanent finance providers, government entities, insurance companies, others which just doesn’t make sense for us economically,” Ciulla said. “On some of the LIBOR-based loans, we’re seeing pricing on shorter term loans that is just below our ready rock model hurdle and as we’ve said all along, we remain very disciplined to generating economic profit and making sure that our relationships hurdle our cost of capital.”
The bank also continued efforts to consolidate its branch footprint. During the quarter, the company sold six branches to United Bank and Ciulla said Webster consolidated four other banking centers in April.
The company recorded a provision for loan losses of $10.5 million, compared to $7.3 million a year ago. Total nonperforming loans were $140.1 million, or 0.78 percent of total loans, compared to $166.4 million, or 0.96 percent, at June 30, 2017.