Webster Reports Third Quarter 2019 Earnings Of $1.00 Per Diluted Share

WATERBURY, Conn., Oct. 22, 2019  /PRNewswire/ -- Webster Financial Corporation (NYSE: WBS), the holding company for Webster Bank, N.A. and its HSA Bank division, today announced earnings applicable to common shareholders of $91.4 million, or $1.00 per diluted share, for the quarter ended September 30, 2019, compared to $97.5 million, or $1.06 per diluted share, for the quarter ended September 30, 2018. Earnings per diluted share would have been $1.01 for the quarter ended September 30, 2019, adjusting for $1.7 million of one-time business optimization costs, compared to $0.98 for the quarter ended September 30, 2018, adjusting for a one-time net benefit of $5.6 million.

"The third quarter continues to demonstrate the power of our banking franchise as evidenced by strong year-over-year loan and deposit growth," said John R. Ciulla, president and chief executive officer. "We have now posted 40 consecutive quarters of year-over-year revenue growth and seven quarters of return on average tangible common equity above 15 percent."

Highlights for the third quarter of 2019 compared to prior year:

• Revenue of $310.5 million, an increase of 2.6 percent.
• Loan growth of $1.2 billion, or 6.7 percent, led by commercial real estate and residential mortgage loans, which increased 11.8 percent.
• Deposit growth of $1.3 billion, or 5.8 percent, with growth of $689 million, or 12.3 percent, in HSA deposits.
• Net interest margin of 3.49 percent, down 12 basis points, with 5 basis points of the reduction due to balance sheet repositioning.
• Pre-tax, pre-provision net revenue growth of $6.7 million, or 5.4 percent, led by HSA Bank's growth of 16.6 percent.
• Efficiency ratio (non-GAAP) of 56.6 percent compared to 57.4 percent.
• Annualized return on average common shareholders' equity of 12.36 percent compared to 14.74 percent; annualized return on average tangible common shareholders' equity (non-GAAP) of 15.37 percent compared to 18.88 percent.

"We've achieved our tenth consecutive quarter of positive operating leverage and our efficiency ratio has been below 57 percent over the past year," said Glenn MacInnes, executive vice president and chief financial officer. "We're diligently controlling expenses while investing confidently in our future."

Line of Business performance compared to the third quarter of 2018

Commercial Banking

Webster's Commercial Banking segment serves middle market, commercial real estate, asset-based lending, equipment finance, private banking, and treasury and payment solutions clients. As of September 30, 2019, Commercial Banking had $11.1 billion in loans and leases and $4.5 billion in deposit balances.

Commercial Banking Operating Results:

Pre-tax, pre-provision net revenue increased $0.5 million to $65.5 million in the quarter as compared to prior year. Net interest income increased $5.6 million to $96.8 million, primarily due to loan growth. Non-interest income decreased $4.3 million to $14.0 million, primarily due to lower syndication fees in the quarter. Non-interest expense increased $0.8 million to $45.3 million, primarily due to strategic hires and investments in product enhancements and infrastructure.

HSA Bank
Webster's HSA Bank division offers a comprehensive consumer-directed healthcare solution that includes health savings accounts, health reimbursement arrangements, flexible spending accounts and commuter benefits. Health savings accounts are distributed nationwide directly to employers and individual consumers, as well as through national and regional insurance carriers, benefit consultants and financial advisors. As of September 30, 2019, HSA Bank had $8.2 billion in total footings comprising $6.3 billion in deposit balances and $1.9 billion in assets under administration through linked investment accounts.

HSA Bank Operating Results:

Pre-tax net revenue increased $4.7 million to $32.8 million in the quarter as compared to prior year. Net interest income increased $5.5 million to $42.2 million, due to 12 percent growth in deposits and improvement in deposit spreads. Non-interest income increased $1.4 million to $23.5 million, primarily due to 11 percent growth in accounts over the past year. Non-interest expense increased $2.2 million to $32.9 million, primarily due to account growth and expanded distribution.

Community Banking
Community Banking serves consumer and business banking customers primarily throughout southern New England and into Westchester County, New York. Community Banking is comprised of the Personal Banking and Business Banking operating segments, as well as a distribution network consisting of 157 banking centers and 309 ATMs, a customer care center, and a full range of web and mobile-based banking services. As of September 30, 2019, Community Banking had $8.4 billion in loans and $12.5 billion in deposit balances.

Community Banking Operating Results:

Pre-tax, pre-provision net revenue decreased $5.3 million to $27.7 million in the quarter as compared to prior year. Net interest income decreased $2.5 million to $99.5 million, due to declining interest rates on loans coupled with an increase in deposit costs; which was partially offset by balance growth in the loan and deposit portfolios. Non-interest income increased $1.3 million due to increased income from mortgage banking activities, as well as increases in both deposit and loan related fee income. Non-interest expense increased $4.1 million to $99.8 million driven by increased employee related expenses and continued investments in technology.

Consolidated financial performance:

Quarterly net interest income compared to the third quarter of 2018:

• Net interest income was $240.5 million compared to $230.4 million.
• Net interest margin was 3.49 percent compared to 3.61 percent. The yield on interest-earning assets increased by 5 basis points, and the cost of interest-bearing liabilities increased by 18 basis points.
• Average interest-earning assets totaled $27.6 billion and grew by $2.2 billion, or 8.7 percent.
• Average loans totaled $19.5 billion and grew by $1.4 billion, or 7.8 percent.
• Average deposits totaled $23.2 billion and grew by $1.2 billion, or 5.7 percent.

Quarterly provision for loan losses:

• The provision for loan losses was $11.3 million, compared to $11.9 million in the prior quarter and $10.5 million a year ago.
• Net charge-offs were $13.8 million, compared to $11.6 million in the prior quarter and $6.0 million a year ago. The ratio of net charge-offs to average loans on an annualized basis was 0.28 percent, compared to 0.24 percent in the prior quarter and 0.13 percent a year ago.
• The allowance for loan losses represented 1.07 percent of total loans at September 30, 2019, compared to 1.10 percent at June 30, 2019 and 1.16 percent at September 30, 2018. The allowance for loan losses represented 129 percent of nonperforming loans at September 30, 2019 compared to 143 percent at June 30, 2019 and 139 percent at September 30, 2018.

Quarterly non-interest income compared to the third quarter of 2018:

• Total non-interest income was $69.9 million, compared to $72.3 million, a decrease of $2.4 million. This reflects a decrease of $2.5 million in loan related fees primarily related to syndication fees, and $1.9 million in other income primarily related to client hedging income, offset by a $1.4 million increase in HSA fee income driven by account fees and interchange revenue due to account growth.

Quarterly non-interest expense compared to the third quarter of 2018:

• Total non-interest expense was $179.9 million, compared to $178.8 million, an increase of $1.1 million. The increase reflects increases of $2.0 million in compensation and benefits due to annual merit increases and other benefits, $1.6 million in technology/equipment, and $2.1 million in other expenses primarily due to optimization costs related to technology. Offsetting these increases were decreases of $5.3 million in deposit insurance which reflects prior period one-time charges of $2.9 million and the benefit of a fully funded deposit insurance fund, and $0.8 million in pension costs.

Quarterly income taxes compared to the third quarter of 2018:

• Income tax expense was $25.4 million compared to $13.7 million and the effective tax rate was 21.3 percent compared to 12.1 percent.
• The year-ago period included $8.5 million of discrete tax benefits attributable to tax planning and a higher level of other discrete tax benefits, primarily excess tax benefits from stock-based compensation.

Investment securities:

• Total investment securities were $8.2 billion, compared to $7.6 billion at June 30, 2019 and $7.2 billion at September 30, 2018. The carrying value of the available-for-sale portfolio included $20.9 million of net unrealized gains, compared to $12.0 million at June 30, 2019 and $105.1 million of net unrealized losses at September 30, 2018. The carrying value of the held-to-maturity portfolio does not reflect $92.2 million of net unrealized gains, compared to $37.8 million at June 30, 2019 and $168.1 million of net unrealized losses at September 30, 2018.

Loans:

• Total loans were $19.6 billion, compared to $19.3 billion at June 30, 2019 and $18.3 billion at September 30, 2018. Compared to June 30, 2019, commercial real estate loans increased by $173.7 million and residential mortgages increased by $155.0 million while consumer loans decreased by $31.3 million and commercial loans decreased by $15.6 million.
• Compared to a year ago, commercial real estate loans increased by $626.8 million, residential mortgages increased by $458.7 million, and commercial loans increased by $316.4 million, while consumer loans decreased by $171.2 million.
• Loan originations for portfolio were $1.610 billion, compared to $1.382 billion in the prior quarter and $1.375 billion a year ago. In addition, $73 million of residential loans were originated for sale in the quarter, compared to $41 million in the prior quarter and $55 million a year ago.

Asset quality:

• Total nonperforming loans were $162.7 million, or 0.83 percent of total loans, compared to $148.1 million, or 0.77 percent, at June 30, 2019 and $152.7 million, or 0.83 percent, at September 30, 2018. Total paying nonperforming loans were $71.9 million, compared to $52.9 million at June 30, 2019 and $28.9 million at September 30, 2018.
• Past due loans were $35.6 million, compared to $32.3 million at June 30, 2019 and $39.2 million at September 30, 2018.

Deposits and borrowings:

• Total deposits were $23.3 billion, compared to $22.6 billion at June 30, 2019 and $22.0 billion at September 30, 2018. Core deposits to total deposits were 86.0 percent, compared to 85.3 percent at June 30, 2019 and 85.9 percent at September 30, 2018. The loan to deposit ratio was 84.0 percent, compared to 85.3 percent at June 30, 2019 and 83.3 percent at September 30, 2018.
• Total borrowings were $3.2 billion, compared to $2.9 billion at June 30, 2019 and $2.2 billion at September 30, 2018.

Capital:

• The return on average common shareholders' equity and the return on average tangible common shareholders' equity were 12.36 percent and 15.37 percent, respectively, compared to 14.74 percent and 18.88 percent, respectively, in the third quarter of 2018.
• The tangible equity and tangible common equity ratios were 8.83 percent and 8.34 percent, respectively, compared to 8.41 percent and 7.86 percent, respectively, at September 30, 2018. The common equity tier 1 risk-based capital ratio was 11.61 percent, compared to 11.23 percent at September 30, 2018.
• Book value and tangible book value per common share were $32.68 and $26.58, respectively, compared to $28.96 and $22.83, respectively, at September 30, 2018.

Webster Financial Corporation is the holding company for Webster Bank, National Association and its HSA Bank division. With $29.9 billion in assets, Webster provides business and consumer banking, mortgage, financial planning, trust, and investment services through 157 banking centers and 309 ATMs. Webster also provides mobile and Internet banking. 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 2019 third quarter earnings announcement will be held today, Tuesday, October 22, 2019 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 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 and cyber-security matters; (11) the ability to increase market share and control expenses; (12) changes in the competitive environment among banks, financial holding companies, and other financial services 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 the impact of recent changes with respect to the recognition of credit losses; (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; (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 headings "Risk Factors" and "Management Discussion and Analysis of Financial Condition and Results of Operation." 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. 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.