Webster Reports Fourth Quarter 2019 Earnings Of $0.96 Per Diluted Share

WATERBURY, Conn., Jan. 23, 2020 /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 $88.1 million, or $0.96 per diluted share, for the quarter ended December 31, 2019, compared to $96.7 million, or $1.05 per diluted share, for the quarter ended December 31, 2018. Earnings per diluted share would have been $1.01 for the quarter ended December 31, 2018, adjusting for $4.6 million related to a one-time gain on the sale of six banking centers.

For the full year 2019, earnings applicable to common shareholders was $373.0 million, or $4.06 per diluted share, compared to $351.7 million, or $3.81 per diluted share, for the full year 2018.

"Webster's fourth quarter results demonstrate our ongoing commitment to strong execution on our strategic priorities. Commercial loan growth exceeded 10 percent for the second year in a row and total footings at HSA Bank increased 18 percent from a year ago, while credit metrics remained strong," said John R. Ciulla, president and chief executive officer. "We've now achieved our tenth consecutive year of annual earnings per share growth, which puts us in select company in the banking industry."

Highlights for the fourth quarter of 2019:

• Revenue of $302.2 million.
• Loan growth of $1.6 billion, or 8.5 percent from a year ago, led by commercial real estate and residential mortgage loans, which increased 16.9 percent.
• Deposit growth of $1.5 billion, or 6.7 percent from a year ago, with growth of $676 million, or 11.8 percent, in HSA deposits.
• Net interest margin of 3.27 percent.
• Efficiency ratio (non-GAAP) of 58.5 percent.
• Annualized return on average common shareholders' equity of 11.60 percent, exceeding our cost of capital.
• Annualized return on average tangible common shareholders' equity (non-GAAP) of 14.34 percent.

"Our performance in 2019 represents our third consecutive year of positive operating leverage," said Glenn MacInnes, executive vice president and chief financial officer. "Tangible book value now exceeds $2.5 billion and increased 15 percent from a year ago."

Line of Business performance compared to the fourth 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 December 31, 2019, Commercial Banking had $11.5 billion in loans and leases and $4.4 billion in deposit balances.

Commercial Banking Operating Results:

Pre-tax, pre-provision net revenue increased $1.3 million to $64.3 million in the quarter as compared to prior year. Net interest income increased $1.2 million to $93.3 million, primarily due to loan growth. Non-interest income increased $0.3 million to $16.4 million, primarily due to higher syndication fees in the quarter. Non-interest expense increased $0.2 million to $45.5 million, primarily due to 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 December 31, 2019, HSA Bank had $8.5 billion in total footings comprising $6.4 billion in deposit balances and $2.1 billion in assets under administration through linked investment accounts.

HSA Bank Operating Results:

Pre-tax net revenue decreased $0.1 million to $28.7 million in the quarter as compared to prior year. Net interest income increased $2.3 million to $40.7 million, due to 12 percent growth in deposits and a decline in deposit spreads. Non-interest income increased $1.3 million to $23.0 million, primarily due to 9 percent growth in accounts over the past year. Non-interest expense increased $3.8 million to $34.9 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 December 31, 2019, Community Banking had $8.5 billion in loans and $12.5 billion in deposit balances.

Community Banking Operating Results:

* Non-interest income for the three months ended December 31, 2018 includes a $4.6 million gain on sale of six banking centers.

Pre-tax, pre-provision net revenue decreased $8.5 million to $28.0 million in the quarter as compared to prior year. Net interest income decreased $4.9 million to $97.2 million, due to declining interest rates on loans coupled with a year-over-year increase in deposit costs; which was partially offset by balance growth in the loan and deposit portfolios. Non-interest income decreased $3.2 million due to a $4.6 million gain on sale of six banking centers recorded in the prior year.  Partially offsetting the decrease were increases in income from mortgage banking activities, fees from loan interest rate hedging activities, loan-related fee income, and fees from investment services. Non-interest expense increased $0.5 million to $97.3 million driven by increased employee related expenses and continued investments in technology offset by lower marketing-related costs and occupancy expenses.

Consolidated financial performance:

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

• Net interest income was $231.3 million compared to $237.1 million.
• Net interest margin was 3.27 percent compared to 3.66 percent. The yield on interest-earning assets declined by 34 basis points, and the cost of interest-bearing liabilities increased by 5 basis points.
• Average interest-earning assets totaled $28.3 billion and grew by $2.6 billion, or 10.0 percent.
• Average loans totaled $19.8 billion and grew by $1.4 billion, or 7.5 percent.
• Average deposits totaled $23.4 billion and grew by $1.4 billion, or 6.5 percent.

Quarterly provision for loan losses:

• The provision for loan losses was $6.0 million, compared to $11.3 million in the prior quarter and $10.0 million a year ago.
• Net charge-offs were $6.1 million, compared to $13.8 million in the prior quarter and $9.5 million a year ago. The ratio of net charge-offs to average loans on an annualized basis was 0.12 percent, compared to 0.28 percent in the prior quarter and 0.21 percent a year ago.
• The allowance for loan losses represented 1.04 percent of total loans at December 31, 2019, compared to 1.07 percent at September 30, 2019 and 1.15 percent at December 31, 2018. The allowance for loan losses represented 139 percent of nonperforming loans at December 31, 2019 compared to 129 percent at September 30, 2019 and 137 percent at December 31, 2018.

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

• Total non-interest income was $70.9 million, compared to $73.2 million, a decrease of $2.2 million. This reflects a decrease of $5.2 million in other income primarily due to a $4.6 million gain a year ago related to the sale of six banking centers as well as lower client hedging income. There was offset from a $1.5 million increase in mortgage banking activities and $1.4 million in HSA fee income driven by interchange revenue and linked investment fees.

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

• Total non-interest expense was $179.7 million, compared to $174.8 million, an increase of $5.0 million. The increase reflects increases of $3.4 million in compensation and benefits due to annual merit increases and other benefits and $2.8 million in technology/equipment. Offsetting these increases was a decrease of $1.5 million in professional and outside services driven by lower consulting costs.

Quarterly income taxes compared to the fourth quarter of 2018:

• Income tax expense was $26.0 million compared to $26.7 million and the effective tax rate was 22.3 percent compared to 21.3 percent.
• The higher effective tax rate in the quarter includes a discrete tax expense associated with a state and local tax position contributing to a lower level of net discrete tax benefits recognized during the period compared to a year ago.

Investment securities:

• Total investment securities were $8.2 billion, compared to $8.2 billion at September 30, 2019 and $7.2 billion at December 31, 2018. The carrying value of the available-for-sale portfolio included $24.4 million of net unrealized gains, compared to $20.9 million at September 30, 2019 and $95.9 million of net unrealized losses at December 31, 2018. The carrying value of the held-to-maturity portfolio does not reflect $86.7 million of net unrealized gains, compared to $92.2 million at September 30, 2019 and $116.3 million of net unrealized losses at December 31, 2018.

Loans:

• Total loans were $20.0 billion, compared to $19.6 billion at September 30, 2019 and $18.5 billion at December 31, 2018. Compared to September 30, 2019, commercial real estate loans increased by $551.3 million and residential mortgages increased by $99.0 million while commercial loans decreased by $129.0 million and consumer loans decreased by $35.8 million.
• Compared to a year ago, commercial real estate loans increased by $1.022 billion, residential mortgages increased by $556.0 million, and commercial loans increased by $155.8 million, while consumer loans decreased by $162.6 million.
• Loan originations for portfolio were $1.919 billion, compared to $1.610 billion in the prior quarter and $1.611 billion a year ago. In addition, $94 million of residential loans were originated for sale in the quarter, compared to $73 million in the prior quarter and $30 million a year ago.

Asset quality:

• Total nonperforming loans were $150.9 million, or 0.75 percent of total loans, compared to $162.7 million, or 0.83 percent of total loans, at September 30, 2019 and $154.8 million, or 0.84 percent of total loans, at December 31, 2018. Total paying nonperforming loans were $59.0 million, compared to $71.9 million at September 30, 2019 and $42.5 million at December 31, 2018.
• Past due loans were $42.6 million, compared to $35.6 million at September 30, 2019 and $34.3 million at December 31, 2018.

Deposits and borrowings:

• Total deposits were $23.3 billion, compared to $23.3 billion at September 30, 2019 and $21.9 billion at December 31, 2018. Core deposits to total deposits were 86.7 percent, compared to 86.0 percent at September 30, 2019 and 85.4 percent at December 31, 2018. The loan to deposit ratio was 85.9 percent, compared to 84.0 percent at September 30, 2019 and 84.5 percent at December 31, 2018.
• Total borrowings were $3.5 billion, compared to $3.2 billion at September 30, 2019 and $2.6 billion at December 31, 2018.

Capital:

• The return on average common shareholders' equity and the return on average tangible common shareholders' equity were 11.60 percent and 14.34 percent, respectively, compared to 14.31 percent and 18.22 percent, respectively, in the fourth quarter of 2018.
• The tangible equity and tangible common equity ratios were 8.88 percent and 8.39 percent, respectively, compared to 8.59 percent and 8.05 percent, respectively, at December 31, 2018. The common equity tier 1 risk-based capital ratio was 11.56 percent, compared to 11.44 percent at December 31, 2018.
• Book value and tangible book value per common share were $33.28 and $27.19, respectively, compared to $29.72 and $23.60, respectively, at December 31, 2018.

Webster Financial Corporation is the holding company for Webster Bank, National Association and its HSA Bank division. With $30.4 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  fourth quarter 2019 earnings announcement will be held today, Thursday, January 23, 2020 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) our ability to successfully execute our business  plan and manage our risks; (2) local, regional, national, and international economic conditions and the impact they may have on us and our customers; (3) volatility and disruption in national and international financial markets; (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 our investment securities; (7) inflation, changes in interest rate, and monetary fluctuations; (8) the timely development and acceptance of new products and services and the perceived value of those products and services by customers; (9) changes in deposit flows, consumer spending, borrowings, and savings habits; (10) our ability to implement new technologies and maintain secure and reliable technology systems; (11) performance by our counterparties and vendors; (12) our ability to increase market share and control expenses; (13) changes in the competitive environment among banks, financial holding companies, and other financial services providers; (14) changes in laws and regulations (including those concerning taxes, banking, securities, insurance, and healthcare) with which we and our subsidiaries must comply; (15) the effect of changes in accounting policies and practices applicable to us, including changes in our allowance for loan and lease losses and other impacts of our adoption of new accounting guidance regarding the recognition of credit losses; (16) 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 (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.