Webster Reports Fourth Quarter 2020 Earnings of $0.64 Per Diluted Share

WATERBURY, Conn. , Jan. 21, 2021 /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 $57.7 million , or $0.64 per diluted share, for the quarter ended December 31, 2020, compared to $88.1 million , or $0.96 per diluted share, for the quarter ended December 31, 2019. Earnings per diluted share would have been $0.99 for the quarter ended December 31, 2020 , adjusting for $42.0 million ( $31.2 million after tax) of charges related to strategic optimization initiatives.

For the full year 2020, earnings applicable to common shareholders was $211.5 million , or $2.35 per diluted share, and includes $52.2 million ( $38.8 million after tax) of adjustments.

"I am pleased with the results of the quarter as we continue to deliver for our customers and communities as evidenced, in part, by $1.9 billion of quarterly loan originations while maintaining solid credit quality," said John R. Ciulla , chairman and chief executive officer. "We remain focused on our strategic priorities and positioning ourselves for growth as the macro environment improves in 2021."

Highlights for the fourth quarter of 2020:

• Revenue of $293.7 million ; $297.4 million excluding $3.7 million in hedge termination costs related to debt prepayments.
• Loan growth of $1.6 billion , or 8.0 percent from a year ago, led by commercial and commercial real estate, which increased 16.1 percent. Excluding Paycheck Protection Program (PPP) loans, total loan growth was $348 million , or 1.7 percent.
• Results include a Current Expected Credit Loss (CECL) provision of $(1.0) million with a reserve decrease of $10.4 million compared to the prior quarter, resulting in an allowance coverage of 1.66 percent, or 1.76 percent excluding $1.3 billion of PPP loans.
• Deposit growth of $4.0 billion , or 17.2 percent from a year ago, with growth of $1.7 billion in demand deposits and $704 million in HSA deposits.
• Results include $42.0 million of charges related to strategic optimization initiatives.
• Net interest margin of 2.83 percent.
• Efficiency ratio (non-GAAP) of 60.3 percent.

"Our continued strong liquidity enabled us to reduce borrowings by $608 million in the quarter and $1.8 billion from a year ago," said Glenn MacInnes , executive vice president and chief financial officer. "The strength of our balance sheet supports our future growth objectives."

Line of Business performance compared to the fourth quarter of 2019

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, 2020, Commercial Banking had $12.6 billion in loans and leases and $6.0 billion in deposit balances.

Commercial Banking Operating Results:

Pre-tax, pre-provision net revenue increased $9.8 million to $80.9 million in the quarter as compared to prior year. Net interest income increased $12.1 million to $112.3 million , primarily driven by loan and deposit growth. Non-interest income increased $0.9 million to $17.3 million as a result of higher loan related fees. Non-interest expense increased $3.2 million to $48.7 million , primarily due to compensation related expense.

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, 2020, HSA Bank had $10.0 billion in total footings comprising $7.1 billion in deposit balances and $2.9 billion in assets under administration through linked investment accounts.

HSA Bank Operating Results:

Pre-tax net revenue decreased $0.2 million to $29.9 million in the quarter as compared to prior year. Net interest income decreased $1.5 million to $40.5 million , due to a decline in deposit spreads partially offset by an 11.0 percent growth in deposits. Non-interest income increased $1.1 million to $24.1 million , due primarily to account fees and increased interchange as a result of additional spending compared to the prior year. Non-interest expense decreased $0.1 million to $34.8 million , essentially flat to the prior year.

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 155 banking centers and 297 ATMs, a customer care center, and a full range of web and mobile-based banking services. As of December 31, 2020, Community Banking had $9.0 billion in loans and $14.3 billion in deposit balances.

Community Banking Operating Results:

Pre-tax, pre-provision net revenue increased $4.8 million to $37.8 million in the quarter as compared to prior year. Net interest income increased $8.3 million to $110.4 million , driven by loan and deposit balance growth, partially offset by a decline in deposit spreads due to the lower interest rate environment. Non-interest income decreased $1.8 million resulting from lower deposit-related service charges, as well as lower loan servicing fees in the current quarter. This decrease was partially offset by fee income from mortgage banking activities. Non-interest expense increased $1.6 million to $99.0 million due to continued investments in technology and outside services.

Consolidated financial performance:

Quarterly net interest income compared to the fourth quarter of 2019:

• Net interest income was $216.9 million compared to $231.3 million .
• Net interest margin was 2.83 percent compared to 3.27 percent. The yield on interest-earning assets declined by 90 basis points, and the cost of interest-bearing liabilities declined by 49 basis points.
• Average interest-earning assets totaled $30.9 billion and grew by $2.5 billion , or 8.9 percent.
• Average loans totaled $21.7 billion and grew by $1.9 billion , or 9.7 percent.
• Average deposits totaled $27.2 billion and grew by $3.9 billion , or 16.5 percent.

Quarterly provision for credit losses:

• The provision for credit losses was $(1.0) million in the quarter, contributing to a $10.4 million decrease in the allowance for credit losses on loans and leases. The decrease in the allowance reflects our current estimate of forecasted economic conditions. The provision for credit losses was $22.8 million in the prior quarter and $6.0 million a year ago. The reserve release reflects continued favorable credit trends.
• Net charge-offs were $9.4 million , compared to $11.5 million in the prior quarter and $6.1 million a year ago. The ratio of net charge-offs to average loans on an annualized basis was 0.17 percent, compared to 0.21 percent in the prior quarter and 0.12 percent a year ago.
• The allowance for credit losses on loans and leases represented 1.66 percent of total loans at December 31, 2020 , compared to 1.69 percent at September 30, 2020 and 1.04 percent at December 31, 2019 . Excluding $1.3 billion of risk free PPP loans, the coverage ratio was 1.76 percent at December 31, 2020 , compared to 1.80 percent at September 30, 2020 after excluding $1.4 billion of risk free PPP loans. The allowance for credit losses at December 31 and September 30 was estimated in accordance with the CECL accounting standard. The allowance represented 214 percent of nonperforming loans at December 31, 2020 compared to 227 percent at September 30, 2020 and 139 percent at December 31, 2019 .

Quarterly non-interest income compared to the fourth quarter of 2019:

• Total non-interest income was $76.8 million compared to $70.9 million , an increase of $5.8 million . This reflects an increase of $5.1 million due to direct investment income, mark to market on customer derivatives, and miscellaneous fee income; an increase of $1.8 million in mortgage banking activities primarily due to higher origination volume and spreads on loans originated for sale; and an increase of $1.1 million in HSA fee income driven primarily by higher account service fees. These increases were partially offset by a $3.0 decrease in deposit service fees driven by lower overdraft and service related fees.

Quarterly non-interest expense compared to the fourth quarter of 2019:

• Total non-interest expense was $219.5 million compared to $179.7 million , an increase of $39.8 million . This reflects strategic optimization initiative charges of $38.3 million : $17.9 million in compensation and benefits; $14.0 million in occupancy; $5.5 million in professional and outside services; and $0.9 million in other expenses. Excluding these charges, non-interest expense increased $1.5 million . This reflects an increase in compensation and benefits of $4.4 million and an increase in technology and equipment of $1.4 million offset by a decrease in other expenses of $4.4 million primarily due to lower pension, travel, and OREO costs.

Quarterly income taxes compared to the fourth quarter of 2019:

• Income tax expense was $15.1 million compared to $26.0 million and the effective tax rate was 20.1 percent compared to 22.3 percent.
• The lower effective tax rate in the quarter primarily reflects the effects of reduced pre-tax income in 2020 compared to 2019.

Investment securities:

• Total investment securities were $8.9 billion , compared to $9.0 billion at September 30, 2020 and $8.2 billion at December 31, 2019 . The carrying value of the available-for-sale portfolio included $92.5 million of net unrealized gains, compared to $103.1 million at September 30, 2020 and $24.4 million of net unrealized gains at December 31, 2019 . The carrying value of the held-to-maturity portfolio does not reflect $267.2 million of net unrealized gains, compared to $283.0 million at September 30, 2020 and $86.7 million of net unrealized gains at December 31, 2019 .

Loans:

• Total loans were $21.6 billion , compared to $21.9 billion at September 30, 2020 and $20.0 billion at December 31, 2019 . Compared to September 30, 2020 , commercial loans increased by $34.7 million , commercial real estate loans increased by $15.1 million , while consumer loans decreased by $87.4 million and residential mortgages decreased by $103.8 million .
• Compared to a year ago, commercial loans increased by $1.697 billion , with PPP loans representing $1.3 billion of the increase. Commercial real estate loans increased by $373.3 million and residential mortgages increased by $190.7 million , while consumer loans decreased by $275.5 million .
• Loan originations for the portfolio were $1.804 billion , compared to $1.560 billion in the prior quarter ( $1.525 billion excluding PPP loan originations), and $1.919 billion a year ago. In addition, $125 million of residential loans were originated for sale in the quarter, compared to $149 million in the prior quarter and $94 million a year ago.

Asset quality:

• Total nonperforming loans were $168.0 million , or 0.78 percent of total loans, compared to $162.6 million , or 0.74 percent of total loans, at September 30, 2020 and $150.9 million , or 0.75 percent of total loans, at December 31, 2019 . Total paying nonperforming loans were $59.7 million , compared to $67.4 million at September 30, 2020 and $59.0 million at December 31, 2019 .
• Past due loans were $32.9 million , compared to $21.8 million at September 30, 2020 and $42.6 million at December 31, 2019 .

Deposits and borrowings:

• Total deposits were $27.3 billion , compared to $26.9 billion at September 30, 2020 and $23.3 billion at December 31, 2019 . Core deposits to total deposits were 90.9 percent, compared to 90.5 percent at September 30, 2020 and 86.7 percent at December 31, 2019 . The loan to deposit ratio was 79.2 percent, compared to 81.2 percent at September 30, 2020 and 85.9 percent at December 31, 2019 .
• Total borrowings were $1.7 billion , compared to $2.3 billion at September 30, 2020 and $3.5 billion at December 31, 2019 .

Capital:

• The return on average common shareholders' equity and the return on average tangible common shareholders' equity were 7.51 percent and 9.31 percent, respectively, compared to 11.60 percent and 14.34 percent, respectively, in the fourth quarter of 2019.
• The tangible equity and tangible common equity ratios were 8.35 percent and 7.90 percent, respectively, compared to 8.88 percent and 8.39 percent, respectively, at December 31, 2019 . The common equity tier 1 risk-based capital ratio was 11.35 percent, compared to 11.56 percent at December 31, 2019 .
• Book value and tangible book value per common share were $34.25 and $28.04 , respectively, compared to $33.28 and $27.19 , respectively, at December 31, 2019 .

Webster Financial Corporation is the holding company for Webster Bank , National Association and its HSA Bank division. With $32.6 billion in assets, Webster provides business and consumer banking, mortgage, financial planning, trust, and investment services through 155 banking centers and 297 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 2020 earnings announcement will be held today, Thursday, January 21, 2021 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) the potential adverse effects of the ongoing novel coronavirus (COVID-19) pandemic and any governmental or societal responses thereto, including the deployment and efficacy of COVID-19 vaccines, or any other unusual and infrequently occurring events; (5) changes in the level of nonperforming assets and charge-offs; (6) changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements; (7) adverse conditions in the securities markets that lead to impairment in the value of our investment securities; (8) inflation, changes in interest rate, and monetary fluctuations; (9) the timely development and acceptance of new products and services and the perceived value of those products and services by customers; (10) changes in deposit flows, consumer spending, borrowings, and savings habits; (11) our ability to implement new technologies and maintain secure and reliable technology systems; (12) performance by our counterparties and vendors; (13) our ability to increase market share and control expenses; (14) changes in the competitive environment among banks, financial holding companies, and other financial services providers; (15) changes in laws and regulations (including those concerning taxes, banking, securities, insurance, and healthcare) with which we and our subsidiaries must comply, including recent and potential legislative and regulatory changes in response to the COVID-19 pandemic such as the CARES Act and the rules and regulations that may be promulgated thereunder; (16) 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 recently adopted accounting guidance regarding the recognition of credit losses; (17) 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 (18) 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.

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SOURCE Webster Financial Corporation