Webster Reports Third Quarter 2021 Earnings Of $1.03 Per Diluted Share

WATERBURY, Conn., Oct. 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 $93.2 million, or $1.03 per diluted share, for the quarter ended September 30, 2021, compared to $66.9 million, or $0.75 per diluted share, for the quarter ended September 30, 2020. Earnings per diluted share would have been $1.08 for the quarter ended September 30, 2021, adjusting for a net $5.8 million ($4.3 million after tax) of merger related costs and strategic optimization initiatives.

"Webster delivered strong financial performance as evidenced by linked quarter loan growth of 2.7%, excluding PPP, and deposit growth of 4.1%," said John R. Ciulla, chairman and chief executive officer. "While we continue to deliver for clients, communities, colleagues and shareholders, integration plans for our merger with Sterling are well established and we are prepared to execute the transaction upon receipt of all regulatory approvals."

Highlights for the third quarter of 2021:

• Revenue of $313.5 million, an increase of 6.5 percent compared to a year ago.
• Loan growth of 2.7 percent linked quarter, excluding Paycheck Protection Program (PPP) loans, led by commercial and residential which increased 3.3 percent.
• Current Expected Credit Loss (CECL) provision of $7.8 million with a reserve increase of $7.0 million compared to the prior quarter primarily driven by loan growth, resulting in an allowance coverage of 1.46 percent, or 1.49 percent excluding $0.4 billion of PPP loans.
• Deposit growth of $1.2 billion or 4.1 percent linked quarter, with growth of $741.6 million in demand and interest-bearing checking deposits and $516.4 million in money market deposits.
• Charges related to merger and strategic optimization initiatives totaled $5.8 million.
• Net interest margin of 2.80 percent.
• Efficiency ratio (non-GAAP) of 54.8 percent.

"Credit quality and economic conditions continued to improve, supporting favorable trends for non-performing loans and net charge-offs in the quarter," said Glenn MacInnes, executive vice president and chief financial officer. "The strength of our balance sheet continues to position us well for the future."

Line of Business performance compared to the third quarter of 2020

Commercial Banking

Webster's Commercial Banking segment serves businesses that have more than $2 million of revenue through our business banking, middle market, asset-based lending, equipment finance, commercial real estate, sponsor finance, and treasury services business units. Additionally, our Wealth group provides wealth management solutions to business owners, operators, and consumers within our targeted markets and retail footprint. As of September 30, 2021, Commercial Banking had $14.7 billion in loans and leases and $10.2 billion in deposit balances.

Commercial Banking Operating Results:

Pre-tax, pre-provision net revenue increased $31.5 million to $117.7 million in the quarter as compared to prior year. Net interest income increased $20.5 million to $152.6 million, primarily driven by PPP loan fee acceleration associated with PPP loan forgiveness, loan rates, and deposit growth. Non-interest income increased $9.4 million to $30.1 million, driven by higher syndication fees, fair value adjustments on direct investments, and trust and investment service fees. Non-interest expense decreased $1.6 million to $64.9 million, primarily driven by lower support costs.

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, 2021, HSA Bank had $10.7 billion in total footings comprising $7.3 billion in deposit balances and $3.4 billion in assets under administration through linked investment accounts.

HSA Bank Operating Results:

Pre-tax net revenue increased $1.7 million to $34.0 million in the quarter as compared to prior year. Net interest income increased $2.2 million to $42.1 million, due to growth in deposits. Non-interest income decreased $2.5 million to $24.8 million, primarily due to decreases in third-party administrator closure fees. Non-interest expense decreased $2.0 million to $32.8 million, primarily due to reduced compensation and benefits expenses.

Retail Banking

Retail Banking serves consumer and business banking customers primarily throughout southern New England and into Westchester County, New York. Retail Banking is comprised of the Consumer Lending and Small Business Banking (businesses that have less than $2 million of revenue) business units, as well as a distribution network consisting of 130 banking centers and 254 ATMs, a customer care center, and a full range of web and mobile-based banking services. As of September 30, 2021, Retail Banking had $6.9 billion in loans and $12.5 billion in deposit balances.

Retail Banking Operating Results:

Pre-tax, pre-provision net revenue increased $16.7 million to $41.5 million in the quarter as compared to prior year. Net interest income increased $14.4 million to $98.0 million, driven by PPP loan fee acceleration associated with PPP loan forgiveness, deposit balance growth, and lower interest paid on deposits, partially offset by lower consumer loan balances. Non-interest income decreased $4.4 million to $17.0 million, resulting from lower mortgage banking fee income, partially offset by higher deposit service fees. Non-interest expense decreased $6.6 million to $73.5 million, driven by lower employee-related, occupancy, technology and equipment, and marketing expenses.

Consolidated financial performance:

Quarterly net interest income compared to the third quarter of 2020:

• Net interest income was $229.7 million compared to $219.3 million.
• Net interest margin was 2.80 percent compared to 2.88 percent. The yield on interest-earning assets declined by 21 basis points, and the cost of interest-bearing liabilities declined by 14 basis points.
• Average interest-earning assets totaled $32.9 billion and grew by $2.0 billion, or 6.5 percent.
• Average loans totaled $21.5 billion and declined by $0.3 billion, or 1.5 percent.
• Average deposits totaled $29.8 billion and grew by $2.9 billion, or 10.8 percent.

Quarterly provision for credit losses:

• The provision for credit losses reflects a $7.8 million provision in the quarter, contributing to a $7.0 million increase in the allowance for credit losses on loans and leases. The increase in the allowance is based primarily on loan growth. The provision for credit losses reflected a $21.5 million benefit in the prior quarter compared to an expense of $22.8 million a year ago.
• Net charge-offs (recoveries) were $0.9 million, compared to $(1.2) million in the prior quarter and $11.5 million a year ago. The ratio of net charge-offs (recoveries) to average loans on an annualized basis was 0.02 percent, compared to (0.02) percent in the prior quarter and 0.21 percent a year ago.
• The allowance for credit losses on loans and leases represented 1.46 percent of total loans at September 30, 2021, compared to 1.43 percent at June 30, 2021 and 1.69 percent at September 30, 2020. Excluding $0.4 billion of risk free PPP loans, the coverage ratio was 1.49 percent at September 30, 2021, compared to 1.49 percent at June 30, 2021 excluding $0.8 billion of risk free PPP loans, and 1.80 percent at September 30, 2020 excluding $1.4 billion of risk free PPP loans. The allowance represented 309 percent of nonperforming loans at September 30, 2021 compared to 255 percent at June 30, 2021 and 227 percent at September 30, 2020.

Quarterly non-interest income compared to the third quarter of 2020:

• Total non-interest income was $83.8 million compared to $75.1 million, an increase of $8.7 million. This primarily reflects an increase of $9.0 million in other due to fair value adjustments on direct investments; $4.3 million in loan related fees driven by higher syndication and prepayment fees; $1.8 million in deposit service fees driven by higher overdraft and cash management fees; and $1.7 million primarily due to increased investment activity. These increases were partially offset by a $5.6 million decrease in mortgage banking activities which is in line with our strategic choice to originate loans for portfolio along with lower spreads on loans originated for sale and a $2.5 million decrease in HSA fee income due to prior year closure fees from third-party administrator custodial accounts and lower account service related charges.

Quarterly non-interest expense compared to the third quarter of 2020:

• Total non-interest expense was $180.2 million compared to $184.0 million, a decrease of $3.8 million. Total non-interest expense includes a net $5.8 million of merger and strategic initiative related charges compared to $4.8 million of strategic initiatives a year ago. Excluding those charges, total non-interest expense decreased $4.8 million reflecting a $2.5 million decrease in compensation and benefits, a $1.8 million decrease in occupancy, and a $0.9 million decrease in the reserve for unfunded lines.

Quarterly income taxes compared to the third quarter of 2020:

• Income tax expense was $29.8 million compared to $18.3 million, and the effective tax rate was 23.7 percent compared to 20.9 percent. The higher effective tax rate in the quarter primarily reflects the effects of increased pre-tax income in 2021 compared to 2020.

Investment securities:

• Total investment securities were $9.4 billion, compared to $8.9 billion at June 30, 2021 and $9.0 billion at September 30, 2020. The carrying value of the available-for-sale portfolio included $44.7 million of net unrealized gains, compared to $49.3 million at June 30, 2021 and $103.1 million at September 30, 2020. The carrying value of the held-to-maturity portfolio does not reflect $152.9 million of net unrealized gains, compared to $170.5 million at June 30, 2021 and $283.0 million at September 30, 2020.

Loans:

• Total loans were $21.6 billion, compared to $21.5 billion at June 30, 2021 and $21.9 billion at September 30, 2020. Compared to June 30, 2021, commercial real estate loans increased by $112.0 million while commercial loans (excluding PPP loans) increased by $189.0 million, residential mortgages increased by $311.2 million, consumer loans decreased by $59.3 million, and PPP loans decreased by $447.5 million.
• Compared to a year ago, commercial real estate loans increased by $215.1 million and commercial loans (excluding PPP loans) increased by $502.5 million, while consumer loans decreased by $315.1 million and residential mortgages increased by $281.7 million. PPP loans totaled $0.4 billion at September 30, 2021.
• Loan originations for the portfolio were $1.987 billion, compared to $2.333 billion ($2.269 billion excluding PPP loan originations) in the prior quarter and $1.560 billion ($1.525 billion excluding PPP loan originations) a year ago. In addition, $57 million of residential loans were originated for sale in the quarter, compared to $55 million in the prior quarter and $149 million a year ago.

Asset quality:

• Total nonperforming loans were $101.8 million, or 0.47 percent of total loans, compared to $120.7 million, or 0.56 percent of total loans, at June 30, 2021 and $162.6 million, or 0.74 percent of total loans, at September 30, 2020. As of September 30, 2021, $40.3 million of nonperforming loans were contractually current.
• Past due loans were $17.1 million, compared to $18.4 million at June 30, 2021 and $21.8 million at September 30, 2020.

Deposits and borrowings:

• Total deposits were $30.0 billion, compared to $28.8 billion at June 30, 2021 and $26.9 billion at September 30, 2020. Core deposits to total deposits were 93.7 percent, compared to 93.0 percent at June 30, 2021 and 90.5 percent at September 30, 2020. The loan to deposit ratio was 71.9 percent, compared to 74.4 percent at June 30, 2021 and 81.2 percent at September 30, 2020.
• Total borrowings were $1.3 billion, compared to $1.2 billion at June 30, 2021 and $2.3 billion at September 30, 2020.

Capital:

• The return on average common shareholders' equity and the return on average tangible common shareholders' equity were 11.61 percent and 14.16 percent, respectively, compared to 8.80 percent and 10.91 percent, respectively, in the third quarter of 2020.
• The tangible equity and tangible common equity ratios were 8.12 percent and 7.71 percent, respectively, compared to 8.19 percent and 7.75 percent, respectively, at September 30, 2020. The common equity tier 1 risk-based capital ratio was 11.77 percent, compared to 11.23 percent at September 30, 2020.
• Book value and tangible book value per common share were $35.78 and $29.63, respectively, compared to $34.09 and $27.86, respectively, at September 30, 2020.

Webster Financial Corporation is the holding company for Webster Bank, National Association and its HSA Bank division. With $35.4 billion in assets, Webster provides business and consumer banking, mortgage, financial planning, trust, and investment services through 130 banking centers and 254 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 third quarter 2021 earnings announcement will be held today, Thursday, October 21, 2021 at 9:00 a.m. Eastern Time. To listen to the live call, please dial 877-407-8289, or 201-689-8341 for international callers. The webcast, along with related slides, will be available on the Webster website (www.wbst.com). A replay of the conference call will be available for one week via the website listed above, beginning at approximately 11:00 a.m. (Eastern) on October 21, 2021. To access the replay, dial 877-660-6853, or 201-612-7415 for international callers. The replay conference ID number is 13723032.

Media Contact
Alice Ferreira, 203-578-2610
acferreira@websterbank.com

Investor Contact
Kristen Manginelli, 203-578-2307
kmanginelli@websterbank.com

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 complete the merger with Sterling Bancorp and realize the anticipated benefits of the merger; (2) our ability to successfully execute our business plan and strategic initiatives, and manage any risks or uncertainties; (3) our ability to successfully achieve the anticipated cost reductions and operating efficiencies from our completed branch consolidations and other strategic initiatives, including process automation, organization simplification, and spending reductions, and avoid any higher than anticipated costs or delays in the ongoing implementation; (4) local, regional, national, and international economic conditions and the impact they may have on us and our customers; (5) volatility and disruption in national and international financial markets; (6) the potential adverse effects of the ongoing novel coronavirus (COVID-19) pandemic and any governmental or societal responses thereto, or other unusual and infrequently occurring events; (7) changes in the level of nonperforming assets and charge-offs; (8) changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements; (9) adverse conditions in the securities markets that lead to impairment in the value of our investment securities; (10) inflation, changes in interest rates (including the replacement of LIBOR as an interest rate benchmark), and monetary fluctuations; (11) the timely development and acceptance of new products and services and the perceived value of those products and services by customers; (12) changes in deposit flows, consumer spending, borrowings, and savings habits; (13) our ability to implement new technologies and maintain secure and reliable technology systems; (14) the effects of any cyber threats, attacks or events or fraudulent activity; (15) performance by our counterparties and vendors; (16) our ability to increase market share and control expenses; (17) changes in the competitive environment among banks, financial holding companies, and other financial services providers; (18) changes in laws and regulations (including those concerning banking, taxes, dividends, securities, insurance, and healthcare) with which we and our subsidiaries must comply; (19) the effect of changes in accounting policies and practices applicable to us, including impacts of recently adopted accounting guidance; (20) legal and regulatory developments including the resolution of legal proceedings or regulatory or other governmental inquiries and the results of regulatory examinations or reviews; (21) our ability to appropriately address social, environmental, and sustainability concerns that may arise from our business activities; and (22) 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.