Webster Reports First Quarter 2022 EPS of $(0.14); Adjusted EPS OF $1.24

STAMFORD, Conn., April 28, 2022 /PRNewswire/ -- Webster Financial Corporation (NYSE: WBS), the holding company for Webster Bank, N.A. and its HSA Bank division, today announced net (loss) income available to common shareholders of $(20.2) million, or $(0.14) per diluted share, for the quarter ended March 31, 2022, compared to $106.1 million, or $1.17 per diluted share, for the quarter ended March 31, 2021.

First quarter 2022 results reflect the impact of the January 31, 2022 merger with Sterling Bancorp ("Sterling") and include $279.5 million pre-tax, ($204.3 million after tax), or $1.38 per diluted share, of primarily merger-related expenses and initial non-purchase credit deteriorated (non-PCD) provision. Excluding these expenses, earnings per diluted share would have been $1.24 for the quarter ended March 31, 2022. Reported results prior to the first quarter of 2022 reflect legacy Webster Financial results only.

"This was a landmark quarter for Webster, as we closed our merger of equals with Sterling Bancorp," said John R. Ciulla, President and Chief Executive Officer. "We are excited about our future as a combined entity, as we are adding scale, talent, and capabilities that will enhance our client experience. I am equally proud we were able to produce strong underlying business trends while at the same time combining these complementary organizations."

Highlights for the first quarter of 2022:

• Completed merger with Sterling Bancorp, the parent company of Sterling National Bank, which closed effective January 31, 2022, creating an approximately $65 billion institution.
• Completed the acquisition of Bend Financial, Inc. which will advance our delivery of a differentiated modern approach to HSA management and engagement.
• Charges related to the merger, strategic initiatives, and initial non-PCD provision totaled $279.5 million.
• Revenue of $498.3 million.
• Current period includes a state deferred tax asset revaluation benefit of $9.9 million.
• Period end loan and lease balance of $43.5 billion; 80 percent commercial loans and leases, 20 percent consumer loans, and a loan to deposit ratio of 80 percent.
• Period end deposit balance of $54.4 billion.
• Provision totaled $188.8 million and included $175.1 million related to non-PCD loans and leases.
• Return on average assets of (0.12) percent; adjusted 1.37 percent (non-GAAP).
• Return on average tangible common equity of (1.36) percent; adjusted 17.01 percent (non-GAAP).
• Net interest margin of 3.21 percent includes net accretion of 0.29 percent.
• Common equity tier 1 ratio of 11.42 percent.
• Efficiency ratio (non-GAAP) of 48.73 percent.
• Tangible common equity ratio of 8.26 percent.
• Authorized to repurchase an additional $600 million in shares under Webster's existing share repurchase program.

"The power of our combined entity is already evident in our financial performance," said Glenn MacInnes, Executive Vice President and Chief Financial Officer. "On an adjusted basis, we generated a return on assets of 1.37 percent and return on tangible common equity of 17 percent. We also exhibited meaningful growth in key product categories, and anticipate carrying this momentum into future periods."

The first quarter results do not represent a full quarter of comparable combined earnings given the merger with Sterling Bancorp on January 31, 2022. Additionally, the increases in the balance sheet and income statement during the quarter are largely attributable to the merger.

Line of Business performance compared to the first quarter of 2021

Webster realigned its investment services related operations from Commercial Banking to Consumer Banking to deliver operational efficiencies and better serve its customers. As a result, effective January 1, 2022, $4.3 billion of assets under administration (off balance sheet) and $125 million of deposits were moved from Commercial Banking to Consumer Banking. In addition, the expense allocation approach was modified to exclude certain overhead and merger-related expenses that are not tied directly to segment performance. Prior period results have been recasted.

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 March 31, 2022, Commercial Banking had $34.9 billion in loans and leases and $21.5 billion in deposit balances.

Commercial Banking Operating Results:

Pre-tax, pre-provision net revenue increased $123.0 million to $236.6 million in the quarter as compared to prior year. The increase in balances and income was largely attributable to the merger. Net interest income increased $145.6 million to $287.1 million, with $136.3 million driven by the merger, and $9.3 million due to loan and deposit growth in the legacy Webster portfolios. Non-interest income increased $20.4 million to $38.7 million, with $15.9 million driven by the merger, and $4.5 million driven by growth in loan related fees and client hedging activity. Non-interest expense increased $43.0 million to $89.2 million, with $37.9 million due to the merger, and $5.1 million driven by loan and deposit growth in the legacy Webster portfolios.

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 March 31, 2022, HSA Bank had $11.6 billion in total footings comprising $7.8 billion in deposit balances and $3.8 billion in assets under administration through linked investment accounts.

On February 18, 2022 Webster closed on the acquisition of Bend Financial, Inc. Leveraging Bend's cloud native technology, HSA Bank will accelerate our digital transformation and strengthen our technology to enhance customer experience.

HSA Bank Operating Results:

Pre-tax net revenue increased $2.0 million to $35.1 million in the quarter as compared to prior year. Net interest income increased $2.5 million to $44.6 million, primarily due to an increase in net deposit spread and growth in deposits. Non-interest income was flat at $27.0 million. Non-interest expense increased $0.4 million to $36.4 million, primarily due to incremental expenses from Bend's acquired business, partially offset by lower compensation and benefits costs.

Consumer Banking

Consumer Banking serves consumer and business banking customers primarily throughout southern New England and the New York Metro and Suburban markets. Consumer 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 202 banking centers and 359 ATMs, a customer care center, and a full range of web and mobile-based banking services. Additionally, our Webster Investment Services group provides investment services to consumers and small business owners within our targeted markets and retail footprint. As of March 31, 2022, Consumer Banking had $8.6 billion in loans and $24.1 billion in deposit balances, as well as $7.9 billion in assets under administration.

Consumer Banking Operating Results:

Pre-tax, pre-provision net revenue increased $31.8 million to $68.7 million in the quarter as compared to prior year. The increase in balances and income was largely attributable to the merger. Net interest income increased $47.2 million to $136.6 million, with $42.3 million driven by the merger, and $4.9 million driven by deposit and loan growth coupled with lower interest paid on deposits. Non-interest income increased $5.0 million to $27.9 million, with $4.4 million driven by the merger and $0.6 million driven by higher deposit service fees. Non-interest expense increased $20.4 million to $95.7 million, primarily driven by the incremental expenses from the merger.

Consolidated financial performance:

Quarterly net interest income compared to the first quarter of 2021:

• Net interest income was $394.2 million compared to $223.8 million.
• Net interest margin was 3.21 percent compared to 2.92 percent. The yield on interest-earning assets increased by 25 basis points, and the cost of interest-bearing liabilities decreased by 3 basis points.
• Average interest-earning assets totaled $50.3 billion and increased by $19.2 billion, or 61.6 percent.
• Average loans and leases totaled $35.9 billion and grew by $14.4 billion, or 67.2 percent.
• Average deposits totaled $45.9 billion and grew by $17.6 billion, or 62.4 percent.

Quarterly provision for credit losses:

• The provision for credit losses reflects a $188.8 million provision in the quarter, contributing to a $268.2 million increase in the allowance for credit losses on loans and leases. The provision for the quarter includes $175.1 million associated with day one accounting provision required for loans and leases acquired during the quarter from the Sterling merger. The provision for credit losses reflected a benefit of $15.0 million in the prior quarter compared to a benefit of $25.8 million a year ago.
• Net charge-offs were $8.9 million, compared to net recoveries of $(1.2) million in the prior quarter and net charge-offs of $5.3 million a year ago. The ratio of net charge-offs (recoveries) to average loans and leases on an annualized basis was 0.10 percent, compared to (0.02) percent in the prior quarter and 0.10 percent a year ago.
• The allowance for credit losses on loans and leases represented 1.31 percent of total loans and leases at March 31, 2022, compared to 1.35 percent at December 31, 2021 and 1.54 percent at March 31, 2021. The allowance represented 229 percent of nonperforming loans and leases at March 31, 2022 compared to 274 percent at December 31, 2021 and 218 percent at March 31, 2021.

Quarterly non-interest income compared to the first quarter of 2021:

• Total non-interest income was $104.0 million compared to $76.8 million, an increase of $27.2 million. The increase primarily reflects the two month impact of the merger with Sterling.

Quarterly non-interest expense compared to the first quarter of 2021:

• Total non-interest expense was $359.8 million compared to $188.0 million, an increase of $171.8 million. Total non-interest expense includes a net $104.4 million of merger and strategic initiative charges compared to $9.4 million of strategic initiative charges a year ago. Excluding those charges, total non-interest expense increased $76.8 million which primarily reflects the two month impact of the merger with Sterling.

Quarterly income taxes compared to the first quarter of 2021:

• Income tax (benefit) expense was $(33.6) million compared to $30.2 million, and the effective tax benefit rate was (66.7) percent compared to an effective tax rate of 21.8 percent. The income tax benefit in the current quarter reflects the pre-tax loss, coupled with the effects of tax-exempt income and tax credits, and includes $9.3 million of net tax benefits related to the merger.

Investment securities:

• Total investment securities, net were $15.1 billion, compared to $10.4 billion at December 31, 2021 and $8.9 billion at March 31, 2021. All investment securities acquired from the merger were classified as available-for-sale. The carrying value of the available-for-sale portfolio included $328.4 million of net unrealized losses, compared to net unrealized gains of $7.2 million at December 31, 2021 and $51.3 million at March 31, 2021. The carrying value of the held-to-maturity portfolio does not reflect $270.8 million of net unrealized losses, compared to net unrealized gains of $82.6 million at December 31, 2021 and $162.6 million at March 31, 2021.

Loans and Leases:

• Total loans and leases were $43.5 billion, compared to $22.3 billion at December 31, 2021 and $21.3 billion at March 31, 2021. Compared to December 31, 2021, commercial loans and leases increased by $8.8 billion, commercial real estate loans and leases increased by $11.0 billion, residential mortgages increased by $1.4 billion, and consumer loans increased by $88.3 million.
• Compared to a year ago, commercial loans and leases increased by $8.9 billion, commercial real estate loans and leases increased by $11.2 billion, and residential mortgages increased by $2.1 billion, while consumer loans decreased by $89.7 million.
• Loan originations for the portfolio were $2.570 billion, compared to $2.553 billion in the prior quarter and $1.807 billion a year ago. In addition, $23 million of residential loans were originated for sale in the quarter, compared to $42 million in the prior quarter and $81 million a year ago.

Asset quality:

• Total nonperforming loans and leases were $248.1 million, or 0.57 percent of total loans and leases, compared to $109.8 million, or 0.49 percent of total loans and leases, at December 31, 2021 and $150.4 million, or 0.71 percent of total loans and leases, at March 31, 2021. As of March 31, 2022, $115.1 million of nonperforming loans and leases were contractually current.
• Past due loans and leases were $73.0 million, compared to $21.9 million at December 31, 2021 and $20.4 million at March 31, 2021.

Deposits and borrowings:

• Total deposits were $54.4 billion, compared to $29.8 billion at December 31, 2021 and $28.5 billion at March 31, 2021. Core deposits to total deposits were 94.8 percent, compared to 94.0 percent at December 31, 2021 and 92.2 percent at March 31, 2021. The loan to deposit ratio was 80.1 percent, compared to 74.6 percent at December 31, 2021 and 74.8 percent at March 31, 2021.
• Total borrowings were $1.6 billion, compared to $1.2 billion at both December 31, 2021 and March 31, 2021.

Capital:

• The return on average common shareholders' equity and the return on average tangible common shareholders' equity were (1.25) percent and (1.36) percent, respectively, compared to 13.65 percent and 16.79 percent, respectively, in the first quarter of 2021.
• The tangible equity and tangible common equity ratios were 8.72 percent and 8.26 percent, respectively, compared to 8.30 percent and 7.85 percent, respectively, at March 31, 2021. The common equity tier 1 risk-based capital ratio was 11.42 percent, compared to 11.89 percent at March 31, 2021.
• Book value and tangible book value per common share were $44.32 and $28.94, respectively, compared to $34.60 and $28.41, respectively, at March 31, 2021.

Webster Financial Corporation (NYSE:WBS) is the holding company for Webster Bank, N.A. and its HSA Bank Division. Webster is a leading commercial bank in the Northeast that provides a wide range of digital and traditional financial solutions across three differentiated lines of business: Commercial Banking, Consumer Banking and its HSA Bank division, one of the country's largest providers of employee benefits solutions. Headquartered in Stamford, CT, Webster is a values-driven organization with $65 billion in assets. Its core footprint spans the northeastern U.S. from New York to Massachusetts, with certain businesses operating in extended geographies. 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 first quarter 2022 earnings announcement will be held today, Thursday, April 28, 2022 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 April 28, 2022. To access the replay, dial 877-660-6853, or 201-612-7415 for international callers. The replay conference ID number is 13728411.

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

Investor Contact
Emlen Harmon, 212-309-7646
eharmon@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 successfully integrate the operations of Webster and 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 planned 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, including as a result of geopolitical conflict such as the war between Russia and Ukraine; (6) the potential adverse effects of the ongoing novel coronavirus (COVID-19) pandemic, or other unusual and infrequently occurring events, and any governmental or societal responses thereto; (7) changes in laws and regulations, including those concerning banking, taxes, dividends, securities, insurance, and healthcare, with which we and our subsidiaries must comply; (8) adverse conditions in the securities markets that lead to impairment in the value of our investment securities and goodwill; (9) inflation, changes in interest rates, and monetary fluctuations; (10) the replacement of and transition from the London Interbank Offered Rate (LIBOR) to the Secured Overnight Financing Rate (SOFR) as the primary interest rate benchmark; (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 the level of non-performing assets and charge-offs; (19) changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements; (20) the effect of changes in accounting policies and practices applicable to us, including the impact of recently adopted accounting guidance; (21) legal and regulatory developments including the resolution of legal proceedings or regulatory or other governmental inquiries and the results of regulatory examinations or reviews; (22) our ability to appropriately address social, environmental, and sustainability concerns that may arise from our business activities; and (23) 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 Operations." 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, ROATCE, and other performance ratios, in each case 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.