Webster Reports Second Quarter 2021 Earnings Of $1.01 Per Diluted Share

WATERBURY, Conn., July 22, 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 $91.6 million, or $1.01 per diluted share, for the quarter ended June 30, 2021, compared to $50.7 million, or $0.57 per diluted share, for the quarter ended June 30, 2020. Earnings per diluted share would have been $1.21 for the quarter ended June 30, 2021, adjusting for $18.2 million ($17.6 million after tax) of charges related to merger and strategic optimization initiatives.

"We generated strong business performance in the quarter, led by loan growth of 3.2% excluding PPP and an increase in loan originations of $0.5 billion or 26%," said John R. Ciulla, chairman and chief executive officer. "We are making significant progress planning for the integration of two great banking organizations, Webster and Sterling, by working together to deliver for customers, communities, bankers and shareholders."

Highlights for the second quarter of 2021:

• Revenue of $293.6 million.
• Loan growth of 3.2 percent linked quarter, excluding Paycheck Protection Program (PPP) loans, led by commercial and commercial real estate which increased 3.8 percent.
• Originated $2.4 billion in loans, up 26.4 percent linked quarter. Excluding PPP loans, originations totaled $2.3 billion, up 71.5 percent linked quarter.
• Current Expected Credit Loss (CECL) benefit of $21.5 million with a reserve decrease of $20.4 million compared to the prior quarter, resulting in an allowance coverage of 1.43 percent, or 1.49 percent excluding $0.8 billion of PPP loans.
• Deposit growth of $2.5 billion, or 9.5 percent from a year ago, with growth of $557.6 million in demand deposits and $536.6 million in HSA deposits.
• Charges related to merger and strategic optimization initiatives totaled $18.2 million.
• Net interest margin of 2.82 percent.
• Efficiency ratio (non-GAAP) of 56.6 percent.

"In the quarter, credit trends continue to be favorable, resulting in a reserve decrease of $20.4 million," said Glenn MacInnes, executive vice president and chief financial officer. "During the quarter, we continued to make progress on our strategic initiatives and remain on track to deliver an 8% to 10% reduction in run rate core non-interest expense by the end of the fourth quarter 2021."

Line of Business performance compared to the second 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 June 30, 2021, Commercial Banking had $14.7 billion in loans and leases and $8.8 billion in deposit balances.

Commercial Banking Operating Results:

Pre-tax, pre-provision net revenue increased $16.7 million to $105.4 million in the quarter as compared to prior year. Net interest income increased $13.0 million to $141.1 million, primarily driven by PPP loan fee acceleration associated with PPP loan forgiveness, loan rates, and deposit growth. Non-interest income increased $3.9 million to $25.7 million driven by higher trust and investment service fees. Non-interest expense increased $0.2 million to $61.4 million.

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 June 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 $7.5 million to $36.0 million in the quarter as compared to prior year. Net interest income increased $2.9 million to $42.2 million, due to a 7.9 percent growth in deposits, partially offset by a decline in deposit spreads. Non-interest income increased $3.5 million to $26.6 million, due primarily to increases in interchange, investment, and notional account fees. Non-interest expense decreased $1.2 million to $32.8 million, primarily due to reduced compensation 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 business units, as well as a distribution network consisting of 130 banking centers and 253 ATMs, a customer care center, and a full range of web and mobile-based banking services. As of June 30, 2021, Retail Banking had $6.8 billion in loans and $12.7 billion in deposit balances.

Retail Banking Operating Results:

Pre-tax, pre-provision net revenue increased $16.2 million to $37.0 million in the quarter as compared to prior year. Net interest income increased $10.9 million to $92.5 million, driven by PPP loan fee acceleration associated with PPP loan forgiveness and deposit growth, partially offset by lower consumer loan balances. Non-interest income increased $0.5 million to $16.8 million driven by higher deposit-related service fees and loan servicing fee income, partially offset by lower fee income from mortgage banking activities. Non-interest expense decreased $4.8 million to $72.3 million driven by lower employee-related, occupancy, and marketing expenses.

Consolidated financial performance:

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

• Net interest income was $220.9 million compared to $224.4 million.
• Net interest margin was 2.82 percent compared to 2.99 percent. The yield on interest-earning assets declined by 40 basis points, and the cost of interest-bearing liabilities declined by 25 basis points.
• Average interest-earning assets totaled $31.6 billion and grew by $1.2 billion, or 3.9 percent.
• Average loans totaled $21.4 billion and declined by $0.2 billion, or 0.9 percent.
• Average deposits totaled $28.7 billion and grew by $2.8 billion, or 10.7 percent.

Quarterly provision for credit losses:

• The provision for credit losses reflects a $21.5 million benefit in the quarter, contributing to a $20.4 million decrease in the allowance for credit losses on loans and leases. The decrease in the allowance reflects improvements to the forecasted economic outlook and favorable credit trends resulting in a release of reserves. The provision for credit losses reflected a $25.8 million benefit in the prior quarter compared to an expense of $40.0 million a year ago.
• Net recoveries were $1.2 million, compared to net charge-offs of $5.3 million in the prior quarter and $16.4 million a year ago. The ratio of net charge-offs (recoveries) to average loans on an annualized basis was (0.02) percent, compared to 0.10 percent in the prior quarter and 0.30 percent a year ago.
• The allowance for credit losses on loans and leases represented 1.43 percent of total loans at June 30, 2021, compared to 1.54 percent at March 31, 2021 and 1.64 percent at June 30, 2020. Excluding $0.8 billion of risk free PPP loans, the coverage ratio was 1.49 percent at June 30, 2021, compared to 1.64 percent at March 31, 2021 excluding $1.3 billion of risk free PPP loans, and 1.75 percent at June 30, 2020 excluding $1.3 billion of risk free PPP loans. The allowance represented 255 percent of nonperforming loans at June 30, 2021 compared to 218 percent at March 31, 2021 and 207 percent at June 30, 2020.

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

• Total non-interest income was $72.7 million compared to $60.1 million, an increase of $12.6 million. This primarily reflects an increase of $5.3 million due to fair value adjustments; $3.4 million in HSA fee income driven primarily by higher interchange and account service fees; $3.0 million in wealth and investment services primarily due to increase investment activity; and $2.9 million in deposit service fees driven by higher overdraft, interchange, and cash management fees. These increases were partially offset by a $2.9 million decrease in mortgage banking activities due to lower volume and spreads on loans originated for sale.

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

• Total non-interest expense was $187.0 million compared to $176.6 million, an increase of $10.4 million. This primarily reflects $18.2 million of charges related to merger and strategic optimization initiatives, partially offset by a $2.0 million decrease in compensation and benefits primarily due to the effects of the strategic initiatives and a $1.3 million decrease in deposit insurance.

Quarterly income taxes compared to the second quarter of 2020:

• Income tax expense was $34.0 million compared to $14.8 million and the effective tax rate was 26.6 percent compared to 21.8 percent.
• The higher effective tax rate in the quarter reflects the effects of merger related expenses recognized during the period estimated to be nondeductible for tax purposes and increased pre-tax income in 2021 compared to 2020, partially offset by the recognition of discrete tax benefits during the quarter.

Investment securities:

• Total investment securities were $8.9 billion, compared to $8.9 billion at March 31, 2021 and $8.7 billion at June 30, 2020. The carrying value of the available-for-sale portfolio included $49.3 million of net unrealized gains, compared to $51.3 million at March 31, 2021 and $87.2 million at June 30, 2020. The carrying value of the held-to-maturity portfolio does not reflect $170.5 million of net unrealized gains, compared to $162.6 million at March 31, 2021 and $268.4 million at June 30, 2020.

Loans:

• Total loans were $21.5 billion, compared to $21.3 billion at March 31, 2021 and $21.8 billion at June 30, 2020. Compared to March 31, 2021, commercial real estate loans increased by $72.6 million while commercial loans decreased by $19.8 million, residential mortgages increased by $187.4 million, and consumer loans decreased by $66.6 million.
• Compared to a year ago, commercial real estate loans increased by $203.4 million and commercial loans (excluding PPP loans) increased by $341.9 million, while consumer loans decreased by $336.6 million and residential mortgages decreased by $65.3 million. PPP loans totaled $0.8 billion at June 30, 2021.
• Loan originations for the portfolio were $2.333 billion ($2.269 billion excluding PPP loan originations), compared to $1.807 billion ($1.274 billion excluding PPP loan originations) in the prior quarter and $2.817 billion ($1.413 billion excluding PPP loan originations) a year ago. In addition, $55 million of residential loans were originated for sale in the quarter, compared to $81 million in the prior quarter and $115 million a year ago.

Asset quality:

• Total nonperforming loans were $120.7 million, or 0.56 percent of total loans, compared to $150.4 million, or 0.71 percent of total loans, at March 31, 2021 and $173.1 million, or 0.79 percent of total loans, at June 30, 2020. As of June 30, 2021, $52.8 million of nonperforming loans were contractually current.
• Past due loans were $18.4 million, compared to $20.4 million at March 31, 2021 and $39.8 million at June 30, 2020.

Deposits and borrowings:

• Total deposits were $28.8 billion, compared to $28.5 billion at March 31, 2021 and $26.4 billion at June 30, 2020. Core deposits to total deposits were 93.0 percent, compared to 92.2 percent at March 31, 2021 and 89.9 percent at June 30, 2020. The loan to deposit ratio was 74.4 percent, compared to 74.8 percent at March 31, 2021 and 82.7 percent at June 30, 2020.
• Total borrowings were $1.2 billion, compared to $1.2 billion at March 31, 2021 and $2.8 billion at June 30, 2020.

Capital:

• The return on average common shareholders' equity and the return on average tangible common shareholders' equity were 11.63 percent and 14.26 percent, respectively, compared to 6.79 percent and 8.47 percent, respectively, in the second quarter of 2020.
• The tangible equity and tangible common equity ratios were 8.35 percent and 7.91 percent, respectively, compared to 8.14 percent and 7.69 percent, respectively, at June 30, 2020. The common equity tier 1 risk-based capital ratio was 11.65 percent, compared to 11.17 percent at June 30, 2020.
• Book value and tangible book value per common share were $35.15 and $28.99, respectively, compared to $33.59 and $27.40, respectively, at June 30, 2020.

***

Webster Financial Corporation is the holding company for Webster Bank, National Association and its HSA Bank division. With $33.8 billion in assets, Webster provides business and consumer banking, mortgage, financial planning, trust, and investment services through 130 banking centers and 253 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 second quarter 2021 earnings announcement will be held today, Thursday, July 22, 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 July 22, 2021. To access the replay, dial 877-660-6853, or 201-612-7415 for international callers. The replay conference ID number is 13720459.

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 acquisition of 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.