Webster Financial (WBS) Reports Q4 Diluted EPS of $1.20

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 $108.4 million, or $1.20 per diluted share, for the quarter ended December 31, 2021, compared to $57.7 million, or $0.64 per diluted share, for the quarter ended December 31, 2020. Earnings per diluted share would have been $1.31 for the quarter ended December 31, 2021, adjusting for a net $13.7 million ($10.1 million after tax) of merger related, strategic optimization, and debt prepayment expenses.

For the full year 2021, earnings applicable to common shareholders was $398.7 million, or $4.42 per diluted share, and includes $47.1 million ($39.1 million after tax) of merger related, strategic optimization, and debt prepayment expenses.

"We are very proud of our performance for the fourth quarter and full-year of 2021, as we achieved a record level of EPS and net income on both a quarterly and full-year basis," said John R. Ciulla, chairman and chief executive officer. "As we have secured all regulatory approvals, we look forward to closing our merger with Sterling. The combination will form a uniquely positioned commercial bank that will further the exceptional performance Webster's stakeholders have come to expect."

Highlights for the fourth quarter of 2021:

• Revenue of $316.9 million, an increase of 7.9 percent compared to the prior year.
• Loan growth of 4.1 percent linked quarter, excluding Paycheck Protection Program (PPP) loans, led by commercial and residential which together increased 5.0 percent.
• Current Expected Credit Loss (CECL) benefit of $15.0 million with a reserve decrease of $13.7 million compared to the prior quarter, resulting in an allowance coverage of 1.35 percent, or 1.37 percent excluding $0.2 billion of PPP loans.
• Deposit decline of $0.2 billion or 0.6 percent linked quarter, with decreases of $239.7 million in money market deposits and $94.3 million in demand deposits.
• Charges related to merger, strategic optimization initiatives, and debt prepayments totaled $13.7 million.
• Net interest margin of 2.73 percent.
• Efficiency ratio (non-GAAP) of 54.85 percent.

"Our financial performance is the result of a broad effort across our company," said Glenn MacInnes, executive vice president and chief financial officer. "We continued to generate robust loan growth, we were successful in deploying the meaningful liquidity our deposit growth generated, and measures of asset quality remained exceptionally strong. We approach our merger with Sterling with substantial momentum."

Line of Business performance compared to the fourth 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 December 31, 2021, Commercial Banking had $15.2 billion in loans and leases and $9.6 billion in deposit balances.

Commercial Banking Operating Results:

Pre-tax, pre-provision net revenue increased $22.0 million to $116.8 million in the quarter as compared to prior year. Net interest income increased $14.5 million to $151.8 million, primarily driven by loan and deposit growth. Non-interest income increased $5.8 million to $31.3 million, driven by a gain on loan sale and trust and investment service fees. Non-interest expense decreased $1.7 million to $66.3 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 December 31, 2021, HSA Bank had $11.1 billion in total footings comprising $7.4 billion in deposit balances and $3.7 billion in assets under administration through linked investment accounts.

HSA Bank Operating Results:

Pre-tax net revenue increased $2.7 million to $32.6 million in the quarter as compared to prior year. Net interest income increased $1.7 million to $42.2 million, due to growth in deposits. Non-interest income increased $0.4 million to $24.5 million, primarily due to increased interchange revenue. Non-interest expense decreased $0.6 million to $34.2 million, primarily due to reduced occupancy, telephone, and postage costs.

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 251 ATMs, a customer care center, and a full range of web and mobile-based banking services. As of December 31, 2021, Retail Banking had $7.1 billion in loans and $12.8 billion in deposit balances.

Retail Banking Operating Results:

Pre-tax, pre-provision net revenue increased $13.0 million to $36.8 million in the quarter as compared to prior year. Net interest income increased $8.3 million to $93.7 million, driven by deposit balance growth and lower interest paid on deposits, partially offset by lower loan balances. Non-interest income decreased $0.7 million to $17.3 million, resulting from lower mortgage banking fee income, partially offset by higher deposit service fees, loan servicing income, and credit card and merchant services fees. Non-interest expense decreased $5.4 million to $74.3 million, driven by lower employee-related, occupancy, technology and equipment, and marketing expenses.

Consolidated financial performance:

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

• Net interest income was $226.8 million compared to $216.9 million.
• Net interest margin was 2.73 percent compared to 2.83 percent. The yield on interest-earning assets declined by 24 basis points, and the cost of interest-bearing liabilities declined by 14 basis points.
• Average interest-earning assets totaled $33.5 billion and grew by $2.6 billion, or 8.4 percent.
• Average loans and leases totaled $21.9 billion and grew by $0.2 billion, or 0.8 percent.
• Average deposits totaled $30.1 billion and grew by $2.9 billion, or 10.7 percent.

Quarterly provision for credit losses:

• The provision for credit losses reflects a $15.0 million benefit in the quarter, contributing to a $13.7 million decrease in the allowance for credit losses on loans and leases. The decrease in the allowance reflects a stable economic outlook and favorable credit quality trends. The provision for credit losses reflected an expense of $7.8 million in the prior quarter compared to a benefit of $1.0 million a year ago.
• Net (recoveries) were $(1.2) million, compared to net charge-offs of $0.9 million in the prior quarter and $9.4 million a year ago. The ratio of net (recoveries) charge-offs to average loans on an annualized basis was (0.02) percent, compared to 0.02 percent in the prior quarter and 0.17 percent a year ago.
• The allowance for credit losses on loans and leases represented 1.35 percent of total loans at December 31, 2021, compared to 1.46 percent at September 30, 2021 and 1.66 percent at December 31, 2020. Excluding $0.2 billion of risk free PPP loans, the coverage ratio was 1.37 percent at December 31, 2021, compared to 1.49 percent at September 30, 2021 excluding $0.4 billion of risk free PPP loans, and 1.76 percent at December 31, 2020 excluding $1.3 billion of risk free PPP loans. The allowance represented 274 percent of nonperforming loans at December 31, 2021 compared to 309 percent at September 30, 2021 and 214 percent at December 31, 2020.

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

• Total non-interest income was $90.1 million compared to $76.8 million, an increase of $13.3 million. This primarily reflects an increase of $12.5 million in Other primarily due to realized gains and fair value adjustments on direct investments and a gain on the sale of a commercial loan; $2.8 million in deposit service fees driven by higher levels of transactional fees across all three business lines; and $1.3 million primarily due to increased investment activity. These increases were partially offset by a $3.4 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.

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

• Total non-interest expense was $189.9 million compared to $219.5 million, a decrease of $29.6 million. Total non-interest expense includes a net $13.7 million of merger, strategic initiative, and debt prepayment charges compared to $38.3 million of strategic initiatives a year ago. Excluding those charges, total non-interest expense decreased $5.0 million driven by the benefits of our strategic initiatives partially offset by higher performance-based compensation and medical claims.

Quarterly income taxes compared to the fourth quarter of 2020:

• Income tax expense was $31.0 million compared to $15.1 million, and the effective tax rate was 21.8 percent compared to 20.1 percent. The higher effective tax rate in the quarter primarily reflects the effects of increased pre-tax income in 2021 compared to 2020, partially offset by the recognition of a higher level of net discrete tax benefits during the period compared to a year ago.

Investment securities:

• Total investment securities, net were $10.4 billion, compared to $9.4 billion at September 30, 2021 and $8.9 billion at December 31, 2020. The carrying value of the available-for-sale portfolio included $7.2 million of net unrealized gains, compared to $44.7 million at September 30, 2021 and $92.5 million at December 31, 2020. The carrying value of the held-to-maturity portfolio does not reflect $82.6 million of net unrealized gains, compared to $152.9 million at September 30, 2021 and $267.2 million at December 31, 2020.

Loans:

• Total loans were $22.3 billion, compared to $21.6 billion at both September 30, 2021 and December 31, 2020. Compared to September 30, 2021, commercial loans (excluding PPP loans) increased by $601.6 million, residential mortgages increased by $245.4 million, and commercial real estate loans increased by $80.5 million while consumer loans decreased by $52.1 million, and PPP loans decreased by $183.9 million.
• Compared to a year ago, commercial loans (excluding PPP loans) increased by $1.0 billion, residential mortgages increased by $0.6 billion, and commercial real estate loans increased by $0.3 billion, while consumer loans decreased by $0.3 billion. PPP loans totaled $0.2 billion at December 31, 2021.
• Loan originations for the portfolio were $2.553 billion, compared to $1.987 billion in the prior quarter and $1.804 billion a year ago. In addition, $42 million of residential loans were originated for sale in the quarter, compared to $57 million in the prior quarter and $125 million a year ago.

Asset quality:

• Total nonperforming loans were $109.8 million, or 0.49 percent of total loans, compared to $101.8 million, or 0.47 percent of total loans, at September 30, 2021 and $168.0 million, or 0.78 percent of total loans, at December 31, 2020. As of December 31, 2021, $60.3 million of nonperforming loans were contractually current.
• Past due loans were $21.9 million, compared to $17.1 million at September 30, 2021 and $32.9 million at December 31, 2020.

Deposits and borrowings:

• Total deposits were $29.8 billion, compared to $30.0 billion at September 30, 2021 and $27.3 billion at December 31, 2020. Core deposits to total deposits were 94.0 percent, compared to 93.7 percent at September 30, 2021 and 90.9 percent at December 31, 2020. The loan to deposit ratio was 74.6 percent, compared to 71.9 percent at September 30, 2021 and 79.2 percent at December 31, 2020.
• Total borrowings were $1.2 billion, compared to $1.3 billion at September 30, 2021 and $1.7 billion at December 31, 2020.

Capital:

• The return on average common shareholders' equity and the return on average tangible common shareholders' equity were 13.35 percent and 16.23 percent, respectively, compared to 7.51 percent and 9.31 percent, respectively, in the fourth quarter of 2020.
• The tangible equity and tangible common equity ratios were 8.39 percent and 7.97 percent, respectively, compared to 8.35 percent and 7.90 percent, respectively, at December 31, 2020. The common equity tier 1 risk-based capital ratio was 11.72 percent, compared to 11.35 percent at December 31, 2020.
• Book value and tangible book value per common share were $36.36 and $30.22, respectively, compared to $34.25 and $28.04, respectively, at December 31, 2020.

Webster Financial Corporation is the holding company for Webster Bank, National Association and its HSA Bank division. With $34.9 billion in assets, Webster provides business and consumer banking, mortgage, financial planning, trust, and investment services through 130 banking centers and 251 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 2021 earnings announcement will be held today, Thursday, January 20, 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 January 20, 2022. To access the replay, dial 877-660-6853, or 201-612-7415 for international callers. The replay conference ID number is 13725763.

Media ContactAlice Ferreira, 203-578-2610[email protected]

Investor ContactKristen Manginelli, 203-578-2307[email protected]

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.