Webster Reports Third Quarter 2020 Earnings Of $0.75 Per Diluted Share

WATERBURY, Conn., Oct. 22, 2020 /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 $66.9 million, or $0.75 per diluted share, for the quarter ended September 30, 2020, compared to $91.4 million, or $1.00 per diluted share, for the quarter ended September 30, 2019.

"True to our heritage and our values, we are pleased to be able to do our part to help consumers and businesses manage through uncertainties brought on by the COVID-19 pandemic," said John R. Ciulla, chairman and chief executive officer. "Webster bankers have continued to distinguish themselves in supporting their customers and their communities."

Highlights for the third quarter of 2020:

• Revenue of $294.3 million.
• Loan growth of $2.3 billion, or 11.8 percent from a year ago, led by commercial and commercial real estate, which increased 20.2 percent. Excluding Paycheck Protection Program (PPP) loans, total loan growth was $946 million, or 4.8 percent.
• Results include a Current Expected Credit Loss (CECL) provision of $22.8 million with a reserve build of $11.3 million, resulting in an allowance coverage of 1.69 percent, or 1.80 percent excluding $1.4 billion of PPP loans.
• Deposit growth of $3.6 billion, or 15.6 percent from a year ago, with growth of $1.8 billion in demand deposits and $688 million in HSA deposits.
• Net interest margin of 2.88 percent.
• Efficiency ratio (non-GAAP) of 60.0 percent.

"Proactively working with our customers, payment deferral accommodations have declined from almost $1.4 billion at June 30 to less than $500 million at September 30," said Glenn MacInnes, executive vice president and chief financial officer. "Webster's capital and liquidity strength has enabled us to continue to support our customers and assist in the broader financial recovery."

Line of Business performance compared to the third 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 September 30, 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 decreased $0.4 million to $72.9 million in the quarter as compared to prior year. Net interest income increased $2.9 million to $107.4 million, primarily driven by loan and deposit growth. Non-interest income decreased $0.9 million to $13.1 million as a result of lower loan fees. Non-interest expense increased $2.3 million to $47.6 million, primarily due to higher support costs and lower deferred loan origination 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, 2020, HSA Bank had $9.4 billion in total footings comprising $7.0 billion in deposit balances and $2.4 billion in assets under administration through linked investment accounts.

HSA Bank Operating Results:

Pre-tax net revenue decreased $1.9 million to $32.3 million in the quarter as compared to prior year. Net interest income decreased $3.7 million to $39.9 million, due to a decline in deposit spreads partially offset by a 10.9 percent growth in deposits. Non-interest income increased $3.7 million to $27.2 million, due primarily to fees related to third party administration (TPA) agreements and account closures in the quarter. Non-interest expense increased $1.9 million to $34.8 million, primarily due to merit increases, medical costs, and expenses to support the current enrollment season.

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 156 banking centers and 298 ATMs, a customer care center, and a full range of web and mobile-based banking services. As of September 30, 2020, Community Banking had $9.2 billion in loans and $14.0 billion in deposit balances.

Community Banking Operating Results:

Pre-tax, pre-provision net revenue increased $5.3 million to $38.2 million in the quarter as compared to prior year. Net interest income increased $3.6 million to $108.2 million, due to balance growth in the loan and deposit portfolios, partially offset by a decline in deposit spreads. Non-interest income increased $0.9 million driven by increased fee income from mortgage banking activities in the current quarter. This increase was partially offset by lower deposit-related service charges, as well as lower loan servicing and investment services fees. Non-interest expense decreased $0.8 million to $99.0 million resulting from lower bank operations expense and charges taken in 2019 related to the suspension of two lending initiatives. These reductions more than offset increased employee-related expenses and continued investments in technology.

Consolidated financial performance:

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

• Net interest income was $219.3 million compared to $240.5 million.
• Net interest margin was 2.88 percent compared to 3.49 percent. The yield on interest-earning assets declined by 112 basis points, and the cost of interest-bearing liabilities declined by 54 basis points.
• Average interest-earning assets totaled $30.9 billion and grew by $3.3 billion, or 11.8 percent.
• Average loans totaled $21.9 billion and grew by $2.4 billion, or 12.3 percent.
• Average deposits totaled $26.9 billion and grew by $3.8 billion, or 16.3 percent.

Quarterly provision for credit losses:

• The provision for credit losses was $22.8 million in the quarter, contributing to an $11.3 million increase in the allowance for credit losses on loans and leases. The increase in the allowance reflects our current estimate of forecasted economic conditions. The provision for credit losses was $40.0 million in the prior quarter and $11.3 million a year ago. The increase compared to a year ago is primarily due to the adoption of CECL and the impact of COVID-19.
• Net charge-offs were $11.5 million, compared to $16.4 million in the prior quarter and $13.8 million a year ago. The ratio of net charge-offs to average loans on an annualized basis was 0.21 percent, compared to 0.30 percent in the prior quarter and 0.28 percent a year ago.
• The allowance for credit losses on loans and leases represented 1.69 percent of total loans at September 30, 2020, compared to 1.64 percent at June 30, 2020 and 1.07 percent at September 30, 2019. Excluding $1.4 billion of PPP loans, the coverage ratio was 1.80 percent at September 30, 2020. The allowance for credit losses at September 30 and June 30 was estimated in accordance with the CECL accounting standard. The allowance represented 227 percent of nonperforming loans at September 30, 2020 compared to 207 percent at June 30, 2020 and 129 percent at September 30, 2019.

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

• Total non-interest income was $75.1 million compared to $69.9 million, an increase of $5.1 million. This reflects an increase of $5.0 million in mortgage banking activities primarily due to a decline in mortgage interest rates driving higher origination volume, a $3.7 million increase in HSA fee income primarily driven by TPA account fees, and a $1.9 million increase in other income primarily due to customer derivatives. These increases were partially offset by a decrease of $3.5 million in deposit service fees driven by overdraft and service related fees and a $1.7 million decrease in loan related fees primarily due to lower syndication, prepayment penalties, and loan servicing fees.

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

• Total non-interest expense was $184.0 million compared to $179.9 million, an increase of $4.1 million. This reflects an increase in compensation and benefits of $5.4 million due to annual merit increases and other benefits, a $1.7 million increase in technology and equipment due to continued infrastructure investment, and $4.8 million in professional fees related to our strategic initiatives. This was partially offset by lower pension costs, travel expenses and a one-time business optimization cost recorded in the year ago period.

Quarterly income taxes compared to the third quarter of 2019:

• Income tax expense was $18.3 million compared to $25.4 million and the effective tax rate was 20.9 percent compared to 21.3 percent.
• The lower effective tax rate in the quarter primarily reflects the effects of reduced pre-tax income in 2020 compared to 2019, partially offset by net discrete tax benefits recognized during the period a year ago.

Investment securities:

• Total investment securities were $9.0 billion, compared to $8.7 billion at June 30, 2020 and $8.2 billion at September 30, 2019. The carrying value of the available-for-sale portfolio included $103.1 million of net unrealized gains, compared to $87.2 million at June 30, 2020 and $20.9 million of net unrealized gains at September 30, 2019. The carrying value of the held-to-maturity portfolio does not reflect $283.0 million of net unrealized gains, compared to $268.4 million at June 30, 2020 and $92.2 million of net unrealized gains at September 30, 2019.

Loans:

• Total loans were $21.9 billion, compared to $21.8 billion at June 30, 2020 and $19.6 billion at September 30, 2019. Compared to June 30, 2020, commercial loans increased by $65.8 million, commercial real estate loans increased by $100.3 million, while consumer loans decreased by $80.8 million and residential mortgages decreased by $35.8 million.
• Compared to a year ago, commercial loans increased by $1.603 billion, with PPP loans representing $1.4 billion of the increase. Commercial real estate loans increased by $909.5 million and residential mortgages increased by $12.1 million, while consumer loans decreased by $223.9 million.
• Loan originations for the portfolio were $1.560 billion, or $1.525 billion excluding PPP loan originations, compared to $2.817 billion in the prior quarter, or $1.413 billion excluding PPP loan originations, and $1.610 billion a year ago. In addition, $149 million of residential loans were originated for sale in the quarter, compared to $115 million in the prior quarter and $73 million a year ago.

Asset quality:

• Total nonperforming loans were $162.6 million, or 0.74 percent of total loans, compared to $173.1 million, or 0.79 percent of total loans, at June 30, 2020 and $162.7 million, or 0.83 percent of total loans, at September 30, 2019. Total paying nonperforming loans were $67.4 million, compared to $58.0 million at June 30, 2020 and $71.9 million at September 30, 2019.
• Past due loans were $21.8 million, compared to $39.8 million at June 30, 2020 and $35.6 million at September 30, 2019.

Deposits and borrowings:

• Total deposits were $26.9 billion, compared to $26.4 billion at June 30, 2020 and $23.3 billion at September 30, 2019. Core deposits to total deposits were 90.5 percent, compared to 89.9 percent at June 30, 2020 and 86.0 percent at September 30, 2019. The loan to deposit ratio was 81.2 percent, compared to 82.7 percent at June 30, 2020 and 84.0 percent at September 30, 2019.
• Total borrowings were $2.3 billion, compared to $2.8 billion at June 30, 2020 and $3.2 billion at September 30, 2019.

Capital:

• The return on average common shareholders' equity and the return on average tangible common shareholders' equity were 8.80 percent and 10.91 percent, respectively, compared to 12.36 percent and 15.37 percent, respectively, in the third quarter of 2019.
• The tangible equity and tangible common equity ratios were 8.19 percent and 7.75 percent, respectively, compared to 8.83 percent and 8.34 percent, respectively, at September 30, 2019. The common equity tier 1 risk-based capital ratio was 11.23 percent, compared to 11.63 percent at September 30, 2019.
• Book value and tangible book value per common share were $34.09 and $27.86, respectively, compared to $32.68 and $26.58, respectively, at September 30, 2019.

Webster Financial Corporation is the holding company for Webster Bank, National Association and its HSA Bank division. With $33.0 billion in assets, Webster provides business and consumer banking, mortgage, financial planning, trust, and investment services through 156 banking centers and 298 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 2020 earnings announcement will be held today, Thursday, October 22, 2020 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, or 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.