Webster Reports First Quarter 2020 Earnings Of $0.39 Per Diluted Share

WATERBURY, Conn., April 21, 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 $36.0 million, or $0.39 per diluted share, for the quarter ended March 31, 2020, compared to $97.5 million, or $1.06 per diluted share, for the quarter ended March 31, 2019. Results in the quarter reflect a provision for credit losses of $76.0 million under the Current Expected Credit Loss (CECL) accounting standard effective January 1, 2020 compared to a provision for credit losses of $8.6 million in prior year.

"During these uncertain, challenging and unprecedented times, Webster bankers have once again stepped up to take care of our customers, our communities and, importantly, each other.  I am so proud of every one of our 3,400 bankers," said John R. Ciulla, president and chief executive officer. "We continue to take swift actions to keep our employees safe while effectively providing our customers with the banking services and financial assistance they need to navigate through the economic storm brought on by this pandemic."

Highlights for the first quarter of 2020:

• Results include the adoption of CECL and the impact of COVID-19 resulting in a provision of $76.0 million; allowance coverage of 1.60 percent.
• Revenue of $304.2 million.
• Loan growth of $2.1 billion, or 11.0 percent from a year ago, led by commercial and commercial real estate, which increased 15.6 percent.
• Deposit growth of $1.8 billion, or 7.7 percent from a year ago, with growth of $527 million, or 8.5 percent, in HSA deposits.
• Net interest margin of 3.23 percent.
• Efficiency ratio (non-GAAP) of 58.0 percent.

"Webster's strong capital and liquidity positions enable us to support our customers and communities during this trying time," said Glenn MacInnes, executive vice president and chief financial officer. "Our Common Equity Tier 1 capital ratio of 11 percent exceeds the regulatory well-capitalized level by $1 billion, and our loan-to-deposit ratio of 85 percent reflects our funding strength."

Webster has responded quickly with programs to support our Employees, Customers and the Communities where we live and work. These actions included:

Support for our Employees:

• 75% of our bankers are currently working remotely
• Special pay considerations and additional PTO for essential front line employees
• No furloughs; bankers are at 100% pay
• Zero-interest loans up to $5,000 are available to assist employees and their families facing unforeseen challenges due to COVID-19

Support for Individuals and Businesses:

• Instituted a 90-day foreclosure moratorium on residential loans
• Increased deposit limits; waiving penalties for early CD withdrawals
• Waiving or reducing certain fees
• Not reporting payment deferrals to credit bureaus
• Participating in the SBA Paycheck Protection Program with the initial round resulting in approximately $650 million in SBA approved loans
• Payment modifications (needs based / COVID related impact)

Support for the Communities we serve

• More than $375,000 in donations for urgent basic needs including:
• Feeding America
• American Red Cross
• United Way (CT, RI, MA, NY, WI)
• Additional re-targeting of existing sponsorships and grants to nonprofits to support COVID-19 related activities including:
• Masks for Heroes
• Junior Achievement
• Governor's Prevention Partnership

Line of Business performance compared to the first 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 March 31, 2020, Commercial Banking had $12.3 billion in loans and leases and $5.0 billion in deposit balances.

Commercial Banking Operating Results:

Pre-tax, pre-provision net revenue decreased $1.7 million to $66.0 million in the quarter as compared to prior year. Net interest income increased $1.0 million to $99.3 million, primarily due to loan growth. Non-interest income decreased $0.8 million to $13.2 million, primarily due to lower one-time fees in the quarter. Non-interest expense increased $1.9 million to $46.5 million, primarily due to investments in people, product enhancements, and infrastructure.

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, 2020, HSA Bank had $8.6 billion in total footings comprising $6.7 billion in deposit balances and $1.9 billion in assets under administration through linked investment accounts.

HSA Bank Operating Results:

Pre-tax net revenue decreased $3.2 million to $32.0 million in the quarter as compared to prior year. Net interest income decreased $0.4 million to $42.7 million, due to 8.5 percent growth in deposits and a decline in deposit spreads. Non-interest income increased $0.8 million to $26.4 million, primarily due to 6.3 percent growth in accounts over the past year. Non-interest expense increased $3.6 million to $37.1 million, primarily due to account growth and expanded distribution.

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 157 banking centers and 308 ATMs, a customer care center, and a full range of web and mobile-based banking services. As of March 31, 2020, Community Banking had $8.6 billion in loans and $12.6 billion in deposit balances.

Community Banking Operating Results:

Pre-tax, pre-provision net revenue decreased $8.5 million to $28.1 million in the quarter as compared to prior year. Net interest income decreased $6.8 million to $99.5 million, due to declining interest rates on loans coupled with decreasing credit value of deposits; partially offset by balance growth in the loan and deposit portfolios. Non-interest income increased $2.2 million driven by growth in fees from mortgage banking, investment services, and interest rate hedging activities. This growth was partially offset by reductions in deposit-related service charges and the impact of gains from asset sales that occurred in the prior year. Non-interest expense increased $3.9 million to $99.0 million resulting from higher employee-related expenses, continued investments in technology, and other corporate overhead; offset by lower occupancy, legal, and card processing costs.

Consolidated financial performance:

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

• Net interest income was $230.8 million compared to $241.6 million.
• Net interest margin was 3.23 percent compared to 3.74 percent. The yield on interest-earning assets declined by 59 basis points, and the cost of interest-bearing liabilities declined by 10 basis points.
• Average interest-earning assets totaled $28.9 billion and grew by $2.9 billion, or 11.0 percent.
• Average loans totaled $20.3 billion and grew by $1.8 billion, or 9.8 percent.
• Average deposits totaled $24.1 billion and grew by $1.5 billion, or 6.8 percent.

Quarterly provision for credit losses:

• The provision for credit losses, which was calculated under the Current Expected Credit Loss (CECL) accounting standard effective January 1, 2020, was $76.0 million, compared to $6.0 million in the prior quarter and $8.6 million a year ago. The increase compared to the prior periods is primarily due to the adoption of CECL and the impact of COVID-19.
• Net charge-offs were $7.8 million, compared to $6.1 million in the prior quarter and $9.6 million a year ago. The ratio of net charge-offs to average loans on an annualized basis was 0.15 percent, compared to 0.12 percent in the prior quarter and 0.21 percent a year ago.
• The allowance for credit losses on loans and leases represented 1.60 percent of total loans at March 31, 2020, compared to 1.04 percent at December 31, 2019 and 1.12 percent at March 31, 2019. The allowance for credit losses on loans and leases reflects a January 1, 2020 transition adjustment of $57.6 million related to the adoption of the CECL accounting standard and represented 206 percent of nonperforming loans at March 31, 2020 compared to 139 percent at December 31, 2019 and 133 percent at March 31, 2019.

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

• Total non-interest income was $73.4 million, compared to $68.6 million, an increase of $4.8 million. This reflects an increase of $2.8 million of other income primarily due to client hedging activity offset by losses on miscellaneous investments, an increase of $2.1 million in mortgage banking activities primarily due to a decline in mortgage interest rates driving higher origination volume and $1.1 million in wealth and investment services. These increases were offset by a decrease in loan related fees of $1.3 million primarily due to lower prepayment fees and higher mortgage servicing rights costs.

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

• Total non-interest expense was $178.8 million, compared to $175.7 million, an increase of $3.2 million. The increase reflects increases of $4.1 million in compensation and benefits due to annual merit increases and temporary help partially offset by lower variable based compensation and $2.1 million in technology and equipment due to continued infrastructure investment. Offsetting these increases was a decrease of $3.4 million in other expenses primarily due to decreased pension costs, and a reduction in the reserve for unfunded commitments.

Quarterly income taxes compared to the first quarter of 2019:

• Income tax expense was $11.1 million compared to $26.1 million and the effective tax rate was 22.6 percent compared to 20.8 percent.
• The higher effective tax rate in the quarter reflects a net discrete tax benefit recognized during the period a year ago.

Investment securities:

• Total investment securities were $8.5 billion, compared to $8.2 billion at December 31, 2019 and $7.5 billion at March 31, 2019. The carrying value of the available-for-sale portfolio included $3.1 million of net unrealized gains, compared to $24.4 million at December 31, 2019 and $58.6 million of net unrealized losses at March 31, 2019. The carrying value of the held-to-maturity portfolio does not reflect $156.3 million of net unrealized gains, compared to $86.7 million at December 31, 2019 and $46.8 million of net unrealized losses at March 31, 2019.

Loans:

• Total loans were $20.9 billion, compared to $20.0 billion at December 31, 2019 and $18.8 billion at March 31, 2019. Compared to December 31, 2019, commercial loans increased by $685.1 million, commercial real estate loans increased by $173.1 million, and residential mortgages increased by $18.8 million, while consumer loans decreased by $22.5 million.
• Compared to a year ago, commercial real estate loans increased by $1.131 billion, commercial loans increased by $715.0 million, and residential mortgages increased by $359.7 million, while consumer loans decreased by $128.1 million.
• Loan originations for portfolio were $1.195 billion, compared to $1.919 billion in the prior quarter and $1.132 billion a year ago. In addition, $60 million of residential loans were originated for sale in the quarter, compared to $94 million in the prior quarter and $33 million a year ago.

Asset quality:

• Total nonperforming loans were $162.3 million, or 0.78 percent of total loans, compared to $150.9 million, or 0.75 percent of total loans, at December 31, 2019 and $158.9 million, or 0.84 percent of total loans, at March 31, 2019. Total paying nonperforming loans were $61.9 million, compared to $59.0 million at December 31, 2019 and $38.6 million at March 31, 2019.
• Past due loans were $37.0 million, compared to $42.6 million at December 31, 2019 and $50.5 million at March 31, 2019.

Deposits and borrowings:

• Total deposits were $24.5 billion, compared to $23.3 billion at December 31, 2019 and $22.8 billion at March 31, 2019. Core deposits to total deposits were 87.8 percent, compared to 86.7 percent at December 31, 2019 and 85.3 percent at March 31, 2019. The loan to deposit ratio was 85.2 percent, compared to 85.9 percent at December 31, 2019 and 82.7 percent at March 31, 2019.
• Total borrowings were $3.6 billion, compared to $3.5 billion at December 31, 2019 and $2.2 billion at March 31, 2019.

Capital:

• The return on average common shareholders' equity and the return on average tangible common shareholders' equity were 4.75 percent and 5.95 percent, respectively, compared to 14.01 percent and 17.70 percent, respectively, in the first quarter of 2019.
• The tangible equity and tangible common equity ratios were 8.14 percent and 7.67 percent, respectively, compared to 8.68 percent and 8.16 percent, respectively, at March 31, 2019. The common equity tier 1 risk-based capital ratio was 10.96 percent, compared to 11.46 percent at March 31, 2019.
• Book value and tangible book value per common share were $32.66 and $26.46, respectively, compared to $30.62 and $24.51, respectively, at March 31, 2019.

***

Webster Financial Corporation is the holding company for Webster Bank, National Association and its HSA Bank division. With $31.7 billion in assets, Webster provides business and consumer banking, mortgage, financial planning, trust, and investment services through 157 banking centers and 308 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  first quarter 2020 earnings announcement will be held today, Tuesday, April 21, 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.