WEBSTER REPORTS FOURTH QUARTER 2022 EPS OF $1.38; ADJUSTED EPS OF $1.60

STAMFORD, Conn., Jan. 26, 2023 /PRNewswire/ -- Webster Financial Corporation ("Webster") (NYSE: WBS), the holding company for Webster Bank, N.A. and its HSA Bank division, today announced net income available to common stockholders of $240.6 million, or $1.38 per diluted share, for the quarter ended December 31, 2022, compared to $109.1 million, or $1.20 per diluted share, for the quarter ended December 31, 2021.

Fourth quarter 2022 results include $50.4 million pre-tax ($37.0 million after tax), or $0.22¹ per diluted share, of charges related to the merger with Sterling Bancorp on January 31, 2022 ("the merger") and balance sheet repositioning. Excluding these charges, adjusted earnings per diluted share would have been $1.60¹ for the quarter ended December 31, 2022. Reported results prior to the first quarter of 2022 reflect legacy Webster results only.

For the full year 2022, net income available to common stockholders was $628.4 million, or $3.72 per diluted share, and includes a combined $433.2 million ($319.0 million after tax) of initial non-purchase credit deteriorated (non-PCD) provision, merger-related, strategic initiatives, and other charges.

"With a continued focus on our clients, colleagues, and communities, we are pleased to report strong financial results in the quarter and for the full-year 2022," said John R. Ciulla, president and chief executive officer. "As pleased as we are with our financial performance, we are equally proud of the progress we have made from a culture and talent perspective."

Highlights for the fourth quarter of 2022:

• Revenue of $704.6 million.
• Period end loan and lease balance of $49.8 billion; 81 percent commercial loans and leases, 19 percent consumer loans, and a loan to deposit ratio of 92 percent.
• Period end deposit balance of $54.1 billion.
• Provision for credit losses totaled $43.0 million.
• Charges related to the merger and balance sheet repositioning totaled $50.4 million.
• Return on average assets of 1.40 percent; adjusted 1.61 percent¹.
• Return on average tangible common equity of 19.93 percent¹; adjusted 22.92 percent¹.
• Net interest margin of 3.74 percent, up 20 basis points from prior quarter.
• Common equity tier 1 ratio of 10.71 percent.
• Efficiency ratio of 40.27 percent¹.
• Tangible common equity ratio of 7.38 percent¹.

"Our continued investment in our businesses, including the acquisition of interLINK announced in the fourth quarter, provides further diversification in both our loan and deposit franchises," said Glenn MacInnes, executive vice president and chief financial officer. "We continue to develop our existing businesses while executing on operational efficiencies."

Increases in the balance sheet and income statement, when compared to a year ago, are largely attributable to the merger.

Line of Business performance compared to the fourth quarter of 2021

Commercial Banking

Webster's Commercial Banking segment serves businesses that have more than $2 million of revenue through its business banking, middle market, asset-based lending, equipment finance, commercial real estate, sponsor finance, private banking, and treasury services business units. As of December 31, 2022, Commercial Banking had $40.1 billion in loans and leases and $19.6 billion in deposit balances.

Commercial Banking Operating Results:

Pre-tax, pre-provision net revenue increased $206.3 million, to $331.4 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 $241.1 million, to $392.3 million, primarily driven by the merger, organic loan and deposit growth since the merger, and the impact of the higher rate environment. Non-interest income increased $18.8 million, to $42.8 million, with $18.3 million driven by the merger, and $0.5 million primarily due to increased loan fee income. Non-interest expense increased $53.6 million, to $103.7 million, with $46.0 million due to the merger, and $7.6 million in support of loan and deposit growth.

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, 2022, HSA Bank had $11.3 billion in total footings comprising $7.9 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 $16.8 million, to $50.0 million, in the quarter as compared to prior year. Net interest income increased $23.2 million, to $65.4 million, primarily due to an increase in net deposit spread and growth in deposits. Non-interest income increased $0.7 million, to $25.2 million, due primarily to increased interchange revenue. Non-interest expense increased $7.2 million, to $40.7 million, primarily due to the acquisition of Bend, as well as higher compensation and consulting expenses.

Consumer Banking

Webster's Consumer Banking segment 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 201 banking centers and 352 ATMs, a customer care center, and a full range of web and mobile-based banking services. Additionally, the Webster Investment Services group provides investment services to consumers and small business owners within Webster's targeted markets and retail footprint. As of December 31, 2022, Consumer Banking had $9.6 billion in loans and $23.6 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 $78.2 million, to $122.6 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 $114.8 million, to $209.1 million, primarily driven by the merger, organic loan growth, and the impact of a higher rate environment. Non-interest income increased $2.5 million, to $27.2 million, with $6.3 million driven by the merger, partially offset by $3.8 million in lower net investment services income, as a result of outsourcing, and mortgage banking fee income. Non-interest expense increased $39.1 million, to $113.7 million, primarily driven by $40.7 million of incremental expenses due to the merger, partially offset by $1.6 million in lower compensation and occupancy expenses.

Consolidated financial performance:

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

• Net interest income was $602.4 million compared to $226.8 million.
• Net interest margin was 3.74 percent compared to 2.73 percent. The yield on interest-earning assets increased by 176 basis points, and the cost of interest-bearing liabilities increased by 80 basis points.
• Average interest-earning assets totaled $64.0 billion and increased by $30.5 billion, or 91.1 percent.
• Average loans and leases totaled $48.6 billion and increased by $26.7 billion, or 121.8 percent.
• Average deposits totaled $54.0 billion and increased by $23.9 billion, or 79.4 percent.

Quarterly provision for credit losses:

• The provision for credit losses reflects a $43.0 million expense in the quarter, contributing to a $20.4 million increase in the allowance for credit losses on loans and leases and a $2.4 million increase in reserves on unfunded commitments. The provision for credit losses reflected an expense of $36.5 million in the prior quarter, compared to a benefit of $15.0 million a year ago.
• Net charge-offs (recoveries) were $20.2 million, compared to $28.5 million in the prior quarter, and $(1.2) million a year ago. The ratio of net charge-offs (recoveries) to average loans and leases on an annualized basis was 0.17 percent, compared to 0.25 percent in the prior quarter, and (0.02) percent a year ago.
• The allowance for credit losses on loans and leases represented 1.20 percent of total loans and leases at both December 31, 2022, and September 30, 2022, and 1.35 percent at December 31, 2021. The allowance represented 292 percent of nonperforming loans and leases at December 31, 2022, compared to 274 percent at both September 30, 2022, and December 31, 2021.

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

• Total non-interest income was $102.2 million compared to $90.1 million, an increase of $12.1 million. The increase primarily reflects the impact of the merger, partially offset by lower direct investment income and treasury derivative income. Additionally, total non-interest income includes a $4.5 million loss on the sale of investment securities.

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

• Total non-interest expense was $348.4 million compared to $189.9 million, an increase of $158.5 million. Total non-interest expense includes a net $45.9 million of merger and strategic initiatives charges, compared to a net $13.7 million of merger, strategic initiative, and debt prepayment charges a year ago. Excluding those charges, total non-interest expense increased $126.3 million, which primarily reflects the impact of the merger.

Quarterly income taxes compared to the fourth quarter of 2021:

• Income tax expense was $68.4 million compared to $31.0 million, and the effective tax rate was 21.8 percent in both periods. The impact of increased income in 2022 on the effective tax rate was offset primarily by higher levels of tax-exempt income and tax credits in 2022 compared to 2021.

Investment securities:

• Total investment securities, net were $14.5 billion, compared to $14.6 billion at September 30, 2022, and $10.4 billion at December 31, 2021. The carrying value of the available-for-sale portfolio included $864.5 million of net unrealized losses, compared to net unrealized losses of $941.8 million at September 30, 2022, and net unrealized gains of $7.2 million at December 31, 2021. The carrying value of the held-to-maturity portfolio does not reflect $803.4 million of net unrealized losses, compared to net unrealized losses of $855.9 million at September 30, 2022, and net unrealized gains of $82.6 million at December 31, 2021.

Loans and leases:

• Total loans and leases were $49.8 billion, compared to $47.8 billion at September 30, 2022, and $22.3 billion at December 31, 2021. Compared to September 30, 2022, commercial loans and leases increased by $0.9 billion, commercial real estate loans increased by $0.8 billion, residential mortgages increased by $0.3 billion, while consumer loans decreased by $35.3 million.
• Compared to a year ago, commercial loans and leases increased by $11.9 billion, commercial real estate loans increased by $13.0 billion, residential mortgages increased by $2.6 billion, and consumer loans increased by $18.2 million.
• Loan originations for the portfolio were $4.7 billion, compared to $5.1 billion in the prior quarter, and $2.6 billion a year ago. In addition, $3.5 million of residential loans were originated for sale in the quarter, compared to $1.5 million in the prior quarter, and $41.8 million a year ago.

Asset quality:

• Total nonperforming loans and leases were $203.8 million, or 0.41 percent of total loans and leases, compared to $209.5 million, or 0.44 percent of total loans and leases, at September 30, 2022, and $109.8 million, or 0.49 percent of total loans and leases, at December 31, 2021. As of December 31, 2022, $77.2 million of nonperforming loans and leases were contractually current.
• Past due loans and leases were $73.7 million, compared to $46.4 million at September 30, 2022, and $21.9 million at December 31, 2021.

Deposits and borrowings:

• Total deposits were $54.1 billion, compared to $54.0 billion at September 30, 2022, and $29.8 billion at December 31, 2021. Core deposits to total deposits¹ were 92.3 percent, compared to 95.2 percent at September 30, 2022, and 94.0 percent at December 31, 2021. The loan to deposit ratio was 92.1 percent, compared to 88.5 percent at September 30, 2022, and 74.6 percent at December 31, 2021.
• Total borrowings were $7.7 billion, compared to $5.9 billion at September 30, 2022, and $1.2 billion at December 31, 2021.

Capital:

• The return on average common stockholders' equity and the return on average tangible common stockholders' equity¹ were 12.54 percent and 19.93 percent, respectively, compared to 13.35 percent and 16.23 percent, respectively, in the fourth quarter of 2021.
• The tangible equity¹ and tangible common equity¹ ratios were 7.79 percent and 7.38 percent, respectively, compared to 8.39 percent and 7.97 percent, respectively, at December 31, 2021. The common equity tier 1 ratio was 10.71 percent, compared to 11.72 percent at December 31, 2021.
• Book value and tangible book value per common share¹ were $44.67 and $29.07, respectively, compared to $36.36 and $30.22, respectively, at December 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 $71 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 fourth quarter 2022 earnings announcement will be held today, Thursday, January 26, 2023 at 9:00 a.m. Eastern Time. To listen to the live call, please dial 888-330-2446, or 240-789-2732 for international callers. The passcode is 8607257. The webcast, along with related slides, will be available via Webster's Investor Relations website at investors.websterbank.com. A replay of the conference call will be available for one week via the website listed above, beginning at approximately 12:00 noon (Eastern) on January 26, 2023. To access the replay, dial 800-770-2030, or 647-362-9199 for international callers. The replay conference ID number is 8607257.

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. 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) Webster's ability to successfully integrate the operations of Webster and Sterling Bancorp and realize the anticipated benefits of the merger; (2) Webster's ability to successfully execute its business plan and strategic initiatives, and manage any risks or uncertainties; (3) Webster's 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 Webster and its 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 Webster and its subsidiaries must comply; (8) adverse conditions in the securities markets that lead to impairment in the value of Webster's 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) Webster's 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 Webster's counterparties and vendors; (16) Webster's 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 Webster, 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) Webster's ability to appropriately address social, environmental, and sustainability concerns that may arise from its 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.

Webster believes that providing certain non-GAAP financial measures provides investors with information useful in understanding its financial performance, performance trends, and financial position. Webster utilize these measures for internal planning and forecasting purposes. Webster, as well as securities analysts, investors, and other interested parties, also use these measures to compare peer company operating performance. Webster believes that its presentation and discussion, together with the accompanying reconciliations, provides a complete understanding of factors and trends affecting its 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 Webster strongly encourages investors to review its 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.