Webster Reports Second Quarter 2023 EPS of $1.32; Adjusted EPS of $1.50

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 $230.8 million, or $1.32 per diluted share, for the quarter ended June 30, 2023, compared to $178.1 million, or $1.00 per diluted share, for the quarter ended June 30, 2022.

Second quarter 2023 results include $40.8 million pre-tax ($29.9 million after tax), or $0.18¹ per diluted share, of charges related to the merger with Sterling Bancorp on January 31, 2022 ("the merger"). Excluding these charges, adjusted earnings per diluted share would have been $1.50¹ for the quarter ended June 30, 2023.

"We are proud to deliver consistent earnings during a challenging period for the banking industry," said John R. Ciulla, president and chief executive officer. "Our unique and resilient funding profile, robust capital position, and talented colleagues enabled our performance in the quarter and position us well for the future. Consistent with our conservative risk-management approach, we increased on balance sheet liquidity during the quarter given the events of March. This had a temporary 12 basis point impact on the net interest margin, but was neutral to net interest income."

Highlights for the second quarter of 2023:

• Revenue of $673.2 million.
• Period end loans and leases balance of $51.6 billion, up $0.7 billion or 1.4 percent linked quarter; 81.1 percent commercial loans and leases, 18.9 percent consumer loans, and a loan to deposit ratio of 87.9 percent.
• Period end deposits balance of $58.7 billion, up $3.5 billion or 6.2 percent linked quarter.
• Provision for credit losses totaled $31.5 million.
• Return on average assets of 1.23 percent; adjusted 1.39 percent¹.
• Return on average tangible common equity of 18.12 percent¹; adjusted 20.40 percent¹.
• Net interest margin of 3.35 percent, down 31 basis points from prior quarter.
• Common equity tier 1 ratio of 10.66 percent.
• Efficiency ratio of 42.20 percent¹.
• Tangible common equity ratio of 7.23 percent¹.

"Webster’s unique funding profile continues to be a differentiator, as we grew our deposits 6% over the prior quarter and increased our available liquidity," said Glenn MacInnes, executive vice president and chief financial officer. "A resilient and flexible balance sheet should allow us to consistently deliver strong returns."

Line of Business performance compared to the second quarter of 2022

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. At June 30, 2023, Commercial Banking had $41.9 billion in loans and leases and $18.3 billion in deposits, as well as a combined $2.8 billion in assets under administration and management.

Commercial Banking Operating Results:

Pre-tax, pre-provision net revenue increased $25.1 million, to $305.3 million, in the quarter as compared to prior year. Net interest income increased $50.2 million, to $383.6 million, primarily driven by organic loan growth and the impact of the higher rate environment. Non-interest income decreased $17.2 million, to $32.3 million, driven by decreases in fees from interest rate hedging activities, loan servicing related income, cash management fees, prepayment penalties, and syndication fees. Non-interest expense increased $7.9 million, to $110.6 million, primarily resulting from continued investments in technology and talent to support balance sheet 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. At June 30, 2023, HSA Bank had $12.3 billion in total footings comprising $8.2 billion in deposits and $4.1 billion in assets under administration through linked investment accounts.

HSA Bank Operating Results:

Pre-tax net revenue increased $17.2 million, to $55.8 million, in the quarter as compared to prior year. Net interest income increased $25.9 million, to $75.4 million, primarily due to an increase in net deposit spread and growth in deposits. Non-interest income decreased $3.5 million, to $23.0 million, primarily due to lower client account fees. Non-interest expense increased $5.1 million, to $42.6 million, primarily due to higher compensation and benefits expense, service contract expense related to account growth, and the continued investment in our user experience build out.

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 business units, as well as a distribution network consisting of 199 banking centers and 350 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. At June 30, 2023, Consumer Banking had $9.7 billion in loans and $23.9 billion in deposits, as well as $7.8 billion in assets under administration.

Consumer Banking Operating Results:

Pre-tax, pre-provision net revenue increased $21.7 million, to $124.5 million, in the quarter as compared to prior year. Net interest income increased $25.2 million, to $204.5 million, primarily driven by organic loan growth and the impact of the higher rate environment. Non-interest income decreased $1.9 million, to $28.9 million, driven by lower net investment services income, which was attributable to the new outsourcing model adopted in 2022, partially offset by higher deposit and loan servicing related fee income and other miscellaneous income. Non-interest expense increased $1.5 million, to $108.9 million, primarily driven by higher marketing costs to support deposit growth initiatives, partially offset by the impact of outsourcing the consumer investment services platform.

Consolidated financial performance:

Quarterly net interest income compared to the second quarter of 2022:

• Net interest income was $583.8 million compared to $486.7 million.
• Net interest margin was 3.35 percent compared to 3.28 percent. The yield on interest-earning assets increased by 186 basis points, and the cost of interest-bearing liabilities increased by 191 basis points.
• Average interest-earning assets totaled $70.1 billion and increased by $10.0 billion, or 16.7 percent.
• Average loans and leases totaled $51.2 billion and increased by $7.1 billion, or 16.0 percent.
• Average deposits totaled $58.6 billion and increased by $5.2 billion, or 9.7 percent.

Quarterly provision for credit losses:

• The provision for credit losses was $31.5 million in the quarter, contributing to a $15.0 million increase in the allowance for credit losses on loans and leases. The provision also reflects a decrease in the reserves on unfunded loan commitments of $3.7 million. The provision for credit losses was $46.7 million in the prior quarter, and $12.2 million a year ago.
• Net charge-offs were $20.3 million, compared to $24.5 million in the prior quarter, and $9.6 million a year ago. The ratio of net charge-offs to average loans and leases was 0.16 percent, compared to 0.20 percent in the prior quarter, and 0.09 percent a year ago.
• The allowance for credit losses on loans and leases represented 1.22 percent of total loans and leases, compared to 1.21 percent at March 31, 2023, and 1.25 percent at June 30, 2022. The allowance represented 287 percent of nonperforming loans and leases at June 30, 2023, compared to 332 percent at March 31, 2023, and 231 percent at June 30, 2022.

Quarterly non-interest income compared to the second quarter of 2022:

• Total non-interest income was $89.4 million compared to $120.9 million, a decrease of $31.5 million. The decrease primarily reflects lower client hedging activity, lower prepayment and other loan related servicing fees, lower client deposit fees, and the outsourcing of the consumer investment services platform.

Quarterly non-interest expense compared to the second quarter of 2022:

• Total non-interest expense was $344.1 million compared to $358.2 million, a decrease of $14.1 million. Total non-interest expense includes a net $40.8 million of merger charges, compared to a net $66.5 million of merger and strategic initiatives charges a year ago. Excluding those charges, total non-interest expense increased $11.6 million. The increase reflects increases in deposit insurance, investments in technology, including the HSA and interLINK acquisitions, and employee benefits related to medical claims, offset by expense benefits from the merger and outsourcing of the consumer investments services platform.

Quarterly income taxes compared to the second quarter of 2022:

• Income tax expense was $62.6 million compared to $54.8 million, and the effective tax rate was 21.0 percent compared to 23.1 percent. The lower effective tax rate in the current period reflects higher levels of tax-exempt interest income and tax credits and lower state and local tax, partially offset by the effects of higher pre-tax income and nondeductible FDIC premiums in 2023 compared to 2022.

Investment securities:

• Total investment securities, net were $14.7 billion, compared to $14.9 billion at March 31, 2023, and $15.2 billion at June 30, 2022. The carrying value of the available-for-sale portfolio included $883.0 million of net unrealized losses, compared to $766.4 million at March 31, 2023, and $609.8 million at June 30, 2022. The carrying value of the held-to-maturity portfolio does not reflect $877.3 million of net unrealized losses, compared to $742.8 million at March 31, 2023, and $539.4 million at June 30, 2022.

Loans and leases:

• Total loans and leases were $51.6 billion, compared to $50.9 billion at March 31, 2023, and $45.6 billion at June 30, 2022. Compared to March 31, 2023, commercial loans and leases increased by $442.1 million, commercial real estate loans increased by $147.3 million, residential mortgages increased by $138.6 million, while consumer loans decreased by $28.5 million.
• Compared to a year ago, commercial loans and leases increased by $2.7 billion, commercial real estate loans increased by $2.5 billion, residential mortgages increased by $916.5 million, while consumer loans decreased by $153.4 million.
• Loan originations for the portfolio were $2.5 billion, compared to $3.3 billion in the prior quarter, and $5.0 billion a year ago. In addition, $5.7 million of residential loans were originated for sale in the quarter, compared to $2.5 million in the prior quarter, and $5.0 million a year ago.

Asset quality:

• Total nonperforming loans and leases were $218.9 million, or 0.42 percent of total loans and leases, compared to $185.0 million, or 0.36 percent of total loans and leases, at March 31, 2023, and $247.5 million, or 0.54 percent of total loans and leases, at June 30, 2022.
• Past due loans and leases were $51.4 million, compared to $44.2 million at March 31, 2023, and $51.7 million at June 30, 2022.

Deposits and borrowings:

• Total deposits were $58.7 billion, compared to $55.3 billion at March 31, 2023, and $53.1 billion at June 30, 2022. Core deposits to total deposits¹ were 87.6 percent, compared to 91.8 percent at March 31, 2023, and 95.2 percent at June 30, 2022. The loan to deposit ratio was 87.9 percent, compared to 92.1 percent at March 31, 2023, and 86.0 percent at June 30, 2022.
• Total borrowings were $5.6 billion, compared to $9.9 billion at March 31, 2023, and $5.3 billion at June 30, 2022.

Capital:

• The return on average common stockholders’ equity and the return on average tangible common stockholders’ equity¹ were 11.38 percent and 18.12 percent, respectively, compared to 9.09 percent and 14.50 percent, respectively, in the second quarter of 2022.
• The tangible equity¹ and tangible common equity¹ ratios were 7.62 percent and 7.23 percent, respectively, compared to 8.12 percent and 7.68 percent, respectively, at June 30, 2022. The common equity tier 1 ratio was 10.66 percent, compared to 11.09 percent at June 30, 2022.
• Book value and tangible book value per common share¹ were $46.15 and $29.69, respectively, compared to $43.82 and $28.31, respectively, at June 30, 2022.

***

Webster Financial Corporation (NYSE:WBS, Financial) 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 $74 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 second quarter 2023 earnings announcement will be held today, Thursday, July 20, 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 July 20, 2023. To access the replay, dial 800-770-2030, or 647-362-9199 for international callers. The replay conference ID number is 8607257.

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, including our ability to successfully complete our core conversion in the anticipated timeframe; (2) Webster's ability to successfully execute its business plan and strategic initiatives, and manage any risks or uncertainties; (3) volatility in our stock price due to investor sentiment, including following bank failures during the first fiscal quarter of 2023, and the acquisition of such failed banks (or their assets), by stronger banks within the U.S. Banking system; (4) local, regional, national, and international economic conditions, and the impact they may have on Webster or 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) unforeseen events, such as natural disasters; (7) changes in laws and regulations, or existing laws and regulations that Webster becomes subject to, 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 could lead to impairment in the value of Webster's securities portfolio; (9) inflation, monetary fluctuations, the possibility of a recession, and changes in interest rates, including the impact of such changes on economic conditions, customer behavior, funding costs, and Webster's loans and leases and securities portfolios; (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, including those that involve Webster's third-party vendors and service providers; (15) performance by Webster's counterparties and third-party 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 traditional and non-traditional financial service providers; (18) Webster's ability to maintain adequate sources of funding and liquidity; (19) changes in the level of non-performing assets and charge-offs; (20) changes in estimates of future reserve requirements based upon periodic review under relevant regulatory and accounting requirements; (21) the effect of changes in accounting policies and practices applicable to Webster, including the impacts of recently adopted accounting guidance; (22) Webster's inability to remediate the material weaknesses in its internal control related to ineffective ITGCs; (23) legal and regulatory developments, including the resolution of legal proceedings or regulatory or other governmental inquiries, and the results of regulatory examinations or reviews; (24) Webster's ability to appropriately address any environmental, social, governmental, and sustainability concerns that may arise from its business activities; and (25) 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 utilizes 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.