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 $216.8 million, or $1.24 per diluted share, for the quarter ended March 31, 2023, compared to net (loss) available to common stockholders of $(20.2) million, or $(0.14) per diluted share, for the quarter ended March 31, 2022.

First quarter 2023 results include $56.6 million pre-tax ($42.3 million after tax), or $0.25¹ 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 $1.49¹ for the quarter ended March 31, 2023.

"Webster generated solid results during a challenging time for the banking industry," said John R. Ciulla, president and chief executive officer. "Our diverse businesses, strong capital position, unique deposit profile, and solid risk management framework, allow our company to deliver for our clients in all operating environments."

Highlights for the first quarter of 2023:

• Revenue of $666.0 million.
• Period end loans and leases balance of $50.9 billion, up $1.2 billion or 2.3 percent linked quarter; 81 percent commercial loans and leases, 19 percent consumer loans, and a loan to deposit ratio of 92 percent.
• Period end deposits balance of $55.3 billion, up $1.2 billion or 2.3 percent linked quarter.
• Provision for credit losses totaled $46.7 million.
• Charges related to the merger and balance sheet repositioning totaled $56.6 million.
• Return on average assets of 1.22 percent; adjusted 1.46 percent¹.
• Return on average tangible common equity of 17.66 percent¹; adjusted 20.98 percent¹.
• Net interest margin of 3.66 percent, down 8 basis points from prior quarter.
• Common equity tier 1 ratio of 10.40 percent.
• Efficiency ratio of 41.64 percent¹.
• Tangible common equity ratio of 7.15 percent¹.

"Webster’s financial prospects remain strong," said Glenn MacInnes, executive vice president and chief financial officer. "Along with core deposit growth, we took actions that provided ample liquidity and funding optionality going forward."

Line of Business performance compared to the first 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 March 31, 2023, Commercial Banking had $41.3 billion in loans and leases and $18.3 billion in deposits.

Commercial Banking Operating Results:

Pre-tax, pre-provision net revenue increased $74.6 million, to $311.2 million, in the quarter as compared to prior year. The increase in pre-tax, pre-provision net revenue was partially attributable to the timing of the merger in the first quarter 2022. Net interest income increased $97.2 million, to $384.3 million, primarily driven by the merger, organic loan growth since the merger, and the impact of the higher rate environment. Non-interest income decreased $3.3 million, to $35.4 million, driven by decreases of $3.5 million in prepayment penalties, $1.2 million in cash management fees, and $0.6 million in fees from interest rate hedging activities; partially offset by $1.9 million of higher syndication fees. Non-interest expense increased $19.3 million, to $108.5 million, primarily resulting from $19.0 million of higher expenses due to the timing of the merger in the first quarter of 2022.

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 March 31, 2023, HSA Bank had $12.1 billion in total footings comprising $8.3 billion in deposits and $3.8 billion in assets under administration through linked investment accounts.

HSA Bank Operating Results:

Pre-tax net revenue increased $17.0 million, to $52.1 million, in the quarter as compared to prior year. Net interest income increased $27.2 million, to $71.7 million, primarily due to an increase in net deposit spread and growth in deposits. Non-interest income decreased $2.9 million, to $24.1 million, primarily due to lower client account fees. Non-interest expense increased $7.3 million, to $43.7 million, primarily due to higher compensation and 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 201 banking centers and 351 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 March 31, 2023, Consumer Banking had $9.6 billion in loans and $23.7 billion in deposits, as well as $7.8 billion in assets under administration.

Consumer Banking Operating Results:

Pre-tax, pre-provision net revenue increased $60.6 million, to $129.7 million, in the quarter as compared to prior year. The increase in balances and income was partially attributable to the merger in the first quarter of 2022. Net interest income increased $73.9 million, to $210.6 million, primarily driven by the merger and the impact of a higher rate environment on the value of deposits. Non-interest income decreased $1.9 million, to $26.0 million, driven by $3.6 million in lower net investment services income, which was attributable to the new outsourcing model adopted in 2022, partially offset by higher deposit related fee income. Non-interest expense increased $11.4 million, to $106.9 million, primarily driven by $12.9 million of incremental expenses due to the timing of the merger, partially offset by lower compensation-related expenses.

Consolidated financial performance:

Current period performance, when compared to the first quarter of 2022, is impacted by the timing of the merger with Sterling Bancorp occurring on January 31, 2022 as the first quarter of 2022 does not represent a full quarter of combined earnings.

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

• Net interest income was $595.3 million compared to $394.2 million.

• Net interest margin was 3.66 percent compared to 3.21 percent. The yield on interest-earning assets increased by 175 basis points, and the cost of interest-bearing liabilities increased by 139 basis points.

• Average interest-earning assets totaled $66.1 billion and increased by $15.8 billion, or 31.3 percent.

• Average loans and leases totaled $50.1 billion and increased by $14.2 billion, or 39.5 percent.

• Average deposits totaled $54.8 billion and increased by $8.9 billion, or 19.4 percent.

Quarterly provision for credit losses:

• The provision for credit losses reflects a $46.7 million expense in the quarter, contributing to a $19.2 million increase in the allowance for credit losses on loans and leases. The provision also reflects a decrease in the reserves on unfunded commitments of $1.7 million. The provision for credit losses also reflected an expense of $43.0 million in the prior quarter, and $188.8 million a year ago.

• Net charge-offs were $24.5 million, compared to $20.2 million in the prior quarter, and $8.9 million a year ago. The ratio of net charge-offs to average loans and leases on an annualized basis was 0.20 percent, compared to 0.17 percent in the prior quarter, and 0.10 percent a year ago.

• The allowance for credit losses on loans and leases represented 1.21 percent of total loans and leases at March 31, 2023, compared to 1.20 percent at December 31, 2022, and 1.31 percent at March 31, 2022. The allowance represented 332 percent of nonperforming loans and leases at March 31, 2023, compared to 292 percent at December 31, 2022, and 229 percent at March 31, 2022.

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

• Total non-interest income was $70.8 million compared to $104.0 million, a decrease of $33.2 million. The decrease primarily reflects losses on the sale of securities, lower client hedging income and valuation marks, the outsourcing of the consumer investment services platform, lower client account fees, and lower prepayment and other loan related fees.

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

• Total non-interest expense was $332.5 million compared to $359.8 million, a decrease of $27.3 million. Total non-interest expense includes a net $29.4 million of merger and strategic initiatives charges, compared to a net $104.4 million a year ago. Excluding those charges, total non-interest expense increased $47.7 million, which reflects a full quarter impact of the merger compared to two thirds impact a year ago. After adjusting for merger and strategic initiative charges and the full quarter impact of the merger, expenses increased modestly year-over-year. The modest increase reflects expense benefits from the merger and outsourcing of the consumer investments services platform, which were offset by an increase in intangible amortization and strategic investments including operating expenses associated with the Bend and interLINK acquisitions.

Quarterly income taxes compared to the first quarter of 2022:

• Income tax expense (benefit) was $65.8 million compared to $(33.6) million, and the effective tax rate was 23.0 percent compared to an effective tax benefit rate of (66.7) percent. The tax benefit and effective tax benefit rate a year ago reflected the pre-tax loss recognized in that period.

Investment securities:

• Total investment securities, net were $14.9 billion, compared to $14.5 billion at December 31, 2022, and $15.1 billion at March 31, 2022. The carrying value of the available-for-sale portfolio included $766.4 million of net unrealized losses, compared to $864.5 million at December 31, 2022, and $328.4 million at March 31, 2022. The carrying value of the held-to-maturity portfolio does not reflect $742.8 million of net unrealized losses, compared to $803.4 million at December 31, 2022, and $270.8 million at March 31, 2022.

Loans and leases:

• Total loans and leases were $50.9 billion, compared to $49.8 billion at December 31, 2022, and $43.5 billion at March 31, 2022. Compared to December 31, 2022, commercial loans and leases increased by $0.3 billion, commercial real estate loans increased by $0.9 billion, residential mortgages increased by $38.1 million, while consumer loans decreased by $61.2 million.

• Compared to a year ago, commercial loans and leases increased by $3.4 billion, commercial real estate loans increased by $2.9 billion, residential mortgages increased by $1.2 billion, while consumer loans decreased by $131.3 million.

• Loan originations for the portfolio were $3.3 billion, compared to $4.7 billion in the prior quarter, and $2.6 billion a year ago. In addition, $2.5 million of residential loans were originated for sale in the quarter, compared to $3.5 million in the prior quarter, and $23.1 million a year ago.

Asset quality:

• Total nonperforming loans and leases were $185.0 million, or 0.36 percent of total loans and leases, compared to $203.8 million, or 0.41 percent of total loans and leases, at December 31, 2022, and $248.1 million, or 0.57 percent of total loans and leases, at March 31, 2022.

• Past due loans and leases were $44.2 million, compared to $73.7 million at December 31, 2022, and $71.5 million at March 31, 2022.

Deposits and borrowings:

• Total deposits were $55.3 billion, compared to $54.1 billion at December 31, 2022, and $54.4 billion at March 31, 2022. Core deposits to total deposits¹ were 91.8 percent, compared to 92.3 percent at December 31, 2022, and 94.8 percent at March 31, 2022. The loan to deposit ratio was 92.1 percent at both March 31, 2023, and December 31, 2022, and 80.1 percent at March 31, 2022.

• Total borrowings were $9.9 billion, compared to $7.7 billion at December 31, 2022, and $1.6 billion at March 31, 2022.

Capital:

• The return on average common stockholders’ equity and the return on average tangible common stockholders’ equity¹ were 10.94 percent and 17.66 percent, respectively, compared to (1.25) percent and (1.36) percent, respectively, in the first quarter of 2022.

• The tangible equity¹ and tangible common equity¹ ratios were 7.55 percent and 7.15 percent, respectively, compared to 8.72 percent and 8.26 percent, respectively, at March 31, 2022. The common equity tier 1 ratio was 10.40 percent, compared to 11.46 percent at March 31, 2022.

• Book value and tangible book value per common share¹ were $45.85 and $29.47, respectively, compared to $44.32 and $28.94, respectively, at March 31, 2022.

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 $75 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 first quarter 2023 earnings announcement will be held today, Thursday, April 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 April 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; (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 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.