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 $181.2 million, or $1.05 per diluted share, for the quarter ended December 31, 2023, compared to $240.6 million, or $1.38 per diluted share, for the quarter ended December 31, 2022.

Fourth quarter 2023 results include $94.7 million pre-tax ($69.3 million after tax), or $0.41¹ per diluted share, of charges related to a FDIC special assessment, the merger with Sterling Bancorp on January 31, 2022 ("the merger"), and securities repositioning. Excluding these charges, adjusted earnings per diluted share would have been $1.46¹ for the quarter ended December 31, 2023.

"In addition to our strong financial performance for the quarter and full-year 2023, we realized several meaningful strategic accomplishments," said John R. Ciulla, president and chief executive officer. "Our strong financial position and proactive actions position us well for continued success in 2024."

Highlights for the fourth quarter of 2023:

• Revenue of $634.8 million.
• Period end loan and lease balance of $50.7 billion, up $0.6 billion or 1.3 percent from prior quarter; 80.7 percent commercial loans and leases, 19.3 percent consumer loans, and a loan to deposit ratio of 83.5 percent.
• Period end deposit balance of $60.8 billion, up $0.5 billion or 0.7 percent from prior quarter.
• Provision for credit losses totaled $36.0 million.
• Return on average assets of 1.01 percent; adjusted 1.39 percent¹.
• Return on average tangible common equity of 14.49 percent¹; adjusted 19.83 percent¹.
• Net interest margin of 3.42 percent, down 7 basis points from prior quarter.
• Common equity tier 1 ratio of 11.12 percent.
• Efficiency ratio of 43.04 percent¹.
• Tangible common equity ratio of 7.73 percent¹.

"We continue to invest in our businesses, including the recently announced acquisition of Ametros Financial, which will provide further diversification of funding sources," said Glenn MacInnes, executive vice president and chief financial officer. "At the same time, we are consistently improving our existing operations to maximize financial performance.”

Line of Business performance compared to the fourth 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 December 31, 2023, Commercial Banking had $40.9 billion in loans and leases and $18.2 billion in deposits, as well as a combined $2.9 billion in assets under administration and management.

Commercial Banking Operating Results:

Pre-tax, pre-provision net revenue decreased $29.1 million, to $302.2 million, in the quarter as compared to prior year. Net interest income decreased $14.6 million, to $377.7 million, primarily driven by lower deposit balances coupled with higher rates paid on deposits, partially offset by loan growth. Non-interest income decreased $8.4 million, to $34.4 million, driven by decreases in loan servicing income, syndication fees, direct investments income, and cash management fees. Non-interest expense increased $6.2 million, to $109.9 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 December 31, 2023, HSA Bank had $12.9 billion in total footings comprising $8.3 billion in deposits and $4.6 billion in assets under administration through linked investment accounts.

HSA Bank Operating Results:

Pre-tax net revenue increased $6.3 million, to $56.3 million, in the quarter as compared to prior year. Net interest income increased $12.6 million, to $78.0 million, primarily due to an increase in net deposit spread and growth in deposits. Non-interest income decreased $5.0 million, to $20.2 million, primarily due to lower customer fees. Non-interest expense increased $1.3 million, to $41.9 million, primarily due to higher compensation and benefits expense 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 198 banking centers and 349 ATMs, a customer care center, and a full range of web and mobile-based banking services. Additionally, Webster Investments provides investment services to consumers and small business owners within Webster's targeted markets and retail footprint. At December 31, 2023, Consumer Banking had $9.8 billion in loans and $24.1 billion in deposits, as well as $7.9 billion in assets under administration.

Consumer Banking Operating Results:

Pre-tax, pre-provision net revenue decreased $12.5 million, to $110.0 million, in the quarter as compared to prior year. Net interest income decreased $20.9 million, to $188.1 million, primarily driven by higher rates paid on deposits, partially offset by loan and deposit growth. Non-interest income decreased $1.4 million, to $25.7 million, driven by lower deposit fee income, partially offset by gains on loan sales and higher investment services and other miscellaneous income. Non-interest expense decreased $9.9 million, to $103.8 million, primarily driven by lower technology and shared services expenses, coupled with the impact of outsourcing the consumer investment services platform.

Consolidated financial performance:

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

• Net interest income was $571.0 million compared to $602.4 million.
• Net interest margin was 3.42 percent compared to 3.74 percent. The yield on interest-earning assets increased by 94 basis points, and the cost of interest-bearing liabilities increased by 136 basis points.
• Average interest-earning assets totaled $66.6 billion and increased by $2.6 billion, or 4.1 percent.
• Average loans and leases totaled $50.4 billion and increased by $1.8 billion, or 3.7 percent.
• Average deposits totaled $60.0 billion and increased by $5.9 billion, or 11.0 percent.

Quarterly provision for credit losses:

• The provision for credit losses was $36.0 million in the quarter, contributing to a $0.3 million increase in the allowance for credit losses on loans and leases from prior quarter. The provision also contributed to an increase in the reserves on unfunded loan commitments of $1.7 million. The provision for credit losses was $36.5 million in the prior quarter, and $43.0 million a year ago.
• Net charge-offs were $34.0 million, compared to $29.3 million in the prior quarter, and $20.2 million a year ago. The ratio of net charge-offs to average loans and leases was 0.27 percent, compared to 0.23 percent in the prior quarter, and 0.17 percent a year ago.
• The allowance for credit losses on loans and leases represented 1.25 percent of total loans and leases, compared to 1.27 percent at September 30, 2023, and 1.20 percent at December 31, 2022. The allowance represented 303 percent of nonperforming loans and leases at December 31, 2023, compared to 295 percent at September 30, 2023, and 292 percent at December 31, 2022.

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

• Total non-interest income was $63.8 million compared to $102.2 million, a decrease of $38.4 million. Total non-interest income includes a $16.8 million and $4.5 million loss on the sale of investment securities for the fourth quarter of 2023 and 2022, respectively. Excluding those losses, total non-interest income decreased $26.1 million. The decrease primarily reflects lower deposit fees, lower loan syndication, prepayment, and other transaction fees, and a decline in other non-interest income due to a non-cash swing in our modeled credit valuation adjustment on customer derivatives, direct investment income, and bank-owned life insurance income.

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

• Total non-interest expense was $377.2 million compared to $348.4 million, an increase of $28.8 million. Total non-interest expense includes $47.2 million related to a FDIC special assessment and a net $30.7 million of merger related expense, compared to a net $45.9 million of merger and strategic initiatives charges a year ago. Excluding those charges, total non-interest expense decreased $3.1 million. The decrease reflects lower consulting, project, and loan related expenses, partially offset by increases in compensation and benefits and deposit insurance expense.

Quarterly income taxes compared to the fourth quarter of 2022:

• Income tax expense was $36.2 million compared to $68.4 million, and the effective tax rate was 16.3 percent compared to 21.8 percent. The lower effective tax rate in the current period reflects the recognition of a $5.5 million net discrete benefit attributable to 2022 state and local tax return true-up adjustments, along with the impact of decreased pre-tax income compared to the 2022 period.

Investment securities:

• Total investment securities, net were $16.0 billion, compared to $14.5 billion at both September 30, 2023, and December 31, 2022. The carrying value of the available-for-sale portfolio included $708.7 million of net unrealized losses, compared to $1.1 billion at September 30, 2023, and $864.5 million at December 31, 2022. The carrying value of the held-to-maturity portfolio does not reflect $810.2 million of net unrealized losses, compared to $1.2 billion at September 30, 2023, and $803.4 million at December 31, 2022.

Loans and leases:

• Total loans and leases were $50.7 billion, compared to $50.1 billion at September 30, 2023, and $49.8 billion at December 31, 2022. Compared to September 30, 2023, commercial loans and leases increased by $80.6 million, commercial real estate loans increased by $574.5 million, residential mortgages decreased by $0.5 million, and consumer loans decreased by $16.7 million.
• Compared to a year ago, commercial loans and leases decreased by $712.7 million, commercial real estate loans increased by $1.5 billion, residential mortgages increased by $264.5 million, and consumer loans decreased by $128.8 million.
• Loan originations for the portfolio were $3.2 billion, compared to $1.5 billion in the prior quarter, and $4.7 billion a year ago. In addition, $3.4 million of residential loans were originated for sale in the quarter, compared to $1.5 million in the prior quarter, and $3.5 million a year ago.

Asset quality:

• Total nonperforming loans and leases were $209.5 million, or 0.41 percent of total loans and leases, compared to $215.1 million, or 0.43 percent of total loans and leases, at September 30, 2023, and $203.8 million, or 0.41 percent of total loans and leases, at December 31, 2022.
• Past due loans and leases were $46.6 million, compared to $70.7 million at September 30, 2023, and $73.7 million at December 31, 2022.

Deposits and borrowings:

• Total deposits were $60.8 billion, compared to $60.3 billion at September 30, 2023, and $54.1 billion at December 31, 2022. Core deposits to total deposits¹ were 86.1 percent at December 31, 2023, compared to 87.6 percent at September 30, 2023, and 92.3 percent at December 31, 2022. The loan to deposit ratio was 83.5 percent, compared to 83.0 percent at September 30, 2023, and 92.1 percent at December 31, 2022.
• Total borrowings were $3.9 billion, compared to $3.0 billion at September 30, 2023, and $7.7 billion at December 31, 2022.

Capital:

• The return on average common stockholders’ equity and the return on average tangible common stockholders’ equity¹ were 9.03 percent and 14.49 percent, respectively, compared to 12.54 percent and 19.93 percent, respectively, in the fourth quarter of 2022.
• The tangible equity¹ and tangible common equity¹ ratios were 8.12 percent and 7.73 percent, respectively, compared to 7.79 percent and 7.38 percent, respectively, at December 31, 2022. The common equity tier 1 ratio was 11.12 percent, compared to 10.71 percent at December 31, 2022.
• Book value and tangible book value per common share¹ were $48.87 and $32.39, respectively, compared to $44.67 and $29.07, respectively, at December 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 fourth quarter 2023 earnings announcement will be held today, Tuesday, January 23, 2024 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 23, 2024. 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, these words are not the exclusive means of identifying such statements. Examples of forward-looking statements include, but are not limited to: projections of revenues, expenses, income or loss, earnings or loss per share, and other financial items; statements of plans, objectives, and expectations of Webster or its management or Board of Directors; statements of future economic performance; and 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 Webster's actual results to differ from those discussed in any forward-looking statements include, but are not limited to: Webster's ability to successfully integrate the operations of Webster and Sterling Bancorp and realize the anticipated benefits of the merger, including validation of Webster's recently completed core conversion and any issues that may arise therefrom; Webster's ability to successfully execute its business plan and strategic initiatives, and manage any risks or uncertainties; any continuation of the recent turmoil in the banking industry, including the associated impact of any regulatory changes or other mitigation efforts taken by government agencies in response; volatility in Webster's stock price due to investor sentiment, including in light of the recent turmoil in the banking industry; local, regional, national, and international economic conditions, and the impact they may have on Webster or its customers; volatility and disruption in national and international financial markets, including as a result of geopolitical conflict; unforeseen events, such as pandemics or natural disasters, and any governmental or societal responses thereto; 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; adverse conditions in the securities markets that could lead to impairment in the value of Webster's securities portfolio; 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; possible changes in governmental monetary and fiscal policies, including, but not limited to, the Federal Reserve policies in connection with continued inflationary pressures and the ability of the U.S. Congress to increase the U.S. statutory debt limit as needed; the impact of a potential U.S. federal government shutdown; the timely development and acceptance of new products and services, and the perceived value of those products and services by customers; changes in deposit flows, consumer spending, borrowings, and savings habits; Webster's ability to implement new technologies and maintain secure and reliable technology systems; the effects of any cyber threats, attacks or events, or fraudulent activity, including those that involve Webster's third-party vendors and service providers; performance by Webster's counterparties and third-party vendors; Webster's ability to increase market share and control expenses; changes in the competitive environment among banks, financial holding companies, and other traditional and non-traditional financial service providers; Webster's ability to maintain adequate sources of funding and liquidity; changes in the level of nonperforming assets and charge-offs; changes in estimates of future reserve requirements based upon periodic review under relevant regulatory and accounting requirements; the effect of changes in accounting policies and practices applicable to Webster, including the impacts of recently adopted accounting guidance; Webster's inability to remediate the material weaknesses in its internal control related to ineffective information technology general controls; legal and regulatory developments, including the resolution of legal proceedings or regulatory or other governmental inquiries, and the results of regulatory examinations or reviews; Webster's ability to appropriately address any environmental, social, governmental, and sustainability concerns that may arise from its business activities; and the other factors that are described in Webster's Annual Report on Form 10-K for the year ended December 31, 2022, and Quarterly Reports on Form 10-Q for the quarterly periods ended in 2023. Any forward-looking statement made by Webster in this release speaks only as of the date on which it is made. Factors or events that could cause Webster's actual results to differ may emerge from time to time, and it is not possible for Webster to predict all of them. Webster 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, return on average tangible common stockholders' equity, 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 additional clarity 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.