Webster Financial Corporation (“Webster”) (NYSE: WBS), the holding company for Webster Bank, N.A., today announced net income available to common stockholders of $188.8 million, or $1.10 per diluted share, for the quarter ended September 30, 2024, compared to $222.3 million, or $1.28 per diluted share, for the quarter ended September 30, 2023.

Third quarter 2024 results include $56.2 million pre-tax ($41.0 million after tax), or $0.24¹ per diluted share, of securities repositioning net losses, strategic restructuring costs, and other adjustments. Excluding these items, adjusted earnings per diluted share would have been $1.34¹ for the quarter ended September 30, 2024.

“Webster delivered solid deposit and loan growth, even in a challenging environment,” said John R. Ciulla, chairman and chief executive officer. “Our growth was the result of broad contributions across business segments and teams.”

Highlights for the third quarter of 2024:

• Revenue of $647.6 million.
• Period end loans and leases balance of $51.9 billion, up $0.4 billion or 0.7 percent from prior quarter; excluding a $0.3 billion strategic repositioning of the balance sheet through a commercial real estate ("CRE") securitization, loans grew 1.3 percent.
• Period end deposits balance of $64.5 billion, up $2.2 billion or 3.6 percent from prior quarter; core deposit growth of $2.6 billion from prior quarter; $1.1 billion of growth from seasonal public funds inflows.
• Provision for credit losses of $54.0 million.
• Return on average assets of 1.01 percent; adjusted 1.22 percent¹.
• Return on average tangible common equity of 14.29 percent¹; adjusted 17.28 percent¹.
• Net interest margin of 3.36 percent, up 4 basis points from prior quarter.
• Common equity tier 1 ratio of 11.23%.
• Efficiency ratio of 45.49 percent¹.
• Tangible common equity ratio of 7.48 percent¹.

“In addition to our diverse balance sheet growth, we took actions this quarter to reduce our CRE concentration, enhance capital ratios, and further mitigate our interest rate sensitivity while maintaining industry leading efficiency,” said Neal Holland, executive vice president and chief financial officer.

¹ See “Non-GAAP to GAAP Reconciliations” section beginning on page 19.

Consolidated financial performance:

Quarterly net interest income compared to the third quarter of 2023:

• Net interest income was $589.9 million compared to $587.1 million.
• Net interest margin was 3.36 percent compared to 3.49 percent. The yield on interest-earning assets increased by 20 basis points, and the cost of interest-bearing liabilities increased by 35 basis points.
• Average interest-earning assets totaled $69.8 billion and increased by $2.7 billion, or 4.0 percent.
• Average loans and leases totaled $51.8 billion and increased by $0.8 billion, or 1.6 percent.
• Average deposits totaled $62.6 billion and increased by $3.0 billion, or 5.0 percent.

Quarterly provision for credit losses:

• The provision for credit losses was $54.0 million in the quarter, contributing to a $18.4 million increase in the allowance for credit losses on loans and leases from the prior quarter. The provision for credit losses was $59.0 million in the prior quarter, and $36.5 million a year ago.
• Net charge-offs were $35.4 million, compared to $33.1 million in the prior quarter, and $29.3 million a year ago. The ratio of net charge-offs to average loans and leases was 0.27 percent, compared to 0.26 percent in the prior quarter, and 0.23 percent a year ago.
• The allowance for credit losses on loans and leases represented 1.32 percent of total loans and leases, compared to 1.30 percent at June 30, 2024, and 1.27 percent at September 30, 2023. The allowance represented 162 percent of nonperforming loans and leases, compared to 181 percent at June 30, 2024, and 295 percent at September 30, 2023.

Quarterly non-interest income compared to the third quarter of 2023:

• Total non-interest income was $57.7 million compared to $90.4 million, a decrease of $32.7 million. Total non-interest income includes a $19.6 million net loss on the sale of investment securities and a $16.0 million loss on the exit of non-core operations including the write-off of a related customer intangible. Excluding these items, total non-interest income increased $2.9 million. The increase is primarily attributable to the addition of Ametros and higher investment services income, which was partially offset by a reduction in the credit valuation adjustment on customer derivatives.

Quarterly non-interest expense compared to the third quarter of 2023:

• Total non-interest expense was $349.0 million compared to $362.6 million, a decrease of $13.6 million. Total non-interest expense includes a net $20.6 million related to strategic restructuring costs and other adjustments partially offset by a benefit on the FDIC special assessment compared to a net $61.6 million of Sterling merger charges a year ago. Excluding those charges, total non-interest expense increased $27.4 million. The increase is primarily attributable to the addition of Ametros and related intangible amortization expense, along with investments in human capital and technology.

Quarterly income taxes compared to the third quarter of 2023:

• Income tax expense was $51.7 million compared to $52.0 million, and the effective tax rate was 21.1 percent compared to 18.7 percent. The lower effective tax rate in the period a year ago reflected the recognition of discrete tax benefits from merger related charges and tax return true-up adjustments, while the current period includes discrete tax expense from tax return true-ups and other items.

Investment securities:

• Total investment securities, net were $17.2 billion, compared to $16.4 billion at June 30, 2024, and $14.5 billion at September 30, 2023. The carrying value of the available-for-sale portfolio included $486.1 million of net unrealized losses, compared to $772.2 million at June 30, 2024, and $1.1 billion at September 30, 2023. The carrying value of the held-to-maturity portfolio does not reflect $677.0 million of net unrealized losses, compared to $964.5 million at June 30, 2024, and $1.2 billion at September 30, 2023.

Loans and leases:

• Total loans and leases were $51.9 billion, compared to $51.6 billion at June 30, 2024, and $50.1 billion at September 30, 2023. Compared to June 30, 2024, commercial loans and leases increased by $628.6 million, commercial real estate loans decreased by $586.4 million, residential mortgages increased by $292.3 million, and consumer loans increased by $39.1 million.
• Compared to a year ago, commercial loans and leases increased by $0.4 billion, commercial real estate loans increased by $1.1 billion, residential mortgages increased by $348.2 million, and consumer loans decreased by $26.9 million.
• Loan originations for the portfolio were $2.8 billion, compared to $3.0 billion in the prior quarter, and $1.5 billion a year ago. In addition, $0.8 million of residential loans were originated for sale in the quarter, compared to $0.8 million in the prior quarter, and $1.5 million a year ago.

Asset quality:

• Total nonperforming loans and leases were $425.6 million, or 0.82 percent of total loans and leases, compared to $368.8 million, or 0.72 percent of total loans and leases, at June 30, 2024, and $215.1 million, or 0.43 percent of total loans and leases, at September 30, 2023.
• Past due loans and leases were $108.9 million, compared to $166.3 million at June 30, 2024, and $70.7 million at September 30, 2023. The decrease from prior quarter is driven primarily by commercial non-mortgage, partially offset by commercial real estate and residential mortgages.

Deposits and borrowings:

• Total deposits were $64.5 billion, compared to $62.3 billion at June 30, 2024, and $60.3 billion at September 30, 2023. Core deposits to total deposits¹ were 88.5 percent, compared to 87.5 percent at June 30, 2024, and 87.6 percent at September 30, 2023. The loan to deposit ratio was 80.5 percent, compared to 82.8 percent at June 30, 2024, and 83.0 percent at September 30, 2023.
• Total borrowings were $4.1 billion, compared to $4.0 billion at June 30, 2024, and $3.0 billion at September 30, 2023.

Capital:

• The return on average common stockholders’ equity and the return on average tangible common stockholders’ equity¹ were 8.67 percent and 14.29 percent, respectively, compared to 11.00 percent and 17.51 percent, respectively, in the third quarter of 2023.
• The tangible equity¹ and tangible common equity¹ ratios were 7.85 percent and 7.48 percent, respectively, compared to 7.62 percent and 7.22 percent, respectively, at September 30, 2023. The common equity tier 1 ratio was 11.23 percent, compared to 11.12 percent at September 30, 2023.
• Book value and tangible book value per common share¹ were $52.00 and $33.26, respectively, compared to $46.00 and $29.48, respectively, at September 30, 2023.

¹ See “Non-GAAP to GAAP Reconciliations” section beginning on page 19.

Reportable segments:

Commercial Banking

Webster’s Commercial Banking segment serves businesses that have more than $10 million of revenue through its regional banking, middle market, asset-based lending, equipment finance, commercial real estate, sponsor finance, private banking, and treasury services business units. At September 30, 2024, Commercial Banking had $40.4 billion in loans and leases and $17.1 billion in deposits, as well as a combined $3.0 billion in assets under administration and management.

Commercial Banking Operating Results:

Pre-tax, pre-provision net revenue decreased $24.3 million, to $270.8 million, in the quarter as compared to prior year. Net interest income decreased $26.6 million, to $338.4 million, primarily driven by higher loan funding costs coupled with higher deposit rates. Non-interest income increased $4.5 million, to $33.3 million, primarily driven by loan sale/securitization activity in the quarter. Non-interest expense increased $2.2 million, to $100.9 million, primarily driven by continued investments in human capital and technology.

Healthcare Financial Services

Webster’s Healthcare Financial Services segment is comprised of HSA Bank and the Ametros business, which was acquired in the first quarter of 2024. This segment offers consumer-directed healthcare solutions that include health savings accounts, health reimbursement arrangements, administration of medical insurance claim settlements, flexible spending accounts, and commuter benefits. 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 September 30, 2024, Healthcare Financial Services had $15.1 billion in total footings comprising $9.9 billion in deposits and $5.2 billion in assets under administration through linked investment accounts.

Healthcare Financial Services Operating Results:

Pre-tax net revenue increased $7.9 million, to $66.5 million, in the quarter as compared to prior year. Net interest income increased $16.3 million, to $93.9 million, primarily due to $11.8 million from Ametros and an increase in net deposit spread coupled with deposit growth at HSA Bank. Non-interest income increased $5.7 million, to $26.5 million, primarily due to $6.8 million from Ametros, offset by a decrease of $1.1 million from HSA Bank. The decrease in HSA Bank was the net result of lower customer account fees partially offset by higher interchange revenue. Non-interest expense increased $14.1 million, to $54.0 million, primarily due to $11.8 million from Ametros. HSA Bank expenses were $2.3 million higher due to higher service contract expense related to account growth and support costs.

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 business banking business units, as well as a distribution network consisting of 196 banking centers and 347 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 September 30, 2024, Consumer Banking had $11.6 billion in loans and $27.0 billion in deposits, as well as $7.9 billion in assets under administration.

Consumer Banking Operating Results:

Pre-tax, pre-provision net revenue decreased $19.0 million, to $114.2 million, in the quarter as compared to prior year. Net interest income decreased $19.6 million, to $202.1 million, primarily driven by higher rates paid on deposits, partially offset by loan and deposit growth. Non-interest income decreased $0.4 million, to $28.3 million, primarily driven by lower deposit service fees and loan related fees, partially offset by increased ATM fees and investment services income. Non-interest expense decreased $1.0 million, to $116.3 million, primarily driven by lower compensation and processing expenses, partially offset by higher technology costs.

Webster Financial Corporation (NYSE:WBS) is the holding company for Webster Bank, N.A. 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 Healthcare Financial Services, one of the country’s largest providers of employee benefit solutions and administrator of medical insurance claim settlements. Headquartered in Stamford, CT, Webster is a values-driven organization with $79 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 third quarter 2024 earnings announcement will be held today, Thursday, October 17, 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 October 17, 2024. To access the replay, dial 800-770-2030, or 609-800-9909 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, expense savings, 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 execute its business plan and strategic initiatives, and manage any risks or uncertainties; continued regulatory changes or other mitigation efforts taken by government agencies in response to volatility in the banking industry; volatility in Webster’s stock price due to investor sentiment and perception of 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; the impact of unrealized losses in Webster’s available-for-sale securities portfolio; changes in laws and regulations, or existing laws and regulations that Webster becomes subject to, including those concerning banking, taxes, dividends, securities, insurance, cybersecurity, and healthcare administration, 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, 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; the impact of the 2024 U.S. presidential election; 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 information and technology systems; the effects of any cybersecurity 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; Webster’s ability to attract, develop, motivate, and retain skilled employees; changes in loan demand or real estate values; changes in the mix of loan geographies, sectors, or types and the level of nonperforming assets, charge-offs, and delinquencies; changes in our estimates of current expected credit losses 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; legal and regulatory developments, including any due to recent U.S. Supreme Court decisions, the resolution of legal proceedings or regulatory or other governmental inquiries, and the results of regulatory examinations or reviews; Webster’s ability to navigate any environmental, social, governmental, and sustainability concerns of different stakeholders and activists that may arise from its business activities; Webster’s ability to assess and monitor the effect of artificial intelligence on its business and operations; unforeseen events, such as pandemics, natural disasters, and severe weather events, and any governmental or societal responses thereto; and the other factors that are described in Webster’s Annual Report on Form 10-K for the year ended December 31, 2023, and Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. 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.

The efficiency ratio, which represents the costs expended to generate a dollar of revenue, is calculated excluding certain non-operational items. The return on average tangible common stockholders’ equity (ROATCE) represents net income available to common stockholders, adjusted for the tax-effected amortization of intangible assets, as a percentage of average stockholders’ equity less average preferred stock and average goodwill and net intangible assets. The tangible equity ratio represents stockholders’ equity less goodwill and net intangible assets divided by total assets less goodwill and net intangible assets. The tangible common equity ratio represents stockholders’ equity less preferred stock and goodwill and net intangible assets divided by total assets less goodwill and net intangible assets. Tangible book value per common share represents stockholders’ equity less preferred stock and goodwill and net intangible assets divided by common shares outstanding at the end of the period. Core deposits reflect total deposits less certificates of deposit and brokered certificates of deposit. Adjusted pre-tax net income, adjusted net income available to common stockholders, adjusted diluted earnings per share (EPS), adjusted ROATCE, and adjusted return on average assets (ROAA) are calculated excluding a net loss on sale of investment securities, exit of non-core operations, strategic restructuring costs, and a FDIC special assessment benefit, which have been tax-effected.

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.

Refer the tables beginning on page 19 for Non-GAAP to GAAP reconciliations.