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Feb. 26, 2021, 5:19 p.m. EST

10-K: WEBSTER FINANCIAL CORP

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(EDGAR Online via COMTEX) -- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following presentation should be read in conjunction with the Consolidated Financial Statements and the accompanying Notes thereto of Webster Financial Corporation contained elsewhere in this report. For a comparison of the 2019 results to the 2018 results and other 2018 information not included herein, refer to the "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the sections captioned "Financial Performance" through "Income Taxes" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2019. COVID-19 COVID-19, or the Coronavirus, has continued to cause significant disruptions to the U.S. economy and disrupted banking and other financial activity in the areas in which the Company operates. The broad impact and preventive measures taken to contain or mitigate the outbreak have, and are likely to continue to have, significant negative effects on the U.S. and global economy, employment levels, employee productivity, and financial market conditions. The pandemic may cause increasingly negative effects on the ability of our borrowers to repay outstanding loans, the value of collateral securing loans, demand for loans and other financial services products, and consumer discretionary spending. As a result of these and other consequences, the outbreak has adversely affected our business, results of operations and financial condition. The extent to which COVID-19 will continue to impact our results will depend on future developments, which are highly uncertain and cannot be predicted at this time, and include the duration, severity and scope of the outbreak, the actions taken to contain or mitigate its impact, and the pace and extent of economic recovery in the United States and, in particular, in the states in which we operate. COVID-19 vaccines have been developed with promising efficacy and the new administration is setting policies focused on increasing the quantity of vaccine made available and speed with which they are administered. The timing and extent to which these policies have a positive impact are uncertain at this time. Webster has taken the following actions, through December 31, 2020, to support its employees, customers, and the communities we serve through the following initiatives: Support for Employees: Webster transitioned to a remote work environment, where possible, with approximately 75% of employees currently working remotely, zero-interest loans were made available to assist employees and their families, expanded recognition programs were launched, and extra cleaning and safety protocols have been put in place for all properties where a slow and cautious return to the workplace is being implemented in compliance with state guidelines; Support for Customers: Webster instituted a foreclosure moratorium for occupied Webster-owned residential mortgages, modified branch operations, increased deposit limits, waived penalties for early CD withdrawals, and waived or reduced certain fees. In addition, Webster continues to work with customers adversely impacted by COVID-19 through participation in the Small Business Administration Paycheck Protection Program (PPP) where it has funded nearly $1.5 billion in PPP loans to over 10,000 customers. Webster continues to engage with its customers and has provided accommodations through various loan modifications supporting over 2,500 customers; and Support for Communities: Webster immediately provided nearly $2 million in donations to nonprofit and community organizations in our footprint including Feeding America, American Red Cross, and United Way (CT, RI, MA, NY, WI) to satisfy urgent basic needs brought on by the pandemic. Information regarding the effects and potential effects of the ongoing Coronavirus pandemic on Webster's business, operating results, and financial condition is further described throughout this MD&A. Strategic Initiatives The Company has launched a strategic plan that is expected to drive revenue enhancements and cost saving opportunities across the organization. As these strategic initiatives are implemented, they are expected to drive incremental revenue, reduce costs, and enhance digital capabilities. Significant progress has been made in several areas including, Banking center consolidation: In December, the consolidation of 26 banking centers was announced that will drive expense savings beginning in the third quarter of 2021; Organization simplification: Organizational actions are underway and will begin delivering benefits in the second quarter of 2021; and Process optimization and ancillary spend reduction: Increased discipline around third party spend and redesigning processes to be more efficient; anticipated savings will be delivered throughout 2021. Costs incurred in 2020 related to these strategic initiatives include $17.9 million in severance, $14.5 million in facilities optimization, and $10.3 million in other project costs. In addition, $4.1 million in debt prepayment penalty and related hedge termination costs were incurred in the fourth quarter of 2020. Additional costs are expected to be incurred in 2021 as the Company continues to implement these actions and additional initiatives. Table of Contents Results of Operations The Company's financial position and results of operations as of and for the year ended December 31, 2020 have been significantly impacted by the COVID-19 pandemic. The economic environment and uncertainty related to the pandemic contributed to the $137.8 million provision for credit losses recognized under the new CECL accounting standard adopted by the Company on January 1, 2020. While the Company has not experienced a significant increase in charge-offs due to the COVID-19 pandemic to-date, the continued uncertainty regarding the severity and duration of the pandemic and related economic effects will continue to affect the Company's estimate of its allowance for credit losses and resulting provision for credit losses. The Company's interest income may also be negatively impacted in future periods as the Company continues to work with its affected borrowers to help them manage their financial position, by deferring payments, interest, and fees. Additionally, net interest margin has been reduced generally as a result of the low rate environment. These uncertainties and the resulting economic environment will continue to affect earnings and growth projections which may result in deterioration of asset quality in the Company's loan and investment portfolios, or fair value of other assets. Selected financial highlights are presented in the following table: At or for the years ended December 31, (Dollars in thousands, except per share data) 2020 2019 2018 2017 2016 Balance Sheets Total assets $ 32,590,690 $ 30,389,344 $ 27,610,315 $ 26,487,645 $ 26,072,529 Loans and leases, net 21,281,784 19,827,890 18,253,136 17,323,864 16,832,268 Investment securities 8,894,665 8,219,751 7,224,150 7,125,429 7,151,749 Deposits 27,335,436 23,324,746 21,858,845 20,993,729 19,303,857 Borrowings 1,696,182 3,529,271 2,634,703 2,546,141 4,017,948 Preferred stock 145,037 145,037 145,037 145,056 122,710 Total shareholders' equity 3,234,625 3,207,770 2,886,515 2,701,958 2,527,012 Statements Of Income Interest income $ 1,002,049 $ 1,154,583 $ 1,055,167 $ 913,605 $ 821,913 Interest expense 110,656 199,456 148,486 117,318 103,400 Net interest income 891,393 955,127 906,681 796,287 718,513 Provision for credit losses 137,750 37,800 42,000 40,900 56,350 Non-interest income 285,277 285,315 282,568 259,478 264,478 Non-interest expense 758,946 715,950 705,616 661,075 623,191 Income before income tax expense 279,974 486,692 441,633 353,790 303,450 Income tax expense 59,353 103,969 81,215 98,351 96,323 Net income $ 220,621 $ 382,723 $ 360,418 $ 255,439 $ 207,127 Earnings applicable to common shareholders $ 211,474 $ 372,985 $ 351,703 $ 246,831 $ 198,423 Per Share Data Basic earnings per common share $ 2.35 $ 4.07 $ 3.83 $ 2.68 $ 2.17 Diluted earnings per common share 2.35 4.06 3.81 2.67 2.16 Dividends and dividend equivalents declared per common share 1.60 1.53 1.25 1.03 0.98 Dividends declared per preferred stock share 1,312.50 1,312.50 1,323.44 1,600.00 1,600.00 Book value per common share 34.25 33.28 29.72 27.76 26.17 Tangible book value per common share (non-GAAP) 28.04 27.19 23.60 21.59 19.94 Key Performance Ratios Tangible common equity ratio (non-GAAP) 7.90 % 8.39 % 8.05 % 7.67 % 7.19 % Return on average assets 0.68 1.32 1.33 0.97 0.82 Return on average common shareholders' equity 6.97 12.83 13.37 9.92 8.44 Return on average tangible common shareholders' equity (non-GAAP) 8.66 16.01 17.17 13.00 11.36 Net interest margin 3.00 3.55 3.60 3.30 3.12 Efficiency ratio (non-GAAP) 59.57 56.77 57.75 60.33 62.01 Asset Quality Ratios Non-performing loans and leases as a percentage of loans and leases 0.78 % 0.75 % 0.84 % 0.72 % 0.79 % Non-performing assets as a percentage of loans and leases plus OREO 0.79 0.79 0.87 0.76 0.81 Non-performing assets as a percentage of total assets 0.52 0.52 0.59 0.50 0.53 ACL on loans and leases as a percentage of non-performing loans and leases 213.94 138.56 137.22 158.00 144.98 ACL on loans and leases as a percentage of loans and leases 1.66 1.04 1.15 1.14 1.14 Net charge-offs as a percentage of average loans and leases 0.21 0.21 0.16 0.20 0.23 Ratio of ACL on loans and leases to net charge-offs 7.97 x 5.09 x 7.16 x 5.68 x 5.25 x

Table of Contents







                                                                                         At December 31,
        (Dollars and shares in thousands, except per          2020            2019            2018            2017            2016
        share data)
        Tangible book value per common share (non-GAAP):
        Shareholders' equity (GAAP)                      $  3,234,625    $  3,207,770    $  2,886,515    $  2,701,958    $  2,527,012
        Less: Preferred stock (GAAP)                          145,037         145,037         145,037         145,056         122,710
         Goodwill and other intangible assets (GAAP)          560,756         560,290         564,137         567,984         572,047
        Tangible common shareholders' equity (non-GAAP)  $  2,528,832    $  2,502,443    $  2,177,341    $  1,988,918    $  1,832,255
        Common shares outstanding                              90,199          92,027          92,247          92,101          91,868
        Tangible book value per common share (non-GAAP)  $      28.04    $      27.19    $      23.60    $      21.59    $      19.94
        Tangible common equity ratio (non-GAAP):
        Tangible common shareholders' equity (non-GAAP)  $  2,528,832    $  2,502,443    $  2,177,341    $  1,988,918    $  1,832,255
        Total assets (GAAP)                              $ 32,590,690    $ 30,389,344    $ 27,610,315    $ 26,487,645    $ 26,072,529
        Less: Goodwill and other intangible assets
        (GAAP)                                                560,756         560,290         564,137         567,984         572,047
        Tangible assets (non-GAAP)                       $ 32,029,934    $ 29,829,054    $ 27,046,178    $ 25,919,661    $ 25,500,482
        Tangible common equity ratio (non-GAAP)                  7.90  %         8.39  %         8.05  %         7.67  %         7.19  %
                                                                                For the years ended December 31,
        (Dollars in thousands)                                2020            2019            2018            2017            2016
        Return on average tangible common shareholders'
        equity (non-GAAP):
        Net Income (GAAP)                                $    220,621    $    382,723    $    360,418    $    255,439    $    207,127
        Less: Preferred stock dividends (GAAP)                  7,875           7,875           7,853           8,184           8,096
        Add: Intangible assets amortization,
        tax-affected (GAAP)                                     3,286           3,039           3,039           2,640           3,674
        Income adjusted for preferred stock dividends
        and intangible assets amortization (non-GAAP)    $    216,032    $    377,887    $    355,604    $    249,895    $    202,705
        Average shareholders' equity (non-GAAP)          $  3,198,491    $  3,067,719    $  2,782,132    $  2,617,275    $  2,481,417
        Less: Average preferred stock (non-GAAP)              145,037         145,037         145,068         124,978         122,710
         Average goodwill and other intangible assets
        (non-GAAP)                                            560,226         562,188         566,048         570,054         574,785
         Average tangible common shareholders' equity
        (non-GAAP)                                       $  2,493,228    $  2,360,494    $  2,071,016    $  1,922,243    $  1,783,922
        Return on average tangible common shareholders'
        equity (non-GAAP)                                        8.66  %        16.01  %        17.17  %        13.00  %        11.36  %
        Efficiency ratio (non-GAAP):
        Non-interest expense (GAAP)                      $    758,946    $    715,950    $    705,616    $    661,075    $    623,191
        Less: Foreclosed property activity (GAAP)              (1,504)           (173)           (139)           (238)           (326)
         Intangible assets amortization (GAAP)                  4,160           3,847           3,847           4,062           5,652
         Other expense (non-GAAP) (1)                          43,051           1,757          11,878           9,029           3,513
        Non-interest expense (non-GAAP)                  $    713,239    $    710,519    $    690,030    $    648,222    $    614,352
        Net interest income (GAAP)                       $    891,393    $    955,127    $    906,681    $    796,287    $    718,513
        Add: Tax-equivalent adjustment (non-GAAP)              10,246           9,695           9,026          16,953          13,637
         Non-interest income (GAAP)                           285,277         285,315         282,568         259,478         264,478
         Other (non-GAAP) (2)                                  10,371           1,448           1,244           1,798           1,780
        Less: Gain on sale of investment securities, net
        (GAAP)                                                      8              29               -               -             414
        Gains on sale of banking centers and asset
        redemption (GAAP)                                           -               -           4,596               -           7,331
        Income (non-GAAP)                                $  1,197,279    $  1,251,556    $  1,194,923    $  1,074,516    $    990,663
        Efficiency ratio (non-GAAP)                             59.57  %        56.77  %        57.75  %        60.33  %        62.01  %
        


(1)Other expense (non-GAAP) includes business and facility optimization charges for the periods 2019 and prior. In addition, there was a $42.7 million charge for strategic initiatives in 2020, a $10.0 million charge relating to additional FDIC premiums in 2018, and a $3.8 million charge for debt prepayment penalties in 2017.







                                                                                                                                Years ended December 31,
                                                                                  2020                                                    2019                                                    2018
                                                                Average                                                 Average                                                 Average
        (Dollars in thousands)                                  Balance        Interest        Yield/Rate               Balance        Interest        Yield/Rate               Balance        Interest        Yield/Rate
        Assets
        Interest-earning assets:
        Loans and leases                                    $ 21,385,702    $   792,929               3.71  %       $ 19,209,611    $   927,395               4.83  %       $ 18,033,587    $   845,146               4.69  %
        Investment securities (1)                              8,647,322        215,151               2.56             7,761,937        229,989               2.97             7,137,326        211,227               2.93
        FHLB and FRB stock                                       102,943          3,200               3.11               113,518          4,956               4.37               132,607          6,067               4.58
        Interest-bearing deposits (2)                             93,011            246               0.26                56,458          1,211               2.14                63,178          1,125               1.78
        Securities                                             8,843,276        218,597               2.54             7,931,913        236,156               2.98             7,333,111        218,419               2.98
        Loans held for sale                                       25,902            769               2.97                22,437            727               3.24                15,519            628               4.04
        Total interest-earning assets                         30,254,880    $ 1,012,295               3.37  %         27,163,961    $ 1,164,278               4.29  %         25,382,217    $ 1,064,193               4.18  %
        Non-interest-earning assets                            2,012,900                                               1,897,078                                               1,640,385
        Total assets                                        $ 32,267,780                                            $ 29,061,039                                            $ 27,022,602
        Liabilities and equity
        Interest-bearing liabilities:
        Demand deposits                                     $  5,698,399    $         -                  -  %       $  4,300,407    $         -                  -  %       $  4,185,183    $         -                  -  %
        Health savings accounts                                6,893,996          9,530               0.14             6,240,201         12,316               0.20             5,540,000         10,980               0.20
        Interest-bearing checking, money market and savings   10,689,634         25,248               0.24             9,144,086         54,566               0.60             9,115,168         36,559               0.40
        Time deposits                                          2,760,561         33,119               1.20             3,267,913         62,695               1.92             2,818,271         42,868               1.52
        Total deposits                                        26,042,590         67,897               0.26            22,952,607        129,577               0.56            21,658,622         90,407               0.42
        Securities sold under agreements to repurchase and
        other borrowings                                       1,292,571          5,941               0.46             1,008,704         17,953               1.78               784,998         13,491               1.72
        FHLB advances                                            730,125         18,767               2.57             1,201,839         31,399               2.61             1,339,492         33,461               2.50
        Long-term debt (1)                                       564,919         18,051               3.45               468,111         20,527               4.51               225,895         11,127               4.93
        Total borrowings                                       2,587,615         42,759               1.68             2,678,654         69,879               2.62             2,350,385         58,079               2.47
        Total interest-bearing liabilities                    28,630,205    $   110,656               0.39  %         25,631,261    $   199,456               0.78  %         24,009,007    $   148,486               0.62  %
        Non-interest-bearing liabilities                         439,084                                                 362,059                                                 231,463
        Total liabilities                                     29,069,289                                              25,993,320                                              24,240,470
        Preferred stock                                          145,037                                                 145,037                                                 145,068
        Common shareholders' equity                            3,053,454                                               2,922,682                                               2,637,064
        Total shareholders' equity                             3,198,491                                               3,067,719                                               2,782,132
        Total liabilities and equity                        $ 32,267,780                                            $ 29,061,039                                            $ 27,022,602
        Tax-equivalent net interest income                                      901,639                                                 964,822                                                 915,707
        Less: Tax-equivalent adjustments                                        (10,246)                                                 (9,695)                                                 (9,026)
        Net interest income                                                 $   891,393                                             $   955,127                                             $   906,681
        Net interest margin                                                                           3.00  %                                                 3.55  %                                                 3.60  %
        


(1)For purposes of yield/rate computation, unrealized gain (loss) balances on available-for-sale securities and senior fixed-rate notes hedges are excluded.

Feb 26, 2021

COMTEX_381796858/2041/2021-02-26T17:19:20

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