Fourth Quarter 2020
Earnings Conference Call
January 21, 2021
Fourth Quarter 2020 Highlights
Solid financial results
- Strong loan originations
- HSA Bank footings of $10.0 billion, an increase of 17.5% year-over-year
- Stable net interest income and net interest margin
- Favorable credit profile
- Strong liquidity, capital, and reserve positions
Positioned for future growth through execution on strategic initiatives
- Committed to achieving 8 to 10% expense run rate reduction by 4Q21
- Reported results include $42.0 million ($31.2 million after-tax) of strategic initiative charges
Consistent with our mission, we continue to support our customers, communities, and employees through various pandemic related relief programs
Net Income | EPS | ROACE | ROATCE | |
Reported | $60.0 | $0.64 | 7.51% | 9.31% |
Adjusted | $91.2 | $0.99 | 11.54% | 14.24% |
Note: See non-GAAP reconciliations on pages 10, 11, and 40 through 42.
2
Loans & Deposits
($ in millions, end of period)
Total Loans: +8.0% YOY (+1.7% excl. PPP loans) | Total Deposits: +17.2% YOY |
$21,852 | $21,641 | |
$20,037 | ||
$6,932 | $6,741 | |
$7,207 | ||
$1,354 | $1,256 | |
73% | 68% | 69% |
67% | 68% | |
64% | ||
$12,830 | $13,566 | $13,644 |
4Q19 | 3Q20 | 4Q20 |
Consumer Loans
PPP Loans (all commercial)
Commercial Loans
Commercial Loans to Total Loans
Floating and Periodic to Total Loans*
Loan Portfolio Yield:
4.83%3.40%3.44%
$26,921 | $27,335 | |
$23,325 | $6,976 | $7,120 |
$6,416 | $9,808 | |
$9,528 | ||
$7,136 | ||
86% | 81% | 79% |
58% | 61% | 62% |
$9,773 | $10,417 | $10,407 |
4Q19 | 3Q20 | 4Q20 |
HSA |
Transactional
Non Transactional
Loans to Deposits
Transactional & HSAs to Total Deposits
Deposit Cost:
0.56% | 0.19% | 0.13% |
- Floating loan rates reset in 1 month or less; periodic loans reset in greater than 1 month but before final maturity
3
Note: All loans are shown net of deferred fees (GAAP)
Commercial Banking
($ in millions)
Loans: +10.0% YOY (+6.5% excl. PPP loans)
$12,620 | $12,649 | |
$324 | $320 | |
$11,500 | ||
$344 | ||
$3,927 | $3,861 | |
$3,736 | ||
$439 | $404 | |
4.68% | ||
3.24% | 3.33% | |
$7,420 | $7,930 | $8,064 |
4Q19 | 3Q20 | 4Q20 |
C&I | |||
PPP (all C&I) | |||
Investor CRE | |||
Private Banking Consumer Loans | |||
Loan Portfolio Yield | |||
Note: Beginning in 1Q20, segment net interest income was updated to reflect changes in | |||
the funds transfer pricing methodology related to allocated capital. Prior periods were | |||
restated to reflect the change. | 4 |
Key Business Metrics
Increase / (Decrease) | ||||||
4Q20 | 3Q20 | 4Q19 | ||||
Loan Originations | $ | 1,231 | $ | 291 | $ | (99) |
Loan Fundings | $ | 825 | $ | 280 | $ | (224) |
Coupon on Fundings | 3.79% | 0.18% | (0.25%) | |||
Deposits | $ | 5,957 | $ | (42) | $ | 1,575 |
AUM / AUA* | $ | 2,686 | $ | 384 | $ | 382 |
*AUM = Assets Under Management | AUA = Assets Under Administration |
PPNR: 13.8% YOY
Favorable / (Unfavorable) | ||||||
4Q20 | 3Q20 | 4Q19 | ||||
Net interest income | $ | 112.3 | $ | 4.9 | $ | 12.1 |
Non-interest income | 17.3 | 4.2 | 0.9 | |||
Operating revenue | $ | 129.6 | $ | 9.1 | $ | 13.0 |
Operating expenses | 48.7 | (1.1) | (3.2) | |||
Pre-provision net revenue | $ | 80.9 | $ | 8.0 | $ | 9.8 |
HSA Bank
($ in millions)
Total Footings: +17.5% YOY
$9,973
$9,430 | ||
$8,487 | $2,853 | |
$2,454 | ||
$2,071 | ||
$419 | $423 | |
$594 |
$6,557$6,697
$5,822
4Q19 | 3Q20 | 4Q20 |
Linked Investments | ||
Deposits - Third Party Administrator ("TPA") | ||
Deposits - Core | ||
Deposit Cost: | ||
0.20% | 0.12% | 0.09% |
Note: Beginning in 1Q20, segment net interest income was updated to reflect changes in the funds transfer pricing methodology related to allocated capital. Prior periods were restated to reflect the change.
Investments linked to third party administrator ("TPA") accounts were $129 million, $111
million, and $113 million, for 4Q20, 3Q20, and 4Q19, respectively.
Key Business Metrics
Increase / (Decrease) | ||||||
4Q20 | 3Q20 | 4Q19 | ||||
Core accounts ('000) | 2,661 | (13) | 101 | |||
TPA accounts ('000) | 292 | (2) | (122) | |||
Percent of unfunded accounts | 5.79% | 0.15% | 0.00% | |||
Footings per account | $ | 3,378 | $ | 201 | $ | 524 |
Deposits per account - core | $ | 2,517 | $ | 64 | $ | 243 |
Investments as % of total footings | 28.61% | 2.59% | 4.21% | |||
New accounts ('000) | 107 | (19) | (19) | |||
PTNR / average account (annualized) | $ | 40.44 | $ | (2.66) | $ | 0.08 |
PTNR: (0.7)% YOY
Favorable / (Unfavorable) | ||||||
4Q20 | 3Q20 | 4Q19 | ||||
Net interest income | $ | 40.5 | $ | 0.6 | $ | (1.5) |
Interchange revenue | 9.7 | (0.1) | 0.3 | |||
Account and other fees | 14.4 | (3.0) | 0.8 | |||
Operating revenue | $ | 64.6 | $ | (2.5) | $ | (0.4) |
Operating expenses | 34.8 | 0.0 | 0.2 | |||
Pre-tax net revenue | $ | 29.9 | $ | (2.5) | $ | (0.2) |
5
Community Banking
($ in millions)
Loans: +5.3% YOY (-4.7% excl. PPP loans)
$8,537 | $9,232 | $8,992 |
$1,708 | ||
$1,674 | $1,719 | |
$915 | $852 | |
4.16% | 3.49% | 3.46% |
$6,863 | $6,609 | $6,421 |
4Q19 | 3Q20 | 4Q20 |
Personal Banking | PPP (all Business Banking) | |
Business Banking | Loan Portfolio Yield | |
Deposits: +13.8% YOY
$13,950 | $14,258 | |
$12,528 | $3,779 | $3,635 |
$2,768 | ||
0.66% | 0.24% | |
0.16% | ||
$9,760 | $10,171 | $10,623 |
4Q19 | 3Q20 | 4Q20 | |
Personal Banking | Business Banking | Deposit Cost | |
Key Business Metrics
Increase / (Decrease) | ||||||
4Q20 | 3Q20 | 4Q19 | ||||
Loan originations - Mortgage & Consumer | $ | 623 | $ | (26) | $ | 62 |
Loan originations - Business Banking | $ | 76 | $ | (44) | $ | (45) |
Coupon on fundings | 3.15% | (0.05%) | (0.97%) | |||
Transaction deposits / total deposits | 43.57% | 0.58% | 6.92% | |||
Digitally active households / total households | 51.20% | (0.08%) | 2.13% | |||
Self-service transactions / total transactions | 75.57% | (0.67%) | 4.62% | |||
Assets under Administration | $ | 3,900 | $ | 202 | $ | 188 |
PPNR: 14.6% YOY
Favorable / (Unfavorable) | ||||||
4Q20 | 3Q20 | 4Q19 | ||||
Net interest income | $ | 110.4 | $ | 2.2 | $ | 8.3 |
Non-interest income | 26.3 | (2.7) | (1.8) | |||
Operating revenue | $ | 136.7 | $ | (0.5) | $ | 6.5 |
Operating expenses | 99.0 | - | (1.7) | |||
Pre-provision net revenue | $ | 37.7 | $ | (0.5) | $ | 4.8 |
Note: Beginning in 1Q20, segment net interest income was updated to reflect changes in | |
the funds transfer pricing methodology related to allocated capital. Prior periods were | 6 |
restated to reflect the change. |
COVID-19 Commercial Payment Deferrals by Sector
Loans with Payment Deferrals in our Most Impacted Sectors Declined 31%
($ in millions) | As of 9/30/2020 | As of 12/31/2020 | |||||||||||||||||||
Payment | % of | Payment | % of | ||||||||||||||||||
Portfolio | Deferrals | Portfolio | Portfolio | Deferrals | Portfolio | ||||||||||||||||
Most Impacted Sectors: | |||||||||||||||||||||
Restaurants | $ | 176 | $ | 28 | 15.7% | $ | 150 | $ | 11 | 7.4% | |||||||||||
Hotel / Motel | 127 | 28 | 21.8% | 123 | 45 | 36.7% | |||||||||||||||
Travel & Leisure | 349 | 90 | 25.9% | 337 | 63 | 18.6% | |||||||||||||||
Oil and Gas | 108 | - | 0.0% | 77 | - | 0.2% | |||||||||||||||
Retail | 902 | 47 | 5.2% | 835 | 19 | 2.3% | |||||||||||||||
Transportation | 357 | 15 | 4.1% | 331 | 5 | 1.6% | |||||||||||||||
Construction | 380 | 2 | 0.6% | 331 | 2 | 0.5% | |||||||||||||||
Sub-Total - Most Impacted | $ | 2,400 | $ | 209 | 8.7% | $ | 2,183 | $ | 145 | 6.6% | |||||||||||
All Other Sectors | $ | 11,195 | $ | 178 | 1.6% | $ | 11,478 | $ | 146 | 1.3% | |||||||||||
Total Commercial Portfolio | $ | 13,595 | $ | 387 | 2.8% | $ | 13,661 | $ | 291 | 2.1% | |||||||||||
Total commercial deferrals down $96 million or 25% from September 30, and now represent 2.1% of the portfolio
- Deferrals in other commercial sectors dropped from 1.6% at September 30 to 1.3%
Note: Balances above exclude deferred fees and premiums/discounts.
7
Payment Deferrals by Loan Segment
Deferrals Have Declined 35% to $315 million (1.6% of the Portfolio)
($ in millions) | As of 9/30/2020 | As of 12/31/2020 | |||||||||||||||||||||
Payment | % of | Payment | % of | ||||||||||||||||||||
Line of Business | Portfolio | Deferrals | Portfolio | Portfolio | Deferrals | Portfolio | |||||||||||||||||
Sponsor & Specialty ¹ | $ | 2,115 | $ | 49 | 2.3% | $ | 2,267 | $ | 38 | 1.7% | |||||||||||||
Middle Market ¹ | 2,734 | 118 | 4.3% | 2,745 | 90 | 3.3% | |||||||||||||||||
Asset Based Lending ¹ | 886 | 12 | 1.3% | 881 | - | 0.0% | |||||||||||||||||
Leveraged | 1,439 | 55 | 3.8% | 1,401 | 60 | 4.3% | |||||||||||||||||
Commercial Real Estate | 3,938 | 78 | 2.0% | 3,871 | 55 | 1.4% | |||||||||||||||||
Private Banking | 201 | 1 | 0.6% | 208 | - | 0.0% | |||||||||||||||||
Equipment Finance | 598 | 17 | 2.8% | 602 | 28 | 4.6% | |||||||||||||||||
1,683 | 57 | 3.4% | 1,685 | 20 | 1.2% | ||||||||||||||||||
Business Banking | |||||||||||||||||||||||
Total - Commercial | $ | 13,595 | $ | 387 | 2.8% | $ | 13,661 | $ | 291 | 2.1% | |||||||||||||
Residential | $ | 4,853 | $ | 83 | 1.7% | $ | 4,749 | $ | 21 | 0.4% | |||||||||||||
Home Equity | $ | 1,852 | $ | 12 | 0.6% | $ | 1,787 | $ | 3 | 0.2% | |||||||||||||
Total Consumer | $ | 6,705 | $ | 94 | 1.4% | $ | 6,536 | $ | 24 | 0.4% | |||||||||||||
Total Bank ² | $ | 20,300 | $ | 482 | 2.4% | $ | 20,197 | $ | 315 | 1.6% | |||||||||||||
¹ Leveraged loans broken out separately |
² Excludes PPP and Personal Lending loans, premiums/discounts, and deferred fees
CARES Act / Interagency Statement deferrals are included in the above amounts and declined 29% from September 30 ($201 million at December 31 and $283 million at September 30)
8
Average Balance Sheet
($ in millions)
Summary Average Balance Sheet
Increase / (Decrease) | |||||||||||
4Q20 | 3Q20 | 4Q19 | |||||||||
Securities | $ | 8,923 | $ | 160 | $ | 599 | |||||
Commercial loans | 14,901 | 34 | 2,266 | ||||||||
Consumer loans | 6,828 | (176) | (346) | ||||||||
Total loans | $ | 21,729 | $ | (142) | $ | 1,920 | |||||
Transactional Deposits | $ | 9,684 | $ | 95 | $ | 2,595 | |||||
HSA Deposits | 7,013 | 59 | 693 | ||||||||
All Other Deposits | 10,519 | 122 | 568 | ||||||||
Total Deposits | $ | 27,216 | $ | 276 | $ | 3,855 | |||||
Borrowings | $ | 1,955 | $ | (289) | $ | (1,418) | |||||
Common equity | $ | 3,094 | $ | 34 | $ | 42 | |||||
(At end of period) | |||||||||||
Key Ratios: | Favorable / (Unfavorable) | ||||||||||
Loans / total deposits | 79.2% | 200 bps | 670 bps | ||||||||
Transactional & HSAs / total deposits | 61.9% | 60 bps | 380 bps | ||||||||
Common Equity Tier 1 * | 11.35% | 12 bps | (21 bps) | ||||||||
Tangible common equity ** | 7.90% | 15 bps | (49 bps) | ||||||||
Tangible book value/common share** | $ | 28.04 | $ | 0.18 | $ | 0.84 |
*Represents the estimated common equity tier 1 ("CET1") ratio for the current period inclusive of CECL regulatory capital transition provisions.
**See non-GAAP reconciliation on pages 40 through 42. | 9 |
4Q20 Highlights
Average securities increased 1.8% LQ and 7.2% YOY
Average loans decreased 0.6% LQ and increased 9.7% YOY;
- average loans totaled $1.328 million in Q4, for an adjusted loan decrease of 0.6% LQ and growth of 3.0% YOY
Average deposits increased 1.0% LQ and 16.5% YOY
-
Transactional deposits increased 1.0% LQ and 36.6%
YOY - HSA deposits increased $693 million or 11.0% YOY
Loan-to-deposit ratio improved to 79.2%
Strong liquidity resulted in a $289 million LQ reduction in borrowings and a borrowings-to-assets ratio of 5.2%
Capital ratios remain strong with CET1 in excess of well capitalized
- Tangible common equity of $2.5 billion; Tier 1 risk-based capital of $2.7 billion
Tangible book value per common share increased 3.1% YOY
WBS 4Q20 Net Income | GAAP to Adjusted
($ in millions)
4Q20 Reconciliation
After | ||||||||
Pre-Tax | Tax | EPS | ||||||
Reported (GAAP) | $ | 75.2 | $ | 60.0 | $ | 0.64 | ||
Severance | 17.9 | 13.2 | 0.15 | |||||
Facilities Optimization | 14.5 | 10.7 | 0.12 | |||||
Project Costs | 5.5 | 4.0 | 0.04 | |||||
Debt Prepayment Costs | 4.1 | 3.3 | 0.04 | |||||
Adjusted (non-GAAP) | $ | 117.2 | $ | 91.2 | $ | 0.99 | ||
Strategic initiative adjustments:
- $42.0 million of pre-tax income
- $31.2 million of after tax income
- EPS of $0.35 per share
10
Income Statement | Reported to Adjusted
($ in millions, except EPS)
Reported to Adjusted Income Statement
Reported | Adjusted | Favorable / (Unfavorable) | |||||||||||||||||
4Q20 | Adj's | 4Q20 | 3Q20* | 4Q19 | |||||||||||||||
Net interest income | $ | 216.9 | $ | 3.7 | $ | 220.6 | $ | 1.3 | $ | (10.7) | |||||||||
Non-interest income | 76.8 | - | 76.8 | 1.7 | 5.9 | ||||||||||||||
Total revenue | $ | 293.7 | $ | 3.7 | $ | 297.4 | $ | 3.0 | $ | (4.8) | |||||||||
Non-interest expense | 219.5 | (38.3) | 181.2 | (2.0) | (1.5) | ||||||||||||||
Pre-provision net revenue | $ | 74.2 | $ | 42.0 | $ | 116.2 | $ | 1.0 | $ | (6.2) | |||||||||
Provision for credit losses | (1.0) | - | (1.0) | 23.8 | 7.0 | ||||||||||||||
Pre-tax income | $ | 75.2 | $ | 42.0 | $ | 117.2 | $ | 24.8 | $ | 0.8 | |||||||||
Income tax expense | 15.1 | 10.8 | $ | 25.9 | $ | (6.4) | $ | 0.1 | |||||||||||
Reported net income | $ | 60.0 | $ | 31.2 | $ | 91.2 | $ | 18.3 | $ | 0.7 | |||||||||
Income available to common | $ | 57.7 | $ | 31.0 | $ | 88.7 | $ | 21.8 | $ | 0.6 | |||||||||
Diluted earnings per share | $ | 0.64 | $ | 0.35 | $ | 0.99 | $ | 0.24 | $ | 0.03 | |||||||||
Net interest margin | 2.83% | 0.05% | 2.88% | (0 bps) | (39 bps) | ||||||||||||||
Efficiency ratio** | 60.27% | - | 60.27% | (28 bps) | (175 bps) | ||||||||||||||
Tax rate | 20.1% | 2.0% | 22.1% | (100 bps) | 20 bps |
Key Observations
$88.7 million adjusted income available to common shareholders, $0.99 diluted earnings per share
Linked quarter:
Net interest income up 0.6% as a result of lower funding rates
Non-interest income up 2.2% driven by higher direct investment income and loan related fees partially offset by lower HSA fee income and mortgage banking activities
Non-interest expense up 1.1%
Provision for credit losses of $(1.0) million, down from $23.8 million in Q3, results in a coverage ratio of 1.76% excluding PPP loans
Year-over-year:
Net interest income down 4.6% as a result of lower market rates partially offset by growth in earning assets
Non-interest income up 8.3% driven by higher direct investment income, mortgage banking activities, and HSA fee income partially offset by lower deposit service fees
Non-interest expense up 0.9%
* 3Q20 results adjusted for a one-time expense of $4.8 million. | |
** See non-GAAP reconciliation on pages 40 through 42. | 11 |
Quarterly Provision
($ in millions)
Allowance for Loan Losses
3Q Provision $23 | 4Q Provision $(1) | |||||||||
$359 | $(11) | $0 | $23 | $370 | $(9) | $0 | $(1) | $359 | ||
1.80%
Coverage %1 1.75%11..75%80%1.76% 1.60%
1.33%
6/30/2020 3Q Net | Flat Loan | 3Q Macro/ | 9/30/2020 | 4Q Net | Flat Loan | 4Q Macro/ 12/31/2020 | |||||
Charge-offs | Balances | Credit | Charge-offs | Balances | Credit | ||||||
3Q Assumptions | 4Q Assumptions | 4Q vs 3Q | |||||||||
2020 | 2021 | 2022 | 2020 | 2021 | 2022 | 2020 | 2021 | 2022 | |||
Avg Unemployment | 9.0% | 8.8% | 6.6% | 8.2% | 7.4% | 6.2% | -0.8% | -1.4% | -0.4% | ||
EOP Unemployment | 9.5% | 8.1% | 5.7% | 7.2% | 7.2% | 5.6% | -2.3% | -0.9% | -0.1% | ||
Real GDP Growth% | -4.9% | 2.6% | 5.2% | -3.6% | 4.1% | 4.7% | 1.3% | 1.5% | -0.5% | ||
1 CECL coverage ratio at 12/31/2020 and 9/30/2020 excludes $1.3 and $1.4 billion of PPP loans, respectively.
12
Key Asset Quality Metrics
($ in millions)
Nonperforming Loans, OREO, NPL Ratio | Net Charge-Offs |
$167 | $170 | |
$157 | ||
$163 | $168 | |
$151 | ||
0.75% | 0.78% | |
0.74% | ||
4Q19 | 3Q20 | 4Q20 |
Nonperforming Loans | OREO/Repossessed | NPL Ratio | |
Commercial Classified Loans 1
$451 | $481 | |
$334 | 3.32% | 3.52% |
2.60% | ||
4Q19 | 3Q20 | 4Q20 |
Commercial Classified Loans | % of Total Commercial Loans | |
1 Commercial classified loans as a % of total commercial loans at 12/31/2020 and
9/30/2020 excludes $1.3 and $1.4 billion of PPP loans, respectively. | 13 |
$11.5 | ||
$9.4 | ||
$1.1 | ||
$6.1 | ||
$1.3 | 0.21% | |
0.17% | ||
0.12% | ||
$4.8 | $11.5 | $8.3 |
4Q19 | 3Q20 | 4Q20 |
Commercial | Consumer | Net Charge-off Ratio | |
Allowance for Credit Losses on Loans and Leases
$370 | $359 | |
$209 | 1.80% | 1.76% |
1.69% | 1.66% | |
1.04% | ||
4Q19 | 3Q20 | 4Q20 |
Allowance for Credit Losses on Loans & Leases
Allowance for Credit Losses on Loans & Leases Coverage Allowance Coverage excluding PPP Loans
Key Liquidity Metrics
($ in millions)
Diverse Deposit Gathering Capabilities | Additional Secured Borrowing Capacity |
$26,921 | $27,335 | |
$23,325 | ||
$9,642 | $9,374 | |
$6,961 | ||
$9,948 | $10,303 | $10,841 |
$6,416 | $6,976 | $7,120 |
4Q19 | 3Q20 | 4Q20 |
HSA Deposits | Retail Deposits | |
Commercial Deposits | Total Loans | |
$11,734 | $12,062 | |||||||
$9,045 | $4,538 | $4,789 | ||||||
$5,175 | ||||||||
$2,690 | $2,583 | |||||||
$932 | ||||||||
$2,938 | $4,506 | $4,690 | ||||||
4Q19 | 3Q20 | 4Q20 | ||||||
FHLB | Federal Reserve | Unencumbered Securities |
Wide array of sources provide a strong base for loan growth
- Total deposit growth of $414 million in 4Q20, resulting in a 79.2% loan to deposit ratio
- Secured borrowing capacity remains robust
- Federal Reserve PPP Liquidity Facility remains fully available
Note: Borrowing capacity includes PPP loans that could be pledged to the PPP Liquidity Facility.
14
Capital Levels
At Dec 31, | At Sept 30, | At Dec 31, | Well | |||
2020* | 2020 | 2019 | Capitalized | |||
Common Equity Tier 1 Risk-Based Capital | 11.35% | 11.23% | 11.56% | 6.5% | ||
Tangible Common Equity | 7.90% | 7.75% | 8.39% | N/A | ||
Tangible Equity | 8.35% | 8.19% | 8.88% | N/A | ||
Tier 1 Leverage | 8.32% | 8.24% | 8.96% | 5.0% | ||
Tier 1 Risk-Based Capital | 11.99% | 11.88% | 12.22% | 8.0% | ||
Total Risk-Based Capital | 13.59% | 13.47% | 13.55% | 10.0% | ||
Excess Over | ||||||
At Dec 31, 2020* | Well | |||||
($ in millions) | Capital* | Capitalized* | ||||
Common Equity Tier 1 Risk-Based Capital | $ | 2,543 | $ | 1,086 | ||
Tier 1 Leverage | $ | 2,688 | $ | 1,073 | ||
Tier 1 Risk-Based Capital | $ | 2,688 | $ | 895 | ||
Total Risk-Based Capital | $ | 3,046 | $ | 804 | ||
*Preliminary and represents the estimated ratios for the current period inclusive of CECL regulatory capital transition provisions.
15
Strategic Focus for Future Growth
Working Together to Achieve our Mission
To help individuals, families and businesses achieve their financial goals
Expand Commercial | Aggressively Grow | Strengthen Community |
Banking | HSA Bank | Banking |
Specialized C&I business to | Enhance distribution | Focus on core markets and |
complement Sponsor and | channels and maximize | enhance digital channels |
Commercial Real Estate | customer value | |
Supported by an Efficient and Scalable Operating Model
More customer-oriented ● Deeper expertise ● Collaborative culture
Simpler & more efficient ● Faster, more agile ● Strong risk management
Diverse, equitable and inclusive workplace ● Responsible corporate citizen
Positioned as a Leading Regional Bank in the Northeast
Delivering top-quartile performance in customer satisfaction, employee engagement
and shareholder value
Note: Estimates and other statements regarding future expense savings are forward-looking information. See page 43 for more information.
16
Significant Progress on our Initiatives
We have made significant progress on our targets and remain committed to our stated objectives
Banking Center
Consolidation /
Other Real Estate
- In December, we announced the consolidation of 27 banking centers that will drive $15 million in annual run rate savings beginning in 3Q21
Simplify the
Organization
- Organizational actions are underway and will begin delivering benefits in 2Q21
Process Optimization
- Ancillary Spend Reduction
- Increased discipline around third party spend, redesigning processes
- Savings delivered throughout 2021
Growth drivers expected to deliver incremental revenue lift
Efficiency opportunities with anticipated run rate expense reduction of 8 - 10% of core non-interest expense
Note: Estimates and other statements regarding future expense savings are forward-looking information. See page 43 for more information.
17
2021 Strategic Expense Initiatives
($ in millions)
4Q21 Expense Walk
$178 ~$4 ~$(18)
~$164
3Q20 Efficiency | Investments in | Project Savings | 4Q21 |
Ratio Cost Base* | Business | Forecast |
Components of $18 Million 4Q21 Run
Rate Savings
Banking Center / | ~25% |
Other Real Estate | |
Organizational | ~40% |
Actions | |
Process Optimization & | ~35% |
Ancillary Spend | |
100% |
Targeting 8 - 10% net reduction by 4Q21 through rationalizing our banking center network, consolidating corporate facilities, organizational actions, process optimization, and ancillary spend reduction
We continue to make strategic investments in the business to drive incremental revenue and digital capabilities
In total, the components of our strategic expense initiatives translate to ~$56 million in annualized run rate benefit
Note: Estimates and other statements regarding future expense savings are forward-looking information. See page 43 for more information.
*See non-GAAP reconciliation on page 40. | 18 |
Support in Response to COVID-19
Employees
Provided a digital solution for performing daily health self- assessments for bankers working at a Webster location
Thoughtful and cautious reentry to workplace; in compliance with state guidelines, occupancy in buildings is less than 25%
75% of our bankers are currently working remotely
Extra cleaning and safety protocols put in place at our sites and banking centers
0% hardship loan program for employees aided 400+ bankers with $1.9MM in loans
No furloughs throughout 2020
Launched expanded recognition program
Learning and development teams swiftly converted professional development workshops to virtual formats
Consumers
24/7 Customer Care Center; mobile app and online banking
Enhanced lobby access Customer relief program:
- Assisted 2,600 consumers with mortgage payment deferrals
- Moratorium on holding residential foreclosure sales and vesting until March 1, 2021, unless property is vacant
- Increased deposit limits; waived penalties for early CD withdrawals upon request; waived / reduced certain fees upon request;
- Provided provisional credits to EIP recipients to offset negative account balances
Frontline Heroes program for essential healthcare workers / first responders
Proactively contacted consumer customers
Financial relief measures offered to HSA account holders
Businesses
Funded 11,000+ Paycheck Protection Program applications for nearly $1.5B in loans
This funding for business clients helped to save more than 110,000 jobs in the communities we serve
Participated in Main Street Lending Program
Proactively contacted commercial clients
- Payment modifications (needs based / COVID related impact)
Participating in the next round of Paycheck Protection Program launched January 19, 2021
HSA Bank provided 36,000 employer groups with COVID-19 related guidance online and through webinars
Communities
Contributed nearly $2 million to nonprofit and community organizations in our footprint
Multiple cycles of targeted donations for urgent basic needs, human services, and disaster relief:
- Feeding America
- American Red Cross
- United Way COVID Relief
- Mental Health America, and Protect The Heroes
Ongoing funding to support virtual learning and volunteerism
Partnerships and funding focused on equity and economic inclusion:
- YWCA of SE Wisconsin - Racial Equity Initiatives
-
Women's Business
Development Council - Equity Match Program - Equal Justice Initiative
- RE-CENTERRace & Equity in Education
Consistent with our long history of supporting our customers, communities and employees in times of need, Webster is
committed to providing financial flexibility to all that we serve
19
Supplemental Information
Pages 21 to 26 - Income Statement
Page 27 - Net Interest Margin - Linked Quarter
Page 28 - Interest Rate Risk 12 Month PPNR Sensitivity Trend Page 29 - Earning Asset and Funding Mix
Pages 30 to 31 - Investment Portfolio
Page 32 - Loan Originations and Mix
Pages 33 to 38 - Loan Segments Information
Page 39 - Deposit Mix and Rate
Page 40 to 42 - Non-GAAP
20
Full Year 2020 Highlights
($ in millions, unless noted)
Consolidated PPNR (20.4)%
$1,240.4
$1,176.7
$524.5
PPNR$417.7
PPNR
$716.0$759.0
2019 | 2020 | |
Operating Revenue | Operating Expense | |
Net Interest Margin: | 3.55% | 3.00% |
Earnings Per Share: | $4.06 | $2.35 |
Note: See non-GAAP reconciliation on page 42.
Year Over Year
EPS of $2.35, -42.1% from prior year; EPS of $2.69 after adjusting for $38.8 million after tax strategic initiative costs Return on equity of 6.9%
Tangible book value per common share up 3.1% Full year efficiency ratio of 59.6%
Consolidated PPNR of $417.7 million decreased $106. million
- Revenue of $1.2 billion down 5.1%
- Expenses of $758.9 million up 6.0%
Loan growth of $1.6 billion and lower borrowings of $1.8 billion funded by deposit growth of $4.0 billion
21
Segment Results - Full Year
($ in millions, unless noted)
Commercial Banking
PPNR +17.7% YOY
$431.9 | $482.2 | ||
$294.7 | |||
$250.3 | PPNR | ||
PPNR | |||
$181.6 | $187.5 | ||
2019 | 2020 | ||
Operating Revenue | Operating Expense | ||
As of 4Q20 | YOY | ||
Loans ($B) | $12.6 | 10.0% | |
Deposits ($B) | $6.0 | 35.9% | |
Originations (12 mos.) | $4,294 | 6.1% |
HSA Bank
PTNR (4.7)% YOY
$264.3 | $263.2 | |||
$128.7 | $122.6 | |||
PTNR | PTNR | |||
$135.6 | $140.6 | |||
2019 | 2020 | |||
Operating Revenue | Operating Expense | |||
As of 4Q20 | YOY | |||
Total footings ($B) | $10.0 | 17.5% | ||
Deposits ($B) | $7,120 | 11.0% | ||
Accounts ('000) | 2,953 | -0.7% |
Community Banking
PPNR +14.0% YOY*
$510.0 | $529.3 | $138.7 | |
$121.6 | PPNR | ||
$388.4 | PPNR | $390.6 | |
2019 | 2020 |
Operating Revenue | Operating Expense |
As of 4Q20 | YOY | |
Loans ($B) | $9.0 | 5.3% |
Deposits ($B) | $14.3 | 13.8% |
Banking centers | 155 | -2 |
Expand | Aggressively Grow | Strengthen |
Commercial Banking | HSA Bank | Community Banking |
*GAAP figures. PPNR for full year 2019 is $123.4 million or +12.4% YOY after adjusting for a $1.7 million business | ||
optimization expense . | ||
PTNR - Pre-Tax Net Revenue | 22 |
Income Statement
($ in millions, except EPS)
Summary Income Statement
Favorable / (Unfavorable) | |||||||||||
4Q20 | 3Q20 | 4Q19 | |||||||||
Net interest income | $ | 216.9 | $ | (2.4) | $ | (14.4) | |||||
Non-interest income | 76.8 | 1.7 | 5.9 | ||||||||
Total revenue | $ | 293.7 | $ | (0.7) | $ | (8.5) | |||||
Non-interest expense | 219.5 | (35.5) | (39.8) | ||||||||
Pre-provision net revenue | $ | 74.2 | $ | (36.2) | $ | (48.2) | |||||
Provision for credit losses | (1.0) | 23.8 | 7.0 | ||||||||
Pre-tax income | $ | 75.2 | $ | (12.4) | $ | (41.2) | |||||
Income available to common | $ | 57.7 | $ | (9.2) | $ | (30.4) | |||||
Diluted earnings per share | $ | 0.64 | $ | (0.11) | $ | (0.32) | |||||
Net interest margin | 2.83% | (5 bps) | (44 bps) | ||||||||
Efficiency ratio* | 60.27% | (28 bps) | (175 bps) | ||||||||
Tax rate | 20.1% | 80 bps | 220 bps |
4Q20 Highlights
$57.7 million income available to common shareholders, $0.64 diluted earnings per share
Net interest income down 6.2% YOY reflecting lower market rates, partially offset by growth in earning assets and lower funding costs
Non-interest income up 8.3% YOY driven by higher direct investment income, mortgage banking activities, and HSA fee income, partially offset by lower deposit service fees
Non-interest expense up 22.1% YOY reflecting expenses associated with strategic initiatives
Provision for credit losses of $(1.0) million, down from $23.8 million in Q3, results in a coverage ratio of 1.76% excluding PPP loans
*See non-GAAP reconciliation on pages 40 through 42.
23
Net Interest Income
($ in millions)
(6.2)% YOY
$231.3 | $219.3 | $216.9 |
3.98% | ||
3.13% | 3.08% | |
0.75% | ||
0.27% | 0.26% | |
4Q19 | 3Q20 | 4Q20 |
Net Interest Income
Interest-Earning Assets Yield
Interest-Bearing Liabilities Cost
NIM:
3.27% | 2.88% | 2.83% |
Key Observations
NII: -$2.4 million (non-FTE) LQ
- -$5.3million due to increased prepayments and premium amortization
- -$3.7million due to borrowings and unwind costs of derivatives and balance decline
- +$4.0 million due to deposit balance growth and cost
- +$1.4 million due to securities balance changes
- +$1.2 million due to loan yield and balance changes
NIM: -5 bps LQ
- -5bps due to unwinding of term borrowings and related derivatives
- -5bps due to loan and securities yields and balances
- +5 bps due to deposit and borrowing cost and balances
NII: -$14.4 million (non-FTE) YOY
- -$45.8million due to loan and securities balances and yields (1 month LIBOR down 164 bps)
- +$22.9 million due to deposit balance growth and cost
- +$4.5 million due to borrowings balance decline and cost
- +$4.0 million due to other liabilities
NIM: -44 bps YOY
- -103bps due to loan and securities yields and balances
- +59 bps due to deposit and borrowing cost and balances
24
Non-Interest Income
($ in thousands)
Diverse Sources
Favorable / (Unfavorable) | ||||||||
4Q20 | 3Q20 | 4Q19 | ||||||
Deposit service fees | $ | 15,902 | $ | 291 | $ | (2,968) | ||
HSA fee income | 24,104 | (3,131) | 1,145 | |||||
Wealth & investment services | 8,820 | 565 | 344 | |||||
Loan related fees | 9,095 | 2,527 | 391 | |||||
Mortgage banking activities | 4,110 | (2,977) | 1,824 | |||||
Other | 14,732 | 4,428 | 5,108 | |||||
Total | $ | 76,763 | $ | 1,703 | $ | 5,844 | ||
Key Observations
$1.7 million increase LQ
- Increase in other of $4.4 million due to higher direct investment income, swap fees, and miscellaneous fee income
- Increase in loan related fees of $2.5 million due to higher syndication, prepayment, and line usage fees
- Decrease in HSA fee income of $3.1 million as the prior quarter included $2.0 of TPA account fees
- Decrease in mortgage banking activities of $3.0 million due to lower volume and spreads on loans originated for sale
$5.9 million increase YOY
- Increase in other of $5.1 million due to direct investment income, mark to market on customer derivatives, and miscellaneous fee income
- Decrease in deposit service fees of $3.0 million driven by lower overdraft and service-related fees
- Increase in mortgage banking activities of $1.8 million primarily due to higher origination volume and spreads on loans originated for sale
- Increase in HSA fee income of $1.1 million driven primarily by higher account service fees
25
Non-Interest Expense
($ in thousands)
Maintaining Expense Discipline
Favorable / (Unfavorable) | |||||||
4Q20 | 3Q20 | 4Q19 | |||||
Compensation and benefits | $122,754 | $ | (18,735) | $ | (22,287) | ||
Technology and equipment | 29,122 | (1,276) | (1,483) | ||||
Occupancy | 28,024 | (13,749) | (13,645) | ||||
Deposit insurance | 4,372 | (168) | 290 | ||||
Marketing | 3,485 | 367 | 472 | ||||
Other | 31,773 | (1,973) | (3,147) | ||||
Total | $219,530 | $ | (35,534) | $ | (39,800) | ||
Key Observations
$35.5 million increase LQ
- Results include $38.3 million of charges related to strategic initiatives
- Increase in compensation & benefits of $18.7 million primarily due to severance costs
- Increase in occupancy of $13.7 million primarily due to facilities optimization
- Increase in other of $2.0 million primarily due to project costs related to strategic initiatives taken in the quarter
- Increase in technology & equipment of $1.3 million primarily due to infrastructure investments
$39.8 million increase YOY
- Results include $38.3 million of charges related to strategic initiatives
- Increase in compensation and benefits of $21.6 million primarily due to severance costs
- Increase in occupancy of $13.7 million primarily due to facilities optimization
- Increase in other of $3.1 million reflects the net impact of a $5.5 million increase in professional fees and $0.9 million in business optimization expenses related to our strategic initiatives, offset by lower pension, travel, and OREO costs
- Increase in technology and equipment of $1.5 million primarily due to infrastructure investments
26
Net Interest Margin - Linked Quarter
($ in millions)
4Q20 | Increase/(Decrease) | ||||||||||
Avg Bal. | Int. | Yield/rate | Avg Bal. | Int. | Bps | ||||||
Securities | $ | 8,923 | $ | 48.1 | 2.22% | $ | 160 | $ | (4.1) | (25) | |
Money Market & Other | 188 | 0.5 | 1.08 | (5) | (0.1) | (21) | |||||
Loans HFS | 26 | 0.2 | 2.80 | (5) | (0.0) | (14) | |||||
Commercial Loans | 14,901 | 132.0 | 3.47 | 34 | 4.4 | 11 | |||||
Consumer Loans | 6,828 | 57.8 | 3.38 | (176) | (3.5) | (12) | |||||
Total Loans & Leases | 21,729 | 189.8 | 3.44% | (142) | 0.9 | 4 | |||||
Interest-Earning Assets | $ | 30,866 | $ | 238.6 | 3.08% | $ | 8 | $ | (3.3) | (5) | |
Deposits | $ | 27,216 | 8.6 | 0.13% | $ | 276 | $ | (4.0) | (6) | ||
Borrowings | 1,954 | 10.5 | 2.17 | (290) | 3.1 | 84 | |||||
Interest-Bearing Liabilities | $ | 29,170 | $ | 19.1 | 0.26% | $ | (14) | $ | (0.9) | (1) | |
Tax-Equivalent Net Interest Income | $ | 219.5 | $ | (2.4) | |||||||
Less: Tax-Equivalent Adjustment | (2.6) | 0.0 | |||||||||
Net Interest Income | $ | 216.9 | $ | (2.4) | |||||||
Net Interest Margin | 2.83% | (5) | |||||||||
27
Interest Rate Risk 12 Month PPNR Sensitivity Trend
Rising Rate Scenarios
2.4% | 2.4% | 3.0% | |
1.8% | |||
1.1% | |||
-0.3% | |||
4Q18 | 4Q19 | 4Q20 | |
Short End Up 50 bps | Long End Up | 50 bps |
Falling Rate Scenarios
4Q18 | 4Q19 | 4Q20 | |
-1.4% | |||
-2.9% | |||
-3.8% | -3.9% | -4.0% | |
-5.4% | |||
Short End Down 50 bps | Long End Down 50 bps |
Assumes Federal Funds at stated rate of 25 bps and 10 year swap at 95 bps Deposit rates will fall no lower than 0.0%
Key Observations
Asset sensitivity to rising short term rates has declined since 4Q18 due to an increase in floors
- Loans at floors now approximately $3.4 billion
- $1 billion of 1 month LIBOR floors purchased during 2019 have an average strike of 1.56%
- Assumes historical deposit elasticity
Short end rates up 50 bps with no change in long end rates results in a 0.3% decrease in PPNR compared to flat rates
Long end rates down 50 bps (floored at zero) with no change in short end rates results in a 4.0% decrease in PPNR compared to flat rates
Short end rates down 50 bps assumes deposit rates fall to no less than 0.0%
28
Earning Asset and Funding Mix
($ in millions)
Earning Asset Mix
Type | Balance | Total % | Floating % | Periodic % | Fixed % | |
Securities | $ | 9,041 | 29% | 6% | 2% | 92% |
Loans HFS | 13 | 0% | 100% | 0% | 0% | |
Resi / HE Loans | 5,365 | 18% | 0% | 29% | 71% | |
HE Lines | 1,369 | 4% | 95% | 0% | 5% | |
C&I Loans | 8,570 | 28% | 47% | 22% | 31% | |
CRE Loans | 6,300 | 21% | 81% | 14% | 5% | |
Total | $ | 30,658 | 100% | 36% | 15% | 49% |
Funding Mix
Type | Balance | Total | < 1 Year | > 1 Year | |
Checking | $ | 9,757 | 35% | ||
HSA | 6,619 | 23% | |||
Savings | 4,878 | 17% | |||
Money Market | 2,892 | 10% | |||
Time | 2,244 | 8% | 85% | 15% | |
Borrowings | 1,836 | 7% | 46% | 54% | |
Total | $ | 28,226 | 100% | ||
Key Observations
Floating and periodic rate loans represent 68% of total loans:
- Floating rate loans represent 48% of total loans
- Periodic rate loans represent 20% of total loans
SBA PPP loans balances equal $1.3 billion or 6% of
total loans and are all fixed rate. Excluding PPP, floating and periodic loans would have represented 73% of total loans
LIBOR indexed loans represent 55% of total loans:
- Loans indexed to 1 month LIBOR represent 39% of total loans
- LIBOR indexed loans with rate reset frequencies greater than 1 month represent 16% of total loans
CRE loans are predominantly floating rate to the bank but fixed for customers due to customer swaps
HSA deposits represent 23% of our funding mix
29
Investment Portfolio
($ in millions)
Investment Securities
$8,220 | $9,028 | $8,895 |
$2,926 | $3,304 | $3,327 |
2.86% | ||
2.47% | 2.22% | |
$5,294 | $5,724 | $5,568 |
4Q19 | 3Q20 | 4Q20 |
HTM Securities | AFS Securities | Yield |
Key Observations
Available-for-Sale portfolio includes $92.5 million of net unrealized gains at 4Q20 compared to $103.1 million at 3Q20
Held-to-Maturity portfolio excludes $267.2 million of net unrealized gains at 4Q20 compared to $283.0 million at 3Q20
Securities yields decreased 25 bps LQ primarily from premium acceleration in Agency MBS and Agency CMBS (18 bps) as a result of increased prepayments
Duration / Yield
6.9 | ||
5.2 | 6.0 | |
4.2 | 3.7 | 3.4 |
2.60% | ||
1.61% | 1.62% | |
4Q19 | 3Q20 | 4Q20 |
Portfolio Duration (years) Purchase Duration (years) Purchase Yield
Key Observations
Portfolio duration decreased by 0.8 years vs. a year ago; LQ duration decreased by 0.3 years primarily due to increased prepayment speeds on Agency MBS and Agency CMBS
Purchase yield increased by 1 bp vs. LQ while purchase duration decreased by 0.9 years due to asset mix
30
Investment Securities
($ in millions)
Dec 31, | Sept 30, | Increase/ | ||||
End of period balances | 2020 | 2020 | (Decrease) | |||
Available-for-Sale: | ||||||
Agency CMOs | $ | 154.6 | $ | 173.4 | $ | (18.8) |
Agency MBS | 1,457.4 | 1,527.3 | (69.9) | |||
Agency CMBS | 1,117.3 | 1,051.8 | 65.5 | |||
Non Agency CMBS-floating | 508.0 | 455.0 | 53.0 | |||
Corporate Debt Securities | 13.1 | 12.4 | 0.7 | |||
Collateralized Loan Obligations | 76.4 | 84.4 | (8.0) | |||
Total Available-for-Sale | $ | 3,326.8 | $ | 3,304.3 | $ | 22.5 |
Held-to-Maturity: | ||||||
Agency CMOs | $ | 91.6 | $ | 116.0 | $ | (24.4) |
Agency MBS | 2,419.8 | 2,595.7 | (175.9) | |||
Agency CMBS | 2,101.2 | 2,033.8 | 67.4 | |||
Non Agency CMBS-fixed | 216.1 | 227.0 | (10.9) | |||
Municipal Bonds and Notes | 739.5 | 750.9 | (11.4) | |||
Total Held-to-Maturity | $ | 5,568.2 | $ | 5,723.4 | $ | (155.2) |
31
Loan Originations and Mix
($ in millions)
Originations by Loan Portfolio
End of period balances | 4Q20 | 3Q20 | 4Q19 | ||||||||||||||||||||
Balance | Originations | Balance | Originations | Balance | Originations | ||||||||||||||||||
Full quarter originations | |||||||||||||||||||||||
Commercial Non-Mortgage | $ | 6,412 | $ | 777 | $ | 6,381 | $ | 600 | $ | 5,355 | $ | 559 | |||||||||||
Asset-Based Lending | 891 | 157 | 890 | 88 | 1,047 | 150 | |||||||||||||||||
Total Commercial | $ | 7,303 | $ | 934 | $ | 7,271 | $ | 688 | $ | 6,402 | $ | 709 | |||||||||||
Commercial Real Estate | 5,026 | 257 | 5,026 | 233 | 4,754 | 602 | |||||||||||||||||
Business Banking | 2,571 | 76 | 2,623 | 120 | 1,674 | 121 | |||||||||||||||||
Residential Mortgages | 4,782 | 394 | 4,886 | 414 | 4,973 | 332 | |||||||||||||||||
Consumer | 1,959 | 143 | 2,046 | 105 | 2,234 | 155 | |||||||||||||||||
Portfolio Total | $ | 21,641 | $ | 1,804 | $ | 21,852 | $ | 1,560 | $ | 20,037 | $ | 1,919 | |||||||||||
Residential Mortgages originated for sale | $ | 125 | $ | 149 | $ | 94 | |||||||||||||||||
Total Originations | $ | 1,929 | $ | 1,709 | $ | 2,013 | |||||||||||||||||
Loan Mix and Yield
End of period balances | 4Q20 | 3Q20 | 4Q19 | ||||||||||||||
Balance | Yield | Balance | Yield | Balance | Yield | ||||||||||||
Full quarter yields | |||||||||||||||||
Commercial | $ | 8,578 | 3.87% | $ | 8,612 | 3.66% | $ | 6,881 | 5.13% | ||||||||
CRE | 6,322 | 2.94% | 6,308 | 2.95% | 5,949 | 4.16% | |||||||||||
Residential | 4,782 | 3.22% | 4,886 | 3.36% | 4,973 | 3.65% | |||||||||||
Consumer | 1,959 | 3.77% | 2,046 | 3.83% | 2,234 | 4.92% | |||||||||||
Total | $ | 21,641 | 3.44% | $ | 21,852 | 3.40% | $ | 20,037 | 4.46% | ||||||||
Note: 4Q20 originations data includes $106 thousand of PPP loans, all in business | |
banking. 3Q20 originations data includes $34.8 million of PPP loans, with $3.4 million | |
in commercial non-mortgage and $31.4 million in business banking. | 32 |
Commercial Real Estate
($ in millions)
CRE Outstandings
Outstandings by Collateral Type
Key Observations
Majority of balances in CRE line of business:
- Dedicated expertise, consistent leadership team and focused strategy
Business Banking consists of Owner Occupied and Investment CRE
- Average hold size: < $0.5 million
Largest segments within Other Commercial Business Units include
- Healthcare & Senior Living facilities (~$430 million)
- Data centers (~$230 million)
- Owner Occupied (~$180 million)
Balances are well-diversified and strategically weighted on resilient property types with industry tailwinds
- Industrial / Warehouse
- Multi Family / Residential
- Data centers & Healthcare facilities
Unfunded commitments were $606 million vs. $705 million in 3Q20
33
Commercial & Industrial
($ in millions)
Outstandings by Segment1
Outstandings by Industry: 4Q20
- Excludes $1.3 and $1.4 billion of PPP loans for 4Q20 and 3Q20, respectively; Leveraged category broken out and represents loans within Sponsor and Specialty and
Middle Market segments | 34 |
Key Observations
C&I balances cross multiple lines of business with focused strategies:
- Sponsor & Specialty and Leveraged - Industry focused
- Asset Based Lending and Equipment Finance - Collateral focused
- Middle Market and Business Banking - In footprint focus, full services customers
Diversified portfolio with concentrations in sectors where Webster has deep expertise and long term relationships
Growth in 2020 was 6% driven by Tech & Infrastructure, Healthcare, and Public Sector Finance offset by lower utilization in Asset Based Lending
Sponsor & Specialty and Leveraged Lending
($ in millions)
S&S Outstandings - Leveraged vs. Non-Leveraged1
S&S by Industry Vertical
Key Observations
Sponsor portfolio consists of 66% non-leveraged and 34% leveraged
86% of leveraged loans are in Sponsor ($1.2 billion), with the balance in Middle Market
Webster has been lending to Sponsor-backed and leveraged borrowers for 16 years
The portfolio performed well through the great recession, and generated better risk-adjusted returns
We maintain a defined strategy:
- Grow in non-cyclical end markets
- Finance business models with a high % of recurring revenue (>75%)
- Partner with Tier 1 Private Equity firms with deep expertise in target sectors
- Focus on direct and agented middle market business
- Maintain credit discipline, avoid chasing the market
- There have been no payment deferrals for the Tech & Infrastructure portfolio
1 Sponsor and Specialty Non-Leveraged includes Data Center CRE loans; S&S and Leverage excludes deferred fees and premiums/discounts
35
Residential Mortgage
($ in millions)
Portfolio by Geography
Portfolio: Origination FICO, LTV & Debt to Income
Key Observations
Portfolio has diversified outside of CT, most notably into MA
Origination metrics are high quality and have steadily improved over the last few years
- 89% of balances had a FICO score ≥ 700
- 89% of balances had an LTV < 80%
- Average DTI is 33%
Current portfolio metrics continue to be favorable
- Current weighted average FICO is 778
- Current weighted average LTV is 66%
Asset quality metrics are at cycle lows
- 46% of NPLs are from pre-2008 originated loans
- Net charge-offs ~2 bps
- Delinquency = 23 bps
36
Home Equity
($ in millions)
Portfolio by Geography
Portfolio: Origination FICO, CLTV & Weighted Average DTI
Key Observations
Portfolio concentrated in CT 46% in first lien position
Origination metrics are high quality and have remained stable over the last few years
- 88% of balances had a FICO score ≥ 700
- 82% of balances had a CLTV < 80%
- Average DTI is ~36%
Current portfolio metrics continue to be favorable
- Current weighted average FICO is 762
- Current weighted average CLTV is 67% Asset quality metrics at cycle lows
- 64% of NPLs from pre-2008 originated loans
- Delinquency = 41 bps
- Net recoveries in 2020
$2 billion of unused exposure, 96% FICO > 700
- Utilization has remained stable at ~39%
37
Personal Lending
($ in millions)
Personal Lending Balances
Lending Club Balances by FICO
Key Observations
We discontinued our LC purchases in April
Lending Club ("LC") represents 74%, $115 million of the banks unsecured balances vs. $137 million in 3Q
The portfolio overall has slowly declined over the last few years (both LC & Webster loans)
The bank ceased purchases of Tranche C loans in 2017 due to a change in risk appetite
Since discontinuing the purchases of Tranche C loans, the average FICO score in the portfolio has increased meaningfully
- ≥ 700 FICO now represents 75% vs. 58% at the end of 2016
- ≥ 740 FICO now represents 42% vs. 24% at the end of 2016
- Loss rates and delinquency have also steadily improved as a result
Hardship deferrals have declined to $2 million at 12/31/20 vs. $3 million at 09/30/20 and $19 million at the peak
38
Deposit Mix and Rate
($ in millions)
By Product
End of period balances | 4Q20 | 3Q20 | 4Q19 | ||||||||||||||
Balance | Rate | Balance | Rate | Balance | Rate | ||||||||||||
Full quarter cost | |||||||||||||||||
Demand | 6,155 | - | $ | 6,137 | - | $ | 4,446 | - | |||||||||
Health Savings Accounts | 7,120 | 0.09% | 6,976 | 0.12% | 6,416 | 0.20% | |||||||||||
Interest Bearing Checking | 3,653 | 0.05% | 3,391 | 0.07% | 2,690 | 0.16% | |||||||||||
Money Market | 2,940 | 0.17% | 3,069 | 0.27% | 2,313 | 1.16% | |||||||||||
Savings | 4,979 | 0.05% | 4,777 | 0.11% | 4,355 | 0.53% | |||||||||||
Core Deposits | $ | 24,847 | 0.06% | $ | 24,350 | 0.10% | $ | 20,220 | 0.34% | ||||||||
Time Deposits | $ | 2,488 | 0.74% | 2,571 | 1.00% | 3,105 | 1.79% | ||||||||||
Total | $ | 27,335 | 0.13% | $ | 26,921 | 0.19% | $ | 23,325 | 0.54% | ||||||||
Core/Total | 91% | 90% | 87% | ||||||||||||||
By Line of Business
Personal Banking | $ | 10,623 | 0.19% | $ | 10,171 | 0.29% | $ | 9,760 | 0.76% | ||
Commercial Banking | 2,545 | 0.07% | 2,507 | 0.10% | 1,844 | 0.22% | |||||
Treasury & Pymt Solutions | 3,053 | 0.12% | 3,246 | 0.18% | 2,297 | 0.99% | |||||
Private Banking | 358 | 0.15% | 246 | 0.23% | 241 | 0.89% | |||||
Business Banking | 3,635 | 0.07% | 3,779 | 0.10% | 2,768 | 0.32% | |||||
HSA Bank | 7,120 | 0.09% | 6,976 | 0.12% | 6,416 | 0.20% | |||||
Corporate & Reconciling | 1 | 0.00% | (4) -0.01% | (1) | 0.17% | ||||||
Total | $ | 27,335 | 0.13% | $ | 26,921 | 0.19% | $ | 23,325 | 0.54% | ||
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Non-GAAP - QTD
($ in thousands)
Efficiency Ratio | 4Q20 | 3Q20 | 4Q19 | |||||
Non-interest expense | $ | 219,530 | $ | 183,996 | $ | 179,730 | ||
Net foreclosed (expense) income | 836 | 201 | (263) | |||||
Amortization of intangibles | (1,147) | (1,089) | (962) | |||||
Strategic initivatives | (38,265) | (4,786) | - | |||||
Non-interest expense (net of above) | $ | 180,954 | $ | 178,322 | $ | 178,505 | ||
Net interest income before provision | $ | 216,929 | $ | 219,256 | $ | 231,250 | ||
FTE adjustment | 2,577 | 2,635 | 2,486 | |||||
Non-interest income | 76,763 | 75,060 | 70,919 | |||||
Loss on termination of hedges | 3,680 | - | - | |||||
Other | 291 | 297 | 402 | |||||
Less: Gain on securities | - | - | 29 | |||||
Total revenue (net of above) | $ | 300,240 | $ | 297,248 | $ | 305,028 | ||
Efficiency Ratio | 60.27% | 59.99% | 58.52% | |||||
Tangible Common Equity Ratio | ||||||||
Shareholders' equity | $ | 3,234,625 | $ | 3,219,690 | $ | 3,207,770 | ||
Less: Goodwill and other intangible assets | 560,756 | 561,902 | 560,290 | |||||
Tangible shareholders' equity | 2,673,869 | 2,657,788 | 2,647,480 | |||||
Less: Preferred stock | 145,037 | 145,037 | 145,037 | |||||
Tangible common shareholders' equity | $ | 2,528,832 | $ | 2,512,751 | $ | 2,502,443 | ||
Total assets | $ | 32,590,690 | $ | 32,994,443 | $ | 30,389,344 | ||
Less: Goodwill and other intangible assets | 560,756 | 561,902 | 560,290 | |||||
Tangible assets | $ | 32,029,934 | $ | 32,432,541 | $ | 29,829,054 | ||
Tangible Common Equity Ratio | 7.90% | 7.75% | 8.39% |
40
Non-GAAP - QTD continued
($ in thousands)
Tangible Book Value per Common Share | 4Q20 | 3Q20 | 4Q19 | |||||
Tangible common shareholders' equity | $ | 2,528,832 | $ | 2,512,751 | $ | 2,502,443 | ||
Common shares outstanding | 90,199 | 90,204 | 92,027 | |||||
Tangible Book Value per Common Share | $ | 28.04 | $ | 27.86 | $ | 27.19 | ||
Return on Average Tangible Common Shareholders' Equity | ||||||||
Average shareholders' equity | $ | 3,239,221 | $ | 3,205,329 | $ | 3,196,563 | ||
Less: Average goodwill and other intangible assets | 561,303 | 560,959 | 560,750 | |||||
Average preferred stock | 145,037 | 145,037 | 145,037 | |||||
Average tangible common shareholders' equity | $ | 2,532,881 | $ | 2,499,333 | $ | 2,490,776 | ||
Net income | $ | 60,044 | $ | 69,281 | $ | 90,473 | ||
Less: Preferred stock dividends | 1,969 | 1,969 | 1,969 | |||||
Add: Intangible assets amortization, tax-effected | 906 | 860 | 760 | |||||
Income adj. for preferred stock dividends & intangible assets amort. | 58,981 | 68,172 | 89,264 | |||||
Adjusted income, annualized basis | $ | 235,924 | $ | 272,688 | $ | 357,056 | ||
Return on Average Tangible Common Shareholders' Equity | 9.31% | 10.91% | 14.34% |
41
Non-GAAP - YTD
($ in thousands)
Efficiency Ratio | 2020 | 2019 | ||||
Non-interest Expense | $ | 758,946 | $ | 715,950 | ||
Net Foreclosed (Expense) Income | (1,504) | 173 | ||||
Amortization of Intangibles | 4,160 | (3,847) | ||||
Strategic initivatives | 43,051 | - | ||||
Other Expense | - | (1,757) | ||||
Non-interest Expense (net of above) | $ | 713,239 | $ | 710,519 | ||
Net Interest Income Before Provision | $ | 891,393 | $ | 955,127 | ||
FTE Adjustment | 10,246 | 9,695 | ||||
Non-interest Income | 285,277 | 285,315 | ||||
Less: Gain on Securities | 8 | 8 | ||||
Add: Loss on termination of hedges | 3,680 | - | ||||
Discrete fair value adjustment related to customer derivatives | 5,511 | - | ||||
Other | 1,180 | 1,448 | ||||
Total Revenue (net of above) | $ | 1,197,279 | $ | 1,251,577 | ||
Efficiency Ratio | 59.57% | 56.77% |
42
WBS 4Q20 Financial Review
Forward-looking Statements
This presentation 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, 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; (iii) 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 actual results to differ from those discussed in the forward-looking statements include the ongoing COVID-19 pandemic and governmental and other responses thereto including the deployment and effectiveness of vaccines, the Company's ability to successfully achieve the anticipated cost reductions from branch consolidations, higher than anticipated costs or delays in implementing the Company's consolidation plan, and the other factors that are described in the "Forward-Looking Statements", "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of the Company's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q and the "Forward-Looking Statements" section and other information contained in our earnings release for the fourth quarter of 2020 furnished as an exhibit to our most recent Current Report on Form 8-K. Any forward-looking statement made by the Company in this presentation 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
This presentation contains both financial measures based on accounting principles generally accepted in the United States ("GAAP") and non-GAAP based financial measures, which are used where management believes them to be helpful in understanding the Company's results of operations or financial position. Reconciliations of these non-GAAP financial measures, to the most comparable GAAP measures are included in this presentation and the Company's earnings release available in the Investor Relations portion of the Company's website at www.wbst.com. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. For additional information see reconciliation to GAAP financial measures presented in the Company's Press Release.
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Webster Financial Corporation published this content on 21 January 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 21 January 2021 14:17:04 UTC