WEBSTER FINANCIAL CORP [WBS] Filings

10-Q 1 wbs-20220930.htm 10-Q wbs-20220930

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________________________________________________________

FORM 10-Q

_________________________________________________________________________________________________________________________________________-___________________________________________________________________________________________________

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2022

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ____ to ____

Commission File Number: 001-31486

_______________________________________________________________________________________

WEBSTER FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

______________________________________________________________________________________


Delaware						06-1187536
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

200 Elm Street, Stamford, Connecticut 06902

(Address and zip code of principal executive offices)

(203) 578-2202

(Registrant's telephone number, including area code)

______________________________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbols	Name of each exchange on which registered
Common Stock, par value $0.01 per share	WBS	New York Stock Exchange
Depositary Shares, each representing 1/1000th interest in a share	WBS-PrF	New York Stock Exchange
of 5.25% Series F Non-Cumulative Perpetual Preferred Stock
Depositary Shares, each representing 1/40th interest in a share	WBS-PrG	New York Stock Exchange
of 6.50% Series G Non-Cumulative Perpetual Preferred Stock

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

At October 28, 2022, the number of shares of common stock, par value $.01 per share, outstanding was 174,009,423.

INDEX


		Page No.

Key to Acronyms and Terms		ii
Forward-Looking Statements		iii

PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements	35

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	81

Item 4.	Controls and Procedures	81

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	82

Item 1A.	Risk Factors	82

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	82

Item 3.	Defaults Upon Senior Securities	82

Item 4.	Mine Safety Disclosures	82

Item 5.	Other Information	82

Item 6.	Exhibits	83

EXHIBIT INDEX		83

SIGNATURES		84

WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

KEY TO ACRONYMS AND TERMS


ACL			Allowance for credit losses
Agency CMBS			Agency commercial mortgage-backed securities
Agency CMO			Agency collateralized mortgage obligations
Agency MBS			Agency mortgage-backed securities
ALCO			Asset/Liability Committee
(AOCL) AOCI			Accumulated other comprehensive (loss) income
ASC			Accounting Standards Codification
ASU			Accounting Standards Update
Basel III			Capital rules under a global regulatory framework developed by the Basel Committee on Banking Supervision
Bend			Bend Financial, Inc.
BHC Act			Bank Holding Company Act of 1956, as amended
CECL			Current expected credit losses
CET1 capital			Common Equity Tier 1 Capital, defined by Basel III capital rules
CFPB			Consumer Financial Protection Bureau
CLO			Collateralized loan obligations
CMBS			Non-agency commercial mortgage-backed securities
COVID-19			Coronavirus
DTA			Deferred tax asset
EAD			Exposure at default
FASB			Financial Accounting Standards Board
FDIC			Federal Deposit Insurance Corporation
FHLB			Federal Home Loan Bank
FICO			Fair Isaac Corporation
FRB			Federal Reserve Bank
FTP			Funds Transfer Pricing, a matched maturity funding concept
GAAP			U.S. Generally Accepted Accounting Principles
Holding Company			Webster Financial Corporation
HSA			Health savings account
HSA Bank			HSA Bank, a division of Webster Bank, National Association
IRA			Inflation Reduction Act
LGD			Loss given default
LIBOR			London Interbank Offered Rate
LIHTC			Low income housing tax-credit
Moody's			Moody's Investor Services
NAV			Net asset value
OCC			Office of the Comptroller of the Currency
OREO			Other real estate owned
PCD			Purchased credit-deteriorated
PD			Probability of default
PPNR			Pre-tax, pre-provision net revenue
PPP			Small Business Administration Paycheck Protection Program
ROU			Right-of-use
S&P			Standard and Poor's Rating Services
SALT			State and local tax
SEC			United States Securities and Exchange Commission
SERP			Supplemental executive defined benefit retirement plan
SOFR			Secured overnight financing rate
Sterling			Sterling Bancorp, collectively with its consolidated subsidiaries
TDR			Troubled debt restructuring, defined in ASC 310-40 "Receivables - Troubled Debt Restructurings by Creditors"
Webster Bank or the Bank			Webster Bank, National Association, a wholly-owned subsidiary of Webster Financial Corporation
Webster or the Company			Webster Financial Corporation, collectively with its consolidated subsidiaries

WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as "believes," "anticipates," "expects," "intends," "targeted," "continue," "remain," "will," "should," "may," "plans," "estimates," and similar references to future periods. However, these words are not the exclusive means of identifying such statements. Examples of forward-looking statements include, but are not limited to:

▪projections of revenues, expenses, income or loss, earnings or loss per share, allowance for credit losses (ACL), expense savings, and other financial items;

▪statements of plans, objectives, and expectations of Webster Financial Corporation (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 our actual results to differ from those discussed in any forward-looking statements include, but are not limited to:

▪our ability to successfully integrate the operations of Webster and Sterling Bancorp (Sterling) and realize the anticipated benefits of the merger, including our ability to successfully complete our core conversion in the anticipated timeframe and the consolidation of our corporate real estate;

▪our ability to successfully execute our business plan and strategic initiatives, and manage any risks or uncertainties;

▪local, regional, national, and international economic conditions, and the impact they may have on us or our customers;

▪volatility and disruption in national and international financial markets, including as a result of geopolitical conflict, such as the war between Russia and Ukraine;

▪the potential adverse effects of the ongoing novel coronavirus (COVID-19) pandemic, or other unusual and infrequently occurring events, and any governmental or societal responses thereto;

▪changes in laws and regulations, including those concerning banking, taxes, dividends, securities, insurance, and healthcare, with which we and our subsidiaries must comply;

▪adverse conditions in the securities markets that lead to impairment in the value of our investment securities and goodwill;

▪inflation, monetary fluctuations, and changes in interest rates, including the impact of such changes on economic conditions, customer behavior, funding costs, and our loans and leases and securities portfolios;

▪the replacement of and transition from the London Interbank Offered Rate (LIBOR) to the Secured Overnight Financing Rate (SOFR) as the primary interest rate benchmark;

▪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;

▪our ability to implement new technologies and maintain secure and reliable technology systems;

▪the effects of any cyber threats, attacks or events, or fraudulent activity;

▪performance by our counterparties and vendors;

▪our 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 services providers;

▪our ability to maintain adequate sources of funding and liquidity;

▪changes in the level of non-performing assets and charge-offs;

▪changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements;

▪the effect of changes in accounting policies and practices applicable to us, including impacts of recently adopted accounting guidance;

▪legal and regulatory developments, including the resolution of legal proceedings or regulatory or other governmental inquiries, and the results of regulatory examinations or reviews; and

▪our ability to appropriately address any environmental, social, governmental, and sustainability concerns that may arise from our business activities.

Any forward-looking statement in this Quarterly Report on Form 10-Q 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 us 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.

iii

PART I – FINANCIAL INFORMATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

This discussion and analysis provides information that management believes is necessary to understand Webster's financial condition, changes in financial condition, results of operations, and cash flows for the three and nine months ended September 30, 2022, as compared to 2021. The following should be read in conjunction with the Company's Consolidated Financial Statements, and accompanying Notes thereto, for the year ended December 31, 2021, included in Webster Financial Corporation's Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (SEC) on February 25, 2022, and in conjunction with the Condensed Consolidated Financial Statements, and accompanying Notes thereto, included in Part I - Item 1. Financial Statements of this report. The results of operations for the three and nine months ended September 30, 2022, are not necessarily indicative of the future results that may be attained for the entire year or other interim periods.

Executive Summary

Nature of Operations

Webster Financial Corporation (the Holding Company) is a bank holding company and financial holding company under the Bank Holding Company Act of 1956, as amended (BHC Act), incorporated under the laws of Delaware in 1986, and headquartered in Stamford, Connecticut. Webster Bank, National Association (Webster Bank) is the principal consolidated subsidiary of Webster Financial Corporation. Webster Bank, and its HSA Bank division (HSA Bank), deliver a wide range of banking, investment, and financial services to individuals, families, and businesses. Webster Bank serves consumer and business customers with mortgage lending, financial planning, trust, and investment services through a distribution network consisting of banking centers, ATMs, a customer care center, and a full range of web and mobile-based banking services throughout the northeastern U.S. from New York to Massachusetts, with certain businesses operating in extended geographies. Webster Bank also offers equipment financing, warehouse lending, commercial real estate lending, asset-based lending, and treasury management solutions. HSA Bank is a leading provider of health savings accounts (HSAs), and delivers health reimbursement arrangements and flexible spending and commuter benefit account administration services to employers and individuals in all 50 states.

Business Developments

On January 31, 2022, Webster completed its previously announced merger with Sterling in an all-stock transaction valued at $5.2 billion. The merger expanded Webster's geographic footprint and combined two complementary organizations to create one of the largest commercial banks in the northeastern U.S. At September 30, 2022, the combined company had $69.1 billion in assets, $47.8 billion in loans and leases, and $54.0 billion in deposits, and operated 201 banking centers throughout southern New England and metro and suburban New York. In addition, on February 18, 2022, Webster acquired 100% of the equity interests of Bend Financial, Inc. (Bend), a cloud-based platform solution provider for HSAs, in exchange for cash. The Bend acquisition accelerated Webster’s efforts underway to deliver enhanced user experiences at HSA Bank. Financial results for historical reporting periods reflect only the results of Webster's operations prior to the corresponding merger or acquisition.

The successful integration of Webster’s and Sterling’s operations depends on the Company’s ability to successfully consolidate business operations, management teams, corporate cultures, operating systems, and controls procedures, and eliminate costs and redundancies. Noteworthy accomplishments as of September 30, 2022, include the rebranding of branches and digital assets, the coordination of credit policies and procedures, the selection of certain key operating systems, the consolidation of commercial credit risk management systems and commercial client pricing tools, as well as mortgage servicing, payroll, and treasury platforms, the finalization of governance and executive management structures, the establishment of a corporate responsibility office to oversee community engagement, philanthropy, and sustainability, and the participation of senior Company leaders and managers at culture-shaping workshops, with plans for Company-wide participation in such workshops to be completed during the fourth quarter of 2022. Other key operating systems and process integration activities are ongoing, and Webster remains well-positioned to successfully execute its core conversion targeted for mid-2023.

In addition, Webster developed and launched a corporate real estate consolidation strategy during the second quarter of 2022 in which the Company arranged to close 14 locations, primarily throughout New York and Connecticut, in order to reduce its corporate facility square footage by approximately 45% by the end of the year. As of the nine months ended
September 30, 2022, Webster has recognized $23.1 million in right-of-use (ROU) asset impairment charges and a combined $12.0 million in related exit costs and accelerated depreciation on property and equipment related to this corporate real estate consolidation strategy.

Furthermore, in connection with the Sterling merger, Webster re-evaluated its strategic priorities as a combined organization, which resulted in modifications to the Company's strategic initiatives that were announced in December 2020. As a result, the Company released $4.1 million from its previously recorded severance accrual during the nine months ended
September 30, 2022, with a corresponding adjustment to earnings.

Additional information regarding Webster's mergers and acquisitions and related integration initiatives can be found within Note 2: Mergers and Acquisitions in the Notes to Condensed Consolidated Financial Statements contained in Part I - Item 1. Financial Statements.

Results of Operations

The following table summarizes selected financial highlights and key performance indicators:


	At or for the three months ended September 30,						At or for the nine months ended September 30,
(In thousands, except per share and ratio data)	2022			2021			2022			2021
Income and performance ratios:
Net income	$	233,968		$	95,713		$	399,532		$	297,826
Net income available to common shareholders	229,806			93,745			387,776			291,920
Earnings per diluted common share	1.31			1.03			2.32			3.22
Return on average assets (annualized)	1.38		%	1.10		%	0.85		%	1.17		%
Return on average tangible common shareholders' equity (annualized) (non-GAAP)	18.62			14.16			11.10			15.05
Return on average common shareholders' equity (annualized)	11.78			11.61			7.01			12.28
Non-interest income / total revenue	17.10			26.73			19.12			25.70
Asset quality:
Allowance for credit losses on loans and leases	$	574,325		$	314,922		$	574,325		$	314,922
Non-performing assets (1)	211,627			104,209			211,627			104,209
Allowance for credit losses on loans and leases / total loans and leases	1.20		%	1.46		%	1.20		%	1.46		%
Net charge-offs (recoveries) / average loans and leases (annualized)	0.25			0.02			0.15			0.03
Non-performing loans and leases / total loans and leases (1)	0.44			0.47			0.44			0.47
Non-performing assets / total loans and leases plus OREO (1)	0.44			0.48			0.44			0.48
Allowance for credit losses on loans and leases / non-performing loans and leases (1)	274.12			309.44			274.12			309.44
Other ratios:

Tangible common equity (non-GAAP)	7.27			7.71			7.27			7.71
Tier 1 risk-based capital	11.35			12.39			11.35			12.39
Total risk-based capital	13.38			13.79			13.38			13.79
CET1 risk-based capital	10.80			11.77			10.80			11.77
Shareholders' equity / total assets	11.33			9.57			11.33			9.57
Net interest margin	3.54			2.80			3.35			2.85
Efficiency ratio (non-GAAP)	41.17			54.84			44.68			56.62
Equity and share related:
Common equity	$	7,542,431		$	3,241,152		$	7,542,431		$	3,241,152
Book value per common share	43.32			35.78			43.32			35.78
Tangible book value per common share (non-GAAP)	27.69			29.63			27.69			29.63
Common stock closing price	45.20			54.46			45.20			54.46
Dividends and equivalents declared per common share	0.40			0.40			1.20			1.20
Common shares outstanding	174,116			90,588			174,116			90,588
Weighted-average common shares outstanding - basic	173,868			90,038			165,743			89,960
Weighted-average common shares outstanding - diluted	173,944			90,232			165,813			90,186

(1)Non-performing asset balances and related asset quality ratios exclude the impact of net unamortized (discounts)/premiums and net unamortized deferred (fees)/costs on loans and leases.

Non-GAAP Financial Measures

The non-GAAP financial measures identified in the preceding table provide both management and investors with information useful in understanding Webster's financial position, results of operations, the strength of its capital position, and overall business performance. These measures are used by management for internal planning and forecasting purposes, as well as by securities analysts, investors, and other interested parties to assess peer company operating performance. Management believes that this presentation, together with the accompanying reconciliations, provides a complete understanding of the factors and trends affecting Webster's business and allows investors to view its performance in a similar manner.

Tangible book value per common share represents shareholders’ equity less preferred stock and goodwill and other intangible assets (tangible common equity) divided by common shares outstanding at the end of the reporting period. The tangible common equity ratio represents tangible common equity divided by total assets less goodwill and other intangible assets (tangible assets). Both of these measures are used by management to evaluate Webster's capital position. The annualized return on average tangible common shareholders' equity is calculated using net income available to common shareholders, adjusted for the annualized tax-effected amortization of intangible assets, as a percentage of average tangible common equity. This measure is used by management to assess Webster's performance against its peer financial institutions. The efficiency ratio, which represents the costs expended to generate a dollar of revenue, is calculated excluding certain non-operational items in order to measure how well Webster is managing its recurring operating expenses.

These non-GAAP financial measures should not be considered a substitute for GAAP basis financial measures. Because
non-GAAP financial measures are not standardized, it may not be possible to compare these with other companies that present financial measures having the same or similar names.

The following tables reconcile non-GAAP financial measures to the most comparable financial measures defined by GAAP:


	At September 30,
(Dollars and shares in thousands, except per share data)	2022			2021
Tangible book value per common share:
Shareholders' equity	$	7,826,410		$	3,386,189
Less: Preferred stock	283,979			145,037
Goodwill and other intangible assets	2,721,040			557,360
Tangible common shareholders' equity	$	4,821,391		$	2,683,792
Common shares outstanding	174,116			90,588
Tangible book value per common share	$	27.69		$	29.63

Tangible common equity ratio:
Tangible common shareholders' equity	$	4,821,391		$	2,683,792
Total assets	69,052,566			35,374,258
Less: Goodwill and other intangible assets	2,721,040			557,360
Tangible assets	$	66,331,526		$	34,816,898
Tangible common equity ratio	7.27		%	7.71		%


	Three months ended September 30,						Nine months ended September 30,
(Dollars in thousands)	2022			2021			2022			2021
Return on average tangible common shareholders' equity:
Net income	$	233,968		$	95,713		$	399,532		$	297,826
Less: Preferred stock dividends	4,162			1,968			11,756			5,906
Add: Intangible assets amortization, tax-effected	6,724			888			18,723			2,682
Adjusted income	$	236,530		$	94,633		$	406,499		$	294,602
Adjusted income (annualized)	$	946,120		$	378,532		$	541,999		$	392,803
Average shareholders' equity	$	8,090,044		$	3,375,401		$	7,640,807		$	3,314,114
Less: Average preferred stock	283,979			145,037			268,202			145,037
Average goodwill and other intangible assets	2,725,200			557,902			2,491,394			559,027
Average tangible common shareholders' equity	$	5,080,865		$	2,672,462		$	4,881,211		$	2,610,050
Return on average tangible common shareholders' equity	18.62		%	14.16		%	11.10		%	15.05		%

Efficiency ratio:
Non-interest expense	$	330,071		$	180,237		$	1,048,083		$	555,247
Less: Foreclosed property activity	(393)			(142)			(826)			(188)
Intangible assets amortization	8,511			1,124			23,700			3,395
Operating lease depreciation	2,115			—			6,172			—
Merger-related expenses	25,536			9,847			200,671			26,894
Common stock contribution to charitable foundation	10,500			—			10,500			—
Other expense (1)	1,117			(4,011)			(3,175)			6,568
Non-interest expense	$	282,685		$	173,419		$	811,041		$	518,578
Net interest income	$	551,003		$	229,691		$	1,431,911		$	674,307
Add: Tax-equivalent adjustment	13,247			2,434			33,137			7,416
Non-interest income	113,636			83,775			338,604			233,234
Other income (2)	11,186			327			18,073			913
Less: Operating lease depreciation	2,115			—			6,172			—
(Loss) on sale of investment securities, net	(2,234)			—			(2,234)			—
Gain on extinguishment of borrowings	2,548			—			2,548			—
Income	$	686,643		$	316,227		$	1,815,239		$	915,870
Efficiency ratio	41.17		%	54.84		%	44.68		%	56.62		%

(1)Other expense (non-GAAP) includes the net charges associated with the strategic initiatives announced in December 2020.

(2)Other income (non-GAAP) includes the taxable equivalent of net income generated from low income housing tax-credit (LIHTC) investments.

Net Interest Income

Net interest income is Webster's primary source of revenue, representing 82.9% and 80.9% of total revenue for the three and nine months ended September 30, 2022, respectively, and 73.3% and 74.3% of total revenue for the three and nine months ended September 30, 2021, respectively. Net interest income is the difference between interest income on interest-earning assets, such as loans and leases and investment securities, and interest expense on interest-bearing liabilities, such as deposits and borrowings, which are used to fund interest-earning assets and other activities. Net interest margin is calculated as the ratio of tax-equivalent net interest income to average interest-earning assets. Tax-equivalent adjustments are determined assuming a statutory federal income tax rate of 21%.

Net interest income and net interest margin are influenced by the volume and mix of interest-earning assets and interest-bearing liabilities, changes in interest rate levels, re-pricing frequencies, contractual maturities, prepayment behavior, and the use of interest rate derivative financial instruments. These factors are affected by changes in economic conditions, which impacts monetary policies, competition for loans and deposits, as well as the extent of interest lost on non-performing assets.

Comparison to Prior Year Quarter

Net interest income increased $321.3 million, or 139.9%, from $229.7 million for the three months ended September 30, 2021, to $551.0 million for the three months ended September 30, 2022. On a fully tax-equivalent basis, net interest income increased $332.1 million. Net interest margin increased 74 basis points from 2.80% for the three months ended September 30, 2021, to 3.54% for the three months ended September 30, 2022. The increase, which includes net purchase accounting accretion from acquired loans and leases, investment securities, and interest-bearing liabilities, is primarily attributed to the merger with Sterling, along with the rising interest rate environment.

Average interest-earning assets increased $29.3 billion, or 89.2%, from $32.9 billion for the three months ended
September 30, 2021, to $62.2 billion for the three months ended September 30, 2022, primarily due to increases of $24.7 billion and $6.1 billion in average loans and leases and average total investment securities, respectively, which were partially offset by a $1.7 billion decrease in average interest-bearing deposits held at the Federal Reserve Bank (FRB). The average yield on interest-earning assets increased 104 basis points from 2.92% for the three months ended September 30, 2021, to 3.96% for the three months ended September 30, 2022. The increase in interest-earning assets and the increase in average yield were both impacted by the Sterling merger, as well as higher market rates.

Average loans and leases increased $24.7 billion, or 114.6%, from $21.5 billion for the three months ended
September 30, 2021, to $46.2 billion for the three months ended September 30, 2022, which was primarily due to the merger with Sterling, as well as loan growth across the commercial non-mortgage and commercial real estate categories. This growth was partially offset by lower Paycheck Protection Program (PPP) loan balances and commercial portfolio loan sales. At September 30, 2022, and 2021, the loan and lease portfolio comprised 74.3% and 65.5% of total average interest-earning assets, respectively. The average yield on loans and leases increased 92 basis points from 3.60% for the three months ended September 30, 2021, to 4.52% for the three months ended September 30, 2022, primarily due to a higher yield on the acquired Sterling loans and leases, net purchase accounting accretion, and higher market rates.

Average total investment securities increased $6.1 billion, or 68.8%, from $8.9 billion for the three months ended September 30, 2021, to $15.0 billion for the three months ended September 30, 2022, primarily due to the merger with Sterling. At September 30, 2022, and 2021, the investment securities portfolio comprised 24.2% and 27.1% of total average
interest-earning assets, respectively. The average yield on investment securities increased 39 basis points from 2.01% for the three months ended September 30, 2021, to 2.40% for the three months ended September 30, 2022. The increase was primarily due to the reinvestment of maturing securities at higher yields and a higher yield on the acquired Sterling investment securities portfolio net of purchase premium amortization.

Average interest-bearing deposits held at the FRB decreased $1.7 billion, or 74.9%, from $2.3 billion for the three months ended September 30, 2021, to $0.6 billion for the three months ended September 30, 2022, primarily due to excess customer liquidity in the prior period as a result of government stimulus and reduced spending. At September 30, 2022, and 2021, interest-bearing deposits held at the FRB comprised 0.9% and 7.1% of total average interest-earning assets, respectively. The average yield on interest-bearing deposits held at the FRB increased 204 basis points from 0.15% for the three months ended September 30, 2021, to 2.19% for the three months ended September 30, 2022, primarily due to higher market rates.

Average interest-bearing liabilities increased $27.7 billion, or 89.2%, from $31.1 billion for the three months ended September 30, 2021, to $58.8 billion for the three months ended September 30, 2022, primarily due to increases of $24.1 billion, $0.9 billion, $2.3 billion, and $0.5 billion, in average total deposits, average federal funds purchased, average Federal Home Loan Bank (FHLB) advances, and average long-term debt, respectively. The average rate on interest-bearing liabilities increased 32 basis points from 0.13% for the three months ended September 30, 2021, to 0.45% for the three months ended September 30, 2022, primarily due to the purchase of higher yielding federal funds and FHLB advances, and the subordinated debt assumed from Sterling in the merger.

Average total deposits increased $24.2 billion, or 80.8%, from $29.8 billion for the three months ended September 30, 2021, to $54.0 billion for the three months ended September 30, 2022, reflecting increases of $6.4 billion and $17.7 billion in
non-interest-bearing deposits and interest-bearing deposits, respectively. The overall increase in deposits was primarily due to the merger with Sterling, as well as the strong liquidity position of both commercial and consumer customers, and HSA growth. At September 30, 2022, and 2021, deposits comprised 91.8% and 96.0% of total average interest-bearing liabilities, respectively. The average rate on deposits increased 22 basis points from 0.06% for the three months ended
September 30, 2021, to 0.28% for the three months ended September 30, 2022, primarily due to the rising interest rate environment. Time deposits as a percentage of total interest-bearing deposits decreased from 8.6% for the three months ended September 30, 2021, to 6.7% for the three months ended September 30, 2022, primarily due to customer preferences to hold more liquid deposit products.

Average federal funds purchased were $0.9 billion for the three months ended September 30, 2022, and had an average rate of 2.24%. There were no average federal funds purchased for the three months ended September 30, 2021. At September 30, 2022, federal funds purchased comprised 1.5% of total average interest-bearing liabilities.

Average FHLB advances increased $2.3 billion, from $0.1 billion for the three months ended September 30, 2021 to $2.4 billion for the three months ended September 30, 2022, primarily due to short-term funding needs. At
September 30, 2022, and 2021, FHLB advances comprised 4.09% and 0.39% of total average interest-bearing liabilities, respectively. The average rate on FHLB advances increased 66 basis points from 1.59% for the three months ended September 30, 2021, to 2.25% for the three months ended September 30, 2022, primarily due to higher market rates on new short-term borrowings.

Average long-term debt increased $0.5 billion, or 90.5%, from $0.6 billion for the three months ended September 30, 2021, to $1.1 billion for the three months ended September 30, 2022, primarily due to the merger with Sterling. At both
September 30, 2022, and 2021, long-term debt comprised 1.8% of total average interest-bearing liabilities. The average rate on long-term debt increased 25 basis points from 3.22% for the three months ended September 30, 2021, to 3.47% for the three months ended September 30, 2022, primarily due to the subordinated debt assumed from Sterling in the merger.

Comparison to Prior Year to Date

Net interest income increased $757.6 million, or 112.4%, from $674.3 million for the nine months ended September 30, 2021, to $1.4 billion for the nine months ended September 30, 2022. On a fully tax-equivalent basis, net interest income increased $783.3 million. Net interest margin increased 50 basis points from 2.85% for the nine months ended September 30, 2021, to 3.35% for the nine months ended September 30, 2022. The increase which includes net purchase accounting accretion from acquired loans and leases, investment securities, and interest-bearing liabilities, is primarily attributed to the merger with Sterling, along with the rising interest rate environment.

Average interest-earning assets increased $25.7 billion, or 80.6%, from $31.9 billion for the nine months ended
September 30, 2021, to $57.6 billion for the nine months ended September 30, 2022, primarily due to increases of $20.6 billion and $5.6 billion in average loans and leases and average total investment securities, respectively, which were partially offset by a $810.7 million decrease in interest-bearing deposits held at the FRB. The average yield on interest-earning assets increased
62 basis points from 2.98% for the nine months ended September 30, 2021, to 3.60% for the nine months ended
September 30, 2022. The increase in interest-earning assets and the increase in average yield were both impacted by the Sterling merger, as well as higher market rates.

Average loans and leases increased $20.6 billion, or 96.1%, from $21.5 billion for the nine months ended September 30, 2021, to $42.1 billion for the nine months ended September 30, 2022, which was primarily due to the merger with Sterling, as well as loan growth across the commercial non-mortgage and commercial real estate categories. This growth was partially offset by lower PPP loan balances and commercial portfolio loan sales. At September 30, 2022, and 2021, the loan and lease portfolio comprised 73.2% and 67.4% of total average interest-earning assets, respectively. The average yield on loans and leases increased 60 basis points from 3.54% for the nine months ended September 30, 2021, to 4.14% for the nine months ended September 30, 2022, primarily due to a higher yield on the acquired Sterling loans and leases, net purchase accounting accretion, and higher market rates.

Average total investment securities increased $5.6 billion, or 63.9%, from $8.9 billion for the nine months ended
September 30, 2021, to $14.5 billion for the nine months ended September 30, 2022, primarily due to the merger with Sterling, as well as the deployment of excess liquidity. At September 30, 2022, and 2021, the investment securities portfolio comprised 25.3% and 27.9% of total average interest-earning assets, respectively. The average yield on investment securities increased
13 basis points from 2.09% for the nine months ended September 30, 2021, to 2.22% for the nine months ended
September 30, 2022. This was primarily due to the reinvestment of maturing securities at higher yields.

Average interest-bearing deposits held at the FRB decreased $810.7 million, or 56.5% from $1.4 billion for the nine months ended September 30, 2021, to $623.9 million for the nine months ended September 30, 2022, primarily due to excess customer liquidity in the prior period as a result of government stimulus and reduced spending. At September 30, 2022, and 2021, interest-bearing deposits held at the FRB comprised 1.08% and 4.50% of total average interest-earnings assets, respectively. The average yield on interest-bearing deposits held at the FRB increased 87 basis points from 0.13% for the nine months ended September 30, 2021 to 1.00% for the nine months ended September 30, 2022, primarily due to higher market rates.

Average interest-bearing liabilities increased $24.1 billion, or 80.1%, from $30.2 billion for the nine months ended September 30, 2021, to $54.3 billion for the nine months ended September 30, 2022, primarily due to increases of $22.2 billion, $0.5 billion, $1.1 billion, and $0.4 billion in average total deposits, average federal funds purchased, average FHLB advances, and average long-term debt, respectively. The average rate on interest-bearing liabilities increased 13 basis points from 0.14% for the nine months ended September 30, 2021, to 0.27% for the nine months ended September 30, 2022, primarily due to higher market rates and the mix of funding sources.

Average total deposits increased $22.2 billion, or 76.6%, from $28.9 billion for the nine months ended September 30, 2021, to $51.1 billion for the nine months ended September 30, 2022, reflecting increases of $6.0 billion and $16.2 billion in
non-interest-bearing deposits and interest-bearing deposits, respectively. The overall increase in deposits was primarily due to the merger with Sterling, as well as the strong liquidity position of retail and commercial customers, and HSA growth. At September 30, 2022, and 2021, deposits comprised 94.1% and 96.0% of total average interest-bearing liabilities, respectively. The average rate on deposits increased 8 basis points from 0.07% for the nine months ended September 30, 2021, to 0.15% for the nine months ended September 30, 2022, primarily due to the rising interest rate environment, which was partially offset by the run-off of time deposits. Time deposits as a percentage of total interest-bearing deposits decreased from 9.7% for the nine months ended September 30, 2021, to 6.9% for the nine months ended September 30, 2022, primarily due to customer preferences to hold more liquid deposit products.

Average federal funds purchased increased $456.6 million, from $21.4 million for the nine months ended September 30, 2021, to $478.0 million for the nine months ended September 30, 2022, primarily due to short-term funding needs. At
September 30, 2022, and 2021, federal funds purchased comprised 0.9% and 0.1% of total average interest-bearing liabilities, respectively. The average rate on federal funds purchased increased 167 basis points from 0.08% for the nine months ended September 30, 2021, to 1.75% for the nine months ended September 30, 2022, primarily due to higher market rates.

Average FHLB advances increased $1.1 billion, or 810.9%, from $0.1 billion for the nine months ended September 30, 2021, to $1.2 billion for the nine months ended September 30, 2022, primarily due to short-term funding needs. At
September 30, 2022, and 2021, FHLB advances comprised 2.2% and 0.4% of total average interest-bearing liabilities, respectively. The average rate on FHLB advances increased 33 basis points from 1.54% for the nine months ended September 30, 2021, to 1.87% for the nine months ended September 30, 2022, primarily due to higher market rates on new short-term borrowings.

Average long-term debt increased $0.4 billion, or 79.7%, from $0.6 billion for the nine months ended September 30, 2021, to $1.0 billion for the nine months ended September 30, 2022, primarily due to the merger with Sterling. At both
September 30, 2022, and 2021, long-term debt comprised 1.9% of total average interest-bearing liabilities. The average rate on long-term debt increased 18 basis points from 3.22% for the nine months ended September 30, 2021, to 3.40% for the nine months ended September 30, 2022, primarily due to the subordinated debt assumed from Sterling in the merger.

The following tables present daily average balances, interest, yield/rate, and net interest margin on a fully tax-equivalent basis:


	Three months ended September 30,
	2022						2021
(Dollars in thousands)	Average Balance		Interest Income/Expense		Average Yield/Rate		Average Balance		Interest Income/Expense		Average Yield/Rate

Assets
Interest-earning assets:
Loans and leases (1)	$	46,229,678	$	532,062	4.52	%	$	21,538,513	$	197,015	3.60	%
Investment securities: (2)
Taxable	12,336,926		79,562		2.47		8,199,640		38,714		1.93
Non-taxable	2,702,584		13,999		2.07		711,651		5,154		2.90
Total investment securities	15,039,510		93,561		2.40		8,911,291		43,868		2.01
FHLB and FRB stock	326,860		1,875		2.28		76,212		290		1.51
Interest-bearing deposits (3)	585,807		3,278		2.19		2,334,986		896		0.15

Loans held for sale	580		40		27.73		11,328		57		2.03
Total interest-earning assets	62,182,435		$	630,816	3.96	%	32,872,330		$	242,126	2.92	%
Non-interest-earning assets	5,823,755						2,021,962
Total assets	$	68,006,190					$	34,894,292

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Demand deposits	$	13,590,667	$	—	—	%	$	7,182,116	$	—	—	%
Health savings accounts	7,854,425		1,146		0.06		7,346,239		1,463		0.08
Interest-bearing checking, money market and savings	29,798,562		33,808		0.45		13,363,703		1,794		0.05
Time deposits	2,716,885		2,538		0.37		1,957,286		1,314		0.27
Total deposits	53,960,539		37,492		0.28		29,849,344		4,571		0.06

Securities sold under agreements to repurchase	479,308		1,158		0.95		544,311		721		0.52
Federal funds purchased	889,818		5,084		2.24		—		—		—

FHLB advances	2,402,596		13,814		2.25		120,714		492		1.59
Long-term debt (2)	1,075,683		9,018		3.47		564,692		4,217		3.22
Total borrowings	4,847,405		29,074		2.38		1,229,717		5,430		1.82
Total interest-bearing liabilities	58,807,944		$	66,566	0.45	%	31,079,061		$	10,001	0.13	%
Non-interest-bearing liabilities	1,108,202						439,830
Total liabilities	59,916,146						31,518,891

Preferred stock	283,979						145,037
Common shareholders' equity	7,806,065						3,230,364
Total shareholders' equity	8,090,044						3,375,401
Total liabilities and shareholders' equity	$	68,006,190					$	34,894,292
Tax-equivalent net interest income			$	564,250					$	232,125
Less: Tax-equivalent adjustments			(13,247)						(2,434)
Net interest income			$	551,003					$	229,691
Net interest margin (4)					3.54	%					2.80	%

(1)Non-accrual loans have been included in the computation of average balances.

(2)For the purposes of our average yield/rate and margin computations, unsettled trades on investment securities and unrealized gain (loss) balances on securities available-for-sale and de-designated senior fixed-rate notes hedges are excluded.

(3)Interest-bearing deposits are a component of cash and cash equivalents on the Condensed Consolidated Statements of Cash Flows included in Part I - Item 1. Financial Statements.

(4)Tax-equivalent net interest margin was 3.63% and 2.82% for the three months ended September 30, 2022 and 2021, respectively.


	Nine months ended September 30,
	2022						2021
(Dollars in thousands)	Average Balance		Interest Income/Expense		Average Yield/Rate		Average Balance		Interest Income/Expense		Average Yield/Rate

Assets
Interest-earning assets:
Loans and leases (1)	$	42,125,526	$	1,317,941	4.14	%	$	21,477,967	$	574,984	3.54	%
Investment securities: (2)
Taxable	12,127,249		210,323		2.26		8,153,074		120,957		2.01
Non-taxable	2,420,867		36,465		2.01		725,746		15,770		2.90
Total investment securities	14,548,116		246,788		2.22		8,878,820		136,727		2.09
FHLB and FRB stock	252,559		4,768		2.52		77,040		909		1.58
Interest-bearing deposits (3)	623,866		4,711		1.00		1,434,552		1,419		0.13

Loans held for sale	12,160		73		0.80		11,515		201		2.33
Total interest-earning assets	57,562,227		$	1,574,281	3.60	%	31,879,894		$	714,240	2.98	%
Non-interest-earning assets	5,448,419						1,968,707
Total assets	$	63,010,646					$	33,848,601

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Demand deposits	$	12,758,489	$	—	—	%	$	6,800,456	$	—	—	%
Health savings accounts	7,809,082		3,358		0.06		7,414,332		4,720		0.09
Interest-bearing checking, money market and savings	27,887,362		48,992		0.23		12,579,762		5,117		0.05
Time deposits	2,649,328		5,000		0.25		2,146,218		6,267		0.39
Total deposits	51,104,261		57,350		0.15		28,940,768		16,104		0.07

Securities sold under agreements to repurchase	528,353		3,537		0.88		501,198		2,203		0.58
Federal funds purchased	478,038

WEBSTER FINANCIAL CORP [WBS] Filings
WEBSTER FINANCIAL CORP [WBS-PF] Filings
WEBSTER FINANCIAL CORP [WBS-PG] Filings
10-Q	[2022-11-04]
10-Q	[2022-08-05]
10-Q	[2022-05-13]
10-K	[2022-02-25]
10-Q	[2021-11-03]
10-Q	[2021-08-04]
10-Q	[2021-05-06]
10-K	[2021-02-26]
10-Q	[2020-11-04]
10-Q	[2020-08-05]
10-Q	[2020-05-08]
10-K	[2020-02-28]
10-Q	[2019-11-01]
10-Q	[2019-08-05]
10-Q	[2019-05-07]
10-K	[2019-03-01]
10-Q	[2018-11-05]
10-Q	[2018-08-03]
10-Q	[2018-05-07]
10-K	[2018-03-01]
10-Q	[2017-11-06]
10-Q	[2017-08-04]
10-Q	[2017-05-05]
10-K	[2017-03-01]
10-Q	[2016-11-07]
10-Q	[2016-08-09]
10-Q	[2016-05-09]
10-K	[2016-02-29]
10-Q	[2015-11-05]
10-Q	[2015-08-07]
10-Q	[2015-05-08]
10-K	[2015-02-27]
10-Q	[2014-11-05]
10-Q	[2014-08-06]
10-Q	[2014-05-07]
10-K	[2014-02-28]
10-Q	[2013-11-05]
10-Q	[2013-08-01]
10-Q	[2013-05-06]
10-K	[2013-02-28]
10-Q	[2012-11-02]
10-Q	[2012-08-01]
10-Q	[2012-05-02]
10-K	[2012-02-29]

WEBSTER FINANCIAL CORP [WBS] Filings

WEBSTER FINANCIAL CORP [WBS-PF] Filings

WEBSTER FINANCIAL CORP [WBS-PG] Filings