Webster Financial Earnings 2019-09-30

WBS 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

Comparables ($MM TTM)
Ticker	M Cap	Assets	Liab	Rev	G Profit	Net Inc	EBITDA	EV	G Margin	EV/EBITDA	ROA
PB	4,580	22,375	18,247	0	0	331	535	4,278		8.0	1%
PACW	4,529	26,344	21,492	1,040	0	472	822	5,834	0%	7.1	2%
WAL	4,495	25,315	22,464	0	0	484	740	3,428		4.6	2%
PNFP	4,360	26,540	22,364	0	0	383	731	4,360		6.0	1%
STL	4,324	30,238	25,778	26	0	432	842	8,115	0%	9.6	1%
WBS	4,190	28,942	25,877	208	0	397	666	4,511	0%	6.8	1%
FFIN	4,187	7,979	6,815	0	0	159	215	4,187		19.5	2%
WTFC	4,141	33,642	30,195	1,055	0	342	736	3,840	0%	5.2	1%
IBKC	4,023	31,447	27,209	0	0	433	805	4,609		5.7	1%
FNB	3,765	33,903	29,150	0	0	390	765	4,604		6.0	1%

Document

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 ending September 30, 2019

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.)

145 Bank Street, Waterbury, Connecticut 06702

(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 Exchange on which registered
Common Stock, $0.01 par value	WBS	New York Stock Exchange
Depository Shares, each representing 1/1000th interest in a share	WBS-F	New York Stock Exchange
of 5.25% Series F 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 (Section 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 transaction 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 Exchange Act Rule 12b-2). ☐ Yes ☒ No

The number of shares of common stock, par value $.01 per share, outstanding as of October 31, 2019 was 92,031,914.

INDEX



		Page No.

Forward-Looking Statements		ii
Key to Acronyms and Terms		iii

PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements	1

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	65

Item 4.	Controls and Procedures	65

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	66

Item 1A.	Risk Factors	66

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	66

Item 3.	Defaults Upon Senior Securities	66

Item 4.	Mine Safety Disclosures	66

Item 5.	Other Information	66

Item 6.	Exhibits	67

EXHIBIT INDEX		67

SIGNATURES		68

Table of Contents

WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

FOWARD-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, such words are not the exclusive means of identifying such statements. References to the "Company," " Webster," "we," "our," or "us" mean Webster Financial Corporation and its consolidated subsidiaries.

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 loan and lease losses, and other financial items;


▪	statements of plans, objectives and expectations of Webster or its management or Board of Directors;


▪	statements of future economic performance; and


▪	statements of assumptions underlying such statements.

Forward-looking statements are based on Webster’s current expectations and assumptions regarding its business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Webster’s actual results may differ materially from those contemplated by the forward-looking statements, which are neither statements of historical fact nor guarantees or assurances of future performance.

Factors that could cause our actual results to differ from those discussed in any forward-looking statements include, but are not limited to:


▪	our ability to successfully execute our business plan and manage our risks;


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


▪	volatility and disruption in national and international financial markets;


▪	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;


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


▪	inflation, changes in interest rates, and monetary fluctuations;


▪	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;


▪	performance by our counterparties and vendors;


▪	the ability to increase market share and control expenses;


▪	changes in the competitive environment among banks, financial holding companies, and other financial services providers;


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


▪	the effect of changes in accounting policies and practices applicable to us, including changes in estimates of expected credit losses resulting from our models and assumptions in connection with adopting new accounting guidance; and


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

All forward-looking statements in this Quarterly Report on Form 10-Q speak only as of the date they are 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.

Table of Contents

WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

KEY TO ACRONYMS AND TERMS



Agency CMBS	Agency commercial mortgage-backed securities
Agency CMO	Agency collateralized mortgage obligations
Agency MBS	Agency mortgage-backed securities
ALCO	Asset/Liability Committee
ALLL	Allowance for loan and lease losses
AOCL	Accumulated other comprehensive loss, net of tax
ASC	Accounting Standards Codification
ASU or the Update	Accounting Standards Update
Basel III	Capital rules under a global regulatory framework developed by the Basel Committee on Banking Supervision
CET1 capital	Common Equity Tier 1 Capital, defined by Basel III capital rules
CLO	Collateralized loan obligation securities
CMBS	Non-agency commercial mortgage-backed securities
CME	Chicago Mercantile Exchange
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 Bank	A division of Webster Bank, National Association
LEP	Loss emergence period
LGD	Loss given default
LPL	LPL Financial Holdings Inc.
NAV	Net asset value
NII	Net interest income
OCC	Office of the Comptroller of the Currency
OCI/OCL	Other comprehensive income (loss)
OREO	Other real estate owned
OTTI	Other-than-temporary impairment
PD	Probability of default
PPNR	Pretax, pre-provision net revenue
ROU asset	Right-of-use asset
RPA	Risk participation agreement
SEC	United States Securities and Exchange Commission
SERP	Supplemental defined benefit retirement plan
Tax Act	Tax Cuts and Jobs Act of 2017
TDR	Troubled debt restructuring, defined in ASC 310-40 "Receivables-Troubled Debt Restructurings by Creditors"
VIE	Variable interest entity, defined in ASC 810-10 "Consolidation-Overall"
Webster 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

iii

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS



	September 30, 2019			December 31, 2018
(In thousands, except share data)	(Unaudited)
Assets:
Cash and due from banks (includes restricted cash)	$	227,966		$	260,422
Interest-bearing deposits	74,865			69,077
Investment securities available-for-sale, at fair value	2,960,103			2,898,730
Investment securities held-to-maturity (fair value of $5,285,705 and $4,209,121)	5,193,521			4,325,420
Federal Home Loan Bank and Federal Reserve Bank stock	116,984			149,286
Loans held for sale (valued under fair value option $27,061 and $7,908)	27,061			11,869
Loans and leases	19,551,646			18,465,489
Allowance for loan and lease losses	(209,152		)	(212,353		)
Loans and leases, net	19,342,494			18,253,136
Deferred tax assets, net	59,956			96,516
Premises and equipment, net	278,642			124,850
Goodwill	538,373			538,373
Other intangible assets, net	22,879			25,764
Cash surrender value of life insurance policies	549,335			543,616
Accrued interest receivable and other assets	502,921			313,256
Total assets	$	29,895,100		$	27,610,315
Liabilities and shareholders' equity:
Deposits:
Non-interest-bearing	$	4,291,659		$	4,162,446
Interest-bearing	18,989,006			17,696,399
Total deposits	23,280,665			21,858,845
Securities sold under agreements to repurchase and other borrowings	1,210,692			581,874
Federal Home Loan Bank advances	1,392,849			1,826,808
Long-term debt	549,158			226,021
Accrued expenses and other liabilities	309,342			230,252
Total liabilities	26,742,706			24,723,800
Shareholders’ equity:
Preferred stock, $.01 par value; Authorized - 3,000,000 shares:
Series F issued and outstanding (6,000 shares)	145,037			145,037
Common stock, $.01 par value; Authorized - 200,000,000 shares:
Issued (93,686,311 shares)	937			937
Paid-in capital	1,115,204			1,114,394
Retained earnings	2,010,930			1,828,303
Treasury stock, at cost (1,652,279 and 1,508,456 shares)	(82,480		)	(71,504		)
Accumulated other comprehensive loss, net of tax	(37,234		)	(130,652		)
Total shareholders' equity	3,152,394			2,886,515
Total liabilities and shareholders' equity	$	29,895,100		$	27,610,315

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)



	Three months ended September 30,						Nine months ended September 30,
(In thousands, except per share data)	2019			2018			2019			2018
Interest Income:
Interest and fees on loans and leases	$	236,453		$	215,448		$	701,166		$	616,488
Taxable interest and dividends on investments	52,046			47,646			154,556			142,361
Non-taxable interest on investment securities	5,471			5,061			16,402			15,428
Loans held for sale	166			208			459			498
Total interest income	294,136			268,363			872,583			774,775
Interest Expense:
Deposits	34,214			24,397			97,991			62,778
Securities sold under agreements to repurchase and other borrowings	6,571			3,084			13,227			10,722
Federal Home Loan Bank advances	6,910			7,685			22,467			23,437
Long-term debt	5,902			2,825			15,021			8,288
Total interest expense	53,597			37,991			148,706			105,225
Net interest income	240,539			230,372			723,877			669,550
Provision for loan and lease losses	11,300			10,500			31,800			32,000
Net interest income after provision for loan and lease losses	229,239			219,872			692,077			637,550
Non-interest Income:
Deposit service fees	41,410			40,601			127,552			121,911
Loan and lease related fees	8,246			10,782			22,623			24,111
Wealth and investment services	8,496			8,412			24,456			24,738
Mortgage banking activities	2,133			1,305			3,829			3,684
Increase in cash surrender value of life insurance policies	3,708			3,706			10,942			10,921
Other income	5,938			7,478			24,994			24,040
Total non-interest income	69,931			72,284			214,396			209,405
Non-interest Expense:
Compensation and benefits	98,623			96,640			294,935			284,457
Occupancy	14,087			14,502			42,802			45,489
Technology and equipment	26,180			24,553			77,644			73,019
Intangible assets amortization	961			961			2,885			2,885
Marketing	4,758			4,052			12,329			12,493
Professional and outside services	5,024			4,930			16,706			14,099
Deposit insurance	4,409			9,694			13,292			30,098
Other expense	25,852			23,451			75,627			68,317
Total non-interest expense	179,894			178,783			536,220			530,857
Income before income tax expense	119,276			113,373			370,253			316,098
Income tax expense	25,411			13,700			78,003			54,518
Net income	93,865			99,673			292,250			261,580
Preferred stock dividends and other	(2,423		)	(2,213		)	(7,331		)	(6,540		)
Earnings applicable to common shareholders	$	91,442		$	97,460		$	284,919		$	255,040

Earnings per common share:
Basic	$	1.00		$	1.06		$	3.11		$	2.77
Diluted	1.00			1.06			3.10			2.77

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)



	Three months ended September 30,					Nine months ended September 30,
(In thousands)	2019		2018			2019		2018
Net income	$	93,865	$	99,673		$	292,250	$	261,580
Other comprehensive income (loss), net of tax:
Investment securities available-for-sale	24,304		(13,811		)	86,272		(50,481		)
Derivative instruments	3,603		1,635			3,985		5,837
Defined benefit pension and other postretirement benefit plans	1,049		2,548			3,161		4,611
Other comprehensive income (loss), net of tax	28,956		(9,628		)	93,418		(40,033		)
Comprehensive income	$	122,821	$	90,045		$	385,668	$	221,547

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)



	At or for the three months ended September 30, 2019
(In thousands, except per share data)	Preferred Stock		Common Stock		Paid-In Capital		Retained Earnings			Treasury Stock, at cost			Accumulated Other Comprehensive Loss, Net of Tax			Total Shareholders' Equity
Balance at June 30, 2019	$	145,037	$	937	$	1,113,893	$	1,955,933		$	(84,393	)	$	(66,190	)	$	3,065,217
Net income	—		—		—		93,865			—			—			93,865
Other comprehensive income, net of tax	—		—		—		—			—			28,956			28,956
Common stock dividends/equivalents $0.40 per share	—		—		—		(36,900		)	—			—			(36,900		)
Series F preferred stock dividends $328.125 per share	—		—		—		(1,968		)	—			—			(1,968		)
Stock-based compensation	—		—		1,311		—			1,957			—			3,268
Common shares acquired from stock compensation plan activity	—		—		—		—			(44		)	—			(44		)
Balance at September 30, 2019	$	145,037	$	937	$	1,115,204	$	2,010,930		$	(82,480	)	$	(37,234	)	$	3,152,394

	At or for the three months ended September 30, 2018
(In thousands, except per share data)	Preferred Stock		Common Stock		Paid-In Capital		Retained Earnings			Treasury Stock, at cost			Accumulated Other Comprehensive Loss, Net of Tax			Total Shareholders' Equity
Balance at June 30, 2018	$	145,037	$	937	$	1,115,414	$	1,699,767		$	(77,496	)	$	(121,936	)	$	2,761,723

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$0.00	92	$4,190

10-Q	2019-11-01	Quarter: 2019-09-30
10-Q	2019-08-05	Quarter: 2019-06-30
10-Q	2019-05-07	Quarter: 2019-03-31
10-K	2019-03-01	Annual: 2018-12-31
10-Q	2018-11-05	Quarter: 2018-09-30
10-Q	2018-08-03	Quarter: 2018-06-30
10-Q	2018-05-07	Quarter: 2018-03-31
10-K	2018-03-01	Annual: 2017-12-31
10-Q	2017-11-06	Quarter: 2017-09-30
10-Q	2017-08-04	Quarter: 2017-06-30
10-Q	2017-05-05	Quarter: 2017-03-31
10-K	2017-03-01	Annual: 2016-12-31
10-Q	2016-11-07	Quarter: 2016-09-30
10-Q	2016-08-09	Quarter: 2016-06-30
10-Q	2016-05-09	Quarter: 2016-03-31
10-K	2016-02-29	Annual: 2015-12-31
10-Q	2015-11-05	Quarter: 2015-09-30
10-Q	2015-08-07	Quarter: 2015-06-30
10-Q	2015-05-08	Quarter: 2015-03-31
10-K	2015-02-27	Annual: 2014-12-31
10-Q	2014-11-05	Quarter: 2014-09-30
10-Q	2014-08-06	Quarter: 2014-06-30
10-Q	2014-05-07	Quarter: 2014-03-31
10-K	2014-02-28	Annual: 2013-12-31
10-Q	2013-11-05	Quarter: 2013-09-30
10-Q	2013-08-01	Quarter: 2013-06-30
10-Q	2013-05-06	Quarter: 2013-03-31
10-K	2013-02-28	Annual: 2012-12-31
10-Q	2012-11-02	Quarter: 2012-09-30
10-Q	2012-08-01	Quarter: 2012-06-30
10-Q	2012-05-02	Quarter: 2012-03-31
10-K	2012-02-29	Annual: 2011-12-31
10-Q	2011-11-02	Quarter: 2011-09-30
10-Q	2011-08-01	Quarter: 2011-06-30
10-Q	2011-05-05	Quarter: 2011-03-31
10-K	2011-02-28	Annual: 2010-12-31
10-Q	2010-11-03	Quarter: 2010-09-30
10-Q	2010-08-03	Quarter: 2010-06-30
10-Q	2010-05-06	Quarter: 2010-03-31
10-K	2010-03-01	Annual: 2009-12-31

8-K	2019-10-29	Other Events, Exhibits
8-K	2019-07-18	Earnings, Regulation FD, Exhibits
8-K	2019-04-25	Officers, Shareholder Vote, Exhibits
8-K	2019-04-18	Earnings, Regulation FD, Exhibits
8-K	2019-03-25	Other Events, Exhibits
8-K	2019-02-14	Other Events, Exhibits
8-K	2019-01-24	Earnings, Regulation FD, Exhibits
8-K	2018-12-05	Regulation FD
8-K	2018-11-08	Regulation FD
8-K	2018-10-24	Officers, Exhibits
8-K	2018-10-18	Earnings, Regulation FD, Exhibits
8-K	2018-09-12	Regulation FD
8-K	2018-07-19	Earnings, Regulation FD, Exhibits
8-K	2018-04-26	Shareholder Vote
8-K	2018-04-19	Earnings, Exhibits
8-K	2018-02-14	Other Events, Exhibits
8-K	2018-01-23	Earnings, Exhibits
8-K	2018-01-18	Other Events

EX-31.1	exhibit31109-30x2019.htm
EX-31.2	exhibit31209-30x2019.htm
EX-32.1	exhibit32109-30x2019.htm
EX-32.2	exhibit32209-30x2019.htm