Second Quarter 2017 Earnings Conference Call July 21, 2017
WBS 2Q17 Earnings Highlights ($ in millions, except EPS data) $50.6 $48.4 $0.53 ROACE: 8.31% 9.43% 9.63% ROATCE: Net Income $59.5 $57.3 $0.62 $59.5 $0.64 Preferred Stock Dividends & Other of $2.1MM in 2Q17, $2.2MM in 1Q17 and $2.2MM in 2Q16 Earnings Applicable to Common Shareholders Diluted earnings per common share $61.6 11.25% 12.47% 12.65% Key Observations: Return on average common shareholders equity of 9.63% Return on average tangible common equity of 12.65% Continued progress on our growth strategies: 20 consecutive quarters of double-digit year-over-year average commercial loan growth HSA Bank year-over-year growth of 19.7% in total footings and account growth of 17.7% 31 consecutive quarters of year-overyear revenue growth with total revenue of $262 million (+8.4%) Efficiency ratio of 60.6% vs. 61.5% prior year Continued stable/improved credit performance Strong capital position to support ongoing growth 2
WBS 2Q17 Earnings Loans & Deposits ($ in billions) Loans: +6.2% YOY Deposits: +8.7% YOY $16.272 $6.885 $17.094 $17.274 $6.924 $6.988 $18.828 $4.156 $20.242 $20.458 $4.794 $4.828 $6.397 $6.520 $6.744 68% 70% 70% 86% 84% 84% 58% 59% 60% 56% 56% 57% $9.387 $10.170 $10.286 Consumer Loans Commercial Loans Commercial Loans to Total Loans Floating and Periodic to Total Loans* $8.275 $8.928 $8.886 HSA Transactional Non Transactional Loans to Deposits Transactional & HSAs to Total Deposits $1 billion of loan growth over the past year, fully funded by HSA and transactional deposit growth * Floating loans rates reset in 1 month or less; periodic loans reset in greater than 1 month but before final maturity 3
WBS 2Q17 Earnings Commercial Banking 1 ($ in millions) Loans: +9.3% YOY PPNR: +8.1% YOY $8,432 $340 $9,112 $9,215 $344 $349 $83.6 $50.1 PPNR $91.5 $54.2 PPNR $33.5 $37.3 $5,507 $6,017 $6,116 $2,585 $2,751 $2,750 Investor CRE C&I and Owner Occupied CRE Other* Portfolio yield: 3.59% 3.95% 4.04% Loan originations 2Q17 1Q17 2Q16 $ 894 $ 179 $ 29 Loan fundings $ 535 $ (7) $ (78) Yield on fundings 4.54% -34 bps +74 bps Pipeline $ 259 $ (83) $ (201) Deposits $ 3,826 $ (91) $ 353 Non-interest income / Total revenue AUM / AUA 2Q16 Operating Revenue 2Q17 Operating Expense Key Business Metrics Increase / (Decrease) 13.69% -95 bps -395 bps $ 1,900 $ 45 $ 90 1 As of 2Q17, due to segment realignment, Private Banking results are now reflected in Commercial Banking * Private Banking consumer loans AUM =Assets Under Management AUA =Assets Under Administration 4
WBS 2Q17 Earnings HSA Bank ($ in millions) Total Footings: +19.7% YOY Total Deposits: +16.2% YOY Total Accounts: +17.7% YOY $4,931 $775 $5,786 $5,904 $992 $1,076 $0.7 $37.4 PPNR: +30.2% YOY $24.7 $12.7* PPNR $45.3 $28.8 2Q16 2Q17 Operating Revenue Operating Expense HSA acquisition receivable adjustment $16.6 PPNR $4,794 $4,828 $4,156 Deposits Linked Investments Deposit Cost: 0.24% 0.20% 0.20% Key Business Metrics End of period 2Q17 1Q17 2Q16 Accounts ('000) % < 2 years old 2,368 4 356 54.51% -438 bps -469 bps % of Unfunded accounts 6.20% +39 bps +401 bps Footings per account $ 2,493 $ 45 $ 43 Investments as % of total footings 18.23% +108 bps +248 bps New accounts ('000) Increase / (Decrease) 100 (271) (16) PPNR/avg. account $ 28.00 $ 1.00 $ 2.27 * 2Q16 PPNR excludes HSA acquisition receivable adjustment. Including adjustment, PPNR was $13.4MM 5
WBS 2Q17 Earnings Community Banking* ($ in millions) Loans: +2.8% YOY PPNR: +7.2% YOY $7,841 $7,985 $8,058 $1,295 $1,402 $1,419 3.94% 3.93% 3.97% $119.1 $91.5 $27.6 PPNR $124.0 $94.3 $29.6 PPNR $6,546 $6,583 $6,639 Consumer Banking Business Banking Portfolio Yield Deposits: +5.6% YOY 2Q16 2Q17 Operating Revenue Operating Expense Key Business Metrics $11,424 $11,156 $10,822 $2,273 $2,299 $2,493 0.25% 0.26% 0.26% $8,549 $8,857 $8,931 Consumer Banking Business Banking Deposit Cost Loan originations - Mortgage & Consumer Loan originations - Business Banking Yield on fundings Transaction deposits / Total deposits Digitally active households / Total households Self-service transactions / Total transactions Assets Under Administration Increase / (Decrease) 2Q17 1Q17 2Q16 $ 473 $ 98 $ 5 $ 80 $ (10) $ (10) 4.24% +17 bps +45 bps 39.09% +32 bps +44 bps 45.60% -20 bps +210 bps 70.00% 0 bps +80 bps $ 3,159 $ 81 $ 346 * As of 2Q17 the liquidating portfolio is included in Community Banking 6
WBS 2Q17 Earnings Average Balance Sheet ($ in millions) Increase / (Decrease) 2Q17 1Q17 2Q16 Highlights: Securities $ 7,030 $ (41) $ 126 LQ balances flat; duration of 4.1 years Commercial loans $ 10,306 $ 207 $ 1,107 Growth of 2.1% LQ (+8.2% annualized) Consumer loans 6,960 17 80 Continued growth in residential with partial offset in other consumer Total loans $ 17,266 $ 224 $ 1,187 Average loan growth of 1.3% LQ Deposits $ 20,338 $ 320 $ 1,585 LQ growth led by savings, HSA and interest checking Borrowings $ 3,068 $ (200) $ (556) Excess deposits resulted in lower borrowings Common equity $ 2,475 $ 38 $ 137 2Q17 dividends of $23.9 million (At end of period) Key Ratios: Loans / total deposits 84.4% -2 bps -199 bps Multiple deposit sources funding balance sheet growth Transactional & HSAs / total deposits 56.6% +67 bps +52 bps HSA's are 24% of total deposits vs. 22% a year ago Common Equity Tier 1 10.81% +6 bps +31 bps Ratio remains in excess of Basel III 6.5% well-capitalized level Tangible Common Equity 7.47% +13 bps +22 bps Tangible book value per common share $ 20.74 $ 0.48 $ 1.33 LQ increase reflects growth in tangible common equity (+10% annualized) 7
WBS 2Q17 Earnings Income Statement ($ in millions) Increase / (Decrease) 2Q17 1Q17 2Q16 Highlights: Net interest income $ 197.8 $ 5.1 $ 20.9 LQ increase driven by NIM expansion (5 bps) and average loan growth (+1.3%) Total non-interest income 64.6 1.5 (0.5) LQ increase reflects higher deposit service fees and mortgage revenue Total revenue $ 262.4 $ 6.6 $ 20.4 Less: Gain on securities (including write-downs) 0.0 (0.0) (0.1) Total non-interest expense $ 164.4 $ 0.6 $ 11.6 Maintained discipline while investing for growth Pre-provision net revenue $ 98.0 $ 6.0 $ 8.8 Quarterly record Provision for loan losses $ 7.3 $ (3.2) $ (6.7) LQ decline reflects favorable credit trends and modest loan growth Reported pre-tax income $ 90.7 $ 9.3 $ 15.5 Reported net income $ 61.6 $ 2.1 $ 11.0 Quarterly record Tax Rate 32.1% +510 bps -60 bps Prior period reflected additional tax benefits related to equity based compensation Efficiency Ratio (non-gaap) (1) 60.65% -145 bps -82 bps LQ improvement reflects revenue growth and flat expenses 1 See reconciliation on page 15 8
WBS 2Q17 Earnings Net Interest Income ($ in millions) NIM: +11.8% YOY $192.7 $197.8 $176.9 3.67% 3.74% 3.52% 0.46% 0.47% 0.49% Net Interest Income Interest-earning assets yield Interest-bearing liabilities yield Linked Quarter Drivers: NII: +$5.1 million (non FTE) $6.6 million increase in interest on loans (yield up 7 bps to 4.04%) $0.6 million increase in interest on securities (yield up 6 bps to 3.06%) Borrowing cost increased, as a result of short-term pay-downs, by $1.4 million (yield up 19 bps to 1.85%) $1.2 million increase in interest on deposits (yield up 2 bps to 0.29%) NIM: +5 bps +6 bps from loans +2 bps from securities -2 bps from borrowings -1 bps from deposits 3.08% 3.22% 3.27% 9
WBS 2Q17 Earnings Non-interest Income ($ in thousands) Diverse Sources Key Observations: $65,075 $63,042 $64,551 $3,753 $2,266 $3,351 $7,204 $7,273 $7,877 $6,266 $7,208 $6,344 $11,951 $8,502 $8,071 $17,435 $19,271 $19,750 $18,372 $18,522 $19,158 Mortgage banking activities Other Wealth and investment services HSA Fee Income $1.5 million increase linked-quarter Increase in mortgage banking of $1.1 million Increase in wealth and investment of $0.6 million due to higher production Increase in HSA fee income of $0.5 million driven by account growth Decrease in loan related fees of $0.9 million due to Q1 strength in syndication fees $0.5 million decrease year-over-year Decrease in other of $3.9 million primarily due to reduction in client hedging activity partially offset by increase in HSA fee income of $2.3 million due to account growth Loan related fees Deposit service fees Note: Gains on securities were: 2Q17: $0.0MM, 1Q17: $0.0MM, and 2Q16: $0.1MM 10
WBS 2Q17 Earnings Non-interest Expense ($ in thousands) Maintaining discipline while investing for growth Key Observations: $152,778 $4,669 $6,633 $14,842 $19,376 $27,027 $163,784 $164,419 $5,441 $4,615 $6,732 $6,625 $16,179 $16,034 $21,608 $22,458 $25,548 $27,333 $0.6 million increase linked-quarter $0.4 million increase excluding banking center optimization costs in each period Efficiency ratio improved to 60.6% from 62.1% $11.6 million increase year-over-year $80,231 $88,276 $87,354 Increase in HSA Bank from growth and initiatives of $4.5 million Increase in compensation and benefits excluding HSA Bank of $5.3 million from annual merit, higher medical, and strategic hires Marketing Deposit Insurance Occupancy Technology & Equipment Other Compensation & Benefits 11
WBS 2Q17 Earnings Key Asset Quality Metrics ($ in millions) Nonperforming Loans, OREO, NPL Ratio Provision for Loan Losses $137 $178 $174 $170 $166 $14.0 $10.5 $133 $7.3 0.82% 1.02% 0.96% 1.11% 1.16% 1.16% Nonperforming loans OREO/Repossessed NPL Ratio Provision for loan losses Allowance for loan & lease losses coverage Commercial Classified Loan Trend Net Charge-offs $311 $339 $352 $7.8 $3.9 $6.8 $5.7 $0.1 $2.1 3.31% 3.34% 3.42% $3.9 $5.6 $4.7 0.19% 0.13% 0.16% Commercial Classified Loans % of Total Commercial Loans Consumer Commercial Net Charge-off Ratio 12
WBS 2Q17 Earnings 3Q17 Outlook Relative to 2Q17 Balance Sheet Average Loans + 1.5% to 2.5% Average Earning Assets + 1% Net Interest Margin Flat to + 2 bps Income Statement Net Interest Income Non-interest Income + $3 to $5 million + $1 to $2 million Efficiency Ratio 60% to 62% Provision for Loan and Lease Losses Driven by loan growth, AQ and mix Tax Rate Approx. 32% Diluted Share Count Approx. 92.5 million 13
WBS 2Q17 Earnings Concluding Comments Investing capital and resources in strategies that maximize value to customers and shareholders: Aggressively growing HSA Bank Expanding Commercial Banking Transforming Community Banking Continued progress toward high performance goals measured by: Financial performance Growth in key customer segments Customer satisfaction Sustained revenue growth Strong capital position 14
WBS 2Q17 Earnings Efficiency Ratio non-gaap QTD ($ in thousands) 2Q17 1Q17 2Q16 Non-interest Expense $ 164,419 $ 163,784 $ 152,778 Severance and Facilities Optimization (1,587) (1,123) (260) Net Foreclosed (Expense) Income 143 (74) 123 Amortization of Intangibles (1,028) (1,055) (1,523) Non-interest Expense (net of above) $ 161,947 $ 161,532 $ 151,118 Net Interest Income Before Provision $ 197,787 $ 192,664 $ 176,905 FTE Adjustment 4,136 4,033 3,282 Non-interest Income 64,551 63,042 65,075 Gain on Securities 0 0 (94) Other 555 391 655 Total Revenue (net of above) $ 267,029 $ 260,130 $ 245,823 Efficiency Ratio 60.65% 62.10% 61.47% 15
WBS 2Q17 Earnings 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, income or loss, earnings or loss per share, and other financial items; (ii) statements of plans, objectives, and expectations of Webster or its management or Board of Directors; (iii) statements of future economic performance; and (iv) 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 forwardlooking 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. For more information about factors that could cause actual results to differ from those discussed in the forward-looking statements please refer to the 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. 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 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. 16