WEBSTER FINANCIAL CORPORATION Introduction
This discussion and analysis provides information that management believes is necessary to understandWebster's financial condition, changes in financial condition, results of operations, and cash flows for the three and six months endedJune 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 endedDecember 31, 2021 , included inWebster Financial Corporation's Annual Report on Form 10-K filed with theUnited States Securities and Exchange Commission (SEC) onFebruary 25, 2022 , and in conjunction with the Condensed Consolidated Financial Statements, and accompanying Notes thereto, included in Part I - Item 1. Financial Statements. The results of operations for the three and six months endedJune 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 ofDelaware in 1986, and headquartered inStamford, Connecticut .Webster Bank, National Association (Webster Bank ) is the principal consolidated subsidiary ofWebster Financial Corporation .Webster Bank , and itsHSA 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 northeasternU.S. fromNew York toMassachusetts , 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
OnJanuary 31, 2022 ,Webster completed its previously announced merger withSterling in an all-stock transaction valued at$5.2 billion . The merger expandedWebster's geographic footprint and combined two complementary organizations to create one of the largest commercial banks in the northeasternU.S. AtJune 30, 2022 , the combined company had$67.6 billion in assets,$45.6 billion in loans and leases, and$53.1 billion in deposits, and operated 202 financial centers throughout southernNew England and metro and suburbanNew York . In addition, onFebruary 18, 2022 ,Webster acquired 100% of the equity interests ofBend Financial, Inc. (Bend), a cloud-based platform solution provider for HSAs, in exchange for cash. The Bend acquisition acceleratesWebster's efforts underway to deliver enhanced user experiences atHSA Bank . Financial results for historical reporting periods reflect only the results ofWebster's operations prior to the corresponding merger or acquisition. The successful integration ofWebster's andSterling'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 ofJune 30, 2022 , include the rebranding of branches and digital assets, the coordination of credit policies and procedures, the selection of certain key operating systems and the completed consolidation of 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 launch of culture-shaping offsite workshops, which have been attended by the Company's senior leaders and managers, with a planned rollout to the entirety of employees in the second half of 2022. Key operating systems and process integration activities are ongoing, andWebster remains well-positioned to successfully execute its core conversion targeted for mid-2023. In addition, during the second quarter of 2022,Webster developed and launched a corporate real estate consolidation strategy, in which the Company has arranged to close 14 locations, primarily throughoutNew York andConnecticut , in order to reduce its corporate facility square footage by approximately 45% by the end of the year. During the three months endedJune 30, 2022 ,Webster recognized$23.1 million in right-of-use (ROU) asset impairment charges and a combined$7.7 million in related exist costs and accelerated depreciation on property and equipment, related to this corporate real estate consolidation strategy. Furthermore, in connection with theSterling merger,Webster re-evaluated its strategic priorities as a combined organization, which resulted in modifications to the Company's strategic initiatives that were announced inDecember 2020 . As a result, the Company released$4.1 million from its previously recorded severance accrual during the first half of 2022, with a corresponding adjustment to earnings. 1 -------------------------------------------------------------------------------- Additional information regardingWebster'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 June At or for the six months ended June
30, 30,
(In thousands, except per share and ratio data) 2022 2021 2022 2021
Income and performance ratios:
Net income $ 182,311 $ 94,035 $ 165,564 $ 202,113
Net income available to common shareholders 178,148 92,066 157,970 198,175
Earnings per diluted common share 1.00 1.01 0.97 2.19
Return on average assets (annualized) 1.10 % 1.12 % 0.55 % 1.21 %
Return on average tangible common shareholders'
equity (annualized) (non-GAAP) 14.50 14.26 7.11 15.51
Return on average common shareholders' equity 9.09 11.63 4.42 12.63
(annualized)
Non-interest income / total revenue 19.90 24.77 20.34 25.16 Asset quality: Allowance for credit losses on loans and leases$ 571,499 $ 307,945 $ 571,499 $ 307,945 Non-performing assets (1) 250,242 123,497 250,242 123,497 Allowance for credit losses on loans and leases / 1.25 % 1.43 % 1.25 % 1.43 % total loans and leases Net charge-offs (recoveries) / average loans and 0.09 (0.02) 0.09 0.04 leases (annualized) Non-performing loans and leases / total loans and 0.54 0.56 0.54 0.56 leases (1) Non-performing assets / total loans and leases plus 0.55 0.57 0.55 0.57 OREO (1) Allowance for credit losses on loans and leases / non-performing loans and leases (1) 230.88 255.05 230.88 255.05 Other ratios: Tangible equity (non-GAAP) 8.12 % 8.35 % 8.12 % 8.35 % Tangible common equity (non-GAAP) 7.68 7.91 7.68 7.91 Tier 1 risk-based capital 11.65 12.30 11.65 12.30 Total risk-based capital 13.91 13.70 13.91 13.70 CET1 risk-based capital 11.09 11.66 11.09 11.66 Shareholders' equity / total assets 11.83 9.86 11.83 9.86 Net interest margin 3.28 2.82 3.24 2.87 Efficiency ratio (non-GAAP) 45.25 56.64 46.82 57.56 Equity and share related: Common equity$ 7,713,809 $ 3,184,668 $ 7,713,809 $ 3,184,668 Book value per common share 43.82 35.15 43.82 35.15 Tangible book value per common share (non-GAAP) 28.31 28.99 28.31 28.99 Common stock closing price 42.15 53.34 42.15 53.34 Dividends and equivalents declared per common share 0.40 0.40 0.80 0.80 Common shares outstanding 176,041 90,594 176,041 90,594
Weighted-average common shares outstanding - basic 175,845
90,027 161,698 89,918
Weighted-average common shares outstanding - diluted 175,895
90,221 161,785 90,164
(1)Non-performing asset balances and related asset quality ratios exclude the impact of net unamortized (discounts)/premiums and net unamortized deferred (costs)/fees 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 understandingWebster'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 affectingWebster'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 evaluateWebster's capital position. The annualized return 2 -------------------------------------------------------------------------------- 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 assessWebster'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 wellWebster 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 June 30,
(Dollars and shares in thousands, except per share data) 2022 2021
Tangible book value per common share:
Shareholders' equity $ 7,997,788 $ 3,329,705
Less: Preferred stock 283,979 145,037
Goodwill and other intangible assets 2,729,551 558,485
Tangible common shareholders' equity $ 4,984,258 $ 2,626,183
Common shares outstanding 176,041 90,594
Tangible book value per common share $
28.31
Tangible common equity ratio: Tangible common shareholders' equity$ 4,984,258 $ 2,626,183 Total assets 67,595,021 33,753,752 Less: Goodwill and other intangible assets 2,729,551 558,485 Tangible assets$ 64,865,470 $ 33,195,267 Tangible common equity ratio 7.68 % 7.91 % 3
--------------------------------------------------------------------------------
Three months ended June 30, Six months ended June 30,
(Dollars in thousands) 2022 2021 2022 2021
Return on average tangible common
shareholders' equity:
Net income $ 182,311 $ 94,035 $ 165,564 $ 202,113
Less: Preferred stock dividends 4,163 1,969 7,594 3,938
Add: Intangible assets amortization, 6,954 894 11,999 1,794
tax-effected
Income adjusted for preferred stock dividends and intangible assets amortization$ 185,102 $ 92,960 $ 169,969 $ 199,969 Income adjusted for preferred stock dividends and intangible assets amortization (annualized)$ 740,408 $
371,840
$ 8,125,518 $
3,311,406
283,979 145,037 260,183 145,037
Average goodwill and other intangible 2,733,827 559,032 2,372,554 559,599
assets
Average tangible common shareholders' equity
14.50 % 14.26 % 7.11 % 15.51 %
shareholders' equity
Efficiency ratio:
Non-interest expense $ 358,227 $
187,028
(358) (137) (433) (46)
Intangible assets amortization 8,802 1,132 15,189 2,271
Operating lease depreciation 2,425 - 4,057 -
Merger-related expenses 66,640 17,047 175,135 17,047
Other expense (1) (152) 1,138 (4,292) 10,579
Non-interest expense $ 280,870 $
167,848
$ 486,660 $
220,852
11,732 2,487 19,890 4,982
Non-interest income 120,933 72,702 224,968 149,459
Other income (2) 3,805 309 6,887 586
Less: Operating lease depreciation 2,425 - 4,057 -
Income $ 620,705 $ 296,350 $ 1,128,596 $ 599,643
Efficiency ratio 45.25 % 56.64 % 46.82 % 57.56 %
(1)Other expense (non-GAAP) includes the net charges associated with the
strategic initiatives announced in
(2)Other income (non-GAAP) includes the taxable equivalent of net income generated from low income housing tax-credit (LIHTC) investments.
4
--------------------------------------------------------------------------------Net Interest Income
Net interest income isWebster's primary source of revenue, representing 80.1% and 79.7% of total revenue for the three and six months endedJune 30, 2022 , respectively, and 75.2% and 74.8% of total revenue for the three and six months endedJune 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
Net interest income increased$265.8 million , or 120.4%, from$220.9 million for the three months endedJune 30, 2021 , to$486.7 million for the three months endedJune 30, 2022 . On a fully tax-equivalent basis, net interest income increased$275.1 million . Net interest margin increased 46 basis points from 2.82% for the three months endedJune 30, 2021 , to 3.28% for the three months endedJune 30, 2022 . The increase is primarily attributed to the merger withSterling , and includes net purchase accounting accretion from acquired loans and leases, investment securities, and interest-bearing liabilities. Average interest-earning assets increased$28.5 billion , or 90.0%, from$31.6 billion for the three months endedJune 30, 2021 , to$60.1 billion for the three months endedJune 30, 2022 , primarily due to increases of$22.7 billion and$6.4 billion in average loans and leases and average total investment securities, respectively, which were partially offset by a$0.8 billion decrease in average interest-bearing deposits held at theFederal Reserve Bank (FRB). The average yield on interest-earning assets increased 51 basis points from 2.95% for the three months endedJune 30, 2021 , to 3.46% for the three months endedJune 30, 2022 . The increase in interest-earning assets and the increase in average yield were both impacted by theSterling merger. Average loans and leases increased$22.7 billion , or 106.0%, from$21.4 billion for the three months endedJune 30, 2021 , to$44.1 billion for the three months endedJune 30, 2022 , which was primarily due to the merger withSterling , 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. AtJune 30, 2022 , and 2021, the loan and lease portfolio comprised 73.5% and 67.8% of total average interest-earning assets, respectively. The average yield on loans and leases increased 46 basis points from 3.46% for the three months endedJune 30, 2021 , to 3.92% for the three months endedJune 30, 2022 , primarily due to a higher yield on the acquiredSterling loans and leases, net purchase accounting accretion, and higher market rates. Average total investment securities increased$6.4 billion , or 71.7%, from$8.8 billion for the three months endedJune 30, 2021 , to$15.2 billion for the three months endedJune 30, 2022 , primarily due to the merger withSterling . AtJune 30, 2022 , and 2021, the investment securities portfolio comprised 25.3% and 28.0% of total average interest-earning assets, respectively. The average yield on investment securities increased 9 basis points from 2.13% for the three months endedJune 30, 2021 , to 2.22% for the three months endedJune 30, 2022 . The increase was primarily due to the rising interest rate environment and a higher yield on the acquiredSterling investment securities portfolio net of purchase premium amortization. Average interest-bearing deposits held at the FRB decreased$0.8 billion , or 61.5%, from$1.3 billion for the three months endedJune 30, 2021 , to$0.5 billion for the three months endedJune 30, 2022 , primarily due to excess customer liquidity in the prior period as a result of government stimulus and reduced spending. AtJune 30, 2022 , and 2021, interest-bearing deposits held at the FRB comprised 0.81% and 4.02% of total average interest-earning assets, respectively. The average yield on interest-bearing deposits held at the FRB increased 68 basis points from 0.11% for the three months endedJune 30, 2021 , to 0.79% for the three months endedJune 30, 2022 , primarily due to higher market rates. Average interest-bearing liabilities increased$26.8 billion , or 89.5%, from$29.9 billion for the three months endedJune 30, 2021 , to$56.7 billion for the three months endedJune 30, 2022 , primarily due to increases of$24.7 billion ,$0.5 billion ,$1.1 billion , and$0.5 billion , in average total deposits, average federal funds purchased, averageFederal Home Loan Bank (FHLB) advances, and average long-term debt, respectively. The average rate on interest-bearing liabilities increased 5 basis points from 0.14% for the three months endedJune 30, 2021 , to 0.19% for the three months endedJune 30, 2022 , primarily due to the subordinated debt assumed fromSterling in the merger and the purchase of federal funds in the current period, which were partially offset by customer preferences to hold more liquid, lower cost deposit products. 5 -------------------------------------------------------------------------------- Average total deposits increased$24.7 billion , or 86.0%, from$28.7 billion for the three months endedJune 30, 2021 , to$53.4 billion for the three months endedJune 30, 2022 , reflecting increases of$6.6 billion and$18.1 billion in non-interest-bearing deposits and interest-bearing deposits, respectively. The overall increase in deposits was primarily due to the merger withSterling , as well as the strong liquidity position of both commercial and consumer customers, and HSA growth. AtJune 30, 2022 , and 2021, deposits comprised 94.2% and 96.0% of total average interest-bearing liabilities, respectively. The average rate on deposits increased 2 basis points from 0.07% for the three months endedJune 30, 2021 , to 0.09% for the three months endedJune 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 9.6% for the three months endedJune 30, 2021 , to 6.7% for the three months endedJune 30, 2022 , primarily due to customer preferences to hold more liquid, lower cost deposit products. Average federal funds purchased were$0.5 billion for the three months endedJune 30, 2022 , and had an average rate of 0.93%. There were no average federal funds purchased for the three months endedJune 30, 2021 . AtJune 30, 2022 , federal funds purchased comprised 0.94% of total average interest-bearing liabilities. Average FHLB advances increased$1.1 billion , or 735.1%, from$0.1 billion for the three months endedJune 30, 2021 to$1.2 billion for the three months endedJune 30, 2022 , primarily due to short-term funding needs. AtJune 30, 2022 , and 2021, FHLB advances comprised 2.04% and 0.46% of total average interest-bearing liabilities, respectively. The average rate on FHLB advances decreased 44 basis points from 1.52% for the three months endedJune 30, 2021 , to 1.08% for the three months endedJune 30, 2022 , primarily due to market rates on new borrowings. Average long-term debt increased$0.5 billion , or 90.4%, from$0.6 billion for the three months endedJune 30, 2021 , to$1.1 billion for the three months endedJune 30, 2022 , primarily due to the merger withSterling . At bothJune 30, 2022 and 2021, long-term debt comprised 1.9% of total average interest-bearing liabilities. The average rate on long-term debt increased 16 basis points from 3.22% for the three months endedJune 30, 2021 , to 3.38% for the three months endedJune 30, 2022 , primarily due to the subordinated debt assumed fromSterling in the merger.
Comparison to Prior Year to Date
Net interest income increased$436.3 million , or 98.1%, from$444.6 million for the six months endedJune 30, 2021 , to$880.9 million for the six months endedJune 30, 2022 . On a fully tax-equivalent basis, net interest income increased$451.2 million . Net interest margin increased 37 basis points from 2.87% for the six months endedJune 30, 2021 , to 3.24% for the six months endedJune 30, 2022 . The increase is primarily attributed to the merger withSterling , and includes net purchase accounting accretion from acquired loans and leases, investment securities, and interest-bearing liabilities. Average interest-earning assets increased$23.8 billion , or 76.0%, from$31.4 billion for the six months endedJune 30, 2021 , to$55.2 billion for the six months endedJune 30, 2022 , primarily due to increases of$18.6 billion and$5.4 billion in average loans and leases and average total investment securities, respectively. The average yield on interest-earning assets increased 39 basis points from 3.01% for the six months endedJune 30, 2021 , to 3.40% for the six months endedJune 30, 2022 . The increase in interest-earning assets and the increase in average yield were both impacted by theSterling merger. Average loans and leases increased$18.6 billion , or 86.7%, from$21.4 billion for the six months endedJune 30, 2021 , to$40.0 billion for the six months endedJune 30, 2022 , which was primarily due to the merger withSterling , 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. AtJune 30, 2022 , and 2021, the loan and lease portfolio comprised 72.5% and 68.4% of total average interest-earning assets, respectively. The average yield on loans and leases increased 40 basis points from 3.51% for the six months endedJune 30, 2021 , to 3.91% for the six months endedJune 30, 2022 , primarily due to a higher yield on the acquiredSterling loans and leases, net purchase accounting accretion, and higher market rates. Average total investment securities increased$5.4 billion , or 61.3%, from$8.9 billion for the six months endedJune 30, 2021 , to$14.3 billion for the six months endedJune 30, 2022 , primarily due to the merger withSterling , as well as the deployment of excess liquidity. AtJune 30, 2022 , and 2021, the investment securities portfolio comprised 25.9% and 28.2% of total average interest-earning assets, respectively. The average yield on investment securities decreased 1 basis points from 2.13% for the six months endedJune 30, 2021 , to 2.12% for the six months endedJune 30, 2022 . This was primarily due to the reinvestment of maturing securities at lower yields. Average interest-bearing liabilities increased$22.3 billion , or 75.3%, from$29.7 billion for the six months endedJune 30, 2021 , to$52.0 billion for the six months endedJune 30, 2022 , primarily due to increases of$21.2 billion ,$0.3 billion ,$0.5 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 1 basis point from 0.15% for the six months endedJune 30, 2021 , to 0.16% for the six months endedJune 30, 2022 , primarily due to higher market interest rates and the mix of funding sources. 6
-------------------------------------------------------------------------------- Average total deposits increased$21.2 billion , or 74.3%, from$28.5 billion for the six months endedJune 30, 2021 , to$49.7 billion for the six months endedJune 30, 2022 , reflecting increases of$5.7 billion and$15.4 billion in non-interest-bearing deposits and interest-bearing deposits, respectively. The overall increase in deposits was primarily due to the merger withSterling , as well as the strong liquidity position of retail and commercial customers, and HSA growth. AtJune 30, 2022 , and 2021, deposits comprised 95.4% and 95.9% of total average interest-bearing liabilities, respectively. The average rate on deposits remained flat at 0.08% for the six months endedJune 30, 2022 , and 2021. Time deposits as a percentage of total interest-bearing deposits decreased from 10.3% for the six months endedJune 30, 2021 , to 7.0% for the six months endedJune 30, 2022 , primarily due to customer preferences to hold more liquid, lower cost deposit products. Average federal funds purchased increased$0.3 billion , or 731.0%, from$32.3 million for the six months endedJune 30, 2021 , to$0.3 billion for the six months endedJune 30, 2022 , primarily due to short-term funding needs. AtJune 30, 2022 , and 2021, federal funds purchased comprised 0.52% and 0.11% of total average interest-bearing liabilities, respectively. The average rate on federal funds purchased increased 85 basis points from 0.08% for the six months endedJune 30, 2021 , to 0.93% for the six months endedJune 30, 2022 , primarily due to market interest rates. Average FHLB advances increased$0.5 billion , or 327.92%, from$0.1 billion for the six months endedJune 30, 2021 , to$0.6 billion for the six months endedJune 30, 2022 , primarily due short-term funding needs. AtJune 30, 2022 , and 2021, FHLB advances comprised 1.1% and 0.5% of total average interest-bearing liabilities, respectively. The average rate on FHLB advances decreased 43 basis points from 1.52% for the six months endedJune 30, 2021 , to 1.09% for the six months endedJune 30, 2022 , primarily due to the maturity of borrowings with higher yields. Average long-term debt increased$0.4 billion , or 74.3%, from$0.6 billion for the six months endedJune 30, 2021 , to$1.0 billion for the six months endedJune 30, 2022 , primarily due to the merger withSterling . At bothJune 30, 2022 , and 2021, long-term debt comprised 1.9% of total average interest-bearing liabilities. The average rate on long-term debt increased 14 basis points from 3.22% for the six months endedJune 30, 2021 , to 3.36% for the six months endedJune 30, 2022 , primarily due to the subordinated debt assumed fromSterling in the merger. 7 --------------------------------------------------------------------------------
The following tables present daily average balances, interest, yield/rate, and net interest margin on a fully tax-equivalent basis:
Three months ended June 30,
2022 2021
Average Interest Average Interest
(Dollars in thousands) Balance Income/Expense Average Yield/Rate Balance Income/Expense Average Yield/Rate
Assets Interest-earning assets: Loans and leases (1)$ 44,120,698 $ 436,462 3.92 %$ 21,413,439 $ 186,681 3.46 % Investment securities: (2) Taxable 12,573,908 73,294 2.27 8,106,310 41,299 2.06 Non-taxable 2,591,606 12,664 1.95 728,549 5,283 2.90 Total investment securities 15,165,514 85,958 2.22 8,834,859 46,582 2.13 FHLB and FRB stock 262,695 2,072 3.16 77,292 382 1.98 Interest-bearing deposits (3) 488,870 980 0.79 1,270,121 347 0.11 Loans held for sale 18,172 7 0.15 8,898 53 2.37 Total interest-earning assets 60,055,949$ 525,479 3.46 % 31,604,609$ 234,045 2.95 % Non-interest-earning assets 6,016,193 1,901,412 Total assets$ 66,072,142 $ 33,506,021 Liabilities and Shareholders' Equity Interest-bearing liabilities: Demand deposits$ 13,395,942 $ - - %$ 6,774,206 $ - - % Health savings accounts 7,812,313 1,125 0.06 7,446,735 1,650 0.09
Interest-bearing checking, money market and savings 29,486,846
10,165 0.14 12,365,074 1,603 0.05
Time deposits 2,684,914 1,169 0.17 2,114,889 1,841 0.35
Total deposits 53,380,015 12,459 0.09 28,700,904 5,094 0.07
Securities sold under agreements to repurchase 529,786 1,423 1.06 500,638 860 0.68
Federal funds purchased 534,518 1,254 0.93 - - -
FHLB advances 1,156,449 3,164 1.08 138,483 534 1.52
Long-term debt (2) 1,077,395 8,787 3.38 565,874 4,218 3.22
Total borrowings 3,298,148 14,628 1.79 1,204,995 5,612 1.93
Total interest-bearing liabilities 56,678,163 $ 27,087 0.19 % 29,905,899 $ 10,706 0.14 %
Non-interest-bearing liabilities 1,268,461 288,716
Total liabilities 57,946,624 30,194,615
Preferred stock 283,979 145,037
Common shareholders' equity 7,841,539 3,166,369
Total shareholders' equity 8,125,518 3,311,406
Total liabilities and shareholders' equity $ 66,072,142 $ 33,506,021
Tax-equivalent net interest income $ 498,392 $ 223,339
Less: Tax-equivalent adjustments (11,732) (2,487) Net interest income$ 486,660 $ 220,852 Net interest margin (4) 3.28 % 2.82 %
(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 approximates net interest margin for all periods presented.
8
--------------------------------------------------------------------------------
Six months ended June 30,
2022 2021
Average Interest Average Interest
(Dollars in thousands) Balance Income/Expense Average Yield/Rate Balance Income/Expense Average Yield/Rate
Assets Interest-earning assets: Loans and leases (1)$ 40,039,437 $ 785,879 3.91 %$ 21,447,192 $ 377,969 3.51 % Investment securities: (2) Taxable 12,020,675 130,761 2.15 8,129,404 82,243 2.06 Non-taxable 2,277,672 22,466 1.97 732,910 10,616 2.90 Total investment securities 14,298,347 153,227 2.12 8,862,314 92,859 2.13 FHLB and FRB stock 214,792 2,893 2.72 77,461 619 1.61 Interest-bearing deposits (3) 643,210 1,433 0.44 976,873 523 0.11 Loans held for sale 18,046 33 0.36 11,610 144 2.48 Total interest-earning assets 55,213,832$ 943,465 3.40 % 31,375,450$ 472,114 3.01 % Non-interest-earning assets 5,257,642 1,941,640 Total assets$ 60,471,474 $ 33,317,090 Liabilities and Shareholders' Equity Interest-bearing liabilities: Demand deposits$ 12,335,504 $ - - %$ 6,606,464 $ - - % Health savings accounts 7,786,035 2,212 0.06 7,448,943 3,257 0.09
Interest-bearing checking, money market and savings 26,915,923
15,184 0.11 12,181,295 3,323 0.06
Time deposits 2,614,989 2,462 0.19 2,242,250 4,953 0.45
Total deposits 49,652,451 19,858 0.08 28,478,952 11,533 0.08
Securities sold under agreements to repurchase 553,282 2,379 0.86 479,285 1,482 0.61
Federal funds purchased 268,735 1,254 0.93 32,337 13 0.08
Other borrowings - 1 - - - -
FHLB advances 586,857 3,220 1.09 137,143 1,047 1.52
Long-term debt (2) 987,353 15,955 3.36 566,462 8,441 3.22
Total borrowings 2,396,227 22,809 1.93 1,215,227 10,983 1.87
Total interest-bearing liabilities 52,048,678 $ 42,667 0.16 % 29,694,179 $ 22,516 0.15 %
Non-interest-bearing liabilities 1,010,331 339,949
Total liabilities 53,059,009 30,034,128
Preferred stock 260,183 145,037
Common shareholders' equity 7,152,282 3,137,925
Total shareholders' equity 7,412,465 3,282,962
Total liabilities and shareholders' equity $ 60,471,474 $ 33,317,090
Tax-equivalent net interest income $ 900,798 $ 449,598
Less: Tax-equivalent adjustments (19,890) (4,982) Net interest income$ 880,908 $ 444,616 Net interest margin (4) 3.24 % 2.87 %
(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 approximates net interest margin for all periods presented.
9
--------------------------------------------------------------------------------The following table summarizes the change in net interest income attributable to changes in rate and volume, and reflects net interest income on a fully tax-equivalent basis:
Three months ended June 30, Six months ended June 30,
2022 vs. 2021 2022 vs. 2021
Increase (decrease) due to Increase (decrease) due to
(In thousands) Rate (1) Volume Total Rate (1) Volume Total
Interest on interest-earning assets:
Loans and leases $ 97,892 $ 151,889 $ 249,781 $ 158,127 $ 249,784 $ 407,911
Investment securities 9,481 29,895 39,376 8,976 51,392 60,368
FHLB and FRB stock 774 915 1,689 1,177 1,097 2,274
Interest bearing-deposits 847 (214) 633 1,089 (179) 910
Loans held for sale 10 (56) (46) 5 (116) (111)
Total interest income $ 109,004 $ 182,429 $ 291,433 $ 169,374 $ 301,978 $ 471,352
Interest on interest-bearing
liabilities:
Health savings accounts $ (606) $ 81 $
(525)
8,464 99 8,563 11,471 391 11,862
market, and savings
Time deposits (232) (441) (673) (1,254) (1,237) (2,491)
Securities sold under agreements to 514 50 564 669 229 898
repurchase
Federal funds purchased 1,254 - 1,254 1,147 95 1,242
Other borrowings - - - 1 - 1
FHLB advances (1,289) 3,920 2,631 (1,260) 3,433 2,173
Long-term debt 445 4,121 4,566 728 6,785 7,513
Total interest expense $ 8,550 $ 7,830 $ 16,380 $ 10,309 $ 9,843 $ 20,152
Net change in net interest income $ 100,454 $ 174,599 $ 275,053 (1)The change attributable to mix, a combined impact of rate and volume, is included with the change due to rate.
Provision for Credit Losses
Comparison to Prior
The provision for credit losses increased$33.7 million , or 156.9%, from a benefit of$21.5 million for the three months endedJune 30, 2021 , to an expense of$12.2 million for the three months endedJune 30, 2022 . The increase is primarily attributed to the release of reserves in the prior period as a result of improvements in the forecasted economic outlook and favorable credit trends atJune 30, 2021 , as the COVID-19 pandemic receded. During the three months endedJune 30, 2022 , and 2021, total net charge-offs (recoveries) were$9.6 million and$(1.2) million , respectively. The$10.8 million increase is primarily attributed to an increase in net charge-offs in the commercial non-mortgage, commercial real estate, and home equity categories, due to favorable credit performance in the prior period, as the economy benefited from the support of federal stimulus programs.
Comparison to Prior Year to Date
The provision for credit losses increased$248.4 million , or 525.6%, from a benefit of$47.3 million for the six months endedJune 30, 2021 , to an expense of$201.1 million for the six months endedJune 30, 2022 . The increase is primarily attributed to the establishment of the initial ACL of$175.1 million for non-purchased credit deteriorated (PCD) loans and leases that were acquired fromSterling , as well as organic loan growth. During the six months endedJune 30, 2022 , and 2021, total net charge-offs were$18.5 million and$4.2 million , respectively. The$14.3 million increase is primarily attributed to an increase in net charge-offs in the commercial non-mortgage category, partially offset by a decrease in net charge-offs in the commercial real estate and other consumer categories, due to favorable credit performance in the prior period, as the economy benefited from the support of federal stimulus programs.
Additional information regarding the Company's provision for credit losses and ACL can be found under the sections captioned "Loans and Leases" through "Allowance for Credit Losses" contained elsewhere in Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
10
--------------------------------------------------------------------------------Non-Interest Income
Six months ended June
Three months ended June 30, 30,
(Dollars in thousands) 2022 2021 2022 2021
Deposit service fees $ 51,385 $ 41,439 $ 99,212 $ 81,908
Loan and lease related fees 27,907 7,862 50,586 16,175
Wealth and investment services 11,244 10,087 21,841 19,490
Mortgage banking activities 102 1,319 530 3,961
Increase in cash surrender value of life 8,244 3,603 14,976 7,136
insurance policies
Other income 22,051 8,392 37,823 20,789
Total non-interest income $ 120,933 $ 72,702 $ 224,968 $ 149,459 Comparison to Prior
Total non-interest income increased$48.2 million , or 66.3%, from$72.7 million for the three months endedJune 30, 2021 to$120.9 million for the three months endedJune 30, 2022 , due to increases in deposit service fees, loan and lease related fees, wealth and investment services, the cash surrender value of life insurance policies, and other income, the majority of which were primarily driven by the merger withSterling , partially offset by a decrease in mortgage banking activities. Deposit service fees increased$10.0 million , or 24.0%, from$41.4 million for the three months endedJune 30, 2021 to$51.4 million for the three months endedJune 30, 2022 , primarily due to the merger withSterling , as well as higher interchange income from increased debit card spending in the HSA and Consumer Banking segments. Loan and lease related fees increased$20.0 million , or 255.0%, from$7.9 million for the three months endedJune 30, 2021 to$27.9 million for the three months endedJune 30, 2022 , primarily due to the merger withSterling , which included$3.1 million of operating lease income, as well as an increase in prepayment penalties, syndication fees, and other loan related fees.
Wealth and investment services increased
Mortgage banking activities decreased$1.2 million , or 92.3%, from$1.3 million for the three months endedJune 30, 2021 to$0.1 million for the three months endedJune 30, 2022 , primarily due to lower originations for sale, as the Company continues to execute on its strategic decision to originate residential mortgage loans for investment rather than for sale.
The cash surrender value of life insurance policies increased
Other income increased$13.7 million , or 162.8%, from$8.4 million for the three months endedJune 30, 2021 to$22.1 million for the three months endedJune 30, 2022 , primarily due to higher income from client interest rate derivative activities.
Comparison to Prior Year to Date
Total non-interest income increased$75.5 million , or 50.5%, from$149.5 million for the six months endedJune 30, 2021 to$225.0 million for the six months endedJune 30, 2022 , due to increases in deposit service fees, loan and lease related fees, wealth and investment services, the cash surrender value of life insurance policies, and other income, the majority of which were primarily driven by the merger withSterling , partially offset by a decrease in mortgage banking activities. Deposit service fees increased$17.3 million , or 21.1%, from$81.9 million for the six months endedJune 30, 2021 to$99.2 million for the six months endedJune 30, 2022 , primarily due to the merger withSterling , as well as higher interchange income from increased debit card spending in the HSA and Consumer Banking segments.
Loan and lease related fees increased
Wealth and investment services increased
Mortgage banking activities decreased$3.5 million , or 86.6%, from$4.0 million for the six months endedJune 30, 2021 to$0.5 million for the six months endedJune 30, 2022 , primarily due to lower originations for sale, as the Company continues to execute on its strategic decision to originate residential mortgage loans for investment rather than for sale. The cash surrender value of life insurance policies increased$7.9 million , or 109.9%, from$7.1 million for the six months endedJune 30, 2021 to$15.0 million for the six months endedJune 30, 2022 , primarily due to the additional bank-owned life insurance policies acquired in the merger withSterling . 11 -------------------------------------------------------------------------------- Other income increased$17.0 million , or 81.9%, from$20.8 million for the six months endedJune 30, 2021 to$37.8 million for the six months endedJune 30, 2022 , primarily due to an increase in income due to the impact of the merger withSterling , higher income from client interest rate derivative activities, and gains on sale of loans not originated for sale.
Non-Interest Expense
Six months ended June
Three months ended June 30, 30,
(Dollars in thousands) 2022 2021 2022 2021
Compensation and benefits $ 187,656 $ 97,754 $ 371,658 $ 205,354
Occupancy 51,593 14,010 70,208 29,660
Technology and equipment 41,498 27,124 96,899 55,640
Intangible assets amortization 8,802 1,132 15,189 2,271
Marketing 3,441 3,227 6,950 5,731
Professional and outside services 15,332 21,025 69,423 30,801
Deposit insurance 6,748 3,749 11,970 7,705
Other expense 43,157 19,007 75,715 37,848
Total non-interest expense $ 358,227 $ 187,028 $ 718,012 $ 375,010 Comparison to Prior
Total non-interest expense increased$171.2 million , or 91.5%, from$187.0 million for the three months endedJune 30, 2021 to$358.2 million for the three months endedJune 30, 2022 , primarily due to increases in compensation and benefits, occupancy, technology and equipment, intangible assets amortization, deposit insurance, and other expense, all of which were primarily driven by the merger withSterling , partially offset by a decrease in professional and outside services. Compensation and benefits increased$89.9 million , or 92.0%, from$97.8 million for the three months endedJune 30, 2021 to$187.7 million for the three months endedJune 30, 2022 , primarily due to a$23.7 million increase in merger-related expenses, particularly as it relates to severance, retention, and executive synergy stock awards, and higher salaries and incentives related to the increase in employees as a result of the merger. Occupancy increased$37.6 million , or 268.3%, from$14.0 million for the three months endedJune 30, 2021 to$51.6 million for the three months endedJune 30, 2022 , primarily due to the Company's consolidation plan to reduce its corporate facility square footage, which resulted in a$23.1 million ROU asset impairment charge in the second quarter of 2022, and a combined$7.7 million in related exit costs and accelerated depreciation on property and equipment, as well as additional operating lease costs and depreciation related to the acquiredSterling banking centers and corporate offices. Technology and equipment increased$14.4 million , or 53.0%, from$27.1 million for the three months endedJune 30, 2021 to$41.5 million for the three months endedJune 30, 2022 , primarily due to an increase in technology and equipment service contracts due to the impact of the merger withSterling . Intangible assets amortization increased$7.7 million , or 677.6%, from$1.1 million for the three months endedJune 30, 2021 to$8.8 million for the three months endedJune 30, 2022 , due to the additional amortization expense related to the core deposit and customer relationship intangible assets acquired in connection with theSterling merger and Bend acquisition. Professional and outside services decreased$5.7 million , or 27.1%, from$21.0 million for the three months endedJune 30, 2021 to$15.3 million for the three months endedJune 30, 2022 , primarily due to a$12.5 million decrease in merger-related expenses, particularly as it relates to advisory, legal, and consulting fees, partially offset by an increase in professional service costs due to the impact of the merger withSterling . Deposit insurance increased$3.0 million , or 80.0%, from$3.7 million for the three months endedJune 30, 2021 to$6.7 million for the three months endedJune 30, 2022 , primarily due to an increase in the Company's deposit insurance assessment base resulting from the merger withSterling . Other expense increased$24.2 million , or 127.1%, from$19.0 million for the three months endedJune 30, 2021 to$43.2 million for the three months endedJune 30, 2022 , primarily due to an increase in expenses due to the impact of the merger withSterling , which included$2.4 million of operating lease depreciation, and a$6.6 million increase in merger-related expenses, particularly as it relates to disposals of property and equipment and litigation costs.
Comparison to Prior Year to Date
Total non-interest expense increased$343.0 million , or 91.5%, from$375.0 million for the six months endedJune 30, 2021 to$718.0 million for the six months endedJune 30, 2022 , primarily due to increases in compensation and benefits, occupancy, technology and equipment, intangible assets amortization, professional and outside services, deposit insurance, and other expense, all of which were primarily driven by the merger withSterling . 12 -------------------------------------------------------------------------------- Compensation and benefits increased$166.3 million , or 81.0%, from$205.4 million for the six months endedJune 30, 2021 to$371.7 million for the six months endedJune 30, 2022 , primarily due to a$65.2 million increase in merger-related expenses, particularly as it relates to severance, retention, and executive synergy stock awards, and higher salaries and incentives related to the increase in employees as a result of the merger, partially offset by a decrease in strategic initiatives charges. Occupancy increased$40.5 million , or 136.7%, from$29.7 million for the six months endedJune 30, 2021 to$70.2 million for the six months endedJune 30, 2022 , primarily due to the Company's consolidation plan to reduce its corporate facility square footage, which resulted in a$23.1 million ROU asset impairment charge in the second quarter of 2022, and a combined$7.7 million in related exit costs and accelerated depreciation on property and equipment, as well as additional operating lease costs and depreciation related to the acquiredSterling banking centers and corporate offices. These increases were partially offset by a decrease in strategic initiatives charges. Technology and equipment increased$41.3 million , or 74.2%, from$55.6 million for the six months endedJune 30, 2021 to$96.9 million for the six months endedJune 30, 2022 , primarily due to a$19.9 million increase in merger-related expenses, which included$17.7 million in contract termination costs, and an increase in technology and equipment service contracts due to the impact of the merger withSterling . Intangible assets amortization increased$12.9 million , or 568.8%, from$2.3 million for the six months endedJune 30, 2021 to$15.2 million for the six months endedJune 30, 2022 , due to the additional amortization expense related to the core deposit and customer relationship intangible assets acquired in connection with theSterling merger and Bend acquisition. Professional and outside services increased$38.6 million , or 125.4%, from$30.8 million for the six months endedJune 30, 2021 to$69.4 million for the six months endedJune 30, 2022 , primarily due to a$32.0 million increase in merger-related expenses, particularly as it relates to advisory, legal, and consulting fees, and an increase in professional service costs due to the impact of the merger withSterling , partially offset by a decrease in strategic initiative charges. Deposit insurance increased$4.3 million , or 55.4%, from$7.7 million for the six months endedJune 30, 2021 to$12.0 million for the six months endedJune 30, 2022 , primarily due to an increase in the Company's deposit insurance assessment base resulting from the merger withSterling . Other expense increased$37.9 million , or 100.1%, from$37.8 million for the six months endedJune 30, 2021 to$75.7 million for the six months endedJune 30, 2022 , primarily due to an increase in expenses due to the impact of the merger withSterling , which included$4.1 million of operating lease depreciation, and a$9.6 million increase in merger-related expenses, particularly as it relates to disposals of property and equipment, litigation costs, and transfer taxes.
Income Taxes
Comparison to Prior
Webster recognized income tax expense of$54.8 million and$34.0 million for the three months endedJune 30, 2022 , and 2021, respectively, reflecting effective tax rates of 23.1% and 26.6%, respectively. The increase in income tax expense is due to a higher level of pre-tax income recognized during the three months endedJune 30, 2022 , resulting from the impact of the Company's merger withSterling . The decrease in the effective tax rate primarily reflects a reduction in merger-related expenses recognized during the three months endedJune 30, 2022 , that were estimated to be nondeductible for income tax purposes, as compared to the three months endedJune 30, 2021 , which also reflected a lower level of pre-tax income. The decrease in the effective tax rate also reflects increased tax-exempt income and tax credits, partially offset by the effects of a higher level of pre-tax income and rate of state and local tax (SALT) in 2022 as compared to 2021, resulting from the merger withSterling .
Comparison to Prior Year to Date
Webster recognized income tax expense of$21.2 million and$64.2 million for the six months endedJune 30, 2022 , and 2021, respectively, reflecting effective tax rates of 11.4% and 24.1%, respectively. The decrease in both income tax expense and the effective tax rate primarily reflects the Company's$50.3 million pre-tax loss recognized during the three months endedMarch 31, 2022 , which was driven by the one-time charges incurred as a result of the merger withSterling . These decreases also reflect the$13.7 million deferred SALT benefit recognized during the three months endedMarch 31, 2022 associated with the merger withSterling , of which$9.9 million related to a change in management's estimate about the realizability of its SALT deferred tax assets (DTAs) due to an estimated increase in future taxable income. These effects were partially offset by the effect of$28.4 million of merger-related expenses recognized during the six months endedJune 30, 2022 that were estimated to be nondeductible for income tax purposes, as compared to$16.1 million recognized during the six months endedJune 30, 2021 . 13 -------------------------------------------------------------------------------- AtJune 30, 2022 , andDecember 31, 2021 ,Webster recorded a valuation allowance on its DTAs of$29.2 million and$37.4 million , respectively. The$29.2 million atJune 30, 2022 , reflects a reduction of$9.9 million for the change in estimate discussed above, and includes a$1.7 million valuation allowance related to the Bend acquisition. AtJune 30, 2022 , andDecember 31, 2021 ,Webster's gross DTAs included$68.7 million and$64.4 million , respectively, applicable to SALT net operating loss carryforwards that are available to offset future taxable income. The$68.7 million atJune 30, 2022 , includes$5.6 million related to theSterling merger and$1.1 million related to the Bend acquisition.Webster's total gross DTAs atJune 30, 2022 , also included$5.6 million and$0.5 million , respectively, of federal net operating loss and credit carryforwards related to theSterling merger and Bend acquisition, which are subject to annual limitations on utilization. The ultimate realization of DTAs is dependent on the generation of future taxable income during the periods in which the net operating loss and credit carryforwards are available. In making its assessment, management considers the Company's forecasted future results of operations, estimates the content and apportionment of its income by legal entity over the near term for SALT purposes, and also applies longer-term growth rate assumptions. Based on its estimates, management believes it is more likely than not that the Company will realize its DTAs, net of the valuation allowance, atJune 30, 2022 . However, it is possible that some or all ofWebster's net operating loss and credit carryforwards could expire unused or that more net operating loss and credit carryforwards could be utilized than estimated, either as a result of changes in future forecasted levels of taxable income or if future economic or market conditions or interest rates were to vary significantly from the Company's forecasts and, in turn, impact its future results of operations. Additional information regardingWebster's income taxes, including its DTAs, can be found within Note 10: Income Taxes in the Notes to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data of the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 . Segment ReportingWebster's operations are organized into three reportable segments that represent its primary businesses: Commercial Banking,HSA Bank , and Consumer Banking. These segments reflect how executive management responsibilities are assigned, how discrete financial information is evaluated, the type of customer served, and how products and services are provided. Segments are evaluated using pre-tax, pre-provision net revenue (PPNR). CertainTreasury activities, along with the amounts required to reconcile profitability metrics to those reported in accordance with GAAP, are included in the Corporate and Reconciling category. Additional information regarding the Company's reportable segments and its segment reporting methodology can be found within Note 16: Segment Reporting in the Notes to Condensed Consolidated Financial Statements contained in Part I - Item 1. Financial Statements. EffectiveJanuary 1, 2022 ,Webster realigned its investment services operations from Commercial Banking to Consumer Banking to better serve its customers and deliver operational efficiencies. Under this realignment,$125.4 million of deposits and$4.3 billion of assets under administration (off-balance sheet) were reassigned from Commercial Banking to Consumer Banking. There was no goodwill reallocation nor goodwill impairment as a result of the reorganization. In addition, the non-interest expense allocation methodology was modified to exclude certain overhead and merger-related costs that are not directly related to segment performance. Prior period results of operations have been recast accordingly to reflect the realignment.
The following is a description of
Commercial Banking serves corporate customers with more than$2 million of revenues through itsCommercial Real Estate , Business Banking, Capital Finance, Middle Market, Public Sector Finance, Sponsor and Specialty Finance, Mortgage Warehouse Lending, Private Banking, and Treasury Management components.HSA Bank offers a comprehensive consumer-directed healthcare solution that includes HSAs, health reimbursement arrangements, flexible spending accounts, and commuter benefits. HSAs are used in conjunction with high deductible health plans in order to facilitate tax advantages for account holders with respect to health care spending and savings, in accordance with applicable laws. HSAs are distributed nationwide directly to employers and individual consumers, as well as through national and regional insurance carriers, benefit consultants, and financial advisors.HSA Bank deposits provide long duration, low-cost funding that is used to minimize the Company's use of wholesale funding in support of its loan growth. In addition, non-interest revenue is generated predominantly through service fees and interchange income. Consumer Banking serves individual customers and small businesses with less than$2 million of revenues by offering consumer deposits, residential mortgages, home equity lines, secured and unsecured loans, debit and credit card products, and investment services. Consumer Banking operates a distribution network consisting of 202 banking centers and 359 ATMs, a customer care center, and a full range of web and mobile-based banking services, primarily throughout southernNew England and theNew York Metro and Suburban markets. 14 --------------------------------------------------------------------------------
Commercial Banking
Operating Results:
Three months ended June 30, Six months ended June 30,
(In thousands) 2022 2021 2022 2021
Net interest income $ 333,421 $ 140,589 $ 620,490 $ 282,075
Non-interest income 49,430 18,378 88,173 36,754
Non-interest expense 102,720 46,275 191,960 92,559
Pre-tax, pre-provision net revenue $ 280,131 $
112,692
Comparison to Prior
Commercial Banking's PPNR increased$167.4 million , or 148.6%, for the three months endedJune 30, 2022 , as compared to the three months endedJune 30, 2021 , due to increases in both net interest income and non-interest income, partially offset by an increase in non-interest expense, all of which were primarily driven by the merger withSterling . The$192.8 million increase in net interest income is primarily attributed to incremental loan and deposit balances acquired fromSterling , loan and deposit growth, and higher interest rates. The$31.1 million increase in non-interest income is primarily attributed to incremental fee income due to the merger, increased client hedging activity, and loan and lease related fees. The$56.4 million increase in non-interest expense is primarily attributed to incremental expenses incurred related to the acquiredSterling commercial business, and costs to support growth within the loan and deposit portfolios.
Comparison to Prior Year to Date
Commercial Banking's PPNR increased$290.4 million , or 128.4%, for the six months endedJune 30, 2022 as compared to the six months endedJune 30, 2021 , due to increases in both net interest income and non-interest income, partially offset by an increase in non-interest expense, all of which were primarily driven by the merger withSterling . The$338.4 million increase in net interest income is primarily attributed to incremental loan and deposit balances acquired fromSterling , and loan and deposit growth. The$51.4 million increase in non-interest income is primarily attributed to incremental fee income due to the merger, increased client hedging activity, and loan and lease related fees. The$99.4 million increase in non-interest expense is primarily attributed to incremental expenses incurred related to the acquiredSterling commercial business, and costs to support growth within the loan and deposit portfolios.
Selected Balance Sheet and Off-Balance Sheet Information:
© Edgar Online, source
