WEBSTER FINANCIAL CORP Q3 FY2024 earnings call

Bullet points:

• John Ciulla highlighted deposit growth across various segments, including Commercial Bank, HSA Bank, and Ametros. Loans had growth with accelerating C&I categories, and CRE concentration was reduced. Net interest income benefited from balance sheet growth and repositioning. Capital levels were strong, and expenses were well controlled with a 45% efficiency ratio.
• Neal Holland discussed adjusted earnings, total assets of $79 billion, deposit growth of $2.2 billion, loan growth excluding securitization at 1.3%, net interest income up $18 million due to balance sheet growth and higher earning asset yields, an efficiency ratio of 45%, an allowance for credit losses increase of $19 million, and actions to optimize capital ratios such as securitization and risk weighting adjustments.

Webster Financial saw deposits grow 3.6% in the quarter, including growth in DDA, overall commercial deposits, and HSA. Loans grew 0.7% in the quarter, with growth excluding a $300 million securitization for CRE concentration reduction at 1.3%. CRE outstanding as a percentage of Tier-1 capital and reserves decreased from 285% to approximately 265% by the end of Q3. On an adjusted basis, the return on average assets was 1.22%, return on tangible common equity was 17.3%, and adjusted EPS was $1.34. Net interest income increased quarter over quarter and compared to the prior year. Capital levels remained strong with CET1 exceeding the 11% operating target. Expenses were well managed with an efficiency ratio of 45%.

Bullet points:

• Expect loans to grow 1% to 1.5% in Q4 with growth across diverse categories, including possible modest CRE growth.
• Anticipate deposits to decline approximately 1% due to seasonality in public funds.
• Project net interest income to be in the range of $590 million to $600 million on a non-FTE basis.
• Adjusted non-interest income is expected to be $85 million to $90 million.
• Adjusted expenses are expected to be in the range of $335 million with the efficiency ratio in the mid-40s.

Bullet points:

• Negative migration in the CRE portfolio, particularly in traditional office, with non-accrual loans increasing. Two larger office credits contributed to the rise in non-accrual loans.
• Credit risk exists, and if issues in the CRE portfolio worsen, it could impact financial performance.

Q: Chris McGratty inquired about trough NII and capital return flexibility.

A: John Ciulla stated NIM in Q4 is expected to be in the 3.32 range and stable going into 2025. Regarding capital return, he expects to begin share repurchases absent other organic opportunities.

Q: Jared Shaw asked about CRE attrition and deposit trends.

A: John Ciulla mentioned modest CRE attrition and positive deposit trends, including good growth in HSA and a favorable enrollment season outlook.

Q: Mark Fitzgibbon asked about office loan reserves and specific loans.

A: John Ciulla said the office portfolio reserve is at 6%, with charge-offs related to office loans accounting for 55% of total charge-offs, and reserves are sufficient to manage the impact moving forward.

Q: Matthew Breese asked about loan and deposit betas, and expense growth.

A: John Ciulla discussed deposit beta and loan repricing dynamics, and expense growth details will be addressed in the 2025 guidance.

Q: Daniel Tamayo asked about credit inflection and loan growth.

A: John Ciulla expected credit improvement in the first half of 2025 and stated loan growth would continue with focus on C&I categories.

Q: Bernard Von Gizycki asked about capital optimization actions and tech expenses.

A: John Ciulla discussed a 44 basis points capital improvement from risk weighting adjustments and securitization, and tech expenses are part of the long-term strategic investment plan.

Q: Laurie Hunsicker asked about office loan provisions and property appraisal.

A: John Ciulla said provisioning doesn't directly correlate to specific loans, with charge-offs related to office loans being 55% of total charge-offs.

Q: Samuel Varga asked about the securities book and BRIO deposit beta.

A: Neal Holland and John Ciulla discussed securities repricing and the BRIO deposit beta at 60% for the overall portfolio.