Webster Financial Corporation Q4 FY2024 earnings call

• Strategic achievements in 2024 included improving balance sheet, optimizing regulatory capital, reducing commercial real estate concentration, and enhancing securities portfolio yield. Acquisition of Ametros added low-cost deposits.
• Funding profile: Diversified deposits across business lines, loan-to-deposit ratio over 80%, with growth in Ametros, HSA Bank, consumer digital, commercial bank, and interLINK deposits.
• Credit portfolio: CRE office exposure down materially, net charge-offs totaled just over $60 million with 60% from office and health care services, and underlying credit migration trends moderating.

Loans grew by $558 million or 1.1% quarter-over-quarter, driven by C&I and residential lending, while CRE was down due to office portfolio decline. Total deposits grew by $239 million, with growth across various business lines including Ametros (deposits over $1 billion post-acquisition), HSA Bank ($800 million deposit growth), consumer digital channels, commercial bank, and interLINK. Net interest margin expanded, with adjusted return on tangible common equity at 17.7%, adjusted return on assets at 1.27%, and efficiency ratio just below 45%.

• Loans expected to grow 4%-5% in 2025, deposits 4%-5%.
• Net interest income guidance: $2.45 billion to $2.5 billion non-FTE, with an additional $55 million for FTE modeling.
• Noninterest income expected $370 million to $390 million.
• Expenses anticipated $1.39 billion to $1.41 billion, efficiency ratio 45%-47%.
• Anticipate effective tax rate around 21%, near-term common equity Tier 1 ratio target 11%.

• Regulatory risks associated with transitioning to a Category 4 bank.
• Potential impact of interest rate changes on the commercial real estate portfolio, particularly office properties.

Q: Treasury Secretary nominee disposed to easing regulations, would Webster consider M&A?

A: Yes, inorganic growth possible if regulatory hurdles ease, but not in 2025 plan currently.

Q: Margin trajectory, NIM guidance?

A: NIM expected 3.35%-3.40% in 2025, with positive movement in Q4 and steeper curve contributing to the increase.

Q: Credit inflection, charge-off normalization?

A: Expect charge-offs around 25-30 basis points, with risk migration showing green shoots in the fourth quarter, and anticipation of mid-2025 inflection point on credit metrics.