Webster Financial Corporation

Good morning and welcome to Webster Financial Corporation third quarter 2021 earnings call. Please note this event is being recorded. I would now like to introduce Webster's Director of Investor Relations, Kristen Manginelli, to introduce the call. Ms. Manginelli, please go ahead.

Thank you, Sherry. Good morning and welcome. Earlier this morning, we issued a press release to announce Webster Financial Corporation's third quarter 2021 earnings. On the call today, we will provide some brief comments regarding the company's third quarter earnings. Today's presentation slides have been posted on the company's investor relations website. Before we begin our remarks, I want to remind you that the comments made by management may include forward-looking statements within the meetings of the Private Securities Litigation Reform Act of 1995 and are subject to the safe harbor rule. Please review the forward-looking disclaimer and safe harbor language in today's press release and presentation for more information about risks and uncertainties which may affect us. I'll now introduce Webster's Chairman and CEO, John Siula.

Thanks, Kristen. Good morning, and thank you for joining Webster's third quarter earnings call. CFO Glenn McGinnis and I are here in Waterbury, and we will review our performance for the quarter. I'll also provide an update on the status of our merger process with Sterling, and at the end of our presentation, Glenn and I will take your questions. Despite the continued impact of COVID, expectations for higher inflation and supply chain and labor challenges We see increased economic activity and strengthening confidence from our business and consumer clients with respect to demand for products and services. And we've seen improving loan activity, which coupled with anticipated higher interest rates should benefit the banking industry and Webster. Credit qualities remained remarkably strong for Webster and for the industry as a whole. With respect to our internal transformational project, we continue to make significant progress on the strategic revenue enhancements and operational efficiencies across the organization in order to achieve our fourth quarter 2021 cost savings target. Glenn will provide more detail in his remarks. Related to our merger with Sterling, our teams have been working diligently and collaboratively to prepare for our closing and remain on schedule for all integration design, planning, and execution activities. We are in a position to close the transaction shortly after we receive the final regulatory approvals on our application. In August, we received approval from our primary regulator, the OCC, and shareholders of both banks. While we have no certainty on the timing of the final approvals, hopefully we will receive them during the fourth quarter. Based on our communications with regulators and the fact that there are no outstanding information requests, we remain confident that an approval is forthcoming. With respect to the strategic rationale for the merger, I can say that through integration planning, our team is more excited about the deal and the opportunities that the combination will provide for our clients, colleagues, communities, and shareholders than we were during due diligence and at announcement. The two organizations are very complementary with virtually no customer or branch footprint overlap, and the strong commercial banking teams at both banks will benefit from a larger balance sheet and a more diversified combined loan book. We are creating a unique, commercially focused midsize bank with differentiated businesses and a diverse and growing funding profile. Interestingly, last week, both Sterling and Webster were among five banks nationally to be recognized by Coalition Greenwich as 2021 Greenwich CX leaders, financial services leaders that have excelled in customer satisfaction, customer loyalty, and creating an environment that is easy for the customer to do business. Specifically, each bank was recognized for customer experience in commercial middle market banking. I'll begin the financial report on slide two. Our financial metrics remain strong. We continue to execute on our fundamental banking activities, organically adding new customers and deepening existing relationships across all business lines and geographies. Excluding PPP, linked quarter loan balances grew by 11% annualized. Despite NIM compression, the strong loan growth enabled us to increase net interest income by 4% when compared to last quarter. Our adjusted earnings per share in Q3 were $1.08. Third quarter performance includes $5.8 million of net pre-tax charges related to the merger and our strategic initiatives. Tangible common equity grew by 7% and is $171 million higher than a year ago. Total revenue in Q3 was 6.5% higher than a year ago, while adjusted expenses decreased 2.7%. Our efficiency ratio improved to 55%, a decrease of more than 500 basis points from a year ago. Our third quarter adjusted return on common equity was 12%, and the adjusted return on tangible common was nearly 15%. Our $8 million provision was driven by strong loan growth and resulted in a reserve build of $7 million in the quarter. Credit quality remained solid, with key asset quality metrics continuing to be near cycle lows. As a percentage of the portfolio, NPLs, net charge-offs, and commercial classified loans were all better than a year ago. And our percentage of NPLs to total loans is at its lowest point since before the Great Recession. I'm now on slide three. Excluding PPP, total loans grew 3.3% from a year ago, led by commercial loan growth of $700 million, or 5%. This is a very strong quarter for commercial banking, with $1.2 billion of loan originations up solidly from a year ago, driven by growth in sponsor and specialty, commercial real estate, middle market, and business banking verticals. Loan fundings of $967 million were up 62%, or $372 million from a year ago. Consumer loans grew 3.8% or $252 million from second quarter and declined less than 1% compared to prior year. The linked quarter increase reflected stronger purchase mortgage and lower refinance activity during the quarter. Overall residential mortgage activities drove 82% of consumer loan originations flat to linked quarter and from a year ago. I'm now on slide four. Deposits grew 11.5% year over year driven across all business lines. Core deposits grew by $3.8 billion and represent 94% of total deposits compared to 90% a year ago, while CDs declined $686 million from a year ago. Deposit costs continue to decline and were six basis points in total in the quarter. Commercial banking deposits are up more than 23% from a year ago, primarily driven from municipalities and excess liquidity among clients across all lines of business and all geographies. Retail banking deposits grew 7.3% year-over-year with consumer and small business deposits growing 6.5% and 12.7% respectively. Retail deposit costs have continued to decline as well and totaled five basis points in the quarter. Turning to HSA banks, total deposits grew 5% year-over-year or 8% on a core basis excluding the TPA balances. Total footings grew 14% year-over-year. Slide five provides an overview of the transaction and integration timeline. As I discussed earlier, merger integration activities continue to be on track with the team from both banks working collaboratively and tirelessly to position us for success at close and beyond. We are prepared to successfully combine the two companies and begin operations shortly after we receive the necessary approvals. As shared in our merger announcement in April, Jack Kupnitsky and I both recognize that a critical element of success in bringing these two companies together is from a cultural perspective. As such, we've established a cultural integration framework that provides a clear and aligned view on the purpose and values of the organization and what we will expect from our colleagues in terms of guiding behaviors and performance. The new executive management team is working together to ensure that our combined culture reflects the strength that both banks bring to the combination. With that, I'll now turn it over to Glenn for the financial review.