Webster Financial Corporation

Good morning and welcome to the Webster Financial Corporation fourth quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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. Mrs. Manginelli, please go ahead.

Thank you, Daryl. Good morning and welcome. Earlier this morning, we issued a press release to announce Webster Financial Corporation's fourth quarter 2021 earnings. On the call today, we will provide some brief comments regarding the company's fourth 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 in 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 fourth quarter earnings call. CFO Glenn McGinnis and I are here in snowy Waterbury to review our performance for the quarter and full year 2021. I will also provide a status update on our strategic initiatives and our impending merger with Sterling, after which Glenn and I will take your questions. 2021 was a transformational year for Webster. We delivered strong financial and strategic performance through a dynamic economic environment while navigating the challenges of the continued pandemic. As we move ahead in 2022, we continue to see robust economic activity across our expanding footprint, including strengthening confidence from our business and consumer clients with respect to demand for products and services, and lending activity has continued to accelerate. The outlook for the interest rate environment is looking more promising, a macro trend for which we are very well positioned to benefit. Our credit metrics also reflect both the solid economic backdrop and the quality of our risk management process. Overall, despite the continued uncertainty surrounding the ongoing impact of the pandemic, we are optimistic about the trajectory of our business as we head into 2022. With respect to our internal transformational project, we continue to make significant progress on revenue enhancements and operational efficiencies throughout the organization, which will complement the merger as we integrate the two companies. On the revenue side, we enhanced digital customer experiences across all business lines through targeted technology investments. While expenses fell modestly above our fourth quarter 2021 target, the delta was driven largely by incentive compensation accruals, reflecting strong production by our bankers. When compared with 4Q 2020, we made significant progress in reducing core compensation and occupancy expense. In fact, year over year, we reduced our real estate square footage by more than 15% and materially and permanently reduced our overall operating cost structure. We received Federal Reserve approval for our merger with Sterling on December 17th and we plan to close on February 1st. Our integration planning process is complete and we are ready to bring these two strong organizations together. I'll begin the financial report on slide two with an overview of the quarter, which reflects our strong performance. Our adjusted earnings per share in Q4 were $1.31, up from 99 cents a year ago. Our fourth quarter performance includes $13.7 million of net pre-tax charges related to the merger and our strategic initiatives. Our fourth quarter adjusted return on common equity was 14.6%. and the adjusted return on tangible common equity was 17.7%. Excluding PPP, linked quarter loan balances grew by 16% annualized. Tangible common equity grew by 8% and is $208 million higher than a year ago. Total adjusted revenue in Q4 was 6.5% higher than a year ago, while adjusted expenses decreased 3%, demonstrating strong operating leverage. Our efficiency ratio improved to 55%, a decrease of 542 basis points from a year ago. Our provision was a $15 million benefit as both our credit metrics and the forecast for economic conditions continue to improve. The provision release was net of a $12 million reserve bill tied to loan growth. Underlying asset quality is solid. NPLs, net charge-offs, and commercial classified loans, all as a percentage of portfolio improved from a year ago. I'm now on slide three. Excluding PPP, total loans grew over 8% from a year ago, led by record commercial loan growth of 1.3 billion, or nearly 10%. Commercial banking again increased loan originations, accelerating to 1.8 billion, up solidly from a year ago, driven by growth in commercial real estate, sponsor and specialty, and business banking verticals. Commercial loan fundings of $1.3 billion were up 50% from a year ago, reflecting the expertise of our bankers and improving client loan demand. Consumer loans grew 5.2% or $351 million compared to the prior year, driven by robust residential mortgage activity and our late 2020 decision to balance sheet conforming production. I'm now on slide four. Deposits grew 9.2% year over year with growth across every business line. Core deposits grew by 3.2 billion and represent 94% of total deposits compared to 91% a year ago as CDs decreased $690 million from a year ago. And our deposit costs continue to decline and our total cost in the quarter was five basis points for all deposits. On slide five, you'll see the full year 2021 financial highlights. On a full year gap basis, our PPNR improved to $479 million from $418 million a year ago. Our full year EPS of $4.42 is a record for Webster as our net income of $399 million and tangible book value per share of $30.22. We were able to achieve this strong year-over-year growth even as we reduced core operating expenses and our real estate footprint, as I mentioned earlier. Slide 6 provides an overview of the transaction and integration timeline for our merger with Sterling. We are excited to begin operating as a combined company as we approach the legal merger date. We have a detailed conversion and integration plan in place, and we are positioned to begin operating as one organization on February 1st. We've begun welcoming clients to the new Webster and plan to convert all legacy Sterling customers to the Webster brand immediately upon close. With a primary focus on optimizing customer experience during the integration, we plan to fully consolidate the operations over the next 18 months. With that, I'll now turn the call over to Glenn for a more detailed financial review.