Webster Financial Corporation

Good morning. Welcome to the Webster Financial Corporation's first quarter 2022 earnings call. Please note this event is being recorded. I would now like to introduce Webster's Director of Investor Relations, Evelyn Harmon, to introduce the call. Mr. Harmon, please go ahead.

Good morning. Before we begin our remarks, I want to remind you that the comments made by management may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to the Safe Harbor rules. 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. The presentation accompanying management's remarks can be found on the company's investor relations site at WVST.com. I'll now turn it over to Webster Financial CEO, John Sciula.

Thanks a lot, Edwin. Good morning, everyone, and thank you for joining us for our first quarter earnings call. It was an eventful quarter as we closed our merger of Equals with Sterling, executed on our integration plan, and announced and completed the acquisition of Vend Financial, all while continuing to generate solid performance in our underlying businesses. I'll begin with some high level remarks on the macro environment, our performance for the first quarter of 22, and I'll provide a quick update on the merger. I'll turn it over to Glenn after that to review our financials, the financial effects of the merger, and to provide our outlook for full year 2022. Despite uncertainty in the macroeconomic environment driven by war in Ukraine, supply chain, labor market challenges, and the lingering impacts of COVID, and some of you may have seen the 1.4% surprising GDP contraction this morning, we feel that the underlying strength in economic activity remains strong. Demand for debt financing and continued confidence among our clients is prevalent, and our base case continues to call for solid economic growth, rising interest rates, and positive trending in loan demand over the next six to eight quarters. We're very pleased with our performance in Q1. Our reported net income was a loss of 20 million, and EPS was a loss of 14 cents. These results, however, were impacted by various one-time merger-related charges, including the non-PCD double count provision for Sterling. Excluding these merger-related expenses, adjusted net income was 184 million, and adjusted earnings per share was $1.24. Those adjusted metrics equate to a 137 return on assets, and a return on common tangible equity of 17%. Loans and deposits grew smartly year over year, driving material revenue growth. We effectively managed expenses, and our efficiency ratio was approximately 49% for the quarter. Credit performance continues to be favorable, excluding the non-PCD provision included in the merger accounting. Our provision for the quarter was $14 million. All credit metrics remain strong, including our NPL to total loans ratio at 57 basis points, period end, down from 71 basis points for standalone Webster a year ago. I'm now on slide three. We closed our merger on January 31st. We're excited to be operating as a combined organization and believe our combination is as strategically compelling today as it was when we announced it a year ago. We now have $65 billion in assets, $54 billion in deposits, and $44 billion in loans as a combined company. As was our intent at the outset, we have created a commercially focused bank that we believe can outperform as we leverage our significant expertise, industry verticals, and broad asset generation capabilities. Our funding and liquidity profile is a differentiated strength for Webster, as our diversified sources of low beta deposits, including from our HSA bank franchise, should provide a competitive advantage as interest rates rise and liquidity returns to more normalized levels. Our loan-to-deposit ratio of 80% provides ample flexibility for us going forward. In combination with a predominantly floating rate loan portfolio, we expect significant income improvement in a rising interest rate environment. Our tangible book value per share and capital levels at close were roughly in line with our expectations at merger announcements. We expect to achieve $60 million in realized cost savings in 22 and another $60 million of savings for the full year 23. We've begun the consolidation of our corporate real estate footprint and expect to reduce our combined corporate square footage by over 40% by the end of the year. We've eliminated redundant operating costs where identified and at quarter end, the combined organization was operating at 93% of its headcount relative to merger announcement a year ago. We expect to complete the core banking systems conversion in the third quarter of 2023. All customer-facing rebranding has been completed. In combination with the financial merits of the deal and strong business execution, we are well on the path to sustainably generating the targeted financial metrics we set forth a year ago at deal announcement, including a high team's return on tangible common equity. With respect to outstanding people, we have seen effectively no attrition among client-facing colleagues due to the merger or the competitive labor market. And in fact, we've added additional commercial bankers and have a pipeline of teams and portfolios that we believe will help us sustain our growth momentum. Slide five covers loans. We've great business momentum heading into the second quarter. Excluding the effects of PPP and the material contraction in mortgage warehouse balances due to the rate environment, Length quarter loan growth for the two legacy entities combined was 1.5% or 6% annualized. Year-over-year growth on the same basis was 8.5%. Growth was driven primarily by commercial categories as anticipated. As we have discussed with many of you, our increased balance sheet capacity allows us to immediately expand relationships with our existing customer base. As a proof point, at year-end 2021, the combined banks had a total of 109 relationships with exposure greater than $40 million. With a bigger balance sheet, since legal day one of the merger on January 31st, we've prescreened 61 deals and approved 27 deals with exposures over $40 million. These higher hold trends contribute to our confidence in reaching our 8% to 10% 2022 full-year loan growth targets. We feel good about our ability to leverage our bigger balance sheet without sacrificing credit quality and without expanding our existing underwriting guidelines. Of note, the weighted average risk rating of our top 100 exposures is more than half a turn better than that of our overall loan portfolio. Asset quality improves as hold levels increase. Deposits on a combined basis also exhibited solid growth this quarter, up 3.2% on a linked quarter basis and up almost 4% year over year. Our deposit costs declined one basis point despite the start of Fed tightening and higher market rates broadly. Growth this quarter was principally driven by HSA and our government banking business. HSA added 288,000 new accounts and core deposits increased almost half a billion dollars. As mentioned earlier, we closed on our acquisition of BEM this quarter, which we view as another proof point with respect to the merger. providing additional opportunities to accelerate growth in low-cost, long-duration HSA deposits. With that, I'll turn it over to Glenn.