Webster Financial Corporation

Good morning. Welcome to Webster Financial Corporation's first quarter 2023 earnings call. Please note this event is being recorded. I would now like to introduce Webster's Director of Investor Relations, Emlyn 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 foreign-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 investors.websterbank.com. I'll now turn it over to Webster Financial CEO, John Tula.

Thanks a lot, Edwin. Good morning and welcome to Webster Financial Corporation's first quarter 2023 earnings call. We appreciate you joining us today. I'll provide remarks on our high-level results and strategic positioning before turning it over to Glenn to cover our financial results in greater detail. The first quarter of 2023 was a memorable one for the banking industry, unfortunately highlighted by high-profile bank failures that caused dislocation across the system. The good news is that the industry remains fundamentally strong and well capitalized, and the near-term view is less volatile than a month ago. Webster's results in the quarter are reflective of our resilient business model and a shifting environment for banking. We continue to deliver for our clients, and in the quarter we prudently grew loans and core deposits. We generated solid returns, and our asset quality profile remained effectively unchanged from the prior quarter. On an adjusted basis, we generated EPS of $1.49. In light of the market dislocation and out of an abundance of caution, we took actions to augment our balance sheet liquidity, including increasing our cash position and utilizing higher cost funding sources. We also saw a decline in fees as a result of reduced direct investment gains and overall client financing activities, among other effects. Due to these actions and some seasonal factors, our PPNR was down 6.6% from the prior quarter. Our adjusted ROA of 1.46% was up from 1.37% a year ago, and our return on tangible common equity was a strong 21%, up from 17% last year. Loans grew 2% on a linked quarter basis with a focus on strategic categories with attractive risk profiles. Our total deposits were up 2%, also on a linked quarter basis, with core deposits up 4%. While it seems like ages ago, many of you attended our Investor Day on March 2nd, just days before the market disruption. During that event, we provided a transparent look at our go-forward strategies and differentiated businesses with a focus on our unique funding profile and credit and risk management practices, all of which are especially beneficial during times of stress and uncertainty. While I'll touch again on some of the points we made in early March, I would encourage you to revisit the Investor Day presentation and webcasts that are posted on our website as we believe the attributes we outlined will continue to benefit our company and drive outperformance regardless of the operating environment. Let me spend just a minute on deposit and deposit trends, and then provide you with an update on our office portfolio, two topics that I know are of significant interest. I'm on page three of our presentation. The unique qualities of our deposit franchise remain a core strength of Webster. Our deposits consist of $24 billion of consumer deposits, largely originated in our retail footprint to long tenured clients. $8 billion of HSA bank deposits. The entirety of these deposits are individual customer accounts and nearly all are within FDIC insurance coverage limits. And as you know, HSA deposits are long duration and low cost. $2 billion of business banking deposits within our commercial bank. Generally, these are smaller dollar and behave similarly to those in the consumer book. $5 billion of public fund deposits within the commercial bank, the majority of which are collateralized with highly predictable behavioral characteristics. Our remaining commercial deposits of $11 billion are diverse by industry, customer type, and geography. There are no sector concentrations, and these deposits are relatively small balance in nature with an average balance of less than $200,000 per account. I'll refer you again to Chris Modell's presentation at Investor Day, where we broke down the multiple deposit generating businesses in our commercial bank franchise. And finally, Interlink, the acquisition of which we completed in the first quarter, has already proven to be highly valuable. Provides readily available core deposit funding to almost all FDIC insured deposits, and we have access to these funds at a very low cost of acquisition. In summary, between the consumer bank, HSA, and Interlink, 63% of our total deposit accounts are consumer-oriented, small balance accounts that are long duration in nature. The past month of deposit activity highlights the tremendous value of our deposit franchise. Customer activity within the consumer bank and HSA was business as usual throughout the entire quarter, and both of these categories grew in Q1. In mid-March, within the commercial bank, we saw elevated two-way activity for a few days as clients looked to diversify their deposit concentrations, but that activity quickly resumed its normal course. I would also note that we've opened approximately 500 accounts, primarily operating accounts, that are in the process of being funded with new commercial depositors since the middle of March. In addition to the strength of our overall deposit franchise, we maintain significant alternate sources of liquidity This is displayed on slide four. As of yesterday, we had $16 billion of immediately available liquidity between cash balances and undrawn borrowing facilities. This represents 118% of our uninsured and uncollateralized deposits. We expect this ratio will continue to grow over the short term. As it relates to credit, at Investor Day, Jason Soto, our chief credit officer, detailed the quality of our loan portfolio. We are proud of our credit risk framework and our risk selection. For many quarters, our origination efforts have been focused on existing customers and higher rated loans. Our strict underwriting standards include stress testing, economic and interest rate sensitivity, and we continue to perform robust reviews of portfolio segments that are sensitive to environmental trends. We proactively sold loans last year where we believed it would maximize our economics and help reduce future credit risk. The net result of all of our actions is that the weighted average risk rating in our loan portfolio has improved over the past year each quarter and is unchanged on a linked quarter basis. As you will see in our disclosures, the level of classified assets in our portfolio has remained stable as well. On slide five, we have refreshed and augmented our disclosures on our office portfolio. As you can see, our non-medical office portfolio represents just 2.8% of total loans. has a low at origination LTV, a strong current and updated debt service coverage ratio profile, has limited lease maturities in each of the next two years, is diversified across geographies, and thus far continues to perform well. In fact, criticized assets have fallen to 4.7% of loans from 6.6% of loans in the fourth quarter of 22. I'll also remind you that the $1.4 billion in office exposure is down $260 million, or 15% from the close of our MOE as we were proactive in managing this portfolio during 22. And we've originated only a nominal amount of office exposure since the two banks came together a year ago. With that, I'll turn it over to Glenn to review the financial statements in more detail.