Webster Financial Corporation

Good morning. Welcome to the Webster Financial Corporation's fourth quarter 2023 earnings conference call. Please note, this conference is being recorded. I would now like to introduce Webster's Director of Investor Relations, Emelyn 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 investors.websterbank.com. For the Q&A portion of the call, we ask that each participant ask just one question and one follow-up before returning to the queue. I'll now turn the call over to Webster Financial CEO, John Sciulla.

Thanks a lot, Edwin. Good morning, everyone, and welcome to Webster Financial Corporation's fourth quarter 2023 earnings call. We appreciate you joining us this morning. I'll provide remarks on our high-level results and operations before turning it over to Glenn to cover our financial results in greater detail. The company continues to execute at a high level and we are excited about the momentum we are carrying into 2024. With less distraction from our integration activities and hopefully the industry at large, we are well positioned to continue delivering financial performance as we deliver for our clients across business lines. I'm going to start the review today with our full year results for 2023. As I've stated throughout the year, we performed admirably throughout a difficult period for the banking industry. This performance illustrates the strength of our franchise, including a uniquely diverse and sound funding base, highly efficient operating model, and focus on non-commoditized businesses. We grew our adjusted EPS to $5.99 from $5.62 in the prior year, generating record EPS for Webster. We reached a record tangible book value per share in the fourth quarter as well. Our return on assets was 1.43%, Our return on tangible common equity was 20.5% and we ended the year with a 42% efficiency ratio. In addition to our strong financial performance, we realized several meaningful strategic accomplishments. We capably executed our core technology conversion and have completed substantially all of the work on our merger integration. We closed the Interlink acquisition and we announced the acquisition of Ametros. We grew core deposits through a highly competitive environment in the banking industry illustrating our funding advantage and the strength of our relationship-oriented business model. We also refined our mix of businesses, emphasizing and building those where we have a strategic advantage and the most promising risk-reward characteristics. On the next slide, our fourth quarter financial results remained solid. On an adjusted basis, we produced a return on tangible common equity of 19.8% and a return on assets of nearly 1.4%. Our adjusted EPS was $1.46. We grew our deposits and loans each by roughly 1% with loan growth focused in strategic commercial categories. We continue to exhibit solid expense control with an efficiency ratio of 43%. Our common equity tier one capital and tangible common equity remain strong at 11.12% and 7.73% respectively. Our strong starting point and internal capital generation capability will provide us with a significant amount of operating flexibility over the long term. The timing of some of our fourth quarter accomplishments, including our solid loan growth, were backloaded, resulting in a period end loan and securities balance that were more than $1 billion higher than the average balances. Our overall loan growth, coupled with a robust pipeline, should provide us with a tailwind as we head into 2024. The following slide illustrates our funding diversity. which highlights one of our key strategic advantages. We are confident that we are adding another unique funding vertical with our acquisition of Amitros, which we announced at the end of last year and expect to close shortly. We provide some detail on the business on the following slide. Amitros is a particularly unique and exciting opportunity for Webster as it provides low-cost, fast-growing deposits, which adds significant fee income. To describe the business in brief, Amitros administers recipients' funds from medical claim settlements via a proprietary technology platform and service teams. A large majority of the claims Amitros administered are structured as annuities, whereby funds are replenished over the life of the recipient. As of today, there are over 2.5 billion of contracted deposit inflows under this construct. Given this replenishment feature, the average deposit duration exceeds 20 years. The collection and retention of these funds is further enhanced by the value-added services Amitros provides including payment management, access to discounted medical services, and government reporting. They have an ardent customer base, as evidenced by a net promoter score of 96, and are by far the market leader among professional administrators. We expect deposits will grow at a 25% CAGR over the ensuing five years. Our projected growth trajectory assumes the growth of members and no changes to Amitra's existing business constitution, including the addition of new relationships, new business verticals, medical inflation, or synergies with Webster's existing businesses. For all of these, we see varying degrees of opportunity. We anticipate the transaction will be modestly accretive to 2024 earnings and 3% accretive to 2025 earnings. We look forward to officially welcoming our new colleagues in the near future. Our overall credit profile and key credit metrics remain unchanged from prior quarter. as we continue to proactively manage our credit exposures across the bank. Glenn will provide more detail in his comments. On the next slide, I'll quickly touch on the standard overview of our office CREE portfolio. We continue to make solid progress on reducing the size of this portfolio, which is down another $120 million this quarter. The majority of the reduction came from either payoffs or properties being repositioned. Overall performance of the portfolio continues to be relatively consistent, with solid support underlying the credits. We did see a tick up in classified loans to 7.7% from 5% last quarter, but delinquencies and non-accruals are non-existent. Given we are getting to a much smaller absolute balance, we will likely move this slide to the appendix in future quarters. With that, I'll turn it over to Glenn to cover our financials in more detail.