Webster Financial Corporation

Good morning and welcome to the Webster Financial first quarter 2024 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 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 will now turn it over to Webster Financial CEO and Chairman John Sciula.

Thanks, Edmund. Good morning and welcome to Webster Financial Corporation's first quarter 2024 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. We're off to a solid start this year, having achieved a number of significant accomplishments, both strategically and financially. I first want to provide some color around initiatives that solidify Webster's commitment to our clients, communities, and colleagues, as these have been and continue to be core to our company values. In the fourth quarter, Webster launched the Your Home program, a special purpose credit program offering down payment assistance and flexible credit requirements to help expand home ownership opportunities for low- to moderate-income first-time homebuyers. The Your Home program is the most recent component of our broad community investment strategy, a multiyear commitment to expanding access to capital, providing loans, investments, technical assistance, and financial services to individuals and small businesses in LMI neighborhoods. We're also launching four new finance labs in the coming weeks in partnership with local nonprofits, the Webster Finance Labs Initiative, provides technology and programming to create financial empowerment opportunities for young people. By the end of this year, we will have deployed over $1.7 million into nine labs under this initiative. Our colleagues share this commitment to service. Last year, Webster volunteers gave nearly 17,000 hours of their time to nearly 500 community organizations across our footprint. These are just a few examples of how Webster and our colleagues demonstrate our commitment to our values and our communities. Turning to our financial performance on slide two. On an adjusted basis for the quarter, we generated a return on average assets of 1.26% and a return on tangible common equity of 17.9%. Our adjusted EPS was $1.35. We are pleased to grow client deposits by 1.8 billion and use those funds to redeem broker deposits. Amidst a challenging growth environment for the industry, we grew loans at 0.7% or 1.2% when adjusting for the transfer of $240 million of loans to help for sale. Our 1.6 billion in funded loan originations this quarter were driven by high-quality C&I CREE categories, including fund banking and public sector finance, and CREE in property types with solid operating dynamics. Our efficiency ratio was 45%, in line with the low to mid-40s range we expect to operate in for the year. Our interest income performance was softer than originally anticipated as a number of factors led to lower than expected loan yields, and we saw our deposits continue to reprice higher, albeit at a moderated rate. Despite these dynamics, we still anticipate that NII for the full year will be in the lower range of the guidance we provided in January, assuming loan demand and credit quality of that loan demand cooperate. Structurally and longer term, we should continue to generate returns near the top of our peer group given the strategic advantage provided by our funding profile and business mix and the operating flexibility we have created in terms of our liquidity and capital positions. We anticipate the ability to generate a return on assets in the range of 1.3% and a return on tangible common equity in excess of 18% for the full year 24 and beyond. Our recently closed acquisition of Amitros augments our competitive position. On the next slide, we provided the overview of Amitros as a reminder of the business fundamentals now that they are officially a subsidiary of Webster. Amitros is a particularly unique and exciting opportunity as the company provides a valuable service for its members and provides Webster with low-cost, fast-growing deposits that add significant fee income. To describe the business in brief, Amitros administers recipients' funds for medical claims settlements via a proprietary technology platform and service teams. Amitros is already illustrating its growth potential, as it has grown to $870 million in deposit balances relative to $805 million in deposit balances when we announced the acquisition in December. It is our expectation Amitros will grow deposits at 25% CAGR over the next five years before considering potential benefits from expanding existing partnerships, new market penetration, or medical cost inflation. Slide four, which many of you are familiar with now, highlights our funding diversity and now officially incorporates Amitros. As you will see on subsequent slides, we've combined Amitros with HSA Bank in a segment we've named Healthcare Financial Services, with the segment reporting to our talented president and COO, Luis Maciani. For the foreseeable future, we will continue to provide business-specific performance measures for both Amitros and HSA Bank. Before turning it over to Glenn, let me touch on overall credit, and more specifically, Cree. Consistent with industry trends, we have seen negative risk rating migration and a return to pre-pandemic credit metrics. We continue to proactively monitor our overall loan portfolio, and we complete deep dives on targeted segments frequently. While trend lines point to continued pressure on credit performance, Excluding office, we haven't seen any concentrated or correlated problem areas with respect to any particular geography, industry sector, or product type. On slide five, we provide incremental information on our commercial real estate portfolio as it continues to be a focal point of investors in a higher for longer interest rate environment. Our commercial real estate portfolio is diversified by geography and product type. is conservatively underwritten and has continued to perform well from an asset quality perspective. In its entirety, our commercial real estate portfolio has a weighted average origination LTV of 56% and an amortizing debt service coverage ratio of 1.5 times. Classified loans are 1.5% of the portfolio with non-accruals of just 10 basis points. As rent regulated multifamily lending has been in focus this quarter, we provided some of the attributes of our portfolio on this slide as well. As you can see in the incremental detail we provide here, our modestly sized portfolio is granular, was underwritten at conservative LTVs and debt service coverage ratios, and has limited maturities in the next two years. Additionally, a majority of the book was underwritten following the Housing Stability Act passed in 2019. Therefore, our expectations for the performance of those properties incorporates the unfavorable effects of this legislation on property cash flows. In this category, the average loan size is 3.5 million. We have only seven exposures greater than 15 million, and our largest rent-regulated multifamily loan is now $49 million. Given the underwriting of the loans and client selection, the credit performance of this portfolio has been solid, as illustrated by just 10 basis points in classified loans and non-accruals. We've also refreshed statistics on our office exposure on this page, where I'll point out that we continue to reduce the size of our portfolio. We're actively working the portfolio given sector pressures. I would note that our New York City office exposure is a manageable $217 million. In addition to the information here, There are two additional slides at the front of the supplement to this presentation that provide significant detail on our overall Crete portfolio, highlighting the diversity of the portfolio in terms of property type and geography. Importantly, we have been disciplined in terms of hold levels over time, as there are relatively few tall trees in terms of single-point exposures across our various portfolios. Our larger exposures have a stronger weighted average risk rating, as you would expect, and we currently have no classified exposures in the greater than $50 million CREED category. With that, I'll turn it over to Glenn to cover our financials in more detail.