WBS - Earnings call transcript Q3 2020 | Webster Financial Corporation

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Operator

Good morning, and welcome to the Webster Financial Corporation's Third Quarter 2020 Earnings Call. I will now introduce Webster's Director of Investor Relations, Terry Mangan. Please go ahead, sir.

Terrence Mangan

Thank you, Maria. Welcome to Webster. recorded. being is conference This operation Also, this provisions of the harbor results statements with financial includes the Private forward-looking of condition, of financial Act to within business Securities and respect performance. safe Webster's presentation and Litigation XXXX Reform based on current these future projections expectations statements forward-looking has and about Webster event. materially projected might in Actual statements. forward-looking differ results the from those

Financial's those containing Additional I'll and CEO, public Chairman our contained results to actual that could information cause is Securities the concerning Ciulla. risks, with release of Webster's Form John statements differ filings uncertainties, the in from and assumptions in including XXXX. forward-looking and quarter introduce third Webster our other factors Commission, for the materially now Exchange earnings X-K

John Ciulla

all joining MacInnes, and you President, safe and Chief join Good us and after Terry. business, for will the Thanks well. Officer, quarter Jason Webster's will Soto, CFO, HSA Glenn quarter which you're for earnings and call. I, performance for Q&A. financial review Bank morning, everyone, credit hope Credit Wilkins, third Thank Chad our I

and deliver ourselves additional our our liquidity As containing supplemental as section credit remain and continue managing disclosures. includes for We we growth to a and reminder, presentation focused communities and positioning deck customers, on a shareholders. information We're capital, for outperformance.

and quarter. third In challenging the environment, a I'm businesses so meaningful in day. every activity proud our in who differentiated engaged bankers, win we Our marketplace of, help the us business generated

relationships year is are Our and higher Bank Loan originations year were our ago HSA winning a generating more a bankers and deposits. solid. are and with ago. loans new working our customers pipelines relationships, are prospects than than direct-to-employer we and

continue remains risk strong credit and operational manage enterprise to execution Our we and effectively.

$X.XX of year's net in Pre-provision to Earnings increased of were expenses. QX grew quarter. X. per excess in X% and from third Slide $X.XX the million in compared share prior QX in quarter $X as revenue the to $XXX.X Turning revenue

provision build reserve will resulted the $XX the you in through underlying Our of the a assumptions walk resulting Glenn $XX provision million for and quarter. million. process CECL

equity return and the quarter third tangible return equity on common XX%. Our common was was X% on

last challenging Loans PPP this we more lines. across grew compared sponsor interest commercial and loan business Core or XX% Bank loans. at to The growth economic lower year a C&I linked a deposits payments loans million $XXX quarter Slide treasury Banking by up a while strength solutions XX% ability of high-quality our year-over-year which a HSA performance government I'll fixed to rate generate grew economically on from XX% Slide Deposits balance of exceeded nearly double-digit liquidity in Commercial September business. than the in on of represent were grew year billion their real compared year-over-year to XXth almost total and million loans excluding CDs balances. floating year saw includes and in and XX% business, XX% billion businesses rate the more X Farm profit to key further quarter. in and when Slide reflects in loans banking. environment. almost more billion, led deposit CRE XX.X%, million and of as $XXX $X.X driven X $X.X from all As billion Slide banking remain forth through our growth ago increased than our a $XXX is balances and XX,XXX loans. commercial added which quarter in year by minutes. XX% decline confident rate deposits impact XX% three statistics from XX% ago, in in year for was a Loan loans lines middle X quarter, and X% even a a billion PPP year again estate declined from on of Commercial investor deposits ago the XX% periodic added few ago Both set perspective X. loans. seasonal clients Commercial $X.X third and excluding a total second transaction, ago, or I mentioned ago. $X accounts the specialty to on Deposits, State ago, the maintain in $X.X from in year up sustainably or sheets. year-over-year. in market are PPP our is X. deposit excluding closed Core growth on provide

fees continuing spending increased impact increases that to closure on employer disclosed open deposits HSA more growth. see PPP. revenue from ago declined we're a excluding banking from large direct-to-employer early up in season. Slide space. continued year X% Performance loans. grew to outmigration year too we deposits year-over-year loans an of with respectively as in growing excluding season, Business the a and year transactions expect the banking basis specifically was new and XX,XXX had respectively. mortgage account loans mortgages we is compared And digital safety the when we while a and elective impacted PPP. community the down two XXXX the balances across from of account In XX,XXX,XXX, and declined the XX% Personal the year and increased opportunities fundamentals channels. interchange to and and HSA reflecting enrollment upcoming did grew slides and XX% opportunity the has income ago. of medical points accounts we deposit recorded by Net linked prior when continued consumer trend openings now in slightly pleased address the TPA banking quarter, accounts the of market X% year-over-year next on X. with non-interest approximately across Bank residential favorable swap rebound industry expanded adjusting than increase a challenging banking total large almost $X from preference lower we RFPs with the and slightly winning direct-to-employer throughout Farm offset related when services both And year, and outmigration. This banking selling deposits decreased as was this centers business driven for new declines to forecast with strong wins in business consistent ago acquisition. and spending the COVID-XX country. by banking in to in it's Community linked we metrics loans consumer The from cost due balances in strong but X% year trends. remains quarter, credit by loan Community to X consumer grew fees, quarter, grew XX% XX million for points respectively. and prior continued continue ago. year our broader a We quarter, HSA other basis January ample This improved to recognized continue QX. HSA HSA hiring and XX% X% the is the The with banking protocols enhanced year-over-year, business home the Self-service quarter equity new with quarter, in consumer and employer a last declined customers. State to that's opened as interest XX shift slower trends

remained will which metrics in Our and reported modestly, more review favorable XXth credit actually Glenn September improved detail.

September payment points on by with X% we've had industry X% the commercial to total included reported continue on deferral impacted million pleased here including loan Slide from on million. and remain XXth, XXth. the key portfolio. declined have updated every detail decreased $XXX we September XXth Consistent information. XX% Slide $XX While through trends, or deferrals. commercial $XXX payment Interagency the declines first sectors XX%. and nonetheless, have disclosure On The million now are June deferrals compared loan COVID the XX% outstandings XXth. X, metrics, consumer this with we June Of XXth cautious Statement which deferrals provide the from are declined September key CARES and have deferrals credit more $XXX loan uncertainties to June meaningful and just presented our payment deferrals our in loan time payment to of that from XXth the XX% appropriately to in XXth, X, payment to by or the declined we, deferrals $XXX we at category as The as at slide operate is are across takeaway directly On $XXX and at sector represent XXth most considerable in of overall entire at pandemic. by $XXX loans these payment total billion X% September million million to million that deferrals, Act payment June total of now

individuals, to to remain, communities our to goal. their and While have customers our pleased to financial pandemic-related been support challenges we able help businesses considerable families and achieve are under provide mission

I rating last As real-time proactively. and monitoring quarter, addressing decisions making credit are are stated credit risk, we potential issues we actively

for selection, allowance good to risk review. of We our credit turn capabilities financial continue our portfolio strength to Glenn the quality and our our over underwriting, the the of management feel about now it and positions. capital I'll

Glenn MacInnes

Average in acceleration billion grew $X.X therefore activity the QX begin assets levels quarter no past largely the $XXX grew QX, line had $XXX $XXX full I'll quarter. or with X. fees. at of forgiveness million our represented quarter no total and million million XXth, PPP average reflecting We loans average on with loans grew XX% PPP quarter. linked last funded September loans quarter loans Thanks the during linked or sheet securities X.X% of Average deferred from and balance of John. year. X.X% and in impact Slide over on

excess points declined would X.X% $XXX income from declined million consumer statement interest from of and Slide be deposit and and We excluding million $XXX to year. a year. include prior XX growth was of a deferred deposit from growth while During Regulatory the of XX and loans in loans. billion $X.X $XX declined fees XX $XXX rates commercial home in million seasonally in basis lower loans to of across million decline in or risk-weighted income and $XX CDs or quarter in Tangible costs X.X% linked growth. Borrowings to million X.XX% common risk-weighted $XXX Public This $X of increase PPP $XX.X basis and by CDs, points at $XXX million reduction remaining million the million and from from quarter, was due prior X.X% $X.X equity. X%, end mortgages. total tangible XX.X% in residential quarter, The to in ratios and in declined points. XX lower points funds respectively. quarterly resulted PPP the increases increased was asset. driver deposits basis value million equity we equity summarizes earning while drivers estate and Deposits million all partially our balanced represent The loans a totaled these and XX, million except prior the X% in accretion quarter loans, third due increased a loan decreased assets The million combined cost and from compared decline $X.X strong quarter-over-quarter per which of of capital and cost. the million $XX to Net increased categories of nearly ratio book X% XX interest securities. and result in cost declined asset-based offset of and security now $XXX XX%. million, $XX.XX saw income increased QX increased earnings. $X.X June of fee our commercial basis $XXX other billion of higher well borrowing as at share and $XX June significant $X.X loans from million. PPP and deposit quarter, of Apart XX had real million

in contributed in contributing As a linked XX two contributed with rates basis margin points basis of Lower basis points reduced additional NIM interest net NIM two X benefit. PPP balances while points all and was of X NIM XX rates XX points points premium borrowings across by yields was quarter. on decline. NIM our compression basis basis offset resulted in our benefited This basis basis point another to portfolio of NIM fewer by of points lower partially loans in which XX resulted a loan reduction deposit securities reinvestment categories, and points decline Core basis result, the reflective amortization higher another compression. costs

Non-interest $XX As interest asset was million year, million income were $XX result declined million compared interchange $XX driven lower earning growth. quarter in increase net the offset market quarter to by volume. million increased and $X income year. the $XX linked prior increased increased partially decline a debit rates, by and $X.X net which of transaction linked million revenue prior quarter HSA income XX% million, fee $X.X million of linked from

exit between overdraft of higher of book linked lower banking increased included We fair fees increase spread. also increase TPA initiatives, mortgage due adjustment and prior the HSA strategic revenue quarter-over-quarter Reported of debit recognized $X.X $X.X million in detail. fees $X.X and service million deposit linked fees quarter. in professional higher accounts $X.X the million which our recorded split transactions offset interchange from of value will and The banking income, discrete during year review business origination by more million million, The hedging increased service last on income Deposit increased quarter, Consumer non-interest a driven XX% activity loan-related increased and and non-interest Other fees. John primarily revenue by quarter. million quarter. $X.X our expense mortgage on customer partially fees. $XXX by driven fee reflects income to

increase to increase our year. was utilization. in The in We from and Non-interest net slide. in a efficiency which expense The This prior rate higher in QX. X.X% also million to of $XXX linked compares QX. saw detail QX $XXX compared XX.X% million will XX.X% million from tax million for $X.X credit at to ratio medical was next $X.X or Pre-provision remained in the $XX.X due provision the was $XXX prior discuss quarter for million costs revenue XX%. an increased in more loss I million, And on effective year. quarter

Turning Slide under of review loan I'll our allowance CECL. losses XX, to results the third quarter for

credit As highlighted, to the to loans increased or losses loans. for X.XX% PPP X.X% allowance excluding

September levels improvement the real We XXXX. gradual improved of The scenario, key in in aspects GDP reflect macroeconomic provision employment commercial rating of $XXX returning estimate slightly our resulting from migration with million of quarter, the have pre-COVID of summarized a forecast in losses risk which XX. but our allowance The loan to prior was million. reflects by life offset of as $XX

after reflecting slightly Commercial $X.X onset the highlights million on the the the and This key and to credit XXX loan commercial C&I charge-offs for compares September declined XX, move Non-performing $XXX XXX to in continue classified assess quality, million, in a loans prior Slide the quality difficulty of effects the average allowance metrics metrics. increased our liquidity linked in decreased through and losses pandemic. credit as the Net left macroeconomic points loans. XX-quarter million. as points as residential basis we our XX, declines to upper mortgage million discussed recoveries. left while were and totaled of $XX.X decreased of $XX prior increased upper real Commercial and consumer total right million will XX. the of conditions from quarter the totaled lower We that of $XX credits asset each slide. experiencing million saw represented commercial to from basis estate, gross QX. Slide primarily $X modifications pandemic. already quarter highlights second the charge-offs in

continue deposit to flexibility. diverse Our to $XXX sources total growth provide and XX%. growth to with lowered exceeded Deposit us gathering ratio of the asset million deposit loan considerable

substantial metrics. capital $XX.X well Slide Our XX. sources and amounts. totaled levels highlights XX, increased capitalized our of Regulatory capacity borrowing at secured exceeded ratios strong billion September further capital by

billion. equity $XXX capitalized risk-based common XX.XX% Tier by Our exceeds Tier of capitalized than well levels exceeds more capital well by ratio X Likewise X $X million.

our of due to TBA back and modest QX expense be average banking of turn range income the month fees will average in I'll XX rate stable strategic the will our compression. rate points. expect on things bottom around initiatives. in LIBOR and assuming XX%. we We flat rate we tax treasury income range NIM and believe basis that, to likely quarter, near one over be forgiveness With balances XX Core lower lower quarter of a an fourth for will the with linked review in XX-year are swap HSA mortgage basis remain John around core accounts. with environment Non-interest PPP loan to reduction points an non-interest a of Looking the

John Ciulla

now on XX. Slide I'm and XX Glenn. Thanks

January, As handful dynamics. enhancements customer process stronger, Well our operational but calls, pandemic and recent and onset rationalize The We've have execution. our we impacted the have of the rate mentioned result to services. very onset preferences our to of digital a challenging our remain this on XX. products systematic the operating time. efficiencies we made reduce revenue I've not Slide and our overall cost enterprise-wide on to on identified and earnings which That enhancing period it cost before the an bank management expenses customers' assessment of workplace only the to This and more shifting environment of in will changes of extended using and we begun focused and are structure meet delivery incremental savings business of and been environment revenue a we needs accelerated of further commitment revenue, to dozens operating across an with cost our driving of in and also line reducing pandemic, capabilities that our align across opportunities implement and process. opportunities that forth expanded set a initiatives organization. and recognized our much the interest would In thorough our began to the organization be and team in low for business in March, identify

industries proven our retention track grow Our community and focus bank including through growth sales productivity in record through markets core building and growth growth in product accelerating key HSA Bank first revenue enhancements. drivers, asset customer on specialized continuing to select on driving and improved by commercial remains in

We organizational redesigning our efficiency are synergies simplifying office also org on targeted structure and focused automating alignment capturing and processes. and critical back

our and changes January fourth the we all estate What detailed and digital improving a begun real these continuing base are initiatives decision. success through series quarter systems and to efficiency improve beyond. year that details the on financial additional earnings on quarter by on initiatives are in foundational XXXX. modernizing footprint. these say to by executing Through organizational realized continue this as late gains see next to including anticipate further for process, we beyond a over plan X% provide of the and capabilities call experience We opportunity customer will and on will rationalizing are We run us and respect many as more we that work I capabilities. current to to also realized fourth our initiatives rate enhancing in XXXX made well corporate information opportunities, expense above fully reducing our XX% by analytical the efficiency to and realization of final year. and position We with is retail consolidating of We basis of we timing next considerable and recently revenue on in

end efficiency us As environment and last quarter, economic we and even rates on in identified capital execution XX% returns by that stated operating we revenue remain generate enhancements low of sustainably XXXX. the estimated current opportunities excess interest will that our of our the of allow if to with cost persists uncertainty confident

with work to bank strengthen and bank and our business, community major a Northeast strong expanding national commercial that to times. Maria, and say and want supported model. big our to consistent their Glenn, regional scalable an core during the questions. HSA remains these I challenging our is of the as thank in business a aggressively and lead growing I all that, all prepared for bankers franchise With distinctive Jason vision are operating by Bank take efficient winning position Our Chad, in you markets, incredible and to a

Operator

question is from JPMorgan. Alexopoulos Please [Operator proceed. Our first Instructions] from Steven

Steven Alexopoulos

the understand expense base. John I around want comments reducing to the

next reduction, we expectation? rate, million, that year saying if XQ $XX is is will the in Are of that is that, quarter's X% million this about to by mid-point. XX% was be the this run look be So the $XX expense at you

John Ciulla

can think out I there. absolutely Right, confident put Steve, we outperform but to we're bogey that that

So expense little a I think lower. you have bit base the quarterly

Glenn MacInnes

Yes.

John Ciulla

exactly about talk mean. that's that, Glenn but what we can

if third core... you kind So of look at quarter

Glenn MacInnes

Yes.

John Ciulla

those Expenses, we a XX% next by quarter year. to in the reduction expect of expenses achieve fourth

Glenn MacInnes

Yes.

John Ciulla

run a From rate perspective.

Glenn MacInnes

expenses quarter proxy. and were million but one-time core $XXX cost for that some as almost $XXX stated were you there, the Our could a GAAP - our there in use million,

Steven Alexopoulos

As a base, okay.

but I Glenn, XXXX, grow is and going So to it's and pre-tax, now, about the think a next is bottom. that everyone, helpful pre-provision all close what up be pre-provision for we're better growth from will us NIM think, set next us this with income for that you obviously a two years struggling as But could right, pre-tax, help with to you talk frame about could to situation year? ability obviously but to year,

John Ciulla

analytics obviously, fourth going to Steve, I'll through final as give the of we final not you decisions. provide - bit a give you perspective. our we're In little I'll but make little quarter, a we'll detailed guidance, and work talk

you We provide quarterly kind saves revenue able expense our to and realization of will enhancement. be of with

we will course see operations progressive of So XXXX. our over in the improvement

magically the So appear it just all at the year. end doesn't of

If where that they bottom top-line are. of rates NIM think stay the think a roughly at compression. from of I perspective, kind we're we

card this and a kind predict know have asked obviously profitability provision perspective, able from confidence fees you from are income assets, We perspective. I that of hard grow in a net we'll to PPNR, wild be to a it's environment about

sort So the improve a operate and our wanted kicking PPNR do can to stake into the realignment so a not put what to of the from we're of the we way structural XXXX. incremental is ground XXXX, but full in to of of we each we expect in plan forward, profitability quarters

the call, in but would operating stay stable environment we would that details say I also, expect our each So, in fully if of we quarters in incremental tuned more stayed see the for XXXX. January improvement

Glenn MacInnes

$XX but to not we as in probably remarks, would indicated have and core, deferred my about that the we I prepared only expect, the million that in thing add PPP I in Steve, of most and forgiven. is, XXXX during course it's fees of And would be

up impact $XX to that million say, as well So million. $XX to will earnings

Steven Alexopoulos

And those of to I of If COVID-XX And outside any balances are those buckets? impact the have then, slide, one actually, I include credit look those my shift question? we leveraged loan or before ask to - question. at do loans

John Ciulla

Those are you will those so we all more sector to based, they loans that? to Jason, segments. don't related whether have color include I know on want any put

Jason Soto

include slides the the leveraged both slide, page, separately. no, both next out sector loans, on Yes and leverage if at you look broken actually is

So the see there. can you detail

Steven Alexopoulos

okay. Yes,

on So those, I that's think top leverage included. already some were of adding but

Okay, that's cool...

Jason Soto

That's correct, correct.

Steven Alexopoulos

of So deeper at talk now mean, Can we've done most the losses? concerned to for I been quarters. now slide two now are us you've and looking terms you you portfolio dive for in where in the Thanks. the

John Ciulla

go to some Steve. right and I'll then, I'll you make Sure, maybe Jason, comments.

Jason Soto

of Yes, our assess business losses, from meetings so when the a deep we're we a think because trends, color look, deferrals, we lot have lines to weekly having with borrowers modifications, about overall regularly. dive, do of conversations we

the credits initially the that going edge about having that I say, before over all think total sectors had in were terms you If we're the near-term. some - losses, would We of about COVID. pushed the focused think on. it's I that troubled to in trouble were be

guess X/XX I the what is. deposits you portfolio, at that are focused a small very sectors say travel where leisure, generally for DDA business to would going forward, borrowers it's the I going about media, be deferrals on, concerned overall down. hotels, and that everybody of the little pre-COVID. is But but They restaurants. forward, - banking, if I'm going Going versus look sort the overall those are actually and at healthy, business

encouraged that portfolio how cautiously going at So you terms in moment feel of is perform. to the

So, have but pockets see I where are don't there throughout we're overly I focusing that concentration, risk significant any of I am think portfolio concerned that we area the about. on,

good had terms in quarter charges - and of of in we a third So quarter terms NPLs.

But normalized also be given they country and that numbers the before return level. worse levels. be encouraged rising those think likely cases bit and additional the some throughout some a to XXXX likelihood at stimulus to throughout will helpful I the will necessary continue I I get of cautiously think

John Ciulla

Yes, don't Steve, specific those The Jason just embedded have identified classified. up We I'd say whether at a were sectors lot - reserves not we We contributors that loss. at Jason slight or of on biggest our you in those need referenced. do if look tick credits. look

is path type. close I of think that it's cards gather people stimulus. So with or do really across sector-based. level there sector Jason, not virus But elements product travel. and too about those geographies, in about to to a agree any and wild performance the or needs some the units We're business I differences seeing together of really be It relates whether

we're the are So, fortunately, those keys. our think lower I big to And those which categories, happy got about. relative peers, we've exposure in

Operator

Please proceed. question with Collyn from Gilbert KBW. is next Our

Collyn Gilbert

is bit certainly beginning alluded so appreciate great John, more had expense plan you and that little to next maybe that. a a on get of color. year, we'll the the great color This plan, in

of real more any you to rationalization some see slides, color know Just there you're of know savings but kind I coming? put offer can as curious just kind of come? reductions kind those mentioned estate is you broadly, in I see you expense broadly, going where where those of just it you or to broadly the

John Ciulla

are you our have branch corporate been think space if look if at it's look some right, retail our the in of to with you're you Yes, final But changing I terms give in at we specifics, network, work decisions environment. made. the process where difficult just but

we like importantly, us gain across Collyn, and ability not will That believe functions centers make to deliver Webster expect to defects. material processes, as for We but better customers creating efficiencies our out HSA only in efficiencies, manual those take also We're automating and of excellence. and will categories. bring our combining

excited process we this I cost or outside of project. to the the there will working professionals think, we're And change using on XX work We're about way to and through the related prepared months. bogey been pretty the for referenced we're put additional transform doing. the and go we're XX some expense business so, and we Glenn And this preliminary help organization. out because think do it the obviously to we've

to we in first on any now. So, the but deeper go quarter call, sharing right look not our really more forward prepared we're to

Collyn Gilbert

geographic your in either that to loan with And to of any the the segmentation to opportunities then, the build perspective? perspective the comment you from where is kind of book, year, kind to continuing of for PPNR grow a do a terms try growth loan - outlook loan intention or see next just from

John Ciulla

that's bit question think sector-based of and to and it really before, up and that to good play. on have good a as a being Steve's little I lucky been ends in or combination we're fortunate, where great a no, question performance we said I'll either it we Yes, credit relate really

So accelerated. the has oil in - business on in of a specialty leisure and lot infrastructure, relying so not but technology pandemic, gas, brilliantly we've we're not the on is exposure sponsor we a been healthcare don't and only and of focused, know, hotels it's we're relying as technology performed largest our and have lot you during not which and actually

institutional lot market good, QX, has new $XXX we've really commercial our specialty had transactions but we albeit been estate real a sponsor on quality been lower in middle in in originations focusing earning high million and really in So our group. government

really of before to in had commercial set is So we in pandemic we quarter, bank originations the million had in. similar which what the in $XXX QX sort

very is is uncertainty, as it's I and that's to confidence for muted, think corporate I I going So know, even not keeping the to way individuals, are much because that liquid demand just think, investment now. you be be, to be going there's right going question as think loan no us, in there

So we play demand I pockets to be and be down, think well, will where loans. we'll make will but continue sectors there new think I very where

So coming be - would and we we our was XQ prepayments I behaviors, that though lower, would but seen lower, any origination that even do before think had all loan in true. said that be our guess what call that's

had quarter, on of obviously we originations So in really loan and high lower this we mortgage growth commercial kind origination. saw

commercial asset. negatively and that in see where we confidence great the perform still in personal are being grow we'll best So in relationships pandemic. where have I and we by some we'll impacted think growth not can the sectors still think we I see mortgage, we loans and have

Collyn Gilbert

And just HSA within but the how are the to it through look for Bank? then as M&A the guys again Bank, to about longer obviously, organization, thinking final you potential own question broadly curious answer one just what welcome opportunities more Bank your either but scale you to or to for it are scale, Need on relative you or out. as a guys term you're and really acquisitions, HSA bit addressing kind core of or increase little through you're acquisitions

John Ciulla

think it's on that complete last a do we recognition comments years and important. calls Sure, a a the the have internally from couple of great scale really our evolved is question over focus to

that HSA, regardless are what portfolio those time. And on so, side act and be M&A respect the With there likelihood think is some I there saw of bank would commercial always would in you the like on look say engaged teams we environment the this. that is that at do other looking we're we we bankers, other are a that - in to higher sort acquisitions, State that the transaction, marketplace all things of would we of the transactions of Farm

focus bank think pandemic. in there other will side best sure I sure but as the perspective from potential our seeing in on you're is focused I other when that recognizing a we can destiny. never. will evaluation and making we being said, nimble, and now be, internally controlling credit we we're believe visibility our what and side M&A because focusing be there make scalable good position so, the which want to on put We're And now, on to of this we through coming never we space by scale us that clear say want the a And are of out right more perspective mid-Cap our is gain really PPNR do laser we the this

Operator

next with Our Sandler. Fitzgibbon proceed. from question is Piper Please Mark

Mark Fitzgibbon

it's in beyond? of fourth thinking of levels at there's point, are a say, estimate, how what quarter about hard see and based provisioning for today, you I to Jason. one, lots the Just follow-up on on know maybe you variables but sort this

Jason Soto

as well. I can and in want sure. Yes, Glenn, maybe jump to start you

some realized like got few ones of and I over got some this lot revenue into classified. this quarter little to about probably think the longer, bit at a the some we've I point, you right, many say, the calling we migration, quickly, when as had recovery that strikes the classified from feel ratings are So quarter. downgraded third drivers, we would the to bigger a be migration we'll of saw we we and at take book next right, borrowers, well-rated balls you view our quarters. them them a in going those very of it's of recovered

this have level So at but many, point, I in not more, situations, deteriorate, of of probably migration special will they just the may some mention, that if don't improve. a major you'll see as

huge of but the barring pressure I don't environment. So reserves the something stimulus, don't increase I additional a huge falls in that term, cases or pressure short on terms obviously in an apart on a based could see in change see

Mark Fitzgibbon

Okay.

John Ciulla

Mark, just... let me

Jason Soto

don't know add you I that. anything to Glenn, can if

John Ciulla

Yes, John, little the really from work. out, quarter, Mark, is this very then, just Mark, technical. is Glenn demonstration of loan provide a This will. And to I is the and way of We the think I process supposed I'll kind and growth. nice had top let aggregate

lot increase provision which you need for growing to portfolio losses much, of you exposure. loan means not think your didn't incremental the life So a about for of that

us at - that look of Moody's to that use kind many get it so You didn't to to sort favorable of better. outlook and our slightly flat more require saw the peers marginally of

came down the in qualitative some $XX offsets lower a other lower, of everything classified, reserve bit. Some which drift and of require and of factors you net would so little charge-offs, lo of then built positives behold, those little a that and the rating migration into we around our saw million had we and bit level modifications risk kind internal

how So on indication from fast look an perspective. Glenn? be kind next really a the migration risk Moody's what of we depends really virus in it our into provisioning of where path year, forward we happens can give you and of to grow does might what going the to loans

Glenn MacInnes

that No, I liquidity. - thing be the John I it's has most Moody depending only as mid-cap - see I pointed covered. more you mind seems the what of the all would standpoint. both plus Jason of space, liquidity using matter good, about so, on strong going the built are in in in to is it baseline that $X.X stimulus and a it duration The look using we're we at keep you And and happens course or of now, into as pandemic out, think us between customer trillion forecast and there. Jason, minus I add and from a mean, and thing But the a right but just seems

very we're it. so, And a keeping eye close on

Mark Fitzgibbon

much York And then, are deferral across secondly, like traffic there dramatic in rates the York - all harder are that City geographies - look you deferral than other? or the New being looked trends say I'm guess, I much as various they I it New is terrific. mean the curious, Connecticut higher differences in, hit,

John Ciulla

interesting. I funny the but question. it's for asked obviously just And and that ask comment, I'll Mark, it's his mentioned Jason Steve when Yes,

real New sector-based, hotel it's haven't facility whether it's not real right, more or York you're Boston, and a multi-use in whether differences We and much it's seen in geographies, a estate. been you're

in down I and I if was estate We've Boston got and think the will every in to we're Philadelphia earnings areas, going into Connecticut, New And in real we I never up City. that's not one mention sector-driven metro you Bill will. have New - Wrang's significant have remind more York the he to Jersey exposure interesting. trend, and the but dive and then name a call, definitely in it's but folks, on So don't to overweigh it's

seen So we the other in of New kind multifamily York risk areas. haven't or

any seen of really So the we in on increase I properties has of which an markets, of in metro flight in I impact core really had anecdotally, rents. things. - the growth little is only home tell you, live and geographic prices out Northern Westchester know real prices and bit and as impacted some pretty taken values risk of been but geographies thing that's a stabilized from other home the our I've in Fairfield metro in that our - of kind had It's the outside haven't Mark and we seen us. market Jason? County have New terms and home will spectacular, evidenced Canaan and precipitous think by I you and a

Jason Soto

look was and initially, what York, this I of you within stronger Yes, no, portfolio. point say New this numbers consumer saw know footprint, we to disproportionate if I consumer the decline you benefit relative some doing you overall, because it. I I in deferrals certainly York New that Early at guess there on amount so hit a our is about think mostly well, point. deferrals we're wasn't would but at our better right. the under million feeling in at think you there's the $XXX book, right, been got actually

a also of is period. that think business like I real portion good throughout the have mid-market, right, from commercial benefited and portfolio So banking estate, this

Mark Fitzgibbon

are a but season, sure John, the early what renewal the shaping any had, on if talk I then, we not give seeing, line, on could HSA up? is question see pipeline also, that business Chad's if it's the little said on wave. of maybe I last ramifications And a And the he how through about blue us you know, any event you in potential the think to sort do I'm color help

John Ciulla

about the and spending a of in the we I'll question leverage do Mark. CARES how can could Act studying good give we and discussions that say a even HSA then we in lobbyists the lot and help. confidence Chad to the We've time feel product wave lot, questions, were with rest. the really blue with Washington take account Great been there can

people of HSA is tool point. there think HSA as at I Medicare of to an to good of costs some program a so, really And for support bipartisan and going a kind kind healthcare even allow deal have with as forward part

going election of private HSAs. probability a a the still could like, is talk you Chad, low now the respect in system the as are. with politically, that a shape, feel it you we're can right replacement maybe into lot January single-payer what to the on November the complete head some period? of We you're provide benefit with good and of of on, of insurance details that's what view seeing pretty program our and So X our regardless outcomes guidance

Charles Wilkins

there your Yes. very I limited on the Thanks, a bit Obamacare, comments largely administration. during was - I grew were John. political we Thanks, under quite John, HSAs with, that agree environment, Mark. think and impact

what and in in the employer more year. employer pipeline point it's think have regard we with negative. we're in is was we've of than with our the large wins last happy direct going at pipeline really sales than particularly space I for to - results, So X/X, seeing this the closed what The section it the positive XX two we're times impact at large had and this more to contracting are point likely year

drive the really these in results the we're happy capabilities product channels kind results and influence I marketing in seeing we've investing that been this we can we're with on directly. the of in So area sales, think that everybody knows call where to

the XX% labor from they existing still quarter so, but pandemic of seen yet not and employers would John our from come see results. have mind due to at said, you somewhat to end to existing of seeing back and I That here those the market, employers or come XX% want large mentioned and strong third decrease enrollments we've about that people a weaker we're happy accounts as heard keep the our And enrollments employees. in that we're our

into the don't like the have seeing. to Also, rebounds we it's directly, invisibility a that subdued. it's time well, large be what we're we while so, will couple where of it under - that we're we so it's stress visibility impact We back expect are health segment, as under - X/X, as a in plan could much our that we - bit to that hard of providers have call - but pressure but and the areas ball for and under come we

Operator

next Please proceed. is Our question from David with Securities. Wedbush Chiaverini

David Chiaverini

credit. had follow-up on first I a

in in at leverage have step on equity for middle X highest? sponsors deferral will leverage the push comes the are X% portfolio they that for deals? Looking to was portfolio and market Slide percent support loans the the investments each, to curious up when the I shove, these two their is in how in of

John Ciulla

we've It's David, had in strong always taken a of above it situation the conviction. of to I'll we're provide care to and some this Bank Jason. to they you went one was the where overview and and just turn make really reasons over right, know XX-year hard, then I'll with the statements business business That's this that a as beyond sponsor Recession. through sure make relationship, we and Great were in recently

with, So do my the expertise relationships. comment who is careful go build are select sponsors with sponsors and with to that deep we we we we business that believe

out of track when both going have we so, record a come the gets a And figure and together solution. parties tough,

is is, wonderful you are good tertiary flawed a function. sponsor is times can't after money fundamentally that a good right you something secondary, selections where risk So but yes, with with answer the there bad sponsors, upfront there support if and the put partner if business, my

other temporary ability in paradigm and delay, the many opportunity pandemic, a there has is road. So add maybe is areas is the commercial estate look will and and it growth purchased real that a to said shifts, I've other If there'll a down business to sponsor value, they there's not where create which be thing real I it really like a is at before sector growth, the way right, pretty that paradigm simple. a the the feel shift in real

they the company, You debt to issues when is leverage generally and are reasonable they're at really more trying meaning we're there usually equity appropriately that and actual levels, amount hand have the temporary. than significant money you that only a to not is borrower figure protect that of the cash much lending the to significant going investment keys know if the on

payments to the and to or in we they provide their through some So support but a not make covenant we're of reach to some their going are temporary this flaw, ride side deferrals return of unless additional of going business has to have, they're the and sure equity fatal can us, put going them other on with their relief, sort one, sort at this that issue cash of the get they company potential permanent company investment. that a with

our add early is benefit So through on we've you it this be but seen Great anything pandemic. about credit to Recession the in performance I there the you Jason, lot to thought to and that? long-winded a want and way know a that

Jason Soto

little I'll right. more no, specifics, Yes, a give bit

been cases The non-payment basis the deals provided a debt includes, talk have have of has been I'll level that has of loans, about where down a there portion modified I'll handful there about some a debt. space, more of debt those, XX%, modifications and the cash together. into equity the been support guarantee sub modifications about by of that and lot of a sponsor supportive. in X% And about or what these So equity major to in and portfolio, come in that's combined payments in of we've leverage on the call sponsor double-digit of sponsors third sub been the majority we've either the related XX% or fact done restaurant

during performance the from the and the with period time sponsors. overall the pleased this very been I've of So portfolio support

David Chiaverini

follow-up a the loan And outlook. then That's on for great thanks that. color, growth

you how initiatives reconcile of next quarter, about and loan about the on But that growth. the comments call, to hand, the years you loan in one how of about muted. to you we mentioned a So as mentioned to you earlier commercial pipelines demand expect I balances solid wanted the and out couple loan one is mentioned fourth on made stable are look - accelerate

of to So solid flat lead should and in a your it next it's to like as acceleration timing thing thoughts curious, clearly what is year sounds growth pipeline or there? I that near-term curious the that an the are was more loan just

John Ciulla

C&I again, it's big dynamics, the have real it's in the quarterly, what demand, have if time, last if if new some of or do and terms better smart we David, there some I'll tough, transactions originations mortgage to question quarter moves activity. seasonality side personal that short-term. I've the mortgage sponsors terms a going we even is XXXX. in refinance have really the We impact then it, - about pipeline not be pre-pandemic in are questions quarters. - there year period concerned could the ability obviously, said particularly impact, very talk of about solid, and confidence really also a is, eight-year others economic may estate this, kind double-digit another looking do to not and of fourth rates demand think there you're additional be what in of backdrop amount what banking two quarters Obviously, But loan it's loans now high this but give interest a than our is tax time, there growth and business end pipeline, over of that last pay lot seasonality, to this might are commercial loan grow less about we're more demonstrated couple just of - are had the show commercial disproportionate we banking, double-digit, seven the and right and a was of is we've but it's growth, maybe they're year, by before When thinking the retroactive payoffs, maybe in environment, it government the is downs. or confident we've do interesting, we there. not to answered at that you a

fourth modest the being and of loan the originations the better a potential but do think lead which just from better of growth. be growth may we level has So same little loan bit higher quarter to it payoffs, again, perspective a

about some are verticals We stages in rolling talk and and new we'll in a of January the that earnest, up. sponsor out but market ramp industry while that verticals to take and middle early will in specialty again, more industry

a and think all the this us managers, know new risk as So in you isn't time to - I sector. going be wouldn't

course to XXXX. XXXX smartly grow us into see of over those you'll and the So start sectors

think muted. and might there you which to to not market growth, political with activity. or then, are think we what will to have whether about we is, And see reasons respect originations, would have higher I outperform can you increased be whether I loan or reasons why there'll you So prepayments somewhat say seasonal think about be think the

at sort know sound So a inconsistent I but in the I'm may the to the trying or thoughtful we we've track record and short-term the thing quartile top and that being about the top say decile best hope is to of commercial think - the of long-term able it to top, of be loans market. I grow got

Operator

Our next question proceed. is Wells Jared Please Fargo. with Shaw from

Jared Shaw

just would the to future come circling that potential as next formations on ratio, we the Maybe the can should likely start to the back question, should as see or you credit down ALLL we provision a quarters those come or provided see by through, down? allowance coming we in NPL fully charge-offs to or some talked trickle few about see covered and that think charges, Jason, are ratio start then ratio charge-offs that of somewhat we expect we for being later

John Ciulla

shot quick and it take Jason. then a to Jared, give I'll

feel all high captured what from we've content obviously, - Just an we of a above-market provision. level, identified our loss is got level really a that good in

said, as feel outcome, path and think in base virus the that generally or if our think duration - forward. which, Jason? obviously, for Jason longer basis, feels do could cracks in credit the We you some as if few lag impact uncertainty, mentioned, indicates we the see at our a we in Glenn performing I could of the case are So on like then going the weakness. I of change we in base economic the provision covered we credit of industry first end XQ. we'll think dynamics some case if see up But

Jason Soto

Yes.

I that depending the now, there there really lot of if guys borrowers look improve. overall I the are will expect of guess worsen, borrower. you But situation points. liquidity could I think are right, at some - that right the of that hit on accounts right length also I and optimistic cautiously do the will all And I'm recovery

there where will a covered. know a when putting and lies. be I from pressure other look like so, do factors at feel reserving basis, standpoint feel of peers feel good that aside, that net-debt we're much I on some are sort near we our I So and well as about the top I I the it don't of of

path it's behavior, I mentioned looks like new said, virus, we've big everybody the that to depend as it's thing it's of going course, on stimulus, what of and know right. is And the also So assuming consumer the the where approved, targeted.

be things Some really feel over I a that, of good optimistic. where venues, these less entertainment there like theaters, moment, and just cautious is like be time. return about we're much think pressure longer things the other But movie likely reserved, it at could to I

Jared Shaw

now, spreads you're And quarter, that's you Yes, potential seeing you're great coming pricing to able whether can incremental comment that the or in position - right better fourth Are about originations loan color. a or for higher talking you when originations what look or then, new Thanks. structure? the on in is looking for the terms structure? bank of you loan pricing offset in at that's at on by on payoffs overall put

John Ciulla

another great Yes, question, Jared.

and I numbers, people quarter within have of is, line market better if again. risk commercial I they've duration now. I of the about competition all for a - back - rating, we bit right that in that had at go. coming but talked saying long a the and and in businesses look line I same know short talk credit into more answer write-ups spreads will sort little think community about marketplace they aggressive little the business the the yes, the see and leaders this getting don't this and did get how we from

pretty So looks in yield from I perspective, risk we're variable, the pretty will lower don't there good in risk tell a much structures. again, pretty, only also perspective. or as our so is is fantastic able terrific last, pure I specialty of know a for non-banks sponsor pricing will think risk, but and had our the and long and the team a so, that not that like same terms pricing it on structure what particularly from spread it quarter. third you yield to and there the with dependent And we technology from do we our got now, that competition but taking not on mix right and in such paid solid more how in statistical We've got I in structure helped us

high a metrics. on-boarded We lot institutional and and lower credit kind but investment significantly grade-like yields kind really also, as I which of of have mentioned, of government loans,

better So the the to But for of last short answer answer to a again pricing. time, able structures think is been economy. question period better mix at us, on don't know the your depending will get that I short but I the is, matters how we've long for of variability

Jared Shaw

we part of say about the say, into buybacks are good to know this then capital management too dividend expected just 'XX that still about should, that finally in or is the as head to you're into PPP capital, and early given thinking for me. then, And still is thinking better. you the it with strategy, maybe seeing attractive likely, - are TCE How quarter ratios, just be growth as broader get most run-off should in head you I Switching uncertainty?

John Ciulla

of - think to than it's about because in ratio the sudden level. but our our you I current end, the its say a of too our headwinds, went hit early at terms we're but range, at characterized to of kind call, - economic our confident dividend maintain a all ability payout Yes, of higher really I making it's obviously, We think it. you've

think a kept we which we engage right our into it's sit think looking to and a loan do grow hit and perspective thing opportunities of prudent pandemic number we prudent to to we from XX% we the premature that's earnings grown sort and XX% repurchase we're inorganic in we have thought were repurchasing bit do, that that and of long-term And in January, levels, back stock, our reasons that at it's an so, be to we We has growth going where think we in delaying. HSA strategic capital began, to shares. for about was right supporting range, obviously, talking when why not in now the target. been started our And we little

I that coast be on our we the table. like given the think is when capital feel will levels back clear,

Operator

Our proceed. Please Stephens Breese is next question from Incorporated. with Matthew

Matthew Breese

Good...

John Ciulla

Matt, Matt? did you? lose we Matt?

Glenn MacInnes

him. lost we think I Yes,

John Ciulla

Operator, give can minute in? we Matt to dial back a

Operator

Instructions] [Operator course. Of

Glenn MacInnes

see Let's follow-up can we with Matt.

John Ciulla

Okay.

Glenn MacInnes

Okay.

Operator

back is Please on. proceed. Matt

Matthew Breese

hear you now? me can guys, Hi

John Ciulla

button. We did can hit we and promise, not dump Matt, the we

Matthew Breese

you. believe Good. I

John Ciulla

great. Okay,

Matthew Breese

number, to net thinking so we of good curious, being reinvested I'm number, XX% number. other get what's the Just just a the that's X% the expense a about saved programs. dollars into the idea gross

Glenn MacInnes

to is the is so that is That - base the off our X% XX% number. and

Matthew Breese

Right.

Glenn MacInnes

It's not run if all includes looked reinvestment and to and rate that other looked core go - would our to those it is things. at at - you expenses, you down expect it X% XX% our

John Ciulla

Correct.

continue materially we've you're So to lot investments saying to and invested of what prior ability, digital heavily get it automation a a at that, is, in is tools and now, above the got business - right net not we're number the leveraging some efficiencies. level we've so process lot of

investment that get go-forward announcing a Glenn twice it's out reinvest money said, includes net the we program. as So to everything number, Matt, that so gross have is - significant simultaneously we're in the not of the that technology, not to number

Matthew Breese

it. Got

in footprint? growth to expect specialty just Okay. composition it include we to some your the mix include of you the a sponsor framing of we material also initiatives specialty mentioned sort And expect Northeast then loan it bit - others? growth the should the shift expansion, I in little right of loan some and of does areas you And you're out now? areas outsized geographic relative book, more, any should a core in the those books, think does break any

John Ciulla

here always story tell I Plains over the in Great Yes, and Washington DC. Boston great. York Western and and the coming deliberate and pretty in Philadelphia frontier White and was Stamford, time Thank New to We've - moved the we've Stamford since Connecticut was you. been and it's Providence of

kind You well, about of handful the dynamics largely been the economic a think have sort made move expansion. landscape. able to we replicate think which years, because obviously, we do over of most things the recently, When geographic last noticed big geographic that of we and we we've competitive just not of have commercial, about doing

think us we've the some there. there we a table, up being core in think pandemic move resort add in, may able have geographic into bankers. a I what our the because the last a you end current in deliberately take and at it's we of industry you'd of lender three think new and forward to I I end So and risk choices be plans, something terms verticals don't off market see also expansion competency wouldn't really smartly but if hiring you been years, of five or by talented look slowly tail

balance we're our to deposits loans. and as sheet can use more where kind do well so, spaces we gather as looking expand looking practice, of to And healthcare our we're make in

well. I a So bank to reality we'll which bit on bet we're about certainly have deep we're to new or in we're it we outgrow think of thinking, you're more going we we kind instituting is, if expertise geographies the it's we are and different risk going stuff going to and talk a areas not not is do thinking where but little into don't profile, new you January, that doing know even like the the

the there that's dabble, impact We'll we'll to businesses going either risk bad we'll new slowly we make meaningfully is recurring sure we performance are growth risk predictable, see forward and that's you're into cash going don't answer big in to choices. what I hear, industries our and them is think grow new grow short-term. slowly wanting or that move the move into to go flows I we'll choices where So think to protectable, that question that those we'll to geographies our credit your think or not you're make us or make areas in

Matthew Breese

at into M&A, there sounds And just willingness tying like do discussion this it to about is least M&A. maybe Understood. bank a here, think bit or then, more whole

you markets geographic And sense us maybe then, acquire into financially over you make would those give five next deals think like? you? to those potential parameters what markets, on the speaking, would some you could you to What do about markets As three expansion years, could like? look that

John Ciulla

think to in you're a forward if decisions to we're - said, to I space. too make that we've of our the in Right as look position referring Way a focused and be Matt, M&A too we're that we choices our way able priority putting more five make mid-cap us but the will evolving potential say from maximizing be careful where now, as and that premature, right now we top view year there'll that's now, sure was making list, and those been that on you and those we premature. our on

Matthew Breese

Understood.

just me.... last Okay, one from

Terrence Mangan

call. last the - to need We Go question. Matt, ahead,

Matthew Breese

What quick. the Yes, all-in was really this PPP income quarter?

Glenn MacInnes

I think, all-in. million, we're $X at

Matthew Breese

$X million.

you. perfect. Thank Okay,

Glenn MacInnes

Basically.

John Ciulla

thank Yes, you.

Operator

reached back to the comments. of turn floor John like over for the concluding session. to have We I our Ciulla would question-and-answer end

John Ciulla

and you and for all a this joining I great much. well. remain of very day. Thank and you safe have you hope morning Thank Thanks, us

Webster Financial (WBS) 22 Oct 202020 Q3 Earnings call transcript