Earnings call transcript Q2 2023

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Operator

Good morning, and welcome to the Webster Financial Corporation Second Quarter 2023 Earnings Call. Please note this event is being recorded. I would now like to introduce Webster's Director of Investor Relations, Emlen Harmon to introduce the call. Mr. Harmon, please go ahead.

Emlen Harmon

morning. Good

remarks Securities our by to statements to management meaning the begin the you within the I of of made Act Please comments information on harbor may The uncertainties, and which Private company's safe remarks, affect harbor we us. the safe are today's website review release risks language remind want forward-looking at disclaimer found and that the about press and XXXX rules. Before and can accompanying Investor Relations management's presentation in the and Reform presentation be subject Litigation include for more investors.websterbank.com. forward-looking may

Webster now it I'll John Ciulla. Financial over to turn CEO,

John Ciulla

while we increased profile liquidity. specific gathering liquidity NIM in will joining headwinds our over to Thanks, early sheet our some we operations significantly quarter deposits on funding quarter, welcome Second detail temporary sheet sheet results pulled illustrate overall, balance our steady the Webster Emlen. it XXXX as Corporation's high-level before morning, provided and advantages detail. I'll turning our cover to his the Financial the balance to distinctive in remarks. onto channels diverse and results our provide as deposit more off-balance in grew remarks and this greater we results us experienced Webster's morning. of Glenn appreciate and on funding Earnings financial our Good you Glenn Quarter provide Call. competitive We in trends

EPS while saw quarter-over-quarter net a of On through we adjusted in interest quarter. positive X.X% face In an $X.XX decline remainder our are the challenges, we generated financial we income, of of the year. performance modest the in anticipate proud industry we trajectory a basis, the of

equity return an of noninterest by under common maintained our grew adjusted position, X.X% and generated income Our deposits trends an other expenses. we in a maintaining liquidity statement over positive flat we on ROA and higher-than-normal quarter. of adjusted Despite lines X% grew XX.X%, as tangible we the exhibited income just

continue our book by X.X%. to our us positioned profile to funding and we grew clients, robust serve Our loan

Our to XX%, balance provides we strong loan-to-deposit as move sheet deposit reduce our us forward. allowed to growth ratio us which flexibility

to to enabled industry model mitigate funding Slide this advantage a X, us performance have If unique deposit each client model effects I of of diverse businesses deposit-generating want with outflows. partially you dynamics. funding reemphasize provides we the various the of turn a that with distinct general as characteristics This businesses, the set

costs banking we which While in we challenged. have front, are funding the deposits core positioning higher experiencing, are like others industry our to is on not that the environments competitive immune through the to we ability grow and

long-tenured consumer to are largely Our originated deposits clients. footprint in

FDIC $X all and within are individual plus Our customer accounts are all limits. billion nearly HSA in of deposits insurance

banking is model. nearly aware, relationship are finally, characteristics provides cost As deposits we remainder we most Banking, of unique particularly Commercial all a customer of year earlier industry, similar a acquired the And by deposit Within low The and share this source business this are have of at billion by with deposits FDIC of that core our of deposits deposits. are available aligned banking book. diverse a commercial and low-cost and covered interLINK, geography you consumer funding with insurance. acquisition type platform readily to long-duration $X

and of our not that increased but uninsured X, On smartly, see only also which we covers just available deposits. deposits under can grow did XXX% liquidity $XX you uncollateralized billion, Slide to immediately

balance in Our condition. sound remains exceptionally sheet

perspective. Glenn an remain discuss on from As things will further stable subsequent credit slides, overall

credit given continue of portfolio existing see to onboarding and to macro and managing broad weakness, credit loan not signs prudently do our uncertainties. we respect act While new proactively we any significant the with existing

office our on briefly touch again once portfolio. to want I

You on focus. market has X, Slide that can I that to an know see of area continued, as be

portion under changed our of proactively without an relatively and have almost incurring $XXX as as down The the portfolio we this is see provide our charge-off significant which small on year losses characteristics can is on LTVs, portfolio, figures million you by X% so office the credit reduced over on rate have metrics. coverage portfolio XX%. service now of annualized nonmedical basis. or office the this of done not roughly overall size We've materially, We the last other in debt

our classified quarter, proactive year from period they the loans the fourth actions are and relative given we've modestly taken. and criticized last are ago quarter While down up to

continue date, my pleased we estate, selection with credit changing appreciate we prudently. and portfolios real the and and while in to comments accordingly we are manage Consistent to above, with dynamics our fully commercial performance

now provide turn it to I'll Glenn details more the quarter. over to on

Glenn MacInnes

adjusted of with and X Slide common everyone. and expenses Thanks, On million. basis, $XXX of of to shareholders $X.XX. per John, million related earnings technology EPS Merger to good professional GAAP $XXX income costs. GAAP to merger-related $X.XX, net and net of reported primarily start expense onetime morning, an of our we shareholders earnings. income on were We I'll $XX million excluding common adjusted fees, share reported and severance

we forward. sheet, we $X off-balance sheet result level billion million, sheet sources. the on Total Next, billion Slide sheet as cash principally our on the first cash held of driven of liquidity I'll growth which $XXX from quarter down million was shifting going Commercial review on balance cash balance a period largely end, assets holding approximates in $XXX At by anticipate $XX balance from at X. beginning to Loan the quarter end, trends, were Banking.

as than balances despite flat reduced seasonal grew Deposits public and funds and were billion a the reinvested in more achieved quarter decline growth million quarter billion. quarter-over-quarter. relatively proceeds sales. $X.X were in borrowings $XXX in the from our by security Deposit Our was maturities $X

from result prior quarter. a quarter XX% our loan-to-deposit from and at ratio XX% down the of As loan growth, deposit was end,

common Tangible losses book repurchase. share million $XX.XX our exceeding earnings rates. $XXX X.XX%. AOCI tax of was value retained million driven to quarter, equity intangible increased share increased after $XXX strong. from book ratio Tier included with last value capital levels Unrealized equity X Our remain a security and XX.XX% small by impact to ratio a Common was higher the and tangible

concentrated million, million loans a interest Bank, are steady we roughly will capital Slide a C&I trends grew the and basis Commercial up grew anticipate portfolio was XX environment, $XXX increased The where real Loan opportunities yield million with residential X. trends segments. $XXX of continue in to accrete linked-quarter sponsor. on on grew we rate $XXX growth $XXX In see consistent million. Loan million seasonal grew highlighted $XX this $XXX X.X% mortgage with estate Commercial back or Total, into we annually. basis. Mortgage in warehouse $XXX was additional strategic in an points. on million by our million.

Excluding accretion, points. basis increased the loan yield XX

additional loans XX% and million was driven on of from excluding when of public We quarter CDs. clients decline time from Growth at Time shifting consumer Roughly existing quarter was $XXX were clients time clients. X/X on from came in provide detail remained at driven X. deposit the Commercial Floating quarter total Slide in was higher-yielding by the seasonal deposit Total interLINK of from deposits and and deposits was existing primarily banking A billion products. of X.X%. funds. the end. brokered $X.X deposits. into of consumer periodic growth grew growth balanced and deposits $X.X million prior by $XXX new increase the half million growth deposits

in for year. have growth earlier seeing institutions started to recapture this diversified that We're new were We funds transactional opportunities across financial accounts.

cycle-to-date Our total up basis were XXX XX%. deposit a of deposit cumulative to points points costs total for XX beta basis

On first which anticipate Slide products. our up total to quarter preferences deposit of for XX% XXXX, updated progression is higher-yielding we modestly assumptions. cumulative beta from the forward a beta projection deposit XX, deposit of by of have prior the due our client We

the on you cost our in few can pace over quarters. to expect the of see increase deposit As next right, we the the moderate chart

was reflecting Moving costs. our income prior to income earnings funding down while statement from XX points efficiency Slide remained effectively the $X position. for Net up noninterest discuss We linked expenses XX was increase adjusted major quarter, on slides. liquidity primarily our X.XX%, I'll were on from And quarter reported income ratio margin or period. The increased to XX%. to prior net flat. XX. actions the each million basis subsequent -- interest to item our Adjusted points temporary compared down $XX.X million interest basis X.X% was highlight was line adjusted

X.X%. which interest Net On $XX.X prior accretion, Slide decreased or points from highlight margin, net the XX, linked the interest excluding XX we quarter in basis million quarter. income, declined

mix excluding of decline in basis earning XX on assets, quarter sheet of funds points. the funds yield in additional prior as the cost change significant well as Our the billion. over and an basis NIM cost in added points the in increase with increased $X.X driven liquidity was for of deposits was up we in quarter by driver balance XX average A total The early accretion, change liquidity quarter. linked the

on While the XX to this prior in remainder it NIM the net decline impact drove not did our costs income increased. point Higher impact deposit has basis relative interest quarter. a funding competition of

remained quarters. quarter, quarter. On was activity. the adjusted valuation activity income basis, but marks an XX, driver primary clients coming million hedging year-over-year up Slide we an million income signs noninterest services million of was on our commercial quarter loan-related Transaction tied The million for fees, was $XX platform. the by the $X On highlight noninterest lower in fees, primarily some second client lower outsourcing $X the the increased linked in consumer to lower decrease to slow hedging the million client deposit in $X improvement investment seeing due driven our of client activity, $X we're modest of

with expense and the reported insurance. million, Slide expense expense higher expense professional fees is was technology and of offset $XXX We A deposit adjusted quarter. on by in XX. Noninterest prior employee reduction in benefit line

we details quarter. remainder macroeconomic for recording million up components in million XX incurred our expense prior to losses, allowance the growth, the $X $XX of provision After charge-offs, over to due million million Slide which loan and net $XX in changes forecast. credit representing $XX was in

to to our increased slightly loans see You XXX points. basis allowance coverage

asset highlights quality metrics. XX our Slide key

within a upper past down loans the left, nonperforming year loans. prior and nonperforming the from represent increased of are remain of points quarter On assets from range million the and million ago. Nonperforming year $XX basis assets XX $XX

loans X.XX% loans classified declined of a as $XX basis. absolute to loans commercial or classified an declined as X.XX% million percent on Commercial

or million of average office Net commercial Vast of were loans basis. divested annualized These we which in right totaled charge-offs points by secured real divestitures upper basis an $XX generated on quarter. in Notably, charge-offs. $XX million $XX majority in the properties. the million loans XX estate

maintain targets. of regulatory excess to in levels continue we internal capital XX, Slide strong and remain All capital On levels.

increased value Our $XX.XX explicit tangible common our to book XX.XX%, will liquidity mark, as our ratio Common Equity position. be of June by Common AFS AOCI X and to Including X.XX%. regulatory don't Tier are X portfolio, strong was but XX. for on would and X.X% any inclusive ratio securities equity was approximately it a requirements, share. Tier equity be ratio Tangible We evidenced potential the ratios capital as our changes to well changes capital anticipate of prepared our subject the

up XX on Slide full my with wrap comments I'll our year outlook.

range with loans segments. X% We the in growth strategic focused expect in grow X% to to of

loan-to-deposit We core mid-XXs. XX% and year-end X% expect ratio to to in grow the deposits the

income income Approximately in be net $X.XXX billion expect basis, $X.XXX would on We excluding billion, accretion. that outlook. net accretion non-FTE interest a to interest added million $XX of

million basis, an $XX I For the interest would outlook. to add those modeling FTE roughly net on income

the expected income are second Core expect $X.X the of range. the the Our from improve million. remain in billion next at remainder to basis remainder the in by along of to quarter the to week. above $XXX of year. an point ratio interest million XX XXXX the XX points the be efficiency X.X%. We should includes XX funds hike expectations for XX% Fed basis be NIM billion, to Fed outlook $X.XXX level assume $XXX will the flat with range currently in the rate net to We Noninterest with income range growth XX% expenses to

of range dependent on be be the of in actions We'll will prudent rate continue to tax market Capital capital. environment. effective XX%. our expect the We managers

continue We XX.X%. X target ratio, to Tier common equity

With back turn that, John remarks. I'll over it to closing for

John Ciulla

wrap integration our this of an We're I'll with today Glenn. conversion update short the our important forward. with lot, remarks integration systems. and operating path a a my on strategic milestone core approaching Thanks weekend up

at the the weeks. possible to accomplish As core. took experience of has our while diligently aware, clients, you conversion deliberate approach has many level of amount to we smoothest and gone have with new same first this the a and our for are ATM work half enabled to XXXX into on clients X conversions trained thoughtful have have event proactively A our of of as time, been the core and network tremendous service working team maintaining the colleagues a already frontline come over in procedures. of they recent the access to We completed been expect. consolidated entire systems communicating and mock our been We've our

Several an technology synergies. able of have operational consolidated, we'll to systems we'll from to complete accelerate plans, and we're already step our our conversion, and realize in position a meaningful be this back-office further been strategic perspective. Post be additional to excited

and we who experience business footprint. I conversion, our capabilities superior care our want processes whether dedicated We'll focused business are continued to across to the other in focus our as colleagues in on for role and taking continue invest thank simplify or products a partners. clients deliver all of on to and and our clients colleagues our we of grow a through

and business continue a all investors operating of full returns funding differentiated capability you'll all a the risk continue to partners, that this generate enable flexible a and recurring business our economic commercial attributes position profile to capital profit, segments. and earning see utilize through the within profile, to growing share capital opportunities Webster talent key strong management Webster's our to variety We'll to company. and operating maximize environments. resources As engagement are peer-leading in framework. highest Allocating businesses, of strong colleague, power, disciplined our and markets

Glenn I will happy that, be joining I Operator, questions. us with thank today. you to take all and want for to

Operator

Instructions]. [Operator

Woods. Your first & Christopher McGratty comes from Keefe, Bruyette with question

Christopher McGratty

different it on NII, for more point guess, And to you NII, about it of maybe talk more the it I this Glenn, ranges the could NII? at Is competition? outcomes. a of you would what of the range through Is take the Fed? about view take

Glenn MacInnes

Yes, thanks.

it deposit think is funding primarily increased I a as costs, increased whole. by Chris, So driven costs

little So that's bit. adjusted why we that down range a

part second question your of was... The

John Ciulla

John. Chris, competition. rate It's more our I'm assumption deposit general hike one sorry, a Feds with of and just of combination

government off the As plus loan we our quarter coming the have with deposits. deposit fourth commercial in which also this balance pace the but because you good grow, sheet, kind we see, floating we seasonal think lower-cost will of see of rate expansion book to costs some in guys at and of third core in our NIM and because respect coming growth quarter growth dynamics

factors just into overall we So being obviously and funding that's industry-wide. deposit governor are kind of with what higher costs where the

Christopher McGratty

Got it.

In think regulation, strategies terms below of comfortably may about? how evolve will just be you're thinking you're And you'll potentially talk just point market at the and XXX, targets I Can may through angle some but evolve? you're expect that capital also you there. expense obviously, return capital the

John Ciulla

thinking Chris, a it's Yes. question. great spending obviously, a time we're of lot about And it.

too I of guess it's throw even kind think early cost. on out to a wild

need I to to actually think we even is certainly testing we you held infrastructure way the respect the to regulated, if for liquidity when way ourselves time, effect being stress you're the a long even LCR begin with and have reality premerger. we've didn't measure think our billion, to $XX I of even the you're trickle-down at prepared.

I we deal with regulations come the have So to think infrastructure whatever down.

levels, kind higher think higher there intimated that right? liquidity liquidity I and of than of is an the on liquidity different end exactly we would have closely. at deal the to I impact the our would But So more capital capital. the of over hold be the would bank to more be you have as at internally, types costs, it as capabilities, We're be think And -- people requirements you be give have if economic internal in I to comes following I think and and as whatever early too have we said, able the with phased systems time. it to would expectations. more just it's kind us impact

Glenn MacInnes

on in like X, AFS our the you in at And were we'd my Yes. a add saw the X.X% Tier be even I from comments to percent, if losses, XX-plus as that, Chris, would add only XX.X%. thing we Common Equity to

over in phased be probably time. would that So

Christopher McGratty

share there too is economy? any Or contemplation of of on uncertain the it sheet? And given the is the balance strength Okay. a repurchase

John Ciulla

No.

we We think grants you shares million the have to seen, may in as capability the have employees I throughout or we it, to repurchased certainly of do half. it and colleagues into offset go second so $XX organization. to the

if we're we think view I stewards to normal stick think our of capital. that I good

sheet there, it remains not looking credit fourth contemplate matter I absolutely like generate opportunities move the look capital tuck-in us and see environment of internal But we you'd But share the So first, looks as at deploy ultimate that's continue balance through is if we stable repurchases. We to stable, acquisitions to of other kind think and the we HSA things like at look time at are our and for how and the view credit we and restructuring. things. environment we a of it's third capital quarter.

Operator

from next comes Your Haire Jefferies. question with Casey

Casey Haire

the That on immediate? back could borrowings forecast borrowing half the ended to NIM year. like where it question XX it the of the It XX that in like feels is was It bps back of given feels the weighted. be Glenn, quarter? half lift the

Just and costs the interest-bearing spot interest some deposit And the deposits? there. in -- color

Glenn MacInnes

let me Ciulla hit just So, that.

back sheet barging at liquidity held X-plus down to right. So, the the quarter. yes and us, were XX points into second of I billion you're the Fed, balances bringing mean, thus function and the basis come that's which balance

you go if back there. XX So

loan XX a -- got You the on X other impact.

X the in points coming and book. from basis X another NIM points about the have from basis variable then you book So fixed

So that's X, right?

And as obviously, it's as products not basis built pick begin see to pointed second in it negative positive higher we've the thing, to thing was that up repricing. up quarter, But significantly. about I X X the the there of the of you portfolio, points CDs. yes, some like is in first probably interLINK because of should investment quarter, the brokerage severe points sort X there. further beginning And back out then course, And cost then, and third same key, quarter come basis

I On XXX. on the was deposits, like second part so of exit our think your question, that's cost

Casey Haire

is That's interest-bearing? that Or total?

Glenn MacInnes

total. That's

Casey Haire

the through quarter first beta 'XX. Okay. And then assumption, XX%

then -- were higher? DDA guess, there the I that is is hold can deposits? of beta beta the forecast is for for what Fed that mix XX% at So -- is assumed XX% And and longer, the on beta -- total if that higher what is go

Glenn MacInnes

Yes.

So there. a couple of things in

Our at increases stays week of forecast is that Fed and the rest year. next the for XXX the

So that that ties to you're XX% that slide. on seeing the

So I think question. first your part of that's the

the been it's I has think a down of been that's And and or There lag you the the there most quarter. for quarter how on part. is deposit a acceleration and Fed X in that's base increases trickled second see again, a lag. to that some why like

of I of the -- think was second percent your as deposits was part on total? it a DDA question percent a

And we're that's XXXX, the organization base. XX%, if it, increased fourth for grown of of One at is things you right? think, we've happened a here deposit that's the so us, quarter total look I and at combined broker, interLINK

the So that a XX.X% range the you you're year in of XX% if basis, by for full probably look at quarter. fourth to

strip like interLINK If you XX%, were things you're and Broker, probably close out to XX%. to

John Ciulla

Casey, And John. it's

the the most will up in view our was captured assumptions more, most increase a what your and to could XQ. of beta there for -- of longer longer? I be and if questions cycle is, think by one tick happens that your flat most it but they I little if your last of are higher stay that of is the what guess, beta it, think I

that behavior time, have a could the little drift over think up is but moderate. we You

Casey Haire

Yes.

the then Did any buyback on just count it. That's mix, it. interLINK activity me, but on just lower, for going of And growth. back updated you any any DDA Last mention guys front. the Okay. for capital on buy on share Got didn't I too, fair forward? one The appetite see thoughts shares? was management

John Ciulla

to share of I employees. about to McGratty's mentioned answering in $XX million we Casey, that the did repurchases Yes. quarter just offset question grants

So have the yes, we'll I same did. we approach. mentioned that of And disciplined sort

capital, generating and annually, are target. obviously, amount good We our of CETX slightly a capital, we're above

long have look capital So year. significant repurchases restructuring a or to opportunities some internal capital look level as as half to would of signs deploy deploy to extent would of to don't credit share compelling we look as the the of we balance there we the deterioration, and sheet second really weren't we

Operator

Inc. Your next question comes from Matthew Breese Stephens with

Matthew Breese

start, pipeline could how and give incremental to yields originations us that some higher, of on Maybe a just has loan month-to-month impacted today assuming are what basis? and they're you idea

John Ciulla

complex Yes. It's question. a

get we spreads let the way While yields, an interesting credit start start. to be me with could

terms where industry that question I most and loans. no are of of the how we're generating loans there's think like disciplined generating of more kind us and So we're demanding being more in

have increases spreads. seen in credit We

reference respect to basis on to So pre-March yesterday Cre level if like of, sort traditional team continue other talking think you points. from the up. Cre, a move office, aren't and was But get with we're rates and to more the SOFR of predictable of plus in obviously, of outside kind which and It's you can construction-related basis doing. I expansion. of people obviously XX prime points additional also credit seeing more XX spread

point XX seeing teams spreads. the C&I, on in then kind basis of to XX expansion And credit

the credit the over give So Glenn yields. spreads reference can and expanding take you those rates,

Glenn MacInnes

Yes.

be Matt, yields mix at So driven look when for quarter quarter-to-date So sort it's mid-Xs. the that's were going obviously, we at month by in right? But you to the look of the and and on mix. and the months, the June mid-Xs both product of the generally,

Matthew Breese

looking on process that buyers? give that do rest I the loan on divested. And the book? you How then curious content comfort more just office that the curious there of market on Great. office the And for What there? office potential kind to million is $XX you loss was loans you're of liquid went? I'm in any how was does

John Ciulla

kind there's of give quantitative a Yes, definitive not it's question great And answer. a way to again. a

amount XX% proud the seen, and exposure clearly There and question market. of it we've ago, more of office you've of was for is loans over now quarters the of people's in given with liquidity to the expensive think the kind really credit I that as the eagerness and view minimal X is We've team. purchasers really market X quarters the capital hit no it's by minimal last I'm of reduced than loss. seen, just

There still is liquidity, a out a as private lot you of of lot capital, know, there.

good equity so encouraging in finance valuation to or that even the is And but of we clearly picked been if if us a our pieces there's to ability, if of properties day, there's property for terms at those decline, the end of uses there's alternative still XX% in to find roughly obviously, respect XX% strategic think, we million that's last charge-offs our with that quarter in we've buyers. to said noncritical the properties, and property, the the $XX of represented right office move now. quarter, but been This to able we

getting it's more So expensive.

office now the getting the I although we've that. it's are and there below to there, that buyers execute We a paired this balance obviously out estate think portfolio billion being about it's real sheet nonmedical moves we'll feel on kind reasonable of at price still thoughtfully expensive really continue good proactive. more fact like down but to $X.X to of

Matthew Breese

this are on prudent Fed, loan Great. guidance accommodations on I like your there last out workouts and OCC late some me. In how plays real the in And and from were FDIC, for expected then perspective What the estate and how the joint And it be commercial one and June, they interagency would or customers? tools What the help these workouts accommodations customers like practically? you you can help terms disclosed occur? used? how look that will of when how if be does can

John Ciulla

as I'll I the perspective, that 'XXs, to regulators restructuring and lesson. when give accelerated you obviously, to here, the crisis, they to that way was back Officer making were realistic answer loans they everyone's the And Credit on terms to don't constructive. go getting early the and I loaded tenor really as with prescriptive interest were general respect very at can tone that and looked in you with financial with we're and respect the thought kill very a to not during return with during, another Chief estate I we're from again, respect to sure best the will the great think, obviously, long market be I banking constructive real the But my I'm going were they Yes, specificity, know was modify. which in seeing you but question I it that in history regulators, knew of

our the proceeds. sponsors of cap far, changed artificially So still view that's to can in going additional not that real a to have helpful, not and things really seen to a slightly view sure losses. a there's aren't higher us making And value really to little the so And least able hold really either get you underwrite rates and the shouldn't but loans. bit in that us and opportunity work so nonaccrual that the give recognizing owners don't with stance we're LTV. my appropriate the we estate kind of and point, in alone able modify taking we've Matt, be vantage We're from credit The sort accountable to and good I a loans we're to But far, we're to constructive at it reasonable doesn't are is forward also kicked a our renewed. artificially think of kick forward our internally be bank if I artificially want is that forward. consideration, and think pick regulators

and action loan will to take and appropriately. that it you appropriate cash enough in way that's the classify and think risk I investors the to to rate the have flow have service analysts don't if see you're And the your going loan,

just to a higher it's but loans, LTV. flowing cash got you've repay If or got to longer you've going take

flexibility I think to a the going outcome. able to with being borrowers work to we're good in have some

Matthew Breese

there. Great. I I'll appreciate it leave it.

Operator

comes Preston question with from Brody next Your UBS.

Brody Preston

maybe want the on did follow just office line questioning. up, to of I

So that another sold was just it a their portfolio, we bank and mark. like only saw X.X% they reported medical office

between a takes tied you office, office have waiting the I deposits maybe might them. office it's where your evaluate for like bit that road? for around? noncore something borrowers? that to a as you and Is it just speak think something to Do overall those product later to maybe guess medical opposed now I look keeping exposure, kind of Is But even maybe puts you? you of core even as it down kind exit if medical could was you the to

John Ciulla

Yes.

Specifically have office, rates I now, Vacancies different still animal. to held. low, strong. such so. don't think a really it's It's medical are Right

and most have products. particularly not other And fees so or deposit portfolio oftentimes. either ancillary big. a from of profitable revenue And management or is the liquidity right our And now, time, cash business it's we coming

So I And our in feel wheelhouse think to do. right something now. don't don't I perspective, from think credit we we that's it's need a strategic

Brody Preston

Got it.

want could but I portfolio. Okay. using in if calculus? what duration the the did missed of tell the that sorry in ask And you're just conditional the deck, effective the you I'm have I duration it happen do And available-for-sale on what rate prepayment to then portfolio is? you to assumed me

Glenn MacInnes

Sure.

the it is duration years, the and CPR, in digits. the we're using X.X single So high

Brody Preston

it. Got

in balance areas some what And there handling with seems of more one-offs of holding pressure seems couple And your rates? this And I was in ask on up kind middle to across want of higher interest maybe there's just to There's starting market, it evolving identifying? then particularly middle especially across Okay. to couple borrowers, are the but just really a And are quarter borrower industry. of market How they they're that see last credit the quarter like industry, how be you're pressure that sheets. well, maybe conversations the key are some one-offs. some the indication today? a

John Ciulla

try be I'll you brief but and insights. Yes. some Again, give

right. I think you're

strongly. our metrics, credit at across I everybody is think you in dynamics not on look portfolios. correlated held office, so risk secular there. surprised being And that the We're we're and given seeing proactive just obviously,

bias I was the perspective, the to I look probably rating downside. think risk think, stable, you kind from of is industry, a that across now if the

really said, resulted of you a as perspective. kind although, from So one-offs only loss it's in

And higher quarters. service, the go is, of expect in wage in the most folks and businesses. into rates, higher probably there your debt several pressures little as it other think point, costs we costs, be more I input a inflationary interest impact cumulative industry bumpy on the forward to input to next

are we quarter charge-offs and XX in or but points much their pre now. anything good that sort good right Brody. plants correlated costs pandemic at office our below demand. charge-off capitulation, our their our And seeing XX% interest hear X-year seeing feel no their on those and about people actually So this more look if we they're They any work or pressure trouble rates having finding geographies same for customers' hear it's funny. as across is from their the behaviors of costs, confidence, not I input all either our but were basis feel of really clients work said, doubt basis sectors look service you which higher on What all time mostly to still they performance do different to And counter them, risk of points thing, about we're company X our of on sales. it's and rate we about average proactive put the we're to not higher

So the yet lot shown statistics. a through of it certainly hasn't

Brody Preston

it. Got

for I one I And then Okay. was one it. last And hopping apologize from if another missed again, I me. call.

huge maybe had talked, time we feel in a Do swap And that's you we or at a you half what Glenn, guess, income, activity the fee it's the this I guidance. low kind year. still the revenue the commercial high of to I know end point. the back at of on driver bit Just be possibility? would But like I little of the up think not cause about the a picking end last spoken

Glenn MacInnes

modest mean our modest Yes. increase as well. see we guide forecasting in We're some activity. in some I of second back increase the within all year. But that's do the half range

Operator

Your Fitzgibbon with comes next from Piper Mark question Sandler.

Mark Fitzgibbon

nonaccruals your this there that any million up. this a heard dollars, like industry commercial to that's nonmortgage, also challenged? it And credit, delinquencies on $XX John, Is to I you I looked unique and being but relatively know XX small quarter. particular XX-day went anything comments bucket that uptick in had is bucket in about or

John Ciulla

said, that was C&I to and one nonoffice are that. credits and They were Credit led dynamics loan. who delinquencies you say idiosyncratic one with of a for I that Soto, and management one-off chief was more kind try look really of a was administrative. Jason The there, would was the Cre couple missteps. had it Officer, mostly two, No. a talking We really I

of So But issues there's of behind proactively. haven't there anything that it those either again, happens I credits. leads a at it parade seen inflows and outflows, and we that work I

Mark Fitzgibbon

Okay.

the half Given today we year? loan on provisioning and what credit how are -- growth, should the thinking you about for be levels back for of how see you

John Ciulla

A good group perspective. mean, in in of Glenn talk right proactively I obviously, thoughtful driven from lot the among inputs a we're of what rating technical coverage more conservative. a troubled our terms a dynamics Yes. you helps CECL of you with the peer now,CECL macro market. going post the about We've credits, the by it got to is I top ratio We're pretty you -- coverage. and we're deal risk -- have think forward. can decile uncertainties We that

personal keep remedy, proactive like criticized to upon the but is a how dependent all migration payoffs like are I'd able credit how coverage Mark. ratio, sell and risk to My what be resolve and to on is get robust classified or it's assets, being we going performs, view

and the doing, stayed what in in levels So quarters. I to been portfolio probably look similar about seen of what of would movements kind at last say few it the think course, you've we've it's

Mark Fitzgibbon

expect behind then they and done from lastly, be we systems at third should up that merger And Will post Sterling wrap Okay. point? in the conversion? charges quarter, to

Glenn MacInnes

trending you it quarter. down. up Mark, expect it you've the Yes to seen in wrap But fourth

yes. So

Operator

Stanley. Manan next comes Gosalia with Your question from Morgan

Manan Gosalia

a how do I you difference I lower peers your peak rates already and for rates have What get answer that this question betas to narrow betas it. and we'll larger if longer, you of the that between in deposit even than increase yourselves, wanted see banks some in banks lot, have that argument the stay like higher of a deposit see should higher betas? make

Glenn MacInnes

on by that's a will which for has it composition. think and differentiator you It us, bank. as HSA, I on we X% depends basically so beta us. And a through-the-cycle have for know, the of depend

business, you between If well. businesses lines betas commercial the look consumer those other both our of at as have the different and

think I I that XX%, a think So our lot commercial betas, our of consumer betas XX%.

will by So shift profile the funding a driven from lot institution. I think the that be the and each mixed of of

John Ciulla

view ability. kind similar. said, think kind mix an that ultimately and think, everybody your Manan, kind you you Yes. question because your could interesting as as of deposit to about It's would of reversion But be asked a it mean. of really my about do Glenn I the is

growth saw we You number banking cost expected in in operating a growth consumer us government deposits franchise higher quarter of core business the our in the book. our reasons, year in second of half for in commercial in have our the deposit book book strategic drive in our

those will should impact the us mitigate around. costs So overall things help be higher of that deposit some of

for the if situation a in same think assumption of we're the long I this that make can't place So in up period ends time. you everybody

Manan Gosalia

you deposits? X% beta did say deposit And helpful. Very HSA on through-the-cycle

Glenn MacInnes

I Yes, did.

of been broker has commercial back, XX% Consumer into you quarter, we was if at second the the quarter And X%. cycle-to-date to beta being we been our peel looked difference if our you had beta CDs. the the But cycle-to-date for said that XX% that think higher interLINK, XX%, -- HSA deposits. so and has I products

up differences So there's the differences portfolios, number. in that within product that's there's to how the But ladder sets. and you

Manan Gosalia

is up beta those which HSA push competitive any in there the on deposits? And factors environment

Glenn MacInnes

It's interesting and their in because into investment yield the product for balances investors, really options. are searching move become they customers that that

XX% think So account, X when think about that, million spenders. of you HSA when you our about those are

like small $XXX relatively have account. the in they balances So

like for little not And a become then meaningful the as have soon as savers they balance $X,XXX. $X,XXX more they larger get scale And it's or investors. as So a them.

-- customers are spenders And XX% to balance that investment so And what look that of investors. and their a those a and to of lower it's at to I like are. $X,XXX lower decide higher if multiples our spenders have balance. that. category investors balance, are savings you generally, in said, at demand are Still, savings to DDA move the But

Operator

Your with next comes question from JPMorgan. Steven Alexopoulos

Steven Alexopoulos

I wanted to start.

comments the What for positive NII in on follow-up terms in assuming that noninterest-bearing you for outflows a around of the of rest first, are additional guys assumption? this So year. trajectory the

Glenn MacInnes

some that come John absolute that that mean, funds we're have basis, will and the come as a municipal additional XXX think in. in on I So funds transactional flow. quarter an XXX, have I on we into noninterest-bearing like said,

takes I given year end you. probably So think within and that the we'll puts the range to

Steven Alexopoulos

Got it.

Okay.

from here. pretty So flat

the played XQ, side, We're Okay. I'm building it and quarter here really bit not it environment, seems were curious much is when you at deposit competition the most in so this out, banks the quarter? that for third like on look seeing it's as right? easing competitive liquidity a

John Ciulla

liquidity, don't and rate been increase. -- who banks may big wanting XQ. that I easing. Yes, additional in Fed storm sensitive The perfect has be think the people the such paused, it's It a because and competition is are it the given a was

not competition on do I'm I don't it but think for pressure as that Steve. wouldn't deposit easing. So characterize sure, -- eases the the I I pricing deposits

the industry and that folks are And rely of the position thing. obviously, but the chasing stays moderates. that's you're why think increase for of I all I just to continue on going moderate competition rate. I valuable we we're costs of and relationships because out seeing more pressure than kind take think the deposits kind But relying think deposit So most on deposits but want our pricing strong, obviously, in a the think most in that

Steven Alexopoulos

the then front. finally, regulatory on And

new we're out, Do you have close it going now." it at with We're to saying, comes point $XXX to out, for regulations to we So your period with $XX for assets messaging the like right? waiting the almost comply whatever stage? the know "Okay, you end billion. for enough, time this this the details. John, I how team? And what like looking internally you above all your wait need feel to we're at comes billion, at to comply are viewing banks this what's Are you are But work

John Ciulla

before reiterate maybe a of I'll it. what good to bit a I add That's question. It's great. and said

really I'm So infrastructure. risk with happy our

real of team. Our strong. right a It's mine focus always and are the of now regulatory relationships remaining been

stress even earlier -- LCR. with mentioned complied question, in though obviously test we've disclose to response don't I internally we As we to externally. already obligations another We have

took with feel are $XX to and standards And merger height billion, the on that and over this us so we path like we already.

regulatory So we've to think, built framework is. continue and infrastructure, the continue to the comply to whatever to in execute I

forth. So additional it be ask and cost much so when on people so how and will

feel and as really what be are a process hit there I good think move requirements going about if I from a is are one, we actual capital the liquidity and The to a system perspective. forward. real where is we people,

is is billion from good point whatever think I billion clearly to ready out one to billion and a going your $XX have $XX we're as move we be comply for to to there. $XX

We will to adopt. and implemented when are at time regulations these new have likely an opportunity a

ourselves get won't We'll fully we're rush. we we'll prepared. So make compliant, sure but

don't a going additional They'll requirements, I those will liquidity be it's feel way it going there are and and to I the capital blindsided to So look us we're at down significantly. be all if is slow on like there. for and have our and they'll that feel I make sure relative be of we'll basis, peers time whatever competition that good implement be our what we to they'll be. But is

as and standards team, that. what the risk is you're sure we all doing, right $XX and billion respect as our that internal to to you for good whatever our meeting ready message sure make people, really going above processes, feel about forward make obviously the doing the bank an the get we're So said, have is keep I management systems, with heightened

Operator

comes from question Raymond with next James. Your Tamayo Daniel

Daniel Tamayo

if a it But where well? down. cutout terms for term, fee impact answered just were? the I one missed long rebound expense side what point. how mean, follow-up income apologize But it's came of this, guidance get more there. as what to in at I does this a the Multiple the side, questions you obviously, my then asked on And your are? that back expectations just been take and But call I to and have curious, second And does

John Ciulla

Yes.

with high you the give fill I'll -- in you Glenn give strong a the cross-sell relationships, lots me can products. we of strong any charts. We're of level, Let commercial Dan, bank and and then

And the our of so really we commercial noninterest on relationships. our back banking income grew

is so loan & like our has you none selling driving higher market saw that, fees, noninterest rates, swap year kind of of And tag, what Specialty Sponsor as were things fees, given last fees, And of industry investment from a dynamics income the the the syndication levels interest of equity much Group. obviously, realizations higher lot stopped swap with business.

and for with where to have seen we've we a stops estate the in of bit then & And real more particularly respect our ride Specialty, Sponsor March, commercial when capital kind business markets a slowdown. in fees

forecast because that where to normalized you think lot our year, equity first next ancillary telling fourth fees, in management we the you've conservative which start fees, I capital in of of in treasury realization. tag seen be we I'm more a FX bit So quarter, quarter I would markets a think expect environment, reach those investment dynamics been fees, fees, the be a swap drive that our those to We when that we've guidance.

you management a percentage we're have revenue businesses would -- that fee-generating as But sure team, in we're imagine, be focused that on So can over our as also driver of well. a we, can making higher immediately. a time

So that's a strategic emphasis for us.

Daniel Tamayo

for I Terrific. And the Thanks had. that's all color.

Operator

Bank. Von Bernard from Gizycki comes next question Your Deutsche with

Bernard Von Gizycki

the you weekend Sterling this first in post noted. question my So by discussed as which expected about cost is savings $XXX -- conversion, million

your do You synergies. systems for come still just savings is year an $XXX million to that amount have several tech Can further I lead think of you mentioned acceleration estimate? the plans Or is will it cost these of us, entire remind some consolidated. through And And the full the 'XX? already also back-office this year? been cost-savings

John Ciulla

great a question. it's No, Yes.

So let me give you perspective. a little

space, and of saves cost we when our about FTE our the combined run That of estate a transaction, having bit announced vendor was combination a So office a rate. contracts. duplicative real and about getting XX% we reduction announced corporate of synergy

that of the conversion, obviously, you some mentioned, And branch all a post the combination synergies, sort of completion centers then as of conversion. call back consolidation, office efficiencies, of

XX months XX the of close, being obviously, pushed out of the that. So stuff, from realization conversion to some

didn't also acquisition when pressures. about the and about that the we rate X% our didn't announcement, interim, In inflationary the other X%, Bend million higher at we made in contemplate cost wage talked the acquisition a the we've general in on fact HSA, have costs FDIC of interLINK, synergies, $XX we inflation announcement of

is centers, we're probably now and the look we're looking we retired at some it conversion will So of have and because opportunities in at I think synergies office the 'XX we've back do call once then be the we're way realized consolidating to subledgers. doing that

we're So probably 'XX materially. the remaining impact cost there savings about that won't talking

of keep And together you general our and trend bucking efficiency But period-over-period, in saw of X are banks us flat -- our keep ratio during the reality of is the which industry. getting have the obviously, synergies time, noninterest the expenses sort is higher a core in enabled us in higher. when XX% these expense the to low period

we is about realizing it XX%. we target $XXX from benefited amount the a way look at the So good million of

really businesses. to opportunities rate run Some growth going additional to half in benefit a differentiated our all this back 'XX we're our do efficient, of 'XX offset will in and more acquisitions, in the continue have but that we been said to and story, as investments which of is by we've invest get along, has

range. year. years said, look the ROATC in this post transaction, X 'XX. ROA XX% would efficiency the the And a and you high-teens that that years into I for we full posting geez, to we and We posted and that posted again when and morning, an to almost XX% if at be XX/XX X.X% We transaction, year-end the expect ratio above announced that at Jack we what on X ago

So most us the if efficient the results certainly and helping we peer in our group, the like not most financial do one is feel of being we're delivering banks efficient that.

Bernard Von Gizycki

deposits. which your X interLINK balances as of I is one target question that's Great. on over Maybe The reached $X about just believe billion. $X.X billion, versus quarters.

that? into opportunities call Maybe you like is transactional target? deposit on of you accounts. earlier, curious, growth for your just in of see kind new still I you the half the the Can further seeing maybe where give you will growth just in mentioned I'm year? little could a think second on come pull some the that color So where

Glenn MacInnes

Yes, it's a question. good

end -- under $X.X X.X was billion interLINK interLINK first of in Obviously, So at was quarter. just the X.X. period, we're

growth the over of moderate the next think I couple that quarters. in will

-- that totally the to of not but certainly the $XXX saw you second somewhere range probably the I'm there, in around So increase $XXX million, in quarter.

of see So you'll growth sort that from on. moderate point

to We billion. had a $X of target $X billion

by fourth So slightly the start. or quarter, probably by I -- -- that it think under be at quarter we'll

Operator

Jared with Securities. Fargo next question from comes Wells Shaw Your

Jared Shaw

I through the think you go But you moves you can look about better as higher yields, questions still that expected? the most think that, move at answered. as year, the we of loan as talked the were Fed if Do spreads.

John Ciulla

I credit a if Yes. another from case We spread rates reference increase, my we Obviously, do. think interesting. a get But would are perspective, will base -- that the year. we'll bit. get we up And slide People different do. asset be dynamics It's The there's play demand areas. the are in in expect is that to decent some the in demand of we different sectors slower loan And half and of choosing unpredictable. bunch a of sort back classes. rate

and industry think the rest we're for risk. getting us capital. making that sure and continue deploying of about I paid will be So thoughtful the to

modestly So to we structure go continue from lender's a I second will half credit expect improve perspective, into and bank's from a that as the spreads Jared. perspective,

Glenn MacInnes

would or is book I thing floating that, to Jared, only is add The Yes. XX% periodic. of our

on in I XXX think the yield so ended book. And the quarter, like we

basis week. you next as so out, points XX the And again, of we're look assuming Fed

So third quarter, fourth couple quarter total points the you're a in on Cre. for basis the probably long in loan, the year of a the adding couple

Operator

the There are now time. I no further Ciulla. questions John to turn at this call will back

John Ciulla

us today. coverage for Thank interest the Thank appreciate company. joining We your and in continued you you. much very

Operator

today's concludes conference This call.

now may You disconnect.

Webster Financial (WBS) 20 Jul 232023 Q2 Earnings call transcript