WBS - Earnings call transcript Q2 2024 | Webster Financial Corporation

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Operator

Good morning. Welcome to the Webster Financial Corporation 2Q 2024 Earnings. 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. ahead. go please Harmon,

Emlen Harmon

morning. Good

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

accompanying management's Investor presentation remarks The on can the Relations be company's investors.websterbank.com. found site at

Q&A we queue. Financial Ciulla. ask follow-up participant of call will the For and returning CEO, John before portion the the Webster I ask that one to question one call, now each the to turn just over

John Ciulla

to it Chief hiring and new source the needs and venture joint a is of cover high-level Emlen. to important sheet next Corporation's accomplishments Glenn it operations Neil Management, allow time of greater the fee balance our call, you team joining income over our of lot, Marathon enhancing Holland last earnings flexibility Good serve to venture client Financial the XXXX credit base, sponsor Call. have provide the our welcome better same I'll results announcement with number our including deposit There our Directors. morning. while and as joint for the in morning, at meet remarks of We . The to and Webster growing Earnings Marathon adding opportunities. Asset of Webster's a a on and our a since as Financial private addition us Board been Webster and Officer, appreciate Quarter Second turning Thanks will our Bill financial opportunity the results before of detail. of [indiscernible] to great this

solutions our sheet. with portion to Our to form. fund And we sponsor balance partnering existing of that operate larger loan clients gain hold facilities traditionally to our the not continue its ability originations additional by existing Marathon offer team to financing will our would on will a in and

also leaders team. is we the to new great Neil our into company. a about management addition very We're have executive excited the brought

addition their talents, of large their joined in organizations Americas of served CFO over Chief banking Union Neil that, times, In and of organization, many prior having where their he his in CFO, Bank at leading Webster, assets. of November to Neil balance finance years He Republic FP&A as experience of sheet years brings whose was XXXX. Head institutions. and before at Officer to with XX different First billion was MUFG subsidiary, was team Accounting $XXX

of as their He CFO regional bank. also served

following August. engage him I think you'll enthusiasm share Glenn's of opportunities as you have each transition with in early to my

who joined was extensive of bank is Bill XX-year last the Webster's a he to controller midsized Hass, week where management also career regulatory company. Bill supervision. Directors coming risk the OCC is Board at of a Board and stakeholders. our long-term addition His a Directors. for combination, Deputy great grow we as the our processes company to advance in background commitment In create investing will tremendous value our of and capabilities a additions be that to franchise the and these for will off asset illustrate people

On and performance equity we X.XX% of financial on average generated turn an of beginning quarter, the return basis the return our on a for X. to now I'll quarter, XX.X%. for tangible adjusted on a Slide common assets

$X.XX. was EPS adjusted Our

redeem We deposits portion wholesale XX%. ratio grow pleased million $XXX efficiency to funding. funds Our by was the of and significant used were to core a

growth in year. the million under X% or the anticipated back just with $XXX of to Loans half continue grew by

and Bank HSA ago to want deposit we years the where our at via X X, to highlight acquisition technology recap funding profile specifically HSA advanced our we I led have Bank, Vend for year. At also Slide significant encouraging solutions. spring Ametros. our next enhance investments made unique On fruit. which provides These deposit investments bearing flexibility balances our are improve this in digital bodes to during experience, We our and some well selling developments client season technology wins to

Ametros year. end we produce a quarter, with anticipated quarter, when add of robust third last we in we the long-term deposit the relationship In extended the partner growth at provides new the $XXX will In opportunity Cigna, which largest investment offering, HSA discrete also the million roughly our to continues launch relationship. to we announced acquisition a our deposits.

base banking Webster offering rationale begin not was member for original strategic and member the our for the the strengthens in third will quarter. addition in products Ametros Ametros the proposition projections value Ametros' to we in to acquisition Additionally, base. anticipated This opportunity for

low changes really X LTVs nonaccrual coverage rent-regulated On classified granular, our debt provide as Slide portfolios were maturities overview X up and you portfolio by loans. where of to service see our and the characteristics performance on years. origination the capturing has of limited ratios in conservatively underwritten the performance was the The of flows can property that is of our portfolio, levels well, X, cash focusing real time significant consistently to has and next multifamily we at conservative underwritten has headlines. There an of updated the commercial estate most portfolio's portfolio, no are held

underwriting have also we a office, portfolio that is granular For characteristics. with conservative

the sector the nonaccrual, loans in primary quarter. increase we have be the to moved overall which NPLs several As continues our was this did to of driver challenged,

levels, from billion have some relates normalized mitigating potential XX% approximately with to these environment. annualized just balances Webster risk meaning were portfolio, in In which consistent more pre-pandemic significant make classified rating ratio, adds credit. remaining quarter. as in and end few overall quarter negative value $XXX proximate our rate A Even loan comments remain of or ratio office to it better our the loan the credit Office important than at balances all $X with of migration, remain quarter, metrics form the enhancement charge-off of credit million losses. NPL last second the the over down to a

after and manage environment review continuing and change the surprises, aggressively don't portfolio, the the we continue see in we migration in upgrade proactively QX. to of or unforeseen As rate this material

with back year-end capital at. whatever to our XX% a CET operating through Finally, turn reserve that, throws our accreting over Glenn remain I'll to capital our our in by X.X% to cycle we more financials confident strong and to With in coverage, capabilities, navigate cover and this detail. it credit generation ability

Glenn MacInnes

good adjusted adjustment $XXX net $X.XX. GAAP On million morning, per to everyone. with basis, a EPS an and diluted $X.XX. second common a earnings income . of The common our we for as charge shareholders result and Slide with adjusted $XX X portfolio. $XXX million to earnings John, repositioning pretax of of and was Thanks, shareholders quarter. of of reported the start securities I'll share diluted of reported GAAP net our income million on We

$XX Next, $XXX period from I'll up review balance quarter. million the sheet nearly assets trends first beginning billion on at Total Slide end, were X.

basis million quarter, on were in first basis million yield. and improvement quarter Our linked balances a XXX book of a security $XXX portfolio In yield up value X.XX%. with the to points $XXX sold point reinvested with the securities nearly we the relative quarter. XX increased to The

less a points improvement. contributed years. of XX duration years, securities than The X.X X.X basis anticipate back and These had portfolio the of of restructuring earn we an

the few not improvement impact another for growth yields linked points quarter, of it meaningfully The over Tier from and Ametros billion was Loans securities by driven portfolio in deposits yields in Common XX to decreased ratio the a increased up our quarters. levels and common that we our that next Borrowings up decline the It's the ratio ratios. of the capital Equity balance that we'll will borrowings Reinvestment $X.X made were the notable driven categories. with Capital growth range quarter. Consumer deposits majority X funds. as replace our offset seasonal the Total or improved public Loan-to-deposit $X $XXX X.XX%. that over with million by reflect expect We expect was operate did we occurred quarter. was and XX% of ratio of manage where basis interLINK, through billion interLINK. fully the modestly. third X.X% with restructuring cash core add such equity growth restructuring in Banking, commercial quarter the in the tangible the we midway as XX.X%, second flows by

million linked $XXX capital back accrete increase would on book trends million In total, unrealized Loan $XXX anticipate X.X% X. driven by share prior Tangible common with In rate earnings, a increased AOCI. to a offset in we are per security annually. the value steady losses quarter. the highlighted $XX.XX loans were small up by of from Slide environment, increase retained quarter or interest into

Growth C&I. was real by commercial and driven estate

The not earnings portfolio lower on we expect mix on the portfolio significant growth this we would with credit said last in As as categories quarter. the shift was CRE yield spreads. see continue flat to our toward loan we call, beyond

combined We comprised growth total XX% Ametros. deposit total loans low-cost, deposits on deposits grew Consumer of and quarter health additional financial at end. Floating X. base. When long-duration provide and periodic with Slide XX% and were We transactional deposits billion detail of interLINK, on Banking loans driven services care $X.X our by

categories balances the cost is $XXX to prior deposit were to DDA down as migration relative quarter million Our higher slowing.

points was the over quarter cost XXX basis Our points. total deposit prior up basis XX to

deposit the cost was the result basis wholesale were CD of in for and interLINK to points. portfolio June, of the replace our higher-yielding XXX month the clients of renewals products, For Increases opting borrowings. utilization

our total deposit up cost and now funds a basis Our XX was cycle-to-date total beta cumulative less of points is significant XX%.

X, our assumptions. beta On we Slide illustrate funding

to we hold our XX%. we piloted the of expect pricing has at updated which the for left-hand cycle-to-date certain deposit products. quarter have quarter, successfully our small deposit side, decreases competition beta slowed we the incorporate over and in to during course the assumption second third of Price beta steady On

renewals have is side, power better all the CD the and we show our portfolio repriced right-hand in the year deposit on are beta illustration substantially our past -- now unique our we've of which funding a of also Additionally, profile.

source interLINK a in with deposit sheet as offbeat lowers liquidity it deposit costs of conjunction enhances and balance higher of products, liquidity. results other utilization total beta, our in our a While funding

and looking costs XX funding see, the all-in months our can advantage this you by at peer trends. over As compared to industry last

funding to quarter balance statement earnings lower adjusted down sheet adjusted our offset yields, earning XX. driven costs. by We the income driven partially interest income and growth higher income was Slide million and reported from compared activity. income BOLI deposit asset by noninterest hedging customer to Net lower Adjusted up for $X our to prior higher was highlight period. million, by and $X Moving prior

the $X million. increased and provision Adjusted up million $XX.X expenses were

income was tax to XX.X% Excluding $XX in rate adjustments, efficiency first our was our million Overall, quarter, net relative down and this from quarter, ratio up was adjusted prior the quarter. the XX%. XX.X%

XX, growth costs, Slide income, by offset X portfolio. On were securities interest driven XXX of sheet or as basis repositioning of was by million quarter, increased funding and points increased the higher result we asset which linked our highlight down basis to net $X margin yields. The points interest net a partially X.X% balance which

Our XX yield up portfolio quarter yields Deposit reduce on with over up loan securities were earning assets flat borrowings. X to basis basis wholesale we points utilize costs prior basis points as interLINK points. increased XX and our the

moderate. the underlying pace mentioned, to repricing of continue previously I to we expect deposit As

Total points quarter. to a increase liability basis last costs in XX the were basis relative point up XX

adjusted versus of a million adjustment whose an by CVA On the HSA lower was a $X which $X XX in decline, and fees down noninterest Slide $X lower prior million valuation quarter driving There including number account quarter. million seasonal from benefit on is unchanged this driven fees income, trends components basis. and was were

report Ametros from of is full the on of the deposit adjusted operating intangibles related a $XXX increase $X Slide insurance quarter. expense up of in and came $X million, and expense Noninterest technology the prior remaining XX, increase from expenses million increased million investments to quarter costs.

million provision, was and quarter. losses, million $XX charge-offs, Slide After we factors in XX a prior our which for $X credit loan of relative credit growth. million recording to which allowance million to $XX to up of primarily due $XX was recorded components due details net

basis result, points a XXX allowance from to quarter. loans our coverage increased XXX As to last basis points

also the would portfolio traditional reserves in increased we in by million I the note, quarter. $XX office

metrics. key our asset highlights quality XX Slide

the assets On with the now increased million XX to quarter, prior left, total loans points representing nonperforming $XX relative basis nonperforming of upper loans.

basis. by increase in an the basis loans percent points $XXX office John indicated health X increased earlier, concentrated Commercial Classified increased on in loan As million to to and as commercial was classified of a related points as XXX loans NPLs loans from office. absolute credits. classified was basis XXX care increase

XX down from on basis last on totaled $XX annualized right basis, quarter's or the million an of points level. Net loans upper average charge-offs modestly

we strong levels. Slide On maintained XX, capital

XX.X%, equity Our common common our was tangible X.X%. and equity Tier X ratio ratio was

tangible a book Our was $XX.XX share. value

XX my I'll on wrap XXXX. with comments up our for Slide outlook

year, to X% the expect We grow full growth loans for We're C&I with with in expect net driven year-over-year We the interest flat in range billion anticipating in year X% non-FTE range by growth basis, by $X.XX on of leave the the growth X% the deposit diverse for income which remainder will effectively categories. products. $X.X now billion, a us on of basis. a to

million adjustment $XX expected basis, For million those FTE modeling from be is an income the FTE on net roughly interest previously. now $XX to

our in million rate in the continue of be Our noninterest December. cut range. to $XXX range. billion income Adjusted at be to outlook the be Fed the range $X.X income Adjusted efficiency billion, funds X will $X.XXX end roughly ratio our net in prior expenses expected of is lower to interest assumes to mid-XX%

effective expect rate We to an of remain prudent and capital. managers we XX%, tax

that, achieve our long-term which Our it target With we XXXX. anticipate will continues to you near-term turn see, remarks. is Tier to closing common And by for target X as be equity back can year-end ratio John XX%, XX.X%. I'll

John Ciulla

make point on Thanks, Glenn. to final want X I outlook.

been an on the solid has robust over absolute interest our income with earlier NII quarter. trends, last to we in respect industry as net with has been anticipated While relatively year. It not increasing obviously basis, performance as

position the level has not business absolute anticipated equity anticipated, grown has been credit competition sponsor and due environment slower the higher refinancings longer lower in repricings from private for activity to as private than loan and markets by want Our of which the and we've a the has the impact stress had stress end well taken within that steps of the our XXXX. loan results in yields. to to to revised risks collective range deliver us of to muting downside I outlook new

want transformational to to value some grown providing unique environment MOE. we and steadfast take He's in the recognize operating navigated bank at been Glenn's and a and Webster. I partner moment as of ton a XX outstanding my execution years have through a

has want in best Consistent chapter. our all strong Glenn period an agreed with the commitment wish a behalf to Glenn Board and time. leadership remain to of team, our to for company Webster, On I to the next adviser the of his

We we capabilities continue prospects people. and as and invest about our build opportunities remain long-term Webster's confident in to franchise and organization's

to Our return a we a the profile in our serve group, efficiency relatively and of a and our returns margin a at better-than-peer and to ratio, favorable balance funding net interest sheet in of cost ensure helping strength of deposit absolute provide with us our peer and with remain clients, strength level top great invest opportunities better strong company profile. position

will open for Thank you to and I for questions. you of today. all Glenn the joining Operator, us line

Operator

Inc. Instructions] . [Operator Breese take first from Matthew our Stephens question at We'll

Matthew Breese

margin some interest is cuts then give the Obviously, could you year-end there's into a us [indiscernible] rate hoping in was pricing. as idea sheet balance head XXXX. There more was I a restructuring, neutral. with securities and bit we still some for rate the

So I for reference we the and in was of next of over into to frame quarters looking might XXXX. the of some just where migrate couple see

Glenn MacInnes

Sure.

offset growth Matt, the get as our repricing I I see. deeper we we're I repricing. we well, XXX. be well is But as think And securities indicated far repositioning in all going sort as that modest forward, can some touched go what be as will sort at of combined, on that going on more to that the think benefit so we'll by deposit what as And asset fixed comments, and and of John as of of loan

us I think the to year somewhere exit you on probably around the NIM basis. expect mid-X.XXs a

Matthew Breese

real Great. And estate you maybe touch pickup. then John, could commercial Okay. the NPL on

some And and all, a would of many resolution loss mentioned of be content in of maybe in you loans, on great. handful . then How there size? a First just was couple there loans. were expected idea

John Ciulla

to, Matt. Happy Sure.

But So was had mainly CRE, really obviously, know, $XXX a portfolio in of story, rating discrete we office at negative couple of it you unique is migration. in looks sort headline here which, yes, risk the because credit portfolios the the million. as negative to

Our the that believe, of million, I commercial NPLs almost $XX loans. and X was in entirely up went result office

awful appraisals. updated slowly a So do of not we you you content, a granularity, hard. and the we're of the what to again NPLs, normally loan With I sense normalized respect we dive, so entire migrating get obviously, the portfolio would of mean loss looking get it's single-point deep of tell I huge sort kind as would exposures is rest you to behaved at credit. when

of And is into so kind all factored of that CECL.

And of of is our reserves we I'd default we you, default. it say would that wasn't X/X our tell have factors so obviously, given expected XXX also in for some comment factor a of minds coverage risk throwaway what but adequate that, in probability I credit doesn't into have which believe rating, losses. the any ratio, office really and into enhancement, our sort loans loss just

things additional types, will from So help debt guarantees like mitigate think guarantees, from bootstrap and service collateral sponsor losses. property reserves, maybe all other the we completion extended

really So loss impacting. again, don't we see content

result kind our a projected really lending, you and charge-off in we still to a perspective in basis our C&I, our not always anticipate run we're see as care kind change XX we portfolio, reserved. rate what next think still is this a question in We're in that quarter to the billion. by that of as just look point losses care we also And at in a I'll bit fact our rate, health the encouraged under you portfolio, health say XX in and can related of and that but well a forward. is smaller annualized a happened qualify, quarter which and as services credit range. We we bigger of from going move Obviously, again, office everything $X are have commercial quarter,

challenged you little bit rates. probably wage reimbursement been things But and costs slower as industry-wide, labor input for know, a that's like higher availability, inflation,

So a relatively into a fact that on. we but discrete and it's small, we have think portfolio-wide that by handle good deterioration, again, not are portfolios encouraged we're the really

Operator

We'll move McGratty at Chris next KBW. to

Christopher McGratty

updated the the questions John getting guide. -- or Glenn, on few a NII

remarks, you the your think make aggressive this this what either elaborate, little prepared I high you bit guess, or at on would I it cut. in Could said last is confidence, point? conservative a

John Ciulla

to decent specialty sponsor It a a in the risk-adjusted what of lot and better had day favorable believe Yes. Chris, at churn industry. to yields. the here one, has a funding The around, slower And not having return. the And has We lot gone dynamic or of favorable growth, compared lot at obviously, that's but modestly. of an long, peer a of obviously mix interesting comments, one. be kind yields. I missed, around group hundreds industry been originations millions referenced what gem We've significantly. look grown loan have we costs higher deposit we in really sponsor yields deposit frankly, all having changing hurt and portfolio, you loan costs overall dollars as still losing and when up the growth the was, broader of yield quite and on have of anticipated number of loan our costs my

some our slowed as our have that down also sort There's lot the actually will improve that refinancings original will on we also Fed expectations move think of the floating kind repricing loan provide of the cutting and starts rate forward. yields loans we and of repricing, to believe the and existing while significantly we a But repricing headwind. perversely, dynamic the obviously that of once refinancings which

the guess and half We would our I if not range whether you in down model, me we're refinancings. is spring sponsor, back. of think or tell do relying to adjusted I our on a ask you it's obviously benefit second I right repricing So expectations aggressive in were a but conservative, what stronger of it's anticipate the

don't and to in respect know churn pipeline what activity higher will seeing are with there. a we significantly happen more have but portfolio. the We we

it's So our think case. I best

so normalized get origination refinancing And more activities. some get if in we and a pickup and channel we sponsor,

mix than talk could can We guide Glenn believe rolling respect hit able as off we levels towards could the to outperform not we modest assets. higher to be with more about growth reasonable on. What have get guide. the is And our, CDs loan us new and targets underperform CDs at We coming have and pricing, some are continued being lower-yielding what to moderation. a

And happy. it. not unique us missed the obviously, an has yield mark us a given range It the we pleased been neither we with for tried It's we're inverted this think based make updated to the environment right curve, are. the of guidance, know with kind our doesn't middle we trends so where in and on nor test knowledge guidance pressure But we've we aggressive. assumptions and the on of is conservative now. We've

Glenn MacInnes

side Yes. more deposit the go of basis did I we So the see part And a about that funding was points. DDA if average right? X little points, of that's balances. XX on up basis probably by would John, costs add lower and I driven say it, can, to just bit

average $X.X get matured of have XXX. they I itself about into and we mean, repriced rate the billion maturing a had weighted quarter, with X.X%. that the where we quarter, and we as billion about CDs at matured $X.X As during third CDs John That in mentioned, reverses XXX at in

down reprice X.X%. they'll And to

About we of So quarter. come is which thing in public funds, down the forward. $XXX that back DDA half the migration, million a And say I NIM million decline quarter. that the first then and in, $XXX will other would to $XXX that be saw is positive will support third It's million. going in the the

think those should -- do our our costs funding our -- dynamics costs deposit that and so given both that And moderate going we forward.

Christopher McGratty

use that How capital, you you XXXX? that growth, play Does XX end I That's to expect buyback? mean flip said on XX great. on time. pick up the year, John, do growth does out way? the And and over of if cattle the could, would that Or you for by

John Ciulla

Well, mean, more we at looking -- are. feel normalized, I our operating that are given the got good the sight profitability, that then this of end credit I about comfortable where We year. I the it's our any line think be credit we has organically expectations XX% environment, we've at are And of should just think moderated. that by things in migration

I go management kind back, opportunity to Ametros of the a on obviously our an something turn have accelerate not, think at dividend would we If sheet we perspective, is Chris, general from we tuck-in an that. continue like balance which our capital we to look if we'll absolutely stated well. back buyback broaden program, we as organically to or returning the have opportunities assets, do would. grow to good and . If in acquisition

the got to So the a that path We'll we'll from line macro of have are. crest order we in rates case, do our visibility we're good that magnitude and that's not sight, XX.X% not now before and we environment. but we've going be to certainty the comfortable our managing sight kind volatile Fed feel with very longer-term capital that back to that of of going to once some we're year-end, get of we in expectations right hopefully where around our base

Operator

question Mark Sandler. Piper We'll take our Fitzgibbon next at from

Mark Fitzgibbon

sort quarter reprice you $X.X Do million, $XX the deposits? this color any understand you us noticed around great. I can rate could Or average down? in interLINK adding thinking billion expect was, the deposits would you on be this help those I of interLINK to think, give the quarter

Glenn MacInnes

and of But at any Fed basically Those indexed that Fed depends would kind look X because funds. Yes. move, new of is making are it to the as Fed tied down originations absolutely, we on funds, to driven that. it's interLINK the so and client it's reprice

the those, down. as Fed to we move So reprice begins

Mark Fitzgibbon

Okay. this but a follow-up. you to just . was And in I earlier, did sorry I'm that? XX-day what delinquencies, And if $XXX commercial mention nonmortgage the uptick XX- then million missed

John Ciulla

end and single was didn't a credit mark, July. it the credit strong It that was by Yes. over actually and and it a just was in of get week cured rolled -- quarter rate first fixed administratively

up that and away delinquency. went associated that with issue So spike in credit there's no

Operator

we'll JPMorgan. Next, go Steven to Alexopoulos at

Steven Alexopoulos

that So want Does get low go another cut that in the back said you start stressed bring know with you to December. but NII the I X to the for outlook to September, cuts then I midmonth. the end new range? but I it, if you in range? Matt's below the to we first like exit does -- response Or NIM, if you then question, said cuts, then? exit Glenn, mid-XXXs of get does what in bring And look NIM what you X we to don't

Glenn MacInnes

Yes.

on just So and the funding if our our let looked sheet. you because at first question, me it balance take total

like find about So past, of that, in of things quickly. deposits, some as pretty reprice I you that banking, to where billion our would high government that said in the $XX XX% intellect I characterize as beta That's products.

So in down. basis that XX to would expect you come reduction, a point

$XX say, quarter probably take in benefit. around, at billion, So million a $X

that in $XX would side flip the million billion $XX reprice. about is Now floating we loans that or have rate also

down you basis that points. And a would those if net be drag so XX take

declines -- further eventually the quarter Fed beneficial a are CD the $X that -- we in the reduces the offsetting retail once normal down. drift to or that's by basis then then like tune we deposits probably the get that have million of hedges we normal points. And put like benefit And on of XX

all you small basis. net a put it's together, on So probably positive if a that

Fed if go to million in -- it's quarter, September. $X.X about we million, in the right, $X the So were think

neutralized. basically it's So

our for so -- to positioned, sort we're In neutralize fact, XX, that's if you done can back you well of the lot at reductions. of on balance slides look sheet. work see a that we've I And think,

I on second think -- NIM. on it I The your think half question, of was

we it expect And floating be of immediately, takes XX% would by again, would by the repricing puts set. deposits get benefit of the sort I the rate of partially it you so that, the of still factors. get benefit you'd offset still, that and that loans driven And you the think the same hedges, of the

basis. And that range so you'd on NIM still probably a mid-X.XX% in be

John Ciulla

So Steve, the for in we entire repeat When we makeup sheet. right, to then And were and with asset just significantly balance repeating. last kind of into of the heading the the -- terms of than significantly sake did cut the the high sensitivity rate naturally the merger, were put of level, the we Steve, last on asset portfolio, extending duration the we securities cycle. in hedges sensitive less dynamics reduced

cut, given a So quarterly relatively September and immediately our at of and the point, pricing you portfolio And have in look December that Glenn's actual of the premise. balance that the and cut, in we first the to the lowering sort at inputs then loan impact we the down when when dynamics a cuts difference no deposits, modest, September sheet. hedging output the the is look just yield all and then the other immediately between

see headwind year. don't we a or tailwind big either the So we at as that as half of look the big second a

Steven Alexopoulos

Got it.

great XX $X.X I $XXX at that the has actually at know the guide, been of If the on drivers look midpoint. I why the you NII of X John, of I color. said new billion at That's reduced. Okay. that, of loan million, around ask you're growth it in implies million outlook If the could loan was because, midpoint

percolates second the first are in not those few guys where half, that a low growth an second in to weaker about you than get guiding we Quite cuts, a or continuation half, who it to the an So $XXX loan of half at in demand a million bit. are get the expecting in the you bit implies if to half uptick have particularly uptick second guide. banks least the maybe

John Ciulla

bragged stated most of think granularity time, we've I question, X.X% full long in the single-digit is impact, year with And still And deemphasizing but core loan first loan and and so growth is that's I've right? the give year get X% so in covering that in last high on the and for XX and growth obviously . The and why and loan build, up us I of we're attainable. that's loan half. with we're agree we an the a Madness the the a growth can aspects growth out. is about XX% originations, over X.X% that the year-to-date you a in commercial I X year exception I basis think It's that year elements that to right? X% has for last you pandemic, been good You've done years, March

If for put that fact you and the into services took it commercial we adjust loans held factoring sale. for and

already we mortgage we some have I I we on do of that is half that kind loan now we you and And if sheet. time the generating another do can of year. started given X% for think So growth have think in we of ask that the X.X%, second growth, and some do the growth, the our can that geography are turning me confidence that X.X%, balance

So that contributor. be a will

and and relationships really that. We've whole which, second a continue expectations growth to than finance, fund we'll robust we half can do be to sponsor NII, banking, our has think gut in market on will missing I levers our outstandings we the for little good our going which have environment good sponsor, Obviously, that on bunch a pulling better business we're think think finance, overpromise. fluctuating, ability banking, got first but industry, second done a have that us we're although we half, we've traditional sector half. lending, the Lender of do what public be terms have given not we middle asset-based more a loan our the pipeline still to pretty of a tells people's

think what and deposits with be offensively in and November happens that advantage in particularly election in have upside think the I our low we'll that it liquidity we'll we're think with be more ratio, second to ourselves we ready there bit half, seems lots and we the some be the Sure. people X% Could and have be to X% confidence to in and Fed in where to cutting maybe a get there. loan-to-deposit And position little And able I grounded it. take of grounded seems so of to reality, confidence,

of maybe second the number So best to there. our way to Is half outperform estimate. case X.X% sure. an in macro our year the base the opportunity will I loan there difficult, it second get that scrounge think growth If in of given gets is conditions, half our more

Steven Alexopoulos

for great I to years the Glenn. of all the really calls. wrap think today, Thanks could there's I company XX the back ago I providing If just When years color no mean, on comparison today.

at . to leave You shoes fill. big Webster

Glenn MacInnes

you. it. Thank Appreciate

Operator

next go We'll to Jared Barclays Shaw Capital. at

Jared David Shaw

at I'd credit I'm $XX XX just reserves. to just with macro and good next to congratulations, the with looking with reiterate my like credit. the and tied provision Maybe step. million the Glenn. at you looking been It's Slide luck great just and working

that then During the that on improved. of sort the some base due the migration the is Is Moody's credit guess, of quarter, within different Or are scenarios? all Moody's just weighting you a to using portfolio? I case

Glenn MacInnes

No. Yes.

in does say is quarter. provision, reserve But $XX in include -- mentioned, million our $XX incremental about remainder would increase million credit risk million of $XX reserves of was migration I for say a as the so office the result the that, portfolio. So I of

as Moody's So neutral was a quarter-over-quarter. basically standpoint macro whole a from

was So migration. by driven that rating risk . most the of

Jared David Shaw

with Okay. then questions are by this could an their give All HSA us right. sweeper is of give of see terms week ERISA on this us. sort banks being of of and confident not and not impacts type been how what this past an on how how that And or HSA to be a up trying paying are impacted you you structure for confirm lot just that. are we've in in other discussion account people Could on some that accounts getting update product caught sweep the

John Ciulla

fiduciary think services a we approach providing suggest nationally take not that regulated business would nothing institution, the pretty we're I There's of now standard fiduciary a advice. investment suit, or that Yes. and in financial right

with our we've top legislative rules. we obviously, subject and on HSA so it team And of that those do . to been the working see not new would be we team,

Operator

We'll Morgan next at to Manan Stanley. move Gosalia

Manan Gosalia

the wanted expense I ask on to side.

guide if the side on any expense expense see the potential offsets guide the here? NII do cutting you -- got unchanged, You while revenues remain pressure under

John Ciulla

don't to we've sure we expenses been below I I make we think a guidance we remind Yes. on pressures near-term people in I to as base investing risk mean, percentage I our conservative we for from business, of hitting that starting about are our expense XX sort think that our invest mid-XXs see points peer about in that we're is and on to we continue investment where the always can think group. efficiency the keeping any company. that think ratio, which in category march in is

allocation bring make And on things our to everything but given I with expense prudent terms low guidance. have the are premature need of at different we do we -- market-leading of opportunities We and think see at the us, those, efficiencies. do to need the capital do we'll and we lines, to this managers, there's pressure end have rightsize at we but it given cut to some returns time. initial of that expenses. over our examining can guidance we in shift makeup things we revenues, opportunities the opportunities, to sure front this sticking do juncture, we guidance. in promised we in our to as We're as time we we're where our opportunities business Do Obviously, we've make organizational as have we do. was to thought

Glenn MacInnes

in Yes. Ametros at of that keep $XXX our or it's say, is about on increase, about of given guidance, side, the of And the high mind end, half an you I platform. if on would look and the it end that that increase either just low million,

it's with business side. operations And in and associated the investments in whether it's HSA then the the compensation are pieces the expense based business, the or and other the in So Ametros. basically made that we've intangibles X operating or commercial

I point numbers would Ametros, So as is can to already. financials . that's see beginning the the in investment broad you pay the brush that to of and what just on the increase is. And off

Manan Gosalia

side. securities it. on advantage mark-to-market. can the the talk And on accretion the repositioning locking book separately, cuts, for decisioning driving rates from can lower capital if higher talk you taking then Got it in about the decisioning you the and rate what's you driving just in duration putting the ahead each more you're you're about repositioning of room Is securities quarter? what's So what have do you to and of

John Ciulla

will just of Glenn of Yes. the on factors. number but you I financial give hit the think some you details,

CETX. primary XX% So capital X basically, our on is back objectives to accrete to of

short looking -- at made we've the moves opportunistically for earn-back been would the period periods. far to the . I what balance been at payback you'll has has say sheet So see that been that year look repositioning be this really driving neutrality, and desire us thus have capital

move. we'll capital plans based to impact but continue to now, period look. Obviously, to the no on so look The and have of And in factors that impact all we earn-back those on we'll opportunistically all right anything do earnings, and metrics. the to the

Glenn MacInnes

on was the Yes. The indicated would yield basis And said is as X.X we've comments, that But piece done around year-to-date, staying up about quarter. is years. only in in we're XXX restructuring. my about second points the thing biggest I picking add in I $X.X and billion you duration the

we to sensitivity tranches, that looking that the as increase. don't I well. earn think our once asset other So start But continues back helped at

at securities So pretty in job it's you'd But a something portfolio or expect continuously. that immediate think the we're don't thorough billion just monitoring . see we $X.X $X.X billion the in another to do near I looking term.

Operator

our Casey take Jefferies. Haire at question from next We'll

Casey Haire

to yield. wanted and rate on the So touch the loan fixed asset repricing

CRE currently? be yields So it are are the stepping you just guys money sounds yields of new from away in quarter to the pipeline finance. sponsor what's doing and more like second the I'm in going money new wondering versus here

Glenn MacInnes

Yes.

the I some just because just, quarter-over-quarter if about yield let been that. So Casey, can, let there's questions me about me talk

$XXX headwinds so like tailwinds on that, at versus as $XXX. I that. there's And look And and

on And X we was hedging sale. And about then a for portfolio also of was loan another move services the so That basis part held I and cost X up marks, quarter-over-quarter basis that worth think drag CRE decline point. was worth commercial of was basis did point. the X the point. lower to basis points

to And so mix public and a those of big sector things -- sort then are finance. and mix CRE higher

middle we've what are part points, the against X that seen the seeing of of up are banking market and have And going like fund points. XX basis other going then basis specialty you we book X headwind you. way basis points, So sponsor up

basis back weighted a on about points. X So that basis, calls

of that's down basis the point dynamics the net X So quarter-over-quarter.

And -- million. like for that's with we were origination rate where coupon our consistent as I so total quarter, think our total quarter first fairly And well. $XXX was the second the in

John Ciulla

to a Casey, And market comp. you give just like little

quarter a second as to respect on our finance being growth. had banking bit in with little growth So down fund we of the sector and sponsor some growth originations well, CRE public

SOFR X. SOFR to SOFR mid-Xs on of were XXX those looking You're at plus sponsors plus where some deals plus

And activity. a we're origination qualify your impact. more significant see I like comment. the And yield I mix would would sponsor. not do has We so overemphasizing It's

a the I is . sponsor think impact other we're growing loan has expectation overall which more that but all classes, of positive growth, we'll have on yields. normalized asset our

Casey Haire

Got you.

X the of Okay. to quarter, getting working next down And then you -- so about CRE concentration, just last the -- the over goal talked a guys quarters. X that

seem to also open of divesting You some CRE.

on you wondering what get Just there And the organically? is reducing the thinking do CRE concentration? current

John Ciulla

point. great It's a

sales, nothing be There be strategic the loan I this on, high-quality on continued in we can of they securitize. some have eligible may floating sort think call. if things you have about interest organic. particularly not rate, But agency I where more deposits announce loans of opportunities. we're will alongside loans to we than that be will it. of on think working We've there just got

potential So function to reductions. of you step potentially all the can rest assured that opportunities have

we CRE more other the can business. but keep moderate that not existing And great we're our grow us of with loan where continue and and because capital to relationships by growth flat the ways categories. way, to accrete out provide opportunity as support there we are certainly with our folks

earnings. of hear that kind in about So the to several tell you'll I been calls, us would opportunities have you neutral say that next

at but good losing up make assets, and to deposits. with grow asset and to decisions free terms relationships grow Obviously, in good CRE opportunities of not earning strong have opportunities we we we're other categories economic selling really discounts, as

track range. X accelerate some the of and that I said that away move But You'll we'll from last yes, to to still us to in talk get of think the I that X to X X portfolio. flattening next think make hear quarters. about into we're quarters, I organic on XXX-ish moves quarter, just

we to X think we X now get is to that still XXX. quarters, whatever can So

then And years about really move capabilities and we our we X we the some well as decide and distribution we've lower XXX%. makeup of the to as got XXX% because between have next people even capital exposure CRE talk sheet, origination that forward, to balance that of kind closer march in as how over so good and category we markets that the whether and get

Operator

We'll go to Raymond next James. Daniel at Tamayo

Daniel Tamayo

quick Maybe just the office migration that question and a on portfolio had the we the in quarter.

just in Just exposure, curious anything the which you rest about of I but else portfolio. those relative that in part of properties of there's may appreciate data talk had York location-wise, those the between that you anything on size-wise looks have to that the X New office can curious, like kind if the loans, be that connected if dots connect there could of was they City you was common. it,

John Ciulla

on in our appraisals. were NOI footprint X with connectivity. kind market our geographic branch things of they say the in One was stress branch would no common rents were and lower there footprint. Actually, outside end Yes. I have sponsor. and

what drove so And that's that migration.

or to occupancy and a related on It's nothing specific specific the . pressure geography. value. pressure say overall I rents would X and in So office team underwriting

Daniel Tamayo

then gives particularly, that confidence not the continue see to mentioned to guess, say expect up, you continue come that, in maturities deteriorate a when there book you risk this What way. as that in I Great. loans pace. you And office continue at Okay. migration meaningful you we might don't to

John Ciulla

surprises. don't qualify always Credit stay the performance. Daniel, by big we hate credit as assuming Chief that's the macro former saying get question. really why I good statement And that of conditions a a same, that's Risk And I Officer, any forecast and the kind to

team have $XXX and than stress. little that health into And pocket under concentration quarterly I million of on food credit people other a pockets and gives we confidence bit sort performing of which portfolio, general rate actually a portfolios I portfolio have before. dives small couple think $X the as still office the well. this we mention a continued Jason have in in relatively CRE which a calls of about concentration. what of deep earlier better us C&I, and his is care actually and C&I, we've billion, within most really those that in you've but which really rest is talked is, heard services to also restaurant, then mentioned little the well evidence pressure do performing at is overall this of

hope and asset And reports conservative my significant and with those going X our biasies, kind with see portfolio, dives deterioration outside risk these things the believe deep pockets and rating the as our portfolios. risk we I what we're of at through of team is as across to looking we're those so don't in be that problem has proactive captured current our, profile

look QX. why we we . migration don't forward see that's in rates and when So look do similar we roll we and certainly

Operator

Von Bank. Bernard Deutsche to next Gizycki go We'll at

Bernard Von Gizycki

standards do search you partnership able provide the Web with credit allow loan Marathon participate to to I'm at so John, and Marathon participate the capabilities noted been wouldn't clients for you underwriting of wondering, How in deals does expanding bigger more that to were will have deals? credit due otherwise just the to to Webster? you . culture box limits. size in compared

John Ciulla

only actually on of signed We the JV. fourth the of plan Yes. first end Well, just towards the I the we the live we after quarter. and beginning announcement, everything will obviously, maybe -- say, the thing quarter, going the

comment there but to And to hold us bank sheet warehouse should to able to be hold continue go upmarket how the with higher move do similar the balance impact on not us any going we functionally flexibility, a our to give certainly can is on give also how able we to have of sponsors. more details, loans, and it originate balance no It operate, portions answer how loans. does so we your It question. I'm natural to I market partner sheet the does and bigger transactions larger ability but because keep our be levels and

the the so to we're for our it message doesn't bank I not focus the of doing balance it's for is to loans. basically the dilute us key earnings us that change think or profile. if larger larger balance sheet, gives a the bank's more change profile fund and or you to just bank's optionality to flexibility, will, sheet on able what going you risk And overall be It

Bernard Von Gizycki

some Okay. Great. you credit competition the the I the And the from then increased private just did mention of in sponsor JV. earlier was you're just in following related to up, call, Obviously, doing pressure know

can on Just been specifically competition you've any the you and that and what anything on with seeing comments, impact elaborate sponsor? increased

John Ciulla

as companies, this a anyone, secret private I Sure. is sort were competitors long as primary of right? for credit know, even impact. to proliferation our don't BDCs, And think in credit trillion private have the going private been out $X.X credit finance Obviously, ago. And We a back this of years seen many defined We've of now XX years, there. in time. XX business, you there's

since me respect had had spreads has of to it swaps FX March it There's we on profile And we private a noncompetitive. because the to sitigation management full The capabilities capital year, there's us well fees, banks. sideways. play. render talk they number process so pieces when different and banks sectors loans but of overall on a larger prudent underwriting get what swings and the been prefer an cash bank for madness and bank with it is has been many deal we with style. last on I an it relationship Many sort an things loans, our the the hold. you've the equity with that There's ones impact products, doesn't to seen, acceleration. and go would say markets of to impact credit There's treasury impact and that than on And management different of private of in of key hold leverage firms sheets deal and for has to about extends on a know

than -- think so it's been that And for activity-based this growth I muted that quarters X the competitive but based in more that's area. the do year, first

there more entire grow remain building, do with of doubt we're we the with has space. it's competitive is the our very no And that So can I continue sponsors become existing I to business. think some impacting that But relevant the know industry. credit in tools and private financing

Operator

We'll Braziler go next Fargo to . at Securities. Wells Timur

Timur Braziler

appraisals this to the the appraisals up quarter book, back I'm discussion. the drove Circling just provide for maybe on updated maturity? else? for where coming loans portion an has what And Was of office update wondering there the the recent it. anything remainder . just what then

John Ciulla

I but didn't I'll for catch part, ask again. last you the that

accrual consideration coverage risk a rating migration, service in is nonaccrual. take risk entire on making general will certain approaching determination part service debt into we normal appraisals order rating the of debt first maturity property processes and NOI, value just The that of either the then or terms levels or of

operating procedure. standard question? part like of that's What the So was second that

Timur Braziler

now office the of portion on it? what appraisals has updated book Just

John Ciulla

but I a swag, to think pretty way, accurate. I'd maybe say the probably close by that's That's XX%.

Timur Braziler

And you HSA? monetize migration seems investment just just us talk you how that of bit. that. HSA business, investments the a here from remind accelerating to the through the appreciate be Can and component I deposits little to Okay. then just dynamic on maybe

John Ciulla

migration. and a Yes, investors have deposit remind investors higher folks average sure. have that than the We Obviously, look spenders, at if rate as significantly dynamics environment the seen still balances in you various higher that we always well, of spenders. savers

takes that while deposit the base some continue still from profitable. underlying invest investors to that those of So very, strong as people we deposits is very away -- us and

environment a rate particularly we an do significantly deposit make more We on this money, than in investment. on

importantly, taken comments, investment in to for experiences are mentioned more us have continue have steps, offerings also clients, that slightly better give our to only We not that and my and most but economics. I

we do of it on So of fraction the right we're make $X But based now the the day, deposits direction. deposits a we end at the we investment. of than on on in make what moving of value

Glenn MacInnes

[indiscernible] business only that accounts, about or our X spenders. are million The is still like XX% Yes. say $X million

and and then So only then average balance balance So average if they an investors profile, go to of our an the accounts. [ have the -- savor about have ] $XXX, right? you of $XXX are X% they of

an but balance So year still a average -- say, good point maintain of like $X,XXX they and $XX,XXX very they to point, and a investment from ago, balance. that's X%, your a up have

So on funding the we still sheet. balance get the benefit of our advantage .

spenders nature I think us educate the to is more of savers. savings, those opportunity the become that for they of tax-free such the on benefits obviously it triple

that's And -- that so something that's been always his and Chad and have team focused know I are on.

Operator

Seaport Partners. Laurie at to Hunsicker next Research go We'll

Laura Havener Hunsicker

want say just to and best I wishes. congrats Glenn,

not to credit, be my less is to question million so really So horse want sort multipronged $XX loss here, just growth $X a $XX then mentioned to of of reserve that to grew I dead How the but in around down your million. was by commercial understand, specific specialty. office million is provision specifically now? sponsor your What much And that office that of you was much know also reserves how office? million, the $XX loan

Glenn MacInnes

let in jump take can one time, at here. So a it me John and

ratio So think have as our I I the coverage number, sponsor I the X%. the dollar of million, on I that absolute $XX is know of but million. right, $XX indicated the office, is in about comments, And million book, $XX up don't

John Ciulla

X%. It's

Glenn MacInnes

I sorry. X%, I'm got it

you don't I that. So to want if add to know

Laura Havener Hunsicker

Okay.

credit So but so you $XX the you migration. million -- had risk said obviously, and office was -- the just that,

to in correct? -- million So that loss was loan of that provision that's related office. million so your $XX $XX Is only that

Glenn MacInnes

correct. That's

John Ciulla

against rates had specific had think reserves we about Laurie, Yes. substandard or likely already in nonaccruals. it, already those you them. if on We're

reserve Yes. that's incremental So at the the quarter the amount . day, for of end the

Laura Havener Hunsicker

Perfect. Perfect.

the Okay. How how then and And follow-up . your in what and the sponsor office? million $XX commercial. was you also specialty if the last And split there obviously, between just on much office sponsor charge-offs, was have even are specialty. much C&I, or then much then how book, that nonperformers was were And the of CRE X now? and that

John Ciulla

you that repeat question, Can Laurie?

Glenn MacInnes

Second question.

Laura Havener Hunsicker

Sure. Yes, all charge-offs it charge-offs. in million, was your $XX of of mainly $XX commercial, million

were had there. your was what I that especially nonperforming office also I looking and then charge-offs? I C&I. CRE have your Just charge-offs? a quarter last for were just want the what sponser sure just And And And specialty mean, number split just specifically, between the from sponsor million, in $XXX to make refresh

John Ciulla

loss So charge-offs, in mostly a had loan. liquidated We proactive quarter ABL million. the were CRE total of we office of sales, actual had so and traditional charge-offs, loan the of of million. loan charge-offs of a $X million that $XX a kind $XX small horse we sponsor and normal basically had in in and

which last quarter. makeup down actually that's from of the the were So charge-offs,

Operator

UBS. We'll move to at next Samuel [indiscernible]

Unknown Analyst

loan go and a wanted second. back the for just to guide I deposit to

confident I growth, On Can I loan year that guess, most for the of in all half morning. the just, far categories sort the provided loan the rather the of color appreciate you've growth? you you're name second so this some of

John Ciulla

And do the even actually going and she's last will. last the Laurie's I'm sponsor I on question, NPLs I are to that, quarter. flat Sure, though not phone, to answer before

and off apologize if I look, I So have made Laurie, I for Steve somewhere think getting as and I looking in do what that to at, half said, you Yes. it's of think we range and some the then you're traditional C&I banking, few need you $XXX million would dollars we -- and a of concentrated amounts finance, second you category, in contributions of in dollars more mean, same fund cut material middle in that. there. hundred and that sector but in we build then of a if of start mortgage in think dollars think a bit hundred lender a couple and from million in market Business smaller, little public finance billion number I X% in X% no the couple $X.X but a ABL the there's that's million contribution, comment, X between Banking, I how terms year, million hundred as to a in

diversified the growth. robust on have levers category. kind throwing the loan of It's either or it's putting using we have So portfolio and not to of emphasis X bomb

that last will could maybe bounced holding hopefully, As pretty kind actions quarters categories contributing quarter. mortgage, take couple we said, the for be around, there have depending more maybe will diversified a be our residential a we with of in the same from loan addition up and some but been it be little may be originations the sponsor on CRE flat, more robust of bit of growth a but

Unknown Analyst

Is if it. on don't of and extra guide deposit then fair look liquidity those growth And for guide as a over loan put drive guide. able to Got Or you just of derivative more at to thought deposits? you're separate process X the the a the want deposit more switching it to you? to are

Glenn MacInnes

No, pricing think the fair. of the is funding therefore, by driven anyway, are that's nature and the Yes. deposit the It loan balances I -- book.

So it deposits yes, we broker funding well. manage wholesale along as and that with way

at. we So look those the dynamics are

now. That's at look how it I like you guide, think the will moderate. I as said, right we're the cost thinking about

I opportunity at can you second for sense page mix. get optimize we a think that us can third the diversification that or pull to of our of there's So and levers and look when the you deck,

John Ciulla

want franchise of real core the deposits. growth, our the the lever is loan regardless strength what growing interLINK operating right, deposits And other is of we

to growth, real and we So growth, reasonable Ametros relationship and maximize to want prices. good banking of and commercial to our and commercial we our retail all business its to market want HSA and middle its supercharge estate bank at grow deposits continue activities

deposit brokered think, Glenn, of that for other really with of things, interLINK a of deploying the of available that's or or for look other factor value side. to CDs on franchise, what us That's to not growth. I we a asset to liquidity a do what it but our will factor respect we continuing grow be So growth see generation relates asset the to as that function

Operator

to conference the back will session. remarks. And our Q&A closing turn I concludes for now that over John

John Ciulla

joining a Thank day. Have Thank today. great everybody you. us for .

Operator

this your today's you participation. call. concludes conference for And Thank

You may now disconnect.

Webster Financial (WBS) 23 Jul 242024 Q2 Earnings call transcript