Q3 2024 Webster Financial Corp Earnings Call

In This Article:

Participants

Emlen Harmon; Investor Relations; Webster Financial Corp

John Ciulla; Chairman of the Board, Chief Executive Officer of the Company and Bank, President of the Bank; Webster Financial Corp

Neal Holland; Chief Financial Officer; Webster Financial Corp

Luis Massiani; Chief Operating Officer, Executive Vice President; Webster Bank NA

Chris McGratty; Analyst; KBW

Jared Shaw; Analyst; Barclays

Mark Fitzgibbon; Analyst; Piper Sandler Companies

Matthew Breese; Analyst; Stephens Inc.

Daniel Tamayo; Analyst; Raymonds James

Bernard Gizycki; Analyst; Deutsche Bank

Laurie Hunsicker; Analyst; Seaport Global Securities

Samuel Varga; Analyst; UBS

Presentation

Operator

Good morning. Welcome to the Webster Financial third quarter 2024 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

Good morning. Before we begin our remarks, I want to remind you that the comments made by management may include forward-looking statements within the meaning of the Private Security Litigation Reform Act of 1995. They're subject to the Safe Harbor rules. Please review the forward-looking disclaimer and safe harbor language in today's press release and presentation for more information about risks and uncertainties which may affect us.
The presentation and company management's remarks can be found on the company's investor relations site at investors.websterbank.com. For the Q&A portion of the call, we ask that each participant ask just one question and one follow up prior to before returning to the queue. I'll now turn it over to Webster Financial CEO, Chairman, John Ciulla.

John Ciulla

Thanks, Harmon. Good morning and welcome to Webster Financial Corporation's third quarter 2024 earnings call. We appreciate you joining us this morning. I'm very pleased to welcome Neal Holland as he is joining his first earnings call as Webster's CFO. As we anticipated, Neal has hit the ground running since he officially stepped into the role in mid August. And you can already see the impact of some of the steps his team has taken to optimize the positioning of our balance sheet and grow interest income in this quarter.
Luis Massiani, Webster's President and Chief Operating Officer is also joining us for the Q&A portion of the call today. I'll provide remarks on our high level results and operations before turning it over to Neal to cover our financial results in greater detail.
We're really pleased with our strategic and tactical accomplishments in the quarter. I'll hit the highlights and Neal will provide more details. We grew deposits 3.6% in the quarter including growth in DDA, overall commercial deposits and HSA. We grew loans 0.7% in the quarter consistent with our full year growth expectations excluding a $300 million securitization we performed to reduce our CRE concentration, our growth was 1.3% in the quarter with accelerating growth in C&I categories.
We further reduced our CRE concentration through payoffs and reclassification of certain health care related loans. As a result, our pre outstandings as a percentage of tier one capital and reserves declined from 285% to approximately 265% at the end of Q3.
Our net interest income grew quarter over quarter and increased over last year's comparable period in line with our full year expectations. We benefited from asset growth and a balance sheet repositioning.
We continue to mitigate our asset sensitivity, positioning us well as rates continue to come down. Our capital levels remain strong with our CET 1 now in excess of our current operating target of 11% resulting from earnings and capital optimization activities providing us capital flexibility in 4Q and beyond.
Our expenses remain well managed, resulting in a third quarter efficiency ratio of 45%, still in an industry leading position.
I now turn to our financial performance for the quarter beginning on slide 2. On an adjusted basis for the quarter, we generated a return on average assets of 1.22% and a return on tangible common equity of 17.3%. Our adjusted EPS was $1.34. Our profitability and return metrics remain favorable to peers again this quarter.
At this point, most of you are familiar with slide 3, which illustrates our diverse and versatile deposit base. As I mentioned up front, our robust growth this period came from a breath of the segments on the slide including lower cost channels in our Commercial Bank, HSA bank and Ametros. We executed on the $400 million deposit opportunity for HSA bank we discussed last quarter which provided a nice boost to deposits there. Strong execution within the Commercial Bank added to lower cost funding growth as well.
Our ability to generate low-cost funding across a number of business segments continues to be a tremendous advantage in growing our balance sheet efficiently and profitably.
Moving to slide 4, I will review our commercial real estate portfolio as that has been a continued focus of investors. The segment of the CRE portfolio on which we have been most focused continues to be traditional office. The portfolio balance continues to shrink with $917 million in outstandings at quarter end down roughly 45% from the first half of 2022. We did see some continued negative migration this quarter with non-accrual loans decreasing to 14% from 9% last quarter, largely as a result of two larger credits.
We continue to be proactive in identifying and managing problem credits and prudently managing reserves in the sector.
While it has been an investor focus, there have been no significant changes in the quality of our rent regulated multifamily portfolio where credit performance has held up consistently well. On credit more generally, we continue to see negative risk rating migration in the quarter as we keep a close eye on credit at a later stage in the cycle.
We did see our non-accrual loans increased by $50 million this quarter primarily driven by the aforementioned office portfolio migration. Outside of CRE office, negative migration was generally credit specific across the portfolio and not driven by one industry sector or asset class. Although health care related portfolios continue to show some weakness.
While we have seen continued migration and will continue to be proactive in our risk reviews, our realization of loan losses remains in the range we have observed in recent quarters. And importantly, is consistent with through the cycle and pre-pandemic commercial annualized charge off rates.
With that, I'll turn it over to Neal to cover our financials in more detail.