Webster Financial (WBS) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics - Adjusted return on tangible common equity for Q4 2024 was 17.7%, up from 17.5% for the full year [10][11] - Adjusted return on assets for Q4 2024 was 1.27%, up from 1.23% for the full year [10][11] - Efficiency ratio for Q4 2024 was just below 45%, compared to 45.4% for the full year [10][11] - Net income to common shareholders on an adjusted basis was $240 million, with diluted EPS of$1.43 [18] - Total assets were $79 billion, effectively flat compared to the previous quarter [19] - Loan-to-deposit ratio increased modestly to 81.1$558 million or 1.1% linked quarter [20] - CRE concentration levels declined to 255%, with office exposure down to less than $825 million [15][20] - Deposit growth was driven by Ametros, which grew its deposit balances to just over$1 billion from $800 million at acquisition [13] - HSA Bank grew its deposits by$800 million, partly due to the launch of the HSA Invest platform [13] - Consumer deposit growth accelerated through digital channels, and commercial bank deposit growth benefited from the expansion of the 1031 exchange business [14] Market Data and Key Metrics - Net interest margin (NIM) expanded to 3.39%, up 3 basis points from the previous quarter [25] - Total revenues increased by $35 million, with a$19 million increase in interest income and a $60 million increase in noninterest income [23] - Noninterest income was$109 million, up $16 million over the prior quarter [28] - Net charge-offs totaled just over$60 million, with 60% coming from traditional office-related or healthcare services credits [16] Company Strategy and Industry Competition - The company optimized asset risk weightings for regulatory capital ratios, reduced commercial real estate asset concentration, and improved the yield profile of its securities portfolio [7] - The acquisition of Ametros added a new source of low-cost, long-duration deposits and expanded the company's addressable market [8][9] - The company is investing in data and analytics capabilities to prepare for a large bank regulatory regime and to enhance operational efficiency [36] - Investments are being made to grow existing businesses, including enhancing treasury management capabilities, digital banking channels, and client acquisition tools [37][38] Management Commentary on Operating Environment and Future Outlook - The company anticipates a mid-2025 inflection point on overall credit metrics, with a normalized annualized charge-off rate of 25 to 30 basis points [16][17] - For 2025, the company expects loan growth of 4% to 5%, deposit growth of 4% to 5%, and net interest income of $2.45 billion to$2.5 billion [32] - The company is preparing for a transition to a Category 4 bank, with incremental run-rate operating expenses of $15 million to$20 million in 2025 [34] - The company remains well-positioned for the future with a strong capital position and diverse balance sheet [39] Other Important Information - The company made a charitable contribution to the Webster Foundation and saw higher performance-based incentive accruals and seasonal benefit expenses in Q4 [29] - The company expressed sympathies for colleagues and clients impacted by natural disasters, including floods in North Carolina and fires in Los Angeles [39] Q&A Summary Question: Potential for M&A activity if Category 4 regulations are eased [42] - The company is focused on organic growth but would consider inorganic growth if regulatory restrictions are lessened [43][44] Question: C&I NPLs and industry concentration [46] - The 53 million increase in C&I NPLs was spread across 3-4 credits, with some concentration in office-related credits [47][48] Question: Margin trajectory and securities repositioning [50] - The company expects NIM for 2025 to be in the range of 3.35% to 3.40%, with minimal impact from securities repositioning in Q4 [51] Question: Capital management and buybacks [53] - The company anticipates returning capital to shareholders in 2025, with loan growth and tuck-in acquisitions as priority uses of capital [55][56] Question: Deposit costs and betas [58] - Deposit costs were 2.2% in Q4, with a beta of approximately 30 basis points expected for the rate cut cycle [60][61] Question: Geographic expansion plans [62] - The company has no specific plans for geographic expansion outside its current footprint but will continue to invest in national businesses [64][65] Question: Credit inflection and CRE tail risk [72] - The company expects charge-offs to normalize around 25 to 30 basis points in 2025, with moderating credit migration trends [76][77] Question: Loan growth trends and sponsor book [82] - The company is seeing stronger pipeline activity in the sponsor book, with balanced loan growth expected across categories [84][85] Question: Expense outlook and regulatory investments [110] - The company is prioritizing investments that enhance operational efficiency and regulatory readiness, with 40 million to $60 million in incremental run-rate expenses expected over the next several years [112][113] Question: Direct lending partnership with Marathon [116] - The partnership is expected to be active in Q2 2025, with potential upside to loan growth and investment income [117][118] Question: Expense growth contributions [120] - The company is investing in business lines, technology infrastructure, and regulatory preparation, with$30 million year-over-year growth supporting these initiatives [121][122] Question: Deposit growth and digital channels [123] - The company expects growth in the 1031 exchange business and digital channels, with investments in product offerings and service propositions [124][125] Question: Expense guidance and synergies [128] - The $40 million to$60 million in incremental expenses is a net number, with potential synergies from investments in technology and infrastructure [132][133] Question: Deposit beta assumptions [137] - The company assumes a 30% deposit beta for the rate cut cycle, with potential for improvement if DDA balances grow [139][140] Question: Long-term margin outlook [141] - The company believes a NIM of 3.35% to 3.40% is a reasonable midterm margin level [143] Question: Office portfolio stabilization [145] - The company is seeing more natural resolution of office credits, with improvements in classified and nonaccrual metrics [147][148] Question: Regulatory wish list [150] - The company hopes for more tailored supervision and a lifting of artificial asset size thresholds [152][153]