Webster Financial Corp Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Andrew Lear - Keefe, Bruyette & Woods North America - Analyst : Hey, how's it going? This is [Andrew Lear] on for Chris McGrady. John Ciulla - Webster Financial Corp - Chairman of the Board, Chief Executive Officer of the Company and Bank, President of the Bank Good morning.

Question: Andrew Lear - Keefe, Bruyette & Woods North America - Analyst : Okay, great, thank you. And if I can just do one more, on capital, how are you doing about, the buyback, just given the current economic uncertainty, but also, your discount stock valuation. Thank you. John Ciulla - Webster Financial Corp - Chairman of the Board, Chief Executive Officer of the Company and Bank, President of the Bank Yeah, I mean, we obviously think that our stock is undervalued. We bought back a substantial amount of shares in the first quarter. We anticipate kind of sticking to our guns about, deploying capital into organic growth. A looking at potential tuck and acquisitions in our healthcare vertical REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 24, 2025 / 1:00PM, WBS.N - Q1 2025 Webster Financial Corp Earnings Call and other areas, and if that's not available, we will buy back shares certainly over the next three quarters, but we obviously have our eye on what happens in the economic environment. Our base case, as I mentioned earlier, is that we see a relatively stable, slowing economic environment over the course of the next three quarters without a recession. If that occurs, I think you'll see us buy back more shares as we move through the year.

Question: Jared Shaw - Barclays - Analyst : Hey guys, good morning. Hey, I just sticking with the credit side, looking at the growth in non-performers and actually when I look at like slide 17, the growth in commercial classified, how did that not drive itself a provision, when you look at the growth and provision you call out it being tied to the macro environment, I guess what gives you confidence that those increases in non-performers and increases in commercial classifieds don't need a provision with them? John Ciulla - Webster Financial Corp - Chairman of the Board, Chief Executive Officer of the Company and Bank, President of the Bank Yeah, I mean, Jared, as the CISO process is pretty complex. Most of the loans that are determined to be problem loans and problem assets, have individual assessments of loss in them, and then there are obviously a lot of qualitative factors that go into the CISA reserves. So there were a bunch of offsets. I made the comment that when we ran the models going through our specific reserves, going through overall weighted average risk rating in the port portfolio and migration that had we not changed the economic scenario, that our provision would have been roughly in line with charge offs, and so it's a bunch of inputs and I think you clearly higher levels of non-performers and classified in and of themselves drive higher drive higher reserves. But overall portfolio migration and weighted average risk ratings in the portfolio along with qualitative factors, offset a bunch of that. So we were obviously not being cute in saying that when we change the recession weighting of the recession scenario from closer to 0% to 30%, that really drove the $20 million in additional provisioning.

Question: Jared Shaw - Barclays - Analyst : Okay, alright, thanks. And then you know when we look at the over the next few quarters with this desire to drive down non-performers and work with exiting I guess some of these trouble zones do you do you expect that that's going to be through sales or through charge offs or through resolutions like how should we think about, your -- I guess willingness to use a little bit of capital to you know to more rapidly fix sort of credit ratios? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 24, 2025 / 1:00PM, WBS.N - Q1 2025 Webster Financial Corp Earnings Call John Ciulla - Webster Financial Corp - Chairman of the Board, Chief Executive Officer of the Company and Bank, President of the Bank Yeah, I think it's a combination, right? And so we're always looking at the economic benefit, obviously we know that the optics of those higher categories, hurt us from an outside perspective, but also, when we know that we've got and identified loss given default, we're not going to do a fire sale and give up capital too early. So I think it's a there will be some that naturally resolve themselves. Some will take charges in our expectations and where we have opportunities to accelerate remediation through sale, we'll do that as well. Our anticipation and just jumping to the next question, our anticipation and charge offs again as we look through the course of the year, given all the factors, is that 25 to 35 basis point in annualized charger up rate this quarter. We were down modestly from prior quarter, but slightly above. I think we're around 40, 41 basis points in charge offs, but we think as we model through the year that our full year charge offs will be somewhere in that 25 to 35 basis point range.

Question: Mark Fitzgibbon - Piper Sandler & Co - Analyst : Hey guys, good morning. John Ciulla - Webster Financial Corp - Chairman of the Board, Chief Executive Officer of the Company and Bank, President of the Bank Good morning.

Question: Mark Fitzgibbon - Piper Sandler & Co - Analyst : Okay, and then just a second question for Neal. Neal, I wanted you to share with us how much you spent roughly in the first quarter to prepare for becoming a category for bank and also update us on what the timeline looks like for, becoming compliant?

Question: Mark Fitzgibbon - Piper Sandler & Co - Analyst : Thank you.

Question: Matthew Breese - Stephens Inc. - Analyst : Hey, good morning.

Question: Matthew Breese - Stephens Inc. - Analyst : I was hoping we could talk a little bit about loan growth and the pipeline, and I was hoping you could touch on, first your appetite for commercial real estate here and whether or not the environment still remains attractive to the Marathon partnership expectations for CNI growth for the second half of the year and then the other thing is just reason has been a bigger driver of growth recently and hoping you could touch on that as well. Thank you. John Ciulla - Webster Financial Corp - Chairman of the Board, Chief Executive Officer of the Company and Bank, President of the Bank Yeah, and you know this is kind of the $64,000 question, Matt, for those of you old enough to know what the $64,000 question is. You know our pipelines are solid. We obviously had a good first quarter with respect to loan growth, and it was pretty diverse across categories, as you mentioned, consumer and commercial. So, I think what I said at the outset, and I think you've heard on almost every other call is that our commercial and consumer borrowers remain relative. They certainly remain healthy, and they remain relatively optimistic, but everybody's kind of waiting for the dust to settle. So certainly for things like in our sponsor group, which is driven largely by M&A activity, that's kind of been put on hold. We're not seeing a lot of private equity activity right now given all the tariffs and the noise and the market volatility. But we know that there's a lot of discussions. We've been mandated on some deals that have been kind of put on hold. So, but for the passage of time we should be able to provide financing for those transactions. So I think to your first question. We've got the uncertainty has slowed and delayed loan growth, but there is underlying pent up economic demand, and that's why we feel comfortable with our 4% to 5% loan growth over the course of the year. And obviously the first quarter we're kind of on track. Specifically to the other questions on Cree, we were down in Cree in the quarter. We are participating in the market. As we said, we're being more selective on institutional quality, commercial real estate, full relationship real estate. We believe we have capacity, we drove our concentrations down to the 255 -- 2.55% area. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 24, 2025 / 1:00PM, WBS.N - Q1 2025 Webster Financial Corp Earnings Call We're there again this quarter. It remains relatively flat from a concentration perspective. We do not feel like that is a hard constraint because we're able to drive way down off that regulatory bright line of 300%. So you know we expect there to be let's say $300 million to $500 million in commercial real estate growth which will keep our concentrations in line with capital growth and everything else we're doing in the portfolio. So I will tell you, and I, was reviewing some of the other transcripts, we would agree with the comment that in the first quarter the Cree landscape got significantly, more competitive, we saw more of the big banks back in the Cree space, so we didn't drive down Cree exposure on purpose. We just had, runoffs, amortization, payoffs, and then a level of originations that had us slightly down in the quarter. But, we're not afraid to grow that category and we're actively participating in the market. With respect to the Marathon joint venture, our expectation is that we still go live toward the end of the second quarter, potentially the beginning of the third quarter, and I think what we've been careful to do is we haven't layered in any of the expenses, portfolio seating with loans nor any of the economic benefit in our forecast because we want to wait and see that go live and then on the next earnings call or if we issue a press release publicly after we go live. We'll put a little bit more meat around the bone as to the short term and more medium and long term economic benefit for us, but it's still on track. We're just making sure that we, set up the right structure and that we're where all the i's are dotted and the t's are crossed. And then on resi, in the market there's been some demand there. I think we look at our balance sheet, which is kind of 80% commercial, and so we think it's a good idea as we start to look forward to category four to have a more balance between consumer and commercial asset classes. We want to make sure we're getting paid fairly for our mortgage business as well. So, we're kind of really monitoring pricing and you may not see it grow as quickly over the rest of the course of the year but you know it's still an important asset class for us and so we're participating appropriately in the market.

Question: Casey Haire - Autonomous Research - Analyst : Great, thanks. Good morning guys. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 24, 2025 / 1:00PM, WBS.N - Q1 2025 Webster Financial Corp Earnings Call John Ciulla - Webster Financial Corp - Chairman of the Board, Chief Executive Officer of the Company and Bank, President of the Bank Good morning, Casey. Great to have you back.

Question: Casey Haire - Autonomous Research - Analyst : Got it, thank you. And then just some updated thoughts on the name outlook, like you said that deposit beta is, going to go to 33% from 32% this year. Loan yields sound a little bit tougher and obviously got some bad cuts, some near term and expectations. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 24, 2025 / 1:00PM, WBS.N - Q1 2025 Webster Financial Corp Earnings Call

Question: Casey Haire - Autonomous Research - Analyst : Sorry. I'm just looking for some updated thoughts on the NIM commentary and outlook.

Question: Timur Braziler - Wells Fargo Securities, LLC - Analyst : Hi, good morning. Sticking to the line of questioning -- hi, sticking to the line of questioning on the deposits, I guess that be expectation, does that also incorporate the three expected rate cuts this year and then I guess just looking at some of the higher cost products like DBRIO. I guess why maybe the hesitation to lower some of those higher costing deposit products and maybe work that the cost of deposits down a little bit more throughout the course of the year. Luis Massiani - Webster Financial Corp - President of the Company and Webster Bank, Senior Executive Vice President, Chief Operating Officer of the Company and Webster Bank Yeah. Listen, that's a great question, and that's something that we debate, consistently and to the extent that we -- there's a combination of competitive landscape dynamics and then just requirements for funding across the balance sheet that make that inform those decisions when we make them. We are very confident that over the course of the year if the trade environment continues to play out and there is a, kind of the rate scenarios that we're forecasting happen, there is going to be the ability for us to be able to reduce, meaningfully, particularly in those areas of Rio and then some and potentially just backfill with some of the other higher rate products that we have on the interlink side and some of the other, channels. So, the good thing about the business make and model that we've created is that there's a ton of flexibility regarding what we can do across consumer, commercial, and then some of these alternative, deposit channels. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 24, 2025 / 1:00PM, WBS.N - Q1 2025 Webster Financial Corp Earnings Call And as we continue to view the progression of balance sheet and loan growth over the course of the year, we have a tremendous amount of flexibility on what we can do on deposit pricing. We've been conservative right now in moving down, but those are products that from one day to the next can, we can be much more aggressive on and to the extent that we want to do that, we certainly can and we can move very quickly to do it.

Question: Manan Gosalia - Morgan Stanley - Analyst : Hi, good morning. John Ciulla - Webster Financial Corp - Chairman of the Board, Chief Executive Officer of the Company and Bank, President of the Bank Hey, good morning.

Question: Manan Gosalia - Morgan Stanley - Analyst : Got it. I was adjusting a little bit for the day count in in one queue there as well, but, in terms of, I guess John, you noted, that your clients have strategies in place to mitigate shocks in the supply chain. Can you give us some more color on what you're hearing from them over the past couple of weeks? John Ciulla - Webster Financial Corp - Chairman of the Board, Chief Executive Officer of the Company and Bank, President of the Bank Yeah, it's interesting. We did a survey prior to liberation day and then we've gone back out to our clients and it's interesting, as I mentioned earlier, through luck or good strategy, we don't have tons of exposure to kind of the direct impact of tariffs, but we also realize that everyone could be impacted given their sourcing and supply chain and where we are. Obviously my concern, if there is a concern, would be really on the on the demand side if we start to get into a recessionary environment, but our clients actually seem pretty resilient just in terms of, what we hear back from them is planning on being able to source from other areas, looking at what margin compression would mean, how much of pricing can they move on, so. I would say everybody is concerned and going through the analysis and, it's almost impossible to take the qualitative feedback from clients and put that into some sort of quantitative expectation of performance of the underlying borrowers, but I would say. Pleasantly surprised on kind of the resilience and the planning. Obviously if things stabilize and we start to get a pull back on a little bit of the high level tariff noise, hopefully this will kind of blow over, but I guess I would say cautiously optimistic about what we're hearing from our clients in terms of their preparedness and their ability to react to a different environment.

Question: Bernard von-Gizycki - Deutsche Bank - Analyst : Hey guys, good morning. You manage the franchise well across various cycles, and you just increase the reserves to encompass various economic scenarios. You're able to keep the net just come out look unchanged despite another rate cut, sounds like, you could buy back shares if the revenue environment is weaker than you're expecting. Just with that, do you have any flex in the expense space in case the revenue environment is weaker, it's either stop or delay projects. If so, any sense if you could provide how we could think about the variable components of your expense space in both comp and non-com?

Question: Bernard von-Gizycki - Deutsche Bank - Analyst : Okay great. And then just a follow up, just on the loan growth for the year, obviously sponsored to contribute in the quarter, just want to get your sense of just, any commentary, just on, activity levels and just, how much of that could be, a contribution, for the rest of the year. John Ciulla - Webster Financial Corp - Chairman of the Board, Chief Executive Officer of the Company and Bank, President of the Bank Yeah, I mean, I think we look at it now as still kind of broad-based blocking and tackling across asset classes, and I would note that what you see in the sponsor category was largely lender finance and fund banking. So we haven't really seen the pick up in our bilateral higher yielding full relationship sponsor stuff given the cessation and M&A activity. So we do see that hopefully building over the second half of the year and obviously we'll have an opportunity with the Marathon joint venture hopefully to increase that volume. So I would say as we look at kind of building out our forecast, we're not relying on any one category or any one business line. It's sort of blocking and tackling and hopefully contributions across the board. And if we're lucky and we get a little bit of more economic activity in a macro environment going into the second half of the year, we should see the sponsored business rebound as well.

Question: Daniel Tamayo - Raymond James & Associates, Inc. - Analyst : Thank you. Good morning, everybody. Maybe first just a clarification so the 25 to 35 basis point net charge off assumption you guys are talking about I think that's kind of a longer term assumption and then you built in the reserves, $74 million assuming a 30% chance of recession I think is the number you said. So that's $74 million is about 14 basis points of loans. I mean, is that kind of how you're thinking about what that 30% chance of recession number is? I mean, is that more of a cumulative number? I'm just trying to size where that 25 to 35 basis points could go if we do get, that 30% chance of recession. I'm really parsing your words here. I apologize, but we're late in the call. John Ciulla - Webster Financial Corp - Chairman of the Board, Chief Executive Officer of the Company and Bank, President of the Bank Yeah, no, that, that's all right, and I don't think we triangulate it that way. It really is a cumulative, it's the Cecile modeling looking at the cumulative life of loan losses across the portfolio. So I don't think in the short term, we're really well reserved now. One of the nice things that we didn't mention on the call is if you look at our category four peers. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 24, 2025 / 1:00PM, WBS.N - Q1 2025 Webster Financial Corp Earnings Call Most of them have slightly higher provisions than most of the mid-sized banks do as we continue to grow, we feel like that 134 basis points is stronger than peer. We're not really looking at it in the short term in terms of capturing current period charge offs that's embedded in the overall provision, so. I think you think about it from a more macro high level perspective, not trying to triangulate the extra reserves against what we might believe could be a short term pop in in charge offs if that makes sense.

Question: Daniel Tamayo - Raymond James & Associates, Inc. - Analyst : Understood, yeah, thanks for the clarification. And then maybe just another small one here on the sponsor side, if you had the amount of migration, kind of interested in the early stage migration of sponsor and if you think or expect that those flows could be differently paced than the regular, the rest of the portfolio? John Ciulla - Webster Financial Corp - Chairman of the Board, Chief Executive Officer of the Company and Bank, President of the Bank You mean from a credit perspective?

Question: Laurie Hunsicker - Seaport Global Securities LLC - Analyst : Yeah, hi, thanks. Good morning, just saying with credit here, do you have a number in terms of what is non-performing in that $7.3 billion, sponsor and specialty book? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 24, 2025 / 1:00PM, WBS.N - Q1 2025 Webster Financial Corp Earnings Call John Ciulla - Webster Financial Corp - Chairman of the Board, Chief Executive Officer of the Company and Bank, President of the Bank I don't know if I have it offhand.

Question: Laurie Hunsicker - Seaport Global Securities LLC - Analyst : Okay, so then that's the same thing, the traditional office last quarter. Was showing up at 13% non-performers, which is $108 million it looks like it dropped to in this chart 2% which extrapolates to $16 million. So your traditional office non-performers dropped $92 million in the quarter and just wondered. Well, I guess, is that correct, or what are the office traditional office non-performers and then just office charge off, of your $55 million in total charge off quarter how much off.

Question: Samuel Varga - UBS - Analyst : Hey, good morning, Neal. I wanted to just turn back to allowance for a quick one. I understand that the probability of recession has gone up to 30%, and I also see that the assumptions have pretty meaningfully changed. Is there any potential creep up? In those assumptions to turn more negative in the second quarter, or do you think that the 1.34% allowance and your ability to change the probabilities a little bit makes it be sort of the high end of where we can see the allowance even between this quarter and next quarter? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 24, 2025 / 1:00PM, WBS.N - Q1 2025 Webster Financial Corp Earnings Call

Question: Samuel Varga - UBS - Analyst : Okay, that makes sense. Thank you. And then just a quick one on the securities front, nice pick up again this quarter in the yield there, given what you see on the purchase side, how much more room do you think there is to drift that yield higher and potentially offset some more cash fields on the margin?

Question: Jon Arfstrom - RBC Capital Markets - Analyst : Thanks. Good morning. John Ciulla - Webster Financial Corp - Chairman of the Board, Chief Executive Officer of the Company and Bank, President of the Bank Morning, Jon.

Question: Jon Arfstrom - RBC Capital Markets - Analyst : Yeah, okay, on the capital question. You have two targets. You have the CET1 at 11%, longer term 10.5%. If growth is slower in the near term, are you, do you still want to be active in the repurchase program now? And do you have any willingness to go below the 11%? Thank you. John Ciulla - Webster Financial Corp - Chairman of the Board, Chief Executive Officer of the Company and Bank, President of the Bank Yeah, it's a good question. I think absolutely if we see a stable economy with no further credit deterioration and no other uses of capital and loan growth isn't too robust, we will be buying back more shares because our stock is significantly undervalued. I think, that 11% during the current operating environment is probably the right target would we be willing to go quarter to quarter below that 11% in the right circumstances sure, so in and around 11% would be good. We generate a lot of capital and so we could buy back a lot of shares and stay above that 11% level as well. So I think good question and the answer is yes.

Question: Anthony Elian - JPMorgan - Analyst : Hi all. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 24, 2025 / 1:00PM, WBS.N - Q1 2025 Webster Financial Corp Earnings Call John Ciulla - Webster Financial Corp - Chairman of the Board, Chief Executive Officer of the Company and Bank, President of the Bank Hey, good morning.

Question: Anthony Elian - JPMorgan - Analyst : Thank you. And then my follow up maybe for Neal, when I look at your NII guide of [$245 million to $2.5 billion], where do you see the biggest wing factor? Is it more fewer rate cuts, deposit pricing, non-transparent growth? Thank you.

Question: Anthony Elian - JPMorgan - Analyst : It is and more so the biggest swing factor is that more fewer costs non for sparing coming in better than expected or pricing on deposits.