Webster Financial CEO John Ciulla spent much of a conference call with investment analysts Thursday carefully explaining the reasons behind the company's acquisition of a digital deposit-gathering platform earlier this month.
Ciulla's rationale appears to have resonated with investors. Webster shares were trading up more than 8% Thursday afternoon at $51.10.
Webster announced plans to acquire interLINK, which manages $9 billion in Federal Deposit Insurance Corp.-backed deposits, on Dec. 6. It closed the deal Jan. 11, paying an undisclosed sum for the privately held fintech.
The interLINK funding comes from brokers, who park idle cash with the firm for safekeeping.
According to Ciulla, the interLink deal created apprehension about possible liquidity problems among some shareholders, as well as worries the $71.3 billion-asset bank might use interLINK cash to ramp up lending in the face of a deteriorating economy. Neither concern is valid, Ciulla said, adding Webster was drawn to interLINK because it offered an opportunity to further diversify its funding stream.
While deposits from interLINK cost about as much as an advance from a Federal Home Loan bank, they count as core deposits. They also don't require Webster to pledge collateral.
"We looked at this as a long-term opportunity from a position of strength to further enhance our optionality on funding sources," Ciulla said.
Chief Financial Officer Glenn MacInnes said the Stamford, Connecticut-based Webster has currently deployed about $300 million in interLINK deposits, primarily to replace wholesale borrowing. The total could grow to as much as $6 billion by the end of 2023, " but we will monitor that and have optionality," Ciulla said.
Webster reported deposits of $54.1 billion on Dec. 31, up 81% year over year, but the total included a big bump from the acquisition of New York-based Sterling Financial, which closed in February. Fourth-quarter earnings totaled $240.6 million, including $50.4 million in pretax merger-related charges.
Despite reporting linked-quarter declines in nonperforming assets, classified commercial loans and net charge-offs, Webster added $41 million to its allowance for credit losses, including $21 million due to a worsening macroeconomic forecast. Webster's caution was in line with a number of other banks,
"We haven't really seen the [credit quality] deterioration I think that people across the industry would have anticipated," Ciulla said, though he was quick to add Webster was being "more proactive in how we manage our balance sheet."
