Webster Financial Corporation (WBS)

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Webster Financial Corp. (WBS)

Q1 2009 Earnings Call

April 21, 2009 9:00 am ET


James Smith - Chairman and CEO

Jerry Plush - SEVP and CFO/CRO

John Ciulla - EVP and CCRO


Ken Zerbe - Morgan Stanley

Mark Fitzgibbon - Sandler O’Neill

David Darst - FTN Equity

Damon DelMonte - KBW

Amanda Larsen - Raymond James

Matthew Kelley - Sterne Agee

Collyn Gilbert - Stifel Nicolaus

James Abbott - FBR Capital Markets



Good morning, ladies and gentlemen, and welcome to the Webster Financial Corporation’s First Quarter 2009 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. (Operator instructions) As a reminder, ladies and gentlemen, this conference is being recorded. Also this presentation includes forward-looking statements within the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 with respect to Webster’s financial condition results of operations in business and financial performance.

Webster has based these forward-looking statements on current expectations and projections about future events. These forward-looking statements are subject to risks, uncertainties, and assumptions as described in Webster Financial’s public filings with the Securities and Exchange Commission, which could cause future results to differ materially from historical performance or future expectations.

I would now like to introduce your host for today’s conference, Mr. James C. Smith, Chairman and Chief Executive Officer. Thank you. Please go ahead, sir.

James Smith

Thanks Claudia, good morning, everyone. And welcome to Webster’s first quarter earnings call and webcast. Joining me, are Jerry Plush, our Chief Financial Officer; Terry Mangan, responsible for Investor Relations and other Webster officers who will participate in responding to questions. I hope you all had a chance to review our earnings release that was issued earlier this morning.

Before we begin, allow me to outline the flow of the call and to note that we are now including slides to accompany our comments in order to ensure that you can follow along. You could find the slides on the Investor Relations page of our website websteronline.com or wbst.com.

I will provide an overview on the quarter while Jerry will provide a more detailed review of the financials with special emphasis on credit metrics. Then I will offer some closing remarks and we'll reserve time for your questions at the end.

In the first quarter Webster reported a net operating loss of $11.3 million or $0.24 a share before preferred dividends. Of course we are not pleased with the loss; however, during the quarter we added significant provisions for loan loss reserves.

While, these reserves are well in excess of current period credit losses, we are looking down the road in an economy that we think is certain to undergo credit stress more severe than we have seen in prior periods and we want to be ready for whatever maybe still to come.

I will also note that in this quarter we had no additional other than temporary impairment and other comprehensive income on the securities portfolio was neutral. A notable reflection of the full marks that we put in our securities portfolio through the end of last year. Of course we will continue to actively manage and monitor this portfolio.

So in the quarter were the margin as expected and as estimated by us declined where non-interest income was seasonally low and where non-interest expenses were seasonally high we generated nearly $50 million in pre-tax, pre-provision operating earnings. And amount the exceeded charge offs by close to $20 million. And I am pleased to say that we did see improvement in our net interest margin as it ticked higher toward the end of the quarter.

All in all, especially considering that capital levels remained strong and virtually unchanged in the quarter and there was a lot less noise in special charges, these are the more solid results since the first quarter of last year.

Turning now to slide 3 in the online deck, for most of my time I want to focus on the four areas that I told you would be our focus in 2009, credit, capital, deposits and expenses. I am pleased to say that we made significant progress in all four areas in the first quarter.

Starting with credit we provided $66 million for loan losses. Our net charge offs were $30 million, taken together with our fourth quarter provision. Our provisions have exceeded net charge offs for the last two quarters by about $83 million representing a nearly dollar for dollar match against the rise in non-performing loans over that six month period.

Our reserve now stands at 2.33% of total loans and equals nearly 90% of non-performing loans. We remain intensely focused on identifying reserving against managing and resolving credit risk. The 36% increase in non-performing loans in Q1, is not surprising given the overall state of the economy. And let me point out that the rise in non-performing loans was tempered a bit by the 10% decline in loans that are 30 to 90 days pass due.

On the capital front we maintained our exceptionally strong regulatory capital ratios and reported a 5 basis point improvement in tangible capital to 7.75%, the highest level recorded since the early 1990s. The continuing strength in our capital levels has benefited from several recent actions including our decision earlier this year to reduce the regular cash dividend in our common stock from $0.30 to a penny a share to preserve capital.

In addition during the quarter, we completed tender under which we repurchased and retired $22.5 million in subordinated notes due in 2013. This repurchase was completed $0.80 and the $1 modestly boosting our capital levels and reducing our cost to funds. While we had hoped to repurchase much more than the 11% of these notes outstanding that were tendered.

We take it as a compliment that so many investors preferred to keep our notes in their portfolios.

Declining out-of-market loans and pay down borrowings meaning less wholesale leverage have also benefited capital ratios. Our plan is to continue building capital through a variety of means in the coming quarters.

Like many of you we have long admired JP Morgan for its fortress like balance sheet and Jamie Dimon has provided commendable leadership in this time of financial uncertainty.

Other banks we admire include Wells Fargo, PNC, and M&T. Given the incessant hammering about what constitutes adequate capital level. I would like to point out that Webster's tangible capital ratios and our regulatory capital ratios compare more than favorably across the board with all of these fine companies.

I draw these comparisons simply to make the point that even as we put ourselves into a much stronger reserve position our capital levels have held like a rock and we compare a favorably with some of the best names in the business.

While I am on the topic of capital I want to note that last week yet another highly respected analyst having conducted a bank stress on Webster, concluded that Webster has sufficient capital to withstand pessimistic loan loss assumptions. This is the same conclusion reached by other analysts who did the earlier analysis.

Read the rest of this transcript for free on seekingalpha.com