Webster Financial Corporation (WBS)

WBS 
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Webster Financial Corporation, Inc. (WBS)

Q2 2009 Earnings Call

July 17, 2009 9:00 am ET

Executives

James C. Smith –Chief Executive Officer of the Company and Webster Bank

Gerald P. Plush – Chief Financial Officer & Chief Risk Officer of the Company and the Bank

John Ciulla – Chief Credit Risk Officer

Analysts

Mark Fitzgibbon – Sandler O’Neill & Partners

Ken Zerbe – Morgan Stanley

Damon DelMonte – Keefe, Bruyette & Woods, Inc.

Gerard Cassidy – RBC Capital Markets

Bob Ramsey – FBR Capital Markets

Mike Shafir – Sterne, Agee & Leach

Presentation

Operator

Welcome to the Webster Financial Corporation’s second 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 the 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 and business and financial performance, Webster has based these forward-looking statements on current expectations and projections about future events.

These forward-looking events are subject to risks, uncertainties and assumptions as described in Webster Financial’s public filings with the Securities & Exchange Commission which could cause future results to differ materially from historical performance or future expectations. I would now like to turn the conference over to Mr. Jim Smith, Chairman and Chief Executive Officer.

James C. Smith

Welcome to Webster’s second quarter earnings call and webcast. Joining me today are Gerry Plush, Chief Financial Officer and John Ciulla, Chief Credit Risk Officer. I hope you have all had the chance to review the earnings release that was issued earlier this morning. Before we begin, let me outline the flow of the call and note that we’ve included slides on our website www.WebsterOnline.com. I’ll provide some perspective on the quarter while Gerry will provide a review of our financials. Then, I’ll offer some closing remarks, figure about 30 minutes or so for the spoken remarks and then we’ll reserve time for your questions at the end.

Aside from reporting net income of $16.8 million available to common shareholders in the quarter largely due to the gain on our successful exchange offer, the quarter was dominated by developments in capital and credit. Though Webster has enjoyed capital levels well in excess of regulatory requirements, investors in recent quarters have focused intently on tier I common. This is understandable in a time of stressful market conditions.

Our response has been to exchange more than $170 million of existing preferreds in to tier I common equity in the quarter. The exchange can only be described as extraordinarily successful. We offered to exchange common shares and cash for outstanding convertible preferred shares and to exchange common shares for trust preferred securities. We were very pleased that the convertible preferred portion of the offer was oversubscribed at 76% and that 32% of trust preferred securities were tendered.

Gaining US Treasury approval for the part cash exchange was key to its absolute and relative success and was a further testament to the overall strength of Webster’s capital position. Especially notable about the exchange was not just that we added a big chunk of tangible common equity but that we did it at a very attractive price such that the effective issuance price of $14.68 per share was about double the Webster’s share price when we announced the exchange and was actually 2.6% accretive to tangible book value which rose to $13.15 a share in Q2.

On June 30th, our all important tier I common to risk weighted assets ratio climbed to over 6.4% from about 5.25% at March 31. While our tier I risk based equity was 11.7% which of course is about double the 6% ratio required to be considered well capitalized. The benefits of the exchange extend beyond capital ratios and include an annualized reduction of about $17.5 million after tax in dividend expenses. Additionally, our fortified capital position enhances our ability to compete vigorously for new business and to move forward confidently towards our goal of being New England’s bank.

Webster boosts rock solid capital ratios across the board such that we can confidently withstand the impact of high adverse economic conditions and we’re well positioned to capitalize future growth in what we believe will become a banking environment which will benefit the community oriented regional banks.

Turning now to credit, our active management of underperforming credits, our continuing efforts to reserve prudently against future credit losses and some credit metrics that either deteriorated less rapidly or actually improved from Q1 taken together could possibly be indicators that credit stabilization is not far off. Whether it is or not, our increased reserves and our capital buffer will protect us against whatever may come.

In our Q2 credit numbers we continue to see the effects of the worst recession in memory reflected in both the levels of non-performing loans and charge offs. As a result, we increased our coverage for credit losses during the quarter to 2.72% of total loans. Once again, our provision for loan losses has significantly exceeded net charge offs in the quarter marking the third consecutive quarter at which we’ve reserved $35 million more than we’ve charged off in anticipation of potential future credit losses.

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