Webster Financial Corporation (WBS)

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Webster Financial Corporation (WBS)

Q3 2009 Earnings Call Transcript

October 22, 2009 9:00 am ET


James Smith – Chairman and CEO

Gerry Plush – Senior EVP, CFO and Chief Risk Officer

John Ciulla – EVP and Chief Credit Risk Officer, Webster Bank, N.A.


Mark Fitzgibbon – Sandler O’Neill & Partners, LP

Damon DelMonte – KBW

Amanda Larson [ph]

Matthew Kelley – Sterne Agee

Collyn Gilbert – Stifel Nicolaus & Co.

Bob Ramsey – FBR Capital Markets



Good morning ladies and gentlemen and welcome to the Webster Financial Corporation’s third quarter results 2009 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 statements 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 introduce your host for today’s conference, Mr. James C. Smith, Chairman and Chief Executive Officer. Please go ahead, sir.

James Smith

Thank you, Melissa. Good morning, everyone and welcome to Webster’s third quarter earning’s call and webcast. You can find our earnings release which was issued earlier this morning and the slides for the Company of this presentation on our website at websterbank.com. As usual, I will provide an overview for the quarter and Gerry Plush, our Chief Financial Officer and Chief Risk Officer will provide a review of our financials. I will then offer some closing remarks and open it up for your questions.

We will begin focusing on slide 3. Since our July earning’s call, I am pleased to say that Webster continues to make significant progress on a number of fronts, including improving pre-tax pre-provision earnings, further strengthening of our capital levels, especially tangible common equity, increases not only in deposits, but market share as well made even more impressive by lynch [ph] quarter expansion and net interest margin, and stable loans delinquencies in third straight quarter. I will elaborate on each of these.

First, our pre-tax pre-provision earnings rose to $56.1 million in Q3, up 10% from Q2, aided in part by a 14 basis point increase in the net interest margin to 3.18%, and by previously committed improvements from our OneWebster earnings optimization initiative. These data points speak to the fundamental strength of the Webster franchise which is beginning to shine through in a challenging economic environment.

We expect our pre-tax pre-provision earnings to grow even stronger as the economy recovers, and as we execute on our plans for growth. If you look at slide 4, you can see that capital was the high point of the quarter. As we announced last week, Warburg Pincus has completed its $115 million investment in Webster common stock, non-voting preferred and warrants. We shortly will be scheduling a special shareholders’ meeting to gain approval for Warburg’s preferred to convert into common.

While we talked with many of you about the Warburg Pincus investment, I want to spend a minute discussing the relationship and the rationale, and to reiterate why we are so pleased with this transaction. Our relationship with Warburg became increasingly comfortable with one another. We found that we share a common perspective on what will constitute a successful regional banking strategy focused on New England. So when we decided to explore raising capital, it was only natural that Warburg Pincus would be in a considered set. My point is that Webster and Warburg Pincus understand each other very well, share a long-term focus, and are completely aligned on the belief that successful execution of our strategy to be New England’s bank will create significant shareholder value.

We’re pleased that one of the marquee names in private equity is our largest shareholder, Warburg Pincus’ track record of bank investing, which includes Mellon, Dime and others is legendary. Their thorough due diligence which grew on the expertise of JPMorgan Chase, Promontory Financial Group, Ernst & Young, and Sullivan & Cromwell, as well as Warburg’s own extensive capability, convinced them that Webster’s long-term potential for shareholder value creation warranted a premium to market. More than one investor has remarked that Warburg’s investment is a malice [ph] is at financial equivalent of the good housekeeping seal of approval for Webster. It certainly has triggered interest in Webster from investors who previously weren’t holders of our shares.

Terms of the investmentship pleased our investors. The issuance price for Warburg Pincus common share has represented a 12% premium to the 10-day trailing average for our shares, and nearly a 20% premium to the 20-day trailing average at the time it was announced. The investment resulted in minimal dilution to tangible book value and modest dilution to normalize EPS, and was struck on terms that we believe were considerably more favorable than we could have achieved otherwise in a common equity raise.

In addition, Dave Coulter has joined our Board of Directors. As you may know, Dave is a former Chairman and CEO of Bank of America and former Vice Chairman of JPMorgan Chase, among other notable achievements. We know Dave well and have very my personal and professional regard for him. And I can tell you that in addition to his valuable services as a member of the Board, he is also proven to be a valued mentor and coach.

Following our very successful exchange offer in Q2, the Warburg Pincus investment boosted our already solid regulatory capital levels well above the median for our peers and then brought our pro forma September 30 Tier 1 common to risk weighted assets ratio to 6.93%, bringing us closer to the June 30 median of the top 50 US commercial banks and up more than a 125 basis points from year end 2008. Bottom line is well our capital levels has in well in excess of regulatory requirements all along our Tier 1 common intangible common ratios were not.

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