Webster Financial Corporation (WBS)

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Webster Financial Corporation (WBS)

Q4 2009 Earnings Call

January 22, 2009 9:00 am ET


Jim Smith - Chairman & Chief Executive Officer

Gerry Plush - Chief Financial Officer & Chief Risk Officer

John Ciulla - Executive Vice President & Chief Credit Risk Officer


Ken Zerbe - Morgan Stanley

Gerard Cassidy - RBC Capital Markets

Bruce Harting - Barclays Capital

Mark Fitzgibbon - Sandler O'Neill

Damon DelMonte - KBW

Bob Ramsey - Friedman, Billings, Ramsey

Matthew Kelly - Sterne, Agee

Collyn Gilbert - Stifel Nicolaus



Good morning, and welcome to Webster Financial Corporation's fourth quarter 2009 results conference call. 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.

Actual results may differ materially from those projected in the forward-looking statements. Additional information concerning risks, uncertainties, assumptions, and other factors that could cause actual results to materially differ from those in the forward-looking statements is contained in Webster Financial’s public filings with the Securities and Exchange Commission, including our Form 8-K containing our earnings release for the fourth quarter of 2009.

I will now introduce your host, Jim Smith, Chairman and CEO of Webster. Please go ahead, sir.

Jim Smith

Good morning, everyone, and welcome to Webster's fourth quarter earnings call and webcast. You can find our earnings release that was issued earlier this morning and the slides and supplemental information that accompany this presentation in the Investor Relations section of our website, www.websterbank.com.

As usual, I’ll provide an overview for the quarter and to some degree the year, and Gerry Plush, our Chief Financial Officer and Chief Risk Officer, will provide a detailed review of our financials. Afterwards I’ll offer some closing remarks and then open it up for your questions.

We’ll begin with slide three, and what a difference a year makes. I’m struck by how different the atmosphere is from a year ago, how much more positive the general attitude is, and how much stronger the economic fundamentals appear to be. The Zeitgeist had shifted more than 90 degrees. Confidence is gradually supplanting fear, and the credit markets continue to heal and function in a more orderly fashion. GDP is growing again.

Instead of talking about a decelerating rate of deterioration in the economy, the public discourse NOW is about how the economy is better and we see that trend continuing, especially in New England. These trends and attitudes are evident in our fourth quarter results. The fourth quarter was marked by many significant improvements in Webster's operating fundamentals, especially as seen in stabilizing and improved credit metrics. Including lower delinquencies, a reduced provision for losses, lower net charge-offs, and higher loan loss coverage.

Other positive trends include improved pretax pre-provision earnings, expanded net interest margin, and continuing strong core deposit growth. While our results do not yet reflect a return to profitability, our solid performance and improving trends are encouraging. Our recently announced lending and hiring initiatives reflect our positive outlook for continuing improvement throughout 2010.

While the aftershocks of the great recession will reverberate for sometime to come, we believe that the economy, at least in Southern New England, is on relatively stronger footing. New England banks performance continues to outperform national averages as measured by the levels of non-accrual assets and charge-offs.

Unemployment in Connecticut and Massachusetts remains well below the national average of 10%, while Rhode Island is higher. New England's housing market is fairing better than the national market. For example, the most recent Case-Shiller Home Price Index shows the Boston MSA, experienced a 2.8% decline over the prior year, while the average for the 20 largest MSAs was a drop of 7.9%.

In its most recent Beige Book, the Fed reported that New England respondents said employment was stable or up slightly, retail sales were flat to positive year-over-year, and home sales were up substantially. Some respondents even noted modest improvements in commercial real estate. This optimism is reflected in our plans for 2010 as we pivot from a necessary preoccupation with identifying, reserving for, and managing credit challenges to a year in which we plan to finance the nation's recovery.

Earlier this month, we announced our intention to increase our lending to small and medium size businesses by $400 million in 2010 and hire 150 people for full and part time customer facing and support positions. Hundreds of quality applicants showed up at our first job fair to fill these positions.

Before I talk further about our priorities for 2010, I want to provide you with an overview of some of the highlights of 2009 with focus on fourth quarter developments. The fourth quarter consolidated net loss was $13.7 million, significantly improved from the prior three quarters. Notable was the fact that our core pretax, pre-provision earnings rose to $57.4 million from $56.1 million in the third quarter. Nevertheless, as a key financial measure a loss is poor performance regardless of positive trends.

If you turn to slide four, over and over again we reminded shareholders of our strong capital position in 2009, particularly our regulatory capital levels, which continuously exceeded all requirements by significant margins, though we acknowledged and acted on the prefer ability of higher Tier 1 common equity in a highly stressed economic environment.

Given the composition of our capital structure, we exchanged more than $200 million of existing convertible and trust preferred into common, $27.5 million of which occurred in Q4 and we raised $122 million in new common from Warburg Pincus, $74 million of which became common equity in Q4 after an overwhelmingly favorable shareholder vote in December, and $6.9 million of which was invested in Q4 through gross uprights that Warburg exercised in connection with the Q4 exchanges.

We’ve raised capital at very attractive prices. The net effect issuance price for our various capital raises in 2009 was $12.57 of share compared to tangible book value per share of $12.48 at December 31, protecting our existing shareholders while bolstering our tangible common equity. The exchanges also reduced the cost of interest and dividends associated with our trust preferred and convertible preferred securities benefiting shareholders.

Over the course of 2009, our Tier 1 common to risk weighted assets ratio, while not yet an official regulatory capital ratio, but nonetheless increasingly important to regulators and the market, raised 217 basis points to 7.83% at year end from 5.66% a year ago. This was the single most important accomplishment of 2009. In the face of historically high, loan loss provisions and charge-offs we increased our Tier 1 common ratio by 38% and on terms that our shareholders can feel pretty good about.

Meanwhile, Webster's regulatory capital levels remained well in excess of the minimums. At year end, our Tier 1 risk based capital ratio stood at 13.20%, placing Webster above the 75 percentile for bank holding companies with at least $10 billion in assets at September 30.

Turning to slide five, it is this overall capital strength that underpins our desire to initiate an orderly and responsible repayment of the capital purchase program investment that we accepted from the U.S. Treasury just 15 months ago. We took the capital, as we said at the time, out of an abundance of caution to protect against the unforeseen.

Throughout 2009, we still exceeded the levels required to be considered well capitalized, excluding CPP, as we reported on a quarterly basis throughout the year. With that in mind we believe it's time to begin to pay it back. The plan that we submitted earlier this month envisions an orderly repayment schedule that minimizes the dilutive impact to our shareholders. With approximately $500 million at the holding company available for CPP repayment, we have the capacity to repay. We hope to have more to say soon.

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