Webster Financial Corporation (WBS)

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Webster Financial Corporation (WBS)

Q2 2010 Earnings Call

July 16, 2010 9:00 a.m. ET

Executives

Jim Smith - CEO

Jerry Plush - CFO

Analysts

Mark Fitzgibbon - Sandler O'Neill

Damon DelMonte - Keefe, Bruyette & Wood

Bob Ramsey - FBR Capital Markets

Collyn Gilbert - Stifel Nicolaus & Company

Gerard Cassidy - RBC Capital Markets

Bruce Harting - Barclays Capital

Ken Zerbe - Morgan Stanley

Matthew Kelley - Sterne, Agee & Leach

Presentation

Operator

Good morning and welcome to Webster Financial Corporation's Second Quarter 2010 Results Conference Call. This conference is being recorded. Also this presentation includes forward-looking statements within the Safe Harbor Provision 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 the future events. Actual results may defer 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 statement is contained in Webster Financial's public filings with the Securities and Exchange Commission including our Form 8-K containing our earnings releases for the second quarter of 2010.

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

Jim Smith

Good morning and welcome to Webster's second quarter earnings call and webcast. You can find our earnings release that was issued earlier this morning and the slides and in depth supplemental information to accompany the presentation in the investor relations section of our website at wbst.com

I'll provide an overview for the quarter and Jerry Plush, our Chief Financial Officer will provide a more granular look at the quarter. And then we will invite your questions.

We continue to make progress in what I will characterize as a solid quarter as net income improved to diluted EPS at $0.15 a share. Revenue grew by 6% year-over-year and by 1% on a linked quarter basis. The net interest margin was essentially flat to the first quarter and a touch over of our estimate and core pre-tax, pre-provision earnings held steady at $57 million.

The principle driver our second quarter results was and is improving credit quality across all loan categories. The provision for loan losses declined to the lowest level in two years while still covering net charge offs which were at the lowest level in five quarters.

Non-performing loans continued to downturn trend to less 3% of the loan portfolio registering their lowest levels since Q1, '09. The allowance for loan lease losses rose slightly and is well in excess of non-performing loans. The quality of NPL coverage is especially strong considering that NPLs already have been charged down by 30% and fully one third of NPLs are currently making payments.

At the front end delinquencies declined to the lowest level in two years. While we're resistant to predict future credit trends, we're encouraged by the stable to improving risk migration across the portfolio. Our liquidating portfolio is now below $200 million compared to $424 million at year end 2007, and carries reserve coverage of 25%, 91% of the loans in that portfolio are current.

Recognizing our progress on credit, Standard & Poor's recently upgraded its outlook for Webster to stable. Should present trends continue, it's likely that we'll provide reserves that are less than charge offs in future periods, the continuing improvement in our credit metric is attributable in part of the focused multi-year effort to identify, manage, reserve for and resolve underperforming loans, and we have done it in a way it has respected our customers and the challenges they have faced.

I expected our approach will further strengthen our customer relationships in the quarters ahead, as we endeavor to help finance the regional economic recovery. Underpinning our results is a slowly improving regional economy. According to the June Fed Beige Book commercial real estate markets in New England are showing signs of improvement. Most businesses in the region were reporting stable to increasing activity compared with a year earlier.

Most retailers and manufacturers generally report positive sales and revenue results. In Connecticut, home for closures in June were down for the second consecutive month and unemployment dipped below 9%. The improvements in the economy and our conservative efforts to boost originations can be seen in the Q2 numbers and in the pipeline. Loan originations across our business rose by 46% from the first quarter to 579 million. In market commercial non mortgage originations rose 72% to $200 million and we have a robust pipeline in place.

Our business and professional banking group in June reported its strongest month for originations in a year and a half. Originations in asset based lending, equipment finance and commercial real estate loans also increased in the quarter. Our commercial loans volume and our pipeline give us confidence in our ability to achieve our goal of $850 million and new business loan originations in our markets in 2010. Meanwhile residential and consumer originations rose 44% from Q1 to 275 million.

On the capital front in slide 4 our ratios continue to track higher. Tangible common equity rose 26 basis points to 5.79% and tier one common equity rose 22 basis points to 8.12% in Q2. Regarding CPP repayment, our strategy remains the same. We'll continue to pursue orderly repayment on terms favorable to our shareholders in the quarters ahead supported by our improving profitability and credit metrics.

Turning to slide five, let me briefly review our progress on the six strategic initiatives for 2010. As I said before, our regional banking strategy is straightforward. We'll build market and wallet share among businesses and consumers through relentless improvement of our service quality to achieve best in class status. Simply stated we'll do better what we do best.

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