Webster Financial Corp. (WBS)
Q1 2010 Earnings Conference Call
April 22, 2010 9:00 AM ET
James Smith - Chairman and CEO
Jerry Plush - CFO and Chief Risk Officer
Ken Zerbe – Morgan Stanley
Dean Choksi – Barclays Capital
Amanda Larson – Raymond James
Damon DelMonte – Keefe, Bruyette, & Woods
Bob Ramsey – FBR Capital Markets Corporation
Matthew Kelley – Sterne, Agee & Leach
Collyn Gilbert – Stifel Nicolaus & Company
Previous Statements by WBS
» Webster Financial Corporation Q4 2009 Earnings Call Transcript
» Webster Financial Corporation Q3 2009 Earnings Call Transcript
» Webster Financial Corporation. Q2 2009 Earnings Call Transcript
Good morning and welcome to Webster Financial Corporation's first 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 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 first quarter of 2010.
I'll now introduce your host Jim Smith, Chairman and CEO of Webster. Please go ahead sir.
Good morning and welcome to Webster's first quarter earnings call and webcast. You can find our earnings release that was issued earlier this morning along with the slides and in depth supplemental information that accompany this presentation in the investor relations section of our website websterbank.com.
I'll provide an overview of the quarter and talk about our regional bank strategy and then turn it over to Jerry Plush, our Chief Financial Officer and Chief Risk Officer to walk through the balance of today's earnings presentation. Then we'll open it up for your questions.
I'm pleased to say that the first quarter was marked by many positive developments including Webster's return to profitability from continuing operations. A small profit to be sure but a large step in the right direction. A lower provision for loan losses coupled with an improved margin growth in core deposits and a higher level of earnings assets were the primary drivers. Pre-tax, pre-provision earnings of $57.3 million held steady from the previous quarter and increased $10 million from a year ago.
The lower loan loss provision down by a third from Q4 ‘09 was driven by improving credit quality trends some strongly so, including nonperforming loans down 6.5% from Q4 to their lowest level in a year and charge-offs down 22% from Q4.
Since the provision continued to exceed net charge-offs in the quarter though by less than in previous quarters, loan coverage increased to 3.16% and NPL coverage reached 99%. The reduction in NPLs were driven primarily by continued declines in non-accrual loans and a greater number of cures and exits. Commercial real estate, residential consumer lending and the discontinued liquidating portfolio all saw declines in NPLs while in C&I asset based lending NPLs rose and the other categories in aggregate declined.
Delinquencies remained stable at the Q4 ‘09 level, which was the lowest level since Q4 ‘08; Jerry will provide more detail in his comments.
These improvements in asset quality are largely a reflection of a somewhat stronger economy, which continues to improve in our region. Retailers cite sales increases and manufacturers say demand continues to grow. Home prices are now rising along with sales in most of the region's residential markets. While commercial real estate appears to be stabilizing even as potential defaults remain a concern.
According to the Beige Book, most delinquent employers are no longer shedding workers and many are restoring recession induced cuts and wages and benefits.
Connecticut for example has added jobs the last two months. Should the economy continue to strengthen we expect that our credit metrics will likely improve as well. We’re doing our part to contribute to the economic recovery with an initiative to nearly double business lending to $850 million in 2010 and to add a 150 bankers.
In market business lending increased nearly 60% in Q1 to $115 million from Q4 and our pipeline has grown dramatically. While new business checking accounts rose 18%, full implementation of the initiative including hiring additional business bankers would boost originations and result in growth in the loan portfolio, which has been in controlled decline for some time as we've reduced our out of market loan exposures.
Turning to slide four, you can see that our capital levels are strong across the board. The increasingly important tier 1 common to risk weighted assets ratio crept up 4 basis points to 7.9%. The leverage ratio was 8.73% and our total risk based ratio was 14.37%. These ratios, which declined from Q4 due to partial repayment of CCP, are well above regulatory requirements and well above our internal capital targets as well.
The most notable development regarding capital during the quarter was the repayment of 25% or $100 million of the capital purchase program to the US Treasury, which is noted on slide five that there was no accompanying requirement for raising additional capital is a testament to our capital strength. We're doing our best to repay CPP in an orderly responsible manner that produces the best outcome for shareholders.
We intend to pursue further repayment as our credit metrics and profitability improve always with the objective of producing the best outcome for shareholders. We also downstream capital to the bank to bolster capital levels there.
As credit repayers, I expect we'll have more time to discuss strategy on these calls, a welcome change and we'll report on our progress toward achieving our published 2010 initiatives, which are listed on slide six. These initiatives are the areas where we're investing considerable capital and organizational resources.
It's worth noting that a significant portion of the variable compensation for our senior executive officers is tied to successful execution of these initiatives.