Webster Financial Earnings Call Insights: Margin Analysis and Securities Portfolio Yield

Webster Financial Corp (NYSE:WBS) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

 

Margin Analysis

Dave Rochester – Deutsche Bank: Glenn just real quick, you mentioned 2 basis points of the margin came from recaptured interest this quarter, did I get that right?

Glenn MacInnes – CFO, Webster Bank and Webster Financial Corporation: That’s correct.

Dave Rochester – Deutsche Bank: How much came from prepayment of penalty income?

Glenn MacInnes – CFO, Webster Bank and Webster Financial Corporation: For the quarter probably about 2 basis points.

Dave Rochester – Deutsche Bank: That’s versus what in 1Q?

Glenn MacInnes – CFO, Webster Bank and Webster Financial Corporation: I think it was about the same in Q1.

Dave Rochester – Deutsche Bank: In terms of your margin guidance, how much of an unwind of the securities premium amortization you are assuming for that going forward?

Glenn MacInnes – CFO, Webster Bank and Webster Financial Corporation: Meaning how much does it drop?

Dave Rochester – Deutsche Bank: Yes. How much does that decline, how much are you assuming?

Glenn MacInnes – CFO, Webster Bank and Webster Financial Corporation: So I think it’s probably about $400,000 quarter-over-quarter. You are talking about the total amortization level?

Dave Rochester – Deutsche Bank: In terms of the amortization expense. That’s right.

Glenn MacInnes – CFO, Webster Bank and Webster Financial Corporation: Yes. So right about $400,000.

Dave Rochester – Deutsche Bank: So, you’re assuming that the current curve stays where it is through the end of the year?

James C. Smith – Chairman and CEO: I’m using (250) tenure and assuming that we stay in the (250), (260) range.

Dave Rochester – Deutsche Bank: And on loan pricing, you guys had mentioned the environment had improved somewhat. If you could just talk about some of the areas you’ve been able to raise pricing and by how much, that would be great?

James C. Smith – Chairman and CEO: I’d just say pricing has been firmed, and Jerry went over with some of the numbers where pricing was higher, obviously, on the origination of mortgage loans, including those that went in the portfolio. Commercial pricing was firm. You saw it was up about 15 or 20 basis points in the quarter, also higher than last year. And I’ll submit the comment that it feels as if the increase in long rates has had an overall impact on the ability to hold pricing pretty much across the board.

Securities Portfolio Yield

Bob Ramsey – FBR Capital Markets: I thought the margin guidance was particularly encouraging. Did I hear you correctly that not only should margin be more or less flattish from here, but the securities portfolio yield – you believe, is that a bottom in this second quarter?

James C. Smith – Chairman and CEO: Yes, we believe the securities yield is at a bottom. We did highlight that there were 2 basis points in the 3.23% this quarter that are sort of non-reoccurring, Bob, so 3.23% will be in the 3.21%, 3.22% range.

Bob Ramsey – FBR Capital Markets: I know you just spoke about the firmer loan pricing and you’d talked about that earlier on. I’m just curious, how much of that do you think is a reflection of the movement that you’ve seen in rates? How much of it – are competitors being a little bit more rational this quarter or sort of what do you attribute the better loan pricing in the market to?

Gerald P. Plush – President and COO, Webster Bank and Webster Financial Corporation: It’s hard to say which proportion, I would say it’s probably a little of both driven by the fact that rates are up. I think they have got people’s attention in a big way.

Bob Ramsey – FBR Capital Markets: Obviously your loan yields on the originations are better this quarter than the prior quarter, how much of that was back end loaded sort of in the month of June I guess when really rates started to move and how much was sort of through the quarter?

James C. Smith – Chairman and CEO: A fair bit of it Bob, given that’s when a lot of the funding actually took place.

Glenn MacInnes – CFO, Webster Bank and Webster Financial Corporation: If you look at our average loan growth it’s less than 0.5% and yet we are up 2% to $144 million, so most of it did come in, in June.

 

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