Webster Financial Earnings Call Nuggets: Neutral Check Ordering and Impact on Mortgages
Webster Financial Corp (NYSE:WBS) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.
Neutral Check Ordering
David Rochester – Deutsche Bank: Just quickly on the fee income side, I was wondering if you are expecting to make that switch to neutral check ordering this year and can you update us on what that impact could potentially be?
James C. Smith – Chairman and CEO: We are likely to make that switch sometime in 2013 and I think the impact probably is somewhere in the $2.5 million to $3 million range annually.
David Rochester – Deutsche Bank: So probably impacting the latter part of the year, I would guess.
James C. Smith – Chairman and CEO: Yes, yes.
David Rochester – Deutsche Bank: Okay. And on the capital side, with half of the repurchase plan done at this point, are you thinking you may reload that at some point later this year?
James C. Smith – Chairman and CEO: We may do that later this year. For now we are satisfied to have the 50 and to really look at it opportunistically.
David Rochester – Deutsche Bank: And just lastly given the new QM rule, do you expect any changes to your strategy at all?
James C. Smith – Chairman and CEO: No, we don’t think it’s going to affect the strategy. Actually, we were pleased that it was as broad as is that it has a safe harbor. If we actually looked at our production for 2012, I think, that it wouldn’t have affected more than 3% to 5% of our total originations. So at least at this point and there’s a lot of refinement to be done here. We do not believe it will affect our strategy, including in the pursuit of purchase mortgages and jumbo loans.
Impact on Mortgages
Bob Ramsey – FBR Capital Markets: To follow up on Dave’s question about QM, it is helpful to know it’s 3% to 5% of your 2012 originations. When you say you don’t expect too much of an impact, does that mean that you would be willing to portfolio a non-QM mortgage that otherwise met your criteria that was maybe part of that 3% to 5%, or are you suggesting that it’s just not a material amount and you would discontinue at the margin?
Glenn I. Maclnnes – CFO, Webster Bank and Webster Financial Corporation: Well the first is that it is not a material amount, that’s true and we made a comment that there’s a lot of refinement to be done here also including our understanding of what the impacts are, what the exposures would be to the extent we went outside the QM, but I’d say at this point there is a good possibility that we will not be confined only by QM that will look a little more broadly than that, but it’s premature to conclude at this point.
Bob Ramsey – FBR Capital Markets: And then I want to talk a little bit about loan growth, you guys obviously had a very strong quarter for commercial loan growth, it seems that for a long time any loan growth in the industry has been predominantly about taking market share and we are starting to see more growth from more of our companies this quarter. I’m curious if you are sensing an increased willingness on the part of your customers to borrow or how much of this maybe related to sort of year-end issues, just kind of any bigger thoughts on growth.
James C. Smith – Chairman and CEO: Some of it we think was related to year-end issues, it’s hard to pin it down exactly but we would say – you could say somewhere 10% to 15% or so of volume may have been as a result of borrowers anticipating the tax changes. And I think that may have drawn down the pipeline of more than we normally would see it contributed to the record originations volume. We think that usage is about the same quarter-over-quarter and maybe a little tiny increase there. We do think that borrowers keep talking about how uncertain the environment is but they are investing in their businesses. There is very modest economic growth, but a lot of our gain has come from the increase in the size of our production force from the quality of our brand in the market. I think some of the larger institutions are having some difficulties with the negative physiology toward them which enhances the likelihood that we are going to win and we have one larger share of middle market loans and otherwise it will be the case. So, it’s really is this confluence of factors coming together that favor a regional bank in this kind of an environment and particularly we think favor us.
Bob Ramsey – FBR Capital Markets: Then I know you all sort of said you expect an increase in loans in the first quarter of about 2% or 3% on average given some of the strong growth late in the fourth quarter. I’m curious as you think more and said about end of period, how you’re thinking about the first quarter and it’s only been two weeks, but are you seeing continued strong demand so far in the first quarter?
James C. Smith – Chairman and CEO: I think we say demand is not quite as strong as it was in the fourth quarter for some of the seasonal reasons that we’ve already discussed, but it’s there and then we are building on what we’ve created to this point. Our pipelines are down, but we’ll to refill them and we noted that even though the pipeline is down in the mortgage side, it’s still over $500 million going into the quarter. So, it isn’t just going to be the average that pulls up the earning asset there in the quarter. I think there will be some true growth.