Actions Include a Special Provision to Increase Reserves for Discontinued
Indirect Lending Channels
WATERBURY, Conn., Jan. 8 /PRNewswire-FirstCall/ -- Webster Financial
Corporation (NYSE: WBS) announced today preliminary information regarding
fourth quarter 2007 earnings results and also announced plans for its fourth
quarter earnings release and conference call. The preliminary information
includes a special provision totaling $40.0 million (pre-tax) to increase the
allowance for credit losses for the discontinued indirect residential
construction and home equity loan portfolios. The company also announced
other charges related to the discontinuation of its national wholesale
mortgage business, the carrying value of Webster Insurance and other items
totaling up to $22.4 million (pre tax), which are outlined below.
Webster previously announced that it had discontinued indirect residential
construction lending and indirect home equity lending outside of its primary
New England market area. In the aggregate, these two indirect loan portfolios
totaled $424.0 million at December 31, 2007. With the addition of the $40.0
million special provision as of December 31, 2007, the allowance for loan
losses for these portfolios totals $49.9 million at year end 2007. The $424.0
million in loans have been placed into a liquidating portfolio and will be
managed by a designated credit team.
James C. Smith, chairman and chief executive officer, stated: "With
today's announcement we have identified, segregated and reserved against
estimated losses inherent in these portfolios using default rates and loss
rates that reflect our view that such rates will significantly worsen from
current levels. Given our strategic decision to discontinue out of market,
indirect mortgage and consumer lending activities, we decided to manage these
portfolios as a liquidating, non-strategic asset. Also, by separating the
liquidating portfolios from the ongoing loan portfolio we are able to
underscore the soundness of the ongoing loan portfolio and the adequacy of the
reserves.
"We look to the future with confidence in our strategy and our earnings
potential as we vigorously pursue our vision to be New England's bank. Our
sharpened focus on core franchise activities, including direct to customer
channels for mortgage and consumer lending products, will contribute to future
growth and profitability," Smith said.
Of the combined $424.0 million aforementioned portfolio, the discontinued
indirect residential construction loan portfolio, which totaled $187.0 million
at year end 2006, has declined to $83.3 million as of December 31, 2007. Out
of the total special provision taken in the fourth quarter of 2007, $16.5
million is for this portfolio. This is in addition to the $10.0 million the
company had allocated to this portfolio in the first quarter of 2007, of which
$7.8 million remained at September 30, 2007. In the fourth quarter of 2007,
Webster recorded additional net charge offs of $7.1 million. As a result,
reserves of approximately $17.2 million remain against the current $83.3
million in portfolio. The increased reserves reflect higher losses that
Webster now believes are inherent in the portfolio based on recent appraisals,
housing price trends and localized market conditions, primarily for $20
million of loans in Florida. The company expects to apply the actual
quarterly charge offs related to loans in the liquidating portfolio against
the special reserve.
The discontinued indirect home equity portfolio totaled $340.7 million at
December 31, 2007. All of these loans were originated by the national
wholesale lending operation outside of Webster's retail banking footprint of
Connecticut, New York, Massachusetts and Rhode Island. Included in this
liquidating portfolio at year end 2007 are $89.5 million of "higher risk
loans" previously identified by the company that were stated income loans with
combined loan to value of greater than 90%.
Of the total special provision taken in the fourth quarter of 2007, $23.5
million is for the discontinued indirect home equity portfolio. This is in
addition to the special provision of $11.0 million taken in the third quarter
of 2007 for the higher risk loans in this portfolio. These provisions take
into account a higher level of estimated losses inherent in the portfolio and
reflect adverse trends in property values and delinquencies. After recording
net charge offs in this portfolio in the fourth quarter of 2007 of $1.8
million, Webster will have total special reserves of $32.7 million against the
total of $340.7 million of loans in this liquidating portfolio as of year end
2007. Losses in this liquidating portfolio are projected to occur over the
course of 2008 and 2009 and are expected to diminish thereafter as the loans
are resolved or repaid. Webster expects to apply the actual quarterly charge
offs in the liquidating portfolio against the special reserve, and in keeping
with the company's practice, will continue to provide separately for charge
offs in its continuing home equity lending business.
Webster recorded fourth quarter 2007 net charge offs (exclusive of the
charges taken in the aforementioned two liquidating portfolios) of $2.6
million and recorded additional provision expense in the fourth quarter of
$5.25 million for its ongoing portfolios so that the company maintains
adequate reserves to total loans given current loan mix and risk levels.
As of year end 2007, Webster has discontinued all national wholesale
mortgage banking activities and, as a result, is closing its wholesale lending
offices in Seattle, Washington; Phoenix, Arizona; Cheshire, Connecticut; and
Chicago, Illinois. As a result, the company recorded severance and other
costs of $3.5 million (pre tax) in the fourth quarter of 2007, primarily for
lease terminations and outplacement. Webster's remaining mortgage operations
in Cheshire, CT will now focus solely on direct to consumer retail
originations. Additionally, the company's home equity lending will be solely
direct to consumer originations as Webster strives to build more multi-product
relationships with customers in its core franchise.
As previously announced, Webster has been exploring strategic alternatives
for its insurance operations. The company contemplates that any potential
sale would be structured such that the consideration would comprise an upfront
payment amounting to less than book value and additional potential
consideration over a multi-year earn-out period. Given this potential
structure, Webster has determined that it may be necessary to write down the
carrying value of its investment by up to $14.0 million in the fourth quarter.
Webster will also record an estimated $3.5 million pre-tax write down in
value in the fourth quarter of 2007 in a direct investment based on
management's assessment that the decline in market value of the underlying
securities will not be recovered in the near term and on uncertainty of intent
to continue to hold this investment in the future. Other charges in the
fourth quarter of 2007 include $1.4 million in pre-tax, non-recurring charges
related to a retail office lease termination and a technology service contract
settlement.
Webster also announced it will undertake an earnings optimization program
starting in mid-January 2008. Working with a nationally recognized firm, the
intent of this employee-led revenue enhancement and expense elimination
program is to assist the company in achieving positive operating leverage and
improved operating efficiency, with a target goal of achieving a 60 percent
efficiency ratio by year end 2008. Further details of this program will be
forthcoming in the company's fourth quarter earnings call scheduled for
January 24, 2008.
Over the past 15 months, Webster has completed the repositioning of its
balance sheet to a full commercial bank profile. During this same time
period, the company also completed comprehensive strategic and organizational
reviews resulting in a narrowed focus on core business activities in pursuit
of its vision to be New England's bank. Webster's ongoing business focus is
on direct to consumer and commercial relationship activities with particular
emphasis on in-market and contiguous franchise growth. The company is
committed to pursuing organic revenue growth opportunities while maintaining
expense discipline.
Other preliminary fourth quarter 2007 earnings information:
Webster previously disclosed that stock buyback activity in the fourth
quarter coupled with recent Fed Funds rate reductions and higher levels of
nonaccruals would reduce the net interest margin from the 3.38 percent
reported for the third quarter of 2007. As a result, the company expects the
net interest margin to decline by 12 basis points to 3.26 percent for the
fourth quarter of 2007. While Webster is essentially neutral to interest rate
shifts over a twelve-month period, recent reductions in the Fed Funds rate
have resulted in faster downward re-pricing of loans versus deposits in the
near term. Also, given the impact of the reserving decisions on fourth
quarter earnings, Webster does not anticipate resuming stock buybacks in the
near term. Webster repurchased 1.3 million shares in the fourth quarter of
2007.
Details of Webster's fourth quarter 2007 earnings conference call:
Webster's earnings release for the fourth quarter of 2007 will be on
Thursday, January 24, 2008 before the market opens. A conference call, which
will be in listen-only mode, to discuss the earnings release will take place
at 9:00 a.m. (Eastern Standard Time) on the same day. Details for the
conference call are as follows:
Dial-in Number: 877-407-8289 or 201-689-8341 for international callers.
Webcast: Via Webster's website at www.wbst.com.
Web Replay: Will be available shortly after the call's completion
at www.wbst.com.
Telephone Replay: Will be available for one week, beginning at 11:00
a.m. (EST) on Thursday, January 24, 2008.
Replay Number: 877-660-6853 or 201-612-7415 for international calls.
The replay account number is 295, and the replay
conference number is 268049.
This news release contains forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. These forward-
looking statements include, but are not limited to, statements about Webster
Financial Corporation's ("Webster" or "WBS") future financial condition,
operating results, cost savings and accretion to reported earnings that may be
realized from mergers and acquisitions, management's expectations regarding
future growth opportunities and business strategy and other statements
contained in this presentation that are not historical facts, as well as other
statements identified by words such as "expects," "anticipates," "intends,"
"plans," "believes," "seeks," "estimates" or words of similar meaning. These
forward-looking statements are based upon the current beliefs and expectations
of Webster's management and are inherently subject to significant business,
economic and competitive uncertainties and contingencies, many of which are
beyond our control. In addition, these forward-looking statements are subject
to assumptions with respect to future business strategies and decisions that
are subject to change. Actual results may differ materially from the
anticipated results discussed in these forward-looking statements. The
following factors, among others, could cause actual results to differ
materially from the anticipated results or other expectations expressed in the
forward-looking statements: (1) changes in general economic conditions, either
nationally or locally in the areas in which we conduct or will conduct our
business; (2) the interest rate environment may compress margins and adversely
affect net interest income; (3) increases in competitive pressures among
financial institutions and businesses offering similar products and services;
(4) higher defaults on our loan portfolio than we expect; (5) changes in
management's estimate of the adequacy of the allowance for loan losses; (6)
the risks associated with continued diversification of assets and adverse
changes to credit quality; (7) difficulties associated with achieving expected
future financial results; (8) legislative or regulatory changes or changes in
accounting principles, policies or guidelines; (9) management's estimates and
projections of interest rates and interest rate policy; and (10) cost savings
and accretion to earnings from mergers and acquisitions may not be fully
realized or may take longer to realize than expected. Additional factors that
could cause actual results to differ materially from those expressed in the
forward-looking statements are discussed in Webster' reports (such as Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K) filed with the Securities and Exchange Commission and available at
the SEC's Internet site (http://www.sec.gov). Webster cautions readers not to
place undue reliance on any such forward-looking statements, which speak only
as of the date they were made. Except as required by law, Webster does not
undertake any obligation to update any forward-looking statement to reflect
circumstances or events that occur after the date the forward-looking
statement is made.
***
Webster Financial Corporation is the holding company for Webster Bank,
National Association and Webster Insurance. Webster provides business and
consumer banking, mortgage, insurance, financial planning, trust and
investment services through 179 banking offices, 339 ATMs, telephone banking
and the Internet. Webster Bank owns the asset-based lending firm Webster
Business Credit Corporation, the insurance premium finance company Budget
Installment Corp., Center Capital Corporation, an equipment finance company
headquartered in Farmington, Connecticut and provides health savings account
trustee and administrative services through HSA Bank, a division of Webster
Bank.
For more information about Webster, including past press releases and the
latest Annual Report, visit the Webster website at www.websteronline.com.
CONTACT: Webster Bank
Media:
Arthur House, 203-578-2391
ahouse@websterbank.com
or
Investors:
Terry Mangan, 203-578-2318
tmangan@websterbank.com
SOURCE Webster Financial Corporation