Webster Financial Corporation. Transformation for Webster: Update on Strategic Review Update on Organizational Review.

Transcription

1 Webster Financial Corporation Transformation for Webster: Update on Strategic Review Update on Organizational Review July 24, 2007

2 Forward Looking Statements This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 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 ( 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. 2

3 Transformation for Webster: Key Objectives Management Team/Organizational Review Lines of Business/Strategic Review Infrastructure Strategy Capital Management and Balance Sheet Strategy 3

4 Management Team and Organizational Review Webster announced on February 28, 2007 that it had initiated an organizational review. The stated goal of the review was to implement a structure that would result in a more efficient and effective organization. The review resulted in the creation of: Office of the CEO Executive Management Committee Chief Administrative Officer position overseeing shared services A streamlined management structure was identified that results in: Fewer committees and layers of management Empowered team members more closely aligned to corporate goals A restructured approach to risk management addresses three distinct categories of risk: credit, operational and interest rate. 4

5 Management Team New Executive Management Committee: CEO CFO COO Chief Marketing Officer Commercial Head Chief Administrative Officer Retail Head Office of the CEO Operational and governance structures are aligned with our strategies, which enables more effective execution of our business plan. 5

6 Lines of Business/Strategic Review Webster announced on September 13, 2006 that it had begun a comprehensive strategic review of the bank and all lines of business. The review would evaluate the contribution, growth potential and fit/alignment of each unit in order to: Focus on core competencies Identify operational efficiencies Position Webster to realize its vision of becoming New England s Bank It was stated that the strategic review could result in severance and other costs. The strategic review would underpin Webster s continued focus on improving performance against key peer group metrics. 6

7 Our Stated Goals Concentrate Management s focus on its core businesses Heighten intensity as we concentrate on the businesses that we re best at Improve Webster s overall return on capital with special emphasis on: Operating margins in fee-based businesses with high efficiency ratios Overall higher returns from out of market or indirect businesses 7

8 Previously Announced Strategic Actions Closed Peoples Mortgage Company Termination of mezzanine lending operations (Webster Growth Capital) Discontinued construction lending outside of New England (National Construction Lending) Restructured insurance operations Outsourced the back office operations of Webster Investment Services 8

9 Additional Strategic Review Outcomes We will focus on in-market and contiguous franchise growth. Lending relationships outside the Northeast will be direct. Mortgage banking We will focus on the New England and Mid-Atlantic states and reduce national focus. Insurance We are exploring strategic alternatives that will likely result in the sale of Webster Insurance and ideally will include a partnership to continue to sell insurance products. HSA Bank We are evaluating strategic alliances as well as additional investment in HSA Bank to continue capturing a high market share in the fast-growing health savings account deposit segment. 9

10 Going Forward: Our Business Approach Retail and commercial banking activities remain the core of the franchise, and we expect above market growth in loans and deposits. We see significant opportunities for core growth in Consumer lending Small business banking Government finance We plan to expand and invest in these areas. We remain committed to our de novo program as we continue to expand our markets, though we have scaled back the pace of openings: 4 new branch locations in second half of 07 (New Rochelle, NY; Longmeadow and East Longmeadow, MA; Woodbridge, CT) 6 8 new locations in 08, or 4% of existing locations We will optimize the existing franchise by combining certain offices into stronger locations and using efficiency gained to fund investment in de novo. A newly-launched Business Deposit Officer (BDO) initiative and enhanced cash management products will serve as catalysts for building business deposits: Disciplined sales and service process (Customer One) 10

11 Investments in Infrastructure Webster s ongoing growth will be supported by investments in critical elements of our infrastructure. During 2007, we re investing in technology projects to improve efficiency and customer satisfaction, such as: Enhanced cash management systems Consumer automated lending solutions Internet development Document imaging Upgrades to our ATM network 11

12 Facilities Strategy We ve initiated a facilities strategy that is aligned with Webster s cost and customer objectives. The focus considered the following: Determine strategic locations Consolidate operations and administrative centers We ve identified and are addressing various facilities issues: Inadequate capacity in certain locations Maintenance of a strong regional presence in our major markets Need for centralized operations center 12

13 Facilities Strategy We are adopting a regional hub approach with a plan to consolidate facilities into the following cities: Hartford Providence Waterbury Stamford We will expand our existing lending presence in Boston and open a flagship commercial and retail branch there. We will utilize sales\leaseback opportunities where attractive. 13

14 Capital Management/Balance Sheet Actions Since June 30, 2006, we have significantly improved the strength of our balance sheet as well as our capital structure through the following actions: Sold $1.9 billion of AFS mortgage-backed securities (4Q06) Sold $250 million of residential mortgage loans (1Q07) Securitized $1.0 billion of residential loans, moving them from a 50% risk weighting to 20% (4Q06/1Q07) Called $105 million of trust preferred securities yielding 9.57% (2Q07) Issued $200 million of enhanced trust preferred securities with a net yield of 7.50% (2Q07) Repurchased 2 million shares of stock through the end of 2Q07, with authorization to buy another 1.8 million 14

15 Capital Management Results Trust Preferred Securities Transactions: The trust preferred securities transactions resulted in a net increase in regulatory capital of $95 million The overall cost of capital was lowered, however, resulting in a neutral impact on EPS Share Buyback: The share buyback was concentrated at the end of 2Q07 and will improve EPS going forward Each 1.4 million shares repurchased improves EPS by $0.01 per quarter Dividend increased from $0.27 to $0.30 per quarter, or by 11%, in April 2007 (dividend payout now at 40%*) * Represents annualized dividend of $1.20 divided by current analyst consensus estimate for $2.99 of operating earnings for all of

16 Capital Management Results All capital ratios have improved significantly since last year and exceed or are near the peer group median: Peer Median 06/30/06 03/31/07 03/31/07 06/30/07 Tangible Equity % 5.47% 6.72% 6.71% 6.32% Leverage Ratio % 6.88% 8.07% 8.12% 8.31% Tier 1 Risk Based % 8.43% 9.32% 10.02% 9.46% Total Risk Based % 10.97% 11.88% 12.28% 11.99% Our enhanced capital levels give us flexibility to pursue growth opportunities including acquisitions or to selectively buy back shares. 16

17 Capital Management Goals Management will target a tangible common equity ratio of 6.00%. We have a new focus on regulatory ratios versus peers Target of 8% for leverage ratio Target of 12% for total risk-based ratio 17

18 Acquisition Strategy We will pursue strategic acquisitions that allow us to: Expand our existing franchise Broaden and deepen our product offerings We will pursue combinations with like-minded partners that allow each of us to: Achieve more together than either of us could on our own Pursue a shared vision of the future Increase shareholder value 18

19 Looking Forward 19

20 Continued Strong Core Performance Webster s core businesses will continue to demonstrate strong performance enhanced by our investments in people and technology. Strong brand awareness and demand for Webster s community banking model in our contiguous markets will provide opportunities for sustainable growth. Management and operations infrastructure that is well positioned for greater efficiency and effectiveness. Strong balance sheet and capital structure. 20

21 Our Performance Outlook Remainder of 2007 Stable net interest margin Intangible amortization expense declines to about $2 million per quarter from $3.4 million in Q2 Emphasis on expense optimization/operating efficiency 2008 Sustain strong growth in loans and deposits Tangible results from the strategic and organizational reviews will be visible: Positive operating leverage Improved efficiency ratio Full-year intangible amortization expense of about $6.6 million compared to about $11.0 million for full year 07 21

22 Overall Conclusions Completion of the strategic and organizational reviews provides Webster with a narrowed focus on its core business. Return on capital is improved as capital is deployed into highest opportunity activities. Webster is better positioned to achieve its vision to be New England s bank and generate shareholder return by fulfilling its mission: to help individuals, families and businesses achieve their financial goals. 22