Webster Financial reported net income to common shareholders of $39.2 million or $0.44 per diluted share, compared with $38.3 million or $0.42 per diluted share a year ago. While total loans declined slightly on a sequential quarter basis, total loans grew 6.1% compared with a year ago especially in commercial and commercial real estate loans. Net interest margin slipped again to 3.23% for first quarter from 3.27% last quarter as asset yield pressures continued. WBS’s efficiency ratio equaled 62.2% at the end of first-quarter 2012, which is above their goal of a 60% efficiency ratio. At this time, we are leaving our moat rating and fair value estimate unchanged.
Webster has had good loan growth over the past year in commercial loans, which grew 16.1% compared with a year ago. The loan pipeline, which was depleted during fourthquarter 2012 as borrowers were motivated to close before year-end, has been rebuilt during first-quarter 2013 to $320 million. This pipeline level is expected to continue to grow. We expect with an increased pipeline that loan originations and overall growth will increase for second-quarter 2013. With the establishment of a regional hub in metropolitan New York, Webster expects to have similar success in developing its commercial and middle-market business as it did when it established a similar hub in Boston.
Webster’s net interest margin succumbed to yield curve pressures and fell to 3.23% for the quarter compared with 3.27% last quarter. Despite Webster’s best efforts, margins will remain pressured by about 5 basis points for next quarter. Webster will continue to rely on strong asset growth, specifically loan growth, as part of its efforts to counteract net interest margin compression.
Nonperforming loans increased in the quarter largely owing to additional loans added to reflect the OCC requirement of including residential loans in bankruptcy as nonaccruing during fourth-quarter 2012. In addition, there is also a $9 million commercial real estate loan included in the total. However, there is currently a contract for resolution of that loan this quarter. As a result, nonperforming loans increased to $198.8 million or 1.66% of total loans. Despite the increased nonperforming loans, Webster maintained the loan loss provision at $7.5 million or 0.25% of total loans. With net charge-offs of $16.7 million, the allowance for loan losses decreased to 1.40% of total loans for first-quarter 2013 from 1.86% of loans for first-quarter 2012.
In the shorter term, we expect the low loss provisions to be flat for next quarter. Longer term, WBS is looking to maintain the allowance at a minimum of 1.25% of total loans. Last, Webster issued 4.565 million common shares to Warburg Pincus in connection with the exercise of 8.625 million warrants. As a result, Warburg Pincus now owns 9.7% of Webster common stock. Capital ratios are to remain solid with a tangible common equity ratio at 8.1% and total risk-based capital at 14.0%.
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