James C. Smith is chairman and CEO of Webster Financial Corp., parent company of Webster Bank. He is a member of the board of directors of the Washington, D.C.- based Financial Services Roundtable and is co-chairman of the American Bankers Council. Smith is a former member of the Federal Advisory Council and a former member of the Federal Reserve Bank of Boston.
Smith spoke with the Providence Business News about Webster Bank’s fourth quarter and year-end 2012 reports.
PBN: How do you explain the jump in commercial and commercial real estate loans in 2012? Did Webster focus on that segment and take that gain from competitors? Or is it because the economy is improving and you’re approving more loans?
SMITH: All of those. We have been focusing on commercial banking as a primary strategy for Webster and we have done a really good job of competing in our market. As early as 2009, we said it’s time to start financing the regional economic recovery. Our sense is that the economy is improving. The improvement is coming and it is happening in our Providence market, which includes southeastern Massachusetts. We think the Providence market is consistent with our region. Our business is up in the middle market, businesses from $10 million to $200 million, as well as with small businesses under $10 million. Business conditions are gradually improving. It’s painstakingly slow, but it’s happening.
PBN: Did you see the increase in commercial loans in the fourth quarter 2012 related in any way to businesses being bought or sold and financed through Webster because of the impending tax changes in 2013?
SMITH: :Some people who were buying or selling businesses were arranging financing. We think tax planning drove about 10 to 15 percent of the volume in commercial loans in the fourth quarter.
PBN: We can see that revenue growth in the fourth quarter was due to increased loan activity. That doesn’t explain the much bigger increase in net income. What do you attribute that to?
SMITH: : It involved a number of factors in addition to loan growth, including continued improvement in credit quality, better fee income from activities like interest-rate protection products for borrowers, a tight rein on expenses, mortgage banking activity, private banking investment advisory revenue and loan growth.
PBN: Your interest and non-interest expenses declined in 2012. What were the main reasons for that?
SMITH: :We have been consciously managing our expenses in order to join the ranks of the top-performing mid-sized banks. Our goal was to hit a 60 percent efficiency ratio in the fourth quarter, something that distinguishes the high-performing banks, and we did.
PBN: Some reports said part of your increase in profits can be attributed to the economic resilience of Webster’s Connecticut base. Since we know the economy in Rhode Island is much weaker, can you offer some perspective on how your Rhode Island business fared for the year in 2012 compared to 2011?
SMITH: : Cash management services, including government banking, have been very successful for us in the Rhode Island and southeastern Massachusetts market, as has mortgage and business lending. We’re a local bank and a regional player and we live in this market. The Rhode Island market is critical to our success and we see opportunities to grow through new consumer and business relationships and to selectively expand the franchises.