Webster Financial Corp (WBS) 2004 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Webster Financial Corporation's first quarter earnings conference call.

My name is David and I will be your coordinator for today. [Operator Instructions] As a reminder this conference is being recorded.

Also this presentation includes forward-looking statements within the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

With respect to Webster's financial condition, results of operations and business and financial performance.

Webster has based these forward-looking statements on current expectations and projections about future events.

These forward-looking statements are subject to risks, uncertainties, and assumptions as described in Webster's financials public filings with the Securities and Exchange Commission.

Which could cause future results to differ materially from historical performance or future expectations.

I would lie to now introduce your host for today's conference, Mr. James C. Smith, Chairman and Chief Executive Officer.

Please go ahead, sir.

Good afternoon, everyone, and welcome to Webster's first quarter investor call and webcast.

Joining me today are Bill Bromage, our President; our Chief Financial Officer, Bill Healy and Terry Mangan, Investor Relations.

Other member of the Webster management team are also here to respond to your questions after our formal remarks, which should take about 20 minutes.

I will focus my comments on year over year performance and Bill Healy will provide more detail.

As you've seen in our earnings release first quarter net income improved 6% year-over-year while EPS per diluted share increased 5%.

Especially notable in the quarter was continuing double-digit organic growth in loans and deposits, strong asset quality and significant progress in our efforts to tightly manage expenses.

Simply put we continue to make progress in pursuit of our strategic plan.

In looking at the quarter our loan portfolio has grown by more than $1 billion, or 12% over the past year, and now totals $9.5 billion.

We've seen growth in every loan category with particular strength in commercial and consumer loans.

As a result commercial and consumer loans represent 58% of the total loan portfolio compared to 57% a year ago.

In our commercial effort we are delivering the full compliment of Webster products and services to our clients.

In our middle market business, which has seen growth of 38% in its loan portfolio over the past year the cross sales rate is up 8% annualized from year end to a current level of 2.4 services per relationships.

Over 12% of our middle market clients have commercial insurance through Webster Insurance, a clear indicator of the revenue synergies between commercial banking and insurance.

Evidence of our middle market success is seen in the 50% plus market share gains we've made over the last couple of years.

In terms of overall loan growth for the year we think that we are on track for another year of double-digit growth.

Total deposits grew by more than 850 million, or 10% over the past year, with core deposit growth particularly strong at 13%.

Demand deposits in Now Accounts each have grown by 11% during this period and total about $2.2 billion combined.

These gains reflect the success of our high performance checking products and our de novo branches in Fairfield County.

Total revenues excluding securities gains and the effect of FIN 46 R, grew by 2% over the first quarter a year ago.

Spread revenue, primarily on the basis of our double-digit loan growth drove this growth as volume increases offset a 12 basis points decline in net interest margin.

Non-interest income excluding securities gains, declined by 3 percent; lower financial advisory revenues from Duff and Phelps [ph] and lower net gains on sales of loans due to reduced mortgage origination volume accounted for the decline, and as previously reported we sold our majority interest in Duff and Phelps [ph] during the quarter.

Overall mortgage related income volatility was exacerbated by the whipsaw in interest rates during the quarter.

We look at overall mortgage related income volatility as a combination of several items.

First is the reduction to net interest income caused by net investment premium amortization on mortgage back securities.

Our gross exposure is down to $15 million from $40 million a year ago, which is quite positive.

The Q1 impact was $1.6 million.

Second is the impact of FAS 91 loan fee reversals on mortgages and home equity loans and lines.

Third is the OMSR evaluation changes, which was also a net expense in Q1.

These three factors are offset by prepayment fees collected on consumer loans and gains on sale of loans and loan servicing in our national wholesale mortgage business.

On a combined basis mortgage related items negatively impacted pretax income by $3.2 million in the quarter, or about five cents per share after tax, which was a bit more negative than in Q4 '03.

Our often stated goal is that over time our national wholesale business will provide a balanced hedge against mortgage related volatility.

To offset the Q1 shortfall we took gains on sale of mortgage back securities which rose in price as rates fell.

We expect based on the recent convincing upward movement in interest rates that the negative collective EPS impact from these mortgage related items will recede in future quarters.

We told you how we are committed to expense control as an essential ingredient to shareholder value creation and we held expense growth to 3% over the past year, even while continuing to invest in personnel, technology, and infrastructure.

As a result our efficiency ratio has improved slightly year-over-year.

The expense control impact is clearly evident in comparison to Q4 '03.

We continue to be pleased with Webster's strong asset quality.

The key barometer in our success in managing credit risk during the transition of growth and transformation to a commercial bank.

Our nonperforming assess have declined by a third from a year ago and modestly from Q4 and now represent just .27% of assets and our coverage ratios are strong.

Our disciplined commitment to a balanced and diversified portfolio has enabled to us maintain strong overall credit quality during this period of significant growth.

By any measure our credit quality is exceptional.

Before turning things over to Bill Healy I'd like to comment on the current interest rate environment and the outlook.

Recent changes in interest rates suggest that the market is anticipating with virtual certainty rising rates later in the year.

We are in pretty good shape in this regard.

On our own we're virtually neutral as to earnings sensitivity for shocks of up to 200 basis points higher; in part, because we shortened the duration of our mortgage back securities portfolio to well under three years.

On a combined basis with first Fed, we'll be slightly asset sensitive, which is where we want to be in this interest rate environment.

Let me now ask Bill Healy to present the financial report.

Thank you, Jim, and good afternoon to all of you joining us today.

Webster's first quarter performance once again fits within the context of our strategic plan to grow loans, deposits, revenues and earnings, while transforming the balance sheet and maintaining a disciplined approach to credit, enterprise risk and expenses.

Key trends in our performance for the quarter include continued strength in our organic loan and deposit growth led by success of executing on our strategic initiatives.

Our net interest margin was 3.09% compared to 3.08% in the fourth quarter, while modest this one basis point increase represents the second consecutive quarter where the margin has increased after five consecutive quarters of decline.

As Jim noted in his comments, expenses were well under control for the quarter, up on an adjusted basis, 2.5% over last year, and down 1% on a linked quarter.

Continued improvement in asset quality with reductions in nonperforming assets and improvement in our coverage ratios.

The above items contributed to net income of 42.3 million in the first quarter, or diluted EPS of 90 cents, an increase of 5% over a year ago.

The implementation of FIN 46 on December 31, 2003, required the reclassification of $3.5 million of trust preferred securities expense in the first quarter from non-interest expense to interest expense.

Total revenues excluding security gains and the effect of FIN 46 were $155 million in the first quarter compared to $152.3 million a year ago; a 2% increase.

Comparing to the fourth quarter, on this same basis, revenues declined by 2.6 million, or 2%.

Most of the decline occurred in non-interest income which was down $4.6 million.

Revenues from financial advisory services at Duff and Phelps [ph] declined by almost $3.8 million from the fourth quarter; approximately 2.2 million was due to closing of a couple of M&A deals in the fourth quarter; the balance of 1.6 million represents the loss of revenues due to the mid-month closing of this transaction in March.

We also experienced linked quarter declines in deposit service fees, loan fees and gains on sale of loans.

Lower deposit service fees reflect a seasonal decline in NSF volume and fees.

The 1.3 million decline in loan fees, primarily reflects lower lower doc prep fees in the mortgage origination business of about $700,000, and a $400,000 impairment charge for mortgage servicing rights in the first quarter.

Gain on sale of loans, primarily from our national wholesale mortgage business, declined by $1.8 million from the fourth quarter, owing to the reduced level of current mortgage originations compared to the first three quarters of last year.

Among other non-interest income categories we had strong linked quarter increases in insurance revenue and wealth and investment advisory revenue.

Insurance revenues increased by 2.6 million or 28 percent, primarily due to strong contingent income of 1.2 million.

Contingent income represents payments by the underwriter to our agency, based upon a volume of business underwritten during the year and is generally paid in the first quarter of each year.

Commissions and risk management revenues increased by 1.4 million or 15% from the fourth quarter, led by a higher level of client renewals and strong new business activity in our property and casualty and group health segments.

Wealth management and advisory revenue grew by $700,000, or 16% from the fourth quarter.

This strong performance reflects a number of favorable elements including a lift in new business activity at our retail broker dealer sales unit, pay off on several marketing campaigns, and our financial -- our -- our Fairfield County business development effort starting to show benefits from investments in 2002 and 2003.

The pipeline in this business looks good heading into the second quarter.

Net interest income totaled 105.8 million in the quarter and grew by over $2 million, or 2 percent, from the fourth quarter including FIN 46 adjustment.

The majority of this improvement is attributable to the volume growth in the loan portfolio, which on a linked quarter the portfolio grew on average 162 million, or 2%.

As I indicated earlier the net interest margin of 3.09% in the first quarter improved slightly from the 3.08% adjusted for FIN 46 in the fourth quarter.

Expenses on a linked quarter basis, adjusting the fourth quarter for FIN 46 R, and 1.3 million of North American acquisition costs, declined by 1% to 92.1million.

Increased levels of occupancy and marketing expenses were offset by reductions in compensation and loan related expenses in the mortgage business.

Professional services expense declined by 700,000 owing to one time legal and consulting expenses that were incurred in the fourth quarter.

Turning to credit quality.

Our underlying trends remain very favorable with significant declines in nonperforming assets and strong coverage ratios.

Nonperforming assets have declined by 33% over the past year and 4% since December 31, the 41.3 million at March 31 of this year.

The ratio of nonperforming assets to total assets now stands at 27 basis points while the allowance is 338% of nonperforming loans.

Our continued reduction in nonperforming loans and assets has been driven by a lack of new volume inflows into this portfolio and by restructuring repayments and aggressive problem loan management.

Net charge-offs totaled 3.1 million in the first quarter for an annualized net charge off ratio of 13 points.

The provision was 5 million and the ratio of the allowance to total loans was a strong 1.3% compared to 1.32% at December 31.

The 2 basis point decline reflects growth of $318 million or 3% in loans from year end to March 31.

Turning to a review of Webster's balance sheet, total assets at March 31 were 15.1 billion, for a growth of 5% compared to a year ago and 4% from year end.

Webster has posted strong double-digit loan growth over the past year, virtually all of which is organic.

Year over year loan growth of 12% comes from all categories.

Looking at the linked quarter commercial loans were up by 60 million or 3.5% from year end.

Underlying core growth is masked by a planned $17 million decline in the specialized lending portfolio.

Excluding this segment the portfolio increased by 77 million, or 4 percent, from year end.

And as Jim noted, strong growth was recorded in middle markets, small business, and asset based lending.

Commercial real estate loans grew by 7 million, or 1 percent.

Our credit quality in this $1.3 billion portfolio which has grown by 21% in the past year remains very solid.

Consumer loans increased by 23 million, or 1%.

We clearly saw a pick-up in originations late in the quarter as the recent increase in mortgage rates has made home equity loans again more attractive relative to fixed rate conventional mortgages.

Our consumer loans continue to be primarily home equity based.

Roughly 70% are lines that float and 30% are fixed.

Residential loans increased by 228 million, or 6% from year end, as we purchased loan packages and took delivery of customer loans from our regional retail origination unit.

We would intend to hold this portfolio flat or manage it down over the year as the personal and consumer loan portfolio demand materializes.

On the liability side of our balance sheet, deposits grew 11% from a year ago and 3% from the year end.

Core deposits consisting of checking and money market and savings accounts total 5.9 billion at March 31 and grew 13% from a year ago, and 5% from the year end.

Core deposit growth of 685 million over the past year represents 80% of total deposit growth during that period.

Core deposit growth of 258 million since year end represents virtually all of the growth since that time.

Jim spoke to our rate sensitivity and how well we are positioned to benefit from rising rates.

Let me cover our investment portfolio for you.

The securities portfolio totaled 4.4 billion at March 31, up 132 million, or 3 percent, from year end.

The portfolio continues to represent slightly under 30% of total assets.

For comparison, securities represent 27% of total assets at December 31 for our mid-cap commercial bank peer group, that we measure our progress and performance against.

We continue to position the portfolio to benefit from rising rates and concentrate our efforts on purchasing shorter duration securities like hybrid ARMS, generally three years, and CMOs that will have minimal extension rate as interest rates rise.

The average duration of the portfolio was 2.7 years, compared to 3.0 years at December 31.

We have actively worked to reduce premium risk.

At March 31 we had approximately 15.1 million, compared to over 40 million a year ago.

The portfolio yielded 4.22% during the quarter, up from 4.2% in the fourth quarter.

An unrealized gains at March 31 were 45.2 million.

Now let me turn the program back to Jim for his closing remarks.

Thank you, Bill.

Our first quarter results fit well within the context of Webster's strategic plan for growth.

The strategic plan is structured to encourage and support our ability to grow loans and deposits faster than the market, increase income from fee base services, maintain a disciplined approach to credit and expense management and broaden and deepen our product lines and our geography through strategic initiatives, including mergers and acquisitions.

These elements of our strategic plan are driving Webster's transformation to a full service provider of banking, insurance, and investments to individuals and businesses in our primary markets.

As this transformation continues including the completion of our charter conversion any time now, and our merger with First Fed which we expect will close next month, Webster's competitive position will strengthen further.

We will compete as the largest independent bank headquartered in southern New England.

Progress under our strategic plan can measured, in part, by the gradually shrinking discount of our price earnings multiple as compared to our mid-cap commercial bank peer group.

That discount has improved from nearly 30% at the end of 2000 to about 10% at the end of March.

However, that discount has receded since then to about 16% based on yesterday days closing price.

We remain as confident today as we were a month ago in our ability to achieve our strategic goals and increase shareholder value.

Before concluding you should have received initial word of our investor day event on June 10, once again in South Bury, Connecticut.

We'll be sending out the formal details very soon,s but please let us know if you have any questions in the interim.

We look forward to this opportunity to help you get to know our management team better and to engage in direct dialogue with you.

We continue to believe that the better you know us the more confidence you'll have in our ability to achieve our goals.

Thank you for your interest in Webster.

We would now be pleased to respond to your questions.

Thank you, sir. [Caller Instructions].

Our first question comes from Sal DeMartino from Bear Stearns, please go ahead sir.

Hi, good afternoon, guys.

Hi Sal.

Sal

Just a couple of questions.

First, on the charter conversion.

Does that have to happen before the FAB deal closes?

Also a question on, I think, Bill, you mentioned it, but I couldn't right, I didn't get a chance to right it down.

Could you tell me again what the contribution from Duff and Phelps [ph] was last quarter and this quarter?

Also, a brief, can you add some color on the uptick this quarter in classified loans?

Thanks.

I'll comment on the charter conversion is intended to occur before prior to the merger with First Fed.

We expect that it's imminent and that we are on track as previously planned to close First Fed by mid quarter.

Okay.

Sal, your question on Duff and Phelps [ph], in the fourth quarter they contributed a little bit over $1.5 million to our pretax net income and that was mainly because of the $2.2 million of M&A fees that they got in in the first quarter of this year, they were breakeven.

Okay.

Can you add some color on the $15 million increase in classified loans?

Yeah, Sal, it's Bill Bromage.

We went up about 15 or $17 million, principally a couple of Connecticut based middle market customers.

One for about $9 million which we -- company we've done business with for awhile.

We think highly of, going through a little bit of a cash-flow cycle, something that we think will work out fine.

We've got a $2 million small local manufacturer, we're well secured, the company is looking for alternative financing and we think that will work out as well.

We had about a $2 million credit in our asset based lending that subsequent to quarter end has paid.

So we think at the current level of about 1.3% of our portfolio in classified that we're in a very strong in position -- level of inflow in some respects may be somewhat -- will show up somewhat just simply because we don't have enough coming out [inaudible] where we are at.

We still feel very comfortable with the profile of our portfolio.

Okay.

Thank you.

Our next question comes from Laura Hunsicker from FBR.

Please go ahead.

Yeah, hi, good afternoon.

Just wondered, going back to Sal's question, if you could just clarify a little bit on the Duff and Phelps [ph], i guess just doing some rough back-in, if we're look in the advisor fee line of 38, obviously will go to zero and the expenses that come off that run this quarter were about 2.3?

Yeah, for the year their expenses probably would have been a little over $20 million.

$20 million, okay

And their revenues would have been a little under $22 million.

Okay.

And then from the standpoint of where that's showing up, that's showing up down in your non-interest expense, or is that somehow netted in non-interest income?

No, the expenses, you know, are distributed throughout all of the categories of non-interest expenses.

Okay.

Perfect.

So it is safe to assume though if we look at the expenses of 92 million that theoretically would have been closer to 90 if we strip that out?

Last quarter?

Yeah, for the March quarter.

Well, the March quarter they probably would have had in there about $2 million.

Okay.

Two to three million.

The actual sale closed March 15.

Is that correct?

That is correct.

Okay.

I think that's it for my specific questions.

I just wondered if you could comment on two things generally.

Obviously with stock prices all over the place, I mean I guess if you could comment a little bit on your M&A strategy, has that changed, and given that your stock is so cheap here I know you are a little bit thinner on capital but just what your stance is in terms of share buy-back.

Thanks.

I will try to comment on both, one is, as you know, we have First Fed that scheduled to close next month, we remain interested in growing, primarily internally, but also through opportunities that may present themselves, albeit we have some pretty tight acquisition discipline that you're aware of that makes it easier to make those combinations when the stock price is higher.

As far as the buy back is concerned, we have been an aggressive buyer over the years when we deem our shares to be selling at less than intrinsic value.

We have a heightened interest in buying them back so we completed about 15 buybacks over the last 12, 13 years or so.

We are, because the First Fed transaction, not in the market to buy back our shares, but I would tell you that we would deem our stock to be very attractive at this prices -- at current prices and that you should expect us to be more active following the close of that merger.

Okay.

Great.

Thank you very much.

Thank you.

Our next question comes from Jim Ackor from RBC Capital Markets.

Go ahead.

Good afternoon, guys.

Hi Jim.

Jim

A couple questions on the bond portfolio.

Obviously the statistics, Bill, that you throughout were as of quarter end.

I was wondering if you might be able to give us a little bit of flavor with regard to what has happened to the duration on the portfolio and what has happened to the unrealized gain or what would now, I guess, possibly be an unrealized loss, in light of what's been going on with the bond market here over the last couple weeks.

I guess that as far as the duration, Jim, it probably has moved up from, I think it was 2.7 to 2.8 as of last Friday, and the gain in it, I think, had moved down to maybe half of what it was at the end of the quarter.

Okay.

Also if I could have a follow up, Jim, in terms of the acquisition strategy, obviously you guys continue to maintain your discipline from a pricing perspective.

If you had to make a comment based on where the landscape is right now would you find yourself more likely over the next 12 months to do no-bank acquisitions or bank acquisitions?

Well we look at acquisitions as really the fourth prong of our overall strategy and so at anytime we're looking for opportunities to broaden and deepen the services and increase the geography so that would go for banking and investments and insurance, so I wouldn't want to rate one higher than another.

But, at any given time we are interested in all of them.

We are always mindful of the fact that our core operation is that of a bank so we concentrate more of our time on the strategic combination side, on the banking side and we expected to do so.

Okay.

Great.

One more quick question if I could.

On the loan and loan servicing fee line item, I think I missed some commentary, that you guys might have made, I think it was you, Jim, actually.

Can you comment on to what degree the servicing influenced that line item in the first quarter and what you might expect going forward?

I think that the decline was about a 1.3 million from the fourth quarter, Jim, and 400 of that was a write down that we took of our mortgage servicing rights.

And the other $700,000 of the decline was really due to lower mortgage origination, you know, fees that we get as a result of lower volumes.

Okay.

Good.

Thanks very much, guys, appreciate it.

Okay.

Thank you.

Our next question comes from Bill McCrystal from McConnell, Budd and Romano.

Please go ahead.

Good afternoon.

Hi Bill

On your -- the 4% number in growth and commercial, when you take into account the 17 million decline in specialized lending, can you give us an idea of how much of that is coming from your existing customer base, how much is coming from either you taking business or just new business in general, and also related to that, what your view of the -- of your customers are, I mean are they seen in a pick-up in your business generally, are the businesses doing better, are they more optimistic about the prospects for this year?

I am going to ask Bill Bromage to comment.

We really couldn't hear your question that well but we think you were asking about where the growth was coming from, is it from existing customers or in other areas.

Exactly, yes.

On the commercial book, first of all, our growth is coming principally in the local marketplace and our middle market group has done extraordinarily well over the past 12 to 18 months, including last quarter, as have our commercial real estate lending group within that market.

Asset based lending has been a little softer in terms of net growth.

In each case it's coming from a growth perspective from adding new direct relationships.

We have, particularly been successful in our asset based lending operation where previously you may recall when we acquired White Hall Business Credit Corporation it was probably 60 to 65% indirect lending.

We had moved that down to under 50% so our direct portfolio is now over 50% and growing very well, masked somewhat by the shrinkage in our indirect activities business.

The middle market as I said has grown well.

To some extent we've had some increased borrowing from our existing customers, but a good deal of it has been new accounts and taking relationships from others and we have been successful in our marketing activities and business development activities in the Connecticut footprint, particularly.

In that -- and we've also been very successful in our sales activities, in developing the totality of Webster's product offerings.

We have done the first quarter, for example, three times the cross sale activities that we did in the first quarter of last year.

So that's a successful relationship building business and one that we are quite proud of the results that we've had so far.

When we look at the actual mind set of our customers, we see some caution on some of their parts.

We have not yet seen the expansive growth in any of them.

I won't say any, but that's too broad a term, but for the most part we don't see that, we see some cautious growth on some of them, some of them are very guarded, but by the same token we have been successful in going after the marketplace, particularly building strong relationships with what we refer to as the centers of influence, the attorneys, the accountants, people who refer us business.

So we've had a successful track record in that regard.

We are guardedly optimistic about the future and our ability to continue to deliver on the results as Jim outlined in his opening remarks.

We've got great traction on the Commercial Banking side and we expect that we may drive significant benefit as well as from the turmoil in the market as a result of a lot of the M&A activity that's taking place.

If I could just one more unrelated, on the de-leveraging strategy, I wonder if you could update us on how that stands and if you can give a sense of the magnitude relative to what obviously changed somewhat, but from the original numbers you were looking at at the time of the deal?

Sure.

We probably looking at this point, Bill, at doing less than the original 1.5 billion that we were talking about and we were looking then at doing 750 million in the investment portfolio and probably selling about 750 of home equity credit lines.

We will probably still sell all of the investment portfolio, 750 million.

But as we've gone through the quarter, we have seen that as a result of changes in the balance sheet that our equity, tangible equity is a lot higher than it was estimated to be and that the capital ratios at the closing will probably be up maybe 40 or 50 basis points.

We had assumed that it would be 4.56%.

We now think that it would probably be over 5% so we don't have to de-leverage much.

So we are probably looking at de-levering somewhere between, maybe on the low side $1 billion up to the $1.25 billion.

Okay.

Thanks very much.

Thank you.

Our next question comes from Kevin Timmons from C. L. King.

Please go ahead.

Hi, guys, I've got a couple of things here, I'll do one at a time.

You just referenced a change in the capital ratios, [inaudible] higher.

Part of that I assume is reduction of goodwill related to Duff and Phelps [ph].

But just the change in equity from Q4 to Q1 was higher than I expected.

Could you tell me a little bit about what's going on there?

Well, overall, we are looking at in our projections here for the First Fed closing, probably about $100 million higher in equity and basically, the biggest part of that is that doing the merger in the second quarter rather than the first quarter, adds about 37 to $40 million of equity to our, you know, to the -- our base.

We have at First Fed they've exercised all their stock options.

We originally thought we would be buying them out.

That's added about $12 million.

Part of the increase, Kevin, that maybe you are talking about is when we did the North American Bank and Trust we had a floating exchange ratio in there for stock.

Obviously, what was happening with our stock price back then, everybody chose the stock so we issued the higher equity, that added about 10 million.

Duff and Phelps [ph] freed up about $8 million of tangible equity and just other small items added about another ten to $14 million of tangible equity, also.

Okay.

Quick one here.

The residential charge off number was kind of high this quarter.

I don't remember seeing it like that in a long time.

It's still not a big number, but just curious what went on there.

We had about a 400, $450,000 charge off.

It had to with a broker fraud in our national wholesale, got some bad mortgages and had to take those charge-offs.

So it was, you're right, it was an abnormally high quarter for us, not something we expect to be repeated.

As a result of the fraud your controls, you've beefed up your controls or reviewed them?

We reviewed our controls as you can imagine very, very closely.

We pride ourselves in the quality of our residential portfolio and charge off record.

We reviewed that thoroughly and don't see that as a systemic issue but see it as a one time event.

Okay, within the securities portfolio, traditionally you've often owned a lot of bank stocks.

Is there much in there now?

Our total equity portfolio probably has about $40 million total investment in it.

Most of that is in strategic type investments.

So I would say that the majority of that is -- the clear majority is in bank interest stuff.

Okay, so the recent sell off at 40 million isn't going to hurt you much?

No.

You mentioned during the prepared remarks that the total mortgage cost for the quarter including the impairment charge and everything else you mentioned was about a nickel or so.

You said the fourth quarter was a little bit lower than that.

Do you have an actual number for that?

Yes.

It was a penny or so with the difference between Q4 and Q1.

Okay.

And finally on your demand deposit accounts, I know had you some real good success a year or two ago with building that up, it looks like it was a little bit slow this quarter.

Any thoughts of what you are doing there or any plans to change things?

I think that you'll find, Kevin, that seasonally in the first quarter of every year we have an outflow of deposits in the month of January and February and they come back in March.

So you'll see that generally on average we may be down in the first quarter to the fourth quarter, but then it comes back over the rest of the year.

So what you are probably seeing is seasonal.

Thank you very much.

We are very pleased with our high performance checking program.

It continues to excel.

Thank you.

Our next question comes from Tom Doheny from Sandler O'Neill.

Good afternoon.

Just a quick question on the full year provision.

I know, you guys, had put out there last quarter maybe a five to 6 million run rate per quarter.

Given the charge off levels, low charge off levels over the last few quarters, any updates to that sort of excluding First Fed?

We probably continue at about that rate because one the one hand we're blessed with outstanding asset quality and on the other our portfolio is growing rapidly and we are looking at an overall coverage ratio somewhere in the 125 to 135 area.

So we would expect we probably would continue to put up provisions of about 5 million or so.

Great.

Thanks.

Thank you.

Our next question comes from Zack Maxfield from Second Curve Capital.

Good afternoon.

Could you just provide an update on your de novo growth plans and how the results are tracking your expectations thus far?

Sure.

With respect to results tracking in relation to expectations we are very pleased with that, we've got over a couple hundred million dollars in the six branches we've opened and we've been pleased with those branches and the performance.

They've met expectations ahead of plan so -- from that perspective we think we've got an approach that works well.

From a opening perspective we have missed our targets over the past couple of quarters.

We are now dealing with a queue, if you will, of branches to be opened and expect that we will be opening two to three a quarter starting in the second quarter of this year and be able to maintain that on a sustained basis.

Current focus for that activity remains the Fairfield County, Westchester County area, where we have opened a half-a-dozen, including one in New York and we expect to open more in the Westchester County market over the course of this year.

Do you have real estate identified?

Yes, we do.

We have the sites identified for what we would expect would be seven or eight over the remainder of this year and we've already got a couple of sites lined up for the first quarter of next year.

And we have more sites on the drawing boards with a letter of intent stage, if you will, so until we've locked them up, they are not locked up.

But we have clearly cites identified and are very much working towards building that queue in inventory so we can sustain the rate of openings that we desire.

Great.

Thanks a lot.

Once again, [Caller Instructions].

We have a follow-up question from Sal Dimartino from Bear Stearns.

Please go ahead.

Jim, you made a comment in response to a question earlier about the turmoil in the market due to the M&A activity.

Yes.

Now with the fleet deal having closed, are you beginning to see any renewed interest on the part of personnel joining Webster?

And if so where would you focus the hiring?

I'll have Bill answer that.

We have active programs across all front in terms of dealing with the turmoil in our marketplace, Bank of America Fleet being the most obvious, but obviously there's been the new Reliance emergence and some change in some of those organizations, as well as we compete with Chase in the lower part of our franchise and the Bank One Chase presents yet another opportunity for us.

So we are cognizant of all and focused and all and look at them both in terms of customer acquisition, strategic branch against branch marketing, and in a very micro-market, if you will, as well as looking at personnel who may want to join us and that's something that we have had discussions with people, but we do that as a matter of course, over time.

So we continue to pursue see all fronts in terms of taking advantage of change that's taking place in our marketplace.

We can say our HR group has been very busy.

Thank you.

Thank you. [Caller Instructions].

There are no further questions at this time, sir.

Great.

Thank you very much.

Thank you all for being with us today.

With look forward to seeing you in person at Investor Day in June.

Thank you for your participation.

This concludes your conference call.

You may disconnect, good day.