Webster Financial Corp (WBS) 2005 Q1 法說會逐字稿

Welcome to the Webster Financial Corp's first quarter earnings conference call.

At this time all participants are in a listen-only mode.

Later we will conduct a question-and-answer session and instructions will follow at that time. [OPERATOR INSTRUCTIONS].

As a reminder, ladies and gentlemen, 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 position, 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 now like to introduce your host for today's conference, Mr. James C. Smith, Chairman and Chief Executive Officer.

Please go ahead, sir.

Thank you.

Good morning, everyone, welcome to Webster's first quarter 2005 investor call and webcast.

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

Others are here as well to respond to your questions after our formal remarks which will take about 25 minutes.

I'll provide highlights of the quarter and Biill Healy will provide details on our financial performance.

As you've seen in our earnings release, we reported $47.5 million in net income for the quarter, a 12% gain from Q1 '04, diluted EPS were $0.88 compared to $0.90 a year ago.

Cash EPS for the quarter were $0.96 versus $0.97 a year ago, after deducting stock based compensation of $1.4 million and intangible amortization of 3.2 million.

Cash return on tangible equity rose to 23.4% from 20.9% a year ago.

Items of special note in the quarter include -- EPS included only $0.01 of securities gains compared to $0.08 a year ago, so net of securities gains Webster earned $0.87 cents versus $0.82 cents last year.

Also note that Q1 '04 net interest income benefited from the larger wholesale borrowing and securities portfolio in place at that time.

Our de novo branching program paid for through the income statement took $0.03 away from Q1 '05 EPS compared to $0.01 a year ago.

The line items in the income statement setting forth system conversion and acquisition costs in Q1 '05 are offset by nonrecurring insurance claim proceeds.

The net interest margin improved by seven basis points from the fourth quarter largely due to our $750 million de-leveraging in Q4.

Overall we've realized nearly 20 basis point of margin improvement from the de-leveraging.

It is clear today that the de-leveraging was absolutely the right thing for us to do and our timing was good.

Credit performance remained very strong with $1.1 million of net loan charge-offs in the quarter for an annualized charge-off ratio of 0.04%.

The provision exceeded net charge-offs by $2.4 million.

Our loan portfolio totals $11.7 billion, and has grown by 23% over the past year, or by 7% apart from the $1.5 billion in loans that came to us with the FIRSTFED acquisitions.

We've held RSIs flat apart from FIRSTFED, while commercial and consumer loans have grown at a combined organic rate of 12% As a result, RSIs now comprise 40% of total loans compared to 42% a year ago.

Our deposits totalled $11 billion at March 31, and have grown by 28% from a year ago.

Deposit growth apart from FIRSTFED is 10%, which includes $169 million of deposits at March 31 from our acquisition of HSA Bank.

Upon announcement of this acquisition, HSA had $95 million dollars of deposits.

Upon acquisition in early March, HSA had $155 million of deposits and we saw $14 million of growth at HSA Bank in deposits in the month of March.

We now have $176 million of deposits at HSA bank so we're seeing deposit growth of about $500,000 per day, since we closed the acquisition on March 1.

We expect HSA Bank deposits to be well over $200 million by the end of the year.

Our total core revenues, consisting of net interest income and non-interest income and excluding securities gains and Duff and Phelps, were $181 million in the quarter, up 19% from a year ago, though this level of growth has been benefited from the Q2 '04 FIRSTFED acquisition.

Our Q1 '05 revenue is running at an annual rate 7% higher than in the first full quarter following that acquisition.

We've been talking a lot lately about our guiding operating principles, so I'll discuss our first quarter performance in the context of those principles.

We remain confident that we'll achieve a tangible equity ratio of 5.5% by year end and 6% in the '06 - '07 time frame.

This ratio is 5.08% in March 31, down as expected in our plan from 5.21% at December 31.

Bill will provide detail on specific items affecting capital in the quarter.

Our securities portfolio now represents 22% of total assets, consistent with year end and our expectations for '05.

There of course was no re-leveraging in the quarter and total assets actually declined on an average basis compared to the fourth quarter, entirely due to an average decline of $300 million in the securities portfolio.

Deposit growth of $460 million from December 31 allowed us to reduce our reliance on borrowed money.

As a result, borrowings as a percent of total assets declined to 26.8% at March 31, from 27.6% at year end.

This is noticeable progress toward our year end '05 goal of 26%.

Our loan to deposit ratio was 111% at year end and improved to 106% at March 31.

Deposits from HSA Bank as well as from our de novo branch expansion program helped us to meet our already -- to meet already our year end '05 goal of 107%.

Our Q1 net interest margin of 3.32% also puts us near our '05 goal.

We've now fully realized our de-leveraging margin benefits.

Additional margin improvement in '05 will be constrained by the flattening yield curve.

Our core expenses, excluding the effects of acquisitions Duff and Phelps and higher expenses of $1.7 million related to our de novo branch expansion program, and one time expenses from our core infrastructure conversion project were $90.8 million in Q1 '05 compared to $86.6 million a year ago, for an increase of slightly less than 5%.

As a reminder, we expect between $4 and $5 million of incremental de novo costs for all of 2005 compared to '04.

We also expect total one time expenses of nearly $6 million in '05, under the infrastructure project. 1.1 million of which occurred in the first quarter.

In the context of our strategic investments, let me update you on our Q1 '05 de novo performance.

As you know, we opened three new New York branches in late 2004 in Yonkers, Rye, and Mamaroneck.

We opened two more Connecticut branches in January, in Bridgeport and our second office in Norwalk.

These five de novo branches and eight others that preceded them represent $352 million in deposits at March 31 compared to 299 million for the offices that were opened on December 31.

We remain on-track to achieve our year end 2005 goal of $600 million in deposits from our de novo branches.

We just opened last week a branch in Groton, Connecticut which is the third of the 8 de novo branches that we expect to open this year.

Finally what really stands out in our Q1 performance is the quality of earnings.

Securities gains represented only 1% of earnings compared to 9% a year ago.

We gave up spread income that would have been earned by re-leveraging in favor of building the tangible capital ratio, and we invested in our future.

These are solid core earnings.

Let me now ask Bill Healy to expand on the financial report.

Thank you, Jim.

And good morning to all of you joining us today.

I will focus my comments today for the most part on our link quarter performance.

One of the highlights of the quarter was the high quality of core earnings marked by a much lower level of security gains, and the absence of leverage in our securities portfolio.

We had two non-recurring items in the quarter of about $1.2 million that offset.

So our reported and operating EPS are the same at $.88.

Some of the other key trends and highlights of the quarter that I will focus on are a improved net interest margin up 7 basis points in the quarter.

Flat core expense growth when you include the impact of acquisitions, strategic investments and non-recurring expenses related to our core systems conversion.

Solid asset quality ratios with strong reserve and coverage ratios and an unusually low net charge-off ratio for the quarter.

Strength in our commercial loan growth which was centered in middle market, but with notable increases in other key segments.

Also included in our numbers in March 31st were about 100 million of loans and 48 million of deposits for two Wisconsin branches that came with the HSA Bank acquisition.

These branches were sold on April 15th, but you will see they had -- they did have a modest impact on our numbers for the quarter.

Total revenues, excluding security gains, were $180.3 million in the first quarter, an increase at a modest 3% annualized rate.

Impacting this growth was the growth in net interest income, which totalled $128.2 million in the first quarter compared to 127.6 million in the fourth quarter.

The increase is due to a higher net interest margin, partially offset by a $200 million decline in average earning assets attributable to the balance sheet de-leveraging program in the fourth quarter.

Also impacting the growth rate was the lack of significant growth during the quarter in our loan portfolio.

The net interest margin improved seven basis points in the linked quarter.

Most of that increase is attributable to the de-leveraging with the balance due to the impact of higher interest rates on asset yields.

For the quarter, core fee categories of deposit service fees, insurance revenues, loan and loan servicing fees and wealth management grew at an annualized rate of 11%.

We saw particular strength in insurance reflecting a seasonally strong quarter for billings.

And loan fees increased due to growth in the commercial sector.

Wealth management grew at an annualized rate of 7% from the fourth quarter.

Deposit fees declined, however, by 1.6 million from the fourth quarter as we experienced a larger than normal seasonal decline in NSF fees.

This appears to be consistent with a broader industry trend.

Other changes were: gain on sale of loans, increased at an annual rate of 7% due to stronger origination buy-ins in this quarter, and other income totalled 2.2 million and included 1.2 million of a non-recurring insurance proceed.

On the expense side, our rate of growth has slowed through our ongoing efforts to streamline processes and control discretionary costs while we continue to invest for the future.

That trend is most obvious in our Q1 when you look at our link quarter comparisons.

Non-interest expenses in the first quarter were $107.8 million, and compared to 104.9 million in the fourth quarter, which does not include 45.8 million of debt prepayment penalties from the de-leveraging and 3.4 million of non-recurring items we highlighted in that quarter.

Further adjusting each quarter for acquisitions, investments and de novo branch expansion and the core infrastructure conversion, core expenses were flat in the first quarter when compared with the fourth quarter.

Individual amounts in the first quarter for the various items as compared with similar amounts in the fourth quarter are as follows: De novo expenses were 2.8 million in Q1, as compared with 1.6 million in Q4.

Core infrastructure project expenses were 1.1 million in Q1, compared with 300 million or 300,000 -- in Q4.

Incremental expenses of 700,000 from the First City and HSA Bank acquisitions are in Q1 only and 400,000 of expenses relate to the two Wisconsin branches that came to us with the HSA Bank acquisition, but which were sold on April 15th.

Turning to asset quality, our combined measures of asset quality remain very strong given the risk profile of our loan portfolio.

NPAs increased by 10 million compared to December 31st due to three commercial credits, two of which are commercial real estate.

We currently consider each of these credits well secured and we do not expect to realize losses from their resolution.

The ratio of NPLs to total loans increased to 39 basis points on March 31 compared with 38 a year ago, but up from the extraordinarily low level of 31 basis points at December 31st.

The allowance represents 1.3% of total loans and also represents 334% coverage of non-performing loans at March 31st.

Net charge offs totalled 1.1 million in the quarter for an annualized net charge-off ratio of four basis points, compared to 9 basis points in the fourth quarter, significantly better than our peer group.

The provision for loan losses was 3.5 million and exceeded net charge-offs by 2.4 million.

Turning to a review of the balance sheet, total assets at December 31st were 17.4 billion, for growth of 15% compared to a year ago and up 2% compared to December 31st.

Most of the growth from year end is from an increase of 200 million in loans held for sale.

Half of that increase reflects loans related to the two Wisconsin branches, with the reminder being an increase in our core mortgage origination activity.

With regard to our investment securities, we continue to position the portfolio to benefit from rising rates, and concentrate our efforts on purchasing short-duration securities like hybrid ARMs which will have minimal extension risk as interest rates rise.

The average duration of the available for sale portfolio was 2.2 years at March 31st, compared to 2.1 years at December 31st.

For the entire portfolio, including 1.2 billion of health and maturities securities the duration was 3.2 years, compared to 3.0 years at December 31st.

The portfolio yielded 4.52% during the quarter, up from 4.37% the prior quarter.

Unrealized losses at March 31st were 32 million, compared to a loss of 3 million at December 31st.

Total loan growth was flat, compared to the fourth quarter, as strong growth in commercial loans was offset by declines in residential mortgages and consumer loans.

Commercial loans grew by almost 90 million, or an annualized rate of 14%, middle market loans grew by 48 million and we saw increases of about 20 million each in our asset based equipment finance and small business loan portfolios.

Commercial real estate loans were flat at 1.7 billion, as strong fourth quarter activity was partially offset by payoffs and selldowns of positions during the first quarter.

Residential mortgages declined by 1% or 52 million, and represent 40% of total loans compared to 41% at year end, as we allowed the portfolio to decline in this period of rising rates.

We would expect to see modest declines for the balance of the year in the portfolio.

Consumer loans totalled 2.6 billion and were down 30 million as the rising rate environment appeared to cause accelerated payments in the home equity line portfolio.

We are encouraged by the volume of new applications in March and early April.

This activity, together with new programs and promotions, would lead us to expect growth over the rest of the year.

Deposits increased by 459 million or 4% during the quarter, and include $48 million of deposits with the two Wisconsin branches, again which we divested on April 15th.

HSA Bank and our de novo branches represented about half of the remaining increase of 411 million.

Most of the other half came from the funding diversification strategy we recently embarked upon.

We raised over 120 million in treasury time deposits through the issuance of institutional CDs and Eurodollar deposits.

Both of these funding sources are uncollaterallized and provide enhanced liability liquidity for the future as a substitute for borrowings.

Jim mentioned that our tangible equity ratio fell by 13 basis points from December 31st to 5.08% at March 31.

This decline reflects 12 basis points from the impact of intangibles under the HSA Bank acquisition, 12 basis points from the decline due to asset growth, and 11 basis points from the effect of the negative mark on the available for sale portfolio at March 31.

These marks were offset by 22 basis points of positive benefit from our net retained earnings.

Factors that can improve the ratio going forward are as follows: The sale of the Wisconsin branches will improve the ratio by 6 basis points, both from the reduction in assets and a reduction in the amount of deposit intangibles on the balance sheet.

In addition, the [FAS 115] mark to the AFS portfolio improved in recent days with the movement in rates, and this would add another four basis point to the ratio.

Our exposure of tangible capital to shock of interest rates is plus or minus 20 basis points -- it is 38 basis points at March 31.

This has been cut in half compared to an exposure of 80 basis points prior to our de-leveraging.

We continue to be relatively neutral to rising rates from an overall interest rate sensitivity perspective.

For any parallel change in interest rates of plus 100, 200 or 300 basis points, the impact on EPS would be at worst a negative $0.02 per share.

In closing, I thought I would provide you with our current views towards our full-year 2005 given our first quarter trends.

Overall, we would expect our earnings asset and growth rates and loans to be 1% to 2% lower than the guidance provided back in January.

Assets should grow 5-6% while loans should grow around 10-11%, off the 10.7 billion full-year 2004 average.

This reflects the recent trends in loan growth.

The net interest margin in 2005 should remain in the 325 to 335 range.

The next three quarters: Total non-interest income, excluding security gains should grow in the low double digits, reflecting the recent trends in deposit service charges and loan sale gains.

I do see some favorable trends and expenses as the core growth rate should be slightly less than the 4% guidance we previously offered, but infrastructure and conversion expenses will remain around $5 million in the next two quarters, with about 65-70% to be incurred in Q2, and the reminder in Q3.

We expect favorable asset quality and net charge-offs to continue.

There is a possibility that the provision could decline slightly again in Q2 if charge-offs remain favorable before trending up in Q3 and Q4.

Overall for the year, the provision could be in the $14 to $15 million range and is expected to exceed our net charge-offs.

At this time we do not see our bottom line for the year changing much from our plan.

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

Thank you, Bill.

Webster's performance shows solid progress under our objectives of a strength in balance sheet, solid organic growth and high quality earnings while we confidently invest for the future.

We firmly believe that our strategic actions over the past year provide us with a rock-solid foundation from which to compete as the largest independent bank based in New England.

Speaking of New England, most regional economic indicators showed positive signs last quarter, according to the Federal Reserve Bank of Boston, in its updated New England report for Q1 of '05.

Employment is trending up, unemployment is edging down between November '04 and February of '05.

Consumer confidence stood well above year earlier levels in February.

And economic growth continued through January in all six New England states.

Per capita income in New England is 122% of the national average, with Connecticut ranked highest in the nation and Massachusetts second.

Webster's known well in its markets and its markets are doing well, possessing, to paraphrase the Federal Reserve Bank of Boston, an ideal business mix.

As a final comment, you should have received preliminary word by now of our upcoming investor day on June 9, and we'll follow up in a few weeks with the full details of the event and please let us know if you have any questions in the interim.

We look forward to seeing many of you once again at this event, consistent with our belief that the more of us that you know and the more you know about us the more confidence that you will have in our ability to meet our ambitious goals.

Thanks for your interest in Webster and for participating in today's call.

We'd now be pleased to respond to your questions.

Thank you.

Ladies and gentlemen, we will now be conducting a question-and-answer session. [OPERATOR INSTRUCTIONS].

One moment please while we poll for questions.

Our first question comes from Jared Shaw with KBW.

Please state your question.

Good morning.

Good morning, Jared.

Actually, I just have two questions.

The first involves on the deposit side, it looks like the deposit costs this quarter, the growth there was double that of the deposit growth and then as you mentioned that the deposit service charges were down.

Is that a trend of people moving out of the transaction accounts and into interest-bearing accounts, or is it just you have deposit pricing pressure from the market and then also people are a little more vigilant on their balances on the transaction accounts?

This quarter, Jared, we saw about $100 million of this intermediation out of the transaction accounts into the higher costing -- certificates and deposits so -- I think that is one of the causes for the increase -- in our deposit cost which went up, I think, about 12 basis points for the quarter.

The other is the -- the impact of our treasury CDs, which are relatively short term and -- would be responding -- quite quickly to any changes that are happening -- in the market.

I think for the most part -- our pricing of our transaction accounts -- we've been able to stay competitive and lag -- what -- what rate increases are going on in the -- in the open markets.

And then could you just give us an update on the -- the number of deposit, of transaction accounts?

Did that go up for the quarter?

Yes.

I don't have the number, Jared, but, -- we did see -- continued growth in the number of accounts and -- what we've been seeing in terms of trends over the last couple of quarters is that -- the number of accounts have been growing but the average dollar amount in the accounts have been coming down.

Right.

But the answer is, yes, the number of accounts did grow.

We'll get you the numbers Jared.

Great, thanks.

And then on the commercial growth side, commercial own growth side, it was good numbers for the quarter as you said, 14%, but is that also coming from a combination of new accounts, or new customers or was it a growth in the utilization rates?

Yeah.

Jared, it is Bill.

The -- it is -- it is both is the answer.

It is -- we are seeing some pickup in utilization rate.

But I would point more heavily in my waiting to number of new customers.

We've added new customers actively in our middle market group, both in the Fairfield Westchester area which is -- we're gaining some good traction in, as well as here in the core Connecticut market, if you will, as well as in our -- our Webster Business Credit, which is our asset based lending group and we've been adding direct relationships, and as you know that portfolio has been transforming over time it is now two thirds direct and we've been adding direct relationships there which are proving stickier than the indirect relationships were.

How is the Massachusetts market with the commercial loan growth?

The Massachusetts market with the dmertional loan growth, we've had success on the small business side, we've had a program initiative out, we call it March Madness, which we went out across all of our franchises and had some good success and generated some -- some good energy in our branches and originating loans including Massachusetts and Rhode Island and we've had growth there.

The middle market side in Rhode Island has been flat.

And we're looking to energize that.

And the commercial real estate side has performed well, consistent with the experience we've had here in our core market.

Okay, thanks.

Finally, you said on the infrastructure charge, that that will be an additional 5 million for the rest of the year.

Is that in addition to the million or so we saw this quarter.

That's correct.

Okay.

Thank you very much.

Thank you.

Our next question comes from Kevin Timmins with CL King.

Please state your question.

Hey, guys.

Good quarter.

On the guidance that you gave about the average loan size for the year, I think I may have misunderstood or misheard you, were you saying 11.7 billion average for the year?

No, Kevin.

I said that the -- the average for all of 2004 was 10.7 billion, and that we expected to grow off of that between 10 to 11%.

Okay.

That's where my mistake was.

Okay.

The -- the lower NSF fees, any color on what's going on there?

Are you seeing -- you are right, we've seen that at other companies.

Are you seeing a migration of customers out of the bank to the banks that are offering deals, with very limited NSF fees?

No, we're not.

It really appears to be a behavioral issue, although it may be a blip rather than a trend but it is a little bit too early to know that, Kevin.

In January and February there was a distinct lessening of fees, it was a national phenomenon based on what we've seen in terms of the statistics that are available and then there was an upkick in March.

One thing that we have noticed internally is that fewer people are writing fewer checks and more people are using other means of payment, whether it be the ACH capabilities or the online bill pay, using their debit cards more to make transactions.

So the amount of checks that are being written is less per account than it was before.

It is too early to say whether it is a trend, but it may well be and that's why we're calling attention to it.

Thank you.

[OPERATOR INSTRUCTIONS].

Our next question comes from Kyle Cavanaugh with Pal States Capital.

Please state your question.

Good morning, everyone.

Good morning.

I was wondering if you could help me understand the dynamics of the provision versus the charge-off and what goes into your thinking when you do these things, because the provision is coming down and -- but at the same time you have -- non-performers, they -- they blipped up a little bit.

And so -- the provision also exceeds charge-offs by a fair amount still.

So could you kind of go over that a little more in-depth.

I'll just touch it on the broadest scale.

We're targeting a reserve coverage ratio of somewhere in the -- let's say the 125-130 range given the makeup of our loan portfolio today.

Even though you have a blip-up in the amount of non-performers, the number is still relatively quite low and the coverage is well over 300%.

Then recognizing that our portfolio is growing, and our credit profile is shifting, we want to be sure that even as we're providing, that we're providing more than we're charging off, and that is why we're careful to report that the amount of the provision, though lower than in the earlier quarter, still exceeds the charge-offs by a couple million dollars.

So that's really the thinking that goes into putting up the provision.

What was that?

You want to make sure the provision exceeding the charge-off for what reason again?

Because we want the overall allowance to grow, to reflect that our loan portfolio will grow, and there's a shifting profile within the loan portfolio towards commercial and consumer credit away from resi.

Okay.

And those free credits, you went over them briefly.

Could you go over them again?

What they were again?

They were three commercial credits, two of which were commercial real estate credits.

And we don't expect that -- upon resolution of these credits that there will be any loss that we'll be taking.

We think that we can realize the full amount of what we're carrying them for.

I do not know if you can get into this detail, but what caused them to go into non-performing status?

Is it that that they are -- I mean, what kind of problems are they having?

I think that -- this is Bill Bromage speaking, I think that I can comment on two of them, the other, the smallest of the three.

One of them is the asset-based lending loan, and the company was having operating difficulties and difficulty meeting it.

We feel that we are well-secured, as Bill said.

The other is a local Connecticut entity we have a real estate loan on that we have a -- a good deal of confidence that is going through a temporarily cash flow situation that we would expect would be corrected.

So we -- we remain supportive of the entity and, as Bill indicated, would expect that we are well secured in that one and will be paid.

But made the decision that we would make it a non-performing loan.

And this is -- excuse me, this is Joe Keeler, I'm the Chief Risk Officer, and the third credit, to give you color on it, it is a commercial real estate credit, again, in our Massachusetts-Rhode Island market and it is experiencing some cash flow difficulties -- due to leasing pressures.

But we are very comfortable that -- that the amount of debt on the property would be very -- could be very comfortably realized, excuse me, from a liquidation.

Okay.

I was just kind of trying to judge if -- in looking at real estate maybe are some of these -- these builders, are they having -- I -- this is not residential, this is commercial, so are they just having trouble getting new tenants in?

Is that what is causing the cash flow issues?

Well, that would be just -- that would be one of the three.

One of the two commercial real estate credits is a tenant issue.

Okay.

It is a very small credit, a relatively small credit, we don't see a trend through the portfolio whatsoever.

You know, we have a billion dollars of commercial real estate, this is just one isolated one isolated instance in our view that is experiencing some difficulty.

Okay.

All right.

Thank you.

Thank you.

Thank you.

Our next question comes from Laurie Hunsicker with FBR.

Please state your question.

Yes, good morning.

Great quarter.

Just a couple of questions here.

Just to follow up on the asset quality, Bill or Jim, maybe you could just give us roughly how big in size each of the loans are, and then I guess the asset-based loan, is that -- is that in the Connecticut marketplace?

Yes.

I'm going to ask them to respond, Laurie, but I want to say congratulations to you on Lily.

Thank you, thank you, Jim.

She is cool.

One of the -- this is Joe, hopping in -- Joe, hop in here if you would like, but one of the real estate loans is about $7 million, it is here in the Connecticut marketplace.

The asset based lending loan is in our New York office.

And the -- and that's about a million dollars, and there's also a million dollar commercial real estate loan in the Massachusetts/Rhode Island marketplace.

Okay.

And what is your -- what is your timing on resolution?

Are those going to be resolved this year?

Is that a '06 event?

Well, if I could handle that one, Laurie, resolution is a -- is a delicate issue, but the asset-based lending loan should be resolved within 90-180 days.

The smaller commercial real estate loan, I would put a time frame on a year on most workouts you should tag a year to a year-and-a-half on.

The larger loan, we would expect to see management attention and resolution to our concerns within a year.

And then going back to some of the guidance, Bill, I guess that you gave in terms of -- of asset growth and loan growth over the next year, I guess I wondered specifically if you could direct us in terms of your -- your consumer and your commercial portfolios, how you see those growing sort of year-over-year and are you looking at it from a starting point of December 31st, or you're looking at it from where we stand today sort of 12 months forward?

If you could just kind of remind us, I guess, in terms of how you all quantify growth when you are giving us those numbers and then maybe just give us color on what you are seeing specifically in those two loan categories.

Okay.

In the loans, Laurie, you know I mention that we're looking at, you know, about a 10 or 11% growth over the average of 10.7 million -- 10.7 billion for all of '04 so all my growth rates would be on the average balance for the full year '04.

Okay.

And then commercial would be a consumer?

Yes.

And then specifically on the consumer, the home equity and the commercial, how you're seeing growth, yes, even if we just kind of look at your period-end balances, what we can kind of expect to see for the duration of the year?

Right, okay.

I think that, you know, we grew 14% -- in the commercial portfolio this quarter.

That was pretty aggressive.

I would expect that, -- between 12 and 14% for the rest of the year.

We were flat in the Crete portfolio.

I think a lot of that had to do with the increased activity that we had in the fourth quarter.

We had a tremendous fourth quarter in that portfolio.

I think that -- that that should grow in the high single digits between now and the end of the year.

As I said, I think our residential mortgage portfolio will continue to rundown modestly and, you know, we think that's prudent given, you know, where interest rates are and, -- we're not interested in putting on 30-year loans.

And in terms of our consumer portfolio --we just saw a lot of paydowns on home equity loans and a lot of that, we think, was due to the increased interest rates, but it -- as I've said -- we've seen a lot of activity in terms of new applications and -- we were looking at -- high single digit growth rates for that portfolio this year.

I think we probably would ramp up to that over the next three quarters.

Okay.

Okay.

And then just one last thing, going to the expenses, if you can just remind us again in terms of how this will break out on a quarter by quarter basis, and full year, the branch costs and the infrastructure costs.

And maybe the Sox, if you've got that as well, just how can we -- how can we see that sort of a -- layout.

Well, let -- let me give you broad on this.

The -- I think that you should -- we told you that the expenses for the branches, I think, were 2.6 million in the first quarter.

Yes.

We probably will go up -- slightly as the year goes on -- our goal is to open up about two branches a quarter.

And the increase was about a million dollars quarter-over-quarter, and we have been giving guidance that would be between $ 4 and 4.5 million -- up for the year.

So a lot of that is really -- dependent upon -- when you open them during the quarter.

But -- I'll let you be the judge with the information that I gave you there.

We expect to see an additional $5 million dollars in infrastructure expenses between now and the third quarter.

About 65 to 70% of that will probably come in the second quarter.

And the rest of it will come in the third quarter.

Okay.

So I guess -- I mean, as we're looking at sort of total costs here, part of the problem is not really broken down historically, it's not really broken down in your income statement that way, In other words, when I'm looking at your total non-interest expenses for the first quarter of 91 million I'm comparing that to -- what I just take out as core as kicking out 106.

I'm guessing -- I'm having trouble kind of sinking them up and I'm wondering if you could maybe help and maybe I can call you off-line and I could kind of --

Well, our -- our expenses for the quarter were 107 million.

You know, maybe we should do it off-quarter so we can run through it.

It's difficult --

Okay.

To do it here on the phone.

You know what I'll do that.

We'll give you a call right after this.

Thanks a lot.

Great.

Look forward to it.

Thank you.

Our next question comes from Bill McCrystal with McConnell Budd & Romano.

Good morning.

Hi, Bill.

Good morning, Bill.

Could you give us a sense of -- of the FIRSTFED transition, the integration, customer retention and just general thoughts on how the -- the transaction has progressed?

Sure.

The transaction has progressed pretty much as we thought it would.

In fact, we were in the market last week, in force actually, making calls on about 1200 businesses in that market, working with the FIRSTFED sales team and we are really impressed by the enthusiasm that we saw the two companies have come together very, very well.

We talked about similarity in cultures, it turns out that that is true, and I think that has been managed pretty well over this interim period.

So now we closed this transaction last May.

We elected, as you know, not to convert the systems until we had our core infrastructure conversion.

So at this point we expect that their systems will be converted early in the third quarter onto the new Fidelity National platform.

So what's happened is that the companies have come together.

We have rebranded the market as of the last month or so where the Webster name is in the market, and I must say it was very, very well-received by the market.

There is a lot of enthusiasm around the shared vision that we can be the leading financial services provider.

We had early on a dip in deposits but deposits have grown marginally in recent quarters.

I'd say reasonably consistent with our expectation.

We have not yet achieved the rate of growth on the commercial side that we believe we will achieve, and we're very actively recruiting for producers in that market.

So our take is that the -- the FIRSTFED market is pretty much as planned for '05.

We have high expectations for what can be achieved.

We've made appropriate investments in the market, and we believe it will be the growth opportunity that we had expected that it would.

Jim, wore you see the growth?

Is it across the board on the lending side or fees with trusts, wealth management, where do you see the biggest opportunity in that market?

Well, there are many opportunities, and I think that each one at that you have cited is an opportunity.

We've come into the market with a high performance checking programs for consumers and small businesses, and we've seen a very significant uptick in their acquisition rate for new accounts.

We would note that their average account at -- in the FIRSTFED market generates fees that are less than 40% of what the average account in our traditional markets would generate, and we think that through the further introduction of the high performance checking programs that the revenue per customer will rise.

There is very significant opportunity in the commercial middle market, because they didn't have that much of a presence in the middle market end, and by putting people in the market, we think that's a -- a new opportunity for growth.

And then we believe that, on the insurance side, on the wealth and investment advisory side, the Webster investment services, all of those represent opportunities as well.

When we actually signed on with FIRSTFED, we suggested that the -- within a couple of years, that they ought to -- ought to have run rate revenue enhancements of close to $10 million.

We haven't yet realized that, but we are making some progress towards that goal.

We also did not include that new revenue in our assumptions at the time of the transaction.

Okay.

Thanks very much.

Thank you.

Our next question comes from Marc Heilweil with Spectrum Advisory Services.

Please state your question.

Thanks, help me out a little.

I'm calming from Atlanta.

I noticed that new alliance bank shares has made a couple of acquisitions in the Connecticut area.

Can you give me an idea of what your position is in those marketplaces?

And what you -- what areas you see that -- or opportunities do you see for your different businesses as a result of this acquisition?

As a result of this meaning?

Of the two acquisitions that new alliance is making, one is Cornerstone and the other is, I think, Connecticut Trust.

Yeah.

They're very aggressively deploying their capital.

I -- I would say from our perspective that neither of those acquisitions will have a meaningful impact on us.

We're actively deploying our de novo banking strategy in Fairfield County.

In part we're taking that route because we haven't been able to make the -- our acquisition discipline work in that market in terms of what we would pay to acquire a partner there.

Different people see things differently, however.

Our branch de novo plan has worked very well for us, and you heard us comment on that earlier in the call.

We expect to continue that plan.

And it may be that there is a partner in that market for us in addition that would help with our growth plans of the as far as the other acquisition, we have a -- a vibrant, active wealth and investment advisory practice which includes our Webster investment services, as well as Webster financial advisors and we will continue to make progress according to the plan that we've laid out.

What is your -- what is your market share in Fairfield now?

We're about 5.5% market share in Fairfield County.

We now have 21 branches in 14 towns there.

If is the fastest growing part of Connecticut, and we expect it will be a very fast growing portion of our franchise.

We now have gained critical mass there.

We are a strong competitor, and we expect that our market gains will continue.

Thank you.

Ladies and gentlemen, there are no further questions at this time.

I would like to turn the floor back over to management for closing comments.

Just like to thank you all of you for being with us today, look forward to seeing many of you at our investment day in June.

Thank you very much.

Thank you.

Ladies and gentlemen, this does concludes today's teleconference.

You may disconnect your lines at this time.

Thank you all for your participation.