Webster Financial Corp (WBS) 2009 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Webster Financial Corporation's First Quarter 2009 Earnings Results Conference Call.

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

Later we will conduct a question-and-answer 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 provision 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 Financial's 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.

Thank you.

Please go ahead, Sir.

Thanks, Claudia.

Good morning, everyone, and welcome to Webster's first quarter earnings call and Webcast.

Joining me are Jerry Plush, our Chief Financial Officer; Terry Mangan, responsible for Investor Relations; and other Webster officers who will participate in responding to questions.

I hope you have all had a chance to review our earnings release that was issued earlier this morning.

Before we begin allow me to outline the flow of the call and to note that we are now including slides to accompany our comments in order to ensure that you can follow along.

You can find the slides on the Investor Relations page of our Website, websteronline.com or wbst.com.

I will provide an overview on the quarter while Jerry will provide a more detailed review of the financials with special emphasis on credit metrics.

Then, I will offer some closing remarks and we will reserve time for your questions at the end.

In the first quarter, Webster reported a net operating loss of $11.3 million or $0.24 a share before preferred dividends.

Of course we are not pleased with the loss.

However, during the quarter we added significant provisions for loan loss reserves.

While these reserves are well in excess of current period credit losses, we are looking down the road at an economy that we think is certain to undergo credit stress more severe than we have seen in prior periods.

And we want to be ready for whatever may be still to come.

I'll also note that in this quarter we had no additional other than temporary impairment, and other comprehensive income on the securities portfolio was neutral -- a notable reflection of the full marks that we put on our securities portfolio through the end of last year.

Of course we will continue to actively manage and monitor this portfolio.

So in a quarter where the margin, as expected and as estimated by us declined, where non interest income was seasonally low and where non interest expenses were seasonally high, we generated nearly $50 million in pretax, pre-provision, operating earnings -- an amount that exceeded charge-offs by close to $20 million.

And I am pleased to say that we did see improvement in our net interest margin as it ticked higher toward the end of the quarter.

All in all, especially considering that capital levels remain strong and virtually unchanged in the quarter, and there was a lot less noise in special charges, these are the most solid results since the first quarter of last year.

Turning now to slide 3 in the online deck, for most of my time, I want to focus on the four areas that I told you would be our focus in 2009 -- credit, capital, deposits and expenses.

I am pleased to say that we made significant progress in all four areas in the first quarter.

Starting with credit, we provided $66 million for loan losses.

Our net charge-offs were $30 million.

Taken together with our fourth-quarter provision, our provisions have exceeded net charge-offs for the last two quarters by about $83 million, representing a nearly dollar for dollar match against the rise in nonperforming loans over that six-month period.

Our reserve now stands at 2.33% of total loans and equals nearly 90% of nonperforming loans.

We remain intensely focused on identifying, reserving against, managing and resolving credit risk.

The 36% increase in nonperforming loans in Q1 is not surprising, given the overall state of the economy.

Let me point out that the rise in nonperforming loans was tempered a bit by the 10% decline in loans that are 30 to 90 days past due.

On the capital front, we maintained our exceptionally strong regulatory capital ratios and reported a 5 basis point improvement in tangible capital to 7.75%, the highest level recorded since the early 1990s.

The continuing strength in our capital levels has benefited from several recent actions, including our decision earlier this year to reduce the regular cash dividend in our common stock from $0.30 to $0.01 a share to preserve capital.

In addition, during the quarter we completed a tender under which we repurchased and retired $22.5 million in subordinated notes due in 2013.

This repurchase was completed at $0.80 on the $1.00 modestly boosting our capital levels and reducing our cost of funds.

While we had hoped to repurchase much more than the 11% of these notes outstanding that were tendered, we take it as a compliment that so many investors preferred to keep our notes in their portfolios.

Declining out of market loans and a paydown of borrowings meaning less wholesale leverage have also benefitted capital ratios.

Our plan is to continue building capital through a variety of means in the coming quarters.

Like many of you, we have long admired JPMorgan for its fortress like balance sheet and Jamie Diamond has provided commendable leadership in this time of financial uncertainty.

Other banks we admire include Wells Fargo, PNC, and M&T.

Given the incessant handwringing about what constitutes an adequate capital level, I would like to point out that Webster's tangible capital ratios and our regulatory capital ratios compare more than favorably across-the-board with all of these fine companies.

I draw these comparisons simply to make the point that even as we put ourselves into a much stronger reserve position, our capital levels have held like a rock, and we compare favorably with some of the best names in the business.

While I'm on the topic of capital, I want to note that last week yet another highly respected analyst, having conducted a bank stress test on Webster, concluded that Webster has sufficient capital to withstand pessimistic loan loss assumptions.

This is the same conclusion reached by other analysts who did the earlier analyses.

Webster is very well-capitalized and able to withstand an economy that is considerably worse than the current consensus forecast.

I can't leave capital without a word about TARP, given all the talk about banks' desire to repay the funds.

Put us on the list of those who would like to get out from underneath the TARP.

We intend to ask the treasury for guidance on an orderly, responsible payment plan for our $400 million in capital purchase program funds.

The key word in that sentence is 'responsible'.

In all the talk of repaying TARP, I think that it is important not to lose sight of the big picture.

The original purpose of CPP funds was to bolster the health of the financial system.

With repayments of CPP at least through 2009, conditional on banks' ability to raise junior capital for that purpose.

Unfortunately for the health of the financial system, Congress threw that repayment plan over board in favor of punitive executive compensation limits.

And now we face an unhealthy competition including from big companies which have benefited mightily from the government capital in a race for the door.

Ultimately no one knows how severe the recession is going to be.

Congress and the Obama administration should revisit this issue and set clear standards for early repayment of CPP.

And we should all remember that the CPP are designed to protect the system from worse-than-anticipated recession and losses.

And it will be a while before we can surely know that the system is not threatened.

All that were part of that system have an obligation to act responsibly in this regard.

And let me assure you that we have no desire to participate in the recently announced Federal Capital Assistance Program or in the P-PIP program.

Even in this difficult economic environment, we continue to compete successfully for good lending opportunities and to use the CPP funds as intended and promised.

We have used these funds both to purchase mortgage-backed securities and to make loans.

During the first quarter, we originated $762 million in new, modified, or renewed loans versus $673 million in Q4.

Particularly notable were $419 million in new mortgages, reflecting heightened interest among homeowners and refinancing to take advantage of lower rates.

In fact, end market originations increased by almost $200 million in Q1.

The decline in overall loan balances in the quarter reflected in large part our earlier decision to cease out of market mortgage lending and a reduction of other out of market activities.

As part of our proactive efforts to avert home foreclosures, we have modified or are in the process of modifying first mortgages totaling about $30 million.

We are proud of the fact that our initiative has helped to keep so many families in their homes as they work through their financial issues.

My third area for comment this morning is deposits.

Most notably and remarkably, we grew our deposit base by $810 million to $12.7 billion in the first quarter, significantly exceeding our ambitious internal target.

We achieved this growth while at the same time reducing our total cost of deposits by 16 basis points.

The growth underscores the strength of our franchise including our increasing brand awareness and our favorable image as a local institution in our markets.

We don't position ourselves as the market leader in the rates that we pay for deposits.

Quite the opposite.

We rely on service and our community presence to attract and develop our customers.

Our deposit growth came from all areas but, in particular, HSA Bank, government finance and our retail branches.

I am pleased to say that this deposit growth has enabled us to reduce our loan-to-deposit ratio to 95% from 103% at the end of last year.

This puts us well on the way to our goal of a loan-to-deposit ratio of about 90% and makes us less dependent on wholesale funding.

The fourth area of focus is non interest expenses.

Seasonal factors including payroll tax and benefits expense, as well as OREO and FDIC insurance expenses, contributed to the 7% increase from the fourth quarter.

Compared to the year ago quarter, expenses were down 6% apart from OREO and FDIC expenses.

We expect to see improvement in coming quarters as our full-time equivalent headcount is down 8% from a year ago.

We are well into the implementation of our OneWebster earnings improvement ideas for reducing overhead and enhancing revenues by about $66 million.

And Jerry will provide the details on OneWebster.

That brings me to the current state of the Southern New England economy, the home of our core operations.

Currently the Southern New England economy is performing in line or slightly better than the nation as a whole.

Unemployment continues to be below national levels while housing prices have declined less than the national average.

Meanwhile, the region still has the highest per capital income in the country.

So far this recession is proving shallower than the early 1990s recession when New England fared much worse than the national average.

Currently key metrics in the region, like nonperforming loans and charge-offs, are running at only about half of the national rate.

Looking ahead some reputable forecasters see New England housing prices recovering more quickly than the nation as a whole in 2010, while the region lags the nation in job growth by a couple of quarters.

Taken as a whole, Southern New England remains a comparatively good place to be in this recession.

With that I'll turn the call over to Jerry.

Thank you, Jim.

Good morning, everyone.

On slide 4, we've provided a view of core earnings for the quarter.

We're outlining several items to take into consideration when looking to see what the pretax pre-provision earnings of the Company were in Q1.

This was a fairly straightforward quarter in that there were only a few items to consider.

We've backed out net gains, first a gain of $6 million in connection with the $22.5 million of subordinated net debt related swaps that were tendered in March.

We also backed out $4.5 million in net gains from security sales in order to get down to true core earnings.

In addition, we are excluding direct investment write-downs taken at the end of the quarter of $1.6 million, and $3.5 million in ROE write-downs as well.

Given the size and nature of these particular charges.

Our results also included a provision of credit losses of $66 million, $54 million of which relates to the continuing portfolio and $12 million related to the liquidity portfolio.

So with all of this taken into account, our underlying operating performance in the quarter remains solid.

It's clearly lower than in Q4 but not unexpected as Q1 has seasonally higher expenses, lower deposit fees, and was clearly impacted the Fed moves affecting the NIM for the full quarter.

Turning to page 5, here is our income statement.

You can see this on a summary level here what the key drivers for each line item are.

First as previously mentioned, the decline in net interest income reflects the full quarter impact of the Fed moves that occurred in October and December of 2008.

And we are going to talk about that in more detail in a few slides.

Our non interest income was lower as deposit service fees declined $2.1 million.

That is primarily from seasonality in the first quarter.

Our wealth and investment services revenues declined about $730,000 primarily from a decline in value of assets under management while loan related fees declined about $665,000, primarily from reduced levels of prepayment fees.

Our non interest expenses declined by $7.1 million from a year ago excluding the foreclosed property expense in FDIC insurance assessment.

The increase from the last quarter primarily represents seasonality in compensation and benefits and as, just noted, the higher amounts for close property expense in FDIC premium assessments.

The non-core items for the quarter include gain on early extinguishment of debt of $5.9 million; security's gains of $4.5 million, foreclosed property expense and write-downs totaling up to $4.6 million; some OneWebster-related costs of $240,000 and write-downs and direct investments of $1.6 million.

You can also see the preferred dividend impact here, what we are paying on the convertible preferred shares, as well as the preferred shares issued pursuant to the CPP.

Turning next to the margin, our net interest margin was 2.99% in the first quarter compared to 3.2% in the fourth quarter.

Reflective again of that full quarter impact of the Fed moves during the fourth quarter, it is also reflective of interest reversals in the first quarter from higher levels in nonperforming assets.

Our loan yields declined faster than deposit repricing as downward deposit repricing lags in the short term.

But this should catch up in Q2 and Q3 as several billion in CDs mature and reprice over those respective periods.

Also, securities deals improved about 2 basis points while borrowing costs declined 33 basis points in the period.

Turning now to the next slide, we will give a little more detail in and around non interest income.

Our deposit service fees declined about $2.1 million from last quarter and $474,000 from the year ago period.

Both decreases are due primarily to reduced NSF fees and customer behavior; and again seasonality in the first quarter.

Our loan-related fees declined primarily due to the lower prepayment penalty income in Q1 of '09 compared to the link quarter and also to the year ago period.

Wealth and investment services again primarily a decline related to the value of assets under management.

Our mortgage banking-related income increased from year-end as refinancing volume increased as rates on mortgages decreased in the quarter.

The net gain on securities is totaling about $4.5 million.

We've got a $5.7 million gain on the sale of $393 million in mortgage-backed securities and $5 million in common stock was sold at losses of $1.2 million.

Also as previously discussed, we recorded a $6 million gain on early extinguishment of debt.

And the write-down of direct investments totaled about $1.6 million.

That is really reflecting fair market value adjustments on certain equity funds.

Our total direct investments are just a shade over $12 million at the end of Q1.

Turning now to take a look at non interest expense, this category declined $7.1 million or 6% from a year ago when you exclude foreclosed property expense and FDIC insurance assessments.

Year over year, which showed the impact of OneWebster initiatives, you can really see in compensation incentives that they decreased about $5.7 million while payroll taxes, temp help and recruiting [decreased] about $1.2 million.

Our occupancy expense increased primarily from ongoing repairs and maintenance and our FDIC insurance expenses are significantly increased as credits that were utilized in 2008, we no longer have any credits as of the third quarter of 2008 to offset the increased assessments.

And in our foreclosed and repossessed property expenses, the increase there is the result of costs and valuation write-downs associated with certain nonrecurring loans at foreclosure.

Speaking of OneWebster initiatives, when you turn the page to the next slide, we provide a little more detail about our OneWebster earnings optimization program that we started in Q1 of 2008.

Note that this is an ongoing continuous improvement program as we continue to look for savings.

We originally identified about $50 million worth of run rate improvement -- about 80% on expense side and 20% on the revenue side -- that we expect will be fully implemented by the middle of 2010.

At that time, we said about 20% by year-end 2008, 75% by year-end 2009 and the balance 2010 in midyear.

Since then we have added another $16.5 million as part of a 60-day review in December of 2008, where we centralized all of the support functions within the Company and tightened spans of control which have had a material impact on staffing levels at all levels in the Company.

Again, this is an ongoing process and we will continue to have periodic reviews to maintain and seek additional efficiencies.

Turning now to the selected balances slide, you can see our total assets declined in the quarter as compared to year end.

As previously mentioned, securities declined from mortgage-backed and equity securities sales during the quarter.

Loan balances declined $93 million due to clients in commercial and consumer loans, which were offset by increases in residential and commercial real estate.

Our deposits increased $810 million due to the increased focus on our deposits first strategy across all channels, and included strong growth from our government finance unit, our retail branch network and in [health] savings accounts.

And they now represent 105% of loans.

Deposit inflows were primarily used to pay down FHLB advances, which declined by $665 million and also repos and fed funds declined $424 million.

We will now turn and take a look at the investment portfolio with slide 11.

Here are the components of our $3.7 billion investment portfolio.

There are really no significant changes from the prior quarter and mix.

Note the $50 million in unrealized gains in the HDM portfolio and the fact that $110 million and unrealized losses in the [AFS] portfolio relatively the same as 12/31/08.

Note that we have also elected not to early adopt FAS 157-4 four in the quarter.

And we will do so in Q2 as required by the FASB.

And as in prior quarters, note that we provided additional details on our Website regarding the portfolio for your information.

Turning now to take a look at loans.

Total loans totaled $12.1 billion in March 31, 2009 compared to $12.2 billion at December 31.

In the first quarter, residential mortgage loans and commercial real estate loans increased by $121 million and $18 million, respectively, while commercial loans and consumer loans declined by $172 million and $37 million respectively.

The decline in commercial loan balances is due primarily to out of market asset-based loans declining by $[93] million from year end or more than half of the decline in commercial loans noted above.

The discontinued liquidating portfolio of indirect home equity and national construction loans declined by $22 million from year end.

We have also provided a slide on our loan mix and yield.

When you look at slide 13 you can see that both the balance and the yields in the portfolio have declined.

As mentioned earlier, the full impact of the Fed rate reductions of 175 basis points negatively impacted the yields on total loans this quarter.

68% of the CRE portfolio, 62% of the home equity portfolio and 61% of the commercial portfolio were adjustable.

So declines in LIBOR and prime affected each of these, making it more understandable why yields declined in each of these loan segments in the quarter.

Looking now at our residential portfolio, you can see that 80% is in footprint and approximately 45% of the portfolio is in jumbo mortgages and about 54% in conforming.

We have no option ARMs and minimal Alt A -- which is under $46 million -- and our exposure to Fairfield County is approximately 15% of the total portfolio.

Also worthy of noting that the permanent NCLC segment within the residential declined to $50 million at 3/31/09 which is down from the $59 million we reported at 12/31/08.

About $7.5 million in payouts and $1 million in write-downs in that specific segment.

Turning to take a look on slide 15 at our commercial non mortgage portfolio, this consists of middle market, small business, insurance premium finance and segment banking.

Contained in this category are our core [end] market small business and middle market customer relationships.

Non accruals here increased about $32 million in the period to a total of $65 million.

Of the $32 million increase in nonperformers, about $18 million is related to three publishing credits.

The remaining $14 million increase is attributable to four other middle-market credits.

Looking at our equipment finance portfolio, this is a national granular portfolio consisting of five industry segments -- transportation, construction, environmental, manufacturing and aviation.

The overall portfolio declined slightly from year-end.

Looking at the asset quality stats specific to this business, we have seen increases in delinquencies in nonperforming loans here, which we expect given the challenging economic environment and the result that this has on small businesses.

But overall we note that this business line has performed relatively well in prior downturns.

Looking at asset-based lending, in the next slide you can see there was significant reductions in commitments and outstanding balances in both 4Q of '08 and in the first quarter of 2009.

The portfolio continues to have a strong collateral base and the team here proactively monitors collateral values and advanced rates.

The increase in nonperforming loans in the quarter here are related to two credits, one manufacturer and one retailer, and we are working toward resolution on both.

On slide 18, you can see our commercial real estate portfolio continues to perform well with modest delinquency, nonperforming and charge-off levels.

This portfolio consists of investor CRE and owner occupied.

It is well diversified by product, geography and property type.

We have got modest retail exposure and our team continues to actively monitor maturities, vacancy rates and leasing activity.

This portfolio grew only $20 million in the quarter.

Our intent is to continue to be very, very selective as we evaluate any opportunities in future periods.

On slide 19, we focus on our residential development portfolio and here this portfolio declined to $155 million as of March 31, driven by $5.6 million in paydowns during the quarter.

Note that absorption remains slow although we have seen sales activity picking up recently.

And during the quarter, nonperformers increased $5.5 million to $54 million due to the addition of a $6.6 million relationship.

In the performing portfolio, there are only three remaining res-dev relationships that have aggregate exposure greater than $5 million.

We will turn now to take a look at our consumer portfolio.

This portfolio is about 99% home equity, of which 38% is in home equity loans and 62% is in home equity lines.

Our utilization is about 49% at March 31, compared to 48% at year-end.

About 82% of this portfolio is in footprint and 19% of the home equity portfolio is in a first lien position.

We have also included the updated, weighted average, FICO, and [CLTV] and both of which are relatively unchanged from year-end.

In addition, our exposure to Fairfield County, in this particular portfolio, is approximately 16%.

And on slide 21, we'll take a look at our discontinued liquidating portfolio which consists of about $267 million of home equity and $13 million of national construction loans.

We saw a $22 million decline in the first quarter of 2009 including about $8.6 million of payoff activity.

About $10 million worth of charge-offs were specific to the home equity segment.

We have our reserves at about $44.4 million, of which $40.3 million is for home equity and $4.1 million is for the national construction portfolio for total coverage of about 15.8% at March 31.

On the next slide, we provide a view of asset quality and some key ratios over -- for the portfolio and the discontinued liquidating portfolio overall.

So you can easily see the impact this discontinued segment has had on our totals when you take a look at this slide.

I also want to give you a couple of other statistics that were also included in the press release tables.

Our total nonperforming loans were about $316 million or 2.61% of total loans at March 31 compared to $233 million or 1.91% of loans at December 31.

This increase in non-performers was primarily attributed to increased nonaccruals and commercial loan categories of about $58 million, the details of which we have just reviewed and increased nonaccruals of $14 million in residential loans and $12 million in consumer loans.

Note though that our past due loans for the continuing portfolio has declined to about $112.8 million at March 31 of '09 compared to $118.4 million at December 31.

And also past due loans in the liquidating portfolio also declined to $12.2 million compared to $20.1 million at December 31 of '08.

Let's turn now to slide 23 and take a look at the deposits.

As Jim mentioned we focused everyone in the Company on having a deposits first view as we believe our primary role as a regional bank is to directly gather deposits for the purpose of self-funding our loan activities.

In the first quarter of 2009, we generated over $800 million of deposit growth, specifically in money market, savings, Dow and demand deposit accounts, which increased $439 million, $215 million, $134 million and $7 million respectively, while certificates of deposit decreased $39 million.

And you can see on the next slide, while growing deposits during the quarter it is important to not achieve this through aggressive pricing.

Here you can see that the cost are lower across the board and especially in money market, where costs declined 59 basis points from 198 to 131 quarter over quarter.

Overall we've achieved a reduction in the cost of deposits of 16 basis points and with CD maturities in coming quarters, we have an opportunity to lower our costs and deposits further.

Our core deposit ratio improved to 62% and this is up from 59% at year end while our loan-to-deposit ratio also improved to 95% compared to 103% at year end.

Turning to slide 25, you can see that here we outlined the diverse sources of liquidity that we have.

Again, during the quarter deposits in each channel and we provided the first quarter growth totaling up to $810 million here.

We have got very strong cash management services in our organization; and we have -- these services have been very well received in the market.

We believe that we can compete with any player in the market as the local entry and we continue to see progress in that regard.

Additionally you can see here the availability from wholesale sources of about $4.3 [billion] in capacity and from a holding company perspective we have about six years' worth of cash needs available at the holding company.

I will now turn it over to Jim to comment on capital and provide some closing remarks.

Thanks, Jerry.

That pretty well covered the capital ratios in my earlier remarks.

Suffice it to say that our ratios are quite solid.

In fact our regulatory ratios run from 144% to 200% of the requirement for well capitalized, putting us among the best capitalized Federal Reserve bank holding companies.

And as I said tangible equity increased in the quarter to the highest level since the early 1990s.

I'd like to conclude with some remarks reiterating the highlights of the quarter.

One, we continue to aggressively identify credit issues and maintain strong loan loss coverage.

We are realistic in estimating credit losses and set our provisions well in excess of the amount of net charge-offs.

As the recession has deepened and credit has deteriorated, our reserves have tracked almost dollar for dollar against rising nonperforming loans.

Two, our capital position remains rock solid, both in terms of tangible and regulatory capital.

Even in the pessimistic scenarios run by multiple respected analysts, Webster's capital ratios remain more than sufficient to see us through the credit cycle.

Three, we are leveraging our strong customer relationships and our brand to grow deposits.

In the first quarter, our loan-to-deposit ratio dropped to 95%, reducing our need for wholesale funding.

And for our OneWebster earnings optimization, efforts are on track to deliver total earnings enhancements and cost savings of $66 million all in by the middle of next year.

And only about half of those haven't been realized to date.

My final point is that Webster boasts solid, pre-provisioned earnings power that will help us emerge from this credit cycle with the strength and momentum needed to seize the opportunities that lie ahead.

Thank you for participating on our call this morning.

Jerry and I would be pleased to take your questions.

(Operator Instructions).

Ken Zerbe with Morgan Stanley.

Good morning.

My hardest question I have for you guys, can you just tell us why it has been so hard to reserve correctly for your discontinued portfolio?

Been three quarters in a row of additional reserve builder, provision expense here.

And I think it's one of the good things about this portfolio is you are able to isolate it from the continuing portfolio and say here is the reserve.

But it just doesn't seem that things are working out the way that you had expected.

In response to your question, I think over the past several quarters what we've noted is that we did add to -- I believe in Q3 -- about $5 million another $25 million or so in the fourth quarter and again here in this quarter.

What we are looking at is a roll forward of expected charge-offs over a prospective time period.

And we've adjusted it now to the tune of being able to look at -- as you can see here, we basically recorded just about what we charged off in the quarter.

And the reserves that we have you can take a look over, say, a perspective 12-month period in terms of our expected views on a roll rate and say that that is about what we have got in reserves.

We closely monitor this portfolio and it's being worked very hard, and I think we have isolated the specific segment in there that I feel pretty confident that it is not going to be the reserve position that you can look at and say we are one and done.

So we are not treating this the same way that we looked at the (inaudible) NCLC portfolio where we look at the balance of the NCLC construction.

The true construction in process that was left there so this one is going to be a portfolio that we can continue to add to in future quarters.

And what we want to try and do is make sure that people see that you can split between what we are putting up against that particular discontinued segment versus what we are doing against the ongoing portfolios going forward.

So if you have a 12-month say a 12-month look forward, essentially the provision that you put up in each quarter essentially reflects the loss expectations for the fifth quarter out -- if I'm understanding that right?

Yes.

And, basically, that's our thinking at this point in time.

Obviously that is subject to change, but I would tell you that we have been doing this now for three quarters in a row.

And I feel that this will be the practice that we used specifically for this segment.

Understood.

Okay.

Then I guess on deposit growth, obviously, very strong deposit growth.

But it seems that almost every bank across the country, regardless of region, is also having phenomenal deposit growth.

Maybe you could take a step back and just make any --.

If you have any comments on what is just driving that systemwide core deposit growth?

Sure.

I will make a comment that people are saving more than they have in a very long time.

People have gotten much more conservative.

I think people also see the strength and stability and safety in their local banks.

So perhaps there has been a bit of a benefit from that as well.

And we like to think that we have done a job with our We Take Your Banking Personally brand and getting that out into a market with all of our proactive marketing programs, with the particular expertise that we have.

Whether you are talking about in the government financed or in HSA Bank or all the cash management services that we offer in commercial and small business banking, and our proactive marketing programs, and the retail bank.

We think it is all coming together at a time where customers are more inclined to be saving to -- such that we are deriving a significant benefit.

What I think is different to add to Jim's comments is that you can see that our deposit growth is spread over all five channels.

And I would say that I think what you see in most banks across the country is clearly a change of consumer behavior to much more of a saver mentality.

What we clearly are seeing at Webster is the push in the additions to staff and the focus both in the commercial side so in commercial and small business.

HSA, I think this is clearly the season, and you can see that quarter when you look at Q1 of 2008 versus Q1 of 2009.

We've had fairly comparable growth there.

So again another very solid performance.

Clearly we have been making some good inroads in the government financed business and picking up good core relationships there.

So we feel good that what is different about Webster is the diversity here that you see that's coming through all five channels, as opposed to really being more consumer-specific in terms of the higher savings rate that Jim was mentioning.

All right.

Great.

Thank you very much.

Mark Fitzgibbon, Sandler O'Neill.

Good morning.

You gave some updated LTDs on page 14 of your slide presentation.

Are those based upon new appraisals?

Or is there sort of a model that helps you arrive at those new average LTDs?

You are referring to in the residential portfolio?

Exactly.

These are updated Case-Shiller indications of value.

We run those at least quarterly and very consistent with the way we've reported things in Q4.

I think also in Q3.

You are just getting the full update that we run the entire portfolio both, for updated FICOs as well as updated loan-to-values.

So we feel and, again, fairly consistent quarter over quarter.

A little bit of differentiation here.

Very, very tight in terms of low FICO and CLTV when you look at the consumer portfolio.

Virtually the same numbers quarter over quarter.

And then in the C&I portfolio you had a (technical difficulty) in non-performing loans.

Was there any particular industry concentration?

Or was there one large loan that accounted for that increase?

Jerry had referenced in his comments in the C&I nonmortgage we had three publishing credits, all each individually less than $10 million in exposure that represented half in that category.

Across all of C&I including our national businesses we had a couple of credits in [WVCC] and then the remaining were smaller credits embedded in the middle market divisions across the footprint.

So it really was kind of across C&I generally.

The good news was there weren't any significantly high single point exposures in that group.

And then, John, within the Company's footprint, are there markets that you think are doing meaningfully better or worse?

I mean, where would you say the hot spots are?

No.

If you look at our footprint and you look at business and professional banking and core market performance across our geographies -- Massachusetts, Rhode Island, obviously in Connecticut and down into Westchester -- there has not been, even though you can talk about unemployment and Rhode Island being sort of an outlier in the group -- there is nothing in our performance metrics geographically within our footprint that would indicate that any one area is doing particularly better or particularly worse than any other.

And the last question I have and it is not really an easy one to answer, but can you help us kind of think about the provision over the next quarter or two?

Yes.

I think the view that we have, certainly not just this quarter, but in the next quarter or two is, we believe in this market -- just given the uncertainty -- that you are going to continue to see us book a provision that is in excess of what we charge off.

We believe that having a very strong allowance is critical to provide some safety net here for -- and also gives you a gauge of how the management team here, specifically the line of business leaders and the lenders working very closely with the credit risk folks, are really assessing risk across the portfolio.

So without really giving you a number, I can just tell you that our view is that this year in particular, more than ever, it is important to understand that we will continue to be taking a look at what is happening across the footprint, what is happening across each of the segments, continue to try to ferret out if there are any emerging hot spots and be very, very proactive in trying to address those.

David Darst, with FTN Equity.

Good morning.

Could you [parallel] some of the activity within the trust preferred portfolio on the supplemental page number 3?

It looks like the core value increased significantly and so did the amortized cost.

What's happened during the quarter, if you do a comparison on that particular slide is there's a number of downgrades that have taken place within the quarter here.

So it is very difficult from a comparability standpoint to take a look at last quarter versus this quarter because of the significant level of downgrades that we either saw in these securities either whether it was Fitch or S&P or Moody's.

The big thing that I think that we did during the quarter and I think that we certainly looked at upgrading our modeling capability to do a lot more detailed credit work, split apart from trying to understand what was credit-related versus what was liquidity-related.

And our views which, by the way, I just want to state very factually we are within several million dollars of what Moody's would tell you values would come out at in looking at our CDO portfolio.

Clearly, the income note values are nearly zero.

I think we have actually stated them that way on the schedule and we continue to see deterioration because of the downgrades that a lot of the big single issuers even had during the first quarter of the year.

Virtually all the good A names there were downgraded either to BBB or further to below investment grade.

So really not a big -- there's a change within the components in terms of how we look at it from value.

There's certainly a lot of moving parts as it relates to downgrades that took place.

Overall, net net, we're really pretty much in the same position where we were fourth quarter in terms of looking at this from a market valuation standpoint versus the fourth quarter.

So considering the downgrades you anticipate that as you change your mark to market accounting that there will be any new material differences in the credits related to OTTI?

No.

You know, I think the biggest issue to take into account is that these securities are consistently being reviewed.

There is more information coming out about all of these financial institutions all the time.

So in any given security, you could have a material change depending on who -- how material that issuer is within the security that can change your credit rating.

I would have to say that we have certainly done an awful lot of our own credit work.

We have taken very conservative views as it relates to credits and taken that certainly into account when we've come up with evaluations.

I think that is why, when you look at this quarter in particular and where our values came out versus the fourth quarter, clearly the benefit of some of the prior action that we did take were reflected because a lot of the work that we had done previously on it, unfortunately, came about in the first quarter and the resulting downgrades you see across a lot of these securities.

Could you give us an outlook for the asset lending portfolio where you have been reducing your exposure?

I'm going to give a broad comment and then I will John just continue to give you maybe a point or two from his view.

But generally speaking we are not emphasizing the out of market portfolios at this time and our view is in particular here, the folks down at -- you know that work in ABL have done a very good job of managing down overall the commitments that they have outstanding in the market and working their way through any customers that have had some issues.

And clearly we have been very aggressive in working on the specific cases where we have had issues.

And it's really very much a planned activity that a lot of our folks are really in the assistance mode of bringing overall commitments to commercial customers down, where warranted, and certainly affirming where we still continue to feel comfortable.

So, John, any thoughts to add to that?

No, I think that is exactly right.

Combination of just generally what is going on in the business cycle with respect to inventories and receivables and lower outstandings, but also very aggressive proactive asset management.

To give you an indication over the last four quarters, we've reduced single point exposures over $15 million in that business down from 42 million -- 42 units to 30 units and they've done a great job in a difficult environment managing the troubled -- well, I should not say troubled but the adversely risk-rated credits out of the portfolio before they've hurt us.

Damon DelMonte with KBW.

Good morning.

Jerry, I think you mentioned part of the increase in nonperforming commercial loans were due to out of market exposure.

Could you just give us a little color on what you have for out of market commercial exposure?

Yes.

I think my specific comments in the commercial loan mortgage was related to a number of publishing credits that went to NPLs this quarter and everything else was -- there's another 4 credits for the $14 million that was attributable to middle market.

I think John made a comment -- let me turn it to him to provide a little more color again on those.

Yes.

The three publishing credits were out of market credits and resided in our old specialized lending portfolio, national syndicated portfolio.

The bulk of the rest of the non-accruals we talked about were embedded in our core middle market and footprint business.

And how big is that specialized lending?

Or [share] national credit portfolio?

We've talked about it before.

The specialized portfolio that we talked about for years we've stopped originating in that business about two years ago and we have less than $200 million in funded loans remaining in that book is largely attriting, obviously, with the state of the capital markets.

It is not refinancing and attriting as quickly as we had originally planned.

But we are not originating, and adding to that portfolio.

The rest of our SNC balance and SNC exposure in the bank is contained within middle market or within our national and asset based lending or our segment business.

But those are SNCs definitionally, but there are direct relationships where we have direct access to management and we cross sell products.

You know, private banking products to the C suite or bank at work to the corporation or cash management products.

So they may be a participation in a SNC transaction, but they are in the context of a direct relationship.

: Okay, but you said there was about 200 where you -- they weren't direct relationships though, right?

Correct.

Less than 200 million.

Got you.

Great.

Then, Jerry, with regards to the margins, could you tell us what the margin was at the end of March?

Yes, we came up a little over 3.

So what you are beginning to see is it's going to take each month throughout the quarter to began to see some of the benefits.

So when we gave some previous guidance that we thought this quarter would be in and around 3%, we need that it was going to be difficult just given where we saw some of the non-accruals pop in, particularly in February.

And we started to say that level off and also see the effects of the deposits coming through in the month of March.

You know, clearly, what also should be taken into account when you think about our margin is, we have made the deliberate decision to minimize what we were funding overnight or funding short.

So in the short term that clearly is having some detrimental impact as it relates to the NIM.

But again we are focusing on the strategic goal that we want to be totally funded and then some, by deposits.

So we think building the core relationships is clearly much more important throughout the course of this cycle than us just continuing to try and tweak and pick up a little bit here and there from using more overnight funding.

Great and then, just lastly, kind of sticking on the margin theme, could you tell us what the average yield is on the CDs that are going to be repricing in the second and third quarters?

Suffice it to say that you know that they are going to be north of 3% when you think of the portfolio.

So I would like to leave that one fairly generic but you can get an idea that if several billion are coming through, just depending on competitively where we price and also candidly where consumer preferences, it is an awful lot of consumers that have much stronger preference for putting their money into savings now and money market in the current market.

So I think if we continue to seek transfers into those categories, clearly, there's some benefit.

The customer benefits from having obviously much more readily available access to their funds.

So our view is the way you can think about it is several billion over the next couple of quarters and a little over 3% when you think of the total in that portfolio.

[Amanda Larson] with Raymond James.

Good morning.

I wanted to see if it would be possible to obtain reserve ratios on a couple of the loan buckets i.e., the resi mortgage that's SCLC also resi construction in residential.

CRE construction and also CRE for residential development.

Yes, we don't provide that level of detail and I think we are going to continue to abide by that practice.

I think we look at the portfolio as clearly at that level of granularity when we sent the reserves and the weight we position it when we report in our public filings is at a much more summary fashion.

And that is the level to which we are willing to disclose at this point.

Okay, that's fine.

But would you be able to break out what was resi construction in residential?

And what was CRE construction and CRE -- because I think you do do that in the Q, usually.

Yes.

I think as it relates to residential clearly when you look at what was the permit CLC and you look at what is in national construction, we are probably at about a $9.4 million reserve against that remaining $50 million balance in outstandings in the permanent national construction loan.

Those are completed homes.

Those are completed homes.

We've got clearly have seen activity in terms of pay downs and little bit of charge-off in the quarter.

And then in our national construction portfolio we are just a shade over $4 million left on about $13.2 million in outstanding balances.

And that reserve is established on a file by file review.

It is a small enough portfolio that it is easy to really get granular on how we establish the reserve.

Are you able to break out just the actual size of the portfolio on what is residential construction?

The regular resi construction out of the residential portfolio?

Yes.

(Multiple Speakers).

Sorry?

Are you referring to residential development contained in commercial real estate?

No, I'm referring construction in residential.

Outside of NCL, the numbers de minimus.

And do you have the size of the portfolio for CRE construction that is just for commercial real estate, not for resi development?

Yes, commercial real estate, the construction exposure is about $141 million contained in our investment CRE portfolio which is about $1.47 billion if that's the investment CRE portfolio which is contained in the slides here in the CRE -- just over $2 billion of total CRE exposure.

So $141 million would be the construction amount.

Matthew Kelley with Sterne, Agee.

Just a couple of follow ups on commercial real estate.

Just wondering if you could give a little bit more detail or some of your insights into what you are seeing for pricing, supply, vacancy, NOI trends, maybe a breakdown of the average class that you hold -- you know A&B -- and also the percentage in Fairfield County similar to what you provided for the residential and the home equity?

Yes, why don't I do this -- we will have John give you sort of an overall comment.

All of that, we are not going to necessarily be able to get into all that level of detail, but basically when you think about our CRE portfolio, John if you could give some type of views in terms of what we are seeing and breakouts of class A or B, etc.?

Yes.

In investment CRE?

I would say obviously we have been very comforted by the performance and the portfolio.

We've got a very strong management team and it's an institutional like real estate portfolio.

In fact, yesterday we just completed a full file review of the 50 top exposures which represent 50% of our outstandings.

We clearly see coming down the road and working with management and credit risk aligned pressure obviously on NOI, on leasing activity, what could ultimately be value deterioration in our market as we've seen in other markets.

But so far with respect to our portfolio, as you see in the statistics we've shown, we really have minimal delinquencies, virtually no nonaccruals -- and the cash flows because we underwrote pretty consistently at debt service coverage above 1.4 times and LTV is generally below 65% -- we still feel even with the changing metrics while we are obviously concerned and we take all of the trending into consideration on our reserving and our portfolio management, we still feel pretty comfortable with where we are right now in this part of the cycle.

Do you have a percentage in Fairfield?

Yes, I think as you think about the residential development portfolio, we've got about $35 million.

That's in Fairfield.

So that $100 some million we reported on the res-dev side, you can think about that and that is spread over about 20 different projects.

Yes, I don't have that number right off hand, but that is something that I can get back to the broader group with.

Okay and then a question on the FDIC deposits and insurance premiums.

What was the gross number last year before your credits?

Just to give us a sense of where you were on a basis point level.

Yes what I will do is I will have Terry get back to you specifically on that and then provide it to anyone else who has got an interest.

No problem in getting that to you.

Collyn Gilbert, Stifel Nicolaus.

Thanks.

Good morning.

Just a follow-up on the question on the SNIC portfolio.

John, you had said that just less than $200 million was funded.

What's the portion that is unfunded?

What John said was there's what we refer to over a period of time as a specialized lending and that portfolio itself is at and around $200 million.

So John, if you could give a little more color specific to that?

Yes I don't have the exact dollar on that portfolio.

I think that portfolio runs about 60 to 70% funded.

So you can extrapolate what the commitments would be on that remaining specialized portfolio.

Okay.

That's helpful.

Thanks.

Just a few quick lessons.

Jerry, if we look at the expense side and we back out the one-time items that you posted this quarter, so are we looking at a run rate?

Should we assume a run rate going forward of about $112 million?

Is that still a good number question?

Yes, are you including the repo expenses?

Tell me a little bit about what (multiple speakers).

I just backed out the foreclosed, the RAO, the direct investment and then I think you said there was like [200 some odd thousand] of one initiative.

Yes.

What you're going to see is that number declining quarter over quarter.

So you will continue to see remember the phase in of OneWebster.

You are probably looking at a number that is closer to $113 million for Q2.

$112 million, $110 million -- so you will continue to see declines quarter after quarter as those ideas come in.

So the timing of ideas is really important.

So from the perspective of I'm not going to be able to give you some fairly smoother consistent number, you are going to continue to see those benefits working their way through the numbers.

Okay.

All right.

That's fine.

Let me just jump back to the SNIC portfolio.

And John I think you ran through this in sort of general terms so I'm just wondering if we could get a little more specific on how much of your -- within your portfolio is total portfolio is actually sort of said defined as SNIC?

And I know you separated between your direct relationship versus not, but as the Fed would define it as Shared National Credits.

Do you know what the size of that portfolio is?

It's about $867 million funded.

$772 million of that is across C&I, with the balance being in investment commercial real estate and again if you take the delta between just under $200 million we talked about in the specialized portfolio, which is the legacy of the purchased paper.

The rest of it is spread across the various middle-market lending groups with end market larger companies, our segment lending group, commercial real estate and nationally through Webster business credit.

All under the general confines of there being direct relationship and not just buying deals of some syndicator's desk, but actually having direct calling efforts on the Company before choosing to participate in a SNC.

Got you.

Okay.

All right.

That's helpful.

Just in terms of tax rate going forward which might tie in, then, to my question which I know you you are not necessarily -- you don't give earnings guidance, but just sort of conceptually here.

Any sense of when you all expect to return to a profit and then, maybe that can help me determine what the tax rate we should use going forward would be.

Yes, for calculation purposes we continue to stick by the 27.5%.

You know, in terms of return to profitability, it's a function of where we are going to be as it relates to as I mentioned earlier on the call -- what we are going to record quarter over quarter.

We are going to continue to look at our pretax, pre-provision.

We are going to record what we need to record in any given quarter based on how we assess use.

You could be thinking about a rate that goes as low as 20% in the next couple of quarters as well as we tweak through a few things.

But we stuck with the 27.5% and I would say that we are probably going to trend closer to 20% in the outer quarters.

So then that would indicate profitability then should be achieved then in the next couple quarters, right?

Well, you are going to continue to see what we have planned is that we've got some level of growth, a restoring of more normalized fee levels and continued reduction and expenses.

So I think I've given you kind of the roadmap that you will see expansion in net interest income.

You will see some better non interest income.

You'll see some better non interest expense peers so all the right components are in place to show that we should have that are pretax, pre-provision earnings on a go forward basis.

James Abbott with FBR Capital Markets.

Good morning and I feel honored to be the last question.

Real quick on the equipment finance, I'm curious to understand a little bit of your experience on collecting on the value of assets and what you have seen in the change of value there.

And maybe give us a little bit of detail on the underwriting standards so that we just to from it a little bit with the original loan-to-value is?

I know it's usually pretty high, but maybe tell us what Webster does and then, again, what you're seeing as you try to liquidate collateral there?

This is Jerry and obviously John is going to chime in and give some tidbits as well.

But high-level, clearly this is a really seasoned team.

They've been through a number of cycles.

They certainly are seeing just as much challenge as anyone else given current market conditions.

One of the clear issues that you've got to grapple with in the equipment finance arena is that there has got to be a ready market to buy this.

What you've got to either reprocess in order to get yourself initially your full recovery.

Remember that in a lot of these cases, virtually I think all cases, you've got personal guarantees.

So ultimate recovery in the equipment finance business, I think we still feel really strong and solid about.

The issue is in the short term, what we should be looking at as we take the equipment back in.

If you were to look at the market, there's certainly soft spots in some of the segments.

So right now we would tell you that the transportation segment looks pretty good, is performing fairly well.

We are starting to see some stronger things going on vis a vis construction.

So it really depends.

I think there are certain smaller segments within the portfolios.

We are depending on the specific type of equipment.

It's a little bit more troublesome to try and work your way through those, but again that is to be expected, just depending on as you start to see any type of recovery or resurgence in some of these particular industry segments.

It is all about supply and demand.

And there is a fair bit of supply in the market.

So from our perspective as we take things into repossess equipment, we are certainly going to take probably harder looks at what we should do to take that into account, as opposed to having to take any type of write-downs on the other side of it.

So and I just -- John, any additions to that?

No, I think Jerry covered the issues with respect to liquidity in the market on the equipment.

I think from an underwriting perspective, it is difficult to be really specific because they do look -- it is not a leasing company.

It is a finance company, and the vast, vast majority of overwhelming majority of outstandings are funded loans.

And there are cash flow lenders, collateral value lenders and then, as Jerry said, most of the transactions have credit enhancement through personal guarantees.

So I think the LTV ends up being a function of the level of the relationship, how seasoned it is, the type of equipment, what the strength of the guarantors are, the average life of the equipment, the tenor of the facility.

So I just think they've had a long track record over 18 years of sort of executing through cycles and really being able to specifically underwrite our borrowers and the equipment at the appropriate LTV levels.

Let me maybe try a little different approach because of the -- and I do appreciate the color generally speaking -- but if you look at the charge-offs of $1.9 million, what was the face value of those loans that were charged off?

Loss given default if you will on that particular -- this particular quarter.

Yes, I don't have that number right in front of me, but I will also tell you it's difficult with the way we are recognizing loss obviously and then, we still have time for ultimately recovery to go after the guarantors.

You know the charge-off numbers that are posted in this period may not reflect your ultimate loss given default on a particular credit.

And I can tell you specifically on what is in this quarter, we have significant identifiable recovery available against that charge-off.

Tell us how you charge -- what's your methodology to charge off?

So you charge off very aggressively upfront then, I assume?

Yes.

I think that was what I was alluding to was that we have been looking at recover -- the value of the asset in terms of recovery, coupled with the strength of the guarantees that we have with the underlying borrowers as basically trying to resolve the credits simultaneously.

I would say the situation with some resolution of whatever the shortfall would be is the guarantee from the borrower.

We are now shifting our view specific in this business just giving market changes in liquidity for the asset sales to be more on -- reflective of that before they get transferred into repossession as opposed to at repossession or subsequent to repossession.

I'll call it -- I'll just call it excuse me subsequent to repossession.

And I think that is a little bit of a subtle shift for us as an organization.

And, again, we are just being responsive to what we are seeing in the marketplace.

There's not a lot of ownership of foreclosed property and that kind of thing in your REO balance that's associated with this.

You are charging most of it down up front and then repossessing and then recollecting on the back end?

The bottom line is, we fair value what we repossess.

And specifically in a lot of these small -- in a lot of these particularly in equipment and finance, a lot of the stuff we are talking very small dollar amounts.

So it's a pretty consistent practice that we will be following in 2009 in terms of how we are going to make sure that we are very consistent in fair valuing upfront, reflective of current market conditions and inventory levels.

I think that is the big difference from what you could have seen on a repossession, say, back in the third quarter of last year to a repossession that may be taking place in Q1 or has taken place in Q1 or taken place in Q2 of 2009.

Then, real quickly to recap what you mentioned on the 30 to 89 day delinquency number there, what -- that was -- was it a granular amount there that caused that increase?

Or was it one or two specific loans?

In [Center Cap], in particular?

James Abbott Erie Yes into -- I'm, sorry, I'm on slide 16 so I'm not sure of the brand name of it but yes.

It's granular.

It's granular.

I mean, we are seeing increases in delinquency.

This is also seasonally first quarter is high water mark, but also obviously what is going on cyclically is driving higher, higher delinquencies.

There are no further questions at this time.

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

Thank you again for being with us today.