Webster Financial Corp (WBS) 2002 Q3 法說會逐字稿

Good morning, ladies and gentlemen.

Welcome to the Webster Financial Corporation's third quarter conference call.

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

Later we will conduct a question and answer session.

If anyone should require assistance during the call, please press the star followed by a zero.

As a remind, this conference is being recorded.

This presentation looks forward-looking staples within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, with respect to Webster's financial condition, results of operation 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 risk uncertainties and assumptions as described in Webster's public filings with the Securities and Exchange Commission which could cause future results to differ historically.

I would like to introduce your host, Mr. James C. Smith, chairman and Chief Executive Officer.

Please go ahead, sir.

Thank you, good morning, everyone.

And welcome to Webster's third quarter earnings call.

With me today are Bill Bromage, president and chief operating officer, Peter Mulligan, senior executive vice president retail banking and Jim Citro, senior VP for investor relations.

We've blocked out about 25 minutes for our presentation and we look forward to questions and comments.

As most of you have already seen from our earnings release, we continue to report significant progress in advancing our strategic plan for growth even in a challenging economic environment.

Simply stated, I'll say that Webster's strong loan growth, strong core deposit growth and growth and fee-based revenues are a result of our successful execution of our strategic plan and have contributed to our higher earnings for the quarter.

Among the important financial highlights in the quarter, which Bill Healy will cover in more depth are an increase in operating earnings of 15% over the third quarter a year ago, albeit the 02 earnings benefited from the new accounting standard regarding the amortization of goodwill.

Total revenue increased by 9% year-over-year, while return on average shareholders' equity exceeded 15%.

From a strategic perspective, Webster continues to deliver on our primary objectives of transforming the balance sheet by improving our loan and deposit mix and growing fee-based revenue.

Our recently completed acquisition of IBJ Whitehall Business Credit Corporation did just that by adding approximately $450 million in fully performing asset-based loans.

As well as the infrastructure, meaning the people and systems to deliver future growth.

Center Capital corporation, our Connecticut-based national specialty equipment leasing and financing subsidiary has produced sound, steady growth as well, increasing its portfolio about 31% from a year ago, to about 390 million.

Including the asset-based loans, total commercial loans now account for about 35% of the loan portfolio and amount to $2.9 billion.

Consumer loans, principally home equity lines of credit have nearly doubled from a year ago and now amount to 19% of the loan portfolio.

Revenues from fee-based services increased 9% to $41 million from $38 million in the year-ago period.

And again, a pretty good performance in a tough market.

We expect continuing growth in our fee-driven businesses as we make new products and services available to our customer base.

As you know, it's customary for Webster to record about $2 million of securities gains each quarter.

During this quarter, you can see we recorded $4.9 million of net securities gains which were offset by unusual one-time items totaling about $3.4 million in the quarter.

Bill Healy will explain those items in more detail.

Among the highlights of the quarter, we're pleased with early progress concerning our branch expansion plans.

Many of you know we opened our fourth new branch this year in September in Danbury as part of our plan to open twenty or more new branches primarily in Fairfield County over the next three years or so.

Deposit growth at these new branches continues to exceed our expectations.

And over 90% represent core deposits.

We expect that our de novo expansion plan will deliver $1 billion in new deposits by 2006.

Total core deposits grew almost 20% year-over-year to $4.6 billion at the end of the quarter.

Core deposits represent 63% of total deposits, up from 56% a year ago and our recent introduction of high performance checking should further fuel core deposit growth throughout the franchise.

As a special note, I believe that the quality of Webster's management team has been strengthened and deepened through the recruitment of highly capable executives with impressive big bank or large financial services company experience.

Particularly in the following areas -- Joe Savage as executive vice president for business banking.

Jo Keeler, executive vice president for risk management, including chief credit policy officer.

Warren Minhal, president of Whitehall Business Credit, Bill Samuelsson, Senior VP of small business lending, Bruce wolf, executive vice president for wealth management, Ned Brennan, executive vice president for corporate development (including M&A) and Patrick Murphy executive vice president for human resources.

We are poised for significant growth in the future as outlined in our strategic plan.

Turning to asset quality for a moment, you've seen from our report that non-performing assets increased by $21 million from the second quarter to $72 million.

While Bill Bromage will discuss the reasons for the increase later in call, the entire increase can be attributed to specialized industry portfolios where five loans totaling $25 million were deemed to be nonperforming as the result of the recently completed shared national credit exam.

Importantly, there was no change required in our classifications of these five loans during the quarter as a result of the review.

All five loans are secured and fully performing contractually as to principle and interest payments.

In October, we've taken aggressive action to dispose of two non-accrual cable loans.

We expect that the current provisioning plan of about $4-5 million per quarter should be sufficient to absorb net chargeoffs in the fourth quarter and in future periods.

We remain confident that our reserve coverage is robust at 1.4% of loans, especially considering that 65% of the loan portfolio is home equity credit lines and residential mortgage loans.

The bottom line for the quarter, the return on average shareholders equity was about 15.3% with cash return at 16.3% and cash return on average assets of 1.4%.

Book value per share rose about 9 percent year-over-yera to 22.43 and tangible back value rose 14% year-over-year to $16.03 .

At this time, I'd like to turn it over to Bill Healy and ask him to give the details of the financial report.

Thank you, Jim, good morning, everyone.

We are pleased to continue to report continued improved earnings for the quarter.

They were achieved despite a challenging interest rate environment, increased NPAs and a number of unusual items in our income statement.

We believe our core earnings continue to be positive and reflect the result of the strategic actions we have initiated through the years.

Reviewing the balance sheet, total assets at quarter-end were $13.3 billion, up $1.6 billion over the same quarter a year ago.

Most of the growth is due to increases in the securities and loan portfolios.

Total loans grew by $1.4 billion year-over-year.

Commercial loans increased $526 million due to the Whitehall acquisition, which added approximately 400 million -- 450 million in asset-based loans.

Center Capital, our equipment financing division continues to grow, increasing almost 92 million or 31% to 391 million at quarter end.

Consumer loans grew 87%, increasing 729 million, to 1.5 billion at quarter end due to the strong demand for floating rate home equity product and this interest rate environment.

Looking at our balance sheet on a link quarter, the increase of $783 million in total assets, occurred entirely in the loan portfolio.

Overall, for this quarter, loans increased 874 million.

Commercial loans increased by 492 million, consumer loans increased 168 million and residential mortgages increased 200 million.

The increase in mortgages can be attributed to closed loans held for sale and to the secondary markets which total 315 million at September 30th.

With the decline in long-term mortgage rates during the quarter, closings increased significantly in August and September.

These loans will be delivered against forward sales contracts in the fourth quarter.

We continue to have great success in increasing consumer loans.

These loans are primarily home equity credit lines.

As mentioned previously, the growth comes from within our own footprint and the majority are customers.

Today about 72% of the home equity portfolio is Connecticut-based.

Loans originated outside the footprint are predominantly in contiguous states.

We underwrite all these credits to our own standards and fund the production.

With the successful execution of our strategic plan, we have continued to improve the overall loan mix.

Commercial and consumer loans are now 54% of the loan portfolio, compared to 46% a year ago.

On the liability side, we continue to see progress in both growing deposits and improving the mix.

Core deposits grew in excess of 19% or 755 million over September 30th, 2001.

And they now represent 63% of deposits compared to 56% a year ago.

The growth continues to come in both checking and NOW accounts as well as in money market accounts.

On a link quarter, retail deposits were flat.

This is because of seasonality in our checking and NOW. account balances.

On average for the quarter, these deposits were up $103 million or 6% annualized.

Turning to the income statement, per share diluted earnings for the second quarter was 84 cents, up 20% compared to the prior year.

For the first nine months of 2002, operating earnings increased to $2.46 per share compared to $2.06 the prior year.

The third quarter in nine months of 2002 reflect the adoption of a new counting standard eliminating the goodwill amortization.

The comparative purposes had the requirements of the standard been applied to 2001 third quarter and nine months, diluted earnings per share would have been 78 cents and $2.28 respectively.

During this quarter, we had several unusual items impacting our earnings, which, when totaled, almost net to zero.

These items include an interest reversal of 530,000 in connection with five new nonperforming loans.

A write-down of 865,000 on our mortgage servicing asset. 830,000 of severance payments, 1.3 million of expenses incurred with the acquisition of Whitehall, the asset-based lending business, an increase 733,000 over last quarter and a write-down of 690,000 of an equity investment in a partnership.

These were partially offset by the increased amount of security gains we realized during the quarter.

Net interest income for the quarter increased 9.7% compared to a year ago period, due to increases in loans and the growth in low course core deposits.

Net interest margin was 3.52% in the third quarter compared to 3.54% a year ago.

On a link quarter, net interest income was flat and the margin declined by 9 basis points to 3.52%.

As noted, like most financial institutions, Webster is starting to experience margin pressure due to the recent drop in the long end of the interest rate curve.

As a result, our residential mortgage portfolio and mortgage-backed securities are starting to experience accelerated runoff.

And the proceeds are being re-invested at significantly lower yields.

Therefore, in the third quarter, reduced yields on securities and loan portfolios offset the volume growth in the loan portfolio.

At the same time, we have chosen to continue to aggressively price certain core deposit products to support our de novo branch expansion.

This is part of our strategy to deepen our customer relationships and build long-term value through deposit growth.

Non-interest income, our total fee-based revenues excluding security gains were up 8.6% in the third quarter compared to a year ago.

Commenting on some of the categories, deposit fees were up as a result of higher NSF fees and growth in business and cash management fees.

Loan and loan servicing fees increased due to loan prepayments and modification fees and increased gains from the sale of mortgages originated for sale into the secondary markets.

Partially offsetting this was the $865,000 write-down on the mortgage servicing rights.

Trusted investment services declined as a result of lower retail investment activity and the impact of the decline in the stock market has had on account values in our related fees.

Financial advisory fees rose primarily as a result of $1.2 million of M&A fees realized during the period.

Comparing link quarters, noninterest income increased 7%.

Excluding the mortgage servicing write-down, the increase was 9.3% and the growth occurred primarily in financial advisory services and deposit and loan fees.

Expenses grew by 6.9 million over the third quarter last year and almost all the growth can be attributed to compensation and benefits.

Salaries increased 5.5 million, of which almost 3 million represents new employees to support the growing lending and fee-based businesses and branch expansion. 830,000 represents severance.

About 1.9 million represents higher benefits and is attributable to increased payroll taxes, insurance and pension costs.

Also included in the third quarter were one-time expenses of 1.3 million associated with the acquisition of Whitehall and the $640,000 of a write-down in our equity investment, which is included in other expenses.

Expenses on a link quarter rose 5.3 million, about 2.8 million can be attributed to Whitehall, including the one-time acquisition expenses.

Another 1.5 million is due to the severance and equity write-down.

Our reported deficiency ratio for the quarter was 53.1%.

Excluding the unusual items I noted earlier, the adjusted ratio would be 50.6% in line with previously reported quarters.

Turning to asset quality, non-performing assets total 72.2 million or 0.54% of total assets at September 30th, compared to 60.2 million or 0.52% a year earlier and up from 51.6 million or 0.41% in the second quarter.

The increase can be attributed, as Jim noted, to the specialized industry portfolio.

The allowance for loan losses is a percent of nonaccrual loans was 169%, down from 206% in the second quarter and compares to 167% at September 30, 2001.

The allowance for loan losses increased to 116 million or 1.40% of loans as of September 30th from 96.7% or 1.40% a year ago and almost 100 million or 1.34% at the end of the second quarter.

The provision rose to 5 million this quarter, reflecting the growth in loans.

Net chargeoffs were 0.52% for the quarter, slightly above the 0.2% we've been averaging in previous quarters.

We would expect it to continue at between the 0.52% and 0.2% next quarter.

We believe the loan provision at $4 million to $5 million should be sufficient to cover net chargeoffs and maintain inadequate reserve going forward.

Finally, a word on our stock repurchase activity.

We were active repurchasing our shares during the quarter, buying back almost 2.1 million shares at an average cost of slightly over $35.

On a year-to-date basis, we repurchased 3 million and 16 thousand shares at an average cost of 35.75 .

Now let me turn over the program to Bill Bromage.

Thanks, Bill.

As you and Jim have reported, we've seen good growth in our loan portfolio.

And further transformation in that portfolio from the acquisition of Whitehall Business Credit Corporation, the growth we've experienced from our recent acquisition of Center Capital, and the strong consumer lending.

We made considerable progress toward our strategic objective of developing a loan portfolio with a mix of activities which provide for diversified growth as well as the ability to control credit risk.

But today I would like to focus on Webster's specialized lending portfolio, which totaled $434 million at September 30th.

At $434 million, this portfolio represented 5.2% of our total loans.

There are 83 issuers in this portfolio with an average loan size of $5.2 million.

This diversity is a reflection of our credit culture, one that diversifies a loan portfolio and limits exposure to any single borrower.

The results from the third quarter reflect the results of a recently completed shared national credit review.

In that review, there were no changes in the risk classifications to any of our shared national credits.

In classified loans in the specialized lending portfolio were 14.4% as of September 30th.

This compares to 17% at June 30th.

As Jim reported, five credits totaling $24 million are reflected as nonperforming as a result of the examination.

At September 30th, two credits aggregating $7.8 million were in the wireless portfolio and were classified as nonperforming.

These credits are currently paying interest and principal as contractually agreed.

An additional credit was added to non-performing, was a manufacturing credit related to the Telecommunications industry.

This credit is $6.6 million and is also contractually current with respect to principal and interest.

Also at September 30th, two table credits to separate operating entities of Adelphia, totaling $9.8 million were placed in a nonperforming status.

Subsequent to September 30th, aggressive remedial action was taken to dispose of these credits and we fully expect these loans will be out of our MPA totals in the fourth quarter.

The modest loss from this disposition will be absorbed through our normal provisions and chargeoff levels for the fourth quarter.

Our result in coverages will benefit and pro forma classified loans for specialized industry portfolio would have been reduced to 12.4% for September 30th.

The total remaining exposure to the cable industry is $40 million, consisting of five issuers, averaging loan size of $8 million.

These Adelphia credits were the only classified loans in that cable portfolio.

Giving a level of coverage of the telecommunications sector, a few words about our exposure is appropriate.

At September 30th, Webster had approximately $93 million in total loans extended to 15 borrowers in the broadly defined telecommunications industries.

This included approximately $45 million to the wireless sector.

This wireless exposure represents the $13 million or 22% decrease in outstanding since December 31, 2001.

Other exposure to the telecommunications industry, three credits discussed totaled $14.4 million are carried as nonperforming.

Incremental $17 million is carried as substandard.

In aggregate, the telecommunications exposure is 1.1% of total loans.

And our average loan size in the telecommunications portfolio is $6.2 million per issuer.

In general, we expect our loan portfolio to continue to perform well.

The diverse fiction we have built into the loan portfolio provides growth opportunities and an ability to manage risk.

Our reserve coverage is strong and our ability to continue to absorb credit costs remains well in place.

Jim, back to you.

Thank you, Bill.

I think it's clear from Bill's report that we have gone well beyond the norm in trying to provide you with the best possible information as to the make-up of our portfolios.

This is entirely consistent with our objective of being completely open and transparent in our reporting, as you've seen from our 10-K and 10-Qs and as you'll see from the 10-Q we'll be filing next month.

I hope you can see from today's reports that we continue to make convincing progress in our transition to a commercial bank-like financial services provider.

Today we're the largest connected based bank as measured by assets, market capitalization and profitability.

We have significant market share in our primary markets.

Our name recognition is growing through investment in Webster's "we find a way" branding program - especially in Fairfield County.

Our strategy is clear and widely communicated.

This provides a broad range of services to our consumers in our markets, which are expanding.

And we're making progress across business lines.

We believe our strategic initiatives position us well for growth in loans and deposits and growth in fee-based revenue.

We're also pleased to announce later this week, on Thursday, Webster common stock will be listed on the New York Stock Exchange under the symbol WBS.

As our execution of Webster's strategic plan continues to deliver strong results, we expect that our investors will increasingly value us for what we are today, a commercial bank-line financial services provider.

Over time, we expect to earn the higher price earnings multiple generally accorded to our banking peers, which would be worth at least two multiple points in our valuation.

Thank you for your interest and support.

We'd like to open the lines for questions and feedback.

Thank you.

If you have a question at this time, please press the one key on your touchtone telephone.

If your question has been answered or you wish to remove yourself from the queue, please press the pound key.

If you have a question, please press the one key.

One moment for questions.

Our first question is from Jack Vincentco of Lehman Brothers.

Vincento (ph) Hi, guys, how are you?

Hello, jack.

Vincento (ph): First question for Bill Bromage.

I don't know if I couldn't write fast enough. 14% nonperforming at the end of the June quarter and then -- 14% now and it was 17% nonperforming in the prior quarter?

Yes.

Vincento (ph): Okay, okay.

So this has grown then?

Classified.

Vincento (ph): Classified.

Okay.

The size of the portfolio, absolute size has not grown, correct.

It's up $20 million or so.

20 million.

Okay.

And just kind of some clarity, I guess, from Bill Healy on some fee income and G&A expectations going forward.

You had one-timers in trying to get a run rate inclusive of the de novos.

We should exclude the financial advisory fee gain on the fee income side.

Would that sound kind of right?

What is your thought around -

I think, of the increase there, about 1.2 million is from those two deals.

Right.

Right now, I think going forward you could take them out of the run rate.

Okay, okay.

And then G&A will trend similar to where it is because of the de novo branch openings excluding the charges associated with the IBJ Whitehall deal?

I think you could take out the 1.3 million one time.

We're done with the charges now with Whitehall.

And you know, the unusual charges we had for the quarter were another $1.5 million in the noninterest expense.

So I think you could take that out.

And you know, you've got one extra month of expenses for Whitehall, which generally run around 500,000 to 750.

You have to factor that back in.

Okay, okay.

One last question, you're moving to sell the cable exposure.

Any progress or any thoughts around either the wireless or the telco manufacturing exposure in the NPA bucket on the portfolio?

We have thoughts about it.

We think about the various disposition alternatives we have including managing through a process or eliminating and we evaluate the economic benefit of an early exit or not.

We don't have a common practice of selling all of our nonperformers.

Okay, great.

Thank you.

Our next call is from Laura Sacker from FBR.

Bill, this is probably for you.

I wanted to follow up on something Jack asked.

The Telecom total is 93 million as the nonperformers are 14.4 million.

Yes.

So that's 15.5 nonperforming for that one portfolio.

Yes.

To the extent you are growing your shared credit balances, can you share with us some of your goals as to why you're growing it, giving these trends?

I realize most of them are related to Telecom and wireless, but generally your thoughts.

I wonder in terms of the reserve coverage, how much is actually allocated to the share credit portfolio of the 116 million?

And it looks like in the quarter you provided five, you charged off five, you grew your reserves 16 million.

I guess that 16 million growth went through where, through goodwill?

The 16 million, Laurie, came from the acquisition of the Whitehall Business Credit.

We actually purchased that at less than par.

Right.

But I mean, where did that run -

There's no goodwill involved at all.

Okay, but -- okay.

So the increased reserves, we didn't see a provision there.

Fair enough.

We saw an increase to the reserve, but as I said, we were able to buy the loans at less than par.

And then the difference between the purchase price and par, we used that for a reserve --

To bump the reserves, okay.

I guess, as we look at Whitehall there's 450 million in loans, 16 million earmarked.

That's a 3.6% reserve.

I mean, I guess maybe you can share with us, too, why we need that much in reserves against that loan portfolio.

I guess generally, if you could share with us some of your thoughts as it pertains to reserves with Whitehall and the shared credits that, would be great.

Sure.

Laurie, it's Bill Bromage.

We do a detailed reserve process I'm sure you've been through it with other banks.

We have a very extensive process that we go through in terms of evaluating our reserves, in aggregate and individual portfolio.

We look carefully at that each quarter.

With respect to the shared -- the specialized lending portfolio, we have somewhere between 3.5% and 4% reserved coverage on that portfolio today.

And we don't break that down by Telecom specifically versus the other components of that portfolio.

With respect to Whitehall, we did an evaluation, loan by loan in that portfolio, if you recall.

There were not that many loans making up that portfolio.

We reviewed each one of them individually and determined, based upon risk ratings and expectations what we thought the reserves should be.

We had the benefit of placing what we thought was a strong reserve against that portfolio and in anticipation of what may be an economic downturn in the future.

Given that opportunity, we took advantage of that.

That's way we have the reserve we have.

That portfolio has performed well.

Should the economy weaken, we would expect there might be nonperformance, but we expect the loss would not be large in that portfolio.

With respect to your question on the specialized lending portfolio, that portfolio has moved up or down quarter-over-quarter, maybe $20 million up and $20 million down depending on the quarter.

Your comment about performances is, I think, accurate.

We have seen some difficulty in the telecommunications portfolio.

We had Adelphia exposure which we thought were strong credits, but there were other factors that impacted that credit.

That's for two of the nonperformers.

We think there's still reasonable opportunity to make selective loans.

We've been very selective.

We've upgraded the risk profile.

Some of the loans we put in that portfolio are investment grade, so that we feel comfortable with the mix of that business at this point.

Laurie, I'd like to add to that as well.

And say I'm glad you asked that question.

Without trying to get into parsing out how we reserve against each section to say that if you were to triple our loss experience in the residential side and the consumer side, you'd probably still conclude that we need less than $20 million of reserves against all of that exposure.

Then if you said, what's left?

You'd have well over $90 million against a portfolio that amounts to about $3 billion.

You can take it from there and see how adequate that reserve is.

One of the things that we have said is that we expect -- I know your big concern, is there any possible impairment of an earnings stream.

And our view is that the normal provisioning will be sufficient to offset any losses we expect from our portfolios going forward.

Now to the extent that for some reason you might need additional strength, we have this very conservative reserve methodology to support us in that regard as well.

Okay.

Can I just go back to Whitehall for one second here?

Initially, I guess kind of last quarter, prior to closing, this was a pool of 515 million loans and now it's 450.

You walked away from 65 million or what happened there?

No.

It was a -- we didn't walk away.

We were able to select which loans we wanted, but they weren't -- they were not -- we selected all performing loans.

But that was not -- we didn't walk away from that difference.

There was a fair exposure, I'm going to say in excess of $50 million carried as letters of credit.

So when we talk about actual fundings under commitments, we would include the letter of credit which would have taken us from a up over $500 million.

I don't recall getting as high as 550.

These are revolving lines of credit that are for working capital purposes and heavily used with some degree of volatility in them.

As of September 30, that portfolio was completely performing?

Yes.

It is performing now and, as I say, utilization rates go up and down on the lines.

That's what causes variability, including the letters of credit.

One last quick question, unrelated.

Your loan service for others, what is the balance there?

And what is that capitalized at?

Loan service is $1.1 billion and our mortgage servicing rights are 8.5 million.

8.5 million.

Thanks.

Thanks for the detail.

Thank you.

Next question is from Jarred Shaw, KBW.

Can you give us outlook on the margins and what you're seeing in terms of the prepayment of the MBS?

How much more exposure is there on the margin side going down?

Okay.

I guess going forward we would probably expect the margin to decline about another 8 to 10 basis points in the fourth quarter.

This is driven by lower reinvestment yields in the investment portfolio and mortgage portfolio.

Normally we would see about 70, $80 million of cash flows out of our CMOs in the mortgage -- in the investment portfolio.

We're seeing now upwards of about $190 million a month.

So there's an acceleration of payments coming off at significantly higher yields than what we're able to invest them in as we go forward.

Again, in the mortgage portfolio you know, we continue to see runoff in our mortgage portfolio.

As I said, the increase in mortgages this quarter is really a result of, you know, an increase in our mortgages held for sale and these are loans that we originate for sale into the secondary markets.

Normally we run about 80 to $100 million in that portfolio.

It's run as high as $350 million at the end of the quarter.

So -- and that all was a result of what happened at the end of August with long-term rates coming down and 30-year mortgage rates coming down.

We saw a rash of applications and all those loans started closing in September.

They were all slated for delivery into October.

Okay.

Thank you.

In terms of the pension fund, what was the charge?

Do you have a take on the pension fund this quarter?

I don't think we took a charge.

You mean the increased accruals in the benefits area?

Yes.

That was year-over-year.

This quarter, third quarter, it's the third quarter of last year.

That was part of the 1.9 million increase in overall benefits expense.

I would say that's about an $800,000 increase this year to last year.

Okay.

Thank you.

Okay?

Ok.

Our next question is from Jim Acker RBC Capital Markets.

Good morning.

Good morning, Jim.

I wanted to touch more on the mortgage-backed portfolio.

It looked like the overall level of the portfolio held pretty stable relative to the end of the prior quarter.

Obviously with the big acceleration in prepayment speeds, that would presume you're re-investing in additional mortgage back.

Would you be able to give us a little color commentary on what specifically you're buying?

Sure.

What's happened with the average life of the portfolio and most of the investment portfolio is in mortgage-backed securities, going into 2002, the average life of that portfolio was 3.2 years in terms of duration.

And now at the end of September it was down to 2.1.

And I think as of today, it's probably, you know, down under two years.

What we've been re-investing back into is five-year hybrid ARMs with an average life of probably a little over 2.2, 2.3 years.

And, as I said, the rate on that probably would range somewhere from 3.9% to 4.1%, 4.2%.

Can you give us any kind of an idea about how much of that portfolio is in five-year hybrids or something or pools of assets that have longer contractual maturities?

I think that, as I said, Jim, most of the longer term exposure that we had in the portfolio, we sold off at the beginning of the quarter.

That's when we took all of the gains.

We were afraid at that point term of interest rates and we didn't want to be caught with any of the longer dated.

So I would have to say that substantially all of the -- what we have left is really very short, the fact that we are down about 2 years average duration today probably about $2 billion of the portfolio is in the 5 year hybrids, I'd say.

Okay. but I missed it.

The financial advisory fees that were up pretty substantially in the quarter, I think you provided context, there but I missed it.

Yes.

I think they were up 2 million year-to-year.

I had mentioned that of the year-to-year increase, 1.2 million of that were related to two M&A deals that closed during the quarter.

They had been working on them for a period of time and finally they came to fruition.

Good deal.

Thanks a lot.

Thank you, Jim.

I'm showing no further questions at this time.

I'll turn the program back to you, gentlemen.

Thank you very much.

We appreciate your being with us today.

And we appreciate your confidence in Webster.

We look forward to speaking with you again soon.

Ladies and gentlemen, this concludes today's conference.

Thank you for your participation.

You may disconnect at this time and have a pleasant day.