Webster Financial Corp (WBS) 2003 Q2 法說會逐字稿

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

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

When we get to the question-and-answer session, instructions will follow at that time.

If anyone should require assistance, press star followed by the zero on your touch-tone phone.

As a reminder, this conference is being recorded.

This presentation includes forward-looking statements within the safe harbor provisions of the private securities litigation reform act of 1995.

With respect to Webster Financial's condition, the 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 like to introduce you now to your host for today's conference.

Mr. James C. Smith, Chairman and Chief Executive Officer.

Please go ahead, sir.

Good afternoon, everyone.

Welcome to Webster's second-quarter earnings call.

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

We expect our formal remarks to take about 20 minutes and then we look forward to your questions and comments.

Other members of the Webster management team also are here to respond to questions.

Webster's net income totaled $40.6 million in the second quarter, unchanged from a year ago.

Diluted earnings per share were 88 cents, up 7% compared to a year ago.

Particularly notable in this quarter, was continued growth in loans and deposits and strong growth in fee-based revenues.

Securities gains in the quarter, helped offset lower net interest income that resulted from the effects of significantly lower interest rates on yields in our securities portfolio, our decision to reinvest shorter term, and a modest reduction in portfolio size.

Webster is successfully implementing a strategic plan for growth that we initiated two years ago and described in detail to many of you last month at our inaugural investor day.

Today, I'm pleased to review with you our progress and momentum as seen in the second quarter and the first half of this year.

Our strategic plan is geared to four primary objectives.

They are to grow loans and deposits faster than the market, transformation of the balance sheet to a commercial bank profile in terms of the loan and deposit mix, increase income from fee-based services, and make strategic acquisitions that broaden and deepen our product lines.

Each of these objectives is pursued in the context of discipline, risk management, and expense control.

Bill Healy will comment in a few minutes about the financial elements of our progress during the second quarter.

I will briefly summarize the highlights as seen in the context of Webster's strategic plan.

Webster's loans have grown by 19% during the past year, aided by our acquisition of the Whitehall asset-based lending in August of 2002.

Post the Whitehall acquisition, we've grown loans organically almost $800 million or 10% since year end '02, even as residential loans were relatively flat.

Loans grew 200 million or 2 1/2% in the second quarter, even as revenues declined by over $100 million.

This performance resulted in commercial and consumer loans amounting to 59% of total loans at quarter end, compared to 52% a year ago.

Our goal is for commercial including commercial real estate and consumer loans to comprise 75% of total loans by 2006.

Our deposit mix already exhibits the characteristics of the typical commercial bank, with similar size to Webster.

Deposits grew $300 million or 4% in the quarter, and have grown by $480 million or 6% year to date.

All of this growth came in four deposits come total $5.5 billion compared $4.5 billion one year ago, and now account for 68% of total deposits compared to 62% a year ago.

Our high-performance checking initiative for consumers and small businesses, De Novo branch expansion, and data base-driven marketing efforts, supported the growth during the second quarter.

Turning to our objective to increase income from fee-based services, I want to focus on the six-month period for a moment, because we achieved a milestone of just over $100 million for the first half, a 31% increase from a year ago.

As a result, fee-based services accounted for about 1/3 of total revenues in the first half, compared to 27% a year ago, which puts us right on par with the commercial banks of similar size to Webster.

Organic growth in areas such as deposit service fees and mortgage banking activities and our Whitehall and Mathog and Moniello insurance agency acquisitions, during the past year, contributed about equally to the increase.

As the fourth primary objective of our strategic plan, you already can see in our performance how the four recent strategic acquisitions have broadened and deepened product lines, driven growth and revenue and profit, and contributed to our progress toward our strategic goals.

Whitehall ABL and Budget Installment, Corps, a premium finance company, have broadened the commercial loan portfolio. , Perry, and Cox is helping us create a financial planning-driven investment management approach to route, our now-consolidated, growth management platforms.

And Mathog and Moniello rounds out our insurance agency offerings, by giving us the expertise to provide risk-management services to self-funded insurance customers, especially in the areas of workers comp and group insurance and in June, we announced the acquisition of North American Bank and Trust at a time two times tangible book value and deposit premium of 10%, another value of creating acquisition for Webster shareholders.

The bedrock principle of Webster, particularly as our risk profile looks more like a commercial bank, is to maintain a strong credit culture.

Bill upon get into credit quality in a moment.

I would like to specifically cite how our nonperforming assets declined by almost $5 million since March 31 and classified loans have declined by $40 million over the past year.

Classified loans now represent 1.3% of loans compared to 2.1% a year ago.

This improvement is a clear reflection on Webster's approach to control risk and improve returns through effective credit portfolio management.

We all know how the recent interest rate environment has added to the complexity of managing a financial services company.

You will hear more from Bill in a moment about what the environment has meant for Webster specifically.

But, given the uncertain direction of interest rates and potential future effects on net interest income and the net interest margin, we understand that improvements in our operating efficiency is essential.

Our expenses were flat on the linked quarter basis.

We expect for expenses to remain flat over the balance of the year.

In 2004, we expect that expense growth will be lower, relative to revenue growth.

We have undertaken two initiatives during the course this year that are designed to strengthen our operating effectiveness.

A review of our procurement practices, which is expected to achieve potential annual savings of $3 million to $4 million and we have just begun the review of all of our processes and what we call, a Webster Process Optimization Program, that we expect will yield significant results, as we implement the best practices on the expense side of the income statement.

We will keep you posted on our progress in this regard in the next few quarters.

May I now ask Bill Healy to present the details of our second-quarter financial performance.

After Bill concludes his review, I'll provide a brief wrapup, then we'll take your questions.

Bill?

Thank you, Jim.

Good afternoon to all of you joining us on the telephone and webcast today.

We are pleased to announce another quarter of continued business momentum, an increased per-share earnings during the most challenging interest rates environment.

As Jim just highlighted, Webster's performance in the second quarter fits very nicely within the context of our strategic plan to grow loans, deposits, revenues, and earnings while transforming the balance sheet.

Key trends for the quarter include continued strong growth in core loans and deposits, improved credit quality with nonperforming assets declining from March 31, strong growth in fee-based revenues, and margin compression, reflecting the impact of continued accelerated prepayments in this low interest rate environment, which we offset during the quarter with security gains.

Each of these contributed to Webster's net income of $41 million in the second quarter.

Which corresponds to diluted earnings per share of 88 cents.

An EPS increase of 7% over a year ago.

Total revenues, excluding security gains, were $150 million in the second quarter.

This represents a 7% increase over a year ago, but a 3% decline compared to the first quarter.

Revenue growth compared to a year ago was led entirely by a 29% growth in our fee-based services.

The link-quarter decline in total revenues is a clear reflection of the effect a second quarter's interest rate environment had on net interest income and on our net interest margin.

Net interest income of $100.6 million in the second quarter declined by 2%, compared to a year ago.

And by 4% on a link-quarter basis.

The net interest margin for the second quarter was 3.10%, compared to 3.61% a year ago and 3.30% in the first quarter this year.

All of the $4 million decline in net interest income from the first quarter resulted from a reduction of $6 million in the interest income in our securities portfolio.

This reduction is attributable to $1.4 million of incremental acceleration of premium amortization.

The significantly lower reinvestment yields on cash flows, and a $110 million reduction in our securities portfolio during the quarter.

As a result, the yield on the portfolio declined by 50 basis points, when compared with the first quarter.

During the quarter, we realized $8.7 million compared $2.6 million in the first quarter of security gains.

The incremental gains of $6.1 million offset the $6 million reduction of interest income in the securities portfolio.

Unrealized gains in the portfolio at the end of June were $85.6 million.

Fee-based revenues grew by 29% over the past year and amounted to $49.6 million in the second quarter.

Growth in fee-based revenues, over the past year, have come about equally from acquisitions and organic growth.

Our recent acquisitions contribute $5.3 million to fee-based revenue growth over the second quarter of last year.

While another $5.8 million of growth came from our fee-based businesses.

Some of those increases were as follows.

The deposit service fees were up 17% year over year, mostly a result of growth in accounts.

Insurance revenues were up 57% due to the Mathog and Moniello acquisition and increased premiums.

Loan gains were up 228% due to the loan origination volumes that we experienced during the quarter .

Revenue growth at Duff & Phelps Management were up 20% and 11% , respectively.

Loan-on-loan servicing fees excluding, $1.8 million of write-down that we had in our mortgage servicing rights, grew by 52%, largely due to the Whitehall acquisition.

The book value of our mortgage servicing rights were approximately $4.6 million at June 30, including a $2.8 million will valuation reserve.

Comparing to the first quarter, fee-based revenues declined by 2%, mainly as a result of a decline in insurance revenue, that is mostly driven by seasonality in the business, and a $1 million incremental write-down in our mortgage servicing rights.

You may recall, I just mentioned, we had our $1.8 million write-down in this quarter, and that compares to a $750,000 write-down that we experienced in the first quarter of this year.

Excluding the incremental write-down of mortgage servicing rights, fee-based revenues were flat on a link-quarter basis.

Non-interest expense growth over the second quarter of last year also reflects the effects of acquisitions and underlying business growth.

Compared to the second quarter of last year, recent acquisitions represented $4.7 million of the total growth of $4.4 million in expenses.

Salaries and benefits represented a majority of the remaining $9.7 million of growth.

This largely reflects the effects of annual salary increases and strategic investments made to support the expansion of our mortgage origination business with four new regional offices and the addition of four De Novo branches and an increase in equipment finance lending staff.

On a link-quarter basis, non-interest expenses were flat as a result of our expense-control efforts.

As Jim commented earlier, we are taking an especially critical look at our expenses in light of the current interest rate environment.

We have several programs under way to reduce our expenses as we move forward.

Turning to credit quality, non-interest -- excuse me, nonperforming assets declined to $57 million at June 30, compared to $61.9 million three months earlier and $51.6 million a year ago.

Most of the $4.9 million reduction from March 31 of this year, is accounted for by a full cash payment that we received on one of the Telecom credits carried in our held-for-sale portfolio.

Nonperforming loans held for sale declined from $3.4 million at March 31, to zero at June 30, in addition, nonperforming commercial real estate declined by $2 million during this quarter.

Net loan charges in the quarter were $4.4 million, which represents a charge off ratio of 20 basis points.

This compares to 18 basis points in the year-ago quarter, and 16 basis points in the first quarter of this year.

Turning to a review of Webster's balance sheet, total assets at June 30th, were $14.5 billion.

This represents growth of 16% compared to a year ago, and is relatively flat from March 31 of this year, although there has been a significant shift in the mix on a link-quarter basis.

Looking at loan trends on a year-over-year basis, total loans increased by almost $1.4 billion or 19%.

Commercial loans increased $618 million, reflecting the Whitehall acquisition and growth of $96 million or 26% in our equipment finance portfolio.

This growth was partially offset by a reduction of $85 million in our specialized portfolio, which now totals $254 million, excluding $83 million of CLO's.

Additionally, the commercial real estate portfolio increased by $152 million, or 15%.

Substantially, all of our consumer growth of $619 million continues to come from home equity loans.

Over 70% of these loans are to customers in Connecticut, with strong credit scores, Fico scores generally, between 725 to 750.

Today, our delinquency charge experience, continues to remains low.

Total loans have grown almost $800 million or 10%, since December 31, on a link-quarter basis, total loans increased by $200 million or over 2%.

Excluding our $116 million reduction in residential mortgage loans, this link-quarter growth would have exceeded $300 million.

Commercial grew by $63 million from March 31 or over 12%, on an annualized basis, with strong contribution was middle market, small business -- contributions from middle market, small business, asset-based lending, and equipment finance.

Commercial loan growth would have been even stronger, if it weren't for the continued reduction of $27 million during the quarter in our specialized portfolio.

Commercial real estate increased by $82 million, and continued strength in our home equity origination supported loan growth of $172 million or 9% in that portfolio.

The Health For Sale portfolio was $321 million on June 30, unchanged from March 31.

This portfolio was comprised of first mortgages originated by the national wholesale business and is awaiting delivery of contracts in the third quarter.

Originations during the second quarter totaled $1.2 billion, compared to $480 million a year ago and $975 million in the first quarter of this year.

This growth in origination reflects the receipt expansion with the opening of four offices within the last year.

Gains on sale from this portfolio contributed $4.1 million to fee revenues in the second quarter, compared to $1.2 million a year ago and $2.8 million in the first quarter.

As we noted in our earnings release, these gains provide a natural hedge against write-downs in our mortgage servicing portfolio.

On the liability side of our balance sheet, we maintained our momentum in growing our deposits, and changing the mix away from c.d.'s.

Total loans grew by almost $750 million, or 10% from a year ago.

While forward deposits grew by over 20% during this period.

Core deposits grew by $300 million or 6% on a link-quarter basis, representing an annual growth of over 24%.

This deposit growth of $300 million along with $100 million reduction in our securities portfolio funded $200 million of loan growth and $200 million reduction in our borrowed funds position, during the quarter.

Our borrowed funds are now down to $4.6 billion or 32% of assets.

As I noted earlier, the securities portfolio was reduced $110 million during the quarter and at 30% represents it's lowest percentage of total assets in 2 1/2 years.

During the second quarter as market rates dropped precipitously, we maintained the duration of our portfolio at about, 2.4 years in order to position Webster to benefit from rising rates, and we concentrated efforts on purchasing well-defined cash flow securities.

We did not change yield and continued the preparation and positioning of our balance sheet for rising rates.

The securities portfolio yields 4.5%, yet has very little premium at risk during this period of still-high cash flows.

Our interest rate risk profiles, continues to be asset sensitive.

For a 100-basis-point increase in rates, we expect net income to benefit by 6% to 9% over 12-month time frame.

Looking ahead, we expect the interest margin to stabilize in the third quarter and remain in that range for the balance of the year.

We base this on our expectation for an improved yield curve and the ability to reinvest securities at a higher level than during the first half of this year, along with a reduction of rates paid on deposits that we have already implemented late in the second quarter.

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

Thank you, Bill.

I think that through our recent meetings with many of you and through our recent investor presentation and ongoing conference calls that you can see that Webster has the strategy, the team, and the discipline to compete successfully as a commercial bank life provider of financial services.

We've built intrinsic value at an attractive rate for shareholder and remain committed to doing so in the future.

In fact, we believe that we're creating intrinsic value faster than the commercial banks that we compare ourselves to.

While our stock price has appreciated by 41% since the end of 2000, compared to 38% for the pure median.

A significant value gap is still evident.

Our earn-out of intangibles under assumed growth of 8% annually and a 25% dividend payout is around 5.5 years, which compares very favorably with our peer group of 17, similar sized commercial banks.

And while our business profile already looks very much like a commercial bank, our PE multiple is the lowest in our peer group, almost two points lower than the median.

Further, our price-per-share as a multiple of revenues is the lowest in the group:and our implied discount rate among earnings is the second lowest in the group.

We have made progress on the valuation front.

For example, we've reduced the absolute PE discount relative to the peer median since we undertook the current strategic plan.

The opportunity for closing the valuation gap further is clear.

Our effort to get the message out about who Webster is today appears to be resonating, and we remain committed to the precept that the better you know us and the more you know about us the more confidence you'll have in us and our ability to achieve our plans.

Thank you for your interest in Webster.

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

Okay.

Thank you, sir.

Ladies and gentlemen, on the Q&A bridge, if you wish to ask a question, key star one on the touch-tone phone.

All questions will be taken in the order in which they are received.

Once again, if you wish to ask a question, press key star.

Sir, give me a moment while I get the first question.

Sir, your first question is from Laurie Hunsicker, from FBR.

Hi. good afternoon.

Just a few questions, if you could address, I guess generally with respect to the acquisitions we saw announced this morning, Jim, maybe if you could just touch on, you know, your thoughts as far as pricing or more broadly, your thoughts in terms of the landscape of Connecticut.

Seemingly, there's not a lot there, and certainly I guess, too, with respect to your balance sheet transition, maybe if you could update us on charter flip.

And then one last question for you, Bill, when you talked about stabilizing margins in the third quarter, I guess two things, stabilizing with respect to where we are here at the310 level, and number two, I'm thinking the capital securities expense line is actually flipping up with an interest expense, starting July 1.

But I'm not totally clear on that.

Maybe if you could just help us out with some guidance there.

Thank you very much.

All right.

I'll start with the announcement today, which you probably know, the New Haven Savings Bank is going to acquire SDMC and ANE, the Collins Bank, and I congratulate New Haven Savings Bank on the initiative and their successful negotiation of the transaction.

They will, of course, simultaneously convert to a publicly owned institution, as a condition of the transaction.

We know all three banks and compete in their respective market places.

This will create a bank in Connecticut with cash assets a bit more than $5 million.

So it's a continuation of the consolidation in the market, that is not unexpected.

It's an unusual transaction, of course, because it does involve three players and includes the conversion from mutual to publicly owned form of one of them.

So, I know that they will certainly have their hands full over the next several months and n gaining approvals and preparing to operate as a single entity.

All these banks are good colleagues. we know them well, and we wish them well and we will continue to compete against them as we have in the past and anticipate that we will be successful in that regard.

Then, as regards the charter, we've said I think openly that we expect to make our decisions and should we decide to convert, we'll complete the conversion prior to year end.

Bill?

Thanks --

Laurie, your question on the margin for the quarter, we averaged 310.

I would see that declining modestly from here.

And you know, I would see it stabilizing at that level then for the third and fourth quarters.

And I guess as far as your question on the capital securities, that does not include the effect of the capital securities reclassification of expense into margin.

As you know, we carry that expense right now, in our non-interest expenses.

The impact of that to us would be about, you know, nine or 10 basis points on the margin, as we go forward.

Okay.

And then just to the extent that we continue to see margin pressure and hear you're just going to continue to offset that with higher gains.

That will be a tool that we would continue using.

We look at it as a natural hedge.

As rates are declining, the value of securities portfolio will rise.

As rates are rising, of course, that will have a positive impact on net interest income particularly for the retail spread, which I think you noticed held relatively strong in the second quarter.

Yeah.

Thank you very much.

Okay.

Thank you.

Your next question is from Kevin Timmons of CL King and Associates.

Hi guys,Lori actually hit my question on the margin.

Maybe you can give us color for what the business lending environment is like, you know, over the last couple of months.

I'm going to ask Bill Bromage to respond to that.

Good morning or good afternoon.

I guess from our perspective, we have seen a step up in lending activity.

We have been actively -- those of you in our investor day understand that we've been actively out in the market, aggressively seeking quality accounts and have had some success in that.

We do embedded in that, see some level of activity in terms of len demand increasing.

We are cautiously optimistic.

I would not want to portray the market as recovering in a robust fashion at the moment.

It's still a relatively slow as you go.

We are seeing some pickup in activity and some pickup in loan demand and we are encouraged.

You've seen our results, which Bill discussed in detail and we have had increases in all of our commercial lending activities, save the specialized lending.

This national syndicated book.

So, we are pleased with the breadth of the increase we have seen across our organization.

And Bill also went through the consumer lending, and we continue to see strong demand on the home equity lending side.

So, we are encouraged by that, as well.

But, we are cautious about the future.

But, hopeful that we will have the economic recovery will spur further demand.

Thanks.

And also huh mentioned in the comments about some deposit repricing you had done.

Can you tell us anything about the magnitude what you did.

What it was, we lowered our yields for deposits.

Where we thought we could and remain competitive, which we expect will have an impact of $3.5 million over the next six months.

When you look at it, Kevin, the cost of retail deposit was slightly over 1.6% for the second quarter.

At the end of June, that was down to 1.40% for the month.

Okay, thank you.

Thank you, sir.

Your next question, from Jared Shaw of KBW.

Good afternoon.

Most of the questions I had were answered.

If you could let us know progress at Whitehall and what the originations were with the subsidiary this quarter and if any are nonperforming, or are they all still performing loans?

Bill, why don't you --

Yeah.

On Whitehall, the specific origination number I'm not sure I have.

We've seen net growth in that portfolio over the quarter.

As far as performing, we had a single loan for about $7 million or $7.5 million, go nonperforming in the quarter.

It's a company that provides construction equipment and has been impacted by the slowdown in that sector and cash flows are tight, and we've made a judgment call that we should place that loan on nonaccrual.

Even though it is paying us and have done so.

Otherwise, the credit quality in that portfolio continues to hold up as we have previously reported.

Great.

And then when you break out nonperforming loans, would Whitehall fall under the -- sorry, under the general commercial category?

Yes.

As you see nonperformers and look under commercial and industrial, it would be in the commercial industrial.

The only commercial industrial segment we've broken out, because of the past keen interest in it has been the specialized lending portfolio.

Jared, when you look at our earnings release in the financial statements, that would be in the commercial line.

And included in that $27 million -- 900 thousand total.

Okay.

Thank you very much.

Okay.

Thank you.

Your next question is from Sal DeMartino of Bear Stearns.

Good afternoon, guys.

How you doing?

Hey, just two quick questions.

One, with the early success of your De Novo branching campaign and this morning's acquisitions, do you have any plans to accelerate the opening of new branches in order to benefit from any customer at this location that may occur?

And my second question, just a follow up on the business lending question.

What are your borrowers telling you about their business outlook?

I mean, in other words, is a lot of the increase in borrowing activity, a result of better prospects for your customers, or are they just trying to lock in low rates before rates go up?

I'm going to ask Bill Bromage to answer the second question.

And Peter Mulligan, who is Sr.

Executive Vice President of Retail Banking, to answer the retail question.

Sal, I think that the answer to the commercial side in terms what we're hearing from borrowers, I think it's a combination.

We are marketing more effectively across the spectrum of activities and seeing positive results from that.

Having said that, we do see embedded in some of that , that some of our customers are seeing better prospects, not uniformly across the board, but we are seeing better prospects.

And we are also seeing companies who are anxious talking about the opportunity to expand and anxious for the turn and looking to take advantage of it and seeing some early signs that people are beginning to gear up for that.

Peter?

Sal, Peter Mulligan.

The question as to our early success with the De Novos has, in fact, spurred us to increase our activity and look for additional locations both in Fairfield county and Westchester county.

Your question, however, really relates to our existing franchise, and one of the things that has gone on in recent year has been a review of our existing franchise to look for markets within our existing foot prints.

That has been accelerated and I think the announcement today will accelerate that even more, as we look forward pockets of opportunities in our own market, both in Hartford, New Haven, and Fairfield counties.

Great.

Thanks, guys.

Thank you.

Thank you, sir.

Your next question is from Neil Swammy of Delphi Management.

Hi, good afternoon.

Hello.

How many branches were you planning to open this year?

Peter Mulligan?

The plans are to open about four branches this year.

We are having some difficulty with town approvals.

So we may -- a couple may slip over into first quarter of '04.

But, the plans were to try to get four more open this year, and then accelerate that activity to somewhere around two, three, or four a quarter going forward.

Okay.

And maybe you mentioned this, but if you could update me on your syndicated long portfolio, how big it is and what the exposure is to different sectors and what the trends are on that.

Yes.

This is Bill Bromage again.

On the syndicated portfolio, our total portfolio has been reduced about $27 million in terms of fundings.

We're roughly at 340 at the end of the second quarter, which is down from about 370 or 365 the previous quarter.

That reduction came in the syndicated or highly leveraged sector as our -- that includes about $80 million, $85 million of investor-grade, CLO obligations, as we've talked about.

The reduction that you saw was about $5 million of that came in manufacturing and about 15 came in the telecom sector.

So, we are down significantly in that sector and have today our largest single sector is manufacturing, with about $50 million, and our wireless and telecom is also slightly under $50 million in total.

During the quarter, we also had been carrying a nonperformer in the telecom credit and our assets held for sale.

That loan paid, cash down.

So, we now have a zero balance in that loan, in our held-for-sale category.

That was just a paydown because the company refinanced.

We are seeing positive progress in that portfolio and are encouraged by the recovery that we've seen in the market.

Thanks.

Thank you.

The next question, Laurie Hunsicker of FBR.

Hi, just to follow up again on something that Jared had asked.

I guess you saw an increase, you said within Whitehall, this is your first nonperformer of $7 million.

I'm looking in here, your business banking nonperformers totaled $28 million this quarter, $28 million last.

I guess that would imply that you had a $7 million cleanup within the portfolio, because link quarter stayed flat.

I guess if you could comment on that.

And also I think in the business banking portfolio, the $14 million loan that came on last quarter, that you were investigating for fraud was in the portfolio.

Just wondered if you could give us an update on that, as well.

Thanks.

Sure.

The credit that went in was 7.5.

We have a normal flow of charge-offs that obviously impact the level of nonperformers.

And we had $3.5 million or so of commercial charge-offs, which reduced that portfolio the hard way.

As well as cures that's took it down another 3.5 or more from the perspective of just cures.

So --

Got it.

It's the normal flow, Laurie, if you will, in terms of that portfolio.

We expect some ins and outs.

We're not uncomfortable with the aggregate level of nonperformers that we have.

With respect to the credit we referred to earlier, our carrying balance at the end of the second quarter is slightly in excess of $8 million.

That reduction was through collections and a good portion of the charge-offs we took were on that particular credit.

Okay.

We continue to look at that credit as one that -- as you recall, there was a fire involved and some insurance.

And we expect that insurance proceeds would cover the remaining balance,al be if t if we look into the future that may -- balance, albeit if we look into the future that may affect how the insurance is paid, going forward.

Nevertheless, we still look at the insurance coverage as being adequate to cover what we're carrying on the books.

Okay.

Thank you very much.

I thank you.

Once again, ladies and gentlemen, star one if you have any questions.

Sir, your next question is from John Lloyd.

Hello.

You talked about the loan growth which was of 19% year over year and I was wondering if you could comment on how much of that $1.4 billion decrease in loans of organic as opposed to coming from acquisitions.

Yes.

Of the 1-4, the acquisition that we had in that particular time frame was Whitehall business credit.

And at the time of acquisition, it was approximately $450 million in outstanding.

The balance was organic, including some organic and Whitehall.

But it was pretty much across the board as I mentioned.

Okay.

And was wondering how many loans you sold during the quarter.

And of that amount, what would have been either nonperforming or classified.

During the second quarter, we sold no loans.

Thank you --

You're talking about our commercial -- or held- for- sale.

Obviously we sold some residentials in the normal course.

Yes.

Yes, did I mean from the commercial.

Thank you.

Thank you, sir.

Once again, star one for any questions.

Sir, I have no further questions for you at this time.

Very good.

Thank you.

In closing, I'll just say that I know there's been a lot of discussion about interest rates and whether they will rise or fall.

I just want to reiterate that we are asset sensitive.

We believe it will fare well in a rising interest rate environment, especially if there's a commitment to keep short rates low in the interim.

I think Bill mentioned expectation as stabilization in the margin sometime in Q3, that could be accelerated by the recent moves upward in interest rates.

In fact, our margin was flat, I believe, from May to June.

So, we're quite pleased with our position, particularly if rates continue at or higher than the current levels.

I'd like to thank you all again for joining us today.

We appreciate your interest in Webster.

We look forward to the next call.

Thank you.

Okay.

Thank you, sir.

Thank you, ladies and gentlemen.

This brings your conference call to a close.

Please feel free to disconnect your lines at any time.