Webster Financial Corp (WBS) 2006 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Webster Financial Corporation second-quarter earnings conference call.

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

Later we will conduct a question-and-answer session, and instructions will follow at that time. (OPERATOR INSTRUCTIONS).

As a reminder, ladies and gentlemen, this conference is being recorded.

Also, this presentation includes forward-looking statements within the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 with respect to Webster's financial 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 and uncertainties and assumptions, as described in Webster Financial's public filings within the Securities and Exchange Commission, which could cause future results to differ materially from historical performance or future expectations.

I would now like to turn the conference over to your host, Mr. James C. Smith, Chairman and Chief Executive Officer.

You may continue, sir.

Good morning, everyone.

Welcome to Webster's second-quarter 2006 investor call and webcast.

Joining me today are Bill Healy and Jerry Plush, who is succeeding Bill as CFO, and Terry Mangan, Investor Relations.

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

I will provide the highlights and strategic context for the quarter, and then Bill Healy will provide details on our performance.

Second-quarter results can be characterized as solid operating performance in a challenging interest rate environment.

In our earnings release earlier this morning, we reported $0.81 in diluted earnings per share, compared to $0.85 a year ago.

Cash EPS of $0.88 compared to $0.94 a year ago.

The $0.07 difference between cash and GAAP EPS reflects intangible amortization of $0.04 a share and stock-based compensation of $0.03 a share.

Webster has expensed stock-based compensation costs since 2002, so there is no incremental effect to us under FASB 123 when you compare our results to 2005.

Webster is a member institution of the Federal Home Loan Bank of Boston, and maintains an equity investment in the Federal Home Loan Bank Boston stock of $134 million at June 30, about the same as March 31.

During the second quarter, FHLB Boston began implementation of a change in the timing of dividend declarations and payments on its stock.

Under the change, Boston did not declare a dividend in the second quarter, but represents that it will declare and pay the equivalent of two dividends in the third quarter.

As a result, our second-quarter results do not include any dividend income on the FHLB Boston investment or the equivalent of $0.02 a share.

FHLB Boston dividend income of $1.8 million or $1.2 million net of taxes, representing $0.02 a share, was included in Webster's results for the first quarter of this year.

The FHLB Boston dividend represents a contribution of $1.7 million or $1.2 million net of taxes and also $0.02 a share in the second quarter of 2005.

EPS also was affected apart from FHLB by a $0.01 per share negative impact from wholesale spread, compared to a favorable contribution of $0.11 a share a year ago.

So adjusting for FHLB and wholesale spread, EPS from core banking activities were $0.84 a share, compared to $0.74 a share a year ago.

Seen another way, core banking activities represented all of EPS in Q2, compared to 85% a year ago.

This result underscores the improved quality of earnings we have spoken about over the past 18 months, and it remains the key point.

The net interest margin of 3.13% in the quarter or 3.17%, adjusting for 4 basis points of the FHLB effect, compared to 3.32% a year ago.

The adjusted decline of 15 basis points was entirely centered on a 113 basis point adjusted decline in what we call the wholesale spread, as an increase of 18 basis points in yield on the securities portfolio, apart from the FHLB effect, was offset by an increase of 131 basis points in the cost of borrowings.

As a result, the wholesale spread declined to negative 5 basis points adjusted for the FHLB effect in Q2 2006, compared to 108 basis points a year ago.

I should point out here that the wholesale spread consists of the yield on securities and short-term investments less the cost of borrowings, with borrowings including long-term debt such as trust preferred securities and subordinated debt.

Despite the challenging interest rate environment, we're pleased with how well the spread between the yield on loans and the cost of deposits has held up.

This is what we call the retail spread, which represents the largest component of franchise earnings.

The retail spread was 4.09% in the quarter, same as a year ago.

The retail spread relates to $12.6 billion of average loans in the quarter, which grew by almost $900 million or 8% from a year ago.

This is where Webster's core banking strength and momentum is coming from, as we execute on our strategic plan for growth.

In light of the prolonged impact of the flattening yield curve environment, we've continued to reduce the securities portfolio, and also kept its overall duration relatively short at 1.8 years for the available-for-sale portfolio and 2.9 years for the entire portfolio, including held-to-maturity securities.

Webster's security portfolio declined by $439 million or 11% from a year ago.

This reduction largely reflects the non-reinvestment of portfolio cash flows that we announced toward the end the last year.

As a result, the securities portfolio represented 19% of assets at June 30, compared to 22% a year ago and 31% at the end of 2002.

The decline in the securities portfolio contributed to a $192 million reduction in wholesale borrowings over the past year.

Wholesale borrowings now represent 22% of total assets, compared to 24% a year ago and 33% at the end of 2002.

We expect further reduction in the securities portfolio during the remainder of this year, as we continue to fund loans and pay down wholesale borrowings with maturing cash flows.

In order to accelerate the paydown in wholesale borrowings and reduce the influence of residential mortgages on our balance sheet, we have begun to sell all fixed-rate conforming residential mortgages originated in our footprint.

Previously, we sold loans outside the footprint.

Compared to our prior strategy of holding [ressies] relatively flat in absolute terms, we now should expect to see modest absolute declines in our ressie balances going forward.

Any lost spread should be replaced by expected ongoing strength and growth of higher-yielding commercial loans, so that there will be no financial implications.

This strategy should further contribute to a reduction in interest rate risk, since fixed-rate ressies are the longest, most variable-duration assets on our balance sheet.

Credit performance remains solid, with an 8 basis point charge-off ratio in the quarter.

The provision of $3 million once again exceeded net charge-offs, which totaled $2.5 million, resulting in a slight increase in the allowance for credit losses for March 31.

The allowance for credit losses represented 1.23% of total loans at June 30.

Nonaccrual assets increased by $2.4 million from March 31 and now total $64.3 million.

Our 8 basis point net charge-off ratio compares quite favorably to our peer group, and we have a track record of identifying and addressing [problem] credit situations early.

Our loan portfolio totals $12.7 billion and grew 8% over the past year with C&I up 14%, commercial real estate up 9% and consumer loans up 7%, for a combined rate of plus 10% over the past year, while ressies increased by a smaller 4%, as planned.

Commercial and consumer loans represent 62% of total loans, with strong performance reflecting solid organic growth in our core franchise.

Our deposits totaled $12.2 billion at June 30, and grew by 6% from a year ago, with demand and NOW deposits growing by 3%.

We have seen significant recent growth in CDs, as consumer preferences have shifted to this higher-yielding category over the past year.

Overall, deposit growth has lagged expectations from the beginning of year, reflecting the weakness in demand deposits seen across the industry and the challenge of retaining maturing promotional CDs in a competitive environment, while managing to net interest margin objectives.

We opened new de novo branches in Yonkers, New York, and Springfield, Massachusetts during the quarter, in addition to New Canaan, Connecticut during the first quarter.

So we have now opened three of the six branches we expect to open during 2006.

The Yonkers branch, our second (indiscernible), is among the seven branches we now have in Westchester County, New York.

The Springfield branch is the third location that we have opened in the greater Springfield area.

We have now opened a total of 22 branches under our de novo expansion program.

The de novo program had total deposits of $646 million at June 30, compared to $397 million a year ago.

This program is helping to ensure Webster's sustained organic growth.

The net expenses related to our de novo branching program were $0.02 per share in the second quarter of 2006, the same as a year ago.

We now have about $277 million of total deposits, and manage more than 150,000 accounts at HSA Bank, compared to deposits of $190 million a year ago.

The deposit growth from a year ago is 46%.

We also have $32 million in balances in 3,000 brokerage accounts.

We continue to expect around $300 million in deposits apart from brokerage accounts by the end of 2006.

HSA Bank recently announced an integrated relationship with Benefitfocus, the leader in consumer-directed healthcare software, as well as data transaction services, for insurance carriers and businesses.

Benefitfocus has relationships to provide automated enrollment, wellness and other programs to 150 insurers, and HSA Bank will attempt to work together with those insurers.

We continue to work on new integrated relationships with third-party administrators and insurers that we expect to bring accounts in 2007 and beyond.

Our recently announced relationship with Transamerica Financial, which is our first broker/dealer relationship, will position us uniquely in the independent insurance broker market.

Fee-based revenues increased 6% from a year ago.

Deposit service fees grew 11% on growth in retail banking activities.

Wealth management fees increased 15%, as we have seen strong performances from both trustees and investment product sales.

Our total core revenues, consisting of net interest income and non-interest income and excluding securities gains, were $183 million in the quarter, flat with a year ago.

Adjusting for $12.6 million less spread income from securities and Federal Home Loan Bank dividend income compared to a year ago, revenues from core banking activities increased by about 7.5%.

We understand the importance of expense control in today's operating environment.

While Bill will go into more detail in a moment, core expenses -- adjusting for investments in de novo branch expansion, HSA Bank, the higher net cost of our new core systems and noncomparable items -- grew by 2% from a year ago.

Included in this growth are continuing investments in revenue-producing personnel and our compliance buildout.

You can see from the adjusted 7.5% core banking revenue growth, these investments are manageable and worthwhile.

We are managing expenses closely in this extended flat interest rate environment, and you can expect continuing intense focus on expense control going forward.

Our capital position has strengthened noticeably over the past year, with tangible common equity grew by 5%, and our tangible equity ratio improved to 5.48% at June 30, compared to 5.38% a year ago, even as we have been buying back our stock to neutralize the EPS effect of the non-reinvestment of securities portfolio cash flows.

We also noted in our earnings release this morning that we have reached an informal agreement with our primary regulator, the Office of the Controller of the Currency, to address general bank compliance, including Bank Secrecy Act and related money laundering risks, Flood Act compliance and the internal audit program.

We have long understood that increased investments in compliance would be required, owing to the heightened regulatory environment in the financial services sector and our own decision to become a nationally chartered commercial bank under a new regulator, which took effect in early 2004.

We have been making the necessary staffing and MIS investments to ensure compliance, and have created firm timelines and initiated action plans that will allow us to meet our own expectations as well as those of the OCC.

Our increased compliance efforts are already well underway and, of course, require significant attention.

But we do not expect their obligations to have a material impact on our operations or earnings.

At our recent investor day presentation, I described what to expect from Webster going forward, including more loans and deposits, fewer securities and borrowings, more franchise earnings, less wholesale contribution, ongoing expense and credit discipline and tangible equity of approximately 5.5%.

Our second-quarter results meet these standards, and we see more progress ahead.

I will now ask Bill Healy to provide more detail.

Thank you, Jim, and good morning to all of you.

Webster's second-quarter results show a continuation in the trend of solid organic growth, strengthening of the balance sheet, expense discipline and solid asset quality.

But all of these positive trends continue to be impacted by the effect of short-term rising rates and the flat yield curve.

Particularly positives in the quarter included solid growth in loans, deposits and fees, expense management and further declines in securities and borrowings.

But the wholesale spread, which we define as the yield on securities and short-term investments -- less, of course, the borrowings -- continued to decline and in fact turned negative during the quarter.

This offset continued strengthen in core bank earnings, and resulted in a reported EPS decline to the prior period.

Further impacting earnings was the change in the Home Loan Bank dividend policy.

In reviewing our results, I will focus my comments for the most part on our linked-quarter performance.

The $0.81 of EPS in the second quarter compares to $0.82 in the first quarter, which included the equivalent of $0.02 of Home Loan Bank dividend.

So adjusting the second quarter for the lack of the dividend, EPS was up $0.01 from the first quarter.

In addition, the second quarter absorbed a $0.01 reduction of EPS from the wholesale spread, compared to a $0.04 contribution in the first quarter.

The $0.05 linked-quarter decline relates entirely to a 37 basis point drop in the wholesale margin, apart from the Federal Home Loan Bank dividend effect.

Adding back the $0.01 from the wholesale spread and the $0.02 effect of the Home Loan Bank dividend, results in core bank EPS would have been $0.84 for the quarter, up 8% from $0.78 in the first quarter.

Underlying performance in our core bank remained strong in the quarter, led by 8% annualized growth in loans, a $2.2 million growth in fees and reduced expenses when compared to the first quarter.

Reported net interest income was down from the first quarter, even after adjusting for the $1.8 million of Home Loan Bank dividend.

Strong growth in loan volume, particularly higher-yielding commercial and consumer loans, was not sufficient to offset the impact of rising interest rates.

The reported net interest margin was 3.13%, compared to 3.24% in the first quarter.

Keep in mind that the Home Loan Bank dividend had a negative 4 basis point effect on the net interest margin, and that the first quarter included a 4 basis point impact from the items that we described in our April conference call.

On this basis, the adjusted net interest margin was 3.17%, a decline of 3 basis points from the first quarter.

This decline was consistent with our outlook for the second quarter that we described in our April conference call.

Looking ahead to the third quarter, we will experience the full-quarter effect of the June interest rate hike, along with another 25 basis points expected at the August Fed meeting.

This, coupled with competitive pricing pressure on our deposits and consumer preference for higher-yielding products, leads us to an outlook for a margin of around 3.10% in the third quarter.

Non-interest income of $56.4 million was up 4% on a linked-quarter basis, and is one of the highlights of the quarter.

We saw a $2.3 million or 10% pickup in deposit service fees compared to the first quarter, mostly in NSF and ATM fees.

Wealth management fees showed continued strength, and increased by $0.6 million from the first quarter or 9%.

Both trust fees and investment product sales contributed to the growth.

Insurance revenues declined $0.7 million from the seasonally strong first quarter, and were down $0.6 million year over year, underscoring the need to improve expense discipline in this business.

Total expenses were $117.3 million.

This compared to $119.2 million in the first quarter, or $116.7 million when factoring out the $2.5 million of one-time items in that quarter.

A combined increase of $0.5 million in de novo branching and HSA Bank expenses represented virtually all of the increase from the $116.7 million.

Intangible amortization expense was $3.5 million, and declined by $0.8 million from the first quarter.

We expect this expense to be around $3.1 million in each of the next two quarters, apart from the pending NewMil acquisition, as core deposit intangibles from prior acquisitions run off.

Total expenses of $117.3 million in the quarter represent an increase of $3.8 million from a year ago.

This increase is composed of $1.8 million of higher de novo expenses, representing a full year of newly opened branches; $0.7 million of increased expenses at HSA Bank, in support of their growth and investment in infrastructure; $0.6 million of continued buildout of our compliance function; and $1.7 million from the higher run rate of our new IT systems.

These items were partially offset by a $3.5 million reduction in conversion and infrastructure costs reported in the year-ago quarter.

Adjusting for these items, expenses rose approximately 2%, and reflect investment in new revenue-producing personnel in commercial lending, in retail and in wealth management to support our strategic plan for growth.

Going forward, we expect our overall expense growth rate for the full year 2006 to be in the low single digits from an annualized $116 million quarterly run rate that we entered the year at, plus the $2.5 million of expenses particular to the first quarter of this year.

This is slightly less than our expectations last quarter.

Turning to a review of the balance sheet, total assets of $18 billion at June 30th increased by less than 1% from March 31st, as we continued using cash flows from securities to fund loan growth or reduce borrowings.

The securities portfolio declined to 18.9% of total assets, compared to 20% at March 31st Borrowings were 21.9% of assets, down from 22.5% last quarter and 23.7% a year ago.

The average duration of the $2.3 billion available-for-sale portfolio remained short at 1.8 years, compared to 1.9 years at March 31st.

For the entire portfolio, including held-to-maturity, the duration was 2.9 years, up slightly for the quarter, reflecting the effect of runoff.

Keeping duration short, particularly compared to our midcap commercial banking peer group, impacts our wholesale spread, but we feel that this is the absolute correct approach in the current interest rate environment.

Simply put, our investment portfolio has a short duration.

It is running off quickly, and is below peer median as a percentage of total assets.

Available-for-sale unrealized losses pretax were $64 million, compared to a loss of $55 million at March 31st.

Loan growth slowed slightly during the quarter, registering point-to-point growth of $120 million or 1%.

Reductions in CRE and residential offset continued growth in commercial and consumer.

Commercial loans were up 4% from March 31st, led by asset-based, equipment-financed and middle-market.

Consumer loans grew by $46 million or 2% during the quarter.

Although new loan application volume was brisk, we are seeing increased payoffs and diminished utilization levels in the equity line portfolio.

Commercial real estate declined $31 million or 2%, reflecting prepayments, though we expect a continuation of growth during the second half of this year.

Residential loans declined $16 million, and will continue to decline as we implement the plan Jim talked about earlier in his comments.

The provision increased to $3 million in the quarter to reflect a $2.4 million of charge-offs or 8 basis points of net charge-offs to total loans.

Total deposits of $12.2 billion increased by $138 million or 1% from March 31st.

A decline of $86 million in higher-costing treasury deposits [matched] a 2% growth in our retail deposits.

Overall, deposit growth funded loan growth during the quarter, and along with the reduction in securities, contributed to a reduction of $67 million in our borrowings and $86 million in our treasury deposits.

We continued to hold strong on deposit pricing by lagging elasticity and restricting premium rates in the de novo branches.

This discipline has contributed to our overall cost of deposits being around the median for our peer group of commercial banks through the first quarter, but constrained our growth to a certain extent.

Tangible equity ratio of 5.48% was the same in March 31st, even considering that we repurchased 459,000 shares during the quarter.

The tangible equity ratio is likely to remain in the 5.5% territory prior to closing the NewMil acquisition anticipated to occur in the fourth quarter.

There has not been a material change in our interest sensitivity position since March 31st, and we remain neutral to parallel changes in rates.

Our exposure of tangible capital to an upward shock in interest rates of 200 basis points is only 36 basis points at June 30th.

In summary, we posted solid second-quarter performance that demonstrates momentum in our core banking activities.

But the current interest rate environment has had a noticeable impact on our net interest margin and earnings.

This causes us to be that much more disciplined on our expenses, which you saw in the quarter and should expect to continue to see.

Now, I will turn the program back over to Jim for his closing comments.

Thanks, Bill.

To put the quarter in perspective, we are making strong progress in expanding the franchise, growing loans and deposits and realizing our potential as the largest independent bank based in New England.

Masking the underlying earnings growth is the negative impact of the wholesale spread, particularly the cost of short-term borrowings.

We are making a concerted effort to wear down those borrowings by adherence to the operating principles we have discussed with you over the past several quarters.

Cash flows from securities and from fixed-rate mortgages and the sale of all fixed-rate conforming products will surely reduce the wholesale borrowing effect as a break on earnings growth.

When the pressure of the current interest rate environment abates, as it will eventually, it will be much to Webster's benefit.

In the meantime, we are delivering sustained organic growth through the strength of our customer relationships and building on our strong competitive position in the region.

I think most of you know that Bill Healy will be retiring as Chief Financial Officer, and I just want to say how much we deeply appreciate his many contributions as CFO.

He has brought us to a higher level.

Those of you who know Bill appreciate what he has meant to us.

Please join me in wishing him well in what I assure will be an active retirement.

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

We would now be pleased to respond to your questions.

(OPERATOR INSTRUCTIONS).

Mark Fitzgibbon, Sandler O'Neill Asset Management.

Thank you for taking my question, and Bill, congratulations on your retirement.

First, I wondered if you could discussed in a little bit more detail the regulatory agreement and the impact that it may or may not have on your ability to de novo branch as well as do acquisitions.

Sure, I would be happy to do that.

As I indicated, we don't think it will have a material impact on our operations going forward.

We actually have made significant progress towards the goals that are expressed in the informal agreement, and we do not expect it to prevent us from achieving our strategic goals.

I will say that, as you know, we have been an OCC-regulated bank for a couple of years now.

They are a very strong regulator.

They are tough, but they are good, and they have made us better.

We understood when we made our charter conversion that there would be investments that would need to be made, that we would be transforming ourselves from having a decentralized approach to compliance to a centralized approach, that we would be adding staff, investing in systems.

We have done all that, and made a lot of progress toward the goals that are set fourth in our informal agreement.

So it would be one year until that was reviewed and lifted, presumably?

There is no formal timeline on the agreement.

I'm wondering if, given the radical increases in deposit costs that we have seen out there, does that change the economics meaningfully of your de novo branching model?

Have you kind of re-evaluated the economics of the model?

We're constantly looking at the economics of the model, to adjust for the changes in consumer preferences, for example.

But the base model itself has held up very well, and has been very reliable to us in anticipating particularly what the net income will be, and what the timelines will be for achieving it.

The biggest change here is that we decided not to pay as high promotional rates, and therefore we're willing to accept somewhat lesser growth in deposits than originally planned, without having a negative impact or at least a significant negative impact on the cash flow breakeven dates and profitability of the de novo branches.

Laurie Hunsicker, FBR.

Bill, I too wanted to say congratulations.

We're going to miss you.

Just to go back to actually the line of questions that Mark was on, as far as the de novo, I guess I had in my notes from the June investor day you planned to open five in 2006, and now that is revised to six?

Does that then slide the 2007 number from six down to five, or is six still a good number?

I think maybe we misspoke somewhere along the line, but I think we said six in 2006.

Okay, maybe I got it wrong.

So six in 2006 and six still planned for 2007?

I think the number in 2007 was actually intended to be higher, but we will say that number is fluid at this point.

It depends upon the operating environment.

Can you just give us an update -- I know you have really made a more specific focus on Rhode Island, and this is certainly small.

But can you just give us an update us to where you stand on your two newer branches in that market?

Yes.

Actually, I would like to ask Scott McBrair, who has responsibility for retail banking, if he would respond.

In terms of the two branches in Rhode Island, which is in Barrington and we call it Bald Hill, both are doing very, very well.

In fact, we may redirect a little more effort up that way because of the performance.

There's strong receptivity.

We are already marketing in those markets in terms of advertising, and it's producing tremendous small-business volume for us at this point in time.

I would also like to say that the Rhode Island group is under -- they've had a lot of new leadership, as you saw while you are at investor day.

It's really paying off for us.

There's a great deal of ownership, and just the entire organization has tremendous momentum right now.

I think the last numbers we had at the Barrington branch was at $35 million and Warwick was $15 million.

Do you have newer numbers on those?

Not right in front of me.

I guess this also goes back to Mark's question, but any thought, given the interest rate environment, at what point do you say a whole acquisition versus de novo is a better way to expand that Rhode Island/Massachusetts footprint?

Finding another NewMil or maybe just generally, Jim, what are your thoughts on acquisition here?

Well, there's a couple of ways to look at it.

One is that when the acquisition premiums come down, they will be more attractive.

On their own, even aside from the de novo, but we think the de novo program is working extremely well for us.

We plan to continue it.

There can be a two-pronged strategy, where you have a de novo plan, and that in its way even can create opportunities for acquisition.

I'll just give you an example that in the NewMil case, three of the branches that will be consolidated there will be consolidated into de novo Webster branches.

So it's not one or the other; it's both.

The value of the de novo plan is that it ensures our organic growth over the longer term, without having to rely on acquisitions to increase our revenue.

I would anticipate a continuing de novo program and our continuing interest in negotiating good, strong merger transactions with like-minded partners that share our vision of being the leading financial services provider in our markets.

If you were to try and quantify how big you could see yourself being in the next one, two, three years in assets, what would be that number?

I always shy away from that, because I never want to put a ceiling on our potential.

Fair enough.

Bill, can you comment -- the increase that we have seen in the C&I non-performers, specifically what is going on there, if you can give us any sort of detail?

Then, in terms of your amortization, do you have a number that includes NewMil as we look to 2007?

I will ask Jo Keeler to handle the question on the asset quality, and then to Bill Healy.

Let me give you a little color on the slight increase.

Our net increase in non-performers quarter over quarter was slightly less than $3 million, and essentially there is no trend or anything of interest, really, to report.

We have seen an increase in flow into our non-performing area throughout our small-business line, but in the aggregate, that was probably less than $2.5 million quarter over quarter.

We had one middle-market credit of less than $4 million that went non-performing, neither of which, I believe, constitutes a trend but rather is a reflection of a $5 billion commercial portfolio and the ins and outs of asset quality.

We still believe that our net credit costs for the year, as we described on investor day, should be in the neighborhood of 10 basis points.

So I don't see any material change from that view.

On your question about the number for NewMil on their intangibles, I don't have a number at this point.

You were asking about the de novo plans and the impact of the rising interest rate on those plans.

I just want to take the opportunity to say that we look at these de novos as much more than a deposit-gathering opportunity alone, and as much as the deposit-gathering is a boon to us, that our plan considers that we have a full portfolio of Webster banking, investment and insurance services that we can offer through those de novo offices, which really gives us the opportunity to drive revenue, not just from retail banking but from commercial banking as well as the other groups that I have mentioned.

So de novo resonates for us on a number of levels, and helps us to continue inexorably to expand our franchise, consistent with the plan that we have put forward.

(OPERATOR INSTRUCTIONS).

Collyn Gilbert, Ryan Beck & Co.

Needless to say, Bill, I certainly echo both Mark and Laurie's sentiments on your retirement.

That's great stuff.

Just wanted to follow up -- again, not to beat a dead horse on the de novo plans.

But would you anticipate assuming -- and this is probably a stretch on the assumption -- but that the cost per share on an EPS basis will continue to be about $0.02 a quarter, as we go into 2007 as well?

I think at this point, that's a good estimate.

What are your monthly origination volumes in the residential mortgage business?

I'm looking mostly at the fixed component that you all are going to start to sell.

Well, at this point, I can give you the total production.

In the second quarter, we were up to about $775 million of production in the residential area.

That is up from a little over $600 million in the first quarter, but down from about $870 million last year.

But we sell a lot of that already.

Yes.

She is trying to get a handle on how much additional sales will occur from in-market fixed [performing].

I think, going forward, we are probably talking maybe $20 million, $30 million in the coming quarter.

It's going to have to work up, and then it will take, really, hold in the fourth quarter.

Because today, the applications that we are taking, foreclosing and sale, really are not going to have an impact until the fourth quarter.

So the quarterly run rate going forward could be estimated, then, as somewhere between $50 million and $100 million, would you say?

Probably $50 million and $80 million.

Use $50 million to $80.

Ladies and gentlemen, there appears to be no further questions at this time.

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

Yes.

Again, thank you all for being with us today.

We appreciate your confidence in Webster.

Good day.

Thank you, ladies and gentlemen, for your participation in this morning's teleconference.

You may disconnect your lines at this time.