Good morning, ladies and gentlemen, and welcome to the Webster Financial Corporations' Third 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 Financial’s condition, results of operations, and business and financial performance. Webster has based these forward-looking statements on current expectations and projections about future events. These forward-looking statements are subject to risks, uncertainties, and assumptions as described in Webster Financial's public filings with the Securities and Exchange Commission, which could cause future results to differ materially from historical performance or future expectations. I would now like to introduce your host for today's conference, Mr. James C. Smith, Chairman and CEO.

Good morning, everyone. Welcome to Webster's third quarter investor call and webcast. Joining me today are Bill Bromage, our President; Gerry Plush, our CFO; and Terry Mangan, Investor Relations. I'll provide some highlights and context for the third quarter results and Gerry will provide details on our financial performance. Our remarks will last for about 30 minutes and then we'll invite your questions. In our earnings release, we reported $0.64 in diluted earnings per share in the third quarter, which includes the impact of $0.14 a share from an $11 million increase from Q2 to the allowance for credit losses, primarily in connection with home equity loans. This compares to EPS of $0.63 in Q2 and $0.17 a year ago and to adjusted EPS of $0.78 in Q2 and $0.77 a year ago. I'll speak to trends in business activity in the quarter and then provide a thorough update on our loan loss provisions and on asset quality prior to handing off to Gerry for the financial review. I want to say upfront that we believe we've applied a conservative standard in determining the Q3 provision, attempting to reserve today against the losses we foresee based on a thorough analyses of trends in force. As we've stated in prior calls, comparison to a year-ago continue to show the benefits of the balance sheet repositioning actions that we implemented late last year and the beginning of this year. While average earning assets in Q3 are $1.2 billion less than a year ago, a 37 basis point increase in the net interest margin to 3.38% contributed to a 4% increase in net interest income. Securities were 14.9% of assets at September 30 compared to 18.3% a year ago. Borrowings were 13.6% of assets compared to 21.9% a year ago. The benefits of…

Good morning. I would like to update everyone on our continued progress in several key areas. First, our tangible capital ratio, inclusive of the impact of repurchasing over 1.1 million shares in the third quarter, now stands in excess of 6%. Our TCE ratio of 6.17% as of September 30, 2007 is a solid improvement over the 5.66% we recorded a year ago at September 30 of 2006. Our tangible capital ratio for the third quarter remains higher than the 6% we’ve stated as our target range, which allows for ongoing capital management flexibility. Next, our loan-to-deposit ratio was 99% compared to 97% at June 30 of ‘07 and over 106% in September 30 of 2006. The improvement in this ratio over the last year is due to an $860 million increase in core deposits, partially offset by a $610 million reduction in broker deposits and the completion of the balance sheet repositioning actions. Our statement of financial condition show that compared to June 30 of 2007, our deposits decreased $265 million and loans decreased $20 million. Broker deposits declined a $114 million by quarter-end as well as we continue to minimize the use of this source of funds. Borrowings increased $202 million in the third quarter, but have declined 42% for the third quarter of last year. Our net interest margin of 3.38% in the third quarter compares to 3.47% in the second quarter and 3.01% for the third quarter of '06. The 9 basis point decline from the second quarter to the third quarter is the result of an increase in share repurchase activity, which accounts for 3 basis points, a higher average level of trust preferred securities outstanding during the third quarter which accounts for another 3 basis points, as the second quarter benefited from the retirement…

Thank you, Gerry. Putting the quarter in perspective, we made good progress in strategic focus, commercial loan originations, margin, management, and organizational development. While I'd like to think of the $11 million provision increase as an event and that we’ve isolated and fortified the small portion of our loan portfolio that was under stress, we can only say that we have acted as aggressively as possible under the circumstances given our experience and the trends we see. We have adjusted our reserving model accordingly. I'd like to reiterate that the higher risk home equities that I described represent a very small portion of our portfolio. There are many areas in which we have excelled; our balance sheet is strong, we have capital management flexibility, we’re growing organically, and we're beginning to show positive operating leverage, we look for strong performance ahead. Thank you very much for being with us today. We would be happy to respond to your questions. Question and Answer

Thank you. [Operator instructions]. Okay, our first question comes from the line of Mark Fitzgibbon with Sandler O'Neill. Please proceed with your question. Mark Fitzgibbon - Sandler O'Neill & Partners: Hi, good morning. Gentlemen, you guys have had a... some pretty bad luck with your national lending businesses over time, whether it was the shared national credit book or Florida construction and now home equity, does it make sense to just exit those national lending businesses altogether and focus on Connecticut or sort of the footprint lending?

I would say, in a nutshell, you’ve pretty well summarized our strategic review and our plan. We actually exited the national construction lending program I think eight months ago or so. We indicated in our earnings call after the last quarter that we were de-emphasizing all of our national mortgage lending as well as home equity lending and that we'd be focusing on the New England footprint, and to the extent that we had originations beyond that it would most likely be in the Mid-Atlantic region. Mark Fitzgibbon - Sandler O'Neill & Partners: Okay. So, we won't see you guys in any other national lending businesses in the future… in the near future anyway?

You can't say that exactly because the question is national versus regional. We have capabilities such as commercial real estate where we originate within and outside of the market. Our equipment finance direct lending business is on a broader scale as well, and we've our asset based lending business that originates in a border footprint. But I think that that… what we can say is that in our retail business is that in footprint will be the focus and that overall at Webster direct is the key. And I will acknowledge that it has not gone well for us, and we have had some stress both on the construction lending side and on the home equity loan side as well. Mark Fitzgibbon - Sandler O'Neill & Partners: And then, just to clarify, I think you had said that there was $94 million of out-of-market home equity loans and none of those had greater than 100% loan-to-value. Just, I was curious if I got that right. And also, if you could give us a sense for geographically where those loans are.

Sure. Actually, $94 million is what we call the higher risk loans, which are out-of-market, no-income-verification, high combined loan-to-value ratio, which we think of as between 90% and 100%. We did not make any loan originations over 100% and we thought that was a point worth noting. Virtually, all of those loans were made in and around the offices that we’ve set up in Chicago and in Arizona and a couple of other places. So, we were actually... we were in those markets around which those loans were originated, and we've made plans to discontinue those offices, which is part of the de-emphasis of the out-of-market lending program. Mark Fitzgibbon - Sandler O'Neill & Partners: Okay. And I wondered if you could give us a sense for what you're seeing, it looked like aside from the consumer stuff C&I, equipment finance, commercial real estate non-performers were also up linked-quarter by pretty decent percentages. Are you seeing any additional troubling trends, sort of the 30 and 60 day buckets or anything that we should be cognizant of?

In addition to the increase on the non-accrual side, we've had some increase in delinquencies as well. I stated and I thank you for letting me make this point again that we believe that the ratcheting up of our regular quarterly provision to the $4.25 million that we are at now is the appropriate measure against the rise, both in non-accruals and delinquencies in those portfolios. Mark Fitzgibbon - Sandler O'Neill & Partners: So, you are seeing some rises in delinquencies in over 30-day bucket and over 60-day buckets?

Yes, we are. 30 to 90's. Mark Fitzgibbon - Sandler O'Neill & Partners: Okay. And then last question I have for you, Jim. I wondered if you could update us on your plans for the sale of the insurance business?

We can't really make much comment about that right now, Mark, except to say that our plans to seek the strategic alliance are moving forward. Mark Fitzgibbon - Sandler O'Neill & Partners: Okay. Thank you.

Thank you.

Thank you. Our next question comes from the line of Jared Shaw with KBW. Please proceed with your questions. Jared Shaw - Keefe, Bruyette & Woods: Hi, good morning.

Good morning, Jared. Jared Shaw - Keefe, Bruyette & Woods: Could you… did you update the FIFO scores on that highest risk segment for September 30?

Yes. Jared Shaw - Keefe, Bruyette & Woods: What has that done?

The latest that we have is that about 20% of those FICOs now are down to about under 650 I believe. And I believe that that was as of September 30. Jared Shaw - Keefe, Bruyette & Woods: And is that 20% of the entire portfolio or is that 20% of that highest risk segment?

It's 20% of that highest risk segment, Jared? Jared Shaw - Keefe, Bruyette & Woods: Okay. And then, in terms of the follow-up I guess on Mark's question about the geography, where you seeing the greatest geographic weakness as supposed to where you're seeing the most of originations on the national portfolio?

The two areas where you'd see the most would be around the Chicago area and then in the Arizona area. Jared Shaw - Keefe, Bruyette & Woods: Okay. And then just looking at the information you had in your presentation from September, you were saying that the state concentrations for Illinois, Washington and Arizona, those added up to about 8% of the non-footprint home equity loans. Where… is there any other large area other than those three?

Those are the primary areas. Jared Shaw - Keefe, Bruyette & Woods: Okay.

I think you said the whole portfolio, that you said not just the footprint portfolio. Jared Shaw - Keefe, Bruyette & Woods: Pardon me?

Hey, Jared. Could you clarify that? Jared Shaw - Keefe, Bruyette & Woods: Yes. I am just looking at the... on the--

Or where you asking on the 90--? Jared Shaw - Keefe, Bruyette & Woods: I see. Okay, that is under 95 million. Okay.

Right. Jared Shaw - Keefe, Bruyette & Woods: Okay. And then are you getting a higher yield on those loans that are out of market?

Very definitely, yes. Jared Shaw - Keefe, Bruyette & Woods: Okay. And then any change in the way you're looking at the allowance for the non-performing loans, that ratio has slipped, is there a target you have for that?

I think the allowance for loans, we are really looking at allowance against the need. We focus significantly on the loan loss coverage, and I think that ratio is up right now over 130 although we do expect to use some of that. We talked about wanting to be in a range of 120 or so, say, plus or minus a few basis points as far as that coverage is concerned. We are not overly concerned that the coverage ratio of the non-accruals themselves is under 200%. Jared Shaw - Keefe, Bruyette & Woods: Okay. And then finally, if you could just comment on your outlook for consolidation in the market and your appetite for future transactions?

Sure. We believe there is going to be consolidation and that we are going to have an opportunity to expand through making partnerships with like-minded companies and share our vision of being New England's bank primarily. Of course, the fly in the ointment is the valuation of our own currency. And so, to some degree, our ability to acquire is related to that. But our sense is that there will be opportunities over the next 12 months or so, and more so than in the past. Jared Shaw - Keefe, Bruyette & Woods: Okay, thank you.

Thank you. Our next question comes from the line of James Abbott with FBR. Please proceed with your question.

Hi, good morning. I just was... see if I could ask or drill down a little bit more on the FICO spectrum, and I'm not talking just about the $94 million loans of concern, but are you seeing... what can you tell us about delinquency trends across the FICO spectrum? We heard on one conference call earlier this quarter that there is... it seemed to be no respecter of FICO scores, one company was seeing delinquencies across the spectrum, but curious to your vantage point on that? And then I have a follow-up.

I'll just make a broad comment that delinquencies are higher across this spectrum in part because a lot of people were put in a situation where they were able to borrow more perhaps than they should have regardless of what their FICO score was. And so, you'll see that there is a slice all the way through right up in the super prime where people were borrowing more than they would have in the previous environment and the natural result of that will be higher delinquency and potential non-accrual rates, although the higher the credit score the lower the impact. But it will be across the spectrum, and we are seeing that too.

Okay, and... Okay, I appreciate that candor. When you look... you mentioned you are providing as aggressively as possible for your home equity portfolio. Two questions; one is a housekeeping question on the reserve to high loan-to-value out of footprint stuff, $94 million high-risk stuff, do you have the reserve-to-loan ratio on that at this point? And then, a follow-up question is more qualitative, which is, what are the loss assumptions you're using, what are the default assumptions, what is the severity? Have you actually in situations where the loans go bad or… what are you seeing as far as the severity there?

Bill Bromage? William T. Bromage - President and Chief Operating Officer; Vice Chairman, President and Chief Operating Officer, Webster Bank: Yes, Bill Bromage. I think we segment our portfolio... I think part of your question, the $94 million gets a little granular for us to get down that far. I'll say that what we do is we have a model, which we run in evaluating every one of our loan segments and every one of our loan categories, and that is based on our experience with respect to delinquency rates and our experience with respect to loss in the event of default. And in this environment, based on what we're seeing, particularly given the newness of this portfolio relative to other more mature portfolios we've had, we've shortened the timeline… look back timeline if you will to estimate what our expected loss might be. So, it is a computer model if you will, it is not driven by the one specific loss assumption, it is driven by a set of experiences over a period of time, and we have a short period of... we’ve shortened that period of time, which has the impact given recent experience of increasing the level of loss potential we see in this portfolio today. So, that is the driver if you will for us pushing… putting that… posting that specific $11 million reserve. And the balance of it, the portfolio, we evaluate all those portfolios and I think if you reflect back on the 120 basis points plus or minus that Jim referred to, to loans, that is an outcome of the risk profile we look to have in the portfolio when you take the various asset categories and expected performance we might have from each one.

Okay. So, is the $11 million the only dollar amount of reserve set aside against that $94 million or is that not the right way to look at it?

No, that is not the right way to look at it, that the overall reserve is available against the loan portfolio. In this case, we decided that we should allocate additionally against this segment.

Okay. This is… my concern on the overall industry is that we’re… we haven't been here before or at least we haven’t been here in a long time where the look-back periods may not really accurately reflect it and the companies in general are not going to be able to get ahead of this trend and it is going to be continued bad news for two or three quarters in a row because the models are rearview looking. What can you tell us about your ability to get ahead of it and anticipate the losses, even though you may not be seeing any quantifiable situations or numbers, there is no numbers to support that, doesn’t know if there is loss or that you know if there is default in the portfolio. Is there any way to get ahead of that or is it just we have to live with the GAAP accounting rules?

It is Gerry, I think by significantly shortening the time period that you look back and taking into account with a greater weighting of more recent trends that as you evaluate that then on a monthly and quarterly basis and you are continually updating that, you are making a quantum step toward addressing the very thing that you are looking at, which is making it much more real-time. And I think that that is what really appropriate, particularly with this product when you think about home equity and the potential stress that this product… or the stress that we are seeing in this product right now. I think it is appropriate that we took very aggressive steps to shorten that look-back period. So, you are seeing a much, much greater weighting the way that we are looking at our portfolio and the reserves that we need to establish and maintain for our portfolio as a result, and we think that that is a very prudent step to be doing at this time.

Okay. Thank you. Thank you for your time.

Thank you. Our next question comes from the line of Andrea Jao with Lehman Brothers. Please proceed with your question.

Good morning, gentlemen.

Andrea, good morning.

Just want to follow-up on a couple of comments you made earlier. First, you mentioned that you try to be very aggressive on the credit front. Given delinquency trends at various portfolios, what exactly does this imply for loan loss provision in the fourth quarter and in 2008?

Hey, Andrea, this is Gerry. The comment that I made, specifically in my remarks about the potential for the provision to increase in future periods, is one that if you evaluate the specific comments of thinking about run rate, which is our currently at 4.25 and looking at our charge-off levels, which has been in and around $3.9 million to $4.25 million that as the loan portfolio grows and dependent on the mix that grows and the associated risk in that mix, we are stating very candidly that that will require an increase in the provision assuming the same level of charge-offs on a consistent basis going forward. We think it is important to note that we have been in a period of transition as an organization in terms of when you take into account all the balance sheet restructuring actions that we have taken, the rebuild of our portfolio, the de-emphasis of a larger percentage of residential, which went from 37% of receivables down to 30% and a greater percentage in commercial and consumer, which went from 63% up to 70% as our portfolio mix changes, as the risk associated with that, which by the way there are higher yielding assets, and we believe priced accordingly then for risk, you'll see that the provision then naturally would need to begin to be elevated, again assuming current charge-off levels and that was the specific comment.

Okay. So, would it be fair for me interpret that as your loan loss provisioning, let’s say, in coming quarters pulls in from third quarter levels, but remains way above the 4.25?

I am not sure I would confirm way above. I’d say, we believe that it will be above given current charge-off experience.

Okay, fair enough. Then to another comment you made earlier, which is you are focused on generating positive operating leverage and I think you mentioned good expense controls as well as balance sheet growth. With respect to expense controls, how quickly do you think you can drive down your efficiency ratio to your targeted 60%? And with respect to balance sheet growth, what is your propensity to add borrowings and securities to help balance sheet growth?

Great question. Let me answer first the operating efficiency. We stated at the beginning of the year that the... I think the terms were the next frontier, were positive operating leverage, achieving that and consistently achieving it, and a significant reduction in operating efficiency ratio. That operating efficiency ratio, we believe as we look at the lower contribution lines of business and really basically take a significant look at the expenses that are incurred in those businesses and prudently fill back those expenses, that that is the first step many that we are planning to take and actually that we're taking right now to reduce our overall expenses. In addition, we believe that a combination of centralization steps of various activities coupled... particularly in the shared services area, coupled with a little bit longer-term horizon looking at centralization of facilities really going from the significant number that we have today to fewer facilities will have a... both an intangible benefit as well as a tangible one, intangible of people being together and the tangible one being much lower expense as you would imagine in all the other line items. You'd really see that showing up in… probably more in our F&E and occupancy lines.

Okay.

Regarding the question on securities and borrowings, I would state that it is not our intent to go back to the days that… where we were much more depended on wholesale. However, we see that there are opportunities for us in the current environment to prudently add to our portfolio, but nowhere near to the extent that we think we've seen in the past. We really believe that we are focused on growing loans and growing deposits and that's our core business, and to the extent that we have some select opportunities on the security side, we will take those opportunities.

Perfect. That's very helpful. Thank you.

Thank you. Our next question comes from the line of Gerard Cassidy with RBC. Please proceed with your question.

Thank you. Good morning. Regarding the home equity portfolio, can you guys share with us how you go about working out those delinquent loans, if there is a $100,000 or $150,000 home equity loan that's outstanding that goes delinquent, that is second to a first as $300,000 or $400,000, would you guys take out the first to get to the property, or how do you work out those loans? William T. Bromage - President and Chief Operating Officer; Vice Chairman, President and Chief Operating Officer, Webster Bank: I'm sure as you can appreciate… this is Bill, I'm sure as you can appreciate that obviously as part of the art of the collection process when you are into… when you are in a second position, and I'll state the obvious that we... it is a case-by-case decision, will we do that? Yes, we'll do that, but we do it based upon our sense of confidence in our understanding of the underlying collateral value and its ability to hold if that collateral was in fact in the hands of a bank as opposed to an individual. Properties tend to trade less when banks or the party is trying to sell them. So, we're very conscious of looking at what can we expect to net realize on a piece of property and make an individual decision if we think that there is coverage for all or a significant portion of our indebtedness.

What are you... in the delinquencies that you are seeing in both the out-of-market portfolio as well as the in-market, what are you seeing in terms of the value of the collateral? Is the value of the houses or multi-family units falling in value? William T. Bromage - President and Chief Operating Officer; Vice Chairman, President and Chief Operating Officer, Webster Bank: I think what we see… I'd say, yes. What we've seen is that the value what we've gone to realize has turned out to be less than the place value when we went into the loan. I want to be careful here and point out that we're looking at a subset of loans here that is relatively small as it turns out were the higher risk elements of the portfolio when we went into their high loan-to-value to begin with. The three prongs that Jim was articulating in terms of the higher risks loan portfolio is a meaning portion of the charge-offs we've shown in that book and they are a relatively high loan-to-value number. Having said that, I'm not sure that is necessarily representative of the entire portfolio. We've a retail book if you will, which is what we’ve mentioned in the footprints that has a very strong loan-to-value ratio, and then we've ratios overall for the portfolios that don't have as much loan-to-value risk in them.

I just like to add to that. If you get an opportunity to look through the presentation that we did in the third quarter of this year, that is posted out on the website, we've got a specific slide that takes in… and in a pie chart breaks up our home equity portfolio by CLTV. And one of the positives you'd see that we are at 80% or less in about 60% of the portfolio. Another 20% plus is the net 80 to 90 range and another 10% plus in the 90 to 95. So, if you were to think of the potential impact of declining values in that underlying collateral as Bill was stating, we're still in a huge portion of this portfolio and a positive position in collateral. However, that's always of course dependent upon what the prevailing conditions are given where housing prices have... we've continued to see declines, as Bill stated. You need to look at each and every one of these in a case-by-case basis.

And how often do you guys update the values of the collateral? When you say loan-to-values are 80% or 90%, are those up-to-date as of the third quarter or second quarter of this year? William T. Bromage - President and Chief Operating Officer; Vice Chairman, President and Chief Operating Officer, Webster Bank: We don't evaluate the entire portfolio. We are looking at those loans that we have a problem with and we will reorder whether it is a full appraisal or a broker valuation as we go through that process with [inaudible] credits.

And then finally, you guys indicated that it is likely that the loan loss provision will be greater than the $4.25 million. What is your outlook that you guys are using for the economy in your footprint? Do you expect... what kind of growth are you guys are looking for in '08?

We are looking for modest growth in the footprint. I also would say that we think that the real estate value has held up pretty well in the footprint. It didn't get quite as out of hand in the bulk of our primary market as they did in some other areas, so that is a strong point. We do think that there will be economic growth in our markets. They have gone a little bit behind the national average of growth over the past several years. There is no reason than they will exceed the national rate, but we think that they will be close to it.

Thank you.

Thank you. Our next question comes from the line of Collyn Gilbert with Stifel Nicolaus. Please proceed with your question.

Thanks. Good morning, gentlemen.

Hi, Collyn.

Maybe if we could just swath gears to the commercial side of the business for a minute, Bill, could you just give us a little bit color in terms of what that $7 million commercial credit that [inaudible] non-performance this quarter, what industry that was in? And then, just if you're seeing delinquency trends on the commercial side if they are in any one segment. And then also, in terms of the pipeline, Jim that you spoke to was strong on the C&I side, if you could just talk about what types of credits those are and if you are taking market share away, from whom are you taking it, and just give a little bit more color of those segments? William T. Bromage - President and Chief Operating Officer; Vice Chairman, President and Chief Operating Officer, Webster Bank: Okay. With the specific credit and to your question [ph], a Connecticut middle market privately owned company is in the retailing business, some of it supplying to the construction industry. But… so it is right and about a classic middle-market company if you will, that’s indicative of a trend. With respect to pipeline if you will, we've had very strong production this year in terms of our performance. Our commercial origination book is... through nine months is an excess of $750 million in commitments. It’s not [inaudible], it is funded obviously and closing down, but significant production probably 10% to 20% over what we did last year. As Jim was mentioning in his opening remarks, the market earlier in the year had been so strong that we have had a number of prepayments and then frankly a number of middle-market companies that have elected to sell out to private equity firms, which has caused some higher prepayment levels than we had anticipated. So, we have seen a put and take if you will of a greater volume than we might normally see, which has caused our portfolio to grow probably, we estimate for this year more into 5% to 6% range than what we have got used to in terms of the… double-digit range in terms of commercial loan growth over time. It is not, however, as I say reflective of what we have seen in the market and our ability to source good quality transactions in and around our footprint. We see the commercial real estate market, currently we see a flow of transactions there that are better quality transactions at a reasonable rate. Transactions that previously might have got into the conduit market, we now see the opportunity to look at those. So, there is a potential there to see that this rate disruption that has taken place in the market may provide some further opportunity for us as we look into that market. Our asset-based lending operation also has a very strong track record, continues to see good loan demand.

Okay. Just a follow-up to the $7 million middle market credit, and you said that there is some supply there… or there wasn’t supply [inaudible] construction. Have you gone through the portfolio and tried to comb through some of the business credits to assess who does have exposure to construction businesses and maybe where you might see potential weakness? I know you said it's not necessarily a trend, but where there is a slowdown in construction maybe of your borrowers who might be impacted? William T. Bromage - President and Chief Operating Officer; Vice Chairman, President and Chief Operating Officer, Webster Bank: Collyn, the answer to that is a qualified, yes, we have. I mean, combing through the portfolio implies perhaps a richer exercise, but we have certain buckets, certain segments that went into that industry. Our equipment finance area for example has a construction subset, they have very actively reviewed the entire portfolio and have seen some softness in that portfolio and we are working with our borrowers in monitoring that portfolio closely and our performance in that area continues to be strong but we’re cognizant that there’s potential for weakness. We have done that additionally in the small business area, but I don't want to leave the impression that we’ve sorted every single loan and done a thorough review of that. But we are very cognizant of what is happening in the marketplace, the segments that are potentially negatively impacted, and having the leadership in each one of our loan areas take a good hard look at their portfolio.

Okay, great. That's very helpful. Thank you.

Thank you. Our next question comes from Andrea Jao with Lehman Brothers. Please proceed with your question. Ms. Jao, please proceed with your question.

Sorry about that. Just wanted to step back a little, now that you've finished your strategic review of your business, kind of if you could talk about how over the years the company has taken charges and essentially there charges go against capital to restructure the balance sheet, and then credit costs have been elevated in recent quarters. What do you foresee in terms of managing capital that way or avoiding charges against capital in the coming year because obviously reducing charges against capital would be much better?

Well, we’ve really… just thought reducing the charges against capital would be better and I think that some of the steps that we have taken particularly with the laser like focus on the direct franchise businesses will be a positive in that regard, we will have less exposure to that out-of-market influence. I think that ultimately the capital is a cushion to some degree against potential loss even though we don't really want to see it or use it that way. We want to be able to use it to invest in our businesses to capitalize our growth, to create flexibility, to have buyback programs or make acquisitions, and of course the stability of the capital base is essential to be able to make that happen. I believe that the focus that we have will make us less vulnerable to the range of issues that can affect us. While we are focused on our core franchise, we also have the limited geographic span. There always is the question of what will happen within the markets where you operate. But I want to say that we don't take our responsibility to protect and increase our capital base slightly and we do our best to avoid any [inaudible] capital such as what we're seeing today.

Okay. That's good. Now, separately, I was hoping you could talk more about deposit trends, I know deposits were seasonally strong this quarter. But what else are you seeing in terms of customer migration to higher cost categories, your propensity to… not to compete in terms of pricing or on the other hand to accommodate higher pricing, if you could talk a bit more about that that would be great.

Well, sure, I will crack at it. In the core market, we have been very successful at increasing our deposits faster than the market, which has been relatively slow growth by the way, while also reducing our cost of deposits as compared to our peer group. And I made the comment that that is clear proof that our execution is strong and we haven't relied on price. In the meantime, as we open our de novo offices, we generally do you some promotional pricing although we have scale that back in recent quarters and that that has had an impact on the growth of the de novo. So, overall, we have what I would call a highly responsible deposit pricing approach and a very aggressive and successful marketing program that has enabled us to continue to grow deposits faster than the market. I think one of the things we benefit from is that we have a very low attrition rate among our customers and we continue to pick up the higher share of churn in the market than is our existing market share. When you combine that with very, very low attrition rates you have the benefit of being able to continue to grow faster than the market.

Great. Thank you so much.

I will just make one other comment too is that in terms of managing deposits by running off some of broker deposits, we expect that will have a positive implication for cost of deposits as well as for the net interest margin.

Okay, awesome. Thank you.

Thank you. Our next question comes from the line of Philip Gutfleish [ph] with Elm Ridge Capital. Please proceed with your question.

Hi. Just really quickly, why was the amortization lower in this quarter? Was there... I don't recall you having actually sold anything during the quarter. Could you just sort of explain that one?

I think that it is because CDI related to an acquisition made several years ago was complete and that resulted in a lower amortization of CDI.

$1.2 million on the 3.3 base, that seems a bit high. I would have thought that that would have been coming down over time as opposed to just flowing pretty big--?

Generally, we amortize the CDI over seven years. So, at the end… and we have done ratably over that period of time. So, at the end of seven years, you see this amortizing. Gerry may have more detail.

Now, this is the CDIs from branch acquisitions in the past and that the periods expired.

We actually bought Mechanic Savings Bank back in the second quarter of 2000. We had a seven-year amortization, which ended in Q2.

Okay. Thank you very much. Appreciate the color.

Thank you. Our next question comes from the line of Collyn Gilbert with Stifel Nicolaus. Please proceed with your question.

Hi, guys. Just a quick follow-up. Could you give some color as to the percent of your loan portfolio that reprices with prime?

Yes, give me a second here. I believe we are about 25%.

Okay, that's great.

Not so sure [ph].

Okay, thank you.

Okay, thank you. Our next question comes from the line of James Abbott with FBR. Please proceed with your question.

Yes, also just a quick follow-up on the expenses. Were there any contra expenses or anything unusually low during the quarter? Obviously, there was very good change in expenses on a link-quarter basis, and I'm just wondering if there is... if that is a good run rate to use going forward based on the comments you made in the conference call or if there is anything unusual that might pop back up in the fourth quarter?

There is nothing unusual in the quarter.

Okay.

We did record about $700,000 worth of severance, but as we've said before, we actually consider as we go through the process that that could be something that pops in and out of each quarter. So, I would actually tell you to keep that in the run rate.

Okay. Thank you again and congratulations on the expenses.

Thank you. There are no further questions at this time. I would like to turn the floor back over to management for closing comments.

Thank you very much for being with us today. Good day.

Ladies and gentlemen, this does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.