Good morning, ladies and gentlemen, and welcome to the Webster Financial Corporations’ Second Quarter 2008 Earnings Results Conference Call. At this time, all participants are on 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 and Reform Act of 1995 with respect to Webster’s financial condition, results of operations, and business and financial performance. Webster has based these forward-looking statements on current expectations and projections about future events. These forward-looking statements are subject to risks, uncertainties, and assumptions as described in Webster Financials public filings with the Securities and Exchange Commission, which could cause future results to differ materially from historical performance or future expectations. I would now like to introduce your host for today’s conference, Mr. James C. Smith, Chairman and Chief Executive Officer. Please go ahead, sir.

Good morning, everyone. Welcome to Webster’s Third Quarter 2008 Investor Call and Webcast. Joining me today are Jerry Plush, our Chief Financial Officer and Chief Risk Officer, John Ciulla, our Chief Credit Risk Officer; and Terry Mangan, Investor Relations. I will provide some overview and context for the third quarter results, and Jerry will provide specifics on our financial performance. Our remarks will last about 30 minutes, and then we will invite your questions. We’re living on interesting times to be sure and that is reflected in the results for the quarter. While we reported a Q3 loss of $0.42 per fully diluted share after securities impairments of $0.55 and $0.04 of other charges, core operating results were $0.17 per share including loan loss provisions of $0.61 per share as indicated in the EPS reconciliation of the earnings release. The difference to the consensus estimate of $0.22 per share was attributable to the $5 million provision to the liquidating home equity portfolio. In today’s extraordinary operating environment, it’s easy to lose site of progress and operating performance that might be celebrated in a different time. So, let me call attention to some of our progress in Q3 as compared to Q2. We reported higher net interest margin than last quarter. Higher net interest income, higher fee-base revenues and seriously lower operating expenses as our cost containment and efficiency efforts under the One Webster initiative began to take hold. When the storm subsides and we acknowledge that it has not and it could take awhile, the true quality of our improving operating earnings will shine through and that will be a bright day for Webster. One of the strong points is that our primary market is in southern New England is holding up reasonably well to this point in the down…

Thank you Jim and good morning everyone. I’m going to cover several items. First, an overview of the loan composition and growth and then we’ll talk through the investment portfolio and the other than temporary impairment charges that have been taken this quarter. My remarks will also cover deposits, borrowings and an asset quality. I will provide commentary on the third quarter and in closing some brief perspective on the fourth quarter. So, let’s start first with loans and growth. Commercial loans consisting of CSI and CRE loans totaled $6 billion grew by 11% combined from a year ago. Commercial loans now comprise 46% of the total loan portfolio, compared to 44% a year ago. Total loan portfolio growth was 4% compared to a year ago offset somewhat by a planned reduction of 3% residential loans. It’s important to note that we’re in the process of evaluating the securitization of part of our residential loan portfolio in the fourth quarter for approximately $500 million and assuming we complete the process before quarter end it will further reduce our total loans and increase securities by the end of the year. The C&I portion of the commercial portfolio totaled $3.7 billion at September 30, and that grew $39.7 million from June 30, primarily in asset-based lending. The entire CNI portfolio yielded 5.24% in the quarter compared to 5.52% in the second quarter. Equipment finance outstandings remain flat at a billion dollars in comparison with June 30th. This portfolio continues to stay very granular, no single credit represents 1% of the portfolio and the average deal size is less than $100,000. Asset-based lending outstandings were $868 million September 30 in comparison to the $842 million at June 30. The current asset coverage is as follows: Approximately 92% of the outstandings are secured by…

Thanks Jerry. Webster’s third quarter operating results reflect the positive results from our narrowed focus on direct to customer core franchise activities. The One Webster initiative will have the meaningful positive impact on our future operating results and we believe can drive the efficiency ratio well below 60%. We know that today’s challenging economic environment will one day give way to calmer times. Webster is a sound capable regional commercial bank with a strong diversified balance sheet and a capital structure that gives us maximum flexibility to address any issues which may arise as we go forward. By helping our customers achieve their financial goals, we have every confidence that we will achieve our vision to be New England’s bank while increasing shareholder value. Thanks for being with us today. We would now be pleased to try to respond to your questions.

Thank you. [Operator Instructions]. Our first question is coming from Ken Zerbe with Morgan Stanley. Please state your question.

Thanks, good morning.

Hello Ken.

When you guys recently setup a liquidating portfolio, I was under the impression that you setup the reserve groups or losses so then we could all just push this over to the side and focus on the continuing portfolio. It just doesn’t seem like that’s worked out to be the case given that the additional provision that we saw this quarter. Is there any reason to believe that we won’t just sort of see several more quarters of small or ongoing reserve build or additional provision expense in liquidating portfolio from here?

Ken, its Jerry. I would say if you go back and take -- listen again through the comments that I made we really looked at using low rate model and this will be specific to the liquidating home equity portfolio that put in a range to get an external view and internal view of modeling where the reserve sits at this point in time is a good forecast we think of the difference between those two as we can see what we refer to as over the next several quarters and those several quarters would be over the next 12 months. I think that just given where the portfolio has performed and I think this echoes with Jim's comment is that, yes, we could certainly see that we would add to that over quarters and we would take that into account as we do our provisioning.

Understood. Okay. And then the second question I had was have the recent treasury actions had any noticeable impact on the value of your portfolio during October?

Ken, again it's Jerry. I think it's a great question. I think it's too early to tell just given the - once we see the folks that get the capital injections, I absolutely would have believed that we would see improvement or stability certain in this decline. But I think we have got to take a wait and see through November 14, understand specifically who is actually receive the capital and then evaluate those particular issuers within these pools.

All right, great. Thank you very much

Ken, I would like to just make a comment on the first question which is you know that we said that liquidating portfolio about a year it go. And we did, at the time, make the assessment as to what we thought that the losses might be and did our best to reserve against them based on what we knew at the time. And I think we all realized that the markets got deteriorated very significantly since then and as a result it's appropriate to take a look. And in the construction portfolio, you could see that we have tried to resolve the issues there. And in the home equity portfolio, with the best information that we have to put up incremental reserve in this quarter, I was clear in my remarks to say that we're not suggesting by our action that we'll need to provide $5 million every quarter, so we will provide reserves in future quarters as needed against that portfolio.

Okay, great. Thanks

And Ken, this is John Ciulla just to pile on. The original assessment with respect to the provision in the portfolio that was done obviously coming in a benign credit environment on the beginning of what is obviously worse credit environment was done based on certain just assumptions of default frequency, loss given default and attrition in the portfolio, assuming certain pay downs. Now we now have the benefit of 9 to 12 months of actual performance in the portfolio and relative performance to the core hasn't changed as much as the fact the economic environment has accelerated loss and also blocked the acceleration of the attrition in the portfolio. So as Jerry said, we have the benefit of being able to look at 12 months of actual activity in the various segments in the liquidating portfolio and try and use that low rate analysis to have a more accurate forward looking loss forecast.

Thank you. Our next question is coming from Andrea Jao with Barclays Capital. Please state your question.

Good morning.

Good morning, Andrea.

I appreciate your detail disclosure, so thank you. One area that I do need help thinking about is given your outlook on the economy, weakness until the first half of phone line and you already talked about increasing amount performance in the fourth quarter, how should we think about the different asset classes and the continuing portfolios given your specific outlook? Should we expect this to hang in, should we expect modest deteriorations? What would it take to see a more substantial ramp up in the credit metrics in the continuing portfolio?

Andrea, it's Jerry. You will hear again from all three of us on this one, but let me take a crack at the first reaction. I think as you think about the non-performing portfolio, it's clear that the majority or the increase is around the resdev credits and I think as many would expect that the housing market's been hit the hardest and we're seeing the impact of that flow through to that very specific piece. And again, it's a $217 million portfolio that we're seeing a significant amount of stress particularly in that portfolio. I would say so that kind of tells you what we see in line of sight we think and John can talk a little bit about the proactive matter in which and he and all of the lines of business leaders are on the phones and constantly talking through on a weekly basis to get the most update information in each of these projects. So I think we're assessing those appropriately as we go and also forecasting ahead. As it relates to the past dues, I guess my comment would be that there is a little bit of an anomaly here that from a reporting standpoint, you see a rather dramatic increase of $40 million. $13.7 million of that in the commercial real estate side actually cured subsequent to quarter-end and it was really just a documentation issue in terms of just not being able to get that completed by quarter end. So I can tell you as we said here today, you could take it at $13.7 million reduction off of those past due numbers that you see there. I am going to turn it over to John because he could probably give you some perspective on the balance of the past dues and the continuing portfolio.

Yeah, Andrea. I mean we are at interesting inflection point because we have seen the residential development portfolio, obviously evidenced the non-performers. I will tell you as you know when those loans go substandard non-accrual and I think we take pretty aggressive approach in our risk rating. We either have or are in the update on the process of updating valuations and you will note that we only had a $160,000 in charges related to that portfolio. So thus far, with respect to our updated valuations, the $75 million in nonaccrual residential development loans had retained value from an updated appraisal standpoint. With respect to the other asset categories, it’s interesting, we see shines of negative risk rating migration trend but we have yet to see significant delinquency or nonaccruals in traditional C&I, in investment commercial real estate, material change in business and professional banking. So as Jerry said, our laser focus right now is working with the business line leaders to have early identification of problems and try and avoid obviously migration to nonaccrual or resolve this issue before they manifest into nonaccrual or loss. But obviously we look very carefully at what the impact of a sustained recession could have on the other asset classes that have not yet evidenced of significant stress into the portfolio, into the credit metrics.

Yeah. And Andrea, I just want to add that I think when you look at the continuing portfolio and the past dues, again taking into account that 13.7 increase in KRE, really what you see in the jump in the quarter is clearly in the residential book. And I would ask John to make an observation on that as well.

Yeah, I mean I think with respect to delinquencies and nonaccrual increases in the continuing residential and consumer portfolio, there is not a magic bullet story there. It is I think stress generally in our portfolio and in the economy that’s driving those increases albeit even after the quarter-over-quarter increases are loss and nonaccrual level and our continuing resi and consumer portfolios remain very very low relative to other national players and peers in the mortgage and home equity business. So we feel pretty good about where we are given the point in the cycle which we are operating.

Just a quick comment from me that when people look at how well some of our asset categories are performing and I will cite the investment commercial real estate and asset-based lending and equipment finance for example. There is two ways they can react to it. One is to say well, gee, not much has happened so that means it’s going to get a lot worse. And the other way is to say they must really know what they are doing. And I think in the end it boils down to a large degree to the people who are managing those categories and we take a Mitch Weiss from Center Capital who has done such a great job over the years that’s the equipment finance group, and Warren Mino in our asset-based lending group and Bill Wrang in our commercial real estate group. And we have no doubt that they will perform extremely well in this environment.

Very helpful. Thank you.

Our next question is coming from Damon Delmonte with Keefe, Bruyette & Woods. Please state your question.

Hi. Good morning.

Good morning.

Could you just go over again what the growth in home equity loans were this quarter?

Yeah, on the continuing home equity in the loans, we were up $50 million on a base of 2.9 billion.

Okay. And with respect to the outer market, are those lines open or have you limited capital lines?

Damon, the lines were appropriate the lines have been limited. When John was referring to the – I apologize whether it was Jim or John, but the prepay speeds in that portfolio are naturally going to be down given the fact that half of that portfolios are line portfolio. And accordingly as every time you see these prime drops, you are seeing that the payment pressure on each of those borrowers is reducing as a result. So in terms of prepay speeds slowing up and plus all the economic pressure, you would expect that. So we are not seeing large declines in utilization from where they were but we certainly have gone through and proactively taken steps to cap where appropriate.

I will give you some more granularity on the line management program. We were sort of I think an early adopter and that was validated by outside counsel and discussions with regulators. We have got a pretty robust line management program that we apply not only to the liquidating portfolio but to in-market home equity portfolio, open to buy home equity exposure. So it’s been fully valid and it’s typical, it’s based on payment deferrals, based on material change in financial performance which is a combination of a reduction in FICO score to below a certain threshold level and also a collateral valuation where we identify on a risk-based approach those lines that either have large availability or we identify as being significantly higher risk and we move to freeze those lines through a systemic line management program. And to-date, we have frozen over $150 million in unused home equity lines across liquidating and continuing.

Okay, thank you. And then Jerry, with respect to your – you were telling about the provision for next quarter. You said the core provision similar to this quarter. Still that would be basically 35 million?

I think you got to look at 30 to 35 as a range.

Okay. And then just lastly, just to clarify your position on TARP. You don’t feel that you need to tap it for capital purposes, but if you see others doing it and you think you may put at a competitive disadvantage then you would enter the program?

Correct. And I think it’s not just what other people do. We have to look at it on its merits and the fact is that it’s extremely low cost capital. When you take that, combined with the fact that there is a competitive consideration as well, we will take a good hard look at it.

Okay, thank you very much.

Yeah. Hey Damon, if I could, I just want to add. Just in terms of all the perspective on TARP, everyday brings new information. And I think that the application process was just announced yesterday as an example. So I mean, we are learning a lot more as the days go on and we certainly will see in conversations with the regulators, how that whole process works through. So we will keep everyone posted in terms of what decisions we make there.

Okay. Thank you very much.

Our next question is coming from James Abbott with Friedman, Billings, Ramsey. Please state your question.

Hi, good morning.

Good morning.

Good morning.

I wonder if you could touch base on the commercial net charge-offs, obviously it was higher this quarter than what it had in the prior quarters as far as the run rate goes. Large credits within that portfolio remains charged-off and then if you can give some detail on the industry type?

Yeah, with respect to the continuing bank commercial charge-offs in the quarter, really driven by two larger credits. One, $6.8 million on a 15 to $20 million asset-based relationship, Pennsylvania manufacturer. And I would say sort of a niche manufacturer where we saw a precipitous decline in inventory value, some problems with receivables, some poor management judgment and so that was the first large one. The second one was a newspaper publisher, where we took a partial charge of roughly $4 million, a regional newspaper publisher and you are well aware of the struggles in that industry and the paradigm shift in the advertising environment.

Yeah, and I think James you’ve got to look at those as write-offs specifically that we can’t say that when you look at those two credits in particular that there is similar credits within our portfolio.

Absolutely. I think they are – we continue to watch the newspaper publishing space or the advertising space. But certainly those two charges are not in a systemic problems in the portfolio.

And on the niche manufacturer, what were they manufacturing, retail goods or what?

I am not – I would rather not comment more specifically.

Okay. And of your pool, your watch list on the C&I credits, has that – how has that trended over the last quarter? And then if you can give us a sense as to what industry types might be deteriorating within the watch list or that you are more concerned about today than more three months ago?

It’s interesting. We certainly are seeing negatives migration through the watch special mentioned categories. I would say that we are not seeing specific industry stress. As you can imagine, all facets – there are some good performers throughout all industries and others based on market presence and market share and management and capitalization and leverage are struggling in this environment, obviously fuel costs coming down could be a benefit to us but across transportation, retail, business services, manufacturing, we have seen an impact of the economic slowdown on all industries. So I don't think there is a specific industry right now that we're hyper concerned about. We're concerned about all of them.

And on the migration, can you give us a sense of the magnitude. Was it because you had some pretty stable 30 to 89 day past due and non performing asset levels in the CNI portfolio levels and in fact the non-prudential financial non accrual. Non prudential financial non accrual loans were down. Could you give us a sense as far as those criticizing classified, how they moved and the magnitude there.

Let me get back to you offline on that, we have good data.

Okay.

Okay, the last, a housekeeping question, between non interest expense going forward, if we take the $117 million back out the severance and goodwill charts and stuff like that, getting $115million run rate and then you talked about higher marketing expenses and so forth. Maybe $115 to$116 million range is a run rate?

I would expect James to have other assets. I just wanted to make sure there everyone looks at the details and obviously, we had a significantly lower marketing number this quarter in comparison to the other periods. We talked about that this was a little more of an anomaly and you will see some uptake in that specific category. There is certainly some efforts underway to do additional containment in other line items. We do believe that marketing spent in that three plus million dollar range is very, very important. Remember for us it’s an institution. We have turned off, you know, when you think about the structural changes away from brokers, away from wholesale. Everything’s direct, you know, it's all organic. That requires marketing expense. For us as an organization, I just don’t want anyone coming off the call or not to be thinking that marketing will stay that low going forward. That was a very specific to just that line item. Generally speaking, I think our thoughts are to be trying to look at a quarter that would be a comparable number and that is the target for us.

Okay Thank you.

I would like to add one thing which is as much as you're trying to find a run rate on the expenses, there is some seasonality there, particularly when you get into the first quarter and you have some higher compensation and benefits expenses. So, while we want to be reassuring as to what the run rate is, there is a little lumpiness in there. I am sure you realize that.

Understood. Thank you

Our next question is coming from Collyn Gilbert with Stifel Nicolaus. Please state your question.

Thank you. Good morning gentlemen.

Hi, Collyn.

Just a question on the commercial update side and where that exposure lies, could you just give us a little bit color off to what exposure you may have in the retail arena, whether it would mortgages on shopping centers or that type of thing?

We have $1.47 billion investment commercial real estate traditional investment, commercial real estate portfolio. I may need to get back to you on the specific percentages but that split across office multi use industrial and retail. Retail is a relative small category we obviously have sub limits and we are tracking all of our property types in that portfolio very closely as Jim mentioned we have a very strong team there. We have yet to see any migration to non accrual and have actually not had any office during this fiscal year in that book although we are obviously well aware that we need to keep an eye on vacancy rates on lease rates and on rental rates and the impact on future valuations. I would say retail related investment [creep] portfolio has not shown signs of weakness over and above any of the other property types to-date.

Okay. And then, could you (inaudible) within that portfolio?

Yeah, we obviously and we mentioned in some prior calls take rate pride and keeping a very granular loan portfolio in investment commercial real estate and asset based lending are two various where we have the majority of our higher loan exposures, those over $15 million. So, I would estimate that our investment commercial real estate portfolio has an average exposure rate in the $10 million to $12.5 million range.

Okay, great that was it. Thank you.

Yeah. I think one other comment that very important to make, Collyn, with that portfolio is geographic dispersion. There is not a concentration in one geography and, again, a compliment to Joe savage, Bill Rang and their team that they really sought to have a broader diversification in just our New England footprint and as we disclosed previously, we have grown a nice book that is in the Philadelphia-South jersey market that we consider to have a very high quality team there as well and that is also some additional protection in that we just don't have the concentration within just the footprint. There is a bit also in the mid Atlantic market.

Okay actually then let me go to that what is the extents of that geographic concentration? How far south and how far west and how far north do you go?

Yeah I think again the primary concentrations are just that geographic area. You probably look within a 50 mile radius of the showed of your area and the vast majority of the balance is in footprint. So you’re looking New York through Massachusetts.

Okay. great. Thank you

And just to follow up, I have more detailed information. The average loan size in investment KRE is slightly below $10 million, I would say 10 to $12 million. So just Below $10 million.

Our next question is coming from Matt Kelly with Sterne, Agee & Leach. Please provide your question

Yes I was wondering if you could provide the par value of the other three pools single evidence downgraded to triple BS. We can do apples to apples comparison on fair value versus par

You can see that, Matt n our investment portfolio foreclosure.

On the website.

On the website.

Well see what it is as of September 30. What I'm trying to figure out is what was the par value that we would have seen on June 30. The par values weren't provided for June 30.

Okay, Jerry same.

Same as September30.

So during the second quarter, you guys wrote down your amortized costs and triple Bs from, call it $87 million to$49 million at the end of June, you were carrying those at 67% of the amortized cost, and now the triple Bs are carried at 74% of your current amortized cost. You know, isn't it susceptible to additional OTTIs, is that is that value continuing to drift lower on the triple Bs in particular?

Yeah Matt It's Jerry, I think echoing an earlier comment. there is no question that as you look at the pressure that has been placed on these institutions, particularly a lot of them that have elected to defer, you know, the underlying issuers, we think that the T.A.R.P. , I think as I had commented to Ken Zerbe's question earlier, I think there was positive that can come from a number of these institutions received in the capital injections. So I think As we see this quarter, we'll do the same cash flow modeling updates that we have done. We'll stay on top of rating agency changes and we'll continue to mostly monitor who is getting the capital injections and take that all into account as we go towards the end of the fourth quarter.

Let me make this comment. I know you're looking at amortized costs. I would think you would look at it relative to the par value? That is what I wanted to kind of figure out in terms of using that, the 2Q par value versus the 3Q.and figure about those Canadian guys are just looks like the fair value, which is produced from the cash flow analysis, results in a higher fair value relative to the amortized cost compared to the second quarter. That was my only concern.

That may have to do with relative evaluation securities that got down graded. If I’m single (inaudible) I would encourage you. It's one thing to look at it relative to amortized cost. What matters I think for the broader analysis s what is it relative to the par value. It’s not 75% but over 50%.

Understood but I mean there is still a pretty big disconnect between, those patches evaluations and where we're seeing observable events and time will tell, you know which, is correct, but those things are trading at $0.10, $0.15 on the dollar versus carrying values from a cash flow analysis that are significantly higher.

Okay, believe me everyone why you be able to track it and we'll try to make sure you have the information you need.

Okay. Thank you

[Operator Instructions]. Our next question is coming from Andrea Jao. [Operator Instructions]. We do have a question coming from Andrea Jao with Barclays Capital. Please state your question.

Hello again. The process service charges posted a nice increase over last quarter, could you talk about the drivers and the sustainability of that going forward?

You said deposit based charges?

Yeah. I think it was $31 million, 31.7 million this quarter.

Right. Andrea, part of that is the deposit mix change as you see more away from CDs and into transaction based accounts, you will naturally see some uptick in that line. Also I think that the and that’s again why we are so focused on building out the transaction accounts to core operating accounts. I also think that just in terms of dollars we are also looking at spot balances. When you compare 9/30 versus June 30, what would probably be very vey helpful and I think seasonality plays a little bit of a role as it relates to what happens and transaction accounts as a point in time at September 30. If you go back and look at average balances, you will see that those are much higher. We would expect to see some of that build back in the fourth quarter. So, I would say that our current forecasting would tell you that deposit fees would continue to stay in and around the range you that saw here in the third quarter.

Okay. And then a hypothetical question about if ever you do participate in TARP and you do receive a government capital infusion, given the weaker environment, do you think it would be relatively easy or possible to lever up on the capital, i.e. raise both deposits and loans to put that capital to work? And if not, at least in the near-term, what happens, do you leave the capital in cash?

Andrea, as I said in my remarks, I know that the purpose of the availability of this capital is to encourage institutions to make more credit available in their communities so to unlock this freeze and also provide some stability in the capital account. When we look at over, our view is that we would like to deploy the capital to our customers and into the community, but we also recognize that in the down leg of the cycle that there is not going be as much origination volume as you might otherwise see. So we look at it as over a period of the life of the capital, which might be say three to five years before it would be replaced by other capital or just retired, that we think there will be the opportunity to deploy it. And in the meantime, it has, even if it were just invested short term, the cost of the capital is so inexpensive that the drag will be minimum. So when you look at what is the potential dilution on the one hand versus the value of having the capital on the other and being in a competitive position against the biggest players in the market players in the market, net net we think it’s worth taking a good hard look at it. So even if it’s out there, it wouldn't have a very significant cost and it might be well worth the effort.

Okay. Thank you so much.

This concludes our Q&A session. I would like to turn the floor back to the management for any closing comments.

Thank you very much for being with us today.

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