Good morning, and welcome to Webster Financial Corporation's Second Quarter 2012 Results Conference Call. 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. Actual results might differ materially from those projected in the forward-looking statements. Additional information concerning risks, uncertainties, assumptions and other factors that could cause actual results to materially differ from those in the forward-looking statements is contained in Webster Financial's public filings with the Securities and Exchange Commission, including our Form 8-K containing our earnings release for the second quarter of 2012. I'll now introduce your host, Jim Smith, Chairman and CEO of Webster. Thank you, sir. You may begin.

Good morning, everyone. Welcome to Webster's Second Quarter 2012 Earnings Call and webcast. Our earnings release, tables and slides are in the Investor Relations section of our website at wbst.com. I'll provide highlights on the quarter and comment on strategic initiatives; President and COO Jerry Plush will discuss key aspects of performance and trends in our business units; then CFO Glenn MacInnes will review the quarter's financial results, after which we'll take your questions. I'll characterize our second quarter as very solid with increasing momentum. We showed continuing improvement in most financial metrics, and our performance demonstrated that our strategic investments are bearing fruit. Net income of $0.44 a share increased 22% from last year and 5% linked-quarter. Pre-tax earnings exceeded $59 million, our highest quarter in exactly 6 years. Improvement was evident across-the-board: in revenue growth, expense control, operating leverage, loan growth, asset quality, deposit mix and strategic progress. Both net interest income and non-interest income rose linked-quarter and year-over-year, while non-interest expense declined linked-quarter and was flat year-over-year, creating positive operating leverage once again that drove the efficiency ratio lower linked-quarter by 1.9% to 63.75%, and keeps us on track to achieve 60% efficiency in Q4. We're obviously not satisfied with the 8.5% return on equity for the quarter, but we're making measurable progress toward our overarching financial goal to earn a return that, at a minimum, exceeds our cost of capital. We're endeavoring to invest our capital and resources in strategies that will maximize economic profits over time. That's how we'll distinguish ourselves as a high-performing regional bank. I'm pleased to report that our Commercial Bank segment is earning in excess of its cost of capital. Consumer Finance is coming on strong. And we've been actively retooling our consumer banking model with the goal of responding to…

Thanks, Jim, and good morning, everyone. It's great to have this opportunity to review with you how our principal lines of business are doing as they pursue strategies to maximize economic profits over time. So let's begin on Slide 5 with the Commercial Bank. Here you can see in the top left chart the Commercial Bank has $4.5 billion in loans and has posted solid growth in outstandings over the past year and again this quarter. We're growing our key Middle Market industry segment and investor commercial real estate businesses with seasoned relationship-driven bankers and appealing to a growing preference for companies to partner with a strong, values-driven regional commercial bank. The business posted loan growth of $201 million or 4.6% from March 31 and $412 million or 10% from a year ago, inclusive of a net planned decline of $29 million in equipment finance from March 31 and $190 million from the prior year. The yield on the portfolio increased by 3 basis points to 4.29% in Q2, while the spread increased by 8 basis points to 3.11%, attributable to pricing discipline on new originations and from FASB-related deferred fees. Now let's move to the top right chart. You can see loan origination fundings totaled $424.3 million in the second quarter. That's up 41% from Q1 and 93% from a year ago. The yield on new originations in the quarter was essentially the same as for the entire Commercial Bank portfolio, while the spread on new originations is higher. Our Commercial Bank relationship managers know that they need to generate more than just loans. The focus is on the full banking relationship with our customers, so it's also worth noting that we had 23 interest rate risk management transactions, primarily swapping floating for fixed, that were booked for clients…

Thank you, Jerry. Good morning, everyone. Let me start by turning to Slide 11, which provides a quarterly trend in net income available to common shareholders and the return on average equity. I'll talk more about the drivers of our performance, but highlight the $40.6 million in earnings this quarter is up 6% over prior quarter, 21.8% over prior year, represents EPS of $0.44 per diluted share, a return on assets of 85 basis points and a return on average equity of 8.49%. Slide 12 highlights our core earnings drivers. Before I discuss the key items, I'll highlight the following noncore items which were incurred in the quarter and are reported in pretax income. During the quarter, we had a onetime security gain of $2.5 million from the sale of the CMO and the CMBS that we believe reached their full value. In addition, we recognized a gain on the sale of an equity position. We prepaid $49 million in FHLB advances and recognized a $2.5-million debt prepayment expense. The advances had an average effective yield of 4.56% and an average remaining maturity of 15 months. We also recognized $727,000 in contract termination severance expense as we continue to optimize our business. Now turning to the core earnings drivers. Average interest earning assets increased by 1.8% over prior quarter and 7.3% from a year ago. The $313-million increase compared to prior quarter was led by growth of $162 million in loans and loans held for sale, with the balance in investment securities. The $1.2-billion increase in average interest-earning assets from a year ago was the result of growth of $878 million in investment securities and $482 million in loans and loans held for sale. The net interest margin for the quarter was 332 basis points, which represents a 4-basis-point decline…

Glenn, thank you very much. Let me simply say that it's clear our performance is improving. We have positive momentum, and we believe we're making real progress toward our goal being a top-performing regional bank. That concludes our formal remarks. We'd be happy to take your questions.

[Operator Instructions] Our first question comes from Bob Ramsey of FBR Capital Markets.

I was a little curious, it's impressive your commercial loan yield actually seemed to tick a little bit higher this quarter, and I was wondering if there was anything sort of onetime or sort of how you all were able to manage that.

Well, I hope you could see the theme throughout the call of the sense of pricing discipline. Every relationship has to be measured against its return on that relationship against the capital that supports it. The Commercial Bank, in particular, is extremely mindful of its responsibility to generate profitable relationships. And I think that's a lot of what we're seeing. And I also think that the market has been fairly responsible. We haven't seen wild moves toward unrealistic pricing. There's been a little bit of pressure here and there, but on balance, we're pleased with the discipline that we've seen overall in the market. But I credit this a lot to Joe Savage and his commercial banking team that worked extraordinarily hard to make sure that everybody appreciates how important it is to gauge each relationship based on its ultimate value.

Okay. Great. I also was hoping maybe you could touch a little bit on the securities book. I know you all mentioned on the call a couple times sort of the challenge of securities prepayments, particularly as rates continue to fall. Obviously, you're keeping a pretty short-duration book. What are you all doing to try and minimize the impact of securities prepayments and hold on to the yield that you have?

Yes, I think -- Bob, it's Glenn. A lot of what we've been buying on the CMBS side has been structured such that we can minimize prepayment risk, and the Treasury function has been very successful in looking at buying securities that have limited prepayment risk as a result of the size of the loans, as a result of geography. And that's sort of been paying off in the last 2 quarters.

Our next question comes from Mark Fitzgibbon of Sandler O'Neill Partners.

I'm wondering if you could share with us the size of the loan pipeline and what the complexion of that looks like?

It's Jim. Thanks for your leadership. Glenn, you going to take that?

Mark, I gave comments throughout, but the pipeline on the commercial side is around $365 million. I think pretty much across-the-board, we're a little bit lower quarter-to-quarter in CRE because they had such a great second quarter in terms of origination volume, but we're up significantly in all other lines of business there. Strong performance when you think about the way that the BTB team has rebuilt the pipeline, so we're relatively comparable numbers, even though, again, they had one of the strongest origination quarters -- actually, I think as we reported, one of the best quarters ever. I think the Consumer Finance team, the pipeline is actually up quarter-over-quarter. And as you could tell from the origination volumes, that team did extremely well. And in WFA, we're up almost twice the pipeline that we have there. And I think, again, strong primarily on the fact that we've added a number of business development officers there, and that's really starting to come through in the numbers.

Okay. And then also as it relates to the margin, I was curious, how much wiggle room do you think you have to drive your deposit cost down from here? I think your -- the current cost's around 43 basis points.

Yes, we think we have just a few, 2 or 3 basis points over the short term, and we continue to drive that down.

Okay. And then lastly, in the press release you referenced that corporate finance products revenue. What exactly is that?

Those are clients -- that's client swap activity, yes, in the commercial side.

Our next question comes from Dave Rochester of Deutsche Bank.

So it sounds like from your comments you're still not seeing a pickup in competitive activity, no increase in irrational activity. Can we assume that average yields in the commercial banking pipeline are roughly comparable to what you saw in 2Q?

Dave, it's Jerry. I think that it's fair to say that our team has held the line and stayed very focused and disciplined in pricing. So in terms of making comments on others, I'll hold off on that. I think our guys know we're very return-focused in the organization. You could see that with, basically, the level of yields and the spreads that they booked. So a lot of this is really the payoff of high-quality people that have got good relationships in each of the markets in which we serve. I think it -- the regional focus that we've got really paying off, the strength of the teams in Middle Market, in CRE, in ABL, in its industry segment, I think these guys all -- again to echo Jim's earlier comment, Joe and his team have just done a really, really good job of staying focused and disciplined. And I think that's really the bigger driver as it relates to the -- what you see in the results.

Great. And just switching to the margin real quick. As a part of your margin guidance, in your prepayment speed assumptions, are you assuming any decline in mortgage rates from current levels? You talked about there's been a little bit of -- we've seen spread widening, but that's -- rate -- mortgage rates continue to ratchet down. I was just curious as to how much lower you think they go and how that's baked in your prepayment speeds.

We think relatively flat. I mean, the actual prepayment speeds on resi were down quarter-over-quarter. So we're projecting now a relatively flat environment.

And how long do you expect they remain elevated?

Hard to say, I mean, I guess at least through next year.

Okay. And that's -- I guess that's baked into your yield maturity assumptions on that bus [ph]?

It's baked into NIM, certainly.

Okay, great. And lastly, sorry if you already mentioned this, but can you just talk about the increase in the other income line this quarter and maybe talk about what a good run rate is for that going forward?

Yes. So we did see a very nice increase in other income and that's where a big part of the, what we call the Treasury derivatives income booked, the swap income. So that was up a little over $1 million quarter-over-quarter. And then the other thing -- and so that we feel pretty good about ongoing, at least in the near term. There was some onetime income in there that's relative to a direct investment, as I highlighted in my comments, as well as a mark on some of the other investments. And that was worth about the other half or $1 million of the total. So that I would consider more onetime.

Our next question comes from Ken Zerbe of Morgan Stanley.

Jim, I was hoping you actually give a little more detail. You mentioned that you would consider buybacks. I think you guys have commented on potentially looking at buybacks for a little while now. Where are you guys in that time frame? At what point might you implement a buyback program or at least get the ball moving?

I would say that would be sooner rather than later. It's a process, as I've said before, and it began with increasing the dividend and then looking to push it up around 30%, and then looking to deploy some of those increased earnings as well and the excess capital to opportunistic repurchase opportunities. I don't want to comment on it in a big way, because it would be opportunistic. But we think it is appropriate to have such a program, and it's always hard to put an absolute timeline on it, but I wouldn't be talking about it if it were going to be, let's say, longer than a year. So I would say within some reasonable time frame and closer than we were 3 months ago.

All right. The other question I had, just on the expenses. How much of expenses -- they ticked up at least -- they didn't go down as much as we had expected. And it looks like some of that may have been a little bit of discretionary spending. How much discretionary spending do you have in the current expense run rate now that will go away by year end? I'm just trying to understand the magnitude of how much it drives the efficiency ratio down.

Yes, I'm not sure. I mean, we have -- discretionary is relative. I mean, as Jim highlighted in his comments and I think I did as well, I mean the bulk of the reductions are coming in what I would consider the back office restructuring. So the 123, I'm not sure what you were expecting. I think that's pretty much where we were expecting. And so I think if you look at efficiency coming down 190 basis points quarter-over-quarter, that's what you're going to see as we get to 60%.

Our next question comes from Timur Braziler of KBW.

It's actually Damon DelMonte. Just wondering if you guys could talk a little bit about the mortgage banking activity this quarter. I think you may have said in your prepared remarks what originations were. But could you just repeat what the volume was for the quarter?

We probably want to point him to the slide on Page 7, right?

Yes, I think. Damon, do you have the handout?

Oh yes, I do. I just...

The one on Page 7...

[indiscernible]

Yes. We basically just outlined the loans sold with servicing retained. We're more than $0.5 billion for the quarter, and that's growth of about 20% over the first quarter and 74% over the same quarter the year before. And the gains on margins were around 2% for the quarter compared to 2.26% in the first quarter and about 1.72% a year ago.

Okay. And how do you see the pipeline shaping up going forward?

Very strong. We're reporting a pipeline that's in excess of the $550 million or so that we had at March 31. So the team's done a very nice job continuing to refill that as things actually get through the origination state.

Okay. That's helpful. And then I guess my second questions have to do with the loan-loss reserve level. Again, we saw charge-offs exceeding the provision and understandably so, as credit quality continues to improve. So the margins -- or the loan-loss provision reserve is now down to about 183. Where do you kind of see your long-term target for that ratio?

We see it drifting down, I think. It would probably come down about, say, around the 160 range by the end of the year. All other things being considered, credit quality continues to improve. We stay on this trajectory, that's where I think we'd end -- we'd expect to end up.

Our next question comes from Steven Alexopoulos of JPMorgan Chase.

I wanted to start, assuming that you do get to the 60% efficiency target by the fourth quarter, is the plan then to keep that efficiency ratio below 60% moving forward?

I think what we've said, Steve, is that we would probably pop up in the first quarter due to seasonality. But then from that point on, assuming we continue to see the rate environment the way it is and our business production, we fully expect to be below 60% going forward. It's sustainable at that point.

Okay.

Steve, what we've said is that getting to 60% or below 60% is a necessary but not a sufficient condition of earning our cost of capital. So we know we have to be under 60%. And over time, it's got to keep dropping from there. So we've said, achieve by Q4. You get the natural blip ups in expenses in Q1, so you may pop up a bit and then sustainable by Q2 2013 and thereafter and improvable.

Okay. Great. I'm curious, with mortgage backed security yields now at such low absolute levels, what are your thoughts on continuing to add to the portfolio at these yields versus just letting cash build or looking for alternatives?

I think our strategy has been to continue to do purchases. We see it as an interest rate risk hedge as well. And you've seen us move from -- in the second quarter from liability-sensitive more to a neutral position right now. So we don't look at it just from an earnings standpoint. We look at it from a structure standpoint. And we're getting about 200 basis points in spread on it, if you look at how we're funding it, so it continues to make sense for us. That being said, as I highlighted in my comments, I think at $6.2 billion, we're sort of topping out on the investment portfolio, and you'll see growth as you see interest earning assets grow. It's going to be primarily loan, if not -- the majority will be loan volume going forward. And with the pipelines that we highlight, I think we feel pretty confident in that.

Okay. Just a final question. Looking at the commercial real estate growth, it looks like most of that was in shopping centers and multifamily. Maybe give some color on the shopping center growth and talking about what the concentration limit is on that portfolio and maybe then just pricing on the multifamily.

Yes, Steve, we gave no commentary on what type of loans, the type of industries we were lending into. I mean, we've done some things that are industrial, some partial office. I mean, it's pretty spread. There's no concentrations in what we've been generating.

I was just looking at the Slide 32, and just comparing it to last quarter in that. Okay. Maybe then can you just comment on the multifamily pricing?

Steve, I'm sorry, repeat your question?

Multifamily pricing.

We'll have Glenn get back to you on that.

Our next question comes from Russell Gunther of Bank of America Merrill Lynch.

Quick question. You've made some comments around loan growth and capital management. You had commented a couple of times intra-quarter about an expectation to maybe get that TCE ratio down closer to 6.5% from 7.2% in 2Q. Could you give us a sense for, in that estimate, what breaks down from loan growth and an increase in capital management potentially?

Let me just make sure I understand your question. So you're looking at the difference between Tier 1 Common and TCE?

No, just from comments you guys made during presentations intra-quarter that you would expect the TCE ratio to move down closer to 6.5%, the 7.2% in the second quarter. So I'm trying to get a sense for what your underlying assumptions for loan growth and capital management are in that 6.5%.

Yes, let me make a comment on that. A lot of that -- what we're saying is 6.5% over some period of time. That could extend out for a year or more. That would absorb significant loan growth, obviously, and would also accommodate some repurchase activity.

Okay. I appreciate the clarity on the timing. When you do re-implement the buyback program, is there a targeted total payout ratio that you guys have in mind?

We -- at this point, while we're talking about it, what the ratio ought to be, we have not established firmly a ratio.

Okay. And then just with regard to loan growth, you've -- we saw how commercial yields held up, and you've mentioned an unwillingness to get more aggressive on pricing in order to drive growth. How much loan production do you -- volume do you think you're walking away from due to competitive pricing beyond your tolerance level?

I think there's a couple things happening. One is we're in a very good position, because we are always in the considered set. We are winning on relationship pricing. There's a lot of movement in the market in terms of what bank you want to deal with. Do you want to be with the big bank? Do you want to be with the regional bank? Webster's done a lot of things well in terms of serving its customers, being there for them during the downturn. And our reputation is in very, very good shape at this point. And so we're taking a lot of business we might not have gotten a couple years ago. Plus, we brought people onto the team that are able to bring new relationships with them as well. So there's a number of elements that are contributing to our performance, and so we're not having to win based on price. I would say that we're not giving up a material amount of business at this point as a result of holding our pricing, but we have lost some deals. I think with the discipline of the relationship has to meet the test on economic profit, and you've got to do that over and over again, requires that we maintain that discipline rather than yield on that particular point. So at least for now, with the market relatively sane, that's going to be our approach.

Okay. And then last question was, you mentioned FASB-related deferred fees in the quarter. Do you have what those were?

I'll have to come back to you, Russell, on those.

Our next question comes from John Pancari of Evercore Partners.

Do you have the amount of unamortized premium in your securities portfolio as of the end of the quarter?

Sure. It's $189 million.

All right. So that was -- that compares, what was it, $145 million last quarter?

No, it was $167 million last quarter.

Okay. All right. And then do you have how much the premium amortization expense was this quarter that you incurred?

$14.9 million, I think I said in my comments.

Okay. All right. And then in terms of your outlook there, in terms of how that could play out in terms of prepayment speeds and the implications for the expense, can you just give us your view on premium amortization expense in coming quarters given the progression in securities yields?

Yes. I mean we think it's going to stay fairly constant. Like I said, I mean the credit of the Treasury function, they've been very successful in buying things that have lower prepayment speeds. And so if you look at the drop in rates, we don't expect to get a lot of acceleration. We think the $14.9 million, you could probably say is fairly constant. I mean, that being said, obviously, we added like $1.9 million in premium amortization to get to the $14.9 million, and that's a result of buying our purchases at premium, which is what you're paying for that protection.

Okay. All right. And then lastly, on the lines of the CRE growth. I know you mentioned that you're -- you weren't specifically setting a concentration, but can you just give us, then -- if you can't talk to us about any specific industry type, can you talk about what strategy you're employing there to really drive CRE growth in this market? Because still across the bank group we're not seeing much volume yet on the CRE side broadly, but you're putting up some good growth here over the past couple quarters.

Yes. I think on the retail side, they're seeing opportunities where they're grocery-store-anchored properties. So we feel really good about that as we refer to it as necessity retail. To the earlier question, I think as we dug through here, we're seeing some opportunity on the multifamily side. The pricing's in the low- to mid-2s for stuff that's existing and a little higher for on the construction side. So I think the team sees opportunities in a number of places. Again, remember our markets run from down in Philadelphia where there was an opportunity for some multifamily, to industrial and warehouse in some of those same markets. And then also, on the retail side, again, the -- a number of these are -- they're all through sponsors we know well in the footprint. But there's a couple of projects, again in the multi side, that came our way during the quarter.

Our next question comes from Casey Haire of Jefferies & Company.

A question for Glenn on the margin. Appreciate the 5 bps down this quarter. Does that mean -- with help from the TruPS retirement, does that mean that in this kind of interest rate environment that we should assume that the NIM compression is now greater than 5 bps beyond the third quarter here?

No. I mean we were down, we gave guidance that we'd be down 5 bps into this quarter. We were down -- in fact, we were down 4. My guidance for the second quarter is 3 to 5...

Third quarter.

In the third quarter. Yes, I'm sorry, in the third quarter it's 3 to 5. And I think if you do the math, the TruPS is probably going to -- a little over 1 basis point, say 1.25, the net benefit on that. So 3 to 5 is all-in and includes the benefits of the TruPS.

Okay. Got you. And then just to clarify, the fee growth this quarter, you're expecting 4% to 5%. Is that right?

That's correct. We continue to see a strong gain on sale market in the mortgage side. The rates have held up at about 200 basis points, and as Jerry talked about, as well as Jim, our volume, our pipeline looks pretty strong even for the sale side. We did $198 million this quarter versus $131 million last quarter that we sold. So we're doing pretty well there. We're going to see that going into the third quarter. And then the other side of it is the continued volume we're getting on client swaps is bringing in a lot of fee revenue. And it was a tough market for the investment services division, basically flat quarter-over-quarter. We think we were going to get some traction -- some more traction there. Of course, it's dependent on the market. So there's a couple of key drivers there. The last thing is we put in a new retail pricing structure in July, so there'll be additional fee revenue associated with that.

Okay. And so -- okay. And then is there an appetite maybe to increase some of the short-term borrowings to help out on the deposit side or the funding cost? Or are you going to look to keep the book pretty neutral here?

I think we're going to look to keep the book neutral. I mean, I think as I indicated, we have a little more opportunity on the deposit pricing to reduce -- the retail deposit pricing, to reduce rates. Some of that actions have been taken; they just haven't been realized in the full quarter. But I think as far as borrowings, of course, it's going to be based on loan growth and deposit gathering. So that sort of the last piece that you look at.

Okay. And then just lastly, on the P260, is it -- I know originally you guys said that it was primarily going to be expenses, about 2/3 expenses, but is it -- from here is it -- what's the mix in terms of contribution from the expense and revenue side?

I think it's still holding to that ratio, 1/3 and 2/3. And so you can push out the numbers that way and then get a good sense of where we need to be on expenses, and we still feel comfortable with that.

Our next question comes from Jason O'Donnell [ph] of Marion Research [ph].

Jim, I believe you mentioned that -- in your prepared remarks that 45% of the ATM network has been converted to do image capture.

Right.

And can you just give us some more color around maybe the Universal Banker initiative side of things to date and how much of the branch network at this point is employing that model?

Yes. We're not really employing it much right now. We've just indicated internally, and I mentioned this in my remarks, of course, that we're going to have a pilot program for the Universal Banker in selected offices around the franchise, with the idea that with these touchscreen image-capture ATMs that don't need envelopes, that more and more of our deposits will take place there. And in fact, early on, it looks like up to a 40% increase in deposits in these ATMs. And therefore, there'll be less need for transactional business in the offices. And when you take that plus online banking and mobile and all the other things that consumers are demanding that we are providing, then the amount of transactions that will occur in an office location go down. And so it gives us an opportunity to use the personnel much more efficiently, to develop them, to break down the barriers between someone that's at the teller window and someone's that's at the platform, so that we can become much more an advisory-oriented institution that uses the offices to provide advice and build relationships rather than to conduct transactions. So that's the driver behind this. And we think that over the planning horizon, which still goes through the end of 2014 right now, that the Universal Banker will take hold in a meaningful way and that we will gradually transform our system over that planning horizon, and it will create significant efficiencies from a staffing perspective over time. But for now, we're just embarking on this. We have a lot to learn about it. It clearly is the right path. It's part of the way that we're reconfiguring our consumer banking model in the very difficult operating environment we find ourselves, while also being responsive to our clients and driving for relationship development.

Okay. And then just a quick question on credit quality. Just given the sharp drop in charge-offs this quarter, is there an NCO level or range that you would consider to be normalized given just the current portfolio mix and the environment?

Well, certainly down -- 58 basis points we're down. I think we were as high as 1.07 in the third quarter last year. But I think we look to stay around that level. And over the next couple of quarters, you'll see it -- we think you'll start to see it even drop further. I think 30 to 40 is probably a more normal number for us.

Yes, barring the lumpiness that...

Yes, it is [ph].

Our next question comes from Dan Werner of Morningstar Equity Research.

I just want to clarify on the mortgage banking business. I assume it's primarily refinance business. Could you kind of give me a purchase/refinance breakdown on that?

Not sure we have that here.

We'll get it for you, but I just want to say a significant amount of this business is purchase business. We doubled our loan origination sales force. They're spending much more time working with realtors. They're moving upmarket to do jumbo purchase transaction. So I think you'll find that a high proportion is purchase, and it's one of the things we like about the book, is that when rates starts to rise and refi's go away and they will, I think the mortgage bankers who are positioned for purchase lending are going to be in the best shape, and that's what we're aiming for.

Do you expect those spreads to maintain at about 2% going forward into third quarter then as well? Or are they coming down?

Yes, on the gain on sale?

Yes.

Going to the third quarter, yes, we do.

Okay. And then secondly, on the allowance for loss reserve. Obviously, as you are improving loan quality and growing loans, where do you see your allowance eventually settling out as a percentage of loans?

As a percent of loans?

Yes. You mean you're at 1.7% now, right -- 1.72%?

Yes, what we've said is -- I mean, Glenn already answered your question saying probably we'd be in the 1.60% range by the end of the year. But in terms of what we're comfortable with, assuming the economy continues to improve, it's around 1.5%, and it could be in the 1.25% to 1.50% range over time...

As we look over the planning horizon.

The next question comes from Matthew Kelley of Sterne Agee.

Just to clarify something you mentioned earlier. You said multifamily yields, you're seeing low to mid-2s. Is that correct, that's your fixed-rate conventional type of product?

No. I think that was not multifamilies. It was...

I think it was RMBS, right?

No, no, no. The multifamily, 2.25 over the 5 year.

Oh, it's spread over the 5 year, got you.

Over the 5 year, yes.

Okay, yes, I wanted to clarify that. To help us understand just some of the volatility in the yield that you're getting on the originations and the commercial banking group, first -- fourth quarter, it's 4.25. First quarter it was down 3.86. First -- second quarter backed up to 4.30. What areas are you seeing much better yields that is causing some of the better performance in the fourth quarter and in the second quarter and the volatility just quarter-to-quarter? And your total origination yields in the commercial banking group?

I think just generally, and I'm looking -- if I look at, Matt, the coupon rate that we're getting on the total commercial book, we are up 20 basis points quarter-over-quarter. And it's depending on the degree -- I mean, I think that on the Commercial Real Estate, we've seen, say, a 10-basis-point increase in the coupon rate. And then on the CNI side, is where we've seen most progress as far as coupon. I mean, we're up 30, 40 basis points just quarter-over-quarter. So there's always going to be some noise when you look at the total portfolio with respect to FAS 91 and things like that. But I mean, if you use coupon rate as a total, in the first quarter we were in the 3.90s. We're in the 4.10s right now, so for the second quarter, and that's weighted on all the new production that we did.

Okay. And how sustainable do you think those spreads are that you saw in the second quarter as you go into the back half of the year?

Well, I mean, Jerry and Jim highlighted our loan pricing discipline and I think that continues. And I think that continues even in the fact that we have over -- probably over like $1 billion coming in at least in the pipeline. So we're not giving up covenants and we're not giving up pricing. The short answer is I think it sustains now.

And the multifamily that you are originating throughout the footprint, are you going into the Metro New York area at all? Or...

Matt, I had referenced that we had been -- I think you've got Philly. I think you've got the different regions. I mean, I'm not going to quote off the top of my head the -- let me grab a sheet here that I have on the side. But I think you're looking at -- we did some in -- so let me see here. You're seeing some in the Boston region, some in the Philadelphia region. So I would tell you that, again, it's all in and around our footprint.

Our next question comes from David Darst of Guggenheim Partners.

So you spoke at hiring in the residential mortgage lending area and the Private Banking area. Have you had any additions for teams in the CRE group or in the CNI group at the regional hubs?

You mean adding teams or adding to our teams?

Both.

We have -- over the last 24 months or so we have added several people to the Middle Market. We've added a couple in the CR -- in the Commercial Real Estate group, including in Boston, which by the way is doing extremely well and well ahead of the plan, both in terms of volume and operating contribution. So yes, we net have added business bankers. We've added Middle Market bankers, Commercial Real Estate producers, and that's consistent with what's been happening in the mortgage lending and the Private Bank, the idea being that revenue producing would make up a greater portion of the workforce overall as we would support them more efficiently. But we haven't hired at the same rate in the Commercial Bank as we have in the mortgage bank or the Private Bank.

Are any of these larger producers that are driving a more material part of your new originations?

No. All of our producers -- in fact, I think it's been one of our successes that we've attracted very high quality lenders that come and stay, and they bring their books and they do a good job. And so it's not any one person; it's all of them. And it's not just the new people; it's the people that have been Webster that make it such an attractive place to be in the first place that are also producing at a high level. And I think, as I was mentioning before, to some degree we're riding a very good reputation in the market, which has got us deep into considered set, which has been very helpful for us. So the longer-term personnel, as well as the new, have generated increasing volume and that's what you're seeing in the numbers.

Okay. And what about just market disruption? Are you seeing any changes from that dynamic and your ability to gain share?

Well, yes, there is market disruption. I think that people are looking differently at their financial services providers, including their banks. And we feel, and some of the recent studies that have been done are bearing this out, that businesses in particular are valuing the quality of the relationship that they have. So if you can provide a full range of services and you're local and you're relationship-oriented, you've got a really good opportunity to attract, let's say, clients who may be disaffected with the relationships that they have today. But I do want to say that we're not targeting any particular institution. We target the market and we pull from the market overall, but yes, there is some dislocation going on.

It appears we have no further questions at this time. I would now like to turn the floor back to management for closing comments.

Thank you all for being with us today.

This concludes today's teleconference. You may now disconnect your lines at this time, and thank you for your participation.