Good morning and welcome to Webster Financial Corporation’s Second Quarter 2015 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 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 within the Securities and Exchange Commission, including our Form 8-K containing our earnings release for the second quarter of 2015. I’ll now introduce your host, Jim Smith, Chairman and CEO of Webster. Please go ahead, sir.

Thank you, Christine, and good morning everyone. Thanks for joining us for Webster's second quarter earnings call. CFO, Glenn MacInnes and I will review business and financial results and then take questions along with President, Joe Savage. Beginning on Slide 2, second quarter results were solid producing record net income and a 9% return on common shareholders' equity. That's 12.5% on tangible common. Our results showcase our progress in executing our strategic plan for growth, including achieving sustained momentum around the commercial banking expansion, rapid growth in HSA bank footings, progress along the community bank transformational roadmap and growing traction in the private bank. I am bullish on our prospects because I am confident that we have made good strategic choices that will create meaningful value for our customers and shareholders over the long-term and right now we are firing on all cylinders. And we may get some help from a regional economy whose prospects seem to be improving according to the latest Fed Beige Book which cites stable or improving business conditions in the first district, stronger retail and an improving housing and commercial real estate market. A common denominator in the quarter across all of our businesses was strong loan growth with total loan originations of $1.5 billion setting a quarterly record, including a big uptick in first mortgage lending. This robust loan volume drove higher net interest income that overcame net interest margin compression and helped produce 10% year-over-year core revenue growth, the 23rd consecutive quarter of year-over-year core revenue growth. That's momentum. There were two items of special note in the quarter. First, we experienced a lower than expected tax rate from a net tax benefit of $3.7 million that Glenn will discuss. And second, we increased the quarterly loan loss provision by $3 million in…

Thanks, Jim. I will begin on Slide 14 which summarizes our core earnings drivers. Our average interest-earning assets grew $707 million compared to the first quarter. About three-quarters of the growth was attributable to our loan portfolio with the remaining growth result of incremental security purchases made during Q1 in connection with the HSA acquisition. Net interest margin at 305 basis points was down 5 basis points from Q1. The decline was within the anticipated range. It was primarily driven by lower securities and commercial loan yields. Our 3.4% linked quarter growth in earning assets, partially offset by NIM compression in the quarter, resulted in record net interest income of $163.5 million. Core noninterest income increased by $1.6 million or 3% on a linked quarter basis to establish a new high of $59.4 million. Core expenses were up $4.1 million over Q1 primarily driven by increases in HSA Bank, annual merit increases and stock-based compensation expense. Taken together, our core pre-provision net revenue totaled $85.9 million, up 1% linked quarter and 7% from prior year. And as you see, we had a $3 million increase in our provision to $12.8 million this quarter. Pretax GAAP reported income totaled $73.2 million for the quarter, up 3% over the prior year. Reported net income of $52.5 million includes an effective tax rate of 28.2% relative to our original expectations of 33%. The lower tax rate in the quarter reflects the $3.7 million net tax benefit. Slide 15 highlights the drivers of net interest margin versus prior quarter. We achieved quarterly growth in average interest-earning assets of $707 million or 3%. The securities portfolio had average linked quarterly growth of $158 million from the completion of planned security purchases during Q1 associated with the HSA acquisition. Cash flows totaled $430 million in the…

Glenn, thank you. And I want to thank so many of you on the phone today for attending our investor day back in June where you heard about the success we have been having in investing capital and resources to support strategies that create value for customers and maximize economic profit over time. We think we are making meaningful progress in our pursuit of high-performing status and our momentum is strong. Let's now open it up for comments and questions.

[Operator Instructions] Our first question comes from the line of Jared Shaw with Wells Fargo. Please proceed with your question.

Just a few questions for you. The first, I guess if we look at the deposits and the decline in the money market in time and then the offset growth in FHLB advances, does that shift to try to extend the duration of liabilities or is that more reaction to deposit rates being flexible?

Yes. Jared, it's Glenn. That was more of the seasonality in government banking where we saw that $0.5 billion reduction quarter over quarter typical of Q2. So the FHLB borrowings short-term were provided for the loan growth.

Okay. Okay. So we should expect then to see as government banking grows back, to see that shift back towards more of a deposit focus?

That's correct.

Okay. And then when you talk about the mortgage banking or the originations increasing, is that more due to the strength of the market and keeping your market share there or is that more of a push to take more market share and become more active in the area?

It's actually both. As you know the jumbo product can be a lead product in relationship development, consistent with our mass affluent strategy. And so we have had a lot of success directly through our mortgage bankers and through our correspondent channels focusing on jumbo originations. So we are seeing some share pickup as part of the program, most of it’s purchase mortgages. And we think we are on target for success with the jumbo program.

Okay. Great, thanks. And then finally on the HSA side you mentioned that in June you on boarded an employer with 60,000 accounts. When you're seeing these large employers come over, are these typically employers that are already offering an HSA or a high deductible health care plan to their employees and you are taking that business away from someone else? Or is this more the large employer will now begin to offer a high deductible plan and you are stepping in as the first HSA provider.

It's actually both of those. It may be an employer that had multiple solutions that wants to have an exclusive relationship with us. It may be employers, and there were many of them, that are just starting to offer the program, or maybe an employer that is dissatisfied with their current arrangements. But a lot of the volume is coming as a result of employers that are emphasizing this business more than they did before.

And so as we look going out in the next few years, do you think that this will be really the new trend where you start seeing more and more of the large employers coming on board with tens of thousands of accounts.

We do think that will be a strong trend.

Our next question comes from the line of Casey Haire with Jefferies. Please proceed with your question.

Glenn, just wanted to follow up on the fee guide. If I heard you correctly it was up $3 million to $4 million led by wealth management and deposit charges. It just feels a little bit aggressive. Could you just maybe provide a little bit more color particularly on the deposit side given the secular pressures we're seeing elsewhere?

Yes, I think what we are seeing Casey is we saw some strong consumer volume in the second quarter and so things like interchange and ATM certainly picked up, and so we expect to see that continue into the third quarter. And then with that in addition with the HSA and the additional volume that's been booked quarter to date or year-to-date, is generating volume as well. So that's really what's driving the deposit service charge numbers. On the wealth side, you saw we made progress Q1 over Q2. And, quite frankly, given the pipeline we have on the private bank and all the work that's being done on Webster Investment Services, we feel really confident about where we are going.

Okay.

If you were to look at -- if you look at the total increase, I would say it's split between both of those.

Got you.

On the services and wealth.

And the other income, I notice you didn't call that out after a reset down from some nice swap income last quarter. Is that a reasonable run rate going forward?

Yes.

Yes. Casey, it's Joe. The swap income numbers that can be lumpy relative to the investment commercial real estate business that we originate. Second quarter was a little bit soft for us. We are not sure with respect to third quarter at this juncture. But certainly it's in area that we really focus on and it's part of keeping our balance sheet floating.

Let me add one comment to what Glenn was saying too. When you look at, just take debit card transactions for example, up by 16% year-over-year. So that's part of where that income is coming from.

We have seen increases in consumer activity on both the debit card and the ATM. Just transaction volumes were up generally in the second quarter.

Got you.

And Casey, it's Joe again. If I go back to the ICRE side, it's really a function of whether or not we book the large transactions in a particular quarter that will drive the swaps. So that can get lumpy in a quarter for us.

Okay. And just a question on overall efficiency. Obviously you guys got a nice little run going here with, you know keeping under 60. It is up year-over-year. Obviously there's been, investments being made on HSA. Are you guys pulling forward a lot of those investments with some strong revenue numbers and we may expect to see some of these investments ease in the back half of the year. Just trying to get a sense of where the HSA sort of build out expense is.

Yes. So with regard to HSA, I mean there is a few dynamics in there and the acquisition is one of them where we have a service agreement with J.P. Morgan and as we convert that onto our platform that will begin to taper off. And that process will begin in the third quarter so you will start to see some fixed costs go away or costs associated with the TSA. Partly offsetting that is the conversion that we have done on to the EV One platform. But generally I think the fixed costs will go down over the next couple of quarters in HSA.

Okay, great. Thank you.

I want to add to that. However, overall investments in the businesses will continue. And the art of what we have been trying to achieve is to make those investments in support of our bankers and our businesses and improving our technology at the same time as managing expenses in the disciplined way that we have to keep the ratio at 60 or better.

Our next question comes from the line of Mark Fitzgibbon with Sandler O'Neill. Please proceed with your question.

First question I have for you was that are we likely to see any additional charges in coming quarters for branches and facilities optimization or is that largely behind us at this point?

I think it's not behind us. We continue to rationalize the branch network and in the third quarter I think you will see another consolidation. It's like a three to one type of deal, Mark. But the team there continues to rationalize the branch network and reduce the footprint size.

Okay. And then secondly, the non-performers in the commercial nonmortgage portfolio jumped up again this quarter. Could you tell us what's sort of going on there?

Sure. Mark, it's Joe. I guess what I would say is more a return to a normalcy. I think it would be where inside the bank we see this as really a step coming perhaps closer to a normalized state when you think about where our positions are. So there isn't a concern that we have with respect to the portfolio. We talk to the people about the flows. There is really nothing there that would suggest that this is anything other than coming to a normal state for our organization.

Joe, no particular industries?

No. No, I mean if implicit in that question is oil and gas or if implicit in that is shared national credit, everything is running within normal bands for our particular business. So, yes, it is within the middle market bank but again we really like where the classified and NPL levels are in the book. Could they go down and get better from here? Absolutely. Could they go up a tad from here? Absolutely. So just -- go ahead, Glenn.

I think you covered it. I just, as I did in my comments, I think we are at historically low levels or have been there and so it will bounce around as things and you see the trend, the flow of things coming in being cured and things coming in back-and-forth. So I think you will see some lumpiness in there.

Yes. So Mark I don't know whether you heard Glenn's comments on that specifically earlier but what he was saying was that you got a handful in and that you get some out. We didn't get many coming out this time. There were three loans accounting for $16 million of which one or half of it already has been resolved.

That's right, Jim. We have got couple of classifieds, one's just paid off in full. One significant one was, got additional capitalization, already been upgraded and approved. So again, just, we would love you to think about our portfolio as having $10 million-$20 million to $30 million exposures that move around. And we are in such a low state right now that anyone of those makes a basis point move for us that might appear on its face material, but again just working with it, with the guys just the other day and working with [Dan Bley] [ph]. We just don't see, we don’t see anything here that would suggest that there is anything other than a bump along.

Right. Overall loan quality is very good. And one other point I think we noted was the TDRs declined in the quarter also. And then you look at the days past due in the commercial or the consumer book and those levels are still declining.

Our next question comes from the line of Dave Rochester with Deutsche Bank. Please proceed with your question.

Nice loan growth this quarter. So given that strong growth on the loan side, the average pace you are guiding to seems to imply a little bit slower growth pace in 3Q. Maybe if you could just comment on that and also on why the provisions should remain in this 2Q range if loan growth might slow?

Yes, so I think, let me start now and I will hundred over to Joe. But with regard to the loan growth, the consumer side, you saw a significant growth quarter over quarter. And that was, some of that was a reflection of the market rates. We have seen [assets] [ph] slow down a little since the first quarter. So that's factored into our thinking here on the residential side. And then on the commercial side I will let Joe touch.

Yes. Hey, Dave. I mean certainly the good news is that Webster has been investing in our people and our markets for some period for time. So we like to think that we have got more good athletes in various markets helping us do well. But in fact, what happened in this particular quarter that we think will happen in next quarter is in some growth which we had expected to see in Q2, quite frankly, on the prepay side, and it's up even more specific with respect to our ICRE book. So that should have happened in Q2. It probably will happen in Q3 and so how Glenn guided you is probably appropriate. Now we would love the surprise [indiscernible] on the upside to that but our guess is we think that should be our guidance for you.

Perfect. Thanks. And as that relates to the provision, if loans are going to grow slower, why not a lower provision?

Well, you know we have run it through our model so it's not -- it depends on each portfolio and that’s where we are right now. Once we get the loan growth, we look at our existing portfolio and that’s how we ended up being in the range of where we are today. As we indicated in the past, we like to be anywhere from 1.10% coverage to 1.15%. And the model informs us about where we are. So it's going to depend on where the growth comes during the quarter as well as the existing portfolio.

But it's right. We are guiding to the same but it could be lower. Higher too, right. It could be higher, it could be lower.

Got you. And then just a bigger picture question on the efficiency ratio. It seems like you are talking about a lot of revenue growth in 3Q and I know you are reiterating that 60% or lower on the efficiency ratio. Shouldn’t we expect to see that ratio decline over time as the J.P. Morgan expenses come out and then you have got the other fee income growth and the balance sheet growth continuing.

Well, sure. That would be -- the plan would be that over time, and we have talked about this, we ought to be able to get it down. What we are trying to be careful about is to continue to invest in our businesses, so it's not all a save. It creates opportunity that revenue growth to not only manage efficiently but to invest in the businesses. So we are just trying to achieve that balance. And that’s why we are saying at this point on just a single forward quarter basis that we think we can keep it under 60%. Over time we think we can drive it down and invest in our businesses.

Great. And can you guys just remind us how much in the way of net savings you expect to get as TSA rolls off through the first quarter next year?

It's about $2 million a quarter. Somewhere around that.

$2 million on a quarterly run rate basis?

Yes.

Great. And then just one last one on your margin guidance? What are you assuming for securities premium and expense? Are you assuming that that increase we saw this quarter unwinds over the next couple of quarters?

From a premium standpoint we think it will be about flat quarter-over-quarter.

So flat is baked into the zero to 2 down?

Yes.

Our next question comes from the line of Bob Ramsey with FBR Capital Markets. Please proceed with your question.

Hi, this is [Martin Kirsten] [ph] for Bob Ramsey. Could you provide some color around compensation and expense increase? Was it full HSA related or is there something else?

No. HSA is part of it but we did add staff, customer facing staff. And more significantly as we go through our annual incentive comp cycle at the beginning of the second quarter, so you get a full quarter of that. So if you look at base comp, all things being equal, you would expect that to go up about 2% on an annual basis. That’s driving it. And then the last piece which is worth a couple of $100,000 as well to that number, as you saw our stock price went up about $2.50 quarter-over-quarter and the accounting for that probably is worth about $600,000 to $700,000 for the quarter.

Okay. Thank you. Next question that I have is, what was the reason for the other income dropping by roughly $2 million?

The other income included, I think as we highlighted in the first quarter call, the first quarter over second quarter swap volume was about half of where it was in the second quarter. I think Joe just said that.

It's correct.

Got it. And I guess lastly, I saw the [indiscernible] expense decrease quite dramatically. Was that due to your facility optimization effort and do you think this is kind of a good run rate or is it more of a onetime thing?

We had less now in the second quarter. And, no, seriously, we had about $1.8 million in snow removal expense in the first quarter. So you can call that seasonal, I guess, right. That’s the whole driver.

Our next question comes from the line of David Darst with Guggenheim. Please proceed with your question.

Maybe you could talk about competition in the HSA business and in a rising rate environment or in any other scenario why would other providers not raise deposit price increase or maintain or grow their portfolios at a faster rate?

Well, they could. I think that again it's the balance there. I would say that most providers of HSA accounts or less concerned with the deposit rate than they are with the quality of the service they are getting from their partner. And the technology, the platform, the experience that their employees are having. So we will just have to see what happens in a rising rate environment but we believe that these purpose driven long-duration, low-cost deposits are not going to have a high elasticity going forward. We will just have to see. But that’s our view and to the extent that that does become a competitive factor in terms of what the rates are that are paid, we will be sensitive to that. But at this moment that hasn’t been the driver.

Okay. And then in kind of same line, in the brokerage space or in the money market alternatives, could you also see that influencing your beta and it would be higher than you expect?

We could but we have tried to plan for that in our projections.

If you were to grow that broker business, would it change your economic?

Are you saying where we are sweeping to the investment accounts?

That’s right, off balance sheet.

No. Actually we have planned for that activity. I think you probably know we have $1 billion right now that is managed in that fashion. So those tradeoffs there is obviously less expense that’s involved. It could be nominally lower revenue as well. But we look at it as part of the overall program.

Yes. And David they typically have higher balances, deposit balances as well. Those that sweep into investments.

So we don’t think it will have a meaningful impact.

Okay. And then, you have outlined what you are going to be spending on risk management this year and then also in the digital space, in infrastructure. Is that already in the run rate in the second quarter or is that going to be building up and then offsetting some of the gains you have got going forward?

Yes. David, that’s in the run rate for the quarter. There will always be additional capital spends particularly with respect to mobile banking and online expenditures like that. But the risk piece is all in our memory.

Our next question comes from the line of Matthew Kelley with Piper Jaffray. Please proceed with your question.

Just the first question on the jumbo mortgage business that you have been building out. Just remind us on kind of rate and term and that’s about 25%-26% of loans. Where that could go over the next couple of years here?

So it's primarily 30 year jumbos at about 4%. And as far as projections, I think that’s going to be subject to where the rate environment is.

Yes. It's the rate environment, it's how we want to manage the balance sheet, interest rate sensitivity, all those factors come together. But it's a great, it really is a great relationship development tool and very very high quality with a decent return. And our mortgage customers have six products with us. It's not just about the mortgage loan, it's about relationship development. It's consistent with the mass affluent strategy. This is all positive.

Got it. Similar type of growth for third quarter back half of the year?

Not off the second quarter. I think you will see it taper down a little bit.

Then on the securities book, $7.1 billion in total balance. Where do you see that just in terms of size over the next year?

We see it staying relatively flat.

Okay. And then you are in a good position obviously with the HSA deposit business driving nice balance growth there at pretty low rates. But what are you seeing across your markets for deposit cost trends, you know some of your competitors have much higher loan to deposit ratios and have to be a little bit more competitive on money market high yield savings. What have you seen across each of your markets on deposit pricing during the quarter and more recently?

We have noticed a little bit of percolation. Some of the community banks have been pushing rate a little bit, some of the larger banks have been having specials that they have provided. So we are tuned into it. We have our own set of specials we could offer. We haven't felt too much pressure at this point. We haven't seen much uptick in overall cost to deposits. In fact in some cases we have been able to continue to drive it down. So we are alert to it. But as yet, it has not created a major event.

Okay. And one question on expenses? Your FDIC insurance ticked down a little bit, assessment rate is 10 basis points. Is that where it stays for the next year or two?

Yes. It will stay around that level.

And then you mentioned capital, I think it was 7.25 TCE ratio target. Do you see any need for capital raising to support growth over the next 12 to 18 months or internal capital generation should be sufficient?

Yes. I think we are good with that as we look out over 12 months.

Mr. Smith, it appears we have no further questions at this time. I would now like to turn the floor back over to you for closing comments.

Thanks, Christine and thank you all for being with us today. Have a good day.