Q3 2021 Webster Financial Corp Earnings Call

Okay.

Good morning, and welcome to Webster Financial Corporation third quarter 'twenty 'twenty.

One earnings call. Please note. This event is being recorded I would now like to introduce Webster's director of Investor Relations, Chris didn't imagine alley.

To introduce the club mismatch at Allie. Please go ahead.

Thank you Sherry good morning, and welcome earlier. This morning, we issued a press release to announce.

Webster financial corporations third quarter 2021 earnings.

Call today, we will provide some brief comments regarding the company's third quarter earnings.

Today's presentation slides have been posted on the company's Investor Relations website before we begin our remarks I want to remind you that the comments made by management may include forward.

We're looking statements within the meetings of the private Securities Litigation Reform Act of 1095 and are subject to the Safe Harbor rule. Please review the forward looking disclaimer and Safe Harbor language in today's press release and presentation for more information about risks and uncertainties, which may affect us.

I'll now introduce Webster's chairman.

CEO John <unk>.

Thanks, Kristen good morning, and thank you for joining Webster's third quarter earnings call CFO, Glenn Macinnes and I are here in Waterbury, and we will review our performance for the quarter I'll also provide an update on the status of our merger process with Sterling and at the end of our presentation, Glenn and I will take your questions.

In fact, the continued impact of COVID-19 expectations for higher inflation and supply chain and labor challenges, we see increased economic activity and strengthening confidence from our business and consumer clients with respect to demand for products and services.

And we've seen improving loan activity, which coupled with anticipated higher interest rates should benefit.

This banking industry and Webster.

Credit quality has remained remarkably strong for Webster and for the industry as a whole.

With respect to our internal transformational project, we continue to make significant progress on the strategic revenue enhancements and operational efficiencies across the organization in order to achieve our fourth quarter 2020.

The bank cost savings target.

Glenn will provide more detail in his remarks related to emerging merger with Sterling. Our teams have been working diligently and collaboratively to prepare for our closing and remain on schedule for oral integration design planning and execution activities. We are in a position to close the transaction shortly after we reach.

The final regulatory approvals on our application.

<unk>, we received approval from our primary regulator, the OCC and shareholders of both banks, while we have no certainty on the timing of the final approvals, where hopefully we will receive them during the fourth quarter based on our communications with regulators and the fact that there are no outstanding.

'twenty one requests we remain confident that an approval is forthcoming.

With respect to the strategic rationale for the merger I can say that through integration planning. Our team is more excited about the deal and the opportunities that the combination will provide for our clients colleagues communities and shareholders than we were during due diligence.

And from my end at announcement.

Two organizations are very complementary with virtually no customer or branch footprint overlap and a strong commercial banking teams at both banks will benefit from a larger balance sheet and a more diversified combined loan book, we are creating a unique commercially focused midsized bank with differentiated businesses.

And a diverse and growing funding profile.

Interestingly last week, both Sterling and Webster were among five banks nationally to be recognized by coalition Greenwich as 2021, Greenwich CX leaders.

Natural services leaders that have excelled in customer satisfaction and customer loyalty and creating an environment.

<unk> easy for the customer to do business, specifically each bank was recognized for customer experience in commercial middle market banking.

I'll begin the financial report on slide two our financial metrics remained strong we continue to execute on our fundamental banking activities organically, adding new customers and deepening existing relationships.

That is across all business lines and geographies.

Excluding PPP linked quarter loan balances grew by 11% annualized.

Despite NIM compression the strong loan growth enabled us to increase net interest income by 4% when compared to last quarter.

Our adjusted earnings per share in Q3 were $1 eight.

Chips are quarter performance include $5 8 million of net pre tax charges related to the merger and our strategic initiatives.

Tangible common equity grew by 7% and is $171 million higher than a year ago total revenue in Q3 was six 5% higher than a year ago, while adjusted expenses decreased.

37%, our efficiency ratio improved to 55% a decrease of more than 500 basis points from a year ago.

Our third quarter adjusted return on common equity was 12% and the adjusted return on tangible common was nearly 15%.

Our $8 million.

And was driven by strong loan growth and resulted in a reserve build of $7 million in the quarter credit quality remained solid with key asset quality metrics continuing to be near cycle lows.

As a percentage of the portfolio Npls net charge offs and commercial classified loans were all better than a year ago.

And our percentage of Npls to total loans is at its lowest point since before the great recession.

I'm now on slide three.

Excluding PPP total loans grew three 3% from a year ago led by commercial loan growth of $700 million or 5%. This.

This is a very strong quarter for commercial banking.

Provision of <unk> 2 billion of loan originations up solidly from a year ago, driven by growth in sponsor and specialty commercial real estate middle market and business banking verticals.

Loan fundings of $967 million were up 62% or $372 million from a year ago.

Consumer.

With ones grew three 8% or $252 million from second quarter and declined less than 1% compared to prior year.

Linked quarter increase reflected stronger purchase mortgage and lower refinance activity during the quarter overall residential mortgage activities drove 82% of consumer loan originations flat to linked.

Quarter and from a year ago.

I'm now on slide four.

<unk> grew 11, 5% year over year, driven across all business lines core deposits grew by $3 8 billion and represent 94% of total deposits compared to 90% a year ago, while Cds declined 686 million.

From a year ago.

The costs continue to decline and were six basis points in total in the quarter.

Commercial banking deposits are up more than 23% from a year ago, primarily driven from municipalities and excess liquidity among clients across all lines of business and all geographies.

Retail banking deposits.

<unk> grew seven 3% year over year with consumer and small business deposits growing six 5% and 12, 7%, respectively retail deposit costs have continued to decline as well and totaled five basis points in the quarter.

Turning to HSA Bank total deposits grew 5% year over year or 8% on.

On a core basis, excluding the tpa balances total footings grew 14% year over year.

Slide five provides an overview of the transaction and integration timeline as I discussed earlier merger integration activities continue to be on track with the teams from both banks working collaboratively and tirelessly.

Fleet to position us for success at close and beyond we are prepared to successfully combine the two companies and begin operations. Shortly after we received the necessary approvals.

As shared in our merger announcement in April <unk> and I, both recognize that a critical element of success in bringing these two companies together is from a cultural perspective.

As such we have established a cultural integration framework that provides a clear and aligned view on the purpose and values of the organization and what we will expect from our colleagues in terms of guiding behaviors and performance. The new executive management team is working together to ensure that our combined culture reflects the strength at both banks bring to the combination.

With that I'll now turn it over to Glenn for the financial review.

Thanks, John and good morning, everyone. We reported another quarter of solid results evidenced by strong loan growth favorable credit performance and continued execution on our merger and strategic initiatives I'll begin with our average balance sheet on slide six average.

Average securities increased 76 million.

Quarter Securities represented 27, 27% of total assets at September 30.

During the quarter, we purchased approximately $1 1 billion in securities up from $600 million in the prior quarter.

<unk> had a weighted yield of 144% and a duration of five years securities called matured or paid downloads.

The length of around $500 million with a yield of two 3%.

Our average cash balance held at the fed totaled $2 3 billion, an increase of $1 $1 billion linked quarter driven by growth in commercial deposits.

Average loans increased $125 million or 6% linked quarter, primarily driven by an increase.

<unk> commercial real estate and residential mortgages, partially offset by PPP loan forgiveness during.

During the quarter forgiveness on PPP loans totaled $448 million and the remaining PPP loans.

$398 million in.

In Q3, we recognized $16 million of PPP.

In CMP accretion and the remaining deferred fees totaled $15 million.

Excluding PPP average loans grew $650 million or three 2% average commercial loans grew $427 million or three 1%, while residential mortgage loans increased $297 million or six 3%.

Average deposits grew $1 1 billion or 4% linked quarter. The increase was driven by continued growth in commercial transaction deposit products and was partially offset by a decline in higher cost retail Cds.

Average borrowings were flat to Q2 and down $1 billion from prior year as a result of excess.

Quiddity borrowings represent three 8% of total assets at September 30, compared to 7% a year ago.

The loan to deposit ratio was 72% at September 30.

The common equity tier one ratio increased 10 basis points linked quarter to 11, 7% 7%.

<unk> common equity ratio decreased.

20 basis points to 771% as a result of balance sheet growth.

And tangible book value grew two 2% linked quarter and six 4% from prior year.

Slide seven highlights our GAAP performance, an adjustment to reported income available to common.

During the quarter.

<unk>, we recognized a net of $4 $3 million after tax charges related to our merger and strategic initiatives.

On an adjusted basis income available to common was $98 million or $1 eight per share, resulting in a 12, 2% return on average common equity and a 14, 8% return on tangible common equity.

On slide eight we provide our reported to adjusted income statement.

On an adjusted basis net interest income increased by $9 million linked quarter, driven by loan growth and PPP fee accretion, which was partially offset by a lower yield unsecured.

NIM of two 8% declined two basis points.

From prior quarter, primarily due to an increase in excess deposits held at the fed partially offset by higher PPP fee accretion.

Excluding excess liquidity and PPP fees third quarter NIM was approximately flat linked quarter.

As compared to prior year net interest income increased by $10 million. This was.

As a result of higher PPP fee accretion lower funding costs and loan growth, which was partially offset by lower yields in the securities portfolio.

Noninterest income increased $11 million linked quarter, primarily driven by fair value adjustments of $6 million on direct investments and $3 million on customer derivatives as well as higher loan related.

Related fees of $3 million this.

This was partially offset by a decline of $2 million in HSA fee income due to lower exit fees on tpa accounts and a seasonal decline in interchange revenue.

Compared to prior year noninterest income grew $8 7 million. This reflects an increase of $9 million related to fair value adjustments on direct.

Correct investments $6 1 million from higher loan and deposit service fees and $1 7 million increase in investment income. This was partially offset by declines of $5 6 million in mortgage banking revenue and $2 $5 million in HSA fee income.

The reduction in mortgage banking revenue was the result of holding more loans on the balance sheet as.

As we deployed excess liquidity into fixed rate loans. The decline in HSA fee income was driven by $3 2 million in tpa closure fees recorded a year ago.

Adjusted noninterest expense increased $5 6 million from prior quarter reflective of a $4 3 million increase in performance based compensation.

And a $1 4 million increase in technology expense.

Prior year noninterest expense declined $4 8 million due to our previously announced efficiency initiatives, resulting in lower occupancy costs compensation and other expenses.

Pre provision net revenue was $139 million in Q3. This compares to a one.

$125 million in Q2 and $115 million in prior year.

Our seasonal provision in the quarter reflects an expense of $7 8 million.

The adjusted tax rate was 23, 8%.

An increase of 15 basis points linked quarter.

The net result is an adjusted net income of $98 million or.

<unk> 38 per share down from $1 21 per share in prior quarter.

As you see on slide nine we reported a $5 million linked quarter increase in core noninterest expense.

This was primarily the result of performance related compensation as evidenced by balance sheet and revenue growth and strong credit quality.

One <unk> to complete the execution of our strategic initiatives by the end of the year and remain on track to deliver core expenses in the range of $164 million in Q4, any variability would be related to performance based compensation.

Cost savings on this slide are reflective of our standalone initiatives over the last six months, we've made meaningful progress on our integration.

We explained with Sterling and remain confident in our ability to deliver 11% of incremental cost synergies on a combined basis.

Turning to slide 10, I'll review the results of our third quarter allowance for loan losses under Cecil in.

In the quarter, we reported an 8 million provision expense and a $7 million increase in the allowance the allowance coverage.

<unk>, excluding PPP loans remained flat at 149% with total reserves of $315 million.

As we look at the trend from Q2 to Q3, we established 6 million in reserves related to commercial and residential loan growth and $2 million due to credit quality and macroeconomic trends.

Slide 11 highlights.

Highlights our key asset quality metrics, reflecting strong credit quality performance trends.

Nonperforming loans in the upper left declined $20 million from Q2 commercial residential mortgage and consumer each recorded linked quarter declines.

Npls as a percent of total loans are 47 basis points down from 74 basis points a year.

Net charge offs in the upper right were 900000 in the quarter, including $1 6 million in net charges for commercial and 700000 in net recoveries for consumer year to date, we have recorded $5 million and net charge offs, which is on track for our lowest level since 2005.

Commercial classified loans in the lower left.

Increased 2 million from Q2 and represent 251 basis points of total commercial loans.

Slide 12 highlights our strong capital levels regulatory capital ratios exceed well capitalized levels by substantial amounts our common equity tier one ratio of 11, 77% exceeds well capitalized by more than $1 two.

2 billion <unk>.

Likewise tier one risk based capital of $12 three 9%.

<unk> well capitalized levels by $1 billion.

With respect to the fourth quarter, we expect average core loan growth, excluding PPP loans to be in the range of two to two 5% net.

Net interest income will declined $3 million linked quarter, primarily.

Due to lower PPP income.

Noninterest income will decline around 4 million linked quarter as the net result of nonrecurring fair value marks on direct investments and customer derivatives.

As indicated earlier core expenses will be in the range of $164 million any variability would be related to performance based compensation.

And our tax rate will be similar to Q3 levels.

With that I'll turn it back over to John for closing remarks.

Thanks, Glenn Webster's third quarter results demonstrate our continued focus on building long term franchise value and maximizing economic profits through disciplined capital allocation process and strong execution.

Sensation differentiated businesses, our colleagues remain committed to serving their client clients. While at the same time preparing for a successful integration Webster continues and the new Webster will continue to deliver for its clients communities shareholders and colleagues lastly, I want to say a big Thank you to all of our colleagues for their commitment to our values and dedication.

In our to our customers and to each other with that Sherry, Glenn and I are prepared to take questions.

Thank you.

Like to ask a question. Please press star one on your telephone keypad.

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Our first question is from Chris Mcgratty with <unk>. Please proceed.

Hey, good morning.

Good morning, Chris.

Maybe I'll start with you on the.

The deployment in the quarter.

On the Securities book.

You've seen a lot of your peers be a little bit more aggressive and deploying cash.

What are your thoughts into the merger in terms of.

Redeploy more cash into the investment portfolio.

Sure.

Good morning, Chris.

In the quarter, we had an average balance of deferred of about $2 2 billion.

We have begun to deploy some of that so we're below $2 billion as we speak and so.

I think you would expect.

With a combination of both loan growth and securities deployment that you'd probably we'd probably end the quarter on average for fourth quarter of about $1 billion.

Okay.

Great.

Right.

And then maybe a question on capital once the deal closes.

You guys have had a lot of capital and you are generating a lot of capital can you just John can you just talked about.

The buyback and the potential magnitude of a buyback.

Sure I mean, I know when we put out the announcement of the transaction we showed a 400.

Million dollars stock repurchase to sort of plug excess capital there we've talked about a 10 and a half.

Targeted CET one ratio and then what I would say is what I always say, which as you know.

We'd like to deploy capital in areas, where we think we can generate and maximize economic profits first clearly this company.

A lot of excess cash pro forma for the capital pro forma for the combination and we also generate a lot of capital each year. So we will then look at dividend and buybacks and certainly.

We have the capacity for significant.

Stock repurchase.

We will have if we find areas, where we can accelerate loan growth look at acquiring portfolios of commercial loans or deploying capital into our differentiated businesses Thats first choice, but we will be will be appropriate in our allocation of capital deployment.

Okay, and I think you said last quarter. The do you think the pro forma company can.

Can do double digit loan growth Sterling results.

Part of that last night.

So your view on prior comments.

Chris It's funny.

Still think 8% to 10% growth is absolutely achievable could we outperform that we're going to have a larger balance sheet will have higher holds but.

The market is still not back to normal in terms of loan demand and we've seen fewer payoffs in the last couple of quarters. So I think the prudent guidance sticks with approaching that double digit loan growth, which we think is a combined company we can achieve.

Alright, thank you.

Thank you.

Our.

Our next question is from Matthew Breese with Stephens. Please proceed good morning.

Matt.

Just on expenses.

Obviously, the Delta was driven by performance based comp and it sounds like that could happen at least that's on the table again for the fourth quarter. So could you just outline for us what performance based comp.

This quarter and is that a good range to consider for the fourth quarter.

Yes, So I think there was a bit of a true up Matt It's Glenn in the third quarter based on our performance. So it spiked up in the third quarter at anything I would expect it to be.

Somewhere between $1 million a million and a half in the fourth quarter at most okay.

Sorry.

Pulling forward pushing forward.

Okay.

And then maybe you could just talk about the health of the strength of the pipeline, obviously youre very optimistic.

Long term loan growth, but how do you feel about it over the next.

Three to six months.

Yes, Matt.

I'm getting more bullish I think.

Talk last time around the fact that before you saw sort of back to normal loan demand a lot of these companies and individuals needed to kind of deploy their excess liquidity and then obviously with some uncertainty and you see supply chain issues and labor issues, maybe people are a little reticent to invest but obvious.

Obviously, we saw a good third quarter following a pretty good second quarter for us and our pipeline going into the fourth quarter is one of the strongest it's been in the last several years and thats across all of our business lines.

Utilization, we still haven't seen a significant pick up there so that could be a tailwind.

If in fact, we start to see people on the asset conversion cycle and in businesses like ABL start to pick up a little bit so.

I'm getting I'm getting more bullish and we are seeing a lot of pent up activity.

But again I still think theres a lot of liquidity out there and we havent seen line Utilizations.

So I'm still thinking we're kind of going to be cranking as we get into the second and third quarter next year.

Got it and then just a follow up on the last question.

The near double digit loan growth on a combined basis.

In this market from Boston and New York. These are traditionally slower growth markets, it's going to be a much bigger balance sheet could you just walk us through maybe.

Maybe some of the areas that might need to change on a combined basis in order for you to get there or maybe its nothing at all I mean are you considering bringing some business lines national or adding new business lines could you just give us a sense for historically banks that big it just tough for them to get that kind of loan growth how do you intend to get there.

Sure I think our cornerstone.

Assumptions of 8% to 10% really are <unk>. So it doesn't we're likely to continue in all specialized national and local businesses out of the gate and so we've done a lot of discussions we've done a lot of diligence, we like all the businesses. It gives us a lot of levers.

It gives us diversity.

Across geographies it gives us a national franchises and so I don't think that we will make any significant adjustments to the lines of businesses that we're focused on or the geographies. We're in over the short term, but then.

And you know us I think we will obviously look at each of our businesses as we move.

Move forward and as we get bigger and zinc where are the risk return dynamics.

Can we generate significant economic profits in that business can we maintain our competitive position maybe than some of the smaller niche businesses, but the short answer to your question is how do we look at 8% to 10% loan.

Next year, it's really executing on all the business lines that the combined bank will have currently and I think there are opportunities for us to go deeper in some businesses and accelerate that trajectory, but that's not included in our in our strategic plan right now.

I'll leave it there thanks for taking my questions.

Yes.

Our next question is from Brock Vandervliet with UBS. Please proceed.

Thank you good morning.

Hey, Brian Hey.

Hey.

Just.

Zero in on a couple of aspects of loan growth I think you covered the sponsor and specialty and C&I.

What are you thinking.

Growth in terms of.

Residential, especially in the Q4.

Time frame the seasonal slowdown and also you noted some strength in CRE, maybe you could talk.

Talk about those two areas.

Yes.

Our commercial real estate actually had one of its biggest origination and funding.

In truth in quite some time, so theres, obviously activity there, but again, we always talk about the dynamic of originations and Paydowns and we had fewer pay downs in commercial real estate in the quarter and that benefited kind of the net growth Youll see most of our growth continue to come in the commercial categories rock, but we have had a.

A couple of strong quarters in residential mortgage just given the dynamics of interest rates and.

And kind of activity in the marketplace and where people are moving.

Connecticut has been the beneficiary of a lot of.

Influx, which is where we have most of our residential loan exposure. So that has helped we do think that will slow a little bit just given the seasonality fourth quarter.

Quarter in winter so.

That never really moves the needle ultimately for our significant loan growth much. So I would say you can anticipate our residential originations and fundings to be slightly lower than prior quarter, and we expect the commercial pipelines, which are robust to continue to convert into funded loans.

In the fourth quarter.

Okay.

And Glenn you touched on this in your prepared remarks, but if you could just kind of review and can I connect the court for us between operating.

Expense, we saw in Q3 and your goal for for Q4 and kind of how we get from here to there.

Yeah. So.

I did kind of hit on it and I think one of the bigger drivers was this.

Performance based compensation.

So that was the largest driver of that that will drop that number. There are other things that are that are sort of more seasonal weather. It's.

Marketing transit timing of mailing campaigns and things like that but.

Again, when I pull it all together, we still feel comfortable or field.

Uh huh.

That will hit that 100, 6400 around $164 million and like I said subject to any variability on performance based comp that 164 excludes like amortization and things like that just deficiency basis.

Got it okay. Thank you.

Thanks, Brian.

Our next question is from David <unk> with Wedbush. Please proceed.

Hi, Thanks, a couple questions for you starting with on loans you spoke about the growth, but I wanted to touch on the <unk>.

Got it the loan pricing and on slide three I see how the yield increased to three 6% in the third quarter I'm, assuming PPP was was a key driver of that but can you talk about the loan pricing environment.

Sure sure David it's good to hear from you.

The 14 basis point quarter over quarter.

Pricing and yield wasn't really on kind of the pricing. It was an acceleration the biggest drivers were acceleration of.

Deferred fees on PPP and other loans prepaying, So I'll give you a sense in the quarter.

From an origination standpoint, our yields actually held up pretty well.

Increases in terms of prior quarter, which is which is a good sign so we're not seeing a lot of degradation in price and they range from anywhere from kind of the mid twos yields for high quality commercial real estate too.

<unk> approaching 5% on a good sponsor and specialty deals around 4% on business banking and middle market.

Well kind of somewhere in that two five range to three so depending on the mix.

Those are the coupons on our originations and we didn't see much degradation over the last several quarters, which in a competitive market was a plus for us.

Yeah, just if I can understand a little choice. So if you look at the third.

Sure.

Versus the second quarter, Dave I mean, the yield is basically flat if you adjust out for PPP I think in the second quarter. The yield on the total book was was $3 40 in the third quarter was like 338 that was basically flat.

Got it thanks for that and then shifting to.

HSA.

Quarter can you talk about the pipeline there as we head into the open enrollment period.

Yes sure.

Have a good year.

And selling activity and as we've talked about our growth has been around market.

Particularly in the direct to employer channels or partners health care partners.

<unk> grown a little bit less quickly.

Our pipeline. This year is good obviously a lot of what we.

Everything thats going to really matter for enrollment period. Most of that is kind of in process and we think it looks fairly encouraging right now I'd say that obviously this quarter.

Quarters kind of slow as we approached the enrollment period.

While card in the last couple of years and through the pandemic with the whole industry has been less new customer acquisition and more.

The amount of accounts signed up with your large employers and with changing.

Partners alignment dynamics less hiring more disruption that slowed a bit we always talk about 75% to 80% of our new accounts every year actually come from our existing customers and that kind of waned a little bit last year. So what I would say is we're hoping with the changing employment market to the positive that with a.

And selling season for us and Onboarding of new customers better retention and a more normalized new account opening from existing customers, we should see a pretty robust enrollment periods. So we're enthusiastic right now and obviously <unk>.

Since it give you any numbers because we don't really have a line of sight and we will start talking about it in.

In the fourth.

A good when we start to see enrollment.

Great to hear thanks very much thank.

Thank you.

Our next question is from Steven Duong with RBC capital markets. Please proceed.

Hey, good morning, guys good.

Good morning.

Hey, Glenn.

Quarter, we spoke to them.

Your deposit beta can you share with everyone. Just overall on slide 22.

Your rate sensitivity analysis, what goes into the deposit data.

For the first say 50 basis points and just curious.

Subsequent.

50 basis points as well.

Yeah. Thanks, Good question and I am the I'll refer you back to page 22, where you see our short end up.

50 basis points indicates as a sensitivity six 2%.

On Pp P PNR.

It is the factor that we have lowered our deposit.

And there wasn't as high as 32, we did we did lower it.

Say between 25 and 30, but the fact of the matter is even in a rising rate environment, we're assuming a lag so the first 25 basis points.

We think the data will be closer to 11 and in fact, the second 25 basis points.

11, as well it's not.

What date it will like that third lift that we start to see that at least from a modeling standpoint, the betas come back in and at that point, we'd say, 20% and then by the first 100 basis points, we would probably be closer to our history. What we now say as our our full data of say, 29%. So there is a lag.

That is built into this.

What you see back on page 22.

And it's a wildcard I mean, there is a school of thought that says it's going to be close to zero for the first the first to move so anything like that would be additive to our asset sensitivity.

And Eric that's something we're all trying to wrestle with that we've never been here before and given the amount of liquidity in the system. It just doesn't seem that.

Everyone's going to be chasing after deposits.

I appreciate that and then.

I guess, John just on the the.

The merger.

Do.

The sense that the fed is just backed up or.

Or is it something more overall, where the regulators kind of want to slow the process down a little bit.

We think it's backed up and as I said earlier, we don't have clear line of sight. The timing we've had really good discussions.

Do you get dialog with all of the various regulators. So what we can say we announced the deal in April if you look at historic timelines on mergers, we're still kind of well in a comfortable zone. So we don't think that there's anything sort of behind the scenes that could derail this transaction and so.

The only thing I want to say is we've answered all the questions, we really like our application the.

The merits of the transaction itself and so we think it is just timing.

I appreciate it thank you.

Our next question is from Laurie Hunsicker with Compass point.

Please proceed.

Yes.

Thanks, Good morning.

Laurie I'm just wondering if you can comment on that John in your leverage.

Been asking and just how we should think about that so.

In ophthalmic 200 million linked quarter.

Where are your plans to grow that.

Is that why the loan growth is going to come in terms of your production.

Yes, I think.

I think we've demonstrated over time, a really disciplined approach in terms of making sure that our enterprise reliant lending, whether it's regulatory leveraged or not the activities in that book remain.

And within.

The appropriate level given the entire loan book, that's one of the reasons why we think that this transaction will be so terrific as because it does give us some more running room from a risk management framework and our concentration framework to continue to grow sponsor and specialty.

What's interesting is.

That business has high originations, it's very profitable as you know and we think we're kind of the best in the business.

At it but it also has a relatively low and short average life. So a lot of times you see good originations and a lot of pay offs. So again I don't think you will see disproportionate outsized growth.

Over the long term and I think once we close the merger.

Our concentration there is about half of what it was we will be able to accelerate growth there to the point. We can we are certainly not in a position right now where us.

The regulators are risked infrastructure, our risk committee is concerned with respect to overall.

That closure.

Okay, and sorry, just to follow up so your $1 billion target.

Maybe ask it differently.

Dennis would you like the leverage you said that could be when you think about last night, alright is that going to stay around the same.

<unk>.

How do you think about that.

<unk>, Yes, I think I'm not sure we look at it that way I think we look at our overall risk rating. There is some leverage deals that are actually very highly risk rated and they fit regulatory definition. So I think as a percentage of tier one capital and reserves, we kind of look at our sponsor and specialty overall enterprise book.

And we're kind.

Comfortable with whatever it is right now $3 $6 billion on <unk>.

$20 billion loan portfolio, we still think we have some running room. So if you'd look forward to a $40 billion loan portfolio, we've got significant running room.

And I think we've been prudent risk managers.

Throughout and will continue to be.

Okay great helpful. Thanks.

Can you just clarify that the gain that you booked on the strategic initiatives of $4 million.

What exactly was that.

Yes, so Laurie it's Glenn.

That was that was a reversal of an estimate we made on severance liabilities and it was sort of driven by two.

Two things one is that we had.

A higher retention rate on some of our employees.

And then the second was that there are initiatives that are tied to things like the core banking platform and loan system. So given the MLR, we sort of paused on some of those until we until we make those final decisions. So that that's really what's.

Driving the $4 million.

Got it and then how should we think about that line going forward.

Obviously, you've got the margin stepping down separately, how should we think about that line going forward.

That line being.

This is strategic initiatives line, so last quarter was $1 1 million.

Are we.

You've got your branches already disclosed.

I don't think you should you shouldn't you shouldn't I'm sorry, after the fourth quarter once we achieve our.

As we indicated we'll achieve the 164 and efficiency based comp.

Expenses, you Shouldnt expect to see anything.

Yes.

That's right that's right off.

Okay.

Everything else is related right.

That makes sense, Okay, and just last question.

If you can help a little bit on margins if I'm looking at margin.

<unk> looks like it was <unk> 65 in June now.

In September.

We.

<unk> path forward, maybe two quarters, so that the PPP for the most part is gone and then trailing as well then how should we be thinking about your pro forma margin any any help yes.

Yes, let me give you some color on what we see from Q3 to Q4 first and then because you are right. The PPP does run off but it sort of offset by the deployment.

And if some of our excess cash as well. So if you think about it going into the Q3 Q4 Youll have <unk>.

Seven basis points less as a result of PPP coming down.

And then Youll have some compression on the securities portfolio and that will be offset by the deployment.

Primarily offset by the deployment of cash.

And as well as I think we have a little bit more room on deposits you would expect to see our deposit costs down.

Closer to five five basis points in the fourth quarter. So.

That you would expect all things considered and I sort of gave the guidance on net interest income.

Down $3 million, it sort of backs into like a three three.

Three basis point compression into the fourth quarter on NIM.

And then as you get into as you get into the first quarter.

You, obviously don't have the benefit of PPP, So you lose <unk>.

Lose that but you're more than offset that on on the deployment of excess cash.

It should.

Should bode well for us for core.

Meaning core ex PPP net interest margin.

Okay and sorry, just one last question as we think about margin do you have an accretion number yet in terms of what.

What youre thinking about.

Net interest income with the Sterling Okay. Okay, Yeah, no we havent made them.

And it's sort of it's sort of it's sort of went back and forth I mean.

The I think we're closer to where we were when.

When we announced the transaction in April today, given where the tenure is at $1 63, and so there was a bit of a dip in rates during the second quarter, but I think we're sort of back very close to where we were.

Core announcement, but they'll all of that has to be chewed up.

Great. Thank you.

Thanks Laurie.

Our next question is from Jared Shaw with Wells Fargo Securities. Please proceed.

Hey, everybody good morning, Hey, Jared.

I guess sticking with the ruling.

When we made the loan growth side.

Right great trends there in a market I guess that really isn't seeing overall growth yet I mean are you taking market share and if so where are you seeing the most success in terms of bringing new customers on especially with utilization rates staying flat.

Yes, it's interesting.

I've said this a number of times Jarrett.

Going back to particularly in this market there hasnt been as much trading of traditional like middle market.

We're taking from peoples are citizens or they're taking from us because a lot of banks, including Webster and I'm sure Sterling as well, it's been a really good job of hugging their customers. We're seeing a lot of taking advantage and I think this is.

Described.

Scribe this to the market before one of the advantages of our commercial real estate and our sponsor and specialty business is taking advantage of economic growth and activity with sponsors and I use that word sponsors.

To capture commercial real estate investors private equity sponsors family offices, who are engaged.

And capital markets activities acquisitions mergers trading of property. So when I look at this quarter. For example, we're doing a good job in business banking of winning more than our fair share and I think we've got a strong business banking franchise from Boston to Westchester County, So I think thats, where our folks are fighting really.

<unk> on the ground with good products turning credits around quickly and so I think thats kind of where we might be gaining share through growth I think on sponsor and specialty and commercial real estate is the depth and duration of the relationships that we have with our sponsors and our commercial real estate investors, where we've demonstrated surety of execution.

Over a long period of time and those transactions are less competitive not saying, we're the only one but we are the first call or we're the second call and then we can kind of win that business and oftentimes, it's a new acquisition or a repositioning acquisition of a piece of property rather than saying, we're going up against an incumbent.

Really wank, we're going up against other banks and non banks to provide financing based on go forward academic.

Economic activity so.

I don't think we are gaining significant middle market market share in traditional multi generational middle market companies I think we're gaining more disproportionate share.

<unk>.

Economic activity, that's coming back after the pandemic through transactions.

Okay. Thanks, that's great color.

I guess shifting a little bit to the credit side credits.

Credit's very strong.

I guess I was surprised to see the allowance ratio stay flat.

Fair enough.

Can you give some color over how you are looking at that.

The progression back to a day one.

More of a day one level.

And how we should be thinking about that I guess in light of also.

When the deal closes you'll have.

Additional supplemental credit coverage from us.

From the.

Flat Mark.

As Glenn noted almost the entire provision was related to robust growth on the balance sheet in terms of loans and mix.

And so we're obviously very disciplined in the seasonal process, we rely on our models.

While still positive going.

Forward not significant change in in the forward outlook, you've got labor challenges and supply chain disruption as well, so we're sort of status quo, but adding four significant balance sheet growth and I think what youll see over time is.

As the economy continues to grow.

Vision and as are we continue to maintain strong asset quality. There is an opportunity for us and that model will show us that the 149 may be able to come down a bit so.

I know a lot of people think strategically about their seasonal model, but we kind of stick to the.

The regimen of the process.

As.

And there's nothing in the portfolio, that's giving us concern.

We will continue to make sure that we're providing for life of loan projected losses over overall loan growth.

Okay. Thanks, and then just finally for me.

Maybe Glenn you can just comment on the LIBOR transition how that.

How that's going.

As we said we've seen some.

Data that shows that potentially the sofa spreads are a little bit better or are you seeing that at all or is it still.

No I think under LIBOR.

So first of all we're well positioned within the LIBOR standpoint, I think we actually have a transaction coming up that will be software based.

<unk>.

The spread between sulfur in LIBOR for the most part I would think that the market is probably going to price.

Based on that right. So.

Yes.

I think that remains to be seen but I would be surprised if everyone's prices down to sulfur without some kind of spread on top of it. So we haven't seen.

And up in the market yet to determine that but thats kind of what we're thinking right now.

Great. Thanks, a lot.

Thank you.

And our final question is from Ken Zerbe with Morgan Stanley. Please proceed.

Alright, great. Thanks.

So you just go back to expenses.

I want to make sure that we're thinking about the 164 right and I do recognize if the merger closes we may not actually see the 164, but it feels like there just might be a little misunderstanding here. So the 164. It doesn't include amortization, so that would make it higher.

And then.

Are you excluding all.

All performance based comp from the $1 64.

Alright go ahead please.

Ken.

If you look on slide nine.

The reason we call it efficiency basis.

Ratio basis that we have.

<unk> amortization, even from the time, we set the target. So it has always been that million dollars is always.

My comments were that we feel confident in hitting the 164.

But with the understanding that if if if we were up say $1 million or a million and half. It would all be performance based compensation. That's how we feel right now that's not to say that we see that right now, but if we continue at the trends that we've had whether it.

Now moving to three 2% loan growth and favorable credit quality and things like that.

You might expect to see some of that.

But generally I think we'll be in that range of 164, yes.

Yes, Ken when we set the top.

When we set the targets and the goals we are setting performance at plan in terms of revenue performance and then the last.

Couple of.

<unk> and quarters, we've actually significantly outperformed so obviously, Greg Glenn Trues up the accrual.

And you've actually seen that across a lot of banks this quarter and to the extent, we significantly outperformed plan in the fourth quarter and there needs to be more accruals, which were not saying there is right now, but there could be based.

Just on some of the pipeline and trajectory.

That could be the delta.

It would be on top of the 164.

<unk> and other things for product, Okay got it.

<unk> revenue.

Yeah understood. Okay, and then just the other question just going back to the reserve.

Obviously.

You are one of the only banks it sort of Bill are you kept your reserve relatively flat this quarter I mean do you feel you're at a good.

Well I'll just sort of a good place for your reserve sort of on the Webster Standalone basis at least for the near term and I guess more importantly, also like post the Sterling deal what is the right.

ACL target if you want to call it a day one level.

We should be thinking about.

I think look at 140 at $1 49, I think we feel obviously, we feel comfortable with that is why we posted its our outlook on loan growth.

And I think Sterling is very similar to us as a matter of fact as far.

The coverage ratio anyway, so it's going to be driven by portfolio mix in our economic outlook, so our growth or our provision for the quarter was primarily driven by loan growth.

And so that's really what drove it I think if you look on the slide we had.

It took a little on.

Sure.

Our us GDP forecast in 2021, and 2022, but the bulk of our provision for the quarter was driven by loan growth and Ken I've always been careful.

Being the former Chief credit Officer.

The reserve is what the reserve is as you look through your risk rating.

Low probability defaults and loss given defaults and then obviously you've got your macroeconomic factors and so we're at we're at the right level right now do from a management perspective, when I look quantitatively at the portfolio is there room for that to come down on a combined basis as well when concentrations across a.

Our larger portfolio, we'll go down sure there is and I think if you continue to see economic growth.

And the macro factors continue to improve and you continue to see good credit quality and good credit management for us and for Webster to point out that.

That number can certainly come down and I'd also remind people we.

<unk> very good about our credit performance. If you look back now, particularly in commercial banking going back 15 years, I think we've been able to out deliver an outperform but our sponsor and specialty business does carry with it by definition.

Because it's enterprise reliant higher loss given default no they haven't emerged in our execute.

<unk> overtime, but so when the mix is more sponsor and specialty you will also see us have a more robust provision. So that's kind of the way to describe it but we're at we're at the right level right now continued execution and macro environment.

Improvement that number can can come down.

Yes, I guess that's.

We feel are asking the what is that future number what could that future number be in a better environment.

Other banks would refer to as just sort of their seasonal day, one number but.

But if you don't want to comment I understand I just don't know.

I don't think I can intelligently accept to say I think.

That's why I say alright, there is some credence to looking at that legal day. One if you believe that that's the right macro environment and the size of the portfolio and then up or down depending on the mix of originations and what the combined bank at a $40 billion balance sheet, which will probably lower correlated risks and concentrations could provide some relief.

I don't want to speculate on it right now.

Alright, Thank you very much thank.

Thank you.

Yes.

And then answer session I would like to turn the conference back over to management for closing remarks.

Terrific I want to thank everyone for your continued interest in Webster have a great day.

Thank you this.

If I just conclude today's conference you may disconnect your lines and thank you for your participation.

Okay.

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Good morning, and welcome to Webster Financial Corporation third quarter, 2020 one earnings.

Call. Please note. This event is being recorded I would now like to introduce Webster's director of Investor Relations, Chris didn't imagine early.

To introduce the club mismatch at Allie. Please go ahead.

Thank you Sherry good morning, and welcome earlier. This morning, we issued a press release to announce once.

Our financial Corporation's third quarter 2021 earnings on the call today, we will provide some brief comments regarding the company's third quarter earnings today.

Today's presentation slides have been posted on the company's Investor Relations website before we begin our remarks I want to remind you that the comments made by management may include forward looking.

Within the meaning of the private Securities Litigation Reform Act of 1995 and are subject to the Safe Harbor rule. Please review the forward looking disclaimer and Safe Harbor language in today's press release and presentation for more information about risks and uncertainties, which may affect us.

I'll now introduce Webster's chairman and CEO.

So John Thanks.

Thanks, Kristen good morning, and thank you for joining Webster's third quarter earnings call CFO, Glenn Macinnes and I are here in Waterbury, and we will review our performance for the quarter I'll also provide an update on the status of our merger process with Sterling and at the end of our presentation, Glenn and I will take your questions.

Despite the.

Continued impact of Covid expectations for higher inflation and supply chain and labor challenges, we see increased economic activity and strengthening confidence from our business and consumer clients with respect to demand for products and services and we've seen improving loan activity, which coupled with anticipated higher interest rates should benefit the banking.

Industry and Webster.

Credit quality has remained remarkably strong for Webster and for the industry as a whole.

With respect to our internal transformational project, we continue to make significant progress on the strategic revenue enhancements and operational efficiencies across the organization in order to achieve our fourth quarter 2021 cost.

Target.

Glenn will provide more detail in his remarks related to our emerging merger with Sterling. Our teams have been working diligently and collaboratively to prepare for our closing and remain on schedule for integration design planning and execution activities. We are in a position to close the transaction. Shortly after we received the final.

Cost savings, where we approvals on our application in August we received approval from our primary regulator, the OCC and shareholders of both banks, while we have no certainty on the timing of the final approvals, where hopefully we will receive them during the fourth quarter.

Based on our communications with regulators and the fact that there are no outstanding information.

Regularly we remain confident that an approval is forthcoming.

With respect to the strategic rationale for the merger I can say that through integration planning. Our team is more excited about the deal and the opportunities that the combination will provide for our clients colleagues communities and shareholders than we were during due diligence.

And at announcement.

The two organizations are very complementary with virtually no customer or branch footprint overlap and a strong commercial banking teams at both banks will benefit from a larger balance sheet and a more diversified combined loan book.

We are creating a unique commercially focused midsized bank with differentiated businesses.

Request diverse and growing funding profile.

Interestingly last week, both Sterling and Webster were among five banks nationally to be recognized by coalition Greenwich as 2021, Greenwich CX leaders.

Financial services leaders that have excelled in customer satisfaction customer loyalty and creating an environment.

And for the customer to do business, specifically each bank was recognized for customer experience in commercial middle market banking.

I'll begin the financial report on slide two our financial metrics remained strong we continue to execute on our fundamental banking activities organically, adding new customers and deepening existing relationships.

<unk> across all business lines and geographies excluding.

Excluding PPP linked quarter loan balances grew by 11% annualized despite NIM compression the strong loan growth enabled us to increase net interest income by 4% when compared to last quarter.

Our adjusted earnings per share in Q3 were $1 eight.

This performance includes $5 8 million of net pre tax charges related to the merger and our strategic initiatives.

Tangible common equity grew by 7% and is $171 million higher than a year ago total revenue in Q3 was six 5% higher than a year ago, while adjusted expenses decreased.

Third quarter, 7%, our efficiency ratio improved to 55% a decrease of more than 500 basis points from a year ago.

Our third quarter adjusted return on common equity was 12% and the adjusted return on tangible common was nearly 15%.

Our $8 million provision.

Two was driven by strong loan growth and resulted in a reserve build of $7 million in the quarter credit quality remained solid with key asset quality metrics continuing to be near cycle lows.

As a percentage of the portfolio Npls net charge offs and commercial classified loans were all better than a year ago.

And our percentage of Npls to total loans is at its lowest point since before the great recession.

I'm now on slide three.

Excluding PPP total loans grew three 3% from a year ago led by commercial loan growth of $700 million or 5%. This.

This is a very strong quarter for commercial banking with.

With $1 2 billion of loan originations up solidly from a year ago, driven by growth in sponsor and specialty commercial real estate middle market and business banking verticals loan fundings of $967 million were up 62% or $372 million from a year ago.

Consumer.

<unk> loans grew three 8% or $252 million from second quarter and declined less than 1% compared to prior year.

<unk> quarter increase reflected stronger purchase mortgage and lower refinance activity during the quarter overall residential mortgage activities drove 82% of consumer loan originations flat to linked.

Quarter and from a year ago.

I'm now on slide four.

<unk> grew 11, 5% year over year, driven across all business lines core deposits grew by $3 8 billion and represent 94% of total deposits compared to 90% a year ago, while Cds declined 686 million.

From a year ago.

Deposit costs continued to decline and were six basis points in total in the quarter.

<unk> banking deposits are up more than 23% from a year ago, primarily driven from municipalities and excess liquidity among clients across all lines of business and all geographies.

Retail banking.

<unk> grew seven 3% year over year with consumer and small business deposits growing six 5% and 12, 7% respectively.

Retail deposit costs have continued to decline as well and totaled five basis points in the quarter.

Turning to HSA Bank total deposits grew 5% year over year or 8%.

<unk> on a core basis, excluding the tpa balances total footings grew 14% year over year.

Slide five provides an overview of the transaction and integration timeline as I discussed earlier merger integration activities continue to be on track with the teams from both banks working collaboratively and tires.

As shared in our merger announcement in April Jackup, Mr. Eni, both recognize that a critical element of success in bringing these two companies together is from a cultural.

Our effective.

As such we have established a cultural integration framework that provides a clear and aligned view on the purpose and values of the organization and what we will expect from our colleagues in terms of guiding behaviors and performance. The new executive management team is working together to ensure that our combined culture reflects the strength that both banks spring to.

The combination.

With that I'll now turn it over to Glenn for the financial review.

Thanks, John and good morning, everyone. We reported another quarter of solid results evidenced by strong loan growth favorable credit performance and continued execution on our merger and strategic initiatives I'll.

I'll begin with our average balance sheet on slide six.

Average securities.

Increased $76 million linked quarter Securities represented 27, 27% of total assets at September 30.

During the quarter, we purchased approximately $1 1 billion in securities up from $600 million in the prior quarter.

<unk> had a weighted yield of 144% and a duration of five years securities called mature.

Matured or paid down total around $500 million with a yield of two 3%.

Our average cash balance held at the fed totaled $2 3 billion, an increase of $1 $1 billion linked quarter driven by growth in commercial deposits.

Average loans increased $125 million or 6% linked quarter primarily.

Driven by an increase in C&I commercial real estate and residential mortgages, partially offset by PPP loan forgiveness.

During the quarter forgiveness on PPP loans totaled $448 million and the remaining PPP loans.

$398 million in.

In Q3, we recognized $16 million.

Of PPP deferred fee accretion and the remaining deferred fees totaled $15 million.

Excluding PPP average loans grew $650 million or three 2% average commercial loans grew $427 million or three 1%, while residential mortgage loans increased $297 million or six.

3%.

Average deposits grew $1 1 billion or 4% linked quarter. The increase was driven by continued growth in commercial transaction deposit products and was partially offset by a decline in higher cost retail Cds.

Average borrowings were flat to Q2 and down 1 billion from prior year as.

The result of excess liquidity.

Borrowings represents three 8% of total assets at September 30, compared to 7% a year ago.

The loan to deposit ratio was 72% at September 30.

Common equity tier one ratio increased 10 basis points linked quarter to 11, 7%, 7% tangible.

Common equity ratio decreased 20 basis points to 771% as a result of balance sheet growth and tangible book value grew two 2% linked quarter and six 4% from prior year.

Slide seven highlights our GAAP performance, an adjustment to reported income available to common.

Tangible during the quarter, we recognized a net of $4 $3 million after tax charges related to our merger and strategic initiatives on.

On an adjusted basis income available to common was $98 million or $1 eight per share, resulting in a 12, 2% return on average common equity and a 14, 8% return on tangible.

<unk> common equity.

On slide eight we provide our reported to adjusted income statements.

On an adjusted basis net interest income increased by $9 million linked quarter, driven by loan growth and PPP fee accretion, which was partially offset by a lower yield on securities.

NIM of two eight.

Percent declined two basis points from prior quarter, primarily due to an increase in excess deposits held at the fed partially offset by higher ppt fee accretion.

Excluding excess liquidity and PPP fees third quarter NIM was approximately flat linked quarter.

As compared to prior year net interest income increased.

<unk> by $10 million. This was a result of higher PPP fee accretion lower funding costs and loan growth, which was partially offset by lower yields in the securities portfolio.

Noninterest income increased $11 million linked quarter, primarily driven by fair value adjustments of $6 million on direct investments and $3 million on customer derivatives.

As well as higher loan related fees of $3 million.

This was partially offset by a decline of $2 million in HSA fee income due to lower exit fees on tpa accounts and a seasonal decline in interchange revenue.

Compared to prior year noninterest income grew $8 7 million. This reflects an increase of $9 million.

Related to fair value adjustments on direct investments $6 1 million from higher loan and deposit service fees and $1 7 million increase in investment income. This was partially offset by declines of $5 6 million in mortgage banking revenue and $2 $5 million in HSA fee income.

The reduction in mortgage banking revenue was the result of holding.

Holding more loans on the balance sheet as we deployed excess liquidity into fixed rate loans. The decline in HSA fee income was driven by $3 2 million in tpa closure fees recorded a year ago.

Adjusted noninterest expense increased $5 6 million from prior quarter reflective of a $4 3 million increase.

Performance based compensation and a $1 4 million increase in technology expense.

Versus prior year noninterest expense declined $4 8 million due to our previously announced efficiency initiatives, resulting in lower occupancy costs compensation and other expenses.

Pre provision net revenue was 130.

$39 million in Q3, this compares to $125 million in Q2 and $115 million in prior year.

Our seasonal provision in the quarter reflects an expense of $7 8 million.

The adjusted tax rate was 23, 8%.

An increase of 15 basis points.

<unk> quarter.

The net result is.

And adjusted net income of $98 million or $1 eight per share down from $1 21 per share in prior quarter.

As you see on slide nine we reported a $5 million linked quarter increase in core noninterest expense.

This was primarily the result of performance related compensation as evidenced by balance sheet and revenue growth and strong.

On credit quality.

We expect to complete the execution of our strategic initiatives by the end of the year and remain on track to deliver core expenses in the range of $164 million in Q4, any variability would be related to performance based compensation.

The cost savings on this slide are reflective of our standalone initiatives over the last.

Six months, we've made meaningful progress on our integration plans with Sterling and remain confident in our ability to deliver 11% of incremental cost synergies on a combined basis.

In the quarter, we reported an 8 million provision expense and a $7 million increase.

Allowance the allowance coverage ratio, excluding PPP loans remained flat at 149% with total reserves of $315 million as.

As we look at the trend from Q2 to Q3, we established 6 million in reserves related to commercial and residential loan growth and $2 million due to credit quality and macroeconomic trends.

And the slide 11 highlights our key asset quality metrics, reflecting strong credit quality performance trends.

Nonperforming loans in the upper left declined $20 million from Q2 commercial residential mortgage and consumer each recorded linked quarter declines.

Npls as a percent of total loans of 47 basis points down from 74.

This points a year ago.

Net charge offs in the upper right were 900000 in the quarter, including $1 6 million in net charges for commercial and 700000 in net recoveries for consumer.

Year to date, we have recorded $5 million and net charge offs.

Which is on track for our lowest level since 2005.

Commercial classified loans in the lower left increased $2 million from Q2 and represent 251 basis points of total commercial loans.

Slide 12 highlights our strong capital levels regulatory capital ratios exceed well capitalized levels by substantial amounts our common equity tier one ratio of 11, 77% exceeded.

Exceeds well capitalized by more than $1 2 billion.

<unk> tier one risk based capital of $12, three 9% exceeds well capitalized levels by $1 billion.

With respect to the fourth quarter, we expect average core loan growth, excluding PPP loans to be in the range of two to two 5% net.

Net interest income will decline.

Climbed $3 million linked quarter, primarily due to lower PPP income.

Noninterest income will decline around $4 million linked quarter as the net result of nonrecurring fair value marks on direct investments and customer derivatives.

As indicated earlier core expenses will be in the range of $164 million any variability.

Would be related to performance based compensation and our tax rate will be similar to Q3 levels.

With that I'll turn it back over to John for closing remarks. Thanks.

Thanks, Glenn Webster's third quarter results demonstrate our continued focus on building long term franchise value and maximizing economic profits through disciplined capital allocation.

Process and strong execution in our differentiated businesses, our colleagues remain committed to serving their client clients. While at the same time preparing for a successful integration Webster continues and the new Webster, we will continue to deliver for its clients communities shareholders and colleagues lastly, I want to say a big thank you to all of our.

Three weeks for their commitment to our values and dedication to our customers and to each other with that Sherry Glenn and I are prepared to take questions.

Yeah, if you would like to ask a question. Please press star one on your telephone keypad.

Confirmation tone will indicate your line is in the queue. You May press star two if he would like to remove.

Some of your lines and thank you.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Chris Mcgratty with <unk>. Please proceed.

Hey, good morning.

Good morning, Chris.

Maybe I'll start with you on the.

<unk>.

The deployment in the quarter on the Securities book.

<unk> seen a lot of your peers be a little bit more aggressive and deploying cash.

What are your thoughts into the merger in terms of.

Redeploying more cash into the investment portfolio.

Sure.

Chris Yes.

In the quarter, we had an average balances at the.

Net of about $2 2 billion.

And we have begun to deploy some of that so we're below $2 billion as we speak and so.

I think you would expect.

With a combination of both loan growth and securities deployment that you'd probably we'd probably end the quarter on average for fourth quarter of about $1 billion.

Okay.

Great.

And then maybe a question on capital once the deal closes.

You guys have had a lot of capital and Youre generating a lot of capital can you just John can you just talked about.

The buyback and the potential magnitude of a buyback.

Sure I mean, I know when we put out the announcement of the <unk>.

And we showed a $400 million stock repurchase to sort of plug excess capital there we've talked about a 10 five.

CET one ratio and then what I would say is what I always say, which is wed like to deploy capital in areas, where we think we can generate and maximize economic profits first.

Clearly this company will have a lot of excess cash pro forma for the capital pro forma for the combination and we also generate a lot of capital each year. So we will then look at dividend and buybacks and certainly.

We have the capacity for significant.

<unk> Ark repurchase, but again, if we find areas, where we can accelerate loan growth look at acquiring portfolios of commercial loans or deploying capital into our differentiated businesses Thats first choice, but will be will be appropriate in our allocation of capital deployment.

Okay, and I think you said last quarter the.

Take the pro forma company can can do double digit loan growth certainly as a result.

Support at that last night.

Any change to your view on prior comments.

Chris It's funny I still think 8% to 10% growth is absolutely achievable could we outperform that we're going to have a larger balance sheet will.

By our holds but the market is still not back to normal in terms of loan demand and we've seen fewer payoffs in the last couple of quarters. So I think the prudent guidance sticks with approaching that double digit loan growth, which we think is a combined company we can achieve alright.

Alright, thank you.

Thank you.

We will have.

Our next question is from Matthew Breese with Stephens. Please proceed.

Morning.

Hey, Matt.

Just on expenses.

Obviously, the Delta was driven by performance based comp and it sounds like that could happen at least that's on the table again for the fourth quarter. So could you just outline for us what performs.

The comp was this quarter and is that a good range to consider for the fourth quarter.

Yes, So I think there was a bit of a true up Matt It's Glenn in the third quarter based on our performance. So it's spiked up in the third quarter.

Anything I would expect it to be.

Somewhere between $1 million a million and a half in the fourth quarter Atmos.

<unk> okay.

Sorry.

Going forward, we're pushing forward.

Okay.

And then maybe you could just talk about the health of the strength of the pipeline, obviously, you're very optimistic on our long term loan growth, but how do you feel about it over the next.

Three to six months.

Yes, Matt.

I'm getting more bullish.

Okay.

Think we talked last time around the fact that before you saw sort of back to normal loan demand a lot of these companies and individuals needed to kind of deploy their excess liquidity and then obviously with some uncertainty and you see supply chain issues and labor issues, maybe people are a little reticent to two.

But obviously, we saw a good third quarter following a pretty good second quarter for us and our pipeline going into the fourth quarter is one of the strongest it's been in the last several years and thats across all of our business lines utilization, we still haven't seen a significant pick up there so that could.

<unk> <unk> tailwind if in fact, we start to see people on the asset conversion cycle and in businesses like ABL start to pick up a little bit so.

I'm getting I'm getting more bullish and we are seeing a lot of pent up activity.

But again I still think theres, a lot of liquidity out there and we havent.

Seen line Utilizations pick up so I am still thinking we're kind of going to be cranking as we get into the second and third quarter next year.

Got it and then just a follow up on the last question.

The near double digit loan growth on a combined basis.

And in this market from Boston and New York. These are traditionally slower growth markets, it's going to be a much bigger balance sheet.

B could you just walk us through maybe some of the areas that might need to change on a combined basis in order for you to get there or maybe its nothing at all I mean are you considering bringing some business lines national or adding new business lines could you just give us a sense for historically banks that big it's just tough for them to get the kind of loan growth how do you intend to get there.

Sure.

Sure I think our current assumptions of 8% to 10% really are.

So it doesn't we're likely to continue in all specialized national and local businesses out of the gate and so we've done a lot of discussions we've done a lot of diligence, we like all the business as it gives us a lot of levers that give.

It gives us diversity across geographies. It gives us some national franchises and so I don't think that we will make any significant adjustments to the lines of businesses that we're focused on or the geographies. We're in over the short term, but then.

Jack.

I think we will obviously look.

Each of our businesses as we move forward and as we get bigger and zinc where are the risk return dynamics.

We generate significant economic profits in that business can we maintain our competitive position maybe than some of the smaller niche businesses, but the short answer to your question is how.

How do we look at 8% to 10% loan growth next year, it's really executing on all the business lines that the combined bank will have currently and I think there are opportunities for us to go deeper in some businesses and accelerate that trajectory, but that's not included in our in our strategic plan right now great.

Great I'll leave it there thanks for taking my questions.

Thank you.

Our next question is from Brock Vandervliet with UBS. Please proceed.

Thank you good morning.

Hey, Brian Hey.

Hey.

Just.

Bearing in on a couple of aspects of loan growth I think you covered the sponsor and specialty and C&I.

Hi.

What are you thinking in terms of.

Residential especially into Q4.

Timeframe the seasonal slowdown and also you noted some strength in CRE, maybe you could talk about those two areas.

Yes.

Our commercial real estate actually had one of its.

Biggest origination and funding quarters in quite some time, so theres, obviously activity there, but again, we always talk about the dynamic of originations and Paydowns and we had fewer pay downs in commercial real estate in the quarter and that benefited kind of a net growth youll see most of our growth continue to come in the commercial categories.

But we have had a couple of strong quarters in residential mortgage just given the dynamics of interest rates.

And kind of activity in the marketplace and where people are moving.

Connecticut has been the beneficiary of a lot of.

Influx, which is where we have most of our residential loan exposure. So thats helped we do think that will slow a little bit.

Just given the seasonality fourth quarter in winter so.

That never really moves the needle ultimately for our significant loan growth much. So I would say you can anticipate our residential originations and fundings to be slightly lower than prior quarter, and we expect that the commercial pipelines, which are robust.

Above to continue to convert into funded loans in the fourth quarter.

Okay.

Glen you touched on this in your prepared remarks, but if you could just kind of review and Kelly connect the court for us between operating.

Expense, we saw in Q3 and your goal for for Q4 and kind of how.

From here to there.

Yeah. So.

Did kind of hit on it and I think one of the bigger drivers was this.

Performance based compensation.

And so that was the largest driver of that that will drive that number. There are other things that are that are sort of more seasonal weather. It's.

Marketing Transat.

Timing of mailing campaigns and things like that but again when I pull it all together, we still feel comfortable or field.

That will hit that 164, 1% around $164 million.

As I said subject to any variability on performance based comp that 164 excludes like amortization and things like that.

Its efficiency basis.

Got it got it okay. Thank you.

Thanks, Brian.

Our next question is from David <unk> with Wedbush. Please proceed.

Hi, Thanks, a couple questions for you starting with.

On loans you spoke.

Talk about the growth, but I wanted to touch on the pricing loan pricing and on slide three I see how the yield increased to three 6% in the third quarter I'm, assuming PPP was was a key driver of that but can you talk about the loan pricing environment.

Sure sure David it's good to hear from you.

Yes, the 14 basis point quarter over quarter increase in yield was really on kind of the pricing. It was an acceleration the biggest drivers were acceleration of differ.

Deferred fees on PPP and other loans prepaying.

I will give you a sense in the quarter.

From a from an origination standpoint.

Our yields actually held up pretty well in terms of prior quarter, which is which is a good sign. So we're not seeing a lot of degradation in price and they range from anywhere from kind of the mid twos yields for high quality commercial real estate to approaching 5% on a good sponsor and specialty deals around.

<unk>, 4% on business banking and middle market kind of somewhere in that two five range to three so depending on the mix.

Those are the coupons on our originations and we didn't see much degradation over the last several quarters, which in a competitive market.

A plus for us.

And just if I can understand a little choice. So if you look at the third quarter.

Versus the second quarter, Dave I mean, the yield is basically flat if you adjust out for PPP I think in the second quarter. The yield on the total book was was $3 40 in the third quarter was like 338. So it was basically flat.

Got it thanks for that and then.

Two.

HSA can you talk about the pipeline there as we head into the open enrollment period.

Yes sure.

Have a good year.

And selling activity and as we've talked about our growth has been around market.

Particularly in the direct to employer channel.

Shifting our partners healthcare partners have.

<unk> grown a little bit less quickly.

Our pipeline. This year is good obviously a lot of what we.

Everything that is going to really matter for enrollment period. Most of that is kind of in process and we think it looks fairly.

Panel encouraging right now I'd say that obviously this quarter is kind of slow as we approach the enrollment period.

Mild card in the last couple of years and through the pandemic with the whole industry has been less new customer acquisition and more.

The amount of accounts signed up with your large employers.

And what's changing.

Employment dynamics less hiring more disruption that slowed a bit we always talk about 75% to 80% of our new accounts every year actually come from our existing customers and that kind of waned a little bit last year. So what I would say is we're hoping with the changing employment.

<unk> to the positive that with a good selling season for us and Onboarding of new customers better retention and a more normalized new account opening from existing customers, we should see a pretty robust enrollment periods. So we're enthusiastic right now and obviously I'm reticent to give you any numbers because we don't really have a line of sight and we.

Mark you're talking about it in.

In the fourth quarter, when we start to see enrollment.

Great to hear thanks very much thank.

Thank you.

Our next question is from Steven Duong with RBC capital markets. Please proceed.

Hey, good morning, guys good morning.

We'll start on Hey, Glenn.

<unk> spoken that Youre.

Your deposit beta can you share with everyone just overall.

Slide 22.

Your rate sensitivity analysis, what goes into the deposit data.

For the first say 50.

Basis points and just curious in the subsequent.

50 basis points as well.

Yeah. Thanks, Good question and I'll refer you back to page 22, where you see our short end up.

50 basis points indicate your asset sensitivity six 2%.

<unk> P PNR.

The factor that we have lowered our deposit beta was as high as 32, we did we did lower it to.

Say between 25 and 30, but the fact that matter is even in a rising rate environment, we're assuming a lag so the first 25 basis points.

We think the data will be closer to 11 and in fact, the second two.

Five basis points.

11, as well, it's not until like that third lift that we start to see that at least from a modeling standpoint. The data has come back in and at that point, we would say, 20% and then by the first half.

100 basis points.

We would be closer to what we now say as our our full data of say 29%.

<unk>. So there is a lag in there that is built into this.

What you see back on page 22.

And it's a wildcard I mean, there is a school of thought that says it's going to be close to zero for the first the first to move so anything like that would be additive to our asset sensitivity.

Yes, yes.

I think thats.

That's something we're all trying to wrestle with that we'd never been here before and given the amount of liquidity in the system. It just doesn't seem that.

Everyone's going to be chasing after deposits.

I appreciate that and then.

I guess, John just on the <unk>.

The merger.

Do you get a sense that the fed is just backed up or.

Or is it something more overall, where the regulators kind of want to slow the process down a little bit.

We think it is.

This backdrop.

And as I said earlier, we don't have clear line of sight.

Timing, we've had really good discussions and dialogue with all of the various regulators. So what we can say we announced the deal in April if you look at historic timelines on mergers, we're still kind of well in a comfortable zone. So we don't think that there's anything sort of behind the scenes that could derail. This.

On the action and so the only thing I want to say is we've answered all the questions, we really like our application.

The merits of the transaction itself and so we think it is just timing.

I appreciate it thank you.

Our next question is from Laurie.

And then Sarah with Compass point. Please proceed.

Thanks, Good morning.

Laurie I'm just wondering if you can comment on that John.

Our leverage.

Been asking and just how we should think about that so.

That's almost $300 million linked quarter.

Trainer you plan to grow that as that that's also why the loan growth is going to come in terms of your Boston.

Yes, I think.

Laurie I think we've demonstrated over time, a really disciplined approach in terms of making sure that our enterprise reliant lending, whether it's regulatory leveraged or not the activities in.

Look remain within.

The appropriate level given the entire loan book, that's one of the reasons why we think that this transaction will be so terrific as because it does give us some more running room from a risk management framework and our concentration framework to continue to grow sponsor and specialty.

What's interesting is that that business has high originations, it's very profitable as you know and we think we're kind of the best in the business.

But it also has a relatively low and short average life. So a lot of times you see good originations and a lot of pay offs. So again I don't think you will see disproportionate outcome.

<unk> growth over the long term and I think once we close the merger our concentration there is about half of what it was we will be able to accelerate growth there to the point. We can we are certainly not in a position right now where us the.

The regulators are risk infrastructure, our risk committee as can.

<unk> with respect to overall exposure.

Okay, and sorry, just to follow up so your $1 billion target.

Maybe ask it differently what percentage would you like the leverage you said that could be when you think about that going forward is that going to stay around the same.

<unk>.

How do you think about that.

I think I'm not sure we look at it that way I think we look at our overall risk rating. You know there is some leverage deals that are actually very highly risk graded and they fit regulatory definition. So I think as a percentage of tier one capital and reserves, we kind of look at our sponsor and specialty overall enterprise book.

Book, and we're kind of comfortable with whatever it is right now $3 $6 billion on 'twenty.

<unk> $20 billion loan portfolio, we still think we have some running room. So if you look forward to a $40 billion loan portfolio, we've got significant running room.

And I think we've been prudent risk managers.

Throughout.

Year to date.

Okay great helpful. Thanks.

Can you just clarify the gain that you booked on the strategic initiatives of $4 million.

What exactly was that.

Yes, so Laurie it's Glenn.

That was a reversal of an estimate we made on severance liabilities.

And it was sort of driven by two things one is that we had.

A higher retention rate on some of our employees.

And the second was that there are initiatives that are tied to things like the core banking platform and loan system. So given the MLR, we sort of paused on some of those until we until we make those final decisions.

And with.

That's really what's driving the $4 million.

Got it and then how should we think about that line going forward.

Obviously, you've got the margin is broken down separately, how should we think about that line going forward.

That line being.

This is a strategic initiative fine so last quarter.

So that 1 million are we.

You've got your your your branch is already closed.

Oh boy.

I don't think you should you shouldn't you shouldn't I'm sorry, after the fourth quarter once we achieve.

Indicated we'll achieve the 164 and efficiency based comp expenses, you Shouldnt expect to see anything.

It was lumpy.

Write offs, we okay.

Everything else is related right right.

That makes sense, Okay, and just last question.

If you can help a little bit on margins if I'm looking at margin.

It looks like it was <unk> 65 in June now.

In September.

Remember, if we fast forward, maybe two quarters.

For the most part is gone and then fairly Israel, then how should we be thinking about your pro forma margin any any help yes.

Yeah, Let me give you some color on what we see from Q3 to Q4 first and then because you are right. The PPP does runoff, but it's sort.

Set by the deployment of some of our excess cash as well. So if you think about it going.

Going into Q4, you'll have seven basis points less as a result of PPP coming down.

And then you'll have some compression on the securities portfolio and that will be offset by the deployment.

Primarily offset by the deployment.

Ointment of cash.

And as well as I think we have a little bit more room on deposits you would expect to see our deposit costs down.

Closer to five five basis points in the fourth quarter. So.

That you would expect all things considered and I sort of gave the guidance on net interest income.

Down $3 million it sort of backs into.

<unk> III.

Three basis point compression into the fourth quarter on NIM.

And then as you get into as you get into the first quarter.

You, obviously don't have the benefit of PPP. So you lose you lose that but you're more than offset that on on the deployment of excess cash.

It should it should bode.

Well for us for core.

Meaning core ex PPP net interest margin.

Okay and sorry, just one last question as we think about margin do you have an accretion number yet in terms of what.

What you're thinking about.

Net interest income with its trailing okay. Okay.

No we havent made remarks, yet and it's sort of it's sort of one it sort of went back and forth I mean.

The I think we're closer to where we were when.

When we announced the transaction in April today, given where the tenure is at $1 63, and so there was a bit of a dip in rates during the second quarter, but I think we're sort of back very close.

Close to where we were when we made the announcement that they will all of that has to be true it up.

Great. Thank you.

Thanks Lloyd.

Our next question is from Jared Shaw with Wells Fargo Securities. Please proceed.

Hey, everybody good morning, Hey.

Hey, Jared.

Yes.

Sticking with the going back to the loan growth side.

Great trends there in a market I guess that really isn't seeing overall growth yet I mean are you taking market share and if so where are you seeing the most success in terms of bringing new customers on especially with utilization rates staying flat.

Yes, it's interesting.

Said.

I guess at the number of times Jared that particularly in this market there hasnt been as much trading of traditional like middle market. We're taking from People's our citizens are they're taking from us because a lot of banks, including Webster and I am sure Sterling as well has done a really good job of hugging their customers, we're seeing a lot of taking advantage and I think.

This.

I described this to the market before one of the advantages of our commercial real estate and our sponsor and specialty business is taking advantage of economic growth and activity with sponsors and I use that word sponsors.

To capture commercial real estate investors private equity sponsors family offices.

Who are engaged in capital markets activities acquisitions mergers trading of property. So when I look at this quarter. For example, we're doing a good job in business banking of winning more than our fair share and I think we've got a strong business banking franchise from Boston to Westchester County, So I think thats, where.

Our folks are fighting really well on the ground with good products turning credits around quickly and I think thats kind of where we might be gaining share through growth I think on sponsor and specialty and commercial real estate, it's the depth and duration of the relationships that we have with our sponsors and our commercial real estate investors, where we demonstrate.

<unk> did surety of execution over a long period of time and those transactions are less competitive not saying, we're the only one but we are the first call or we're the second call and then we can kind of win that business and oftentimes gets a new acquisition or a repositioning and acquisition of a piece of property rather than saying.

Construction up against an incumbent bank, we're going up against other banks and non banks to provide financing based on go forward academic.

Economic activity. So I don't think we are gaining significant middle market market share in traditional multi generational middle market companies I think we're gaining.

Well go disproportionate share in the.

Economic activity, that's coming back after the pandemic through transactions.

Okay. Thanks, that's great color.

I guess shifting a little bit to the credit side credits.

That's very strong.

I guess I was surprised to see the allowance ratio.

The ratio stay flat can.

Can you give some color over how youre looking at.

The progression back to a day one.

More of a day one level.

And how we should be thinking about that I guess in light of also.

When the deal closes you'll have.

An additional supplemental.

Coverage from.

More of the provision in the credit market.

As Glenn noted almost the entire provision was related to robust growth on the balance sheet in terms of loans and mix.

And so we're obviously very disciplined in the seasonal process, we rely on our models.

While still.

Positive going forward not significant change in in the forward outlook, you've got labor challenges and supply chain disruption as well. So we're sort of status quo, but adding four significant balance sheet growth and I think what youll see over time is.

As the economy continues.

Use to grow.

As are we continue to maintain strong asset quality. There is an opportunity for us and that model will show us that the 149 may be able to come down a bit so.

I know a lot of people think strategically about their seasonal model, but we kind of stick to the.

The regimen of the process.

As we said there is nothing in the portfolio, that's giving us concern.

But we will continue to make sure that we're providing for life of loan projected losses over overall loan growth.

Okay. Thanks, and then just finally for me.

Maybe Glenn you can just comment on on the LIBOR transition how that.

How thats going and then we've seen some.

Data that shows that potentially the sofa spreads are a little bit better or are you seeing that at all or is it still.

I think under LIBOR.

So first of all we're well positioned within the LIBOR standpoint, I think we actually have.

Transaction coming up that will be helpful.

For base.

This spread between sulfur in LIBOR for the most part I would think that the market is probably going to price.

Just on that right. So.

Yes.

I think that remains to be seen but I would be surprised if everyone's prices down to sulfur without some kind of spread on top of it. So.

We haven't seen enough in the market yet to determine that but that's that's kind of what we're thinking right now.

Great. Thanks, a lot.

Thank you.

And our final question is from Ken Zerbe with Morgan Stanley. Please proceed.

Alright, great. Thanks.

So you just go back to expense.

<unk>.

I'll make sure that we're thinking about the 164 right and I do recognize if the merger closes we may not actually see the 164, but it feels like there just might be a little misunderstanding here. So the 164. It doesn't include amortization, so that would make it higher.

And then.

<unk>.

Excluding all performance based comp from the 164.

Sure.

Alright go ahead please.

Ken.

If you look on slide nine.

The reason we call it efficiency basis.

Our ratio basis that we have.

<unk> amortization, even from the time, we set the target so it's always been.

That has always been moved out my comments were that we feel confident in the 164.

But with the understanding that.

If we were up say $1 billion of 1 million and a half it would all be performance based compensation. That's how we feel right now that's not to say that we see that right now, but if we continue to have the trends that.

We've had weather.

Three 2% loan growth and favorable credit quality and things like that.

You might expect to see some of that but.

But generally I think we'll be in that range of $1 64, yes.

Yes, Ken when we set when we set the targets and the goals we are setting performance at plan.

Of revenue.

And then the last couple of months and quarters, we've actually significantly outperformed so obviously, Greg Glenn Trues up the accrual.

And you've actually seen that across a lot of banks this quarter and to the extent, we significantly outperformed plan in the fourth quarter and there needs to be more accruals, which were not saying there is right now but.

There could be based on some of the pipeline and trajectory.

That could be the delta.

It would be on top of the 164.

And things are positive.

Got it.

<unk> and revenue.

Yeah understood. Okay, and then just the other question just going back to the reserve.

Who performed obviously you are one of the only banks it sort of bill or capture reserve relatively flat. This quarter I mean do you feel you're at a good.

Well I was sort of a good place for your reserve sort of on the Webster Standalone basis at least for the near term and I guess more importantly also.

Post the Sterling deal what is the.

Eight ACL target if you want to call it a day one level.

We should be thinking about.

I think look at 140 at $1 49, I think we feel obviously, we feel comfortable with that is why we posted its our outlook on loan growth.

And I think Sterling is very similar to us.

As a matter of fact as far as the coverage ratio anyway. So it's going to be driven by portfolio mix and economic outlook, So our growth or our provision for the quarter was primarily driven by loan growth.

And so that's really what drove it I think if you look on the slide we had we took a little on.

Ripe for lower GDP forecast in 2021, and 2022 with the bulk of our provision for the quarter was driven by loan growth and Ken I've always been careful.

Being the former Chief credit Officer.

The reserve is what the reserve is as you look.

Through your risk rating your probability defaults and loss given defaults and then obviously you've got your macroeconomic factors and so we're at we're at the right level right now do from a management perspective, when I look quantitatively at the portfolio is there room for that to come down on a combined basis as well when concentrations.

<unk> across our larger portfolio, we'll go down sure. There is and I think if you continue to see economic growth.

And the macro factors continue to improve and you continue to see good credit quality and good credit management for us and for Webster to point out that.

That number can certainly come down and I'd also remind.

Remind people we feel very good about our credit performance. If you look back now, particularly in commercial banking going back 15 years, I think we've been able to out deliver an outperform but our sponsor and specialty business does carry with it by definition because.

Because it's enterprise reliant higher loss given default now they haven't emerged.

In our execution over time, but so when the mix is more sponsor and specialty you will also see us have a more robust provision. So that's kind of the way to describe it but we're at we're at the right level right now continued execution and macro environment.

Improvement that number can can come down.

And I guess, that's why I was asking the what does that future number what could that future number be in a better environment.

Other banks would refer to it as sort of their seasonal day, one number but.

Okay.

If you don't want to comment I understand I just don't know.

I don't think I can intelligently accept.

Okay, I think youre right. There is some credence to looking at that legal day. One if you believe that that's the right macro environment and the size of the portfolio and then up or down depending on the mix of originations and what the combined bank at a $40 billion balance sheet, which will probably lower correlated risks and concentrations could.

Provide some relief I, just don't want to speculate on it right now.

Alright, Thank you very much thank.

Thank you.

We have reached end of our question and answer session I would like to turn the conference back over to management for closing remarks.

Terrific I want to thank everyone for your continued interest in Webster have a great day.

Thank you. This does conclude today's conference you may disconnect your lines and thank you for your participation.