Q4 2023 Webster Financial Corp Earnings Call

January 23, 2024

Jon Ciulla: And then each quarter, you know, Jason and the team sit down and say, hey, we, even though this may not be a problem now, this is something that's not strategic for us, or we have an opportunity at a reasonable economic cost to move down. So, we're not really looking at a serial reduction in the exposure. We're being opportunistic. And we're making, I think, the right economic decisions, because many of these loans are going to refinance fine.

Jon Ciulla: They're going to pay off fine. Some of which, you know, we think in the future may have some problems just given the paradigm shift. But I think you'll see us continue at this level, you know, looking at a $25 million, $75 million portfolio or book of business in the quarter. And if there's a good economic strategic way to exit those credits, we will. But, you know, we're not kind of urgently in a serial fashion, trying to get rid of the exposure.

Glenn MacInnes: Okay, maybe Glenn, you gave the loan deposit and expectations to the balance. How should we be thinking about just the level of borrowing and, you know, security growth from here or decline? So, I think I'll take security first. So, you know, we're like 14, 14 and a half million. I think you would expect it over the course of, say, the next couple quarters of a day within that range, depending on the long growth.

Jon Ciulla: The question on borrowings is, I think, you know, I think we're at a level right now where we'd probably expect to be pretty flat to the two, say, two plus billion mark. Okay, and maybe the last one, one of your peers turned the buyback back on this quarter. I'm interested in your updated thoughts on whether buybacks at this point of the cycle makes sense. Chris, I think it's a great question.

Jon Ciulla: You know, we bought back $50 million in the quarter in Q3. We clearly have capital levels and capacity to generate capital to, you know, continue the program. I would tell you that, you know, we're looking at this from a position of having good flexibility, but also recognizing that we want to make sure that we have capital. If we do a tuck-in acquisition, if we do grow loans significantly, if we see cracks in the market from a credit perspective.

Jon Ciulla: So, I guess the way I would characterize it is I wouldn't rule it out, but I think we're being a little bit more cautious as we look in the fourth quarter to our activities in that area.

Jon Ciulla: Yeah. Thanks. Thanks, sir. Thank you.

Casey Haire: Your next question comes from line of Casey Haire of Jeffries. Your line is open. Yeah, thanks. Good morning, everyone.

Glenn MacInnes: Just phone up, I guess Glenn on the NIM. So NIM is going to be flat in the fourth quarter and borrowings, which obviously helped in the third quarter of the client there. Sounds like they're going to be flat. So what is the offset to the beta creep that you expect to keep NIM flat? Is it long growth? Just looking for a little color on what holds NIM stable in the fourth quarter. Yes. Sure. So some of it is some of it is long growth.

Glenn MacInnes: Some of it's the rate on loans where we get the full benefit of the periodic loans repricing. And then you do have, we do, we don't pick up one day, at least on a NIM basis from an earnings standpoint. And then it's pretty much some of that's neutralized by what we think deposit growth will be or deposit cost will be going into the fourth quarter. Like I said in my comments, we still think that there's will be a deposit pressure going into into the fourth quarter. I'll be it very more moderate than it's been certainly in the last couple quarters.

Glenn MacInnes: Okay. Great. And then just question on the funding strategy. I mean your deposit growth was was pretty broad based. You know, interlink still is doing a lot of the heavy lifting. You know, on that slide was it slide five.

Glenn MacInnes: It's not it's 9% of your deposit franchise. You know, what long term is there is that a seal? Is there a ceiling that you have for interlinkers that is.

Glenn MacInnes: Is 9% of the right level just trying to figure out how big that can become. So, you know, we're in a process of doing our outlook over the next couple of quarters in actually years. So, you know, I think if we're at 9% now, depending on, you know, our sources of funds, other sources of funds, we, you know, that could go plus or minus. I, you know, it could go as high as 15% but, you know, that's something that we're still in the process of planning right now. Got it.

Jon Ciulla: Okay. And just last one for me on the efficiency. You know, I know it's early for 24, but you guys obviously at 42% are in, you know, more efficient than most of my coverage universe. John, you mentioned, you know, you are there are going to be some financial burdens about, you know, getting the bank ready to be 100 billion. And what, you know, what can you pass that along or is that, is that something that, you know, you might let the efficiency ratio drip up. Yeah. That's a good question.

Jon Ciulla: And again, as Glenn said, we're working through our plan now and, and we're not going to sort of, we're not ready to provide guidance for 24, but I will tell you, our sense is, look, we still have some opportunity coming out of the conversion. As we consolidate sub ledgers and look at back office processes and consolidate call centers, which we still haven't completed. So, okay, so we do still have some merger related cost opportunities, cost of opportunities, and I kind of like where we are.

Jon Ciulla: Our, our feeling is we also have opportunities to invest and grow, particularly if the market green lights with respect to, to loan growth and people feel comfortable with a lot of soft landing. I think we can identify, you know, additional teams in commercial banking to bring on. We're definitely investing in products and capital markets and effects and card and other commercial treasury products that enhance our balance of non interest income. So, our kind of view is we think we can operate steadily in the low 40s efficiency ratio and to the extent we can gain more cost savings that will, it'll provide us an opportunity to invest in, in key products and services and people.

Jon Ciulla: So, you know, if we can continue to post the numbers that we promised when we did the merger, the 20% ROATC, the one and a half ROA and, you know, an efficiency ratio in the low 40s, I think size scale and momentum allow us to keep that efficiency ratio in the low 40s without starving the bank with respect to future investment. And then if you fast forward right three years, you look at the size of our balance sheet as we approach $100 billion, I think we'll have some, some optionality and we'll be in a better place than others who are similarly situated given how kind of efficient our operating months. Thank you.

Matthew Breese: Your next question comes from a line of Matthew Breese of Steven Zink. Your line is open. Hey, good morning.

Jon Ciulla: I know, I know Office of the RE grabs a lot of the attention these days, but I was curious. Thoughts and updated color on the sponsor specialty and leverage loan book. How have those portfolios been been performing in a high rate environment? Yeah, Matt, you know, so far so good.

Jon Ciulla: We've talked about it before, you know, those companies that we under right there tend to have predictable, predictable cash flow streams, recurring cash flow streams, contractual cash flow streams. And so we haven't seen a deterioration significant deterioration in the credit profile. I'd say it's behaving like the rest of the book, probably some level of moderate negative risk rating migration, but it hasn't. Spooked us at all.

Jon Ciulla: And again, you know, it's always hard to predict the future, but one of the wonderful things about that portfolio, besides the type of companies that we lend to, you know, are the private equity firms that we've been doing business with for, you know, 10 and 20 years that are kind of flush with cash, raising new funds and really not reticent to, you know, capitulate and give up these really good companies. No question about the fact that these are floating generally floating rate loans. So their debt service has increased. They generally are lower in in contractual amortization.

Jon Ciulla: So really it's the interest expense. And so far, you know, the capacity to continue to service that debt has seemed strong. And obviously we feel comfort in the fact that we've got strong private equity firms behind those companies in case things start to go sideways. Generally, we work things through with them and the deals continue to perform. So so far, I'd say it's, you know, coming out according to oil, which is they're able to service the increased interest rate cost.

Jon Ciulla: And we seem to have, you know, pretty stable performance in that in that book. And then just in a reminder, what is the size of the, you know, what needs definition of leverage loans and then anything beyond that that would you consider, you know, a syndicated syndicated loan portfolio? Yeah, this is, it's tricky because there's overlap everywhere, right? And we, we've reported on our regulatory statutory leverage loans. Those have actually remained relatively flat over the last couple quarters.

Jon Ciulla: It's about 6% of our total loan book or $3 billion and most of that as you intimated is in our sponsor and specialty book. Our shared national credits are about 12% and there's some subset of that, which is leverage, but about 12% of total loans. That number is actually down from, you know, pre-merger Webster numbers as a percentage of total loans just given kind of the mix that came together between Webster and Sterling. Again, you know, no kind of differentiated performance there. So I've told the story a million times to the street over the last 15 years about shared national credits. We don't have a buy side desk.

Jon Ciulla: We're not a stuffy for the big banks or the non-banks who are syndicating out loans. Our use of shared national credits over the last 15 years has been in strategy or in geography or in product. Meaning that it's a middle market or corporate company within our middle market footprint where we have cross sell opportunities direct access to management.

Jon Ciulla: But they have a $700 million credit facility and certainly we don't have the balance sheet to provide that. So we'll participate in that credit and cross sell. It's in our sponsor and specialty group where we have expertise and technology and other industry verticals where we'll strategically participate with access to management again. We underwrite and portfolio manage all of our shared national credits exactly the same way we do a bilateral credit.

Jon Ciulla: And our shared national credit book has a weighted average risk rating of about a full half a turn 50 basis points better than the overall weighted average risk rating of our commercial portfolio because those bigger companies tend to be more resilient and have more revenue stream. So those are the data points and I figured I'd share with you our view on how we go about underwriting and participating in shared national. Credit.

Jon Ciulla: So understanding it's likely a blend of, you know, the leverage on portfolio, probably some real estate in there is it fair to assume the underwriting characteristics, like sponsor and specialty from a leverage perspective are similar to that book and from a commercial real estate perspective or someone to be LTVs and debt service coverage ratios. We find it.

Jon Ciulla: Yeah, I think that's a fair statement, but I'll also tell you we have very little shared national credit exposure and commercial real estate. You know, and I mean very little and most of our shared national credit exposure is in sponsor and specialty in our middle market geography groups on mid corporate and large corporate relationships we have and then we have some an asset based lending those are the one I worry about the least those are to, you know, larger retailers, strong agents, cash to minion, you know, we we we we generally don't have any problems with those transactions. So we don't have very much shared national credit exposure. And commercial real estate is just not been one of our tools.

Jon Ciulla: Understood. OK, last one for me, John, you had mentioned, you know, keeping capital handy for perhaps tuck in acquisitions. I know historically it's been discussions around, you know, perhaps HSA tuck in acquisitions, but I was curious if, if that comment meant anything broader is in whole banks or other sorts of fee and vehicles. Yeah, I know a great question. And I think we're quite clearly mean sort of complimentary acquisitions around fee generating or deposit gathering businesses where we have a path to some organic growth, but would like to enhance and speed up that path to get a better balance of non interest income and interest income rather than a whole bank acquisition.

Jon Ciulla: We don't feel that right now, you know, you never say never and I've learned my lesson there, but, you know, given where we are the great integration and conversion, we just did given the look at the dynamics in the marketplace, I would say highly unlikely, whole bank activity on the inorganic side, and it would be something that would be targeted on on further low cost deposit gathering or fee generating businesses that are complimentary toward existing activities.

Jon Ciulla: Great. I'll leave it there. Thank you for taking all my questions. Thank you.

Mark Fitzgibbon: Your next question comes from the line of Mark Fitzgibbon of Piper Sandler. Your line is open. Hey guys, good morning.

Glenn MacInnes: I wanted, I wanted if you could share your thoughts on restructuring or selling available for sale securities in the fourth quarter given that, you know, rates may be stuck up here for a while. Yeah, so it is something we looked at, Mark, and you know that we did that in the first quarter of this year, we we we structured about 400 million at that time. What I would say is, you know, it's something we continually look at and we we bounce that obviously against our capital levels and our capital forecast and things that we see as far as that.

Glenn MacInnes: So I'll leave it at there and it's something that we continue to look at. And there's obviously some opportunities there is competing against capital for other initiatives as well. So that's where we are on that. Okay.

Glenn MacInnes: And then can you update us on how much you sold in this quarter and performing office loans and roughly where you sold those relative to part? So I think in my comments, it was 78 million that we sold. And if you just threw the math on the provision of 13 million, that equates to about 83 cents of the dollar.

Jon Ciulla: Okay, great. And then lastly, hopefully there aren't any more failed banks, but if there are, would Webster be a likely interested buyer in some FDIC transactions? Yeah, Mark, it's interesting, right? I just made the comment to Matt that that whole bank acquisitions are not high priority for us. I do think that it would be who must just make sure that if there's a clear strategic opportunity that makes a ton of sense economically, I guess I wouldn't exclude us, right?

Jon Ciulla: But it's, I'm hoping there are no further failed banks as well. But I think, you know, hopefully if we keep executing where we are. And the dust settles, I think, will be in a good position and have the right financial characteristics and strength to be a buyer of a good strategic bank if something happens that way. So I wouldn't rule it out, but it's certainly not on our game plan.

Operator: Thank you. Again, if you have a question, please press star one, telephone keypad. If you wish to remove yourself from you, simply press star one again.

Broderick Preston: Your next question comes from the line of Broad Preston of UBS. Your line is open. Hey, good morning, everyone. How are you?

Broderick Preston: Good morning. Sorry, I'm doing a little bit late. So if I, if I repeat anything, just feel free to tell me to review the transcript. But I did think John, I think I saw you gave the share national credit percentage at 12%. Do you happen to have what you guys are the lead underwriter on or the agent on? Yeah, less than 5% of that. Okay, so less than 5 of the 12.

Jon Ciulla: Correct. Okay, cool. And do you have any of what the reserve on the office portfolio is at this point? We haven't disclosed that number, you know, obviously it's moved up and it's at a higher level than the overall portfolio, but we don't disclose that, right? Okay.

Glenn MacInnes: You know, Glenn, could you maybe speak around what the puts in the takes will be as it relates to, you know, and I and the name going forward, you know, maybe help me better understand, you know, the cadence of fixed asset repricing throughout, you know, the fourth quarter and then through 2024. And, you know, what the impacts the loan yields will be. Yeah, sure.

Glenn MacInnes: Yeah, let me give you a sense of, and I'll just look at, you know, the two dynamics that we have there, Brody are, you know, a fixed rate loans repricing and that. If you think about it, it's about a billion free of quarter, right? So if you think you just think about that over the next couple of quarters, it's about a billion free repricing. And, you know, given our rate forecast, you know, you probably pick up about 275, 250 basis points on that as it rolls forward, right?

Glenn MacInnes: Over the next couple quarters, and then depending on where the Fed is in the back end of the year, you know, that might come in a little bit, but that's that dynamic on the on the fixed rate loans. I think about it in terms of the name, it probably supports our name by about four basis points going forward. And then likewise on the investment portfolio, you have about 300 million that is typically reinvested, and for that, we're probably picking up about 450 basis points now. You know, that will probably drop this race chain. James to like the low threes, mid threes.

Glenn MacInnes: But there again, you know, we're picking up about two basis points in them support going forward. So if I look at those two factors, as well as the periodic book, which will continue to reprice on the loan side, you know, and then so you have that as going as as a favorable tailwind. And then the wild part here is deposit pricing, right? And so we do think we did see it moderate in Fort Quarter. We do think it's going to continue to moderate over the next couple quarters. And then the Fed will begin to cut and there'll be a natural like 90 day lag on that.

Glenn MacInnes: But we think the support that we have on the repricing side, reinvestment side will sort of moderate any pressures that we get on the positive side, at least for the first half of the year. And then we should actually, you know, we should be in good well positioned if the Fed does proceed with cutting on the second second half back half of the year. Got it. Thank you for that.

Jon Ciulla: And then John, I know you talked earlier about, you know, kind of the leverage loan and the sponsor, you know, especially sponsor book. But I, you know, I guess I wanted to better understand kind of like some of the final points of the details, the underwriting there and kind of the things you do to structure those loans to really give you protection. And I'm not expecting to speak to the specific credit, but you know, you know, you know, you all were on the right aid credit files for bankruptcy, but like, you know, the ABL, Pilo notes in the market are trading at 92, 93% of power.

Jon Ciulla: And so like market obviously expects very little lots, you know, it looks like you got you guys in the other banks are a position to kind of get paid back first. You know, and it feels really well collateralized.

Jon Ciulla: So can you just kind of help us better understand the structure of those deals and what you kind of do to help protect yourself in the event that, you know, something goes wrong. Yeah, I guess there's a couple questions there, because you threw in the ABL deal at the end, right? And so, you know, that's, I think that's a completely different animal.

Jon Ciulla: You're, you know, underwriting against liquidation value on a large retail company. That's kind of standard asset based lending. I do think the market believes what everybody believe is someone will come in and provide this financing. And there'll be an orderly liquidation and everyone will get paid out. We've seen that story play over and over again.

Jon Ciulla: In sponsor and specialty, you know, business. I just it's about the strength of the people that continuity we've been doing it for 20 years. We deal with sponsors. We know who support credits and have expertise in the industries and sectors. You'd be amazed at the level of diligence and detail we do in technology. If we're doing a deal of software as a service deal, you know, we're doing third party evaluations of the software.

Jon Ciulla: We're evaluating the contracts. The end users were, we know the management team very well. We know the sponsors very well. We structure the deals. You know, that so there's some level of amortization. We don't chase as you know the last couple of terms of leverage where the non banks are chasing. We plan a different market. So it's just a combination of having the right people are really disciplined approach, staying in the swim lanes and the sectors that we know and understand and not, you know, moving off of that discipline process. And it's why through the great financial crisis and through the pandemic and through this higher interest rate environment, we've been able to see, you know, resilience in that.

Jon Ciulla: William. Got it.

Jon Ciulla: And then the last one for me, I just wanted to ask her on the HSA book. I feel like this has been a topic that's come up sporadically, you know, over the last several years, but I wanted to ask just because other banks are, you know, looking to potentially monetize unique assets that they have. And so when I look at kind of what's happened, you know, in HSA, you know, it feels like, you know, some of your non-bank competitors have been able to really kind of pay really high multiples to acquire other HSA portfolios that otherwise, you know, I think if, you know, if they had the same investor base that you do, they wouldn't be able to pay as much.

Jon Ciulla: And so, you know, with the growth in that business line, kind of slowing to some extent and, you know, the value of it really not showing up in the multiple and, you know, it being tough to kind of inorganically grow that business, you know, just just given that you're treated like a bank for others that are treated like non-banks. Like, how do you think about maybe, you know, monetizing that, you know, and, you know, doing something more strategic there to help your investors realize the full value of that business. That's a great question.

Jon Ciulla: And I think all of your observations in general are correct. And we've talked about it over time. You know, the basic premise for us is that we have a very efficient way to deploy long duration low cost deposits as a bank that really helped profitability for us. And while the market has slowed, if you look at it, you're still, you know, growing deposits at very low costs in the mid to high single digits. And there aren't many channels that are that are doing that.

Jon Ciulla: So, and we are continuing to grow along with the market on an organic basis. So I take your point in terms of the inorganic growth of some of the other other top five players. So it is very valuable to us. It helps us generate the kind of returns and profitability. We have albeit it's a smaller part of the whole after the MOE.

Jon Ciulla: We are frustrated that the market doesn't recognize the value that we're still building in that business as part of the bank. And as, as you know, we continue, we talk about it all the time to evaluate HSA in the bank and the value it has in the bank outside of the bank because we have an obligation to make sure that we're making the best decisions for our shareholders. As we move forward.

Jon Ciulla: And so up until now, which continued particularly in this interest rate environment, it's pretty easy for us to say operating HSA at the division of our bank creates the most value for our shareholders in the long term in terms of the quality and the value of the cash flows. We don't think the market, you know, where we're trading at a seven times multiple and future earnings is reflecting that unique company and business.

Jon Ciulla: And, you know, we want to continue to keep informing people and educating people about where we are. We were able to execute on the transaction last year, which gave us, you know, higher levels of user experience and a better, a better mouse trap, if you will. And I think it's helped us compete in the marketplace. We are still looking every time there's a deal in the market of another portfolio because the market keeps consolidating.

Jon Ciulla: I think the top 10 now represent 83% of the market. You know, we'll try and be in a participant in that. But I think it's going to be to continue evaluation for us. And we'll make the right decision on where HSA belongs given the value we can create owning it or the value that it would receive as a different company or a company that was part of a joint venture or somewhere else outside, back.

Daniel Tamayo: Thank you for taking my questions, everyone. I appreciate it. Your next question comes from line of Daniel Tamayo of Raymond James. Your line is open. Good morning, everyone.

Jon Ciulla: Thanks for taking my question. Maybe just starting in the decline in the commercial industrial, commercial loan areas, and you talked about de-emphasizing some massive classes there. Just give a little more detail on where you were pulling back, and I apologize I jumped on a little late if you already covered that. No, it's quite all right.

Jon Ciulla: It's a good question, and we haven't covered it in detail. So the decline across the board on the CNI side was generally driven by, we had mortgage warehouse, obviously, down, and I think you'll likely see that continuing to reduce from a strategic perspective, we were very careful on transaction-only ABL and equipment finance in the quarter since the crisis in March. And so those did grow rapidly and may have had small declines.

Jon Ciulla: Our fund banking activity, which high quality, you know, fund banking loans, equity subscription lines to private equity firms was down about half a billion dollars, and that was driven by one big payoff, and then just lower utilization. Our overall middle market CNI utilization online after kind of holding steady for several quarters at 50% was down into the mid-40s. So we did see seasonally lower usage, and I don't know what that portends in terms of client confidence or anything, but utilization was lower as well. So that kind of drove the quarter results. Some of it was us pulling back on levers.

Glenn MacInnes: Some of it was a seasonally slow third quarter, more sluggish loan growth, and that's where we ended up. I think as you go forward, you know, we've talked about really making sure that we have the liquidity capacity, the loan deposit ratio, and the capital to grow those full relationships across our middle market businesses, our other ancillary CNI businesses sponsor and specialty, non-office commercial real estate. We are seeing some level of increased demand as we move into the fourth quarter or pipelines up about half a billion dollars.

Glenn MacInnes: So I think you think we'll continue to see mortgage warehouse run down. There may be a couple of other small sub-scale businesses where we won't be generating the kind of loan growth that we've generated in the past, but we think we can offset that with our core franchise building loan generation. Terrific. And then on the flip side, the commercial classified loans were up both on our absolute basis, and as a percentage of that portfolio, how many of you could talk a little bit about what drove that increase? Sure, happy to.

Glenn MacInnes: First of all, I didn't say up in my front comments, but I did reference that that level of classified at 1.74 percent of a smaller portfolio in the quarter is actually a hundred basis points lower than Webster's classified percentage in the fourth quarter of 2019 before the pandemic. So just a reminder, again, that we've been, the entire industry has been benefiting from really, really favorable credit metrics, and this is just a small step, I think, towards a more normalized rate going forward.

Glenn MacInnes: But in terms of the actual contributions there, there weren't any kind of correlations across geography, asset class, business line. We saw some C&I and healthcare. We had a small portion in AVL. We had some office migration that we talked about prior, and then just generally across the other C&I categories. So it really wasn't.

Glenn MacInnes: We didn't see correlated risk. We just saw credit-specific migration as part of our overall modest negative risk grading migration in the portfolio. Okay, terrific. And lastly, just one for Glenn on the hedging strategy and how you expect the net interest income would react to rate cuts if they do materialize next year. Yeah, so Daniel, the morning, we did talk a little about that as we look, we're not providing an outlook for 2024 at this point.

Glenn MacInnes: The point I made earlier is that I think our NIMS will continue to be supported into the 4th quarter and into the next couple quarters through the benefit of both fixed rate loans repricing, investment securities repricing as well as the periodic loans repricing. Some of that will be obviously offset by deposit cost and our thinking on where the cumulative deposit beta will end up. But I think generally that's how we're feeling going into the next couple quarters. Okay, thanks for all the color guys, appreciate it. Thank you.

Steve Alexopoulos: Your next question comes from the line of Steve, Alex Opelus of GP Morgan. The line is open. Hey, good morning, everyone, Alex Lau on Steve. Hey, Alex.

Glenn MacInnes: Hey, I want to touch on deposits. So, none of those paying deposits were up on a period and basis in the quarter. What drove that uptick? Was it seasonal inflows? And is it fair to say that the customer's chasing higher yield products in these demand balances are largely done? Yeah, so let me take that and jump in.

Glenn MacInnes: But I think there is a portion of the increase in nonintersparing deposits that was related to the government inflow, which is seasonality. But I think the bigger point is we've gone back and looked at DDA, because as we look at our forecast, and I've gone back to, all the way back to 2019, when if I could add the combination of Webster and Starlink, we had about 40 billion in combined deposits. And at that point, the DDA represented about 21%.

Jon Ciulla: If I looked at the third quarter, and did the same sort of analysis, and I stripped out the impact of interlink that's relatively new, we'd be in that 21% range. So it's pre-pandemic, and if I look to where we are, it's typically run about 21%. I think there will be some continued normalization in the average balances as customers move. And we've looked at this on a customer by customer basis, so there is some migration into higher yielding type of products.

Jon Ciulla: But I think some of that, so say, I think we'll get normalization over the next couple quarters, but I think some of that will be offset by growth opportunities through whether it's new relationship acquisitions or Treasury management type services. So I think if you think about that 11 or we have, there'll be puts and takes on that over the course of time, and we're not given guys for 24, that should be somewhere in the range.

Jon Ciulla: I agree with that. Yeah, I think your last statement was right, that we're going to continue to see a creep up of the deposit cost there in the core, but that rate of increase is slowing down because the customer behavior, people that were more in tune and it was more important to them to chase rate have done. Thank you. And speaking of growth opportunities, now that the conversion of sterling is done, do you see any material cross-selling opportunities in terms of growing these demand deposits? Now that you're integrated with sterling?

Jon Ciulla: Yeah, I mean, I think I kind of hinted to that, Alex, that you know, one of the things that's getting on our single core platform now and also being able to kind of pivot our resources to develop development and build out, we've got a robust plan on the treasury side in commercial and that's broadly defined with cash management products, FX, capital markets, other products, corporate card where we believe that having deeper penetration and having a broader product set for our really loyal commercial customers will have the added benefit of growing core operating deposits. So I do think that that's something that we believe we can execute on and we believe will be successful as we move forward post conversion. Thank you for that.

Jon Ciulla: And then I just want to have a follow-up on the HSA business. So these balances, you know, for the past three quarters have been in the $8.2 billion range. Can you talk about what it would take, you know, in the macro environment for a stronger HSA adoption and for these balances to start increasing? John, I think you said mid to high single digit. How do we get to the higher end of the range? Would a weaker job market actually benefit this range? Thanks.

Jon Ciulla: That's interesting. We used to answer these questions all the time. But, you know, I think generally higher healthcare costs push companies to higher adoption of full replacement, high deductible health plans. Definitely if in a recessionary environment, if labor market is not quite as tight, companies are more willing to move to higher replacement costs. I will tell you we believe that part of, you know, full transparency, right?

Jon Ciulla: Part of the reason the market slowed a bit is that there's been significant penetration and adoption now. So there aren't as many green fields in terms of new opportunities. But in this economic environment and in this job market environment, we have obviously seen slower growth. And I'm not rooting for, you know, the worst job market or a bigger session so that we get a slight increase in our HSA growth. But I think those are some of the dynamics.

Jon Ciulla: There are higher healthcare costs coming in. So I do know that people are continuing to look at it and chat does see opportunity and, you know, we're obviously got a lot of RFPs out there. But the market, you know, from the 20% growth days down to the 10% growth days, there's a lot of dynamics there. And it's not just economic. It's also just a maturing of the industry.

Operator: Thank you. Now that we're close to end of conference, we please ask if you try to restrict yourself to one question. So we can get everyone in the next question.

Bernard Gizycki: Custom line of Bernie Von Gizeki of Deutsche Bank. Your line is open. Yeah, hi. Good morning.

Bernard Gizycki: Hey, my question's on fee specifically. So you talked about the pressure on fees from less capital mortgage activity, but you have seen signs of an improving outlook until next year. You know, what are you hearing from clients? You know, what signs do you see that helps drive that improving outlook?

Jon Ciulla: And maybe if I just combine this on the sterling integration, you know, you basically highlighted some areas in Treasury Cash Management, but in the fee side, did you provide any size timing of these opportunities? So, um, cash markets pick up next year and, you know, sterling integration opportunities, sizing? Yeah, it's a great question.

Jon Ciulla: I think I'll stick with, with Glenn's comment that we're working through our plan right now for 24 and we have in size some of those opportunities and the timing of the rollout. As it relates to BAU and organic where we are, we did see in the quarter a relatively healthy level of non-interest income and underneath that were some good signs. A little bit more of direct investment equity tag in income which shows some more activity on the sponsor side and that people may be getting more active as they normally do at year end.

Jon Ciulla: And so that's a good sign for us as we move forward. Obviously, the SWAT market, given where interest rates are, it's been kind of down, but we may see some more activity just given the fact that the Fed may pivot. So there's some decent signs and then we'll be able to, as we give guidance in Q4, we run out our roadmap on plan, be able to maybe size some of the incremental benefit of post-conversion investment. Thank you.

Timur Braziler: Your next question comes from the line of humor, Braziler of Wells Fargo. Your line is open. Hi, good morning.

Glenn MacInnes: I'm just wondering what the remaining credit mark is on the steering book. And then if you look at the link order increase in a while and so much of that is commiserate with the link order increase in classified loans. And I'm just wondering kind of your expectation for allowance trajectory here given the benefit back to us. Yeah, good question. You know, I always kind of like and just like answering these Cecil questions because there's obviously a huge amount of work that goes into the modeling.

Glenn MacInnes: Obviously, a classified loan had the higher reserve on it. So, you know, the dynamics in the quarter for Cecil would be higher level, the classified overall lower loan balances, stable non-accruals and charge off levels and economic outlook for us as we're moving forward. It's why you still see a build in most of the industry right now because of concerns of office and others. And then, you know, qualitative overlays on what you believe going on in any particular portfolio like an office portfolio.

Glenn MacInnes: So, the classified certainly would have been a component to add more reserves, but there are some offsets like lower loan balances and stability in other areas. And then, obviously, the economic outlook is still uncertain, which drives to a few basis point increase. And I'm giving you kind of the qualitative high level because obviously it's all modern model driven at the end of the day. Yeah, and teamwork is clear. The only thing I would point out is we sort of laid this out on page 15 of the slides, right? So, you can see the impact of lower loan balances was 8 million. And then the macro, growth, third quarter macro, and credit, and buyer. Chairman, was a bill of 43.

Glenn MacInnes: If you look at the chart below, there hasn't been that much movement, really an unemployment and GDP growth and stuff like that. So, a portion of that is risk migration, which you see in the classifies. And that's how it sort of characterizes. Thank you.

Laura Hunsicker: And your last question comes from the line of Laurie Hunsicker of Seaport Research Partners. Your line is open.

Laura Hunsicker: Great. Hi. Thanks. Jon and Glenn.

Jon Ciulla: Good morning. So, just wanted to circle back to office here. So slide four is great, but just wondered a couple things. Number one, can you help us think about specifically in New York City and Boston of that 1.17 billion. How much, how much of that is New York City Class A versus B? How much is Boston Class A versus B? And then also your slide four is only investor. Can you help us think about the owner occupied book? How big that is?

Jon Ciulla: Any concerns that you're seeing there, obviously on our side is a little risk, but there's still some of the same risk. And then the last part of the office question, the jump in past two loans from 46 million to 71 million. How much of that 20 million jump was office-related? Thank you. All right. I may ask you to come back on the last question, but the one question. So the mix of A and B is pretty similar around 50, 50 in all the markets, which also ladders up to the overall.

Jon Ciulla: We have about 23% right of the remaining offices in New York City, and that's about 50, 50 Class A and Class B. Boston is smaller in the geography under 10% of that, and it's also about 50, 50 in terms of Class A and Class B.

Jon Ciulla: You asked about non-investor-cree owner occupied crease, so those would be CNI companies that we lend to where we have office collateral. That's a relatively small portion of our overall portfolio. It's around 250 million dollars, which is pretty small. Regularly and internally, we underwrite those as, you know, CNI loans based on the cash flows of the company with having just the enhanced secondary source of repayment in the office.

Jon Ciulla: We've seen no deterioration in that portfolio at all. And what was the last question, Lori? Yeah, just so-and thanks for that. The jump in the past two loans, the 46 million to 71 million. How much of that, if any, was also? Oh, that's a great question. I don't know if I know the answer to that off-pan, but I will tell you one thing is that there was a $15 million payment made on the second of October.

Jon Ciulla: So one of them was an administrative delinquency, and so that would tell you that we're down from 42 to whatever that would be 27. If I can do my math right, mostly equipment finance loans in there. So it really wasn't commercial real estate. No, yeah, it's not.

Operator: Right. Thanks. You got it. There are no further questions at this time.

Jon Ciulla: I will now turn the call over to John Syula, CEO for closing remarks. Thank you very much for joining us on this long call this morning. Enjoy the day. This concludes today's course. It's called you may notice, can I?

I'm Len Harmon to introduce the call Mr. Herman. Please go ahead.

Herman: Good morning, before we begin our remarks I want to remind you that the comments made by management may include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095 and are subject to the Safe Harbor rules. Please review the forward looking disclaimer and Safe Harbor language in today's press release and presentation for more.

Good morning, before we begin our remarks I want to remind you that the comments made by management may include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095 and are subject to the Safe Harbor rules. Please review the forward looking disclaimer and Safe Harbor language in today's press release and presentation for more.

Good morning, welcome to the Webster financial corporations fourth quarter 2023 earnings Conference call. Please note.

With that, I want to wrap up my comments by saying thank you to all our colleagues for their strong efforts in moving our strategy forward, completing the conversion, and getting us to where we are today. Operator, with that, Glenn and I will open up the line to questions. Thank you. If you have a question, please press star 1 on your telephone keypad. If you wish to remove yourself from the queue, simply press star 1 again.

Corey: Hey, Corey.

Corey: I would now like to introduce Webster's director of Investor Relations Emlen Harmon.

Information about risks and uncertainties, which may affect us the presentation and the presentation and accompanying managements remarks can be found on the company's investor Relations website at investors Dot Webster Bank Dot Com I will now turn it over to Webster financials CEO John <unk>.

Information about risks and uncertainties, which may affect us the presentation and the presentation and accompanying managements remarks can be found on the company's investor Relations website at investors <unk> Webster Bank Dot Com I will now turn it over to Webster Financial's CEO John <unk>.

Emlen Harmon: As you introduce the call Mr. Harman. Please go ahead.

Emlen Harmon: Good morning, before we begin our remarks I want to remind you that the comments made by management may include forward looking statements within the meaning of the private Securities Litigation Reform Act of $19 95, and are subject to the Safe Harbor rules. Please review the forward looking disclaimer and Safe Harbor language in today's press release and presentation for more information.

John: Thanks, everyone. Good morning, and welcome to Webster Financial Corporation's third quarter 2023 earnings call. We appreciate you joining us I will provide remarks on our high level results and operations before turning it over to Glenn to cover our financial results in greater detail.

Operator: One moment for your first question. Your first question comes from the line of Chris McGrady of Breette and Woods. Your line is open. Oh, great. Good morning.

Emlen Harmon: Risks and uncertainties, which may affect us.

Chris McGrady: John, maybe a high-level question, this ongoing de-risking that you've been doing, I guess where you are in terms of, like, how much more do you think you need to do? I mean, the loss rates on the office, the implied loss rates on the office from this quarter look, you know, a bit higher than what you've been doing for the last several quarters. Kind of big picture, where are you in terms of de-risking the book? Yeah, it's interesting. I don't think, Chris, there's kind of a dedicated timeline.

Emlen Harmon: The presentation accompanying management's remarks can be found on the company's investor Relations site at investors start Webster Bank Dot com for the Q&A portion of the call. We ask that each participant ask just one question and one follow up before returning to the queue I'll now turn the call over to Webster financial CEO, John CLO, Thanks, a lot and good morning.

Glenn: The results, we announced today further illustrate the power of Webster in terms of earnings potential as well as our sound operating and risk profile, we continue to enhance our liquidity position and in contrast to broader industry trends. We grew deposits by $1 $6 billion. We also grew our net interest income and materially expanded net interest.

Glenn: The results, we announced today further illustrates the power of Webster in terms of earnings potential as well as our sound operating and risk profile, we continue to enhance our liquidity position and in contrast to broader industry trends. We grew deposits by $1 $6 billion. We also grew our net interest income and materially expanded net interest.

John: And welcome to Webster financial corporations fourth quarter 2023 earnings call. We appreciate you joining us. This morning, I will provide remarks on our high level results and operations before turning it over to Glenn to cover our financial results in greater detail.

Glenn: <unk> in the quarter.

Glenn: In the quarter. We also completed our core systems conversion, marking a significant milestone in our integration and we are pleased with the outcome and did so with limited client disruption our streamline technology architecture will allow us to further enhance client experience and more efficiently deliver for our clients in the future achieving this outcome took an exceptional effort.

I think we're, as you heard me say, the billion-two in office we have right now, and we sort of feel good about, with respect on a relative basis, to having, you know, getting credit enhancements, continuing to work on the portfolio. So, for us, it's looking at loans, looking at the strategic nature of them, whether they're with, you know, investors and clients that we know very well that we're going to continue doing business with, whether they're standalone transactions, what the kind of metrics and dynamics are, and then each quarter, Jason and the team sit down and say, hey, we, even though this may not be a problem now, this is something that's So, we're not really looking at a serial reduction in exposure.

The company continues to execute at a high level and we are excited about the momentum we're carrying into 2024.

John: With less distraction from our integration activities and hopefully the industry at large we are well positioned to continue delivering financial outperformance as we deliver for our clients across business lines.

Glenn: On the part of our colleagues, particularly our client facing colleagues and those dedicated to the conversion I want to express the gratitude of our executive team directors and shareholders for their efforts.

John: I'm going to start to review to date with our full year results for 2023 as Ive stated throughout the year, we performed admirably throughout a difficult period for the banking industry. This performance illustrates the strength of our franchise, including a uniquely diverse and sound funding base highly efficient operating model and focus on non commoditized businesses.

Glenn: The core conversion complete we expect our company's financial potential will become even more evident over the near to medium term and we will have significantly more opportunity to build upon our operating capabilities going forward, including services that allow us to enhance noninterest income in our commercial consumer and HSA businesses. Furthermore, our colleagues will direct.

Glenn: With the core conversion complete we expect our company's financial potential will become even more evident over the near to medium term and we will have significantly more opportunity to build upon our operating capabilities going forward, including services that allow us to enhance noninterest income in our commercial consumer and HSA businesses. Furthermore, our colleagues will do.

John: We grew our adjusted EPS to $5 99.

Glenn: Their full attention to continuing to grow the organization as they deepen existing and develop new client relationships enhance our product capabilities and client service right Webster's market profile and keep operations running smoothly.

Their full attention to continuing to grow the organization as they deepen existing and develop new client relationships enhance our product capabilities and client service right Webster's market profile and keep operations running smoothly.

John: From $5 62 in the prior year generating record EPS for Webster, we reached a record tangible book value per share in the fourth quarter as well our return on assets was 143% a return on tangible common equity was 25% and we ended the year with 42% efficiency ratio.

We're being opportunistic, and we're making, I think, the right economic decisions because many of these loans are going to refinance fine, they're going to pay off fine, some of which, you know, we think in the future may have some problems just given the paradigm shift. But I think you'll see us continue at this level, looking at a $25 million, $75 million portfolio or book of business in the quarter, and if there's a good economic strategic way to exit those credits, we will. But, you know, we're not kind of urgently and in a serial fashion trying to get rid of the exposure. Okay, that's helpful. Maybe Glenn.

Glenn: With that as an introduction I will get into our financial highlights for the quarter I'll start on slide two on an adjusted basis, we generated EPS of $1 55 with solid results across nearly all of our income statement lines and <unk> grew 2% from the prior quarter. This generated an adjusted return on assets of.

John: In addition to our strong financial performance, we realized several meaningful strategic accomplishments, we capably executing our core technology conversion and have completed substantially all of the work on our merger integration. We closed the interlink acquisition, and we announced the acquisition of our Metros, we grew core deposits through a highly competitive environment in the <unk>.

Glenn: Nearly one 5% and an adjusted return on tangible common equity of 21%.

Glenn: Nearly one 5%.

Glenn: On an adjusted return on tangible common equity of 21%.

Glenn: Our efficiency ratio remained at 42% among the best in the industry.

John: <unk> industry illustrating our funding advantage and the strength of our relationship oriented business model. We also refined our mix of businesses emphasizing in building those where we have a strategic advantage and the most promising risk reward characteristics.

Glenn: Our efficiency ratio remained at 42% among the best in the industry.

Glenn: We grew our deposits by almost 3% over prior quarter, and we were able to grow net interest income. Despite a decline in loans as we have discussed in our prior calls and at our Investor Day in March we've continued to evaluate our capital allocation and the risk return dynamics across lending businesses since our merger closed nearly two years ago.

John: On the next slide our fourth quarter financial results remained solid on an adjusted basis. We produced a return on tangible common equity of 19, 8% and our return on assets of nearly one 4%. Our adjusted EPS was $1 46, we grew our deposits and loans each by roughly 1% with loan growth focus.

You gave the loan to deposit and expectations for the balance sheet. How should we be thinking about just the level of borrowings and, you know, securities growth from here or decline? So I think I'll take securities first. So we're like $14, $14.5 million. I think you would expect it over the course of, say, the next couple of quarters to stay within that, depending on loan growth. The question on borrowings is... I think we're at a level right now where we probably expect to be pretty flat. It may be the last one.

Glenn: We've discussed with many of you that the time would come to deemphasize, some businesses, where our resources and capital could be better allocated and we are starting to see some of that today, particularly in an environment, where liquidity is at a premium and the credit environment remains uncertain in the quarter, we focused our loan origination efforts on franchise building full.

John: In strategic commercial categories, we continued to exhibit solid expense control with an efficiency ratio of 43%.

John: Our common equity tier one capital intangible common equity remains strong at 11, 1%, 2% and 773% respectively are strong starting point and internal capital generation capability will provide us with a significant amount of operating flexibility over the long term.

Glenn: Relationship C&I and non office commercial real estate, we purposely de emphasized our mortgage warehouse activities where balances materially declined.

One of your peers turned the buyback back on this quarter. I'm interested in your updated thoughts on whether buybacks at this point of the cycle make sense. Yeah, Chris. I think it's a great question. You know, we bought back $50 million in the quarter in Q3. We clearly have capital levels and capacity to generate capital to, you know, continue the program. I would tell you that, you know, we're looking at, This is a great question, and I'm going to take this from a position of having good flexibility but also recognizing that we want to make sure that we have capital if we do tuck-in acquisitions, if we do grow loans significantly, if we see cracks in the market from a credit perspective. So I guess the way I would characterize it is I wouldn Thanks.

Glenn: As a result of our deposit growth in more targeted loan origination activities, our loan to deposit ratio improved to 83%, providing us a ton of flexibility as we move forward, we have a solid loan pipeline and feel good about our ability to continue to safely grow earning assets, even with the backdrop of sluggish loan demand.

John: The timing of some of our fourth quarter accomplishments, including our solid loan growth were back loaded resulting in a period end loan and securities balance that were more than $1 billion higher than the average balances. Our overall loan growth coupled with a robust pipeline should provide us with a tailwind as we head into 2024.

Glenn: Our common equity tier one ratio and TCE ratio are strong at 11, 2% and seven 2%, respectively. Our robust capital position and returns provide us a great deal of flexibility and Optionality in terms of capital deployment, whether it would be organic growth share repurchases payment on our common dividend.

John: Following slide illustrates our funding diversity, which highlights one of our key strategic advantages. We are confident that we are adding another unique funding vertical with our acquisition of <unk>, which we announced at the end of last year and expect to close shortly we provide some detail on the business on the following slide.

Glenn: Or in selective instances executing on complementary acquisitions, such as the interlink and vend transactions that we've executed on over the last two years.

Glenn: Or in selective instances executing on complementary acquisitions, such as the interlink and been transactions that we've executed on over the last two years.

John: <unk> is a particularly unique and exciting opportunity for Webster as it provides a low cost fast growing deposits, which add significant fee income.

Glenn: On slide three we again provide a profile of our diverse and unique deposit funding. Many of you have seen this slide a few times now, but we'd like to highlight what we believe to be one of our key competitive advantages, particularly as deposits exit the banking system. The deposit growth. We generated this quarter was a team effort with most of these channels contributing.

Chris McGrady: Thanks, Joe. Thank you. Your next question comes from the line of Casey Haire of Jeffreys. Your line is open. Yeah, thanks. Good morning, everyone.

John: And describe the business embrace metros administers recipients funds for medical claims settlement via a proprietary technology platform and service teams a large majority of the claims of Mitra is administered are structured as annuities whereby funds are replenished over the life of the recipient as of today there are over $2 5 billion of contract.

Casey Haire: Just following up, I guess, Glenn, on the NIM. NIMS is going to be flat in the fourth quarter, and borrowings, which obviously helped in the third quarter, the decline there, sounds like they're going to be flat. So what is the offset to... that is the reality, and then you do have we do pick up one day at least on an in basis from an earnings standpoint. And then it's pretty much some of that's neutralized by, you know, what we think deposit growth will be or deposit cost going into the fourth quarter. Like I said in my comments, we still think that there'll be project pressure going into the fourth quarter, albeit very more moderate than it's been certainly in the last couple Okay, great. And then just a question on the funding strategy. I mean, your deposit growth was pretty broad-based. Interlink is still doing a lot of the heavy lifting. On that slide, what is it, slide 5, it's 9% of your deposit, franchise, you know, what long term is there? Is that a seal?

Glenn: And Glenn will provide more details on our deposit growth shortly.

John: The deposit inflows under this construct given this replenishment feature of the average deposit duration exceeds 20 years the collection and retention of these funds is further enhanced by the value added services, let me just provide including payment management access to discounted medical services and government reporting they have an art and customer base.

Glenn: This business profile also enables our robust liquidity position, which we review on the following slide slide four we again increased our immediately available liquidity to $19 8 billion from $18 billion last quarter and the most recent quarter, our uninsured deposits fell to 22% of total from 25% last.

John: As evidenced by a net promoter score of 96 and are by far the market leader among professional administrators we.

Glenn: Quarter, and our liquidity coverage of those uninsured deposits grew to 148% versus 124% last quarter.

John: We expect deposits will grow at a 25% CAGR over the ensuing five years are projected growth trajectory assumes the growth of members and no changes to our meat just existing business constitution, including the addition of new relationships, new business verticals medical inflation or synergies with Webster is existing businesses for all of.

Glenn: I'll touch on our office creep portfolio and credit in general as we turn to slide five office loan exposure continues to be a focus of our conversations with investors and we continue to actively manage our risk in that asset class, notably we proactively reduced our office exposure, which is now under $1 2 billion.

John: These we see varying degrees of opportunity.

Glenn: Or two 3% of loans, including actions taken this quarter, we have reduced the portfolio by $500 million since the second quarter of 2022 or 30% of the original balance the portfolio is generally well secured with an at origination weighted average LTV of 54% and our current debt service.

John: We anticipate the transaction will be modestly accretive to 2024 earnings and 3% accretive to 2025 earnings we look forward to officially welcoming our new colleagues in the near future.

Is there a ceiling that you have for interlinking? Or is that, you know, 9% the right level just trying to figure out how big that can become? So we're in the process of doing our outlook for the next couple quarters and actually years. So I think if we're at 9% now, depending on our sources of funds and other sources of funds, that could go up to plus. I, you know, it could go as high as, you know, that's something that we're still in the process of working on. Got it. Okay. And just last one for me on efficiency.

John: Our overall credit profile and key credit metrics.

John: Totally unchanged from prior quarter as we continued to proactively manage our credit exposures across the bank Glenn will provide more detail in his comments.

Glenn: Average ratio of one nine times no delinquencies in the portfolio in a low level of non accruing assets.

Glenn: On the next slide I'll quickly touch on the standard overview of our office creep portfolio, we continue to make solid progress on reducing the size of this portfolio, which is down another $120 million. This quarter. The majority of the reduction came from either payoffs or properties being repositioned overall performance of the portfolio continues to be relatively.

Glenn: Note that of the remaining portfolio almost two thirds of our exposure has some level of tertiary support in the form of a guarantee or reserve.

You know, I know it's early for 24, but you guys, obviously, at 42% are in, you know, more efficient than most of my coverage universe. Jon, you mentioned there are going to be some financial burdens about getting the bank ready to be 100 billion. What, you know what, uh... Can you pass that along, or is that something that you might let the efficiency ratio drip up? Yeah, that's a good question.

Glenn: Overall, while it's clear that the credit environment remains uncertain and that the industry trends indicate some level of bumping. This as we move forward. We remain generally pleased with the resilience and credit metrics in our existing loan portfolio, while our commercial classifieds increased in the quarter, they remain well below pre pandemic levels or not.

Glenn: Overall, while it's clear that the credit environment remains uncertain and that the industry trends indicate some level of bumping is as we move forward. We remain generally pleased with the resilience and credit metrics in our existing loan portfolio, while our commercial classifieds increased in the quarter, they remain well below pre pandemic levels or not.

Glenn: With solid support underlying the credits we did see a tick up in classified loans to seven 7% from 5% last quarter, but delinquencies and non accruals are nonexistent.

Glenn: Performing loans and charge offs remained stable and at historically favorable levels, we continue to add to our overall allowance for credit losses, and our 127% coverage of loans and leases compares favorably to peers. We continue to proactively manage credit exposure in our portfolio to ensure early identification of <unk>.

Glenn: Given we're getting to a much smaller absolute balance we will likely move this slide to the appendix in future quarters with that I'll turn it over to Glenn to cover our financials in more detail. Thanks.

And again, as Glenn said, we're working through our plan now, and we're not going to sort of, we're not ready to provide guidance for 24. But I will tell you, our sense is, look, we still have some opportunity coming out of the conversion as we consolidate subledgers and look at back office processes and consolidate call centers, which we still haven't completed. So, Casey, we do still have some merger-related cost opportunities, cost-save opportunities, and I kind of like where we are. Our feeling is we also have opportunities to invest and grow, particularly if the market greenlights loan growth and people feel comfortable about a soft landing. I think we can identify, you know, additional teams in commercial banking to bring in.

Thanks, John and good morning, everyone I'll start on slide seven with our GAAP and adjusted earnings for the fourth quarter, We reported GAAP net income to common shareholders of $181 million with earnings per share of $1. Five on an adjusted basis, We reported net income to common shareholders of $250 million and EPS of $1 46.

Glenn: <unk> credits.

Speaker Change: I'll now turn it over to Glenn to provide more details on the quarter.

Glenn: Thanks, John and good morning, everyone I'll start on slide six with our GAAP and adjusted earnings we reported GAAP net income to common shareholders of 222 million with earnings per share of $1 28 on an adjusted basis. We reported net income to common shareholders of 267 million and EPS of $1 55.

Glenn: The largest component of the adjustments were $47 million FDIC special assessment $31 million in merger related expense and the securities repositioning loss of $17 million.

Glenn: Excluding $62 million in pre tax merger related expense.

Glenn: Next I'll review balance sheet trends beginning on slide eight.

Glenn: Merger related charges were associated with our core conversion, which was completed in the third quarter and will decline significantly in the fourth quarter.

Glenn: Total assets were <unk> $75 billion at period end of $1 8 billion from the third quarter.

Glenn: Merger related charges were associated with our core conversion, which was completed in the third quarter and will decline significantly in the fourth quarter.

Glenn: Our securities balances were up $1 5 billion from the third quarter $400 million of the increase was attributed to value appreciation of our Ams portfolio. While the remaining $1 1 billion reflects incremental action, we took to reduce our asset sensitivity.

We're definitely investing in products and capital markets and FX and cards and other commercial treasury products that'll enhance our balance of non-interest income. So our view is we think we can operate steadily in the low 40s efficiency ratio, and to the extent we can gain more cost savings, it'll give us an opportunity to invest in key products and services and people.

Next I will review our balance sheet trends beginning on slide seven.

Glenn: Next I will review our balance sheet trends beginning on slide seven.

Glenn: Total assets were <unk> 73 billion at period end down $900 million from the second quarter.

Glenn: Total assets were <unk> $73 billion at period end down $900 million from the second quarter.

Glenn: Interest bearing deposits, primarily cash held at the fed was $1 8 billion at period end, we averaged $1 2 billion in cash for the quarter in line with what we anticipate going forward.

Glenn: As the securities growth occurred late in the fourth quarter with the associated net interest income benefit we realized in the first quarter.

As I noted a moment ago, we also repositioned roughly $400 million of our securities portfolio with less than one year earn back. This should result in a benefit of three basis points to our net interest margin in the first quarter.

Our security balances were relatively flat in the quarter as we reinvested proceeds from maturities and sales.

Glenn: Our security balances were relatively flat in the quarter as we reinvested proceeds from maturities and sales.

So, you know, if we can continue to post the numbers that we promised when we did the merger, the 20% ROATC, the 1.5 ROA, and, you know, an efficiency ratio in the low 40s, I think size, scale, and momentum will allow us to keep that efficiency ratio in the low 40s without starving the bank with respect to future investment. And then if you fast forward, right, three years, and you look at the size of our balance sheet as we approach $100 billion, I think we'll have some optionality, and we'll be in a better place than others who are similarly situated, given how kind our operating model is. Great, thank you. Your next question comes from the line of Matthew Breese of Stevens Inc. Your line is open. Hey, good morning.

Loans were down $1 5 billion reflective of both lower loan demand and a decline in non strategic loan categories.

Glenn: Loans were down $1 5 billion reflective of both lower loan demand and a decline in non strategic loan categories.

Loans were up $640 million driven by commercial categories. The majority of the growth occurred late in the quarter, resulting in a period end balance that was higher than average by $375 million.

Deposits grew $1 6 billion in the quarter and we reduced borrowings by $2 6 billion.

Glenn: Deposits grew $1 6 billion in the quarter and we reduced borrowings by $2 6 billion.

Glenn: Deposit growth was across several product types and business lines, including over $250 million and noninterest bearing deposit growth.

Glenn: Deposits grew by $450 million in the quarter. The net result of seasonal declines in public sector funds offset by growth in Cds, interlink and interest bearing checking.

Glenn: Our loan to deposit ratio was 83% in the quarter down from 88% last quarter and we anticipate operating in the mid <unk> going forward.

Glenn: Our capital levels are consistently strong common equity tier one ratio was 11, 2% and our tangible common equity ratio was seven 2%.

Glenn: Our loan to deposit ratio was 83% flat to last quarter, our capital levels remain strong common equity tier one ratio was 11, 2% and our tangible common equity ratio was seven 7%.

Glenn: Tangible book value decreased to $29 48 per share, reflecting the impact of OCI the dividend a small share repurchase this was partially offset by retained earnings.

Matthew M. Breese: I know Office CRE grabs a lot of the attention these days, but I was curious about thoughts and updated color on the Sponsor Specialty and Leverage Loan book. How have those portfolios been performing in a higher rate environment? Yeah, Matt, you know, so far, so good.

Glenn: Tangible book value increased to $32 39 per share or just under 10% quarter over quarter, reflecting earnings and the improvement in OCI.

Glenn: Unrealized security losses, including included intangible book value increased to $819 million after tax from $645 million last quarter, driven by higher rates and.

Glenn: And a steady interest rate environment, we anticipate $75 million of unrealized security losses would accrete back into capital annually.

We've talked about it before, you know, those companies that we underwrite there tend to have protectable, predictable cash flow streams, recurring cash flow streams, contractual cash flow streams. And so we haven't seen a deterioration, significant deterioration, in the credit profile. I'd say it's behaving like the rest of the book, probably at some level of moderate negative risk rating migration, but it hasn't spooked us at all.

Glenn: In a steady interest rate environment, we anticipate roughly $125 million of this would accrete back into capital annually.

Glenn: Loan trends are highlighted on slide nine and total loans were up roughly $650 million or one 3% on a linked quarter basis the.

Glenn: Loan trends are highlighted on slide eight in total loans were down by $1 5 billion or 3% on a linked quarter basis. The.

Glenn: The commercial bank continues to drive loan trends, where we grew the C&I and commercial real estate portfolios.

Glenn: The commercial bank continues to drive loan trends with declines were reflective of both lower demand and declines in non strategic categories mortgage warehouse was down $600 million commercial real estate was down $100 million as we continued to reduce our office exposure and C&I was lower by $900 million.

Glenn: Net much of the growth was in low risk lower yielding portfolios.

Glenn: Growth in C&I was principally in fund banking and public sector finance as well as business banking.

And again, you know, it's always hard to predict the future, but one of the wonderful things about that portfolio, besides the type of companies that we lend to, you know, are the private equity firms that we've been doing business with for, you know, 10 and 20 years that are kind of flush with cash, raising new funds, and really not reticent to, you know, capitulate and give up these really good companies. No question about the fact that these are floating, generally floating-rate loans, so their debt service has increased. They are generally lower in contractual amortization.

Glenn: Commercial real estate growth was stronger risk rated portfolios, including multifamily.

Glenn: The yield on the loan portfolio increased 14 basis points and floating and periodic loans were 59% of total loans at quarter end.

Glenn: Notably we ran off remaining balances in mortgage warehouse.

Glenn: The yield on the loan portfolio increased 14 basis points and floating and periodic loans were 59% of total loans at quarter end.

Glenn: The yield on our loan portfolio increased four basis points.

We provide additional detail on deposits on slide nine total deposits up $1 6 billion from prior quarter or two 7%.

Glenn: In floating and periodic loans were 59% of total loans at quarter end.

Glenn: We provide additional detail on deposits on slide nine total deposits up $1 6 billion from prior quarter or two 7%.

Glenn: We provide additional detail on deposits on slide 10, the total deposits of $450 million from prior quarter of 7% we.

We saw growth in all major deposit categories with the exception of savings.

Glenn: Saw growth in all major deposit categories with the exception of savings.

Glenn: Growth was aided by the seasonal inflow in public funds along with growth in interlink commercial in HSA.

Glenn: We saw growth in all major deposit product categories with the exception of demand and money market accounts, where seasonality in public funds drove declines.

So really, it's the interest expense. And so far, the capacity to continue to service that debt has seemed strong. And obviously, we feel comfort in the fact that we've got strong private equity firms behind those companies in case things start to go sideways. Generally, we work things through with them, and the deals continue to perform. So so far, I'd say it's coming out according to Hoyle, which is that they're able to service the increased interest rate cost. And we seem to have pretty stable performance in that book.

Glenn: In our commercial business, we continue to recapture balances that had left in search of diversity earlier this year as well as new clients.

Glenn: In our commercial business, we continue to recapture balances that had less in search of diversity earlier this year as well as new clients.

Glenn: Our total deposit costs were up 19 basis points to 215 basis points for accumulative cycle to date total deposit beta of 40%.

Glenn: Our total deposit costs were up 24 basis points to 196 basis points for accumulative cycle to date total deposit beta of 37%.

Glenn: On slide 11, we rolled forward our deposit beta assumptions to incorporate the first quarter during which we anticipate our beta to reach 41%.

Glenn: On slide 10, we have updated the forward progression of our deposit beta assumptions, we anticipate our cycle to date beta will reach 40% in the fourth quarter of this year.

Glenn: Moving to slide 12, we highlight our reported to adjusted income statement compared to our adjusted earnings for the prior period.

And then just a reminder, what is the size of what meets the definition of leveraged loans and then anything beyond that, that would you consider, you know, a syndicated loan portfolio? Yeah, this is tricky because there's overlap everywhere, right, and we've reported on our regulatory statutory leveraged loans, those have actually remained relatively flat over the last couple quarters. They're about 6% of our total loan book, or $3 billion, and most of that, as you intimated, is in our sponsor and specialty book. Our shared national credits are about 12%, and there's some subset of that which is leveraged, but about 12% of total loans. That number is actually down from, you know, pre-merger Webster numbers as a percentage of total loans, just given the kind of the mix that came together between Webster and Sterling, again, no kind of differentiated performance there. I've told the story a million times on the street over the last 15 years about shared national credits. We don't have a buy-side desk.

Glenn: While the macro data has pushed out the interest rate cycle, we would still anticipate a beta in the low to mid <unk> by the middle of 2024, our expectations here are aligned with our outlook for which we assume no further fed increases at this point with cuts beginning at the back half of 2024.

Glenn: Overall, adjusted net income was down 17 million relative to prior quarter.

Glenn: Net interest income was down $16 million as anticipated balance sheet growth was achieved later in the quarter and we continue to run off non strategic loans.

Glenn: Adjusted noninterest income was down $10 million, largely driven by a noncash swing in our models credit valuation adjustment on customer derivatives par.

Glenn: Moving to slide 11, we highlight our reported to adjusted income statement compared to our adjusted earnings for the prior period overall adjusted net income was up $7 million over prior quarter net interest income was up $3 3 million as we continued to benefit from our asset sensitive balance sheet adjusted noninterest income was flat.

Glenn: Partially offsetting these trends expenses were down $1 6 million in the provision was down a half a million dollars.

Glenn: We also benefited from a lower tax rate 19, 5% this quarter down from 21% in the third quarter as a result of state and local true ups.

Glenn: While expenses were down $2 3 million. We also benefited from a lower tax rate, 21% this quarter down from 21, 7% in the second quarter, partially offsetting these trends the provision was up $5 million.

Glenn: Our efficiency ratio was 43%.

Glenn: On slide 13, we highlight net interest income, which declined $16 million linked quarter. This was driven by a later than anticipated growth in our earning assets. In addition to runoff of non strategic portfolios.

Glenn: The net interest margin was 349% up 14 basis points from the prior quarter. The NIM benefited from more normalized on balance sheet liquidity as well as our asset sensitive position and our efficiency ratio was 42%.

Glenn: Net interest margin decreased seven basis points from the prior quarter to 342%.

As a result of the timing of our fourth quarter, earning asset growth and forecasted originations in Q1, we expect to grow both net interest income and NIM into the first quarter.

We're not a stuffy place for the big banks or the non-banks who are syndicating out loans. Our use of shared national credits over the last 15 years has been in strategy or in geography or in product, meaning that it's a middle market or corporate company within our middle market footprint where we have cross-sell opportunities, and direct access to management. But they have a $700 million credit facility, and certainly we don't have the balance sheet to provide that, so we'll participate in that credit and cross-sell. It's in our sponsor and specialty group, where we have expertise in technology and other industry verticals where we'll strategically participate with access to management. Again, we underwrite and portfolio manage all of our shared national credits exactly the same way we do bilateral credits.

Glenn: On slide 12, we highlight net interest income.

Glenn: Which grew $3 3 million linked quarter net.

Net interest margin increased 14 basis points from the prior quarter, our yield on earning assets increased 17 basis points from the prior quarter and the pace of deposit pricing moderated to 24 basis points.

Glenn: Net interest margin increased 14 basis points from the prior quarter, our yield on earning assets increased 17 basis points from the prior quarter and the pace of deposit pricing moderated to 24 basis points.

Glenn: Our yield on earning assets increased five basis points over prior quarter pace.

Glenn: Pace of deposit pricing moderated to 19 basis points, while the cost of total interest bearing liabilities was up 14 basis points.

Glenn: Important to note that our total cost of funds were up just four basis points as growth in core deposit categories was used to replace wholesale funding and brokerage Cds.

Glenn: It is important to note that our total cost of funds were up just four basis points as growth in core deposit categories was used to replace wholesale funding and brokerage Cds.

Glenn: The increase is driven by a periodic change in deposit mix, primarily due to the seasonality seasonal decline in public funds with offsetting growth coming in higher yielding deposit categories and wholesale funding.

Glenn: On slide 13, we highlight our noninterest income, which was flat to prior quarter and increase in derivative valuation and direct investment gains was offset by declines in deposit service fees transaction activity tied to commercial clients remains slow in the third quarter. So the outlook is improving into next year.

On slide 13, we highlight our noninterest income, which was flat to prior quarter.

Glenn: On slide 14, we highlight noninterest income, which was down $10 million prior quarter on an adjusted basis.

Glenn: An increase in derivative valuation and direct investment gains was offset by declines in deposit service fees.

Glenn: $8 million of the decline was attributable to noncash noncash swing and modeled credit valuation adjustment on customer derivatives.

Our shared national credit book has a weighted average risk rating of about a full half a turn, 50 basis points better than the overall weighted average risk rating of our commercial portfolio because those bigger companies tend to be more resilient and have more revenue streams. Those are the data points, and I figured I'd share with you our view on how we go about underwriting and participating in shared national credit. So understanding, it's likely a blend of.

Glenn: Transaction activity tied to commercial clients remains slow in the third quarter. So the outlook is improving into next year.

Glenn: This resulted in a 4 million charge this quarter relative to a 4 million benefit last quarter.

Glenn: The year over year decrease was primarily driven by $10 million and lower client deposit fees $7 million lower loan related fees $4 million from the outsourcing of the consumer investment service platform and lower client hedging activity.

Glenn: We also experienced a seasonal decline in HSA interchange fees and transaction activity tied to commercial clients remained slow in the fourth quarter.

Glenn: Yes.

Glenn: Noninterest expense is on slide 15, we reported adjusted expenses of $299 million down 2 million from the prior quarter reductions in reoccurring FDIC insurance and technology costs were partially offset by increased marketing and employee benefit costs.

The Leverage Loan Portfolio, probably some real estate in there, is it fair to assume? The underwriting characteristics, like Sponsor and Specialty, from a leverage perspective, are similar to that book, and from a commercial real estate perspective, are similar to the LTVs and debt service coverage ratios we find there. Yeah, I think that's a fair statement, but I'll also tell you we have very little shared national credit exposure in commercial real estate, and I mean very little. Most of our shared national credit exposure is in Sponsor and Specialty in our middle market geography groups on mid-corporate and large corporate relationships we have, and then we have some in asset-based lending. Those are the ones I worry about the least.

Glenn: Noninterest expenses on slide 14, we reported adjusted expenses of $301 million down down 2 million from the prior quarter reductions in professional fees occupancy and marketing were partially offset by higher employee benefits and technology expense.

Glenn: Slide 16 details components of our allowance for credit losses, which was effectively flat relative to prior quarter after reporting $34 million and net charge offs, we incurred a $34 million provision $26 million of which was attributable to macro and credit factors and $8 million of which was attributable to loan growth.

Slide 15 details components of our allowance for credit losses, which were up $6 million over prior quarter. After.

Glenn: Slide 15 details components of our allowance for credit losses, which were up $6 million over prior quarter.

After reporting 29 million in net charge offs, we incurred a $36 million provision expense for macro and credit factors, partially offset by the impact of lower loan balances as a result, our allowance coverage to loans increased to 127 basis points from 122 basis points last quarter.

Glenn: After reporting 29 million in net charge offs, we incurred a $36 million provision expense for macro and credit factors, partially offset by the impact of lower loan balances as a result, our allowance coverage to loans increased to 127 basis points from 122 basis points last quarter.

Glenn: As a result, our allowance coverage to loans decreased modestly to 125 basis points from 127 basis points last quarter in part, reflecting the shift to loans with lower loss content.

Those are to larger retailers, strong agents, and cash dominion. We generally don't have any problems with those transactions, so we don't have very much shared national credit exposure in commercial real estate. It's just not been one of our tools. Okay. Last one for me.

Glenn: Slide 16 highlights our key asset quality metrics on the upper left nonperforming assets are flat to prior quarter and prior year with nonperforming loans, representing just 43% of loans.

Glenn: Slide 17 highlights our key asset quality metrics on the upper left nonperforming assets are flat to prior quarter and up slightly to prior year with nonperforming loans, representing just 41 basis points of total loans.

Glenn: 43 basis points of loans.

Commercial classified loans as a percent of commercial loans increased to 174 basis points from 139 basis points as classified loans increased by $118 million on an absolute basis. The balance was up as we saw a migration of a few larger credits that we expect to cure over time.

Jon, you had mentioned... I know historically there have been discussions around, you know, perhaps HSA tuck-in acquisitions, but I was curious if that comment meant anything broader as in whole banks or other sorts of fee-income vehicles. Yeah, no, great question, and I think I clearly mean sort of complementary acquisitions around fee-generating or deposit gathering businesses where we have a path to some organic growth but would like to enhance and speed up that path to get a better balance of non-interest income and interest income rather than a whole bank acquisition. We don't feel that way right now.

Commercial classifieds as a percent of commercial loans increased to 182 basis points from 174 basis points as classified loans increased by $44 million on an absolute basis.

Glenn: Net charge offs in the upper right totaled $29 million or 23 basis points.

Glenn: Net charge offs on the upper right totaled $34 million or 27 basis points of average loans on an annualized basis.

Glenn: Of average loans on an annualized basis, we divested another $78 million in office loans in the quarter. These divestitures generated $13 million of the $29 million and net charge offs.

We divested another $51 million of commercial loans in the quarter and $21 million of residential loans. These divestitures resulted in $14 million of the $34 million and net charge offs.

Glenn: Worth repeating our total office exposure declined $110 million inclusive of other actions this quarter.

Glenn: On slide 18, we maintained strong capital levels, all capital levels remain in excess of regulatory and internal targets. Our common equity tier one ratio was 11, 2% and our tangible common equity ratio was seven 7% our tangible book value was $32 39 a share.

Glenn: On slide 17, we maintained strong capital levels, all capital levels remain in excess of regulatory and internal targets. Our common equity tier one ratio was 11, 2% and our tangible common equity ratio was seven 2% our tangible book value was $29 48 a share.

You know, you never say never, and I've learned my lesson there, but, you know, given where we are, the great integration and conversion we just did, given the look at the dynamics in the marketplace, I would say a highly unlikely whole bank activity on the inorganic side, and it would be something that would be targeted at further low-cost deposit gathering or fee-generating businesses that are complementary to our existing acquisitions. I'll leave it there. Thank you for taking all my questions.

Glenn: I'll wrap up my comments on slide 19, with our outlook for 2024. The outlook includes the pro forma impact of our metros, which directly impacts deposits net interest income fees and expenses.

Glenn: Including the <unk> Mark on our securities portfolio, our common equity tier one ratio would be approximately nine 5% as of September 30th.

Glenn: I'll wrap up my comments on slide 18, with our fourth quarter outlook, we expect loans to grow in the range of 1% to 2% with growth focused in strategic segments. We expect core deposits to be in a range of third quarter with a year end loan to deposit ratio in the mid <unk>. We expect net interest income of $580 million of 590.

We expect to grow we expect loans to grow in the range of 5% to 7% growth will continue to be driven by our commercial businesses. Likewise, we expect deposits to grow 5% to 7%.

Mark Thomas Fitzgibbon: Thank you. Your next question comes from the line of Mark Fitzgibbon of Pepper Sandler. Hey, guys, good morning.

Glenn: We expect net interest income of $2 4 billion to $2 45 billion on a non FTE basis.

Glenn, I wondered if you could share your thoughts on restructuring or selling available for sale securities in the fourth quarter, given that, as you know, rates may be stuck up here for a while. Yes, so it is something we looked at, Mark, and you know that we did that in the first quarter of this year. We restructured about $400 million at that time.

Glenn: We expect net interest income of $580 million to $590 million on a non FTE basis, and excluding accretion approximately $4 million in accretion would be added to the interest income outlook for those modeling net interest income on an FTE basis, I would read add roughly $17 million to the outlook.

Glenn: On a non FTE basis, and excluding accretion approximately $4 million of accretion would be added to the interest income outlook for those modeling net interest income on an FTE basis, I would read and roughly $17 million to the outlook.

Glenn: For those modeling net interest income on an FTE basis, I would add roughly $75 million to the outlook on.

Glenn: Our net interest income outlook assumes for decreases in the fed funds rate beginning in may.

Glenn: Noninterest income is forecasted to be in the range of 375 million to $400 million. This.

Glenn: Our net interest income outlook assumes no further fed increases we currently expect NIM to be flat to the third quarter.

Glenn: This includes approximately $25 million in fees generated by our metros.

Noninterest income should be approximately $90 million core expenses are expected to be around $305 million with an efficiency ratio in the range of 42% our expense outlook excludes the FDIC special assessment, we expect an effective tax rate of 21% will continue to be prudent managers of capital.

Glenn: Noninterest income should be approximately $90 million core expenses are expected to be around $305 million with an efficiency ratio in the range of 42% our expense outlook excludes the FDIC special assessment, we expect an effective tax rate of 21% will continue to be prudent managers of capital.

What I would say is, you know, it's something we continually look at, and we balance that, obviously, against our capital levels and our capital forecast and things that we see as far as that. So I'll leave it at that. It's something that we continue to look at. And there's obviously some opportunity there for them to compete against capital for other initiatives as well. So that's where we are. And then, can you update us on how much you sold this quarter in performing office loans and roughly where you sold them relative to BART? Thank you.

Glenn: Expenses are expected to be in the one three to $132 5 billion. This includes approximately $50 million due to the addition of our metros, representing both operating costs and the estimated intangible amortization.

Our efficiency ratio is expected to be in the low to mid 40% range, we expect an effective tax rate of 21%.

And target a common equity tier one ratio of 10, 5%.

Glenn: And target a common equity tier one ratio of 10, 5%.

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

Glenn: We will continue to be prudent managers of capital and target a common equity tier one ratio of approximately 10, 5% with a mitra is expected to close shortly we anticipate rebuilding capital in the near term after which we are committed to utilizing roughly 40% of our earnings for share repurchases and tuck in acquisitions similar to those that we've announced in the.

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

Thanks, a lot Glenn as I wrap up my remarks, I want to hit on the implications of the proposed regulatory changes for banks in excess of $100 billion in assets.

John: Thanks, a lot Glenn as I wrap up my remarks, I want to hit on the implications of the proposed regulatory changes for banks in excess of $100 billion in assets.

So I think in my comments, it was the $78 million that we sold. And if you just do the math on the provision of $13 million, that equates to about $0.83 on the dollar. Okay, great.

Glenn: As it is among the topics where most frequently asked about we anticipate it'll be several years before we reached the asset threshold at which the proposed regulations would impact Webster during that time, both the application of the regulations in the operating environment may significantly change as you would expect we have already begun to build the necessary capabilities talent and investment to tackle that.

John: As it's among the topics where most frequently asked about we anticipate it will be several years before we reached the asset threshold at which the proposed regulations would impact Webster during that time, both the application of the regulations in the operating environment may significantly change as you would expect we have already begun to build the necessary capabilities talent and investment to tackle the <unk>.

Glenn: Past couple of years.

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

And then lastly, hopefully, there aren't any more failed banks, but if there are, would Webster be a likely interested buyer in some FDIC transactions? Yeah, Mark, it's interesting, right? I just made the comment to Matt that bank acquisitions are not a high priority for us. I do think that it would behoove us to just make sure that if there's a clear strategic opportunity that makes a ton of sense economically, I guess I wouldn't exclude us, right? But I'm hoping there are no further failed banks as well. But I think, hopefully, if we keep going where we are, you know, then the dust settles, I think we'll be in a good position and have the right financial characteristics and strength to be a buyer of a good strategic bank if something happens that way. So I wouldn't rule it out, but it's certainly not in our game.

John: Thanks, Glenn Despite continued industry headwinds, we remain optimistic about our prospects for 2020 for Webster is in an advantageous position as we enter the year with good momentum and a challenging year for the banking industry last year, we were able to add to our capabilities and grow the bank streamlining our technology will allow us to more efficiently improve our product.

Glenn: Enhanced enhanced risk framework requirements that may apply to us as we approach a $100 billion just as we have tackled the occ's heightened standards requirements that came with crossing the $50 billion threshold, while there will likely be increased financial burdens such as required debt issuance and compliance cost there could be several paths to absorbing and overcoming these challenges.

John: Enhanced enhanced risk framework requirements that may apply to us as we approach a $100 billion just as we have tackled the occ's heightened standards requirements that came with crossing the $50 billion threshold, while there will likely be increased financial burdens such as required debt issuance and compliance cost there could be several paths to absorbing and overcoming these challenges.

Service offerings, we've also taken steps to reduce our earnings volatility our funding position and capital generation provide us with a great opportunity to grow the company and strategically compelling areas. We will continue to invest in our people and technology further enabling that opportunity given these dynamics and the starting point for our efficiency.

Glenn: Including our increased scale and earnings power in the near term, we believe our size brings a unique mix of scale and agility relative to many of our regional bank peers will utilize our strong operating position to grow in our key markets and business lines allocating our resources to the highest return opportunities all within a disciplined risk management.

John: Including our increased scale and earnings power in the near term, we believe our size brings a unique mix of scale and agility relative to many of our regional bank peers will utilize our strong operating position to grow in our key markets and business lines allocating our resources to the highest return opportunities all within a disciplined risk management.

John: <unk>, we will make these investments, while maintaining pure leading profitability and returns.

John: I'm going to conclude my remarks, with a few acknowledgements effects as we near the two year anniversary of the merger with Sterling jackpot in SD will move out of his role as executive Chairman of the company and I will become chair Jack's counsel and partnership and building. Our company has been invaluable over the past two years and the company would not be where it is today without his vision and significant.

Glenn: Management framework with that I want to wrap up my comments by saying Thank you to all our colleagues for their strong efforts both in moving our strategy forward completing the conversion and getting us to where we are today.

John: Management framework.

John: With that I want to wrap up my comments by saying Thank you to all our colleagues for their strong efforts both in moving our strategy forward completing the conversion and getting us to where we are today.

Speaker Change: Operator, with that Glenn and I will open up the line to questions.

Mark Thomas Fitzgibbon: Thank you. Again, if you have a question, please press star 1 on your telephone keypad. If you wish to remove your cell phone from view, simply press star 1 again.

Speaker Change: Thank you if you have a question. Please press star one on your telephone keypad, if you wish to remove yourself from the queue simply press Star One again, one moment for your first question.

Speaker Change: Thank you have a question. Please press star one on your telephone keypad, if you wish to remove yourself from the queue simply press Star One again, one moment for your first question.

John: <unk> as this is the last earnings call prior to the February one transition I want to take this opportunity to publicly offer our collective thanks to Jack.

Operator: Your next question comes from the line of Broad Preston of UBS. Your line is open. Hey, good morning, everyone. How are you?

Speaker Change: Okay.

John: Thank you to our colleagues for their efforts and on behalf of our shareholders and clients for 2023 was a challenging year in terms of industry turmoil and the work that went into completing our core conversion our colleagues put in a ton of work building our franchise and achieving our 2023 financial results. Thank.

Speaker Change: Okay.

Okay.

Good morning. Sorry, I joined a little bit late, so if I repeat anything, just feel free to tell me to review the transcript. But I did think Jon, I think I saw you gave the share national credit percentage at 12%. Do you happen to have... are you guys the lead underwriter on or the agency? Yeah, less than 5% of that. Okay, so less than five of the 12. Correct. And do you happen to have what the? Bye.

Speaker Change: Okay.

Your first question comes from the line of Chris Mcgratty of <unk>.

Speaker Change: Your first question comes from the line of Chris Mcgratty of Keefe Bruyette <unk> Woods. Your line is open.

Chris Mcgratty: Bret and Woods your line is open.

Bret Woods: Oh, great good morning.

Chris Mcgratty: Oh, great good morning.

Okay.

Speaker Change: Thank you all for joining us on the call today, operator, Glenn and I will open the line for questions.

Chris Mcgratty: Okay.

Bret Woods: Hey, John maybe maybe a high level question just.

Hey, John maybe maybe a high level question just this ongoing derisking that you've been doing.

Bret Woods: Ongoing derisking that you've been doing.

Speaker Change: Certainly.

Bret Woods: Where are you in terms of like how much more do you think you need to do.

Speaker Change: If you would like to ask a question. Please press star followed by the number one on your telephone keypad and if you would like to withdraw your question Press Star One and as a reminder, please limit yourself to one question and one follow up.

Chris Mcgratty: I guess, where are you in terms of like how much more do you think you need to do.

We haven't disclosed that number, you know. Obviously, it's moved up, and it's at a higher level than the overall portfolio, but we don't disclose that, Brock. OK.... You know, Glenn, could you maybe speak about what the puts and the takes will be as it relates to, you know, NII and the NIM going forward, maybe help me better understand, you know, the cadence of fixed asset repricing throughout the fourth quarter and then through 2024 and, you know, what the impact of the loan yields will be on that. Sure.

Bret Woods: I mean, the loss rates on the office the implied loss rates on the Opex from this quarter looks like.

Chris Mcgratty: I mean, the loss rates on the office the implied loss rates on the Opex from this quarter looks like.

Bret Woods: A bit higher than what <unk> been doing for the last several quarters could you just kind of big picture, where are you in terms of de risking.

Chris Mcgratty: A bit higher than what <unk> been doing for the last several quarters could you just kind of big picture, where are you in terms of Derisking the book.

Speaker Change: Any additional questions. Please re queue.

Bret Woods: Book.

Speaker Change: First question comes from the line of Mark Fitzgibbon from Piper Sandler. Please go ahead. Your line is open.

Speaker Change: Yes, it's interesting I don't think Chris there's kind of a dedicated timeline I think we're as you heard me say the $1 billion to an office. We have right now we sort of feel good about with respect on a relative basis too.

Mark Thomas Fitzgibbon: Guys. Good morning, good morning.

Mark Thomas Fitzgibbon: Mark.

Mark Thomas Fitzgibbon: First question I had Glenn based on where yields are today do you plan to continue to grow and extend the securities book in the first quarter.

Yeah, let me give you a sense of, and I'll just look at, you know, the two dynamics that we have there, Brody, are, you know, fixed rate loans repricing, and that, if you think about it, it's about a billion dollars free per quarter, right? So if you think about that over the next couple quarters, it's about a billion dollars free repricing. And, you know, given our rate forecast, you'd probably pick up about 275, 250 basis points on that as it rolls forward, right, over the next couple quarters. And then depending on where the Fed is in the back end of the year, that might come in a little bit. But that dynamic on the fixed-rate loans, I think about it in terms of NIM; it probably supports our NIM by about four basis points going forward. And then, likewise, on the investment portfolio, you have about 300 million that is typically reinvested. And for that, we're probably picking up about 450 basis points now. You know, that'll probably drop as rates change to, like, the low threes, or mid threes.

Speaker Change: Having getting credit enhancements continuing to work on the portfolio. So for US. It's it's looking at loans looking at the strategic nature of them, whether they're with.

Glenn: To sort of further reduce asset sensitivity.

Speaker Change: Mark Thanks.

Mark Thomas Fitzgibbon: We did as you probably saw we did add about $1 1 billion in securities at the end of the fourth quarter. So I think that that bodes well going into the next couple of quarters and that actually we did opportunistically at a high rate environment. So we feel good about that but the real intent was to further minimize our asset sensitivity.

Speaker Change: Investors and clients that we know very well that we're going to continue doing business with whether they are standalone transactional what the kind of metrics and dynamics are and then each quarter, Jason and the team sit down and say hey, we even though this may not be a problem. Now. This is something that is not strategic for us or we have an opportunity at a reasonable economic cost to <unk>.

Speaker Change: Investors and clients that we know very well that we're going to continue doing business with whether they're standalone transactional what the kind of metrics and dynamics are and then each quarter, Jason and the team sit down and say hey, we even though this may not be a problem. Now. This is something that's not strategic for us or we have an opportunity at a reasonable economic cost to.

But Glenn do you plan to continue to do that in the first quarter.

Speaker Change: Move down so.

Glenn: Yes, I mean, it will be not not to the extent that it's a $1 billion, but it'll be at a smaller level.

Speaker Change: We're not really looking at our cereal reduction in the exposure, we're being opportunistic and we're making I think the right economic decisions because many of these loans are going to refinance find theyre going to pay off fine some of which we think in the future may have some problems just given the paradigm shift, but I think youll see us continue with this law.

Speaker Change: We're not really looking at our cereal reduction in the exposure, we're being opportunistic and we're making I think the right economic decisions because many of these loans are going to refinance fine theyre going to pay off fine some of which we think in the future may have some problems just given the paradigm shift, but I think youll see us continue at this level.

Glenn: <unk> got reinvest we haven't we have approximately $300 million coming off a quarter in our investment securities portfolio, which will be reinvested.

Speaker Change: And then just real quick secondly, did you sell any office loans or loan notes in the quarter and if so where do you sell them relative to par.

Speaker Change: Level looking at a $25 million $75 million portfolio, our book of business in the quarter and if there's a good economic strategic way to exit those credits, we will but we're not kind of urgently and in a serial fashion trying to get rid of the exposure.

Speaker Change: <unk> looking at a $25 million $75 million portfolio or book of business in the quarter and if there's a good economic strategic way to exit those credits, we will but we're not kind of urgently and in a serial fashion trying to get rid of the exposure.

Speaker Change: We did mark I would say and we've been talking about this kind of progressive decline in the market values.

But there again, you know, we're picking up about two basis points of support going forward. So if I look at those two factors, as well as the periodic book, which will continue to reprice on the loan side, you know, and then, so you have that as a favorable tailwind, and then the wild card here is deposit pricing, right? And so we do think, we did see inflation moderate in the fourth quarter, we do think it's going to continue to moderate over the next couple of quarters, and then the Fed will begin to cut. And there will be a natural, like, 90-day lag between that. But we think the support that we have on the repricing side, the reinvestment side, will sort of moderate any pressures that we get on the deposit side, at least for the first half of the year, and then we should actually... We should be well positioned if the Fed does proceed with cutting in the second half.

Speaker Change: I think mid eighties, but the the loan sales were smaller this quarter and they werent all office. So we did do some balance sheet repositioning, but not as robustly and not in bulk like we had in the last few quarters as I noted the $120 million decline in the quarter and office. This quarter Interestingly was primarily from payers.

Speaker Change: Okay. That's helpful.

Maybe Glenn.

Speaker Change: Maybe Glenn.

Speaker Change: You gave the loan to deposit.

Glenn: Expectations for the balance sheet, how should we be thinking about just the level of borrowings.

Glenn: Expectations for the balance sheet, how do how should we be thinking about just the level of borrowings.

Speaker Change: <unk>.

Speaker Change: And refinances that at market and par. So we didn't do a lot of office sales this quarter.

Glenn: And securities growth from here or decline.

Glenn: So I think I'll take securities first though.

Glenn: So I think I'll take securities first so were like 14% 14 5 billion I think you would expect expected over the course of say the next couple of quarters to stay within that range, depending on loan growth.

Speaker Change: Thank you.

Glenn: 14, $14 5 billion I think you would expect expected over the course of say the next couple of quarters to stay within that range, depending on loan growth.

Speaker Change: Your next question comes from the line of Matt Breese from Stephens. Please go ahead. Your line is open.

Glenn: The question on borrowings as I think I think we're at a level right now, where we would probably expect to be pretty flat.

Matthew M. Breese: Hey, good morning.

Matthew M. Breese: Good morning, I was hoping you could touch on on loan yield expansion was a bit less than I was expecting this quarter up four bps to six <unk>.

Glenn: To the to say two two plus billion Mark.

Glenn: To say two two plus billion Mark.

Matthew M. Breese: Four and I was curious one what are incremental loan yields today have they changed quarter over quarter.

Glenn: Okay.

Thank you for that. And then, John, I know you talked earlier about, you know, kind of the, The Leverage Loan and the Sponsor, you know, Specialty Sponsor book, and I. You know, I guess I wanted to better understand kind of like, some of the finer points, the details, the underwriting there, and kind of the things you do to structure those loans to really give you protection. And I'm not expecting you to speak to the specific credit, but you know, like, you all were on the Rite Aid credit files for bankruptcy.

Glenn: Yes.

Glenn: Okay, and maybe last one.

Speaker Change: Okay, and maybe last one.

Glenn: One of your peers turned the buyback this quarter.

Speaker Change: One of your peers turning to buyback this quarter.

Matthew M. Breese: And then is the fact that we saw a slowdown in loan yield expansion tied to just the lack of fed hikes or could you provide more color on that.

Speaker Change: I'm interested in your updated thoughts on whether buybacks at this point of the cycle makes sense.

Speaker Change: Yes, So let me I'll just hit the numbers at the beginning and so in the fourth quarter. Our commercial loan yields were 760 for what was originated in the fourth quarter in total loans was pretty much same range I think 758 somewhere around there.

Speaker Change: Yes, Chris I think it's a great question, we bought back $50 million.

Speaker Change: Yes, Chris I think it's a great question, we bought back $50 million in the quarter in Q3.

Speaker Change: In the quarter in Q3.

Speaker Change: We clearly have capital levels and capacity to generate capital to continue the program I would tell you that we're looking at this from a position of having good flexibility, but also recognizing.

Speaker Change: Got Ya man, so it's interesting right and obviously, we hit on it in the beginning we had back ended loan originations in the quarter, which which hurt NII growth.

But like, you know, the ABL fee loan notes in the market are trading at 92, 93% of par. And so, the market obviously expects very little loss. You know, it looks like you guys in the other banks are in a position to kind of get paid back first. You know, and it feels really well collateralized.

Speaker Change: And we also if you look year over year right, we have $650 million less in mortgage warehouse, because we've exited that business. The other dynamic there is that the mix of business with high quality non office commercial real estate fund banking, which has almost a full point of lower weighted average risk rating.

That we want to make sure that we have capital if we do tuck in acquisition, if we do grow loans significantly if we see cracks in the market from a credit perspective, So I guess the way I would characterize it is I wouldn't rule it out.

Speaker Change: That we want to make sure that we have capital if we do a tuck in acquisition. If we do grow loans significantly if we see cracks in the market from a credit perspective, So I guess the way I would characterize it is I wouldn't rule it out.

So could you just kind of help us better understand the structure of those deals and what you kind of do to help protect yourself in the event that, you know, something goes wrong? Yeah, I guess there are a couple questions there because you threw in the ABL deal at the end, right? And so, you know, that's, I think that's a completely different animal.

Speaker Change: But I think we're being a little bit more cautious as we look in the fourth quarter to our activities in that area.

Speaker Change: I think we're being a little bit more cautious as we look in the fourth quarter to our activities in that area.

Speaker Change: Okay. Thanks, Thanks, Tom.

Speaker Change: But on the other side also lower yielding so we didn't see as much origination I.

Speaker Change: Okay. Thanks, Thanks, Tom.

Speaker Change: Thank you.

Speaker Change: Your next question comes from the line of Casey Haire of Jefferies. Your line is open.

I would say given market conditions, and given credit appetite in sponsor and specialty and so a little bit of the mutation. If you will in the <unk>.

Casey Haire: Yeah. Thanks, good morning, everyone.

Yes, thanks, good morning, everyone.

Casey Haire: Okay.

Speaker Change: Okay.

Casey Haire: Just following up I guess, Glenn on the NIM. So.

Speaker Change: Expansion of yield has to do with the loan mix in the fourth quarter as much as anything.

You're, you know, underwriting against liquidation value on a large retail company. That's kind of standard asset-based lending. I do think the market believes what everybody believes, is someone will come in and provide dip financing, and there'll be an orderly liquidation, and everyone will get paid out. And we've seen that story play over and over again.

Casey Haire: NIM is going to be flat in.

Casey Haire: In the fourth quarter and borrowings, which obviously helped in the third quarter. The decline there it sounds like theyre going to be flat. So what what is the offset too.

Speaker Change: Got it Okay and then my second one.

Speaker Change: You had mentioned intangibles tied to our meters and I was curious what is the breakdown or the types of intangibles and if at CVI.

Casey Haire: The beta creep that you expect to keep to keep NIM flat is it loan growth.

Speaker Change: What is the amortization methodology and timeframe to recasting.

Speaker Change: Looking for a little color on what holds NIM stable, yes sure. So some of it is some of it is loan growth.

Casey Haire: Looking for a little color on what holds NIM stable yes.

Speaker Change: Yes, it's a great question and when we're still working through the intangibles on that we haven't closed on it yet but.

In sponsoring specialty, you know, business, I just, it's about the strength of the people, the continuity. We've been doing it for 20 years. We deal with sponsors we know, who support credits and have expertise in the industries and sectors they're in. You'd be amazed at the level of diligence and detail we do in technology if we're doing a deal, a software as a service deal. You know, we're doing third-party evaluations of the software. We're evaluating the contracts, the end users, where we know the management team very well. We know the sponsors very well.

Speaker Change: Sure. So some of it is some of it is loan growth. Some of it is the rate on loans, where we get the full benefit of the periodic loans re pricing.

Speaker Change: It's the rate on loans, where we get the full benefit of the periodic loans repricing.

Speaker Change: It's a little it's a little different than the typical banking type of transaction and that these have a limestone were in excess of 20 years. So you would expect the intangible amortization to be using the bank and the bank space. It's the maximum 10 years, but in this case I think it would probably be further out than that.

Speaker Change: And then you do have.

We don't we don't wake up one day at least on an in basis from an earnings standpoint.

Speaker Change: We don't we don't pick up one day at least on an end basis from an earnings standpoint.

Speaker Change: And then pretty much some of Thats neutralized.

Speaker Change: And then pretty much some of Thats neutralized by the what we think deposit growth will be our deposit costs will be going into the fourth quarter like I said in my comments, we still think that there's there'll be deposit pressure going into into the fourth quarter, albeit very more moderate than it has been certainly in the last couple of quarters.

Speaker Change: What we think deposit growth will be our deposit costs will be going into the fourth quarter like I said in my comments, we still think that there's there'll be deposit pressure going into into the fourth quarter, albeit very more moderate than it has been certainly in the last couple of quarters.

Speaker Change: But it's safe to assume it's a CDI versus goodwill.

Speaker Change: Primarily yes, alright ill leave it there thank you.

Speaker Change: Great.

Speaker Change: Your next question comes from the line of Chris Mcgratty from K B W. <unk>. Please go ahead. Your line is open.

Okay, Great and then just.

Speaker Change: Okay, Great and then just.

We structure the deals, you know, so there's some level of amortization. We don't chase, as you know, the last couple of terms of leverage where the non-banks are chasing. We play in a different market. So, it's just a combination of having the right people, a really disciplined approach, staying in the swim lanes and the sectors that we know and understand, and not, you know, moving off of that disciplined process. And it's why, through the great financial crisis, and the pandemic, and through this higher interest rate environment, we've been able to see, you know, resilience in that portfolio. And then the last one for me; I just wanted to ask her about the HSA book.

A question on the funding strategy.

Speaker Change: A question on the funding strategy.

Chris Mcgratty: Hey, good morning.

Speaker Change: I mean your deposit growth was it was pretty broad based.

I mean your deposit growth was was pretty broad based.

Chris Mcgratty: Chris Jeremy Hey, John Hey, Jay Glen maybe a question on capital I think you basically said that youre going to pause on the buybacks for a bit.

Speaker Change: Interlink still is doing a lot of the heavy lifting.

Speaker Change: On that slide was it slide five it's not it's 9% of your deposits.

Do you build a little bit more opposed to meet you.

Chris Mcgratty: Two part question, what's what's your best estimate for pro forma CET, one for the deal and then.

Speaker Change: Franchise.

Speaker Change: Franchise, what long term is there is that a is there a ceiling that you have for in a link or is that is.

Speaker Change: Long term is there is that a is there a ceiling that you have for in a link or is that is.

Chris Mcgratty: Precluding you from resuming buybacks, maybe Q2 Q3.

Speaker Change: Is 9% below grade level, just trying to figure out how how big that can become.

Speaker Change: Is 9% below grade level, just trying to figure out how how big that can be com.

Speaker Change: Yes, so thanks, Chris.

Speaker Change: So.

Speaker Change: So we're in the process of doing our outlook over the next couple of quarters and actually years. So.

Speaker Change: What I said was up in the near term and so I think that you can think about common equity tier one coming right about down to our target level of 10, 5% in.

Speaker Change: We're in the process of doing our outlook over the next couple of quarters and actually years and so I.

Speaker Change: I think if we're at 9% now depending on our sources of funds and other sources of funds that could go plus or minus.

Speaker Change: In the first quarter and then we begin to build capital from that.

Speaker Change: Yes, that's exactly right and I think we clearly have in our plan and expectations. If there are no. Other productive uses of organic capital that we will.

Speaker Change: It could go as high as 15%, but.

Speaker Change: That's something that we're still in the process of planning right now Casey.

Speaker Change: Got it okay.

I feel like this has been a topic that's come up sporadically, you know, over the last several years, but I wanted to ask just because other banks are, you know, looking to potentially monetize unique assets that they have. And so when I look at kind of what's happened, you know, in HSA, it feels like, you know, some of your non-bank competitors have been able to really kind of pay really high multiples to acquire other HSA portfolios that, otherwise, I think if they had the same investor base that you do, they wouldn't be able to pay as much. And so, with the growth in that business line, kind of. Slowing to some extent, and the value of it really not showing up in the multiple, being tough to kind of, organically, grow that business, you know, just given that you're treated like a bank versus others that are treated like non-banks like, How do you think about maybe, you know, monetizing that, you know, and, you know, doing something more strategic there to help your investors realize the full value of that business? That's a great question, and I think all of your observations in general are correct, and we've talked about it over time.

Look at dividend and repurchases in the latter half of the year, maybe the second third and fourth quarter overtime, we generally repurchase shares to offset.

Speaker Change: And then just last one for me on the efficiency.

Speaker Change: I know, it's early for 'twenty, four but you guys, obviously at 42%.

More efficient than most of my coverage universe.

Speaker Change: More efficient than most of my coverage universe.

Speaker Change: Grants to employees as well and we will continue to do that so.

Speaker Change: John You mentioned you are that are going to be some financial burdens.

Speaker Change: It's still part of our <unk> and we're just being I think a little bit cautious and prudent as we look at our capital levels through the <unk> closing, we also potentially have opportunities and balance sheet and securities repositioning that could go into that bucket of decisions as well.

Speaker Change: And getting the bank ready to be $100 billion what.

Speaker Change: The bank ready to be $100 billion what.

Speaker Change: What.

Speaker Change: You bet.

Speaker Change: Can you pass that along or is that is that something that you're you might let the efficiency ratio drift up.

Speaker Change: Can you pass that along or is that is that something that you're you might let the efficiency ratio drip up.

Speaker Change: Yes, it's a good question and again as Glenn said, we're working through our plan now and we're not going to sort of we're not ready to provide guidance for 'twenty four but I will tell you. Our sense is look we still have some opportunity coming out of the conversion as we consolidate sub ledgers and look at back office processes.

Speaker Change: But we anticipate returning capital to shareholders over the second half of the year.

Speaker Change: Okay, Great and then maybe one on the NII Guide I think you've got.

Speaker Change: Now it looks it looks more similar to ours, which has a little bit fewer cuts in the futures market. If we were to get the 656 cuts by the <unk>.

Speaker Change: <unk> and consolidate call centers, which we still haven't completed so Casey we do still have some.

Speaker Change: 'twenty 'twenty four how would your NII outlook.

Speaker Change: And consolidate call centers, which we still haven't completed so Casey we do still have some.

Speaker Change: Changed from what you provided.

Speaker Change: So I think if we got six cuts and we have four cuts in there now it would probably it's not really that significant to us. We do have some hedges that would that would kick in but I think it's probably in the range just to give you a ballpark of $15 million to $20 million downside. So it's not that significant.

Merger related cost opportunities cost save opportunities and I kind of like where we are our feeling is we also have opportunities to invest and grow, particularly if the market green lights with respect to loan growth and people feel comfortable about a soft landing I think we can identify additional teams in commercial banking to bring on where death.

Speaker Change: Merger related cost opportunities cost save opportunities and I kind of like where we are our feeling is we also have opportunities to invest and grow, particularly if the market green lights with respect to loan growth and people feel comfortable about a soft landing I think we can identify additional teams in commercial banking to bring on where <unk>.

You know, the basic premise for us is that we have a very efficient way to deploy long-duration, low-cost deposits as a bank that really helps profitability for us, and while the market has slowed, if you look at it, you're still growing deposits at very low costs in the mid to high single digits, and there aren't many channels that are doing that. So, and we are continuing to grow along with the market on an organic basis, so I take your point in terms of the inorganic growth of some of the other top five players. So it is very valuable to us.

Speaker Change: Okay.

Speaker Change: <unk> for 2024, given the case, yes in 2024. So if you took our if you took our guidance at the low end and high end as you said, we've got six cuts it would probably be in the range of if you take out $15 million to $20 million on that.

Speaker Change: <unk> investing in <unk>.

Speaker Change: Definitely investing in products and capital markets, and FX and card and other commercial treasury products that will enhance our balance of noninterest income. So our kind of view as we think we can operate steadily in the low <unk> efficiency ratio and to the extent, we can gain more cost savings that will.

Speaker Change: Products and capital markets, and FX and card and other commercial treasury products that will enhance our balance of noninterest income. So our kind of view as we think we can operate steadily in the low <unk> efficiency ratio and to the extent we can gain more.

Speaker Change: Alright, thank you.

Speaker Change: Sure. Thanks, Chris.

Speaker Change: Your next question comes from the line of Casey Haire from Jefferies. Please go ahead. Your line is open.

Speaker Change: Cost savings that will it will provide us an opportunity to invest in in in key products and services in people. So if we can continue to post the numbers that we promised when we did the merger that 20% ROE ATC, the one five ROA and <unk>.

Speaker Change: It will provide us an opportunity to invest in in.

Casey Haire: Yeah, great. Thanks, and good morning, everyone. Good morning Casey.

Speaker Change: In key products and services and people.

Speaker Change: Good morning.

Speaker Change: So Glenn just following up on another one on the NII guide so looking at slide 11.

Speaker Change: So if we can continue to post the numbers that we promised when we did the merger that 20% ROE ATC, the one five ROA and <unk>.

It helps us generate the kind of returns and profitability we have, albeit it's a smaller part of the whole after the MOE. We are frustrated that the market doesn't recognize the value that we're still building in that business, as part of the bank, and as you know, we continue to evaluate HSA in the bank and the value it has in the bank, outside of the bank, because we have an obligation to make sure that we're making the best decisions for our shareholders as we move forward. And so, up until now, it's continued, particularly in this interest rate environment, it's pretty easy for us to say operating HSA as a division of our bank creates the most value for our shareholders in the long term, in terms of the quality and the value of the cash flows.

Speaker Change: Giving us the QM beta in the first quarter.

Speaker Change: And efficiency ratio in the low <unk> I think.

Speaker Change: And efficiency ratio in the low <unk> I think size scale and momentum will allow us to keep that efficiency ratio in the low <unk> without starving the bank with respect to future investment and then if you fast forward three years, you look at the size of our balance sheet as we approach a $100 billion I think we'll have some some optionality and we will be in.

Glenn: To 41% I was wondering if you could give us the progression throughout the year, where does that <unk> beta.

Speaker Change: Size scale and momentum all allow us to keep that efficiency ratio in the low <unk> without starving the bank with respect to future investment and then if you fast forward three years, you look at the size of our balance sheet as we approach a $100 billion I think we'll have some some optionality and we'll be in a better place than others, who are similarly, situated given how.

Glenn: Peak and the tightening cycle and then how does that progress. After you get these four cuts and beginning in May.

Speaker Change: So I think it will be Casey I think it will stay around that 41% plus or minus I think the dynamic there is going to be our deposit repricing and so if you look at our if you look at our book of $60 billion about 20% or say $12 million of that book is what I would characterize as high.

Better placed than others, who are similarly, situated given how kind of efficient operating model.

Speaker Change: Kind of efficient our operating model is.

Speaker Change: Great. Thank you.

Speaker Change: Okay.

Speaker Change: Next question comes from the line of Matthew Breese of Stephens, Inc. Your line is open.

Speaker Change: Your next question comes from the line of Matthew Breese of Stephens, Inc. Your line is open.

Speaker Change: Data no lag type of deposits. So those is deferred and think of our metros are perfect examples, but almost $66 6 billion Julien.

Matthew Breese: Hey, good morning.

Matthew Breese: I know I know office CRE grabbed a lot of the attention these days, but I was curious.

Matthew Breese: Thoughts and updated color on the sponsor and specialty and leveraged loan book.

Matthew Breese: Thoughts any updated color on the sponsor and specialty and leveraged loan book.

We don't think the market, where we're trading at a seven times multiple in future earnings, is reflecting that unique company and business, and we want to continue to keep informing people and educating people about where we are. We were able to execute on the transaction last year, which gave us higher levels of user experience and a better mousetrap, if you will, and I think it's helped us compete in the marketplace. We are still looking, every time there's a deal in the market, another portfolio, because the market keeps consolidating. I think the top 10 now represent 83% of the market. You know, we'll try and be a participant in that.

Speaker Change: Im sorry, Interlink and getting ahead of interlinked say $6 billion right and so that.

Matthew Breese: How has those portfolio has been performing.

Matthew Breese: How does those portfolio has been performing at a higher rate environment.

Speaker Change: That would reprice one on one with fed funds and it would be immediate. So that's an example of a high data no lag type of deposits. So I look at our deposit book is about 20%. So I would say $12 billion to $13 billion of our $60 billion. So that'll be a benefit for us. So I think it will.

Matthew Breese: The rate environment.

Speaker Change: Yeah, Matt so far so good we've talked about it.

Speaker Change: Yeah, Matt so far so good we've talked about it before.

Speaker Change: Before you know those companies that we underwrite there tend to have protective will predictable.

Speaker Change: Cash flow streams recurring cash flow streams contractual cash flow streams, and so we haven't seen a deterioration or significant deterioration in the credit profile I'd say, it's behaving like the rest of the book, probably some level of moderate negative risk rating migration, but it hasnt spooked.

Speaker Change: It will probably end up around.

Speaker Change: We're at 41% plus or minus somewhere around there. The other factor you have is that our down deposit beta is probably going to run on a full year basis in the mid <unk> right. So that'll that'll help offset some of it as well.

Speaker Change: Spooked us at all and again.

But I think it's going to be a continual evaluation for us, and we'll make the right decision on where HSA belongs, given the value we can create by owning it or the value that it would receive as a different company or a company that was part of a joint venture or somewhere else outside. Great. Thank you for taking my questions, everyone. Your next question comes from the line of Daniel Tameo of Raymond, James. The line is open.

Speaker Change: It's always hard to predict the future, but one of the wonderful things about that portfolio. Besides the type of companies that we lend to.

Speaker Change: Got you. Thank you <unk>.

Speaker Change: It's always hard to predict the future, but one of the wonderful things about that portfolio. Besides the type of companies that we lend to.

Speaker Change: And just as it did bring up the meters that will lower our beta because obviously, we're bringing in $800 million.

Speaker Change: Are the private equity firms that we've been doing business with for 10, and 20 years that are kind of flushed with cash raising new funds and really not reticent to capitulate and give up these really good companies. No question about the fact that these are floating generally floating rate loans. So that service has increased <unk>.

Are the private equity firms that we've been doing business with for 10, and 20 years that are kind of flushed with cash raising new funds and really not reticent to capitulate and give up these really good companies. No question about the fact that these are floating generally floating rate loans. So that service has increased <unk>.

Speaker Change: At a few basis points and that is expected to grow by 25% a year.

Speaker Change: Got you okay.

Speaker Change: And then just yeah, just following up on some of the fee and expense guide.

Speaker Change: Implies a decent ramp from the current run rate I know, obviously, you mattresses on the come here.

Good morning, everyone. Thanks for taking my question. Maybe just start in on the decline in the commercial loan areas, and you talked about deemphasizing some asset classes there. Give a little more detail on where you were pulling back. And I apologize if I jumped on a little late if you already covered that. No, it's quite all right.

Speaker Change: Just wondering can you breakout what is what is what is organic or what is legacy Webster and then what does the metro side. Just so we can get a better quarter ramps, yes, let me let me take a run at it and then John can add some color. So.

Speaker Change: Generally are lower in in contractual amortization, so really it's the interest expense.

Speaker Change: And so far the capacity to continue to service debt at that has seen strong and obviously, we feel comfort in the fact that we've got strong private equity firms behind those companies in case things start to go sideways generally we work things through them and the deals continue to perform so so far.

Core expenses for <unk> were $1 2 billion say in 2023.

It's a good question, and we haven't covered it in detail. So, the decline across the board on the C&I side was generally driven by, we had mortgage warehouse obviously down, and I think, you know, you'll likely see that continuing to decline from a strategic perspective. We were very careful on transaction-only ABL and equipment finance in the quarter since the crisis in March, and so those did grow rapidly and may have had small declines. Our fund banking activity, which is high-quality fund banking loans and equity subscription lines to private equity firms, was down about half a billion dollars, and that was driven by one big payoff and then just lower utilization. Our overall middle market C&I utilization on lines, after kind of holding steady for several quarters at 50%, was down into the mid-40s, so we did see seasonally lower usage, and I don't know what that portends in terms of client confidence or anything, but utilization was lower as well. So, that kind of drove the quarter results. Some of it was us pulling back on levers.

Speaker Change: As you saw our guidance one three to $1 $3 5 billion and 24, so round numbers that represents growth of like $100 million to $125 million and if you Peel that back I would say approximately $50 million is tied to <unk>. So that includes operating costs.

I'd say its coming.

Speaker Change: I'd say its coming.

Speaker Change: Coming out according to Hoyle, which is they're able to service the increased interest rate cost and we seem to have pretty stable performance in that in that book.

Associated with a 150 employees the technology platform, along with the intangible amortization.

Speaker Change: And then just a reminder, what is the size of the what needs definition of leverage loans, and then anything beyond that that would be considered a syndicated cindy.

Speaker Change: And then just a reminder, what is the size of the what meets definition of leverage loans, and then anything beyond that that would be considered a syndicated cindy.

Speaker Change: And about half the remains at 50 and about half the remaining is tied to performance based comp right.

Speaker Change: So 20 million say tied to performance.

Speaker Change: Syndicated loan portfolio.

Speaker Change: <unk> comp and then another 40 tied to investments.

Speaker Change: Yes.

Speaker Change: It's tricky because there's overlap everywhere right and we've reported on our regulatory statutory leverage loans that those have actually remained relatively flat over the last couple of quarters. It's about 6% of our total loan book or $3 billion and most of that as you.

Speaker Change: And revenue generating type of business lines. So you got 44 performance based comp. Another R 24 space Cop 40 from investments in the business and the 50 <unk> in very broad numbers, and then a ccs or entities. Okay. So on NII.

Speaker Change: Intimated is in our sponsor and specialty book.

Intimated is in our sponsor and specialty book.

Speaker Change: So.

Speaker Change: Non interest noninterest income.

Our shared national credits are about 12% and Theres, some subset of that which is leverage but about 12% of total loans that number is actually down from.

Speaker Change: Our shared national credits are about 12% and Theres some subset of that which is leveraged but about 12% of total loans that number is actually down from.

Speaker Change: Sorry.

Speaker Change: So core net interest income $348 million for 2023, we're projecting $3 $75 million to $400 million.

Speaker Change: So you got $25 million to $50 million in year over year growth and about $25 million, that's tied to what we chose right, which is a mix of account administration fees pharmacy, and other transaction transactional sort of rebate type of fees or the remaining growth is sort of course, a number of categories like HSA interchanged.

Some of it was a seasonally slow third quarter, more sluggish loan growth, and that's where we ended up. I think as you go forward, you know, we've talked about really making sure that we have the liquidity capacity, the loan-to-deposit ratio, and the capital to grow those full relationships across our middle market businesses, our other ancillary CNI businesses, and sponsoring specialty, non-office commercial real estate We are seeing some level of increased demand as we move into the fourth quarter. Our pipeline is up about half a billion dollars.

Speaker Change: Pre merger Webster numbers as a percentage of total loans, just given kind of the mix that came together between.

Pre merger Webster numbers as a percentage of total loans, just given kind of the mix that came together between.

Speaker Change: Webster and Sterling again.

Webster and Sterling again.

Speaker Change: No kind of differentiated performance there.

Speaker Change: So.

Speaker Change: I've told this story a million times to the street over the last 15 years about shared national credit, we don't have a buy side desk, we're not a stuffy for the big banks or the non banks, who are syndicating out loans, our use of shared national credits over the last 15 years has been in strategy or in geography or in product.

Speaker Change: Up $4 5 million commercial lending fees, which includes swaps indication and transactional type of fees $3 to $5 million.

Speaker Change: Trust and investment fees and some smaller in cash management fees. So that that gives you the sort of geography of it.

So I think you think we'll make, we'll continue to see mortgage warehouses go down. There may be a couple of other small subscale businesses where we won't be generating the kind of loan growth that we've generated in the past, but we think we can offset that with, you know, our core franchise building loan generation. Terrific.

Speaker Change: In case, you could put a finer point on expenses right. It looks like a high headline number but to.

Speaker Change: Meaning that its a middle market or corporate company within our middle market footprint, where we have cross sell opportunities direct access to management, but they have a $700 million credit facility and certainly we don't have the balance sheet to provide that so we'll participate in that credit and cross sell it's in our sponsor and specialty group, where we have expert.

Speaker Change: Glen's point half of the increase in the guide and expense is really related to the <unk> acquisition.

Speaker Change: Expenses as.

Speaker Change: Glenn said part of it is opex and part of it is the amortization of intangibles and then you have performance based compensation year over year and increase in expectation, which most of the industry is seeing if you then look down the remaining increase in core expenses is about 4% slightly under and that has some investment in team.

And on the flip side, commercial classified loans were up both on an absolute basis and as a percentage of that portfolio. Maybe you could talk a little bit about what drove that increase? Sure, happy to.

Speaker Change: <unk> and technology and other industry verticals, where we will strategically participate with access to management again, we underwrite and portfolio manage all of our shared national credits exactly the same way, we do our bilateral credit and our shared national credit book has a weighted average risk rating of about.

Speaker Change: Ts and technology and other industry verticals, where we will strategically participate with access to management again, we underwrite and portfolio manage all of our shared national credits exactly the same way, we do our bilateral credit and our shared national credit book has a weighted average risk rating of about.

First of all, and I didn't say it in my opening comments, but I did reference that that level of classifieds, at 1.74% of a smaller portfolio in the quarter, is actually 100 basis points lower than Webster's classified percentage in the fourth quarter of 2019, before the pandemic. So just a reminder again that the entire industry has been benefiting from really, really favorable credit metrics. And this is just a small step, I think, towards a more normalized rate going forward. But in terms of the actual contributions there, there weren't any kind of correlations across geography, asset class, or business line. We saw some C&I in healthcare and had a small portion in AVL.

Speaker Change: And people and projects and technology, even if we execute all of those things.

Speaker Change: With our range of expectations, we're still going to be in the low to mid 40 percents from an efficiency perspective, which I think is unique for us, giving us the opportunity to be on offense and to continue to invest.

Speaker Change: Full half a turn of 50 basis points better than the overall weighted average risk rating of our commercial portfolio because both bigger companies tend to be more resilient and have more revenue streams. So those are the data points and I figured I'd share with you our view on how we go about.

Speaker Change: Full half a turn 50 basis points better than the overall weighted average risk rating of our commercial portfolio because both bigger companies tend to be more resilient and have more revenue streams. So those are the data points and I figured I'd share with you our view on how we go about.

Speaker Change: Into the kind of revenue tailwind and the rate decline, so and obviously, we have opportunities should the tailwind with respect to NII or fees get higher then we expect to curtail and time on the timing on some of those investments and lower expenses, if we need to so I feel pretty good about where we are ending up at <unk>.

Speaker Change: Underwriting and participating in shared national credits.

Speaker Change: So understanding it's likely a blend.

We had some office migration that we talked about earlier and then just generally across the other C&I categories. So it really wasn't; we didn't see any correlated risk. We just saw credit-specific migration as part of our overall modest negative risk rating migration in the portfolio. Okay, terrific. And lastly, just one for Glenn on the hedging strategy and how you expect the net interest income would react to rate cuts if they do materialize next year. Yeah, so Daniel, good morning.

Speaker Change: The leverage loan portfolio, probably some real estate in there is it fair to assume.

Speaker Change: Those financial metrics, we promised over time, given the guidance, we've given and I think the headline number on the expenses really needs to kind of Peel it back and realize that part half of it is not organic it's the acquisition and the rest of it is kind of performance based and investment in new revenue opportunities.

Speaker Change: The underwriting characteristics.

Speaker Change: Sponsor and specialty from a leverage perspective.

Speaker Change: Or similar to that book and from a commercial real estate perspective, or similar to the Ltvs and debt service coverage ratios we find it.

Speaker Change: Yes, I think Thats, a fair statement, but I'll also tell you we have very little shared national credit exposure in commercial real estate.

Yes, I think Thats, a fair statement, but I'll also tell you we have very little shared national credit exposure in commercial real estate.

Speaker Change: Yes, thanks for breaking that out.

Speaker Change: Your next.

Speaker Change: No.

Speaker Change: Question comes from the line of <unk> <unk> from Morgan Stanley. Please go ahead. Your line is open.

Speaker Change: Very little at most of our shared national credit exposure is in sponsor and specialty in our middle market geography groups on mid corporate and large corporate relationships. We have and then we have some asset base lending those are the ones I worry about the lease those are to larger retailers.

Speaker Change: Very little most of our shared national credit exposure is in sponsor and specialty in our middle market geography groups on mid corporate and large corporate relationships. We have and then we have some asset base lending those are the ones I worry about the lease those are two larger retailers.

We did talk a little about that as we looked. But we're not providing an outlook for 2024 at this point. The point I made earlier is that I think our NIM will continue to be supported into the fourth quarter and into the next couple of quarters through the benefit of both fixed-rate loans repricing, investment securities repricing, as well as the periodic loans repricing. Some of that will obviously be offset by deposit costs and our thinking on where the cumulative deposit beta will end up, but I think generally that's how we feel going into the next. Thanks for all the color guys; I appreciate it.

Speaker Change: Okay.

Morgan Stanley: Hi, good morning.

Morgan Stanley: Can you talk about.

Morgan Stanley: The guidance for the 5% to 7% loan growth in 2024.

Morgan Stanley: Do you see that growth coming from and I guess, what do you view as the catalyst right like how much help do you need from the environment to get to that now.

Speaker Change: Strong agents cash Dominion.

We generally don't have any problems with those transactions. So we don't have very much.

Speaker Change: We generally don't have any problems with those transactions. So we don't have very much.

Speaker Change: Share national credit exposure in commercial real estate has just not been one of our tools.

Morgan Stanley: Hi on the high end of that range.

Speaker Change: Share national credit exposure in commercial real estate has just not been one of our tools.

Speaker Change: Yes, I think Thats, a great question and obviously, we realize that the 5% to 7% guide is kind of on the top end of what Youre seeing in the market and the good news from our vantage point as we hope that we've got a good finger.

Understood Okay.

Speaker Change: Understood Okay.

Speaker Change: Last one from me John you had mentioned.

Speaker Change: Keeping capital handy for perhaps tuck in acquisitions I know historically, it's been discussions around perhaps HSA tuck in acquisitions, but I was curious if.

Keeping capital handy for perhaps tuck in acquisitions I know historically, it's been discussions around perhaps HSA tuck in acquisitions, but I was curious if.

Speaker Change: Finger on the pulse of our pipeline and our clients and the markets and the sectors. We serve so what I would say is we're not projecting that with the hope and pray attitude that the market conditions improve.

Speaker Change: That comment meant anything broader as any whole banks or other sorts of fee income vehicles.

Thank you. Your next question comes from the line of Steve Alexopoulos of J.P. Morgan. Your line is open. Hey, good morning, everyone. Alex Lau on Steve.

That comment meant anything broader as in whole banks or other sorts of fee income vehicles.

Yes, great question, and I think quite clearly means sort of complementary acquisitions around fee generating our deposit gathering businesses, where we have a path to some organic growth, but wed like to enhance and speed up that path to get a better balance of noninterest income and interest income rather.

Speaker Change: No great question, and I think quite clearly means sort of complementary acquisitions around fee generating our deposit gathering businesses, where we have a path to some organic growth, but wed like to enhance and speed up that path to get a better balance of noninterest income and interest income rather.

Speaker Change: We're understanding our original assumptions going in were that we would have higher loan growth in that and so I really do think we've got a lot of opportunity we've gone through our pipelines in commercial the majority of the originations in the loan growth will come in those commercial categories, which will be non office.

Alex Lau: Hey Alex. Hey, I want to touch on deposits. So, non-industry sparing deposits were up on a period basis in the quarter. What drove that uptick? Was it seasonal inflows?

And is it fair to say that the customers chasing higher yield products in these demand balances are largely done? Yeah, so let me take that, but I think there is a portion of the increase in non-interest bearing deposits that was related to the government inflow, which is seasonality. I think, you know, the bigger point is we've gone back and looked at DDA because we're, you know, as we look at our forecast, and I've gone back to, all the way back to 2019, when, if I can add the combination of Webster and Sterling, we had about 40 billion in combined deposits. And at that point, DDA represented about 21%. If I looked at the third quarter and did the same sort of analysis, and I stripped out the impact of... relatively new, we'd be in that 21% range, so it's pre-pandemic, and if I look at where we are, it's typically run about 21%.

Speaker Change: Then a whole bank acquisition, we don't feel that right now you never say never.

Speaker Change: Free <unk>.

Speaker Change: Commercial public sector finance sponsor and specialty general C&I in market.

Speaker Change: I've learned my lesson here, but.

Given where we are the great integration and conversion, we just did given the look at the dynamics in the marketplace I would say.

Speaker Change: Given where we are the great integration and conversion, we just did given the look at the dynamics in the marketplace I would say.

Speaker Change: And fund banking those are the areas. We obviously have good equipment finance and ABL capabilities too, but I would say those core commercial categories, where the growth is and the other final point in talking to our head of commercial banking and looking at our pipeline going forward and the momentum we had at the end of the quarter in terms of booking is it youre seeing.

Speaker Change: Highly unlikely whole bank activity on the inorganic side and it would be something that would be targeted on further low cost deposit gathering or fee generating businesses that are complementary to our existing activities.

Speaker Change: Great.

Speaker Change: You may not see overall loan demand starting to flourish, obviously, it's still a bit muted in some of the transactional areas.

Speaker Change: I'll leave it there. Thank you for taking all my questions.

Speaker Change: Thank you.

Your next question comes from the line of Mark Fitzgibbon Piper Sandler Your line is open hey.

Speaker Change: Your next question comes from the line of Mark Fitzgibbon of Piper Sandler Your line is open hey.

Speaker Change: We're starting to see more trading of assets and more transactional activity and for us for Webster and our unique businesses that means real estate investors private equity sponsors who are starting to see more activity in terms of buying and selling assets or buying and selling companies and that's why we've seen our pipeline grow significantly as.

Mark Fitzgibbon: Hey, guys. Good morning, Glenmark I wanted I was wondering if you could share your thoughts on restructuring or selling available for sale securities in the fourth quarter given that rates may be stuck up here for a while.

Glenmark: Yes. So it is something we looked at Mark and you know that we did that in the first quarter of this year, we restructured about $400 million.

Speaker Change: We head into the first quarter, we'll obviously keep people updated as we go quarter to quarter, but right now we've got a good level of confidence that that 5% bogey on the low end of the range is something thats attainable without taking too much risk and continuing to execute kind of within our underwriting boxes and with our existing strategies around around segments and geographies.

I think there will be some continued normalization in the average balances as customers move, and we've looked at this on a customer by customer basis. So there is some migration into higher yielding types of products. But I think some of that, I think we'll get normalization over the next couple quarters, but I think some of that will be offset by growth opportunities, whether it's new relationship acquisitions or treasury management-type services. So I think if you think about that 11-4 we have, there will be puts and takes on that over the course of time. And we're not giving guidance for 24.

Glenmark: At that time, what I would say is.

Glenmark: It's something we continually look at.

Glenmark: We balance that obviously against our capital levels and our capital forecast.

Glenmark: And things that we see as far as that so.

Glenmark: I'll leave it at there is something that we continue to look at.

Speaker Change: <unk>.

Glenmark: And there's obviously some opportunity there is competing against capital for other initiatives as well so that's where we are on that.

Glenmark: There's obviously some opportunity there is competing against capital for other initiatives as well so that's where we are on that.

Speaker Change: Alright, very helpful. And then if you can speak a little bit about the credit side.

Speaker Change: Okay, and then can you update us on how much you sold in this quarter and performing office loans, and roughly where you sold those relative to par.

Speaker Change: Especially on commercial credit I know there was a smaller increase this quarter on the commercial classified loan bucket.

Speaker Change: Okay, and then can you update us on how much you sold in this quarter and performing office loans, and roughly where you sold those relative to par.

Speaker Change: If you can expand on what Youre seeing there and if you could.

Speaker Change: Dig in a little bit on what Youre seeing and non office CRE.

Speaker Change: So I think in my comments it was $78 million that we sold.

That should be somewhere; I agree with that, Mark. Yeah, Alex, I think your last statement was right, that we're going to continue to see a creep up in the deposit cost there in the core, but that the rate of increase is slowing down because of customer behavior, people that are more in tune, and it was more important to them to chase rates have done that. And speaking of growth opportunities, now that the conversion of sterling is done, do you see any material cross-selling opportunities in terms of growing these demand deposits now that you're integrated with sterling? Yeah, I think I kind of hinted at that, Alex, that, you know, one of the things that getting on our single core platform now and also being able to kind of pivot our resources to development and build out, we've got a robust plan on the Treasury side in commercial, and that's broadly defined, you know, with cash management products, FX, capital markets, other products, corporate cards, where we believe that having deeper penetration and having Thank you for that.

Speaker Change: So I think in my comments it was $78 million that we sold.

Speaker Change: And if you just do the math on the provision of $13 million that equates to about <unk> 83 on the dollar.

Speaker Change: Sure, we're not really seeing any degradation in nano I'll start with your last question in non office CRE and we seem to be managing maturities well in sponsors and owners seem to be connected to their loans. So I wouldn't know any significant deterioration there at all I think.

Speaker Change: And if you just do the math on the provision of $13 million that equates to about 83 cents on the dollar.

Speaker Change: Okay, Great and then lastly, hopefully there aren't any moorefield banks, but but if if there are would webster be likely interested buyer and some FDIC transactions.

Speaker Change: The way I characterize the quarter from a credit perspective as being relatively unchanged from prior quarter is pretty accurate we had a few loans from <unk>.

Speaker Change: Yeah, Mark it's interesting right I just made the comment to Matt that whole bank acquisitions are not high priority for us I do think that it would behoove us to just make sure that if there is a clear strategic opportunity that makes a ton of sense economically.

Speaker Change: Yeah, Mark it's interesting right I just made the comment to Matt that that whole bank acquisitions are not high priority for us I do think that it would behoove us to just make sure that if there is a clear strategic opportunity that makes a ton of sense economically.

Speaker Change: C&I go into classifieds.

Speaker Change: We also reduced our our non performers.

Modestly so we kind of add some offsets there and the overall credit profile remains stable.

Speaker Change: I guess I would I wouldn't exclude us right, but.

Speaker Change: We're not seeing any.

I am hoping there are no further failed banks as well, but I think hopefully if we keep executing where we are.

Speaker Change: I am hoping there are no further failed banks as well, but I think hopefully if we keep executing where we are.

Speaker Change: Ken.

Ken: I haven't dealt with you a lot more.

Ken: Let me know that I was the chief credit risk officer during the great recession, and thereafter I have been surprised like many of us that theres been no capitulation in certain areas right and we're still still seeing significant resiliency in the consumer we have no issues at all in our home equity and mortgage loans with respect to delinquencies or issues and in C&I.

Speaker Change: Then the dust settles I think we'll be in a good position.

Speaker Change: And have the right financial characteristics and strength to be a buyer of a good strategic bank.

Speaker Change: If something happened that.

That way, so I wouldn't rule it out, but it's certainly not on our game plan.

Speaker Change: That way, so I wouldn't rule it out, but it's certainly not on our game plan.

Speaker Change: Thank you.

People have been pretty resilient and we're seeing some level of investment the areas that we still focus on I would say in sponsor and specialty healthcare services. Those are sort of secular pressures contracting, which generally is cyclical, but we've done a good job proactively either avoiding certain sectors and certain.

Speaker Change: Thank you.

Speaker Change: Yeah.

Speaker Change: Again, if you have a question. Please press star one telephone keypad, if you wish to remove yourself.

Alex Lau: And then I just had a follow-up question on the HSA business. So these balances, you know, for the past three quarters have been in the $8.2 billion range. Can you talk about what it would take, you know, in the macro environment for a stronger HSA adoption and for these balances to start increasing? Jon, I think you said mid to high single-digit; how do we get to the higher end of the range? Would a weaker job market actually benefit this range? Thanks. Yeah, it's interesting. We used to answer these questions all the time.

Speaker Change: Simply press Star one again.

Speaker Change: Your next question comes from the line of Brody Preston of UBS. Your line is open.

Speaker Change: Your next question comes from the line of broad question of UBS. Your line is open.

Brody Preston: Hey, good morning, everyone. How are you.

UBS: Hey, good morning, everyone. How are you.

Brody Preston: Good morning.

Speaker Change: Good morning.

These or being able to remediate things quickly and then obviously you have seen us reduce our office exposure.

Hi, sorry, I joined a little bit late so if I if I repeat anything just feel free to tell me to review the transcript but.

UBS: Hi, sorry, I joined a little bit late so sorry, if I repeat anything just feel free to tell me to review the transcript but.

<unk> by almost $700 million over the course of.

Brody Preston: But I did think John I think I saw you gave the shared national credit percentage.

UBS: But I did think John I think I saw you gave the shared national credit percentage.

Ken: For the last five or six quarters without material well so.

John: 12% do you happen to have what you guys are the lead underwriter and the agent on.

Ken: I think the overall net risk rating migration in the portfolio continues to be modestly to the downside, but with proactive risk management and working through things we're not seeing.

John: 12% do you happen to have what you guys are the lead underwriter and the agent on.

Speaker Change: Yes, less than 5% of that.

But I think generally higher health care costs push companies to higher adoption of full replacement, high-deductible health plans. Definitely, if in a recessionary environment, if the labor market is not quite as tight, companies are more willing to move to higher replacement costs. I will tell you, we believe that part of, you know, full transparency, right, part of the reason the market slowed a bit is that there's been significant penetration in adoption now. So there aren't as many green fields in terms of new opportunities. But in this economic environment, and in this job market environment, we have obviously seen slower growth, and I'm not rooting for, you know, a worse job market or a big recession.

Speaker Change: Okay, so less than five of the 12.

Speaker Change: Correct.

Ken: Any material areas of stress in the portfolio, even if you look at the charge off numbers.

Speaker Change: Okay cool.

Okay cool.

Speaker Change: Do you happen to have what the.

Speaker Change: Reserve on the office portfolio is at this point.

Reserve on the office portfolio is at this point.

Ken: For the year, we ended up at about 22 basis points Interestingly, that's kind of the same as the five year average pre pandemic. So youre really that gives you a perspective of where credit performance is now even even to pre pandemic levels and within that 22 basis points 10 basis points of the 22 basis points is related.

Speaker Change: We havent disclosed that number.

Speaker Change: Obviously, it's moved up and it's at a higher level than the overall portfolio, but.

Speaker Change: We don't disclose that.

Speaker Change: We don't disclose that Rob.

Speaker Change: Okay.

Speaker Change:

Speaker Change: Yeah.

Ken: To proactive balance sheet management and loan sales so.

Speaker Change: Glen could you maybe speak around what the puts and takes will be.

Ken: We really haven't seen kind of the credit wave that I think people have been expecting for time, but we continue to monitor pretty aggressively.

Glen: As it relates to.

Glen: And the NIM going forward, maybe help me better understand.

Glen: NII and the NIM going forward, maybe help me better understand.

Speaker Change: I appreciate all the detail thank you.

Glen: The cadence of fixed asset repricing throughout the fourth quarter and then through 2024.

So we get a slight increase in our HSA growth. But I think those are some of the dynamics. There are higher health care costs coming in.

Speaker Change: Your next question comes from the line of Daniela to Mayo from Raymond James. Please go ahead. Your line is open.

Glen: What the impacts of the loan yields will be yeah sure.

Speaker Change: What the impacts the loan yields will be yeah sure. Yeah. Let me give you a sense of and I will just look at the <unk>.

So I do know that people are continuing to look at it, and Chad does see opportunity. And, you know, we're obviously got a lot of RFPs out there, but the market, you know, from the 20% growth days down to the 10% growth days, there's a lot of dynamics there. And it's not just economic.

Speaker Change: Sure Yeah, let me give you a sense of and I will.

Speaker Change: Just look at the two dynamics that we have there <unk> are fixed rate loans repricing and that if you think about it it's about a $1 billion three a quarter.

Daniela: Hey, Thanks, guys.

Speaker Change: Two dynamics that we have there <unk> are fixed rate loans repricing and that if you think about it it's about a $1 billion three a quarter right.

Daniela: Morning, everybody Jay Daniel quick one almost.

Daniela: Almost all my questions have been asked at this point, but just I guess to put a finer point on the intangible amortization discussion around the.

Speaker Change: So if you think if you just think about that over the next couple of quarters is about $1 three repricing.

Speaker Change: So if you think if you just think about that over the next couple of quarters is about $1 three repricing and given our rate forecast you'd probably pick up about 275 to 250 basis points on that as it rolls forward right over the next couple of quarters, and then depending on where the fed is in the back end of the year that might come in a little bit.

It's also just a maturing of the industry. Thank you. Now that we're close to the end of the conference, we please ask that you try to restrict yourself to one question, so we can get everyone in. The next question comes from the line of Bernie Von Giziki of Deutsche Bank. Your line is open. Yeah, hi. Good morning.

Daniela: <unk> expenses in 2020 did you have a.

Speaker Change: And given our rate forecast.

Probably pick up about 275 to 250 basis points on that as it rolls forward right over the next couple of quarters, and then depending on where the fed is in the back end of the year that might come in a little bit but.

A number that is baked into your forecast that we can just pull out the operating of a mattress firm.

Daniela: So.

Daniela: What I would say as we said expenses would be up $50 million and I would say about half of that is going to be intangible amortization.

Speaker Change: But that's that dynamic on the on the on the fixed rate loans I think about it in terms of NIM. It probably supports our NIM by about four basis points going forward and then likewise on the investment portfolio. You have about 300 million that is typically reinvest it and for that we're probably picking up about 450 <unk>.

That dynamic on the on the on the fixed rate loans I think about it in terms of NIM. It probably supports our NIM by about four basis points going forward and then likewise on the investment portfolio you have about $300 million.

The question is... Hey, my question is on fees specifically. So you talked about the pressure on fees from less capital markets activity, but you have seen signs of an improving outlook into next year. What are you hearing from clients? You know, what signs do you see that help drive that improving outlook?

Speaker Change: Okay great.

Speaker Change: That's all I had thanks guys.

Yes, Dan.

Speaker Change: Your next question comes from the line of Steven Alexopoulos from Jpmorgan. Please go ahead. Your line is open.

Speaker Change: That is typically reinvested and for that we're probably picking up about 450 basis points now that will probably drop as rates change to to like the low threes mid threes.

Steven Alexopoulos: Hey, good morning, everyone Hey, Steve.

Speaker Change: <unk> points now that will probably drop as rates change to to like the low threes mid threes.

Steven Alexopoulos: I would just go back to the margin.

And maybe if I just combine this on the sterling integration, you know, you basically highlighted some areas in treasury cash management, but on the fee side, can you provide any size timing for these opportunities? So capital markets pick up next year and, you know, sterling integration opportunities, sizing. Yeah, it's a great question.

For you Glenn so the NIM at $3 42 is fairly strong right. Many of your peers are in the 2% club.

Speaker Change: But there again, we're picking up about two basis points of NIM support going forward. So if I look at those two factors as well as the periodic book, which will continue to reprice on the loan side.

Speaker Change: But there again.

Speaker Change: Enough about two basis points of NIM support going forward. So if I look at those two factors as well as the periodic book, which will continue to reprice on the loan side.

Steven Alexopoulos: As we think about the potential for fed cuts right, which is a short term negative given an asset sensitive balance sheet. The long term positive given the potential for a steeper curve put this together for us like how do you think the NIM does the NIM trend up and early part of 'twenty four and then down once we start getting those cuts and then once we do get a normal curve.

Speaker Change: And then so you have that is going as a favorable tailwind and then the wildcard here is deposit pricing right and so we do think we did see a moderate in the fourth quarter. We do think it's going to continue to moderate over the next couple of quarters.

Speaker Change: And then so you have that is going as a favorable tailwind and then the wildcard here is deposit pricing right and so we do think we did see a moderate in the fourth quarter. We do think it is going to continue to moderate over the next couple of quarters.

I think I'll stick with Glenn's comment that we're working through our plan right now for 24 and we haven't sized some of those opportunities in the timing of the rollout. As it relates to BAU and organic growth where we are, we did see in the quarter a relatively healthy level of non-interest income, and underneath that, there were some good signs. A little bit more direct investment equity tag income, which shows some more activity on the sponsor side and that people may be getting more active as they normally do at year end, and so that's a good sign for us as we move forward. Obviously, the swap market, given where interest rates are, has been kind of down, but we may see some more activity just given the fact that the Fed may pivot.

Steven Alexopoulos: How do you think about a normal NIM versus where you are in <unk>.

Then the fed will begin to cut there'll be a natural like 90 day lag on that but we think the support that we have on the repricing side reinvestment side will sort of moderate.

Speaker Change: And then the fed will begin to cut and there'll be a natural like 90 day lag on that but we think the support that we have on the repricing side reinvestment side will sort of moderate.

Yeah. Thanks, Dave So I think the 342 sort of.

Speaker Change: More of an anomaly for us given the originations that.

Speaker Change: The pressures that we get on the deposit side at least for the first half of the year and then we should actually we should be well positioned if the fed does.

Speaker Change: That occurred John I think highlighted in his remarks over $1 billion.

Speaker Change: Any pressures that we get on the deposit side at least for the first half of the year and then we should actually.

Speaker Change: Loan origination securities originations at the end of the quarter. So we'll get the full benefit of that as we get into.

Speaker Change: Being well positioned if the fed does.

Speaker Change: Proceed with cutting in the second second half back half of the year.

Speaker Change: Proceed with cutting on the second second half back half of the year.

Speaker Change: The first quarter and then if you add things like a metros and you just think of it like mathematically $800 million is coming in.

Speaker Change: Got it thank you for that.

Speaker Change: John I know you talked earlier about.

Speaker Change: At a minimum we're going to pay down <unk> borrowings that are five five and a quarter right. So you get the immediate benefit of that and that will carry out through the whole year. So that will support our NIM. The other thing and I know we've talked about this in the past as we continue to have this dynamic because I think all do that fixed rate loans are repricing. So for us it's like a 1 billion.

Speaker Change: The.

Speaker Change: Kind of the.

Speaker Change: The leveraged loan in the sponsor, especially sponsor book.

Speaker Change: But I.

Speaker Change: I guess I wanted to better understand kind of like.

Speaker Change: I guess I wanted to better understand kind of late.

So there are some decent signs, and then we'll be able to, as we give guidance in Q4, run out our roadmap on plan, and be able to maybe size some of the incremental benefit of post-conversion investment. Thank you. Your next question comes from the line of Timur Braziler of Wells Fargo. Your line is open. Hi, good morning. I'm just wondering.

Speaker Change: Some of the final points on the details of the underwriting there and kind of things you do to structure those loans to really give you protection.

Speaker Change: Some of the final points of the details of the underwriting there and kind of things you need to structure those loans to really give you protection.

Speaker Change: 1 billion, two and some quarters are fixed rate loans that are repricing and to the extent, a repricing and fixed rate loans youre picking up 200 basis points, so that that's additive to NIM as well.

Speaker Change: Can you speak to the specific credit.

Speaker Change: Expecting me to speak to the specific credit.

Speaker Change: You all were on the Rite aid credit files for bankruptcy, but like the ABL.

Speaker Change: Low notes in the market and trading at $92, 93% of par and so like market, obviously expect very little loss. It looks like you guys and the other banks are in a position to kind of get paid back first.

Speaker Change: Hello notes in the market and trading at 90, 293% of par and so market, obviously expect very little loss. It looks like you guys and the other banks are in a position to kind.

Speaker Change: The securities purchases like we talked about it at the end of the quarter you get the full year benefit of that when you think about the restructuring we did on 400 million, we probably picked up about 400 basis points on that these are all additive to them and I think whats the dynamic here is that youll see NIM supported.

Timur Braziler: I'm wondering what the remaining credit mark is on the Sterling book. And then, if you look at the link order increase in allowance, how much of that is commensurate with the link order increase in classified loans? And I'm just wondering, kind of your expectation for the allowance trajectory here given the, Yeah, good question. I always kind of like and dislike answering these CECL questions because there's, you know, obviously a huge amount of work that goes into the modeling.

Speaker Change: Get paid back first.

Speaker Change: It feels really well collateralized. So can you just kind of help us better understand the structure of those deals and what you kind of do to help protect yourself in the event something goes wrong.

Speaker Change: And it feels really well collateralized. So can you just kind of help us better understand the structure of those deals and what you kind of do to help protect yourself in the event.

Speaker Change: In the first couple of quarters and that will carry out through the year Youll see you what we are asset sensitive so.

Nothing goes wrong.

Speaker Change: Back half of the year as the fed starts to cut Youll see NIM.

Yeah.

Speaker Change: Yes, I guess Theres a couple of questions here, because you threw in the ABL deal at the end right and so that's I think that's a completely different animal youre underwriting against liquidation value on a on a large retail company that's kind of standard asset based lending I do think the market believes what everybody believes is someone will come in and.

Yes, I guess Theres a couple of questions here, because you threw in the ABL deal at the end right and so that's I think that's a completely different animal youre underwriting against liquidation value on it.

Speaker Change: Youll see deposit costs begin to.

Speaker Change: Which will initially be a lag will begin to appropriate price down as well, so all that ins and outs and theres a lot of moving pieces as I'm sure. You can appreciate I would expect that the NIM would be in the range of $303 45, with some potential upside depending on how the balance sheet wholesale yes, Steve I think you have the dynamic.

Speaker Change: On a large retail company, that's kind of standard asset based lending I do think the market believes what everybody believe is someone will come in and provide that financing and there'll be an orderly liquidation and everyone will get paid out and we've seen that story play over and over again in sponsor and specialty business.

Obviously, a classified loan has a higher reserve on it. So, you know, the dynamics in the quarter for CECL would be a higher level of classified loans, overall lower loan balances, stable non-accruals and charge-off levels, and an economic outlook for us as we're moving forward. It's why you still see a build in most of the industry right now because of concerns about office space and others. And then, you know, qualitative overlays on what you believe is going on in any particular portfolio, like an office portfolio. So the classified certainly would have been a component to add more reserves, but there are some offsets like lower loan balances and stability in other areas and then, obviously, the economic outlook is still uncertain, which drives a few basis points increase. And I'm giving you kind of a qualitative high level because, obviously, it's all model-driven at the end of the day.

Speaker Change: <unk> dip financing and there'll be an orderly liquidation and everyone will get paid out and we've seen that story play over and over again in sponsor and specialty.

Speaker Change: We get some opportunity in the near term a little more pressure in the.

Speaker Change: Business I guess, it's about the strength of the people that continuity we've been doing it for 20 years, we deal with sponsors we know who support credits and have expertise in the industries and sectors. They are in you'd be amazed at the level of diligence and detail. We do in technology. If were doing a deal is software as a service deal we're doing.

In the long term this year when they start cutting but as Glenn said, we feel pretty confident given the moves we've made that we can keep that NIM relatively stable.

Speaker Change: Right better than most of the industry got.

Speaker Change: Got it okay.

Speaker Change: Then I had a question on HSA bank, which had a decent year overall for 2023 silver as you guys know there was quite a bit of speculation since the last earnings call in terms of your appetite to retain the business John could you frame for US how you look at HSA Bank today right I look at the slide four and I say well, maybe it's not as important as it used.

Speaker Change: Third party evaluations of the software we're evaluating the contracts the end users, where we know the management team very well, we know the sponsors very well we structure the deals.

And third party evaluations of the software we're evaluating the contracts the end users, where we know the management team very well, we know the sponsors very well we structure the deals.

Yes.

Sure.

Speaker Change: So there is some level of amortization, we don't chase as you know over the last couple of turns of leverage where the non banks are chasing we plan a different market. So it's just a combination of having the right people really disciplined approach staying in the swim lanes in the sectors that we know and understand and not moving off of.

Speaker Change: So there is some level of amortization, we don't chase as you know over the last couple of turns of leverage where the non banks are chasing we plan a different market. So it's just a combination of having the right people a really disciplined approach staying in the swim lanes in the sectors that we know and understand and not moving off of.

John: B to the franchise.

John: Do you feel that the value of HSA bank is being held back.

John: By being inside of Webster could you give me your update there.

Speaker Change: Sure I don't so I'll answer the question in kind of short term and it's every bit as important to us as it's been obviously its from a pure financial contribution perspective, given the size of the organization now, it's a slightly smaller contributor but nonetheless.

Yeah, and Tim or Glenn, the only thing I would point out is we sort of laid this out on page 15 of the slides, right? So you can see the impact of lower loan balances was $8 million, and then the macro, third quarter macro and credit environment, build a 43. If you look at the chart below, there hasn't been that much change, really, in unemployment and GDP growth and stuff like that.

Of that disciplined process and it's why through the great financial crisis and through the pandemic and through this higher interest rate environment, we've been able to see resilience in that portfolio.

Speaker Change: Of that disciplined process and its wide through the great financial crisis and through the pandemic and through this higher interest rate environment, we've been able to see resilience in that portfolio.

Got it and then the last one for me I just wanted to ask around the HSA book.

Speaker Change: Usually important to us from a revenue and fee in and.

Speaker Change: And obviously low cost long duration deposit perspective, I can clarify on this call because I know there was a lot of activity in speculation after our last phone call I answered that question. The way I had answered it every single quarter. When asked what happened was that no. One asked the question for about six quarters. So people book, because I gave an answer.

A portion of that is risk migration, which you see in the classifieds, and that's how it sort of carries. Thank you. And your last question comes from the line of Lori Hunsaker of Seaport Research Partners. Your line is open.

Speaker Change: I feel like this has been a topic that's come up sporadically over the last several years, but.

Speaker Change: Well I wanted to ask just because other banks are.

Looking to potentially monetize unique assets that they have and so when I look at kind of what's happened in HSA it feels like.

Speaker Change: Looking to potentially monetize unique assets that they have and so when I look at kind of what's happened.

Great. Hi, thanks. John and Glenn, good morning.

So, just wanted to circle back to the office here. Slide four is great, but I just wondered a couple things. Number one, can you help us think about specifically in New York City and Boston? Of that 1.17 billion, how much of that is New York City class A versus B? How much is Boston class A versus B? And also, your slide four is only an investor. Can you help us think about the owner-occupied book? How big that is? Any concerns that you're seeing there? Obviously, owner-occupied is a lower risk, but there are still some of the same risks.

In HSA it feels like.

Speaker Change: Some of your non bank competitors have been able to really kind of pay really high multiples.

There was a new perspective, no we're not a seller of HSA we are.

Speaker Change: Some of your non bank competitors have been able to really kind of pay really high multiples.

Speaker Change: To acquire other HSA portfolio otherwise.

Speaker Change: True believer, particularly with the acquisition of our metros.

Speaker Change: To acquire other HSA portfolios, but otherwise.

Speaker Change: Our ability unique ability as a bank to have diversified funding sources that grow fees.

Speaker Change: I think if.

Speaker Change: If they had the same investor base that you do they wouldn't be able to pay as much and so.

Speaker Change: At a good clip and I think we'll be able to and not included in our forecast as I mentioned are opportunities for us to have cross synergies and some of these really unique businesses, even throw interlink in there as well.

With the growth in that business line kind of.

Speaker Change: With the growth in that business line kind of.

Speaker Change: Slowing to some extent.

Speaker Change: The value of it really not showing up in the multiple and.

It being tough to kind of inorganically.

Speaker Change: Inorganically grow that business, just given that you treated like a bank versus others that are treated like non banks.

Speaker Change: Inorganically grow that business, just given that you treated like a bank versus others that are treated like non banks like.

Speaker Change: But I also do say very carefully every time that we're stewards of our shareholders' capital and so we continually have to evaluate all of our business lines. How we can maximize economic profit in those business lines, and whether or not that happens as a wholly owned activity or as a joint venture activity or as a solid activity and.

And then the last part of the office question, the jump in past due loans from $46 million to $71 million, roughly how much of that $20 million jump was office-related? Thank you. All right, I might ask you to come back on the last question, but the one question: so the mix of A and B is pretty similar, around 50-50 in all the markets, which also ties up to the overall. We have about 23% of remaining offices in New York City, and that's about 50-50 class A and class B. Boston is smaller in geography, under 10% of that, and it's also about 50-50 in terms of class A and class B.

Speaker Change: How do you think about maybe monetizing that.

Speaker Change: <unk>.

Speaker Change: Doing something more strategic there to help your investors realize the full value of that business.

Speaker Change: Okay.

Okay.

Speaker Change: That's a great question and I think all of your observations in general are correct and we've talked about it over time. The basic premise for US is that we have a very efficient way to deploy long duration low cost deposits as a bank that really help profitability for us and while the market has slowed if you look at it youre still.

Speaker Change: So our premise is we're not a seller of HSA.

Speaker Change: But obviously, we're always doing diligence to make sure that we're not missing an opportunity to achieve.

Speaker Change: Achieved the best value for for our shareholders as we allocate capital and make those decisions.

Speaker Change: Got it that's helpful color, John if I could squeeze one more in and violate your two question rule. So just regarding this 100 billion potential thresholds. So you guys ended the year at <unk> 75 billion.

Speaker Change: And while the market has slowed if you look at it youre still growing deposits at very low costs in the mid to high single digits and there arent. Many channels that are that are doing that so and we are continuing to grow along with the market on an organic basis. So I take your point in terms of the inorganic growth or some.

Speaker Change: Growing deposits at very low costs in the mid to high single digits and there arent. Many channels that are that are doing that so and we are continuing to grow along with the market on an organic basis. So I take your point in terms of the inorganic growth of some of the other other top five players so.

You asked about non-investor CREE, owner-occupied CREE, so those would be C&I companies that we lend to where we have office collateral. That's a relatively small portion of our overall portfolio. It's around $250 million, which is pretty small. Regulatorically and internally, we underwrite those as C&I loans based on the cash flows of the company with having just the enhanced secondary source of repayment in the office.

Speaker Change: And when we look at some of your peers in the similar asset range a lot of them are honored R. W. A diet right, but when you look at your 2024 guidance you guys named <unk>.

Speaker Change: The other other top five players so.

Speaker Change: It would be at the buffet. So when you look at that time. So no reason to slow growth like you feel like Youre very prepared.

Speaker Change: It is very valuable to us it helps us Jenna.

Speaker Change: It is very valuable to us it helps us.

Speaker Change: Generate the kind of returns and profitability, we have albeit it's a smaller part of the hole. After the MA MLR. We are frustrated that the market doesn't recognize the value that we're still building in that business.

Speaker Change: Generate the kind of returns and profitability, we have albeit it's a smaller part of the hole after the MA MLR.

Speaker Change: Those rules could change, but that's no reason to slow your growth in terms of trying to manage the timeline to get there just what gives you so much more confidence in some of your peers.

We've seen no deterioration in that portfolio at all. And what was the last question, Lori? Thanks for that. The jump in the past two loans, the $46 million to $71 million, how much of that, if any, was off? Oh, that's a great question. I don't know if I can answer that offhand, but I will tell you one thing: there was a $15 million payment made on the 2nd of October. So one of them was an administrative delinquency, and so that would tell you that we're down from 42 to whatever that would be, 27, if I can do my math right. Basically, equipment finance loans in there, so it really wasn't commercial real estate, right?

Speaker Change: We are frustrated that the market doesn't recognize the value that we're still building in that business as part of the bank and as you know we continue when we talk about it all the time to evaluate HSA in the bank and the value. It has in the bank outside of the bank because we have an obligation to make sure.

As part of the bank and as you know we continue when we talk about it all the time to evaluate.

Yes, that's a loaded question I mean, I think that.

Speaker Change: Look I think we have a ways to go before we hit the threshold as you can imagine we're spending a lot of time looking at our three and five year plans, making sure that we're prepared from a compliance and risk management perspective, making sure we understand the full impact of the rules if they ultimately are enacted on cap.

Speaker Change: Say in the bank and the value. It has in the bank outside of the bank because we have an obligation to make sure that we're making the best decisions for our shareholders as we move forward and so up until now it has continued particularly in this interest rate environment, it's pretty easy for us to say operating HSA as a division.

Speaker Change: We're making the best decisions for our shareholders as we move forward and so up until now it's continued particularly in this interest rate environment, It's pretty easy for us to say operating HSA as a division of our bank creates the most value for our shareholders in the long term in terms of the quality and the value.

Speaker Change: On liquidity on the makeup of our balance sheet, Steve I think we've got enough flexibility in the asset classes that we grow.

Speaker Change: One of our bank creates the most value for our shareholders in the long term in terms of the quality and the value of the cash flows we don't think the market.

Operator: You got it. There are no further questions at this time. I will now turn the call over to Jon Ciulla, CEO, for closing remarks. Thank you very much for joining us on this long call this morning. Enjoy the day. This concludes today's conference call. You may now disconnect.

Steve: We can make economic moves too.

Speaker Change: With the cash flows we don't think the market, where we're trading at a seven times multiple on future earnings is reflecting that unique company and business.

Steve: Divest or to slow growth quickly and we're not up against the gun and with respect to looking at this over the next 18 to 24 months I think I think we still have some running room to service customers to take care of our existing clients and continue to plan for the eventuality of a $100 billion in so.

Speaker Change: We're trading at a seven times multiple on future earnings is reflecting that unique company and business.

Speaker Change: And we want to continue to keep informing people and educating people about where we are we were able to execute on the transaction last year, which gave us higher levels of user experience and a better a better mouse trap. If you will and I think it's helped US compete in the marketplace. We are still looking every time there is a deal in the.

Steve: We don't think that it's time to pull back and slow growth now, but every move we are making in everything we're doing strategically we obviously have an eye towards what's that mean, when you overlay the $100 billion requirement. So.

Speaker Change: Market another portfolio because that market keeps consolidating I think the top 10 now represent 83% of the market.

Speaker Change: <unk> another portfolio because that market keeps consolidating I think the top 10 now represent 83% of the market.

Steve: I know that may not be a satisfying answer but know that we're thinking about it we're thinking about what it means for our future view on M&A do you want to crawl over $100 billion do you want to avoid it do you want to jump well over 100 billion.

Speaker Change: We will try and be a participant in that but I think it's going to be to continue evaluation for us and we'll make the right decision on where HSA belongs given the value we can create owning it or the value that it would receive.

Steve: Those are the discussions we're having and we're positioning ourselves quite frankly because of the uncertainty in the market to be able to take advantage of any one of those strategies. If it's the right strategy at the time. So I don't think we're putting ourselves in a trap position by continuing to use our differentiated funding base.

Speaker Change: A different company or a company that was part of a joint venture or somewhere else outside the bank.

Speaker Change: Sure.

Speaker Change: Different company or a company that was part of a joint venture or somewhere else outside the bank.

Speaker Change: Great. Thank you for taking my questions everyone I appreciate it.

Speaker Change: Okay.

Speaker Change: Your next question comes from the line of Daniel Tamayo of Raymond James Your line is open.

Steve: <unk> origination channels to continue to grow at this pace I don't think we are okay.

Daniel Tamayo: Good morning, everyone. Thanks for taking my questions.

Daniel Tamayo: Good morning, everyone. Thanks for taking my question.

Steve: Okay.

Daniel Tamayo: Okay.

Daniel Tamayo: Maybe.

Speaker Change: Great. Thanks for taking my questions.

Daniel Tamayo: Maybe.

Daniel Tamayo: Just starting in.

Speaker Change: Thanks, Dave.

Daniel Tamayo: The decline in the commercial industrial commercial loan areas and I know you talked about deemphasizing, some some asset classes there.

Speaker Change: Your next question comes from the line of Brody Preston from UBS go ahead. Your line is open.

Speaker Change: Give a little more detail on where you were pulling back and I apologize I jumped on a little late if you already covered that.

Brody Preston: Hey, good morning, good morning.

Speaker Change: Give a little more detail on where you were pulling back and I apologize I jumped on a little late if you already covered that.

Brody Preston: Hey, Glenn I, just wanted to follow up on the securities.

Speaker Change: No it's quite all right. So good question and we haven't covered it in detail. So the decline across the board on the C&I side was generally driven by we had mortgage warehouse, obviously down and I think you'll likely see that continuing to reduce from a strategic perspective.

Speaker Change: No it's quite all right. It's a good question and we haven't covered it in detail. So the decline across the board on the C&I side was generally driven by we had mortgage warehouse, obviously down and I think youll likely see that continuing to reduce from a strategic perspective.

Brody Preston: Purchases and restructure with a couple of questions.

Brody Preston: The purchase yield was 6.79% this quarter so.

Brody Preston: One what are you buying.

Brody Preston: And then two just given the.

Quarter purchases of restructurings.

Brody Preston: What was the what was the spot rate spot yield for securities.

Speaker Change: We're very careful on transaction only ABL and equipment finance in the quarter since the crisis in March.

Speaker Change: <unk>.

Speaker Change: We're very careful on transaction only ABL and equipment finance in the quarter since the crisis in March and so those did grow rapidly and may have had a small declines our fund banking activity, which are high quality.

Brody Preston: At the end of the quarter.

Brody Preston: Sure.

Speaker Change: So those did grow rapidly and may have had a small declines our fund banking activity, which high quality fund.

Speaker Change: First on the question that we sold like I said $408 million I think the yield on that was like 128 basis points in.

Speaker Change: Most of what we bought early during the quarter it was MBS.

<unk> banking loans equity subscription lines to private equity firms was down about half a billion dollars and that was driven by one big pay off and then just lower utilization our overall middle market C&I utilization on lines after kind of holding steady for several quarters at 50% with.

Speaker Change: <unk> banking loans equity subscription lines to private equity firms was down about half a billion dollars and that was driven by one big pay off and then just lower utilization our overall middle market C&I utilization on lines after kind of holding steady for several quarters at 50% with.

Speaker Change: And within say, a three eight year duration.

Speaker Change: And a book yield of say $5 85 to 85 by then.

Speaker Change: Does that answer that part.

Speaker Change: Yes. It does it does thank you, Okay and then the securities yield.

I think the spot rate is three $3 46.

Speaker Change: Down into the mid 40%. So we did see seasonally lower usage and I don't know what that portends in terms of client confidence or anything but utilization was lower as well so that kind of drove.

Speaker Change: At quarter end.

Speaker Change: Okay.

Speaker Change: So you continue to plan to purchase Securities if I heard your response.

Speaker Change: Correctly.

In the first quarter, so I'm, assuming that you're going to continue purchasing at similar yields that we re entered that you'd get in here.

Speaker Change: The quarter results some of it was us pulling back on levers some of it was a seasonally slow third quarter more sluggish loan growth and that's where we ended up.

Speaker Change: Reinvesting like if you think of our securities portfolio spins off about $300 million a quarter, we would reinvest that and roll it.

Speaker Change: As you go forward, we've talked about really making sure that we have the liquidity capacity the loan to deposit ratio and the capital to grow those full relationships across our middle market businesses or other ancillary C&I businesses sponsor and specialty non office commercial real estate.

Speaker Change: Okay got it and then just for my follow up I, just wanted to touch on each of us again.

Speaker Change: Thank you for your kind of talking about the CDI expense, but I wanted to ask just the 25% CAGR on the surface it seems like Oh.

Speaker Change: <unk> kind of growth target just given.

Speaker Change: We are seeing some level of increased demand as we move into the fourth quarter. Our pipeline is up about half a billion dollars. So I think you think will make we will continue to see mortgage warehouse run down.

Speaker Change: We are seeing some level of increased demand as we move into the fourth quarter. Our pipeline is up about half a billion dollars. So I think you think will make will continue to see mortgage warehouse run down.

Speaker Change: Our bank analysts.

Speaker Change: But you know.

Speaker Change: I was hoping maybe you could discuss maybe setting the synergies aside.

Speaker Change: Why you think thats, the appropriate kind of growth target and where are the areas of conservatism within that guidance, where you could kind of.

Speaker Change: There may be a couple of other small subscale businesses, where we won't be generating the kind of loan growth.

Speaker Change: Outperform it organically even without synergies.

Speaker Change: That we've generated in the past, but we think we can offset that with our core franchise building loan generation.

Remember, it's off a pretty small base and we've got historic data and Theres, a great management team, there and a great team and they have demonstrated the ability to do it as I noted there really is a pretty strong pipeline you can see the natural growth.

Speaker Change: Terrific.

Speaker Change: And then on the flip side the commercial classified loans were up both on an absolute basis and as a percentage of that portfolio.

And then on the flip side the commercial classified loans were up both on an absolute basis and as a percentage of that portfolio.

Speaker Change: HSA it gets very predictable and it's also like HSA, a little bit in that they have great relationships with both their account holders and the insurance companies that they do do work for them. So we've got pretty good line of sight to growth for <unk>.

Speaker Change: Maybe you could talk a little bit about what drove that increase.

Speaker Change: Sure happy to.

Speaker Change: First of all.

First of all.

Speaker Change: I didn't say up in my comments, but I did reference that that level of classifieds at 174% of a smaller portfolio in the quarter is actually a 100 basis points lower than Webster's classified percentage in the fourth quarter of 2019 before the pandemic.

Speaker Change: Relatively small base going forward.

Speaker Change: And you've got kind of a bunch of that is contracted future payments. So you kind of know what's coming in so I think we feel pretty comfortable that thats kind of a reasonable range, where we see the upside I mentioned it in my comments, we don't factor in right now any other expansion into different product sets with similar characteristics.

Speaker Change: So just a reminder, again we have been the entire industry has been benefiting from really really favorable credit metrics and this is just a small step I think towards a more normalized rate going forward, but in terms of the actual contributions there.

Speaker Change: And I know the CEO there who's really talented have good line of sight with.

Speaker Change: With capital and invest in investment behind him to be able to expand the markets that they serve.

Speaker Change: Werent any kind of correlations across geography asset class business line, we saw some C&I in healthcare, we had a small portion of it.

Speaker Change: Werent any kind of correlations across geography asset class business line, we saw some C&I in healthcare, we had a small portion of it all we.

Speaker Change: Factor in any synergies between account holders in some of our other businesses and cross sell opportunities. So the upside is really our opportunity to figure out new ways for them to do it but in terms of our baseline 25% CAGR growth. We feel very confident that that is kind of a very predictable strong line of sight to that growth over the next five year.

Speaker Change: We had some office migration that we talked about prior and then just generally across.

Speaker Change: There are other C&I categories. So it really wasn't we didn't see correlated risk. We just saw credit specific migration as part of our overall modest negative risk rating migration in the portfolio.

Speaker Change: Yes.

Speaker Change: Got it if I could sneak one more engines just given the strength of the business on a standalone basis I know, it's smaller for you guys, but.

Speaker Change: Okay terrific.

Okay terrific.

Speaker Change: And lastly, just one for Glenn on the hedging strategy.

Speaker Change: Just given the pipeline given the growth outlook.

Speaker Change: And lastly, just one for Glenn on the hedging strategy.

Speaker Change: Why why did long ridge think it was the right time for them to sell just because it seems like theres going to be a lot of strength in that business line.

Glenn: And how you expect the net interest income would react to rate cuts if they do materialize next year.

And how you expect the net interest income would react to rate cuts if they do materialize next year.

Speaker Change: Yes, so Daniel good morning, we did talk a little about that as we look we're not providing an outlook for 2024 at this point.

Speaker Change: Yes, so Daniel good morning, we did talk a little about that as we look we're not providing an outlook for 2024 at this point the point the point I made earlier is that I think our NIM will continue to be supported into the fourth quarter and into the next couple of quarters through the benefit of both fixed rate loans.

Speaker Change: Going forward.

Speaker Change: Yes, there's no story there at all it's just a natural private equity investment and it was time for them to divest we knew the company through our relationships with sponsor and specialty.

Daniel Tamayo: The point the point I made earlier is that I think our NIM will continue to be supported into the fourth quarter and into the next couple of quarters through the benefit of both fixed rate loans repricing investment securities repricing as well as the periodic loans repricing some of that will be.

Speaker Change: It wasn't.

Speaker Change: Auction process, we were able to convince the team and the sellers that we were the right buyer and it was.

Speaker Change: Pricing investment securities repricing as well as the periodic loans repricing some of that will be.

Speaker Change: Very smooth transaction. So there is no story there.

Daniel Tamayo: We'll be obviously offset by deposit cost.

We'll be obviously offset by deposit cost.

Speaker Change: And thats it.

Speaker Change: Got it thank you very much for answering my questions.

Daniel Tamayo: And our thinking on where the cumulative deposit beta will end up but I think generally that's.

Speaker Change: And our thinking on where the cumulative deposit beta will end up but I think generally that's.

Speaker Change: Yes.

Speaker Change: Your next question comes from the line of John Armstrong from RBC Capital markets. Please go ahead. Your line is open thanks.

Daniel Tamayo: How were feeling going into the next couple of quarters.

Speaker Change: How were feeling going into the next couple of quarters.

Daniel Tamayo: Okay.

Okay.

Speaker Change: Thanks for all the color guys I appreciate it thank.

Speaker Change: Thanks for all the color guys I appreciate it.

John Armstrong: Thanks, Good morning, just a couple.

Speaker Change: Thank you.

John Armstrong: A couple of cleanup questions.

Speaker Change: Okay.

Speaker Change: Your next question comes from the line of Steve Alexopoulos of Jpmorgan. Your line is open hey.

John Armstrong: On the loan trajectory just dissecting that what drove the late quarter growth and just talk a little bit about what change or what the drivers were.

Speaker Change: Your next question comes from the line of Steve Alexopoulos of Jpmorgan. Your line is open.

Good morning, everyone, Alex Lau on for Steve.

Speaker Change: Hey, good morning, everyone, Alex Lau on for Steve.

Alex Lau: Hey, Alex.

Speaker Change: Yes, most of the originations were driven in the quarter by core C&I, but in particular fund banking very low risk and lower yielding quite frankly, but obviously, we believe should still economically profitable loan growth along with some high quality multi family.

Alex Lau: Hey, I wanted to touch on deposits so.

Alex Lau: Noninterest bearing deposits were up on a period end basis in the quarter, what drove that uptick was it seasonal inflows.

Speaker Change: Is it fair to say that.

And is it fair to say that.

Speaker Change: These customers chasing higher yield products in these demand balances are largely done.

Alex Lau: These customers chasing higher yield products in these demand balances are largely done.

Speaker Change: Some public sector finance, which is kind of our national government banking again, all of those assets higher quality than the overall portfolio on a risk weighted basis slightly lower yielding which was why we gave the answer to the question earlier about lower than expected yield expansion in the quarter and again, particularly in the fund.

Speaker Change: Yes, So let me take that and John.

Speaker Change: Yeah, So let me take that and Jonathan but I think there is a portion of the increase.

Speaker Change: But I think there is a portion of the increase.

And noninterest bearing deposits that was related to the government and flow, which is seasonality, but I think the bigger point is we've gone back and looked at DDA.

Speaker Change: And noninterest bearing deposits that was related to the government and flow, which is seasonality, but I think the bigger point is we've gone back and looked at DDA.

Speaker Change: Banking side, a much of that closed.

Speaker Change: Sure.

Speaker Change: As we look at our forecast and I've gone back to.

Speaker Change: We look at our forecast and I've gone back to.

Speaker Change: By year end and so we were kind of working through our pipeline and that's why things closed in December as opposed to closing earlier in the quarter. Okay. So no real story just.

Speaker Change: All the way back to 2019, when if I can add the combination of western Sterling.

Speaker Change: Had about $40 billion in combined deposits and at that point. The DDA represented about 21% if I look at the third quarter and did the same sort of analysis and I stripped out the impact of interlink, it's relatively new we'd be in that 21% range. So it's pre pandemic and if I look to where we are it's typically run about <unk>.

Speaker Change: We had about $40 billion in combined deposits and at that point. The DDA represented about 21% if I look at the third quarter ended the same sort of analysis and are stripped out the impact of interlink, it's relatively new with being at 21% range. So it's pre pandemic and if I look to where we are it's typically run about <unk>.

Speaker Change: No no.

Speaker Change: Yes, just just timing and it happens quarter to quarter.

Okay. Okay, just second question.

Speaker Change: Your picture John It seems like the Sterling merger has gone well it seems like you and Jack had been on the same page but.

Speaker Change: Any new priorities for you as chairman I'm, assuming it's business as usual, but thought I would ask as long as you mentioned it.

Speaker Change: 1%.

Speaker Change: 21%.

Speaker Change: I think there will be some continued normalization in the average balances as customers move and we've looked at this on a customer by customer basis. So there is some migration into higher IRR.

Speaker Change: Think there will be some continued normalization in the average balances as customers move and we've looked at this on a customer by customer basis. So there is some migration into higher IRR.

Speaker Change: No we're completely aligned and we will continue to be and obviously all continue to seek out as his counsel.

Speaker Change: After he has left the organization.

Speaker Change: Yielding type of products.

Speaker Change: No Theres no pivot at all we spent a lot of time the entire team.

Speaker Change: But I think some of that so say I think we'll get normalization over the next couple of quarters, but I think some of that will be offset by growth opportunities through whether it's new relationship acquisitions, our treasury management type services. So I think if you think about that 11, four we have there'll be puts and takes on that book.

Speaker Change: Our management team and board, making sure that kind of we knew what the North Star Wars, and what we were trying to build and we're still on that journey, we still have opportunities.

Speaker Change: We think we've got good line of sight to continue to deliver.

Speaker Change: 20% ish ROE ATC, a one 4% ish ROA and <unk> and.

Speaker Change: Over the course of time, and we're not giving guidance for 'twenty four.

Speaker Change: That should be somewhere in the range.

And a leading efficiency ratio to give us flexibility to grow and I think all of the things. We're doing are the things. We thought we would do obviously the environment has been a little bit volatile over time, but there'll be no pivot in culture strategy.

Speaker Change: I agree with that Brian and Alex I think your last statement was right that we're going to continue to see a creep up of the deposit costs. There in the core but that the rate of increase is slowing down because the customer behavior people that were more in tune and it was more important to them to chase rates have done so.

Speaker Change: I agree with that firm.

Alex I think your last statement was right that we're going to continue to see a creep up of the deposit cost there in the core but that the rate of increase is slowing down because the customer behavior people that were more in tune and it was more important to them to chase rates have done so.

Speaker Change: Or other things, you'll see us continue to try and execute at a high level, yes, Okay alright. Thank you.

Thank you and speaking of growth opportunities now that the conversion with Sterling Sterling is done do you see any material cross selling opportunities in terms of growing these demand deposits now that you're integrated with Sterling.

Speaker Change: Thank you and speaking of growth opportunities now that the conversion with Sterling Sterling is done do you see any material cross selling opportunities in terms of growing these demand deposits now that you're integrated with Sterling.

Your next question comes from the line of Bernard.

Bernard: From Deutsche Bank. Please go ahead your line is open.

Speaker Change: Hi, guys good morning.

Speaker Change: Maybe just staying on Sterling.

Speaker Change: Yes, I think I kind of hinted to that Alex that one of the things that getting on our single core platform now and also being able to kind of pivot our resources to development and build out we've got a robust plan on the treasury.

Speaker Change: With integration now past year theres been discussions of the opportunities to enhance.

Speaker Change: Some of the areas of fee income across commercial consumer HSA.

You talked about Treasury and cash management card FX.

Speaker Change: As areas of growth, but can you provide any size timing of these opportunities is possible what can be implied in your guide for.

Speaker Change: Side in commercial and that's broadly defined.

Speaker Change: Side in commercial and Thats broadly defined.

Speaker Change: 24.

Speaker Change: Cash management products.

Speaker Change: Yes.

Speaker Change: FX capital markets other products corporate card.

Speaker Change: As you know.

Speaker Change: On the cash management card FX and some of the other ancillary businesses. We do have built in as Glenn mentioned into our increase in fees.

Speaker Change: We believe that having deeper penetration and having a broader product set for our really loyal commercial commercial customers will have the added benefit of growing core operating deposits. So I do think that thats something that we believe we can execute on and we believe.

Speaker Change: Relatively good double digit growth in those off of a relatively small base compared to our NII.

Speaker Change: And the truth of the matter is that those activities are not going to materially change the outcome of our steady growth right. So we're working on those things we've already rolled out new capabilities for our clients things like <unk>.

Will be successful as we move forward post conversion.

Speaker Change: He will be successful as we move forward post conversion.

Speaker Change: Thank you for that and then I just had a follow up on the HSA business. So these balances for the past three quarters have been in the E.

Speaker Change: The needle a little bit in terms of Glen talked to you about the contribution expected fees in the year and so and so that's going to be good we keep looking at interesting opportunities and not built into our forecast and definitely too early to talk about but opportunity to use around capital markets around syndicating around securitization.

Speaker Change: $2 billion range can you talk about what it would take.

Speaker Change: The macro environment for a stronger HSA adoption for these balances to start increasing.

Speaker Change: John I think you said mid to high single digit how do we get to the higher end of the range.

Speaker Change: Like are there opportunities given our strong origination capabilities to generate fee income and further have other options to manage the balance sheet, but those are things, we think about to drive fee income over the long term, but nothing in our plans right now and nothing that I would be comfortable giving you guidance on.

Speaker Change: Weaker job market actually benefits this range. Thanks.

John: Yeah. It's interesting we used to answer these questions all the time, but I.

John: I think generally higher health care costs pushed pushed companies to higher adoption of full replacement of high deductible health plans.

John: I think generally higher health care costs.

John: Pushed companies to higher adoption of full replacement high deductible health plans.

John: Definitely.

Speaker Change: Understood.

John: Definitely.

John: In a recessionary environment, if labor market is not quite as tight.

Speaker Change: I think last quarter, maybe just talking about the expenses the expense opportunities that still remain.

John: In a recessionary environment, if labor market is not quite as tight companies.

Companies are more willing to move to higher replacement costs I will tell you we believe that part of full.

John: Companies are more willing to move to higher replacement costs I will tell you we believe that part of it.

Speaker Change: I think you talked about.

Speaker Change: This holiday season, unless somebody back office processes and in call Center consolidation, maybe could you help frame any of the remaining opportunity.

John: Full transparency right part of the reason the market has slowed a bit is that theres been significant penetration and adoption now so there arent as many greenfields in terms of new opportunities, but in this economic environment and in this job market environment, We've obviously seen slower growth in <unk>.

Speaker Change: On this front.

Speaker Change: Yes, I think Glenn.

Speaker Change: Comment, but I think that's sort of built into our overall net net expense view some of the stuff is a little stickier than others. We've made progress on consolidation of our call centers, we have opportunity there, we still need to decommission some old non core technology that in the transition stage, but I would say.

John: Im not rooting for.

John: The worst job market or a big recession, so that we get a slight increase in our HSA growth, but I think those are some of the dynamics there are higher healthcare cost coming in so I do know that that people are continuing to look at it and Chad does see opportunity and we're obviously <unk> got a lot of rfps out there, but the <unk>.

John: A worst job market or a big recession, so that we get a slight increase in our HSA growth, but I think those are some of the dynamics there are higher health care costs coming in so I do know that that people are continuing to look at it and Chad does see opportunity and we're obviously <unk> got a lot of rfps out there but.

Speaker Change: It's it's an offset to the investments that we think we're going to make in future technology and so I don't know if <unk> got an estimate for what you think the full run rate of some of those opportunities.

Speaker Change: I would just come back to.

Speaker Change: Mid to low 40% efficiency ratio and Thats, where we expect to be and so what that implies is that gives us first of all optionality to the extent theres more market headwinds.

John: From the 20% growth days down to the 10% growth days, there's a lot of dynamics there and it's not just economic it's also just the maturing of the industry.

John: The market from the 20% growth days down to the 10% growth days, there's a lot of dynamics there and it's not just economic it's also just the maturing of the industry.

Speaker Change: Some solar.

Speaker Change: Some optionality there, but I also think the more important point is that as we are still getting I know as the CFO in my World, We're still consolidating ledgers and there's implications down to reconciliations and stuff like that but that gives us an opportunity to reinvest in the business as well. So I think we like to think of it as we're best in class at 45 before low 40 low to mid <unk>.

Thank you.

Speaker Change: None of that we are close to end of conference from please ask if you tried to restrict yourself to one question.

Speaker Change: None of that we are close to end of conference from please ask that you try to restrict yourself to one question.

Speaker Change: So we can get everyone in the.

Speaker Change: So we can get everyone.

Speaker Change: Our next question comes from the line of Bernie von <unk> of Deutsche Bank. Your line is open.

Speaker Change: The next question comes from the line of Bernie <unk> of Deutsche Bank. Your line is open.

Bernie: Yes, hi, good morning.

Bernie: Yeah, Hi, good morning.

Bernie von: Good morning.

Bernie: Good morning Shannon.

Bernie von: Hey, my.

Speaker Change: On the efficiency ratio. So I would just use if you're thinking of modeling that's what I would use as a guide.

Bernie: Hey, my.

Bernie von: My question is on fees, specifically, so you talked about the pressure on fees from less capital markets activity.

Bernie: My question is on fees, specifically, so you talked about the pressure on fees from less capital markets activity. Although you have seen signs of an improving outlook into next year.

Bernie von: But you have seen signs of an improving outlook into next year.

Okay, great. Thanks for the color guys. Thank.

Speaker Change: Thank you.

Bernie von: What are you hearing from clients.

Bernie: What are you hearing from clients what signs do you see that helps drive that improving outlook and maybe if I just.

Speaker Change: Your next question comes from the line of Ben Garlinger from Citigroup. Please go ahead. Your line is open.

Bernie von: <unk> do you see that helps drive that improving outlook and maybe right.

Bernie von: Combined on the Sterling integration, you basically highlighted scenarios and treasury cash management, but in the fee side could you provide any size timing of these opportunities.

Combined on the Sterling integration, you basically highlighted some areas in treasury cash management.

Ben Garlinger: Hey, Good morning, guys was curious hey, good morning, good morning and welcome.

Speaker Change: Appreciate it.

Bernie: And the fee side could you provide any size timing of these opportunities though.

Speaker Change: Yes, we could.

Speaker Change: Yes.

Speaker Change: Thinking about the deposit franchise in general I think Casey asked the question you gave some deposit beta assumptions on your different niches I was just curious if the forward curve is correct or even just the port cost assumption.

Markets pick up next year and.

Capital markets pick up next year and scale.

Bernie von: Sterling integration opportunities sizing.

Bernie: Scaling integration opportunities sizing.

Speaker Change: Yes, it's great question, I think I'll stick with Glenn's comment that we're working through our plan right now for 24, and we haven't sized some of those opportunities and the timing of the rollout as it relates to <unk> and organic where we are we did see in the quarter, a relatively healthy level of noninterest income and underneath that where some good stuff.

Speaker Change: Are there any flow differences are what you might see in a deposit mix in general I get to that down 100 basis points and a non recessionary environment is kind of unprecedented but just kind of just your thoughts on what that deposit mix might look like outflows might change over the course of those 100 is perhaps going forward.

Speaker Change: <unk>, a little bit more of a direct investment equity tag income, which shows some more activity on the on the sponsor side and that people may be.

Speaker Change: <unk>, a little bit more of a direct investment equity tag and income which shows some more activity on the on the sponsor side and that people maybe.

Speaker Change: Yes, it's a good question so.

Speaker Change: So there's a couple of things that I think are unique to us and obviously, we talked a lot about our metros, we do have the.

Speaker Change: Getting more active as they normally do at year end.

Speaker Change: So we're I think that's a good sign for us as we move forward, obviously, the swap market given where interest rates are has been kind of dip down, but we may see some more activity just given the fact that the fed may pivot. So there are some decent signs.

Speaker Change: So we're that's a good sign for us as we move forward, obviously, the swap market given where interest rates are has been kind of dip down, but we may see some more activity just given the fact that the fed may pivot. So there are some decent signs.

Speaker Change: The benefit of HSA, as well, where we get the enrolment period in the in the first quarter and then we continue to get those funds those accounts funded during the year.

Speaker Change: We are interlinked, which gives us optionality from the ability to increase core deposits.

Speaker Change: And then we'll be able to as we give guidance in Q4, we run out our roadmap on plan to be able to maybe size some of the incremental benefit of post conversion investment.

Speaker Change: And then we'll be able to as we give guidance in Q4, we run out our roadmap on plan being able to maybe size some of the incremental benefit of post conversion investment.

Speaker Change: The extent, we have we're satisfied with our loan to deposit ratio to delay some of those off so that gives us optionality as well.

Speaker Change: I think the thing the thing that we're watching is.

Thank you. Your next question comes from the line of tumor Brasilia of Wells Fargo. Your line is open.

Speaker Change: Thank you. Your next question comes from the line of tumor Brasilia of Wells Fargo. Your line is open.

As far as the flow of deposits, we do have.

Speaker Change: Maturities on Cds coming due.

Tumor Brasilia: Hi, good morning.

Speaker Change: About $2 billion in the first quarter or another.

Tumor Brasilia: Hey, good morning.

Tumor Brasilia: I'm just wondering.

Speaker Change: Just under that in the second quarter, So that's something.

Tumor Brasilia: I'm wondering what the remaining credit Mark is Sterling bulk and then if you look at the linked quarter increase in allowance how much of that is commensurate with the linked quarter increase in <unk>.

Tumor Brasilia: I'm wondering what the remaining credit Mark is Sterling book and then if you look at the linked quarter increase in allowance how much of that is commensurate with the linked quarter increase in ink.

Speaker Change: That we're keeping a close eye on that and how that rolls over and we're also keeping an eye on things like demand or pure DDA, which is which has come down a little bit.

Speaker Change: So we're basically at <unk>.

Tumor Brasilia: Classified.

Classified.

Tumor Brasilia: Loans and I'm, just wondering kind of your expectations.

Speaker Change: Hovering around at $11 billion, Mark we think that probably has potential to grow about $200 million over the course of the year.

Tumor Brasilia: And I'm, just wondering kind of your expectation for <unk>.

Allowance trajectory here given the macro backdrop.

Tumor Brasilia: Allowance trajectory here given the macro backdrop.

Yes.

Speaker Change: So those are the sorts of things that we're thinking I don't see anything significant.

Speaker Change: Yes, good question.

Speaker Change: <unk>.

Speaker Change: Kind of like and dislike answering these questions because there is obviously a huge amount of work that goes into the modeling obviously a classified loan has a higher reserve on it so the dynamics in the quarter for seasonal would be.

Speaker Change: Kind of like and dislike answering these questions because there's obviously a huge amount of work that goes into the modeling obviously a classified loan has a higher reserve on it so the dynamics in the quarter for seasonal would be.

Speaker Change: Significant I think youll still see a little bit more of that.

Speaker Change: Positive flow from low interest bearing type of money market and savings accounts into Cds to the extend people.

Speaker Change: Our clients think that rates are going to drop they might want to go a little longer on their on their investments and things like that that we have continued to see that but.

Speaker Change: Higher levels of classified overall lower loan balances stable non accruals and charge off levels and economic outlook for us as we're moving forward. It's why you still see a build in most of the industry right now because of concerns of office and others and then qualitative.

Speaker Change: Higher levels of classified overall lower loan balances stable, non accruals and and charge off levels and economic outlook for us as we're moving forward. It's why you still see a build in most of the industry right now because of concerns of office and others and then qualitative.

Speaker Change: Think thats those are very basic dynamics, yes, I would agree with Glenn and I think I hope we're at.

Speaker Change: Answering the question, you're asking which is the first 100 points down I don't think it changes necessarily behaviors by customers and depositors.

Speaker Change: Or kind of overall bank non bank deposit flows.

Speaker Change: Overlays on what you believe is going on in any particular portfolio like an office portfolio. So the classifieds certainly would've been a component to add more reserves, but there are some offsets like lower loan balances and stability in other areas and then obviously the economic outlook is still uncertain, which drives too.

Speaker Change: <unk> on what you believe is going on in any particular portfolio like an office portfolio. So the classifieds certainly would've been a component to add more reserves, but there are some offsets like lower loan balances and stability in other areas and then obviously the economic outlook is still uncertain, which drives too.

Speaker Change: Got it that's really helpful. And then just from a follow up just to play a little bit of a Devil's advocate here I know that you said if the forward curve is correct.

Speaker Change: Cuts you probably have a little bit of downside relative to that NII range, which in reality and colleagues, but your revenue of the floor and maybe a little bit below the combined range today.

Speaker Change: A few basis point increase and I'm, giving you kind of the qualitative high level because obviously, it's all moderate model driven at the end of the day and Tmr's Glenn the only thing I would point out as we sort of laid this out on page 15 of the slides you can see the impact of lower loan balances was $8 million and then the macro third quarter macro and <unk>.

Speaker Change: A few basis point increase and I'm, giving you kind of the qualitative high level because obviously, it's all moderate model driven at the end of the day and TMR. It's Glenn the only thing I would point out as we sort of laid this out on page 15 of the slides right. So you can see the impact of lower loan balances was $8 million and then the macro third quarter macro and.

Speaker Change: So do you have flexibility on expenses could you also put expenses overall below one three or is that kind of the floor in terms of investment and we just expect a slightly higher efficiency ratio for the year.

Speaker Change: Interesting question I mean, I think we always we always have optionality right because some of it is project based and investment based and if the market conditions change and a more dramatic than that projected performance based incentive comp cotton line comes down naturally so that there is we can clear.

Speaker Change: Credit environment was a build of 43, if you look at the chart below there hasnt been that much movement really an unemployment and GDP growth and stuff like that so a.

Speaker Change: Credit environment was a build of 43, if you look at the truckload there hasnt been that much movement really an unemployment and GDP growth and stuff like that so.

Speaker Change: A portion of that is as risk migration.

Speaker Change: What you see in the classifieds.

Speaker Change: That's how I'd characterize it.

Speaker Change: Go below the $1 3 billion if the overall environment.

Speaker Change: Thank you and your last question comes from the line of Laurie Hunsicker of Seaport Research Partners. Your line is open.

Speaker Change: <unk> us to do that but but I would say again kind of dramatically that we believe we have the opportunity to invest and even if those expense levels will still have the most efficient operating model in the top 25 banks and so.

Laurie Hunsicker: Great Hi, Jonathan Glenn Good morning.

Laurie Hunsicker: Good morning.

Laurie Hunsicker: Good morning wanted to circle.

Okay.

Back to offense here.

Laurie Hunsicker: Go back to offense here.

Laurie Hunsicker: Slide four is great, but just wondered a couple of things number one can you help us think about this.

So my point is great, but just wondered a couple of things number one can you help us think about this.

Speaker Change: Yes, we do have flexibility there are some variable costs in there and some project based investments that we could either delay or cancel or pull back on if we had to.

Laurie Hunsicker: Typically in New York City, and Boston at that $1, one 7 billion how much how much of that is in New York City class a versus B, how much is Boston class a versus B and then I'll take your slide four is the only investor can you help us think about the owner occupied.

Typically in New York City in Boston and of that $1. One 7 billion how much how much of that is in New York City class a versus B, how much is Boston class a versus B and then I'll take your slide four is only about Eric can you help us think about the owner occupied.

Speaker Change: Got you that's helpful color I appreciate it.

Speaker Change: Okay.

Speaker Change: Your next question comes from the line of Laurie Hunsicker from Seaport Research Partners. Please go ahead. Your line is open.

Laurie Hunsicker: Big that is.

Laurie Hunsicker: Any concerns that you're seeing there obviously in our guidance.

Speaker Change: Any concerns that you're seeing there obviously in our guidance.

Laurie Hunsicker: This does come at the same rate and then the last part of the answer to question that.

Speaker Change: Yes. It does some of the same rights and then the last part of the question.

Laurie Hunsicker: Great Hi, Thanks, good morning.

Laurie Hunsicker: Just going back can meet your peer can you help us think what what the pro forma intangible.

Laurie Hunsicker: Jump in past due loans from $46 million or $71 million.

Speaker Change: Jump in past due loans from $46 million or $71 million.

Laurie Hunsicker: Roughly how much of how much of that $20 million jump was often correlated.

Speaker Change: Roughly how much of how much of that $20 million jump was often correlated.

Laurie Hunsicker: Look like and also just maybe fine tune a little bit when the closing date is expected.

Laurie Hunsicker: Alright, I may ask you to come back on the last question, but.

Speaker Change: Alright, I may ask you to come back on the last question, but.

Laurie Hunsicker: First quarter.

Laurie Hunsicker: So on the pro forma and I think you can think of it as a spring in an $800 million immediately in deposits and the immediate action would be to pay down the <unk> and so call it 5% to five in the quarter rate percent on those and then it would eventually.

Laurie Hunsicker: One quick so the mix of a and B is pretty similar around $50 50 in all the markets, which also ladders up to the overall, we have about 23% Brian remaining office is in New York City, and Thats about 50, 50 class a and class B Boston is <unk>.

Speaker Change: One quick so the mix of a and B is pretty similar around $50 50 in all the markets, which also ladders up to the overall, we have about 23% Brian remaining offices in New York City, and Thats about 50, 50 class a and class B Boston is <unk>.

Laurie Hunsicker: Quickly move into funding loan loans, which you heard me say earlier were are more in the range of like 757, 5%.

Laurie Hunsicker: Mall or in the geography.

Speaker Change: Mall or in the geography.

Laurie Hunsicker: Under 10% of that and it's also about 50 50 in terms of class a and class B you asked about.

Speaker Change: Under 10% of that and it's also about 50 50 in terms of class a and class B you asked about.

Laurie Hunsicker: Talked about the fee income being $25 million and I talked about the expenses in the range of $50 million with half of that being CDI. So I think you can build that the P&L pretty quickly.

Laurie Hunsicker: Non investor Cree owner occupied Cree, So those would be C&I companies that we lend to where we have office collateral that's a relatively small portion of our overall portfolio.

Speaker Change: Non investor Cree owner occupied Cree, So those would be C&I companies that we lend to where we have office collateral that's a relatively small portion of our overall portfolio.

Laurie Hunsicker: Thing I would point out as John and we talked earlier is that this is a business that is going to grow at 25% CAGR every year. So we're bringing in $800 million. Good chance, we'll be closer to the $1 billion range by the by the end of this year, so and that will continue.

Around $250 million, which is pretty small regulatory <unk> and internally, we underwrite those as you know.

Speaker Change: Around $250 million, which is pretty small regulatory Lee and internally, we underwrite those as you know.

Laurie Hunsicker: Based on contractual relationships and everything that we're seeing in the market. So.

Laurie Hunsicker: C&I loans based on the cash flows of the company with having just the enhanced secondary source of repayment in the office, we have seen no deterioration in that portfolio at all and what was the last question Laurie.

Speaker Change: C&I loans based on the cash flows of the company with having just the enhanced secondary source of repayment in the office, we've seen no deterioration in that portfolio at all and what was the last question Laurie.

Laurie Hunsicker: That should allow you to build your sort of P&L.

Laurie Hunsicker: Closing.

Closing date closing date and pro forma intangibles yesterday.

Laurie Hunsicker: Yes.

Laurie Hunsicker: The intangibles.

Laurie Hunsicker: Yes.

Speaker Change: Yes.

Laurie Hunsicker: Of the $50 million expense I think it's about half of that.

And thanks to that the jump in the past two loans, the 46 million to $71 million, how much of that if any with all of that.

Speaker Change: And thanks to that the jump in the past the 46 million to $71 million, how much of that if any with all of that.

Laurie Hunsicker: And then.

Okay.

Relatively soon ended January the estimate plus or minus yes.

Speaker Change: Oh, that's a great question.

Speaker Change: That's a great question.

Speaker Change: I don't know if I know the answer to that off hand, but I will tell you. One thing is that there was a.

I don't know if I know the answer to that off hand, but I will tell you. One thing is that there was a.

Laurie Hunsicker: Okay. So just on the pro forma intangible figure to 835 billion grows by about $25 million that's it.

$15 million payment made on the second of October So one of them was an administrative delinquency and so that would tell you that we're down from 42, two whatever that would be 27, if I can do my math right, mostly equipment finance loans in there so it really wasn't.

Speaker Change: $15 million payment made on the second of October So one of them was an administrative delinquency and so I would tell you that we're down from 42, two whatever that would be 27, if I can do my math right, mostly equipment finance loans in there so it really wasn't.

Did I hear that right.

Speaker Change: I'm not sure I say that again.

So your 2.835 billion that you have in total intangibles on your balance sheet your goodwill and other intangible assets that grows by $25 million with this acquisition.

Speaker Change: So the intangible amortization is about $25 million in the year.

Speaker Change: Real estate is not yet.

Speaker Change: Alright.

Speaker Change: Okay.

Speaker Change: Thanks.

Speaker Change: The dollar amount.

Speaker Change: You got it.

Speaker Change: There are no further questions at this time I will now turn the call over to John <unk> CEO for closing remarks.

Speaker Change: So yes, so the intangibles were probably closer to like $300 million.

Speaker Change: $300 million great. Thank you that was the number I was looking for.

Thank you very much for joining us on this long call. This morning I'm joined today.

John: Thank you very much for joining us on this long call. This morning I'm joined today.

Scott we are not we are not.

Speaker Change: Complete on that I'm estimating that right now.

Speaker Change: This concludes today's conference call you may now disconnect.

John: This concludes today's conference call you may now disconnect.

Scott: Got you makes sense and then just going back to office.

Scott: The <unk>.

Scott: Charge offs in the fourth quarter and if you have it what were the office charge offs for your full year 2022.

Speaker Change: Let me see if I can get that formulary.

Speaker Change: Sure.

Speaker Change: Okay.

Speaker Change: They werent meaningful in this quarter.

I think charges, including all the proactive note sales were roughly in the $25 million to $30 million range for the entire year and that includes all of as I said the proactive note sales, so not sort of fully mature and charge offs or losses. Nonetheless.

Speaker Change: And I think it wasn't particularly a meaningful contribution to this quarters.

Speaker Change: Charge offs I'm still looking for the number I apologize.

But as I said, we're getting we're getting to the point, where that book, we feel pretty confident around kind of what's left in the credit support we have an underlying it.

Speaker Change: We feel really good about how aggressively.

Speaker Change: No.

Speaker Change: Brought down that exposure.

Speaker Change: Your next question comes from the line of Tim nor Brasilia from Wells Fargo. Please go ahead. Your line is open.

Tim Brasilia: Hi, good morning.

Tim Brasilia: Hey, Tim or maybe.

Tim Brasilia: Circling back on a mutual is just one more there what's the total addressable market for that space and I guess as that business grows what's the risk of new competition coming in and maybe eating away at some of that 25% expected CAGR.

Speaker Change: Yes, it's obviously, they're the market leader, but there is a huge untapped I think $12 billion in total claims in their space right. Now so there's a lot of running room. It's early days and their value proposition I think is starting to be realized by more of the insurer.

Speaker Change: <unk> and more account holders in the industry. So it's.

Speaker Change: Low penetrated from a professional administrative perspective, which is one of the things that we think is so exciting about the business.

Speaker Change: Okay and is there is there a risk that maybe some of that competition eats into your growth rate.

Speaker Change: Again, I think given the total addressable market and the good penetration that these guys have with respect to customer base I think I think.

Speaker Change: A lot of it is contractual and so I think at least in terms of our projections now we don't see any risk from cannibalization from competitors and it's our opportunity I think to be a first mover.

Speaker Change: Across the industry and to continue to expand.

Yeah.

Speaker Change #100: Great and then my follow up just looking at New York City multifamily can you give us the breakdown of rent regulated versus Mark right properties and to the extent you have any exposure to pre 2019, Hs Tpa real change.

Speaker Change #101: Yes, very little exposure to pre 2019.

Speaker Change #101: Say about.

Speaker Change #101: Let's see after the 290 <unk> more than half of our loans are booked after the regulation multifamily.

Speaker Change #101: <unk> three 5 billion in <unk> of rent regulated multifamily down from the third to level of $1 4 billion.

Speaker Change #101: This is an interesting stat for you that the portfolio is obviously diversified but the average commitment is $3 $2 million, we only have seven loans with exposures over $15 million. There, so very granular and non chunky portfolio with no tall trees, which I think makes us feel pretty comfortable and criticized classified loans are.

Kind of below the overall credit stats are the rest of the commercial book and so there is only one delinquent loan right now in that 1313.

<unk> three 5 billion. So we don't see any credit story there right now.

Speaker Change #102: We have no further questions in our queue at this time I will now turn the call back over to John Ciulla for closing remarks.

John R. Ciulla: Thank you really appreciate everybody staying on the call and your engagement with the company have a great day.

John R. Ciulla: This concludes today's conference call. Thank you for your participation and you may now disconnect.

Please wait the conference will begin shortly.

John R. Ciulla: Okay.

John R. Ciulla: Yes.

John R. Ciulla: Okay.

John R. Ciulla: Yes.

John R. Ciulla: Okay.

John R. Ciulla: [music].

Sure.

John R. Ciulla: [music].

John R. Ciulla: Yes.

John R. Ciulla: [music].

John R. Ciulla: Yes.

Yes.

John R. Ciulla: [music].

John R. Ciulla: No.

John R. Ciulla: Yes.

John R. Ciulla: Thanks.

John R. Ciulla: Okay.

Yes.

John R. Ciulla: Yes.

John R. Ciulla: No.

John R. Ciulla: Okay.

John R. Ciulla: [music].

John R. Ciulla: Yes.

John R. Ciulla: Sure.

John R. Ciulla: Okay.

John R. Ciulla: Yes.

John R. Ciulla: <unk>.

John R. Ciulla: Okay.

John R. Ciulla: Yes.

John R. Ciulla: Okay.

John R. Ciulla: Yes.

John R. Ciulla: Okay.

John R. Ciulla: Yes.

Sure.

John R. Ciulla: Okay.

John R. Ciulla: Sure.

John R. Ciulla: No.

John R. Ciulla: Okay.

Yes.

John R. Ciulla: Yes.

John R. Ciulla: [music].

John R. Ciulla: Okay.

John R. Ciulla: [music].

Q4 2023 Webster Financial Corp Earnings Call

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