James Smith - Chairman, Chief Executive Officer Joseph Savage - President Glenn MacInnes – EVP, Chief Financial Officer.

Mark Fitzgibbon - Sandler O'Neill & Partners, L.P Bob Ramsey - FBR Capital Markets David Darst - Guggenheim Securities Jared Shaw - Wells Fargo Securities Jason O'Donnell - Merion Capital Group Collyn Gilbert - Keefe, Bruyette & Woods Matthew Kelley – Sterne Agee Casey Haire - Jefferies & Company Matt Schultheis - Boenning & Scattergood Inc. .

Good morning and welcome to Webster Financial Corporation's Third Quarter 2014 Results Conference Call. This conference is being recorded.

Also, this presentation includes forward-looking statements within the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 with respect to Webster's financial condition, results of operations, and business and financial performance.

Webster has based these forward-looking statements on current expectations and projections about future events. Actual results might differ materially from those projected in the forward-looking statements.

Additional information concerning risks, uncertainties, assumptions and other factors that could cause actual results to materially differ from those in the forward-looking statements is contained in Webster Financial's public filings with the Securities and Exchange Commission, including our Form 8-K containing our earnings release for the third quarter of 2014.

I will now introduce your host, Jim Smith, Chairman and CEO of Webster. Please go ahead, sir..

Thank you, Jessy. Good morning, everyone. Welcome to Webster's third quarter earnings call and webcast. I'll discuss highlights of the quarter and LOB performance, and CFO, Glenn MacInnes, will review financial performance, after which President Joe Savage, Glenn and I will take questions.

I would best describe Webster's results for the third quarter as more and better. Solid loan growth, funded primarily by deposit growth produced revenue growth in excess of expense growth resulting in the 14th straight quarter of positive year-over-year operating leverage.

Credit quality trends remained favorable, reflecting the improving economy and vigilant risk management. Beginning on Slide 2, net income increased 7% year-over-year to a record $50.5 million. While earnings per share increased 8% to $0.53.

Return on average common equity improved linked quarter and declined slightly year-over-year due to higher capital levels. All my further comments will be based on core operating earnings. Looking at Slide 3 and 4, loans grew in all key categories, both linked quarter and year-over-year, with notable continuing strength in commercial banking.

Overall loan balances grew 2% linked quarter and over 8% year-over-year. That solid loan growth 85% of which came in the commercial bank, once again offset margin compression from lower earning asset yield and helped produced record net interest income.

Noninterest income grew 7% linked quarter and 11% year-over-year, including the first favorable year-over-year comparison from mortgage banking revenue in some time. Total core revenue grew 2.8% linked quarter and 6% year-over-year to a record. We've now reported 20 consecutive quarters of year-over-year revenue growth dating back to 2009.

Expenses grew significantly less than revenues both linked quarter and year-over-year, even as we continually invest in high economic profit businesses and risk infrastructure. The net result is an efficiency ratio below 59% for the first time, pushing core pretax, pre provision earnings up 11% to another record.

Favorable asset quality was evidenced by further linked quarter declines in all primary measurement categories. The ratio of NPAs to loans plus other real estate owned reached its lowest level since the end of 2007. The loan loss provision increased modestly to $9.5 million as loan growth was offset by continuing improvement in asset quality.

Since net charge-offs remained below $8 million for the third quarter in a row, we recorded a reserve build of $1.6 million, our third straight versus $5.9 million net release a year ago. In a significant development, we announced last month that Webster's HSA Bank division would acquire JPMorgan Chase's health savings account business.

Webster is purchasing approximately 700,000 accounts including an estimated $1.3 billion in deposits and $175 million in investments. HSA Bank currently has about $2.5 billion in footings including $1.7 billion in deposits.

So this acquisition will further solidify our position as a leading provider of health savings accounts, and will accelerate our strategy to move deeper into the employer and insurance carrier markets.

JPM chose to sell this business to Webster in part due to the stellar reputation HSA Bank has earned in the market place for its excellent customer service, robust online presence and broad menu of savings and investment options.

Evidence of this reputation is the fact that the global health services company CIGNA also announced that in conjunction with the JPM sale, it is teaming up with HSA Bank to administer the CIGNA Choice Fund Health Savings Account.

This agreement connects one of the fastest growing consumer driven health plans with HSA Bank and its industry leading technology.

The industry has been growing at 20% plus for several years and experts expect growth to continue with that rate for years to come as employers gravitate to high deductible health plans to control costs and reward their employees for taking responsibility for their healthcare decisions. Many of you probably have HSA accounts.

We expect the all cash transaction to have tangible book value dilution of about 3% and to be modestly accretive to earnings in the first year and increasingly so thereafter.

We expect the transaction to improve Webster's loan to deposit ratio about seven points to a pro forma level of 80% while transaction accounts overall will increase from 46% of deposits today to about 50%.

HSAs are strategically important to Webster because they attract low cost, long duration, purpose driven transaction deposits which provide a stable source of funding for Webster's loan growth and liquidity and for managing interest rate risk. Their enormous value will be seen even more clearly when short rates ultimately rise.

To get a feel for the value of Webster's HSA business, look at the market value of companies in this space that have gone public in the last year or so. I'll now turn to line of business performance beginning on Slide 5.

Growth remained strong in commercial banking as we continue to expand this EP- positive business, deepen relationships and take market share. Commercial banking loans now totaled $6.2 billion and grew 2% linked quarter and 14% year-over-year.

Growth was led by strong origination in our C&I and owner occupied CRE activities, while investor CRE originations declined from a strong Q2. The portfolio yield declined one basis point linked quarter as lower yielding investor CRE fundings represented only 10% of total fundings compared to over 30% in Q2.

Given this dynamic, the yield on new fundings in Q3 was 3.75% compared to 3.3% in Q2. Deposit increased nearly $600 million linked quarter, largely as a result of seasonality in the government business, while the cost to deposits was unchanged.

You can see the substantial remixing to transaction accounts over the past year, as DDA and other transaction accounts now represent 55% of total commercial deposits, up from 44% a year ago which accounts for the two basis point decline and a cost to deposits.

In summary, commercial banking posted revenue growth of 7.25% against expense growth of 3.25% year-over-year, the positive operating leverage of 4%. Momentum continues to build, evidenced by 25% pipeline growth from Q2. Moving now to community banking. I'll begin with Slide 6 which shows its business banking unit and it continue to steady growth.

While linked quarter growth was modest, year-over-year growth was 7%. The portfolio yield declined three basis points in the quarter from the effective lower yields on originations which declined two basis points linked quarter. Business banking's deposits also grew 7% compared to a year ago and modestly compared to Q2.

Transaction account balances comprise about three quarters of total deposits and the unit's deposits exceeded to loans by over $800 million which provide attractive funding for other lending activities. Slide 7 presents the result of the personal banking unit in the community banking segment.

Overall, consumer loan balances grew 2% both year-over-year and linked quarter. The highest linked quarter growth in nine years driven by strong originations primarily due to improving purchase mortgage activity. Total loan originations were up 23% linked quarter led by residential mortgage originations, they grew by over 50%.

The linked quarter declined in personal banking deposits reflects the seasonal decline typically seen in the third quarter. The 1% decline from a year ago reflects strategic CD run off over the past year as a self lower deposit costs and has now tapered off.

Investment assets under administration and Webster investment services continue their strong at about 9% year-over-year to $2.7 billion, driven by an increase of more than 6% and year-over-year production and by market gains. Slide 8 provides more color on our residential mortgage origination trends.

Overall resi mortgage production of $265 million was 54% higher than in Q2 and 14% lower than a year ago. The year-over-year decline was driven by a 50% reduction in mortgages originated per sale, while there was linked quarter increase of 7%. Purchase mortgage originations totaled $187 million in Q3 and grew 89% from Q2 and 23% from a year ago.

Purchase mortgage accounted for 81% of Q3 mortgage volume compared to 80% in Q2 and 55% a year ago, consistent with our mass affluent strategy, over 80% of mortgage origination kept in the portfolio in Q3 were jumbo mortgages compared to 73% in Q2 and 67% a year ago.

In summary, on the community banking segment, we continue to make progress with our strategic roadmap designed to generate more revenue of a lower expense base as we transform the unit's model. To that point, community banking posted year-over-year revenue growth of 2.4% against an expense decline of 3.6% for positive operating leverage of about 6%.

We are not yet earning the cost of capital but we are making good progress in that direction. Slide 9 presents the result of Webster private bank. While the strategic shift to our new business model is virtually complete, results reflect AUM outflows related to the previously reported personnel departures trigged by that model shift.

Loan growth has been solid while the linked quarter deposit decline reflects the more transactional nature of high net worth deposits. The private bank attracted $140 million in new AUM over the past 12 months and we expect business momentum to increase from here. Slide 10 presents the results of HSA Bank.

Deposits grew modestly in Q3 in line with seasonal expectations and grew 19% year-over-year. The cost to deposits declined again linked quarter and is down nine basis points year-over-year to 28 basis points.

We currently expect the new accounts in the peak enrollment period in Q1 of 2015, apart from the acquisition of JPM's HSA business, will substantially exceed to 118,000 new accounts that we opened in the first quarter of 2014. And I'll turn it over to Glenn MacInnes for financial comments. .

Thanks, Jim. I'll begin on Slide 11 which summarizes our core earnings drivers. Our average interest-earning assets grew $295 million compared to second quarter, almost 90% of what was attributable to our loan portfolio.

Net interest margin was 317 basis points in Q3, combined with our loan growth this resulted in a net interest income of $157.4 million, up over 1% from prior quarter and almost 5% from prior year. Core non-interest income increased by $3.3 million or 7% on a linked quarter basis with the primary driver being the expected rebound in mortgage banking.

Core expenses were $2.4 million higher than Q2 with the majority of the increase related to our investment in our HSA Bank platform and client-facing staff adds. Taken together, our core, our record core pre-tax pre-provision earnings totaled $83.5 million and were up 4% linked quarter and over 11% from prior year.

Our pretax GAAP reported income totaled $74.1 million for the quarter and our reported net income of $50.5 million includes an effective tax rate of 31.9%. Slide 12 compares the drivers of net interest margin to prior quarter. As highlighted, we achieved quarterly growth and average interest earning assets of $295 million.

The yield on securities decreased by eight basis points and interest income from the portfolio was $1.2 million lower. This resulted from higher premium amortization of $628,000 as well as lower reinvestment rates. Cash flow of securities totaled $264 million with a yield of 315 basis points.

We also sold $42 million of securities including our last two TruPs. Security purchases totaled $389 million with an average yield of 257 basis points and duration of 3.8 years. Average loan balances grew $262 million and a portfolio yield of 383 basis points was flat to Q2 resulting in an increase in interest income of $3.5 million.

In summary, the lower yield on securities and the unchanged loan yield resulted in a net reduction of two basis points in the earnings assets yield. The yield compression was more than offset by an increase in average loan balances resulting in a $2.3 million increase in interest income.

Regarding fundings, average deposits increased $415 million, split between money market and DDA. The increase was primarily driven by seasonality in government deposits. During the quarter, we added an average of $46 million of five year brokered CDs and $32 million of long-term retail CDs at a cost of around 200 basis points.

This further positions us for the eventual rise in short-term rates. The rate paid on deposits was flat at 29 basis points with growth in money market and DDA offsetting the five basis point increase in CDs. Deposit expense was about $500,000 higher due to an increase in average deposits.

Average borrowings decreased by $159 million while the average cost stayed at 124 basis points. The reduction in borrowing resulted in about $300,000 less in expense. So our funding cost was flat to prior quarter.

In summary, while our NIM decreased by two basis points to 317 basis points, net interest income increased by approximately $2.2 million to a record level. Slide 13 provides detail on core non-interest income which increased $3.3 million or 7% versus prior quarter.

As we highlight, mortgage banking revenue increased $1.3 million from Q2 and totaled $1.8 million. The increase in revenue reflects the 50% linked quarter increase in settlement volume and a favorable impact of approximately $300,000 in unrealized gains identified in Q2.

Other income increased $1.2 million primarily from private equity investment revenue. And loan fees increased $589,000 linked quarter primarily from loans syndication fees. Slide 14 highlights our core non-interest expense, which was up $2.4 million from Q2 and $4 million from prior year.

The linked quarter increase was a result of $1.2 million of professional services attributable to the expansion of our HSA platform and an increase in compensation and benefits of $1.1 million due to higher incentive costs and adds to staff in commercial, business banking, audit and compliance.

Our expense discipline and continued focus on operating leverage are reflected in our efficiency ratio on a next slide. As you see on Slide 15, solid revenue growth and expense control led to positive operating leverage on a linked quarter and prior year basis.

Including ongoing investments our Q3 efficiency ratio was below 59%, 28 basis points lowered linked quarter and 109 basis points lower than prior year. Slide 16 summarizes our interest rate risk profile. Our profile to a steeper yield curve remains asset sensitive and the results here modestly improved since last quarter.

The profile is driven mostly by changes in premium amortization speeds in the investment portfolio. The asset sensitivity of core bank is also growing with over 75% of loan fundings in a last four quarters floating or periodic. Our total loan portfolio is now 67% floating or periodic compared to 65% a year ago.

And our deposit funding composition also continues to improve with over 85% in core accounts. Our recently announced agreement to acquire JPMorgan Chase HSA business were augment our asset sensitivity and enhance our funding profile by adding deposits with long average lives, low price elasticity and a rapid rate of growth.

When approved we expect to invest about 40% of the estimated $1.3 billion of deposits in securities and use the remaining proceeds to pay down short-term borrowings. At today's rate we would expect to earn a yield of between 250 and 275 basis points in investment with an average duration of five years.

The borrowing will be paid off at a cost of 20 to 25 basis points. Upon closing HSA deposit balances will total about 20% of total deposits. In addition to making us less susceptible to an outflow in surge deposits, this transaction will modestly increase our assets sensitivity and net interest margin.

As you seen on a lower chart, our simulation results suggest modest exposure to an increase in short-term rate. Here we assume that deposit rates react immediately to changes in market rate. Any lagging in timing of deposit rate increases would improve these results. Turning now to Slide 17, which highlights our asset quality metrics.

Non-performing loans in the upper left declined to $140 million and were 1.03% of total loans, our lowest level since Q4 of 2007. New non-accruals were about the same as in Q2 at a little under $24 million compared to an average of just under $36 million for the four prior quarters.

Past due loans in the upper right also saw a decrease in a quarter and now represent 0.34% of total loans. Commercial classified loans in the bottom left decreased $36 million or 13% from prior quarter due to broad based upgrades and payoffs across the middle market and business banking platforms.

Our annualized net charge-off rate was at or below 25 basis points for third quarter in a row as net charge-offs were just under $8 million in a first two quarters of this year. Assuming recent economic trends remain intact, continuing improvement in key asset quality metrics can be expected in Q4 and beyond. Slide 18 highlights our capital position.

Tangible equity ratios improved from prior quarter and prior year while supporting over $302 million and $1.2 billion in balance sheet growth respectively and again highlighting the strength of our earnings. Tier 1 common to risk-weighted assets also improved and remains well above the Basel III well -capitalized level in our internal target.

We expect the HSA acquisition to impact capital ratios by 40 to 50 basis points. Our strong capital position and solid earnings support asset growth provide for future increases in the dividend and selective buybacks and enable us to confidently pass the annual regulatory severely adverse stress scenario.

In addition, this provides us with the substantial flexibility to pursue value added acquisitions. Before turning back over to Jim, I’ll provide a few comments on our expectation for the fourth quarter. Overall, average interest-earning assets will grow in a range of 1 to 2%.

We expect average total loan growth to be in the 2% range with growth expected to be led by C&I and commercial real estate.

We expect to see continued pressure on net interest margin due to rate environment assuming the level of the 10-year swap and spread to mortgage rates remains in today's range, we would expect to see two to four basis points of compression in Q4 driven by lower securities and commercial yields.

Of course, NIM will vary with loan and security prepayment activity, and that is also dependent on the future course of interest rates. That being said, we expect net interest income to increase about $1 million over Q3, driven by loan volume with some offset in NIM compression.

Leading indicators of credit continue to signal further improvement in asset quality. Given the outlook for loan growth in Q4, we see a modest increase in the Q4 provision. Regarding non-interest income, we expect modest improvement over Q3 driven by fee income and partially offset by lower mortgage banking settlement volume.

As a result, we anticipate core noninterest income to increase in the range of 2% to 3% linked quarter. And we continue to demonstrate a disciplined approach to investing in the business and expect to operate with core operating expenses at or below a targeted level to achieve a 60% or better efficiency ratio.

Our expected effective tax rate on a non-FTE basis to be around 32%. And based on current market prices and no buybacks, we expect the average diluted share count to be in the range of 90.6 million shares. So with that, I'll turn things back over to Jim..

Thanks, Glenn. Our third quarter results demonstrate continued success in growing our businesses and improving profitability in pursuit of economic profits. We are excited about the special opportunities that expansion of our HSA Bank present and we continue to make good progress in our quest to be a high performing regional bank.

We're now happy to take your comments and questions..

(Operator Instructions) Our first question is coming from the line of Mark Fitzgibbon with Sandler O'Neill. Please proceed with your question. .

Good morning.

First question I had for you Jim was on a standalone basis, what does the HSA Bank’s core profitability look like? And will that change a lot with the acquisition in there?.

So actually we roll the HSA Bank into the other segments for segment reporting. But what I will say is that HSA Bank earns well in excess of its cost of capital. And as it grows its unit profitability increases. So we see it contributing at a higher level.

There will be investment required as we build out our platforms and as we make the transition including the JPM platform and the CIGNA platform. So the rate of EP growth will slow in 2015 and then amplify thereafter. .

The only thing I would add Mark, it's Glenn, is that this is a business as we've highlighted in the past, the fee revenue from this business pretty much covers the direct expense in this business. So the spread is all earnings for both the HSA business and for the bank..

Right, right now the fees cover between 80% and 85% I think of the expenses..

So standalone today, it is a double digit ROE business?.

Yes. It is. .

Okay. And then secondly on the expense front. You guys have done a great job of driving down cost.

I wondered how much room you think might be left to drive cost lower and if so what areas might those cost synergies come from?.

So we are happy where we are with our efficiency ratio. I think we look at it from an operating leverage standpoint. So there are really two constraints as we go forward or two targets. One is to be below 60% and the other is to achieve positive operating leverage.

That being said Mark, we continue to as you see in this quarter, $2.4 million increase quarter-over-quarter in expenses, we are not limiting the investment in the business for future revenue. So that's our model.

So we don't give guidance to say 55% or 56%, we just keep operating with positive operating leverage quarter-over-quarter and staying below the 60%. .

Thank you. Our next question is coming from the line of Bob Ramsey with FBR Capital Markets. Please proceed with your question. .

Hey, good morning, guys. Wanted to talk a little bit about interest rate.

I know Glenn in your guidance you mentioned a couple times the NIM outlook is based on sort of where rates are today and as you think about sort of some of the rate shift movements, that's based on rates, obviously rates are very dynamic and where they are today is not where they were two days ago and so I am just kind of curious, when you talk about where rates are is it with the 10 year at 2% or 2.40%?.

So if we are -- we are talking -- if we are looking out Bob and we are looking at the 10 year swap and we are looking at the forward curve which implies a 2.30% around 2.30% at yearend or 2.60% at the end of 2015 and close to a 2.90% at the end of 2016. That's the curve that we are looking at.

And we would look to bottom out on NIM sometime in mid to late 2015. .

Okay. And over the interim, is the expectation that you’ll continue to see the kind of the same pace of compression. I know you gave guidance for next quarter but continue to be 2 to 4 bps if you will per quarter from now until that point. .

I think that's probably about right. The only thing I would highlight and we have charts on this. And when we look back at where NIMs been even prior year third quarter, NIM was at 3.23%, go back two years it was at 3.28%, and yet when you look at our net interest income, it continues to grow.

So in this quarter NIM being at 3.17%, compression of two basis points, and here we are at $157.4 million which is a record for the organization. My point being that, we've been very successful on all lines of business in outrunning lot of the NIM compression.

And most of what you see when you are looking at the 10 year and you are following it out as far as when do we bottom out, is going to be attributable to our investment portfolio, right, just by the way it's structured. And that being said our investment portfolio is 80-85 basis points higher than the peer group. .

Yes. And then last question and I will hop out. But sort of maybe looking at it from another angle, with rates falling it could prompt more refi activity and help the mortgage bank. I know another bank this morning said they have seen application surge in the last couple of days.

So just curious what if anything you have seen on the mortgage side in the last couple of days and how are you thinking about that business?.

Our app volume rates now on the mortgage side is basically flat going into Q4. On the mortgage banking side it is actually down 20 basis points or 20%. So maybe the last two days but we haven't seen that is early in the quarter but that's what we are seeing right now. .

If we are making the trade we will take the higher rates. .

Yes. .

Thank you. Our next question is coming from the line of David Darst with Guggenheim Securities. Please proceed with your question. .

Hi, good morning.

So could you comment on maybe the size of investment that you are going to be making in the HSA Bank and kind of what the timing of the conversion is and then at what point do we begin to see the earnings accretion that you are expecting?.

Sure. First of all the transaction is subject to regulatory approval. And it's hard - handicap that it takes it long as it does but let's just say maybe we will get that done sometime in Q1 you might say.

At that point the deposits would come on to our balance sheet and then we would have a transition period over multiple quarters where JPM will continue to do processing and then we would gradually take that on and accordance with the agreement, but we would actually have the deposits on the balance sheet at the time of the transaction closes.

So we would then be investing in the conversion to our systems. We also would be investing in converting CIGNA directly into our program as well. So over a period of several quarters we will be making investment of multiple millions. I think it's hard to put a cap on it but you could say even $10 million or so over 12 to 18 months for that purpose.

So that's why I made the comment that the rate of EP may slow a little in 2015 and then it would amplify again in the out years. .

David, the only thing I would add is and I don't if you heard my opening comments but a $1.3 billion about 40% of that will be invested in securities with the yield of somewhere between 250 and 275 basis points at duration of five years. And in the borrowings we would be paying -- with the remainder would be paying down at 20 to 25 basis points.

So that gives you an indication of how the JPM HSA business is priced. .

Right. So the accretion would begin in the first year, so within a couple of quarter it would have a positive impact and then it would increase thereafter. .

The only other color I'll add is that if you look at our pricing, we are at 28 basis points on our portfolio. We have higher balances in our portfolio. And as you know these businesses are tiered, right. So the higher the balance typically more higher the rate so there is generally lower balances with the acquisition. .

Right. So our blended rate will decline. .

Okay. I understand.

And then, looking at your CRE originations this quarter and then the growth in the originations and asset-based lending, are you trying to kind of manage the duration of the balance sheet and kind of avoid putting on too much various asset classes at lower rates today?.

David, this is Joe. No, we are always seeking the best available transaction at the time and then we put it to our treasury folk to price it as best it fits for the opco strategy, the institution, so we like to give optionality to the client, we will go for best transaction.

So whether it's a float or fix or it's swap, we let the client decide on that; probably the interesting dynamic is that the CRE business saw more pay off activity which we had been predicating, which had the tendency to drive up yields and spreads because that has been probably the -- the area with the lowest spread business; on the ABL side, that’s just, it's 100% a float book and it's a great mix of direct business and great participation with our middle market folks, so we will take any piece of good commercial business that we can get.

They all have their attributes. The thing we love about CRE is the usually the swap comes with it, what we love about ABL is the strong noninterest income items that come with it. So it's really -- we give it to the guys in treasury and they figure out how they want to leverage it..

Okay. And, Glenn, one more question.

Would you -- or could you quantify the number or dollar volume of loans that are at or below floors?.

It's about $1.8 billion and I think they are out about 66 basis points. .

Thank you. Our next question is coming from the line of Jared Shaw with Wells Fargo Securities. Please proceed with your question. .

Hi, good morning. Just a couple of questions.

One, could you talk a little bit about the growth in trends you are seeing in the asset-based lending and equipment finance book and how that plays into the growth in overall commercial lending?.

Sure, Jared. This is Joe again. And thanks for the question on asset based lending. I think the story in asset base is a very, very good story and really there is two dynamics at work that's making it I think performed so well. Well, I guess the first thing you would have to -- you can't miss, take a look at the asset quality statistics.

So it kind of took the team a little bit of time to deal with the box that we were putting them in. And that box was going to be -- we just wanted higher credit quality transactions, more emphasis on creating sticky relationships with clients.

And so the first thing that happen in ABL is as we seize the attrition, there was a maturation on the part of the relationship managers and the story what I mentioned to David earlier and the really wonderful story that's really evolving here is the partnership under John Ciulla's leadership between asset based lending and the middle market, the give-get is pretty impressive.

We had a meeting just yesterday and we swap this year some $30 million of origination that came from the middle market to asset based lending. And this year we moved over about $50 million or $60 million from asset based lending as it has matured into better transaction within the middle market. And that's kind of new for us.

So you put it all together and this thing is really doing what we always all along thought it could doing, I just got to mention again it's really one of the great sources of noninterest income for our institution and so we are really happy there.

When you get to the equipment finance business, again that was a story of -- we had to re-find -- we had to find our footing again. We did the same thing with respect to stabilizing the credit book. I mean you take a look at those statistics, they are spectacular, and they have been in a net recovery position for probably a couple of years now.

And understand Hannah's leadership that group, Stan was very deliberate with respect to the RMs we brought on, we expanded the territory to get into some of the areas where the particular class of asset was more prevalent and you think of where transports are. You are not going to see transports in New England.

And so you get that going, he brought new BDOs in and the result is a sustained steady upward client. So we are delighted to have it in our portfolio. And I think it tells that story of that slow but steady growth that we are seeing in the commercial bank in Webster overall..

Would you say that the growth in those categories is similar to the growth in the overall commercial side, or would that outpace the other commercial growth at this time?.

No. I would say the other commercial side then I am going to just keep by clearly away from this for just a second, but on the C&I side, they are doing fine but I think middle market segment, they are really there.

They are really the ones that are driving -- it's basically everybody contributing but the rate at which the middle market grew is at a slightly greater rate..

ABL has some seasonal elements to it. And generally Q4, there is some pay down, so this trajectory is not straight line. .

Okay. Great. Thank you. And then, just shifting gears a little bit, on the securities portfolio, probably for Glenn.

When you look at the growth in HTM versus AFS, is that a shift? Are you reallocating into HTM or is that primarily the new purchases coming in through HTM?.

Yes. It's the latter. It's the new purchases coming in. .

Okay. And is that more -- you are putting a little more structure in there and you want sort of the protection in the higher rate environment? Or what are your thoughts in terms of -.

It is in part the protection in the higher rate environment.

Okay.

And then, finally, could you let us know what the prepayment penalty component of interest income was this quarter?.

Prepayment, it was probably -- I have to come back to you with Jared. .

Thank you. Our next question is coming from the line of Jason O'Donnell with Merion Capital Group. Please proceed with your question. .

Good morning.

With respect to the NIM guidance of two to four basis points of compression and then your comments about longer-term margin performance, what are you all assuming in terms of deposit costs? Does your guidance assume that deposit costs remain relatively stable or begin to tick higher due to market forces or shift to the duration strategy?.

I think it's relatively stable, Jason..

Okay. That is helpful.

And then just thinking about the funding strategy, how should we think about the size of the securities portfolio going forward, excluding the impact of the HSA's acquisition? Do you expect the securities book to remain flat or continue to maybe come down a little bit as it did this quarter?.

It should remain relatively flat..

Okay.

And then my last question is on the -- just kind of thinking about your lending activities outside of the New England market, what is the size of the loan portfolio at this point that is situated in the greater New York City market? And can you talk a little bit about the dynamic there and whether or not you are seeing any additional growth in the multifamily space this quarter, given what is happening with rates?.

Sure. Jason, couple of things.

When we think of the New York market, we capture Westchester in those analytics and of course it has preponderance of asset based lending and there is also a nice CRE penetration and so if you think about our total book, it's at $6 billion in change book and it's a billion plus that sits in the New York, that New York Westchester county market so and it's an area that has been -- actually all of our regions are growing.

Probably the only one that's kept flattish over the last year has been the providence, Rhode Island area. But it's a nice grower for us not surprising and it's a nice mix of assets, CRE middle market asset based even some equipment finance in that area. So and then the second part I missed the second part of your question. .

I was asking about multifamily lending in particular, just if you talk a little bit about what you are seeing in the market given the shift in rates and so on..

Yes. I mean New York multifamily, we are not participating and we can't get yield since spreads and return on capital but that we want, but we are broadly doing -- we are broadly doing multifamily -- it still represents a favored asset class for us. So think of it and are rightly booked at about 26%, 27% of the total book. We like it.

I mean our story and Bill Wrang talks about, our Head of Commercial Real Estate talks about that a lot. We still like the multifamily. You think about the Northeast and you think about really it's very difficult to get those into portfolio. There is just not lot geography to get to play with. And so we continue to believe in it. We like to construction.

We like it when it is stabilized and we will continue to do more. We do have to get a return on capital. I mean that's really the basis that we see, and probably the other thing that's most important for everybody; we are always going to work with those sponsors that have track record in these respective spaces.

So I hope that answers your question on the multifamily side. It's something we like; we will continue to do in major fashion. .

It does. Thanks, guys. .

Thank you. The next question is coming from the line of Collyn Gilbert with Keefe, Bruyette & Woods. Please proceed with your question. .

Thanks. Good morning, gentlemen. Just three sort of quick questions.

One, Glenn, for you, on the brokered CDs and the retail CDs that you put on this quarter, you said for 200 bps, I think if I heard you correctly, what was the duration on those?.

Five years. .

Okay. And then second question on the pipelines within your buckets, the linked quarter growth was really strong in your pipeline.

Is that mostly typical, just what you see is going from Q2 to Q3 or are you seeing acceleration trends in general there?.

Hi, Collyn, Joe. I will speak -- I could speak with respect to the private bank and the commercial pipeline. So you are absolutely right. It is a seasonal pop, I looked at, I am getting prepared for this, and I looked at the last three years. And it's -- that pipeline feels about right I want to say it's three, seven years.

That's perfect for getting us and probably the really good story is on the private bank side where after the things that Jim had articulated earlier, once we stabilize the book, we are now seeing a nice pop in that pipeline. So I would say that's a good one. That's a good story there..

Okay. That's helpful.

And then just finally, Glenn, in your comments when you were talking about capital and stress testing and you had mentioned that you are in a position now where you have flexibility to pursue acquisitions, can you guys talk about that and also maybe put that in context of your ability to, as you said, consistently grow through this NIM pressure? Could we -- how do you think about acquisitions over the trajectory if we stay in this sort of flat curve environment?.

Yes. Collyn, Jim. I will respond that what we are focused on, I know it sounds like a broken record on this is continually improving our performance, growing revenue, having positive operating leverage with the idea that as the world gets tougher, people may decide that they want to take a partner.

And we want to be in the best possible position when a seller chooses a buyer to be in that considered set and to be the like minded partner that they would think about. But as far as how we are looking at it as a prong of the business that we need in order to generate growth. That's not how we see it at all.

So we are going to continue to focus on improving ourselves, bifurcating our valuation based on the quality of our performance, so our currency will have more value if the opportunity were to arise. .

Okay.

So no real change then in your position on this?.

No..

Our next question is coming from the line of Matthew Kelley with Sterne Agee. Please proceed with your question. .

Matthew Kelley – Sterne Agee:.

Hi. Joe, I was wondering if you can give us -- what was the yield on the $195 million of commercial real estate originations in the quarter. Just CRE originations, specifically..

The yield on the origination -- you know what Matthew, I am going have to look for that. .

We have the funded yield. .

3.20% sorry about that. .

3.20%. Got you.

And then what was the origination yield on the ABL -- the $122 million there?.

People with faster eyes and me are scanning quickly. And yields on the ABL were 3.75%..

Got it. And, Joe, when you drive around the metro Boston market, obviously, a lot of development. Some higher end type stuff.

How would you characterize the risk rating for the Boston market today versus a year ago? And any thoughts on that -- the supply side of the market and residential?.

You are making a good point. One of the -- we looked at a couple of things.

I made a comment earlier, we like multifamily, we do vary when multifamily goes too high end, when price per square foot goes up and so when you get into some of these major market, we are going to look at askance at transactions where we don't think there is going to be wide acceptance with respect to the product.

The other area that we are little bit concern that about and I think you are probably getting to this is we are little bit worried about proceeds as these assets flip and trade and everybody thinks they can add more value to that product. That puts pressure on a bank to augment the proceeds.

So we are always careful about the DSCRs and the LTVs when we are entering it to these transactions. And we tried to be realistic about how we run our discounted cash flows on these. So very, very careful and hot markets like that.

You heard me made the comment earlier with respect to New York City; we are really worried about it, multifamily market down there. And we are just not seeing a lot of activity that would meet our risk return criteria. I hope -- is that what you are getting at. .

Yes. Absolutely. And a question for Glenn. In the guidance on fee income of up 2% to 3% core, can you just go through again what your thoughts are on mortgage banking? I mean obviously rate is down a lot.

I think the expectation was that would improve, but talk us through the sequential change from $500,000 to $1.8 million, what drove that and then what you expect in Q4?.

So $500,000 to $1.8 million is about $300,000 which was low comp from the prior quarter so that was as we said all we got to realize the value of those assets. And then it was 50% increase in settlement volume, right, quarter-over-quarter. So settlement volume went from a number of -- in the second quarter $56 million say to $83 million.

What we see right now going through fourth quarter, settlement volume drop in 20%. So that's pretty much driving, that's driving the reduction quarter-over-quarter. Of course the other thing is the rate. So we've seen that about 1.43% to 1.54% and we think that's about flattish thing about flat. So those are the key drivers there. .

Got you. And then just questions on the HSA deal.

Can you remind us again core deposit intangibles and just the amortization we should be adding there?.

We can't remind you. We haven't first publicized or talked about that yet. We are still-- you will get more information after I guess --.

So that information was not disclosed. We did indicate we have about 3% tangible book value dilution and that we have earnings accretion beginning in year one. .

And we see thereafter.

After close we will be able to share all that information. .

Thank you. Our next question is coming from the line of Casey Haire with Jefferies. Please proceed with your question..

Hi, good morning, guys. Wanted to follow up on the asset sensitivity profile. Obviously, the HSA deal will improve that. I'm just curious why wouldn't -- I mean as of 6/30, you guys were kind of, I would say, at the lower end in terms of a parallel shift, 200 bps, and this may put you a little bit closer to the middle of the pack.

I am just curious what is holding you back, given this HSA concentration certainly is a leg up versus peers? And on the asset side, 67% loans floating, it seems like you guys are better positioned than most, yet still showing pretty conservative.

I'm just curious, what is holding you back? Is it the securities book concentration or just conservative assumptions elsewhere?.

I think it in part is securities book but it is driven by rate at the end of the day, right. And the rate environment. We have as you know parallel shift 200, I think our asset sensitivity is almost 4%.

So we have improved it over the last five quarters and I can lay that out for you but we definitely taken steps that have made us more asset sensitive over the last couple of quarters. .

That is 4% on NII or 4% PPNR?.

PPNR.

Okay, got you. .

I think that's improve. I mean it was -- if you go back four quarters ago, five quarters ago, it was actually negative. And so we are more liability sensitive or neutral at that point. And so we've definitely taken steps to become more assets sensitive. .

Okay, understood. And apologies if I missed this.

Do we have a close date for the HSA deal?.

No. We indicated, we do not have close -- it is subject to regulatory approval, so however long that takes, I made the comment that you might -- I don't want to assume anything but let's think in terms of maybe Q1 but we are not going to predict that. .

Thank you. The next question is coming from the line of Matt Schultheis with Boenning & Scattergood. Please proceed with your question. .

Hi, good morning. Just a quick follow-up on the HSA expenditures for conversions and what have you.

How much of those expenditures are likely to be capitalized and how much of those are to be realized as the cash flows out?.

Yes.

I think that so in our core platform, meaning our existing business as we move to a new platform expanded platform, there is probably, Jim highlighted a couple million, I know probably about $1 million of what you saw in this quarter again for our core business was project management consulting health in the conversion of the platform as well as higher service charges as we move to the platform.

We sort of run two platforms at once. And so I think that going forward the bulk of that -- the consulting will obviously follow say 40%, 50% of that number and then the remaining will go -- will become part of our run rate. .

Okay. It's not going to just be --.

We are not buying or developing a software platform. We are buying a platform. .

Thank you. We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Mr. Smith for any additional concluding comments. .

Thank you, everybody for being with us today. Thank you, Jessy. Good day..

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