James Smith - Chairman and Chief Executive Officer Joseph Savage - President Glenn MacInnes - Executive Vice President and Chief Financial Officer.

Martin Terskin - FBR Capital Markets David Rochester - Deutsche Bank Mark Fitzgibbon - Sandler O'Neill & Partners Jared Shaw - Wells Fargo Securities, LLC Collyn Gilbert - Keefe, Bruyette & Woods, Inc. Casey Haire - Jefferies & Company, Inc. Matthew Kelley - Piper Jaffray & Company Ryan Strain - Guggenheim Securities LLC.

Good morning and welcome to Webster Financial Corporation’s Third Quarter 2015 Results Conference Call. This conference is being recorded.

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

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

Additional information concerning risks, uncertainties, assumptions and other factors that could cause actual results to materially differ from those in the forward-looking statements is contained in Webster Financial's public filings within the Securities and Exchange Commission, including our Form 8-K containing our earnings release for the third quarter of 2015.

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

Thank you, Rob, and good morning everyone. Thanks for joining us for Webster's third quarter earnings call. CFO, Glenn MacInnes and I will review business and financial results and then take questions along with President, Joe Savage.

Beginning on Slide 2, I am pleased to mention that Webster celebrated its 80th anniversary of values-guided performance this past Friday. Commemorative ceremonies across our footprint served to remind customers and non-customers alike of our local roots, our core values, and our competitive differentiation as a strong growing caring regional bank.

Turning to Slide 3, Webster produced solid third quarter results with net income exceeding $51 million. Given the effect of the non-recurring Q2 tax benefit, I’ll note that pretax income was a record rising 3% year-over-year and 4.5% linked quarter. Our results showcase our sustained progress in executing our well-publicized growth strategies.

I call this the Webster trifecta - consistent revenue growth enabling us to invest meaningfully in people, markets and technology, while keeping the efficiency ratio at or below 60%.

A common denominator across all of our businesses remains strong loan growth, robust loan originations of $1.3 billion drove higher net interest income that overcame slight net interest margin compression, and helped produce year-over-year core revenue growth of 10%, the 24th consecutive increase.

Over those six years quarter-over-quarter revenue growth has averaged 4.5%. Linked quarter loan growth of $440 million drove the quarterly loan loss provision to $13 million representing a $5 million build in the allowance for loan losses, after net charge-offs of just under $8 million.

The slightly higher linked quarter provision held our reserve to loans flat at 1.14% and comfortably within our current desired range. All my further comments will be based on core operating earnings. Turning to Slide 4, you can see recent quarterly trends for loans and deposits.

Loan growth of $1.7 billion over the last year has been more than fully funded by an increase of $2.3 billion in transactional and health savings account deposits. This is a strikingly positive loan funding relationship, which underscores our balance sheet strength and strong liquidity position.

The loan-to-deposit ratio of 87% is actually slightly lower than a year ago despite nearly 13% loan growth and the borrowing to assets ratio has declined to 16%. The true value of our low-cost funding advantage will be more fully realized when the long-awaited rise in interest rates finally gets underway.

On Slide 5 that strong loan growth contributed to another quarterly record for net interest income. All key loan segments again posted year-over-year and linked quarter growth with all the consumer in double-digits. Turning to Slide 6.

In addition to record net interest income, non-interest income also set a record rising 21% year-over-year aided by an increase of over 50% in loan fee revenue and reflecting in particular HSA Bank’s strong fee income stream.

Non-interest expense growth also reflects the effects of the HSA acquisition with HSA Bank accounting for $10 million of the $15 million year-over-year increase.

HSA Bank makes significant contributions to the four metrics that you see here having more than doubled its impact in all cases including accounting for 16% at Q3 pre-provision net revenue or PPNR.

Our Webster overall for the 10 straight quarter we reported an efficiency ratio of 60 or better, which in turn produced a 7% increase in PPNR to a record $90 million. Slide 7, shows the long-term value of sustained revenue growth and expense discipline that it resulted in consistent PPNR growth in recent years including year-to-date growth of 8%.

Slide 8, breaks down that year-to-date PPNR performance compared to a year ago by a line of business. Commercial banking continues with double-digit PPNR growth while HSA Bank’s near doubling of PPNR emanates from strong organic growth and from its sizable January acquisition.

Community banking PPNR is lower than prior year due to the revenue damping effect of the persistent low interest rate environment. Private banking is poised to achieve stronger performance as the model shift is complete, and the loan and AUM pipelines are filling up.

During our presentation at the Barclays Conference last month I spelled out a number of revenue generation and efficiency investments that we've been making or planning such as our commercial cash management system upgrade and upgrade to our private banking platform a major investment in compliance systems and in cyber security tools.

And our investment in salesforce.com as our CRM system that will meaningfully enhance sales productivity. Overall, we expect to increase CapEx by 40% annually over the three-year planning horizon with over 60% going to IT and digital investment. That's the value of the Webster trifecta I described earlier.

The ability to absorb current period expense as we invest forward in strategies that create value for customers and maximize economic profits over time. Line of business performance begins with Slide 9. The slides speak for themselves especially with regard to balance sheet and production metrics so I'll be brief.

Commercial banking continues to perform extremely well growing loans, revenue and economic profits while executing on its strategic initiatives of geographic expansion, leveraging industry expertise through specialization, relationship focus and local model feel.

Solid loan growth is reported in each business unit with originations up across all geographies as our bankers continue to win over well-established commercial businesses and excel in service to all customers.

Our commercial bank has generated a 24% increase in non-interest income year-over-year as we continually drive revenue through cross-selling and deepening existing relationships and through our agent team activities.

Moving to community banking Slide 10 shows that business banking achieved record originations due to strong market activity across the footprint in C&I lending and investment CRE.

Additionally, our straight-through processing initiative to reduce our loan processing time is generating faster turn times, higher volumes and significantly lower withdrawal rates. We plan to leverage the straight-through processing program across all consumer and business loan processing activities beginning next year.

Strategic focus on high-value relationships continues to drive year-over-year and linked quarter growth in total deposits and fee income with average checking balance is up 11% year-over-year.

Looking at the personal banking unit on Slide 11 and referring also to the mortgage origination trends on Slide 12, stronger consumer lending overall and in particular strong first mortgage loan originations drove portfolio growth higher linked quarter and by 10% year-over-year.

Residential mortgage originations were $400 million about 70% of which were for portfolio. 90% of mortgages for portfolio were jumbo loans as our jumbo mortgage strategy positions mortgages as a lead product for building high-value relationships. Overall personal banking deposits were flat year-over-year and seasonally lower linked quarter.

65% of net new transaction accounts opened in the quarter were high-value premier checking accounts. Average balances per account rose 6% year-over-year another sign that our mass affluent strategy is working.

Our response to changing customer preferences is also working as active mobile users increased 12% year-over-year and mobile deposits rose 32% while transactions at banking centers declined 7%. We continue to realign our network accordingly and consolidated two banking centers in the quarter.

Investment assets under administration in our Webster Investment Services brokerage unit grew less than 1% year-over-year to $2.7 billion. Market volatility impacted new production, driving total revenues down by approximately 14% linked quarter and year-over-year.

Recurring revenues now account for a strong 41% of brokerage revenue compared to 35% a year ago. Slide 13 presents the results of HSA Bank which continues to generate strong growth both organically and from its January acquisition.

HSA Bank recorded its best third quarter ever as account openings more than tripled from a year ago to 130,000 new accounts. This growth more than offset customary attrition and the expected roll off of 49,000 accounts from a custodian only arrangement in the legacy portfolio in August.

In terms of that custodial arrangement roll off many of you may recall that we added about $180 million and 25,000 accounts mostly brokerage from HSA administrators in the third quarter of 2012. HSA A is what is referred to as a third-party administrator relationship where we provide custody only.

They manage the investments and HSA Bank manages the deposits. Given the custody only nature of the business HSA A have the right to move the business. HSA A was recently acquired by a trust entity able to take on the custodial work and opted to shift from HSA Bank. For those of you who follow Devenir’s HSA industry rankings.

HSA A's total assets have always been shown separately from HSA Bank. So there is no change to HSA Banks assets in the Devenir rankings. Net-net the HSA A roll off represents $48 million in deposits and 49,000 accounts and $385 million in investment assets.

Being a relatively low margin business for us given the custody only aspect of the relationship the HSA A roll off represents an annual revenue impact of about $1.5 million. Even with the HSA A roll off the 130,000 new accounts added in the third quarter resulted in a net gain of 21,000 accounts compared to June 30.

Likewise deposits grew $26 million from June 30 apart from the HSA roll off. As referenced the third quarter of each year tends to be seasonally slow to with legacy HSA Banks Q3 linked quarter growth the last two years was also less than 1%.

Excluding the HSA A transfer and this is not on the slide legacy accounts grew 40% year-over-year and legacy deposits grew 28%. Strong growth reflects the importance of our multi-product strategy. Our extensive integrations with major health plans and our success in competing in the large employer channel.

For example in July we onboarded our second largest employer to date representing approximately 45,000 accounts following our largest onboarding ever 60,000 accounts in June. Overall we remain in line with our 2015 organic account growth projections of about 25%.

As we noted during Investor Day the market for consumer directed healthcare is expected to grow at a 20% compound annual growth rate for several years which represents significant upside to this business.

Integrations with our new health partners and customers were completed in the third quarter and the conversion of the JPMorgan Chase accounts to the HSA Bank platform has begun.

When completed the resulting scale and anticipated future growth coupled with declining transaction and integration costs for pushed unit cost lower and increased net revenue per account. Slide 14 summarizes results for Webster private bank which is making progress implementing its strategic plan.

Loan growth continues to be strong, split between commercial loans and jumbo mortgage loans. The linked quarter decline in assets under management was due entirely to market conditions which amounts to 1% increase in net new assets.

We’re encouraged by our success and adding assets in amidst to market volatility and by the significant increase in our AUM pipeline. Now, I’ll turn it over to Glenn for his financial comments..

Thanks, Jim. Good morning, everyone. I will begin on Slide 15, which summarizes our core earnings drivers. Average interest-earning assets grew $521 million compared to the second quarter. Over 95% of the growth was attributable to our loan portfolio with growth across all asset classes.

Net interest margin at 304 basis points decreased just one basis point. The decline was within our anticipated range and eased from declines seen in the first half for the year. Our 2.4% linked quarter growth in earning assets, partially offset by the slight NIM decline, still resulted in a quarterly record net interest income of $168 million.

Core non-interest income increased by $2.1 million or 4% on a linked quarter basis to establish a new high of $61.5 million. While core expenses were up $2.9 million we once again demonstrated our ability to invest in our businesses while maintaining a 60% or lower efficiency ratio.

Taken together, core pre-provision net revenue totaled a record $89.6 million, up 4% linked quarter and 7% from prior year. Asset quality remained stable during the quarter and our loan loss provision of $13 million is reflective of quarter-over-quarter loan growth.

Pretax GAAP reported income totaled a record $76.6 million, up 5% linked quarter and 3% over prior year and reported net income of $51.5 million includes an effective tax rate of 32.7%, while prior quarter had a rate of 28.2%, which included a $3.7 million net tax benefit. Slide 16 highlights the drivers of net interest margin versus prior quarter.

Starting at the top the securities portfolio was essentially flat quarter-over-quarter. Cash flows totaled $279 million with the yield of 308 basis points, which included $14 million of called municipal bonds at 664 basis points. Purchases totaled $361 million in a quarter at a yield of 279 basis points.

Investment portfolio interest income decreased by $300,000, due to a five basis points decline in yield as a result of portfolio churn. This was more than offset by $500,000 increase in our FHLB stock dividend shown here under money market and other. We expect the new dividend yield of LIBOR plus 300 basis points to continue.

Prepayment speeds decreased modestly from 15.8% to 15.1% and we saw a modest increase in net premium amortization expense of $200,000 to $14.3 million. Further down you see our average loan balances grew $501 million or 3.4% and the portfolio yield decreased three basis points.

Growth was split across consumer and commercial business, combined interest income generated by our loan portfolio increased $4.9 million. Two-thirds of our $15 billion in loans are floating-rate are repriced periodically, including 85% of our C&I and commercial real estate loans and virtually all of our home equity lines.

As previously highlighted average interest-earning assets grew $521 million or 2%. Average deposits increased $354 million from seasonal growth and public deposits and an increase of a $119 million in our HSA balances. The rate on deposits was 26 basis points compared to 27 basis points in Q2, primarily as a result of lower CD expense.

For the quarter combined transactional and HSA deposits now represent over 53% of total deposits compared to 46% a year ago. Average borrowings increased $165 million in support of strong loan. The average cost decreased one basis point to 137 basis points as the additional funding was in short-term FHLB borrowings at 26 basis points.

And one extra day in a quarter added about $800,000 in net interest income, but had no effects on NIM. To summarize continued strong loan growth and slight NIM compression combined to result in a $4.5 million increase in net interest income to a $168 million and a net-interest margin of 304 basis points.

On Slide 17 we provide additional detail on core non-interest income, which increased $2.2 million or 4%. Mortgage banking revenue, the top box decreased by $1.1 million on settlement volume of a $142 million and a spread of 101 basis points which compares the volume of a $128 million and a spread of $196 basis points in Q2.

Loan fees highlighted in light blue increased $2.6 million as we benefited from strong commercial transaction activity in the quarter, other income increased $886,000 primarily driven by higher cash management, credit card and swap income in addition to a gain on direct investment.

Wealth and investment services highlighted in gray decreased by $1 million, as Jim highlighted market volatility had an adverse impact on new production. And deposit service fees saw an increase of 544,000 reflecting seasonal activity in community banking. Slide 18 highlights our core non-interest expense which was up $2.8 million from Q2.

HSA Bank represented $1.1 million of the increase the majority of the remaining increase reflects a credit recorded in Q2 for the recovery of our previously reported deposit insurance expense. Slide 19 highlights our efficiency ratio despite the prolonged challenging environment we continue to invest in our businesses to ensure future revenue growth.

Even so, we continue to operate at an efficiency ratio at or below 60%, which we have now achieved for 10 consecutive quarters. We have modified Slide 20 to show less extreme interest rate shock scenarios than we have in the past.

You can now see our PPNR sensitivity for a 100 basis point increase in short-term interest rates combined with a 50 basis point increase in long-term interest rates. Note the modest increase in our asset sensitivity since last year, but a significant change from 2013.

Given recent economic and monetary policy developments, we believe any increase in short-term interest rates in 2016 will be modest. Consequently we are targeting a neutral to slightly asset sensitivity interest-rate risk profile. We do of course retain the flexibility to make adjustments should conditions change.

Turning now to Slide 21 which highlights our asset quality metrics. Non-performing loans in the upper left decreased to $159 million and were $1.04% of total loans. You will note in the NPL reconciliation in the bottom right box only $19.3 million in new non-accrual's. This compares to the average of about $35 million for the four prior quarters.

The $8.9 million decrease in NPL’s this quarter was led by reductions of about $3 million in both commercial non-mortgage and commercial real estate loans as well as reductions of about $1 million in both residential mortgages and consumer loan. Past due loans in the upper right represent 27 basis points total loans.

The increase of $8.9 million is primarily due to residential and small business loans. Past due loans have nonetheless declined 10% compared to a year ago when they represented 34 basis points of total loans. Commercial classified loans in the bottom left decreased by $5 million and have been in the low 3% range over past year.

Our annualized net charge-off rate was 21 basis points on $7.9 million of net charge-offs in the quarter. This represents a seven consecutive quarter at or below 25 basis points. Looking forward, we expect continued strong asset quality metrics with some customary variation in commercial loan portfolio, given the nature of the business.

Slide 22 highlights our capital position. Ratios remain in excess of Basel III well-capitalized levels. The tangible common equity ratio decreased 3 basis points from June 30 and is around our current target of 7.25%. The common equity tier 1 ratio decreased by 13 basis points to 10.81% within our target range of 10%.

We continue to evaluate our capital levels and may establish lower targeted ranges in near future. Before turning it back over to Jim I'll provide a few comments on our current expectations for the fourth quarter relative to Q3.

Overall, average interest earning assets will grow approximately 1% to 2% and we expect average loan growth to be up approximately 2% to 3% growth in all portfolios. We expect less pressure on net interest margin in Q4 assuming the level of the 10-year swap and its spread to mortgage rates remains in today's range.

We expect NIM to be within a basis point plus or minus of Q3. That being said, we expect an increase of $3 million to $4 million in net interest income. Our credit indicators remain stable and we expect the Q4 provision to be in the range of third quarter’s level.

Regarding non-interest income, we expect to be about the same as Q3, which included strong commercial activity and could be $1 million or so lower depending on commercial activity. As Jim highlighted, we continue to invest in the business and anticipate reported expenses will increase quarter-over-quarter.

That being said, we will continue to demonstrate a disciplined approach to investing and expect to operate within core expenses at a targeted efficiency ratio at 60% or lower. Our expected effective tax rate on a non-FTE basis should be around 33%. And we expect our average diluted share count to be in a range of 92 million shares.

So with that, I will turn things back over to Jim..

Glenn, thank you. On Slide 23 I think the first bullet sums it up pretty well. We are having success investing capital and resources and strategies that maximize value to customers and shareholders and we’re making progress toward our high-performance goals.

We’re looking forward to being with many of you at Milwaukee in mid-November for HSA Bank Investor Day and Teach-in. The event begins with dinner on November 18 with guest speaker Eric Remjeske of Devenir who will speak about Health Savings Account industry broadly.

The next morning Chad Wilkins and the HSA Bank team will provide a business review and facility tour of our Schlitz Park offices which provide ample expansion capacity to accommodate HSA Bank's rapid growth. Please contact Terry Mangan for those of you who have not already indicated that you are attending. Let’s open it up for comments and questions..

Thank you. We’ll now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from the line of Bob Ramsey with FBR. Please proceed with your questions..

Good morning, this is Martin Terskin for Bob Ramsey..

Good morning..

You mentioned your jumbo strategy, and I was just wondering could you give us some color about kind of the decrease in mortgage bank activity and just what you're seeing in the jumbo market right now?.

So you say – generally our jumbo strategy is part of our mass affluent strategy in the community bank where I indicated that 90% of the loans originated for portfolio in the quarter were jumbo loans which is a trend that we have been seeing and we use the jumbos as the lead product to help us to develop high-value relationship.

We’ve had a lot of success with that both directly in the market through our bankers and through some correspondent business that we do as well. We also use the jumbos as a lead product in the private bank as well and we’ve found the volume there to be fairly robust and we have increased our share of that market is that what you're asking..

Right, I got it.

And could you give us some color around the decrease in mortgage banking activity this quarter?.

Oh, the decrease in the gain on sale. So our volumes were up as I indicated in my comments, but the rate was down full 95 basis points quarter-over-quarter. So where we had a gain on sale of 101 basis points, prior quarter was 196 basis points so it’s all rate driven. Our settlement volume was $142 million versus prior quarter which was $128 million.

So settlement volume was good and we might see that taper down in the fourth quarter, but it was really a rate driven for the quarter..

Got it. Thank you. That's very helpful. And just switching gears a little bit, you mentioned the onboarding of large accounts within HSA Bank.

Could you give us some color around pipeline for onboarding? Do you have any other accounts there you are looking at? Or just some of the other opportunities that you are exploring?.

Sure, so we are anticipating a very robust enrollment season which you know gets underway late in the fourth quarter and then very much into January. We expect to see the growth trends continue to be very strong there..

Got it. And then just last question and I'll hop out.

Could you talk a little bit about expense trajectory and especially how it's going to affect the HSA system integration? And will it affect -- will the cost basically be down in the next six months?.

Yes, I’ll take that one. So I think the two core expenses in HSA and keep in mind that we are running basically two systems or three systems with the SPARC system which is our legacy system. We have [EV1] which we have converted to and then we have the transition services agreements associated with the JPM acquisition.

And as I indicated on previous calls those cost peak or peak in the second quarter let say $5.3 million and it continued to come down as we take out the cost of the TSA that’s a marginal cost associated we’re bringing on that volume. So we are more and more stable rate as we go into say the third and fourth quarter of next year.

If you think the total cost of $5.3 million is probably about $2.5 million. So the expenses come down as the TSA winds down, but there is some marginal costs associated with it..

Got it. Thank you very much..

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

Hey, good morning guys..

Good morning Dave..

So you mentioned possibly lowering your targeted capital ratios.

Can you just give us some more color on your thoughts around that? And is there anything you need to see in the market or from regulators to convince you to change that?.

Not from regulators I mean we are well above the regulatory guidelines. This is an internal discussion we are having that we are having with the board as well and so where we are going with this Dave is probably to set up ranges as opposed to target.

So we’ll operate within a range and that's an ongoing discussion that we’ll have with the board during the fourth quarter..

So you know - I’ll just add to that that we’ve been talking about this for some time as you know and post our stress test submissions and all, and given the results of those that we feel we have room to look at our capital targets..

Yes. Absolutely, makes sense. And I appreciated the color on the JPM expenses that are coming out.

I was just wondering how much more cost savings do you think you can pull out of that occupancy line as you continue to streamline the footprint there?.

As we said in the past, we’re always rationalizing our distribution channels, but we’re also investing in the mobile and online banking platforms as well. So we don't give out specific guidance on that. There’s probably more opportunity as we do consolidations or shrink our footprint on physical size. But that’s just – that’s an ongoing effort here.

Jim I don’t know if you want to add to that..

Well, I just say that so you should look at where we have savings on occupancy expense that, to Glenn's point reinvest in other technology consistent with the changing customer preferences and also look at the overall franchise and make sure that we’ve got the best locations across our broader franchise.

So we may reinvest in some de novo locations possibly, but we will continue to optimize the franchise..

And then back on your comments on the CapEx, I know you've spoken about that before.

Do you think it's likely that the efficiency ratio remains at the higher end of your longer-term range of 55% to 60% over the next year or two, just as you continue to invest in the franchise?.

Well, I think we put that range out there with the idea that we could operate in the range and that as opportunity presents itself; we want to be able to continue investing. Because one of the strengths that we are able to invest in our future even while we’re keeping that efficiency ratio at 60 or better.

And so that there is a connectivity between the revenue growth, expense control and the ability to reinvest, which is what I was trying to emphasize in my remark.

So I don't want to predict, I want to say we’ll be in the range, but that we value highly our ability to invest in the future and there’s lots of investments that need to be made to ensure we can continue the trajectory of revenue growth and the quest for economic profits..

Great. And then just one last one on the HSA business. Since it's been a little while since the announcement of the Anthem-CIGNA deal, what are your thoughts on how your relationship with both companies could evolve over time? If you could give any color there, that would be great..

I’ll just say we have excellent relationship with both companies; we’re excited about the changes that are taking care in healthcare - taking place in healthcare. And we think that we’re in an excellent position to benefit from that consolidation as well as from the excellent relationships that we have with both CIGNA and Anthem..

Great. All right, thanks guys..

Thank you..

Thank you..

Our next question is from the line of Mark Fitzgibbon with Sandler O'Neill. Please go ahead with your question..

Hey, guys good morning..

Good morning, Mark..

Good morning, Mark..

Guys, on the HSA business, even if you exclude that HSA A loss of - I think you said $48 million of deposits, it looks like deposit growth was pretty negligible. I think you had attributed some of that to seasonality in the third quarter.

I guess I was curious what drives the seasonality in the third quarter in that business?.

Sure. So you're exactly right it is seasonal and as I noted we’ve had less than 1% growth not just in this year but last year and the year before. And what happens is that enrollment season is in late Q4 and then very much so in Q1 and so you have a lot of activity then and a lot of deposit growth.

And then as you go through the year people are continually adding to their accounts but they're also incurring expenses as they go and so that kind of levels out in Q3 is pretty close to a match between the net investments - net deposits and the net expenses involved.

And then toward the end of Q4 you start to have the enrollment activity, so you are likely to have a little bit more growth and then it explodes again in Q1. So there is a highly seasonal nature of this business and our results as reported for Q3 conform to that..

And given the growth that you had in the third quarter and in the second quarter, it strikes me it's going to be hard to get to that 25% organic growth rate in that business.

What am I missing?.

Well, if you look at our legacy side, I think we’re saying that we are growing at 25%, ex-the HSA A, of course. And we think we have the potential to continue do that, we also I would say that the JPM acquired platform has performed at least that expectations.

So I don't know if we’re projecting 25 at this point, but I think we're looking at more than 20..

And Mark, keep in mind the enrollment period starts in the fourth quarter and so you’d typically see the pop in the first and second quarter..

Okay. And then as it relates to the commercial loan pipeline, it looked like it was up a lot from the second quarter.

What's driving that? Is there any particular industry or geography?.

Hey Mark. This is Joe. I think we’re seeing nice growth across the platform and as you know you remember from Investor Day, we’ve got a lot of arrows in our quiver in terms of markets that we can do business in.

So I think that's a big help, but if I were to make a prediction at this juncture with respect to where a loan growth would be, it’s going to be in the middle market and more specifically it’s going to be in our segment specialty businesses.

We’re continuing to see nice opportunities in that marketplace so the team is bullish and our segment specialty guys and gals are particularly bullish..

Thank you..

Our next question comes from the line of Jared Shaw with Wells Fargo. Please go ahead with your question..

Hi, good morning..

Good morning, Jared..

Good morning, Jared..

Just sort of following up on the commercial question.

Joe, how is the – can you give us an update on how the newer markets of like Philly and DC are doing?.

That’s a good question and thank you for asking that. I guess I'll start with the Philly market and as you know we've been down there for some extended period of time on the commercial real estate and the asset based lending side. And probably a little bit over a year ago we hired a gentleman that John and I knew for gee.

I don’t want to date John, but probably 30 years a real vendor in that market or real PNC, a strong individual. And what John said, I'm going to say this again about John.

John said on Investor Day that we like that market, we’re going to have success in that market, but it's going to be as that market breathes and as we take the time and the credits meet our profile in what we expect.

So all of that distills to, in that market they’ve got three transactions at this point quite modest about I’m going to say about 30 million of outstandings.

Now the interesting thing is as we were doing a little bit of examination in anticipation of that question, when we look at the year to date data on our middle market group Jared they looked at some 30 transactions and ultimately closed on I said earlier three, but they closed on two deals.

And the reason that they stepped away which is exactly what we want in most cases it had to do with not liking the pricing or the structures. So I want you to feel good that we are going to move with all deliberate speed in that market.

Let me slide over to Washington and that’s under Peter Burke and Bill Wrang and Bill keeps it close hand and Peter is very active in the market, but today we sit at about $50 million in three transactions. So again Peter has had a lot of looks in a market that he knows and we know pretty well.

So I’d probably tell you – say more than you want to know, but I think I want to convey to you the message that we can grow at the rate we’re growing without having to put undue pressure in these new markets. Making sure we get the originations with the people and the clients who want to be with.

So modest right, but it's exactly what we want and we’re very, very excited about the inroads. I was just down in Philly just the other day. John – Bill Wrang was in Philly just the other day. So we like what we say..

Are there other markets that you think you can – now that you've done well in these markets that you can take it to? Or are there other specialty industries that you feel comfortable adding….

Jared the market that interestingly, you know we used to have an ABL presence in Atlanta. A Gentleman who used to work with us you know and us we were having conversations, he was a very strong professional.

And so that was an opportunity we saw to go into a market where we still had some legacy assets with a very talented individual who would work for Webster in the past.

So I would say that's probably about where we are now, but I’ll remind everybody that our credit performance has done very, very well in commercial exclusive of what particular geography we were at..

Okay, great.

Thanks and then shifting gears a little on the HSA side, looking at that $16.5 million of fee income this quarter from HAS? Can you give a breakdown on what portion of that was interchange?.

Jared hi, it’s Glenn it's been temporarily running about 50-50 half of its interchange and half of its service charges..

Okay. And on the expense side, you were saying that the more stable run rate – or that you could be seeing $2.5 million cost from the JPMorgan side from the $5.3 million now.

Is that correct? So you could be seeing about a $3 million quarter?.

Once I am saying - I said once we are fully converted which I would look at the second quarter of 2016 right, we are on target.

So $5.3 million which peaked in Q2 I think the cost in Q3 were about $5.1 million as we started doing the conversions right and that cost will go down to $2.7 million on a more normalized basis which is the marginal cost associated we are taking out the TSA platform..

Great, thank you..

Sure..

Our next question is from the line of Collyn Gilbert with Keefe, Bruyette & Woods. Please go ahead with your question..

Thanks, good morning gentlemen..

Hi Collyn..

Hi Collyn.

Would you guys just mind running through Jim, the HSA A sale? And then just sort of frame the timing of that, the motivation of that. I don't – you lost me a little bit there. So, if you could just kind of go through that again..

Sure, what I was saying was that they decided that we are only providing custodial services for them. So primarily we were managing the deposit accounts and they were responsible for the investments they’re what we call a third-party administrator so we were providing only custodial services.

And so given that it was a custody only business they had the right to be able to move the business. We only have a couple other relationships like that that are not material to our performance. And they were recently acquired by a trust entity that could take on a custodial work so they opted to shift out that's what happen.

And actually the nature of that business was such that Devenir which I'm sure you are familiar with actually track them separately from us so the fact that they moved didn't affect our standing in the Devenir rankings..

Okay.

And the timing of this was when? When did this happen?.

This happened in August..

August. Okay, okay. Okay and then just also on the HSA front just to sort of understand that the timing of – so you onboard these new accounts in June and July.

How does the dynamic of like, the deposit balances, when do we start to see that? Was that the related increase in deposits as seen this quarter? Or is there a lag affect there? Just trying to reconcile kind of outflows versus inflows when you onboard new large accounts..

So Collyn I don’t have in front of me, but I would give you look at the Investor Day presentation we did, we provided four trends and you can get a sense for how the balances build over a time period.

I can get that to you, but it gives you a real good sense of how the balances continued to build four years I don't have it in front of me unfortunately..

Okay..

Great and what will happen is that over the period of the first year you’ll have average balances that come into 1000 or so maybe a little more than they gradually increase with the seasoning over time..

Okay. Okay. Okay, that's helpful. And then just on the deposit side, in terms of your Glenn, how quickly do you think you can get those CD costs down? And I guess the question is kind of what are your new CD rates and because it seems like there's opportunity to move that a lot lower. But just if you could talk a little bit about that.

No, I think we are flattened out on CDs right now from a cost standpoint the average cost – I think our average cost is about coming on about 40 basis points and what’s coming off is that 35 so there is not a lot that much room there..

Okay, I guess the 1%....

It depends obviously on tenure and everything like, but that’s about where we are right now..

On the CDs you are talking about?.

On CDs..

Okay. Okay. Okay, that's helpful. And then just quickly back to the mortgage, so the stuff that you retained, it sounds like it was jumbo product.

Can you just - is that 15-year, 30-year fixed and kind of what the rate is that you are seeing on some of the stuff that you are portfolioing?.

I’m sorry Collyn, can you repeat that question..

Yes, just wanted the profile of the residential mortgages that you are portfolioing, the duration and the rate?.

30-year at 375..

Okay. Okay. And then one last question just on the pricing differential - maybe this is for Joe - that you are seeing, or just the competitive landscape differential between the Philly and DC markets, and then versus what you are seeing up in the legacy markets..

Yes. No, Collyn. The - it's interesting we are not it's never that the pricing is – really, it's - these borrowers know exactly what they are doing. So do the banks. So if we’re going to price an accrete transaction the Philly market and one in the Boston market, I can guarantee to you they are awfully close.

The gem for us in terms of what ultimately affects portfolio is, what's the business mix and that is - and I think that’s going to probably bode well for us in the fourth quarter, because we’ll probably mix to higher-yielding assets in Q4. I don’t know if I was allowed to say that, Glenn. I’m looking over at Glenn to see if I’m allowed to say that..

Yes..

Okay. Okay, that's helpful. And then just - sorry, one final question on HSA.

Glenn, the million-dollar increase that you saw linked quarter on HSA expenses, what was specifically driving that?.

That was primarily the investment expense that came online from EV1 and compensation associated with the conversion. As you go through this bubble, you need more call center people and things like that..

Okay. So when you talk about the reduction of the $5.3 million….

Yes..

Okay.

Is that truly going to be a net reduction? Or are you going to see those savings then be reinvested into the business?.

If volumes stay where they are, that would be a reduction to our contract service line..

Okay..

So I’m using that as an example for how our marginal costs will be lower than total cost today..

Got it. Okay. All right. That's all I had. Thanks, guys..

Sure..

Thanks..

Thank you..

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

Hi, good morning guys..

Hi, Casey..

Hi, Casey..

Glenn, follow-up on the fee guide - down $1 million. You did acknowledge that you guys did pretty well on the loan fees, which were up $2.5 million.

I'm just trying to understand what is the driver to get to down $1 million? Because - I mean, is it loan fees, resetting - the reset there is shallow? Or is it a stronger rebound in some of the line items that only drives that down $1 million?.

So, I think that we do think there will be some commercial activity it’s hard to handicap how much. And some of it is what I’d call episodic and that you don't know when it’s going to recur and again it’s hard to handicap maybe Joe you….

Yes, I think, Casey, Glenn nails it. Over the course of a period of time, and we’ve been ramping up our agent lead activities, so that has been - that's really working beautifully for us. But as Glenn correctly stated it is episodic. Timing matters.

And we’ve got irons in the fire, but whether or not those things come to fruition, that’s - it can move over a couple of quarters. So that’s I think what Glenn was alluding to..

Okay. And just to clarify. The revenue hit from HSA A roll off - I think you said it was $1 million, $1.5 million.

Does that show up in spread income? Or somewhere in fees? Or is it a mix?.

Well, it would show up mostly in fees because most of them are investment expenses that go forward. That’s an annualized go forward number..

Okay.

And that will be - and that, I would assume, is in deposit service fees?.

Yes. We break it out here as HSA, but on the face of that P&L, it’s in deposit service fees..

Got you. Okay. Just following up on the capital question, potentially lowering target ratios. Would this lead to any change in capital management? I know you guys have been escalating dividend and opportunistic buybacks.

Just wondering if this is going to lead to any change in that policy?.

No. We don’t anticipate I mean to the extent we establish ranges we’ll likely, given our loan growth grow into that. So no at this point no capital changes contemplate..

Okay, great. And then just last for me on the borrowings, usage was up again a little bit this quarter.

Just curious, are these short-term borrowings that you are utilizing and therefore beneficial to NIM? And why not use - why not disuse them, given that your loan to deposit ratio has got plenty of room? What is it, 87% today?.

87, yes. So they are primarily short-term FHLB borrowings at somewhere around 26 basis points. The second part of your question was why not….

Why use them at all?.

Well, I think we’re still funding our business that way and we have – it’s funded, its funded to loan growth quarter-over-quarter..

Yes. No, I guess what I'm saying is like you've got plenty of room on the deposits.

Like was it – loan to deposit 87? Why not use the deposits to fund the loan growth?.

I think there's still some volatility in the deposits from public deposit volatility you saw that in the second quarter and then back into the third. You saw it from the first to the second to the third. And so that’s part of the offset and we think the FHLB borrowings at 26 basis points are an effective way to fund the balance sheet..

Okay, understood. Thank you..

Thank you..

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

Hi guys. I was wondering if you could just talk a little bit more about the commercial origination loan yields? It came in at 3.77%. Seeing that pick up pretty substantially.

Talk a little bit more about the business mix that you experienced during 3Q that drove that, and what where the specific categories that are coming in at those higher yields?.

Yes, that’s a great question Matthew.

And we probably we’d expect this trend to continue into the fourth quarter, but we have really the two major portfolios that kind of move the needle from a origination perspective or a commercial real estate and those yields and spreads will come in usually a little bit lower, you get swaps with that business and then we do our segment middle-market business those will see yields and spreads that are greater and it's really the proportional mix of the two that drives the yields that you see.

So we are very, very happy with the quarter that we just completed. It had a greater preponderance of the specific middle market segment business where we funded several $100 million at very strong yields, so there it is.

And again I just made the comment earlier the pipeline which is pretty robust for the bank is still got a lot of segment business in it. So my guess is it's going to look strong again so it really – it just a mix and it’s fine. Some quarters, we could see heavy CRE originations.

That’s great business, high-quality stuff, but it will push our yields down..

I guess I would just add to that, Matt. If you look at and you toggle back and forth I think its page 38 of our deck, and you go back and forth and you look at the originations versus the portfolio. So as Joe highlights, he is originating this quarter at 377, the portfolio is at 349. Business banking originated at 4.03%, the portfolio is at 4.39%.

Personal bank, 3.82%, the portfolio is at 3.81% and then Private bank 2.98%. Portfolio is at 3.22%, but lower volume. So that when you take that and you combine it with the investment portfolio right and the purchase is 2.79% and the portfolio is at 297.

And then you factor in what your assumptions are on an amortization, that’s how we get to the flattened NIM right and plus or minus one basis point, but it’s really driven as Joe is highlighting quarter-over-quarter by the mix of originations as well..

Yes. Understood.

And in the commercial banking segment, are the CRE loans coming on kind of the low 3% to 3.30%, 3.40%, and then the C&I, the middle-market stuff is 3.80% to 4% plus? Is that basically the breakdown?.

You, we are right with respect to ladder, you’re incorrect with respect to the former, the CRE coupons will come in lower than even what you cited, but I want to remind you that that stuff will have swap economics associated with it and it's usually got a risk class that is a full twist better. It's really a very strong risk class.

Typically based in multifamily DSR rate – DSCR ratios at 144. LTV's at 60ish. So we love that business when we bring it in so I hope that answers your question..

Yes..

Yes, there is a bifurcation with respect to yields..

And just to be clear, I mean, you are seeing CRE yields [sub-3%] then is what you're suggesting?.

That is correct..

Okay..

But they are generally, but 85% of them are the repricing..

Absolutely, there was swap transactions and 85% of those things are repricing, so….

Okay. Got you..

We love that..

Just to be clear on the loan fees that you did experience during the quarter that were strong, was that swap income in the quarter or prepayments? Or some other type of – what was driving that specifically?.

That was an agented transaction..

Okay, got it.

And then on the pace of branch closures, can you just remind us what you closed in 2014, what you've closed year-to-date in 2015 and what the target would be for 2016? So we understand the pace of branch closures and trying to figure out if that's accelerating or holding consistent?.

I think we are – I don't have those numbers in front of me and we will have to come back to you and….

But I will tell you it is not accelerating it’s decelerating from the early moves that we made where we probably closed about 20 banking centers over the last four years or five years.

We've added a couple as well some of them have been consolidation so to do two and a quarter at a pace of eight in a year that's probably a little high, we think more about it probably would be around four or five.

And as I said earlier we may want to be reinvesting into new locations that I think better located, smaller electronically outfitted offices at key points in the franchise. So net-net you shouldn't expect more than three or four closures in a year..

I mean some of the things we are doing is we do see our footprint within the building so if you have a 6000 square foot building you take 1500 of it and you either sell the building or you lease out the rest of it. So we are doing those things also..

Okay, got it, right. Thank you..

Sure..

Our next question comes from the line of David Darst of Guggenheim Securities. Please go ahead with your question..

It's Ryan Strain on for David. Quick question on the CapEx. Just wondering you mentioned that like 60% of that spending is going to the IT and digital investment.

But I was wondering where the other 40% is going and what impact you would expect to see from that?.

So the other 40% is in infrastructure and regulatory compliance..

Okay. Gotcha..

That’s things like the BSA/AML those types of things infrastructure or any things from our integration layer which we have continually invested in over the last years and then things obviously cyber security is buying for a big part of CapEx as well..

Gotcha. All right, well thanks guys..

Sure..

Thanks Ryan. End of Q&A.

Thank you. At this time, I will turn the floor back to Mr. Jim Smith for closing comments..

Thank you very much Rob, thank you all for being with us today..

This concludes today’s teleconference. You may now disconnect your lines at this time. And we thank you for your participation..