Good morning. Welcome to the Webster Financial Corporation Third Quarter 2022 Earnings Call. Please note, this event is being recorded. I would now like to introduce Webster's Director of Investor Relations, Emlen Harmon to introduce the call. Mr. Harmon, please go ahead.

Good morning. Before we begin our remarks, let me remind you that the comments made by management may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to the safe-harbor rules. Please review the forward-looking disclaimer and Safe-Harbor language in today's press release and presentation for more information about risks and uncertainties which may affect us. The presentation accompanying management's remarks can be found on the company's Investor Relations website at investors.websterbank.com. I'll now turn the call over to Webster Financial’s CEO, John Ciulla.

Thanks, Emlen. Good morning, everyone, and thank you for joining us for our third quarter earnings call. I'm going to provide remarks of financial performance, strategic execution and merger integration before turning over to Glenn to review our financials in more detail. The third quarter results announced today reflect the strong progress we've made in creating a high-performing and differentiated company through solid execution on integration activities and a laser focus on delivering for our clients. We are one unified Webster growing across diverse set of business lines, realizing revenue and cost synergies, supporting the communities in an expanded footprint, and delivering financial results that meet or exceed the target metrics we set forth when we announced the [indiscernible] 18 months ago. Our financial performance this quarter was stronger than last. On an adjusted basis, we generated diluted EPS of $1.46 versus $1.29 last quarter. Net income available to common shareholders $257 million versus $229 million [Technical Difficulty] quarter and PPNR was up $371 million from $316 million. The potential of the company we have created is evident in our results. On an adjusted basis, we produced a return on assets in excess of 1.5% and a return on tangible common equity of nearly 21%. Our efficiency ratio was 41% in the quarter and over 400 basis point improvement. These results exceeded the full-year 2022 performance we provided when we first announced our merger in of April 2021. We are surpassing loan growth expectations without expanding our risk tolerances. We're proactive in optimizing the balance sheet, we continue to generate solid fee income, we've done an excellent job of maintaining client service levels, adding and retaining clients and talent, while executing on the integration plan. Given the positioning of our balance sheet, the NIM expanded 23 basis points to 3.5%.…

Thanks, John, and good morning, everyone. I will start with the reconciliation of core earnings on slide four. We reported GAAP net income to common shareholders of $230 million with EPS of $1.31. On an adjusted basis, we reported net income to common shareholders of $257 million and EPS of $1.46, each of which exclude onetime after-tax expenses of $27 million. Merger expenses were related to real estate consolidation, severance and professional. The strategic initiative expense is primarily the contribution to the Webster foundation. Next, I'll review balance sheet trends before moving on to the income statement. On slide five, at period end, total assets were $69.1 billion with total loans of $47.8 billion and total deposits of $54 billion. Loan growth was predominantly driven by the commercial and residential portfolios. Deposits were up over $900 million on a quarter-over quarter basis with both public funds and HSA contributing. I will provide some additional color on the break out later in the presentation. Loan growth was also funded in part by cash flow from the securities portfolio and shorter duration FHLB advances. Slide six highlights the [diversity] (ph) of our loan growth by category, a great illustration of the breadth of our promising [Technical Difficulty]. In total, we grew loans $2.2 billion or 4.8% on a linked quarter basis. Growth was [Technical Difficulty] between categories with C&I, sponsor and commercial real estate, all growing $600 million and residential mortgage growing $400 million. [Technical Difficulty] portfolio increased 60 basis points. Excluding accretion the yield increased 72 basis points, a reflection of 61% of the portfolio being floating or periodic. Switching to deposits on slide seven. Total deposit balances increased by $932 million or 1.8%. Increases in public funds and HSA drove the growth with the former up over $800 million and…

Thanks, Glenn. We recognize we're operating at a time of uncertainty in the macroeconomic and geopolitical landscape and that there are wider ranges of potential outcomes that it could impact the operating environment. We believe that our diversified and high-quality businesses and loan and securities portfolios, our healthy capital and loan reserve positions, our credit and operating risk infrastructures and the quality of our colleagues all have us prepared to effectively navigate the macro-environment ahead. As I mentioned above, we are being thoughtful in our loan risk selection and emphasizing strong underwriting and portfolio management processes. I want to wrap up by emphasizing the outstanding progress we've made year-to-date and the momentum we expect to carry forward. Our commercial loans are on pace with 14% growth this year as we pursue growth in businesses where we have a strategic advantage and the ability to be selective with respect to risk profile and return metrics. Our deposit franchise positions us particularly well relative to peers where our total cost of deposits increased just 19 basis points relative to a 57 basis-point increase in our earning asset yields, excluding the impact of accretable yield. We remain confident in our ability to fund future loan growth given our multiple deposit channels and our liquidity profile. We expect we will continue to meaningfully benefit from interest rate increases, and we have levers to pull in terms of capital allocation, efficiencies and investment to maintain the current momentum. We'll be sending out a save-the-date, but we wanted to provide a heads-up that our intention is to hold an Investor Day in New York City on March 2nd, where you'll have the opportunity to hear from our talented management team on our company and the go-forward strategies and financial performance expectations for 2023 and beyond. And finally, thank you to my colleagues for their continued diligence and hard work as they execute on our core business initiatives while addressing the added challenge of integrating the new Webster. And I want to apologize, I understand we had some technical difficulties at the beginning of the call and I thank you for bearing with us. Operator, Glenn and I will open it up to questions.

[Operator Instructions] Your first question comes from the line of Chris McGratty with Keefe, Bruyette, & Woods.

Good morning. Thanks for the question. Maybe, Glenn, the upgraded NII guide, the $100 million. Very good -- I guess, very good update. One of the trends we've seen this quarter is a narrative around peak NII. Wouldn't see that -- like that's the case given this, but can you speak to growth from that fourth quarter level as you go into 2023? I'd be interested in your thoughts there. Thanks.

Sure. Great. So let me just start, I'll talk a little about NIM. So just for texture, I think our ex-accretion or exit NIM in September was 3.55% and then I would think, if you look at our Q4 range, I'd probably put that in a range, again ex-accretion of 3.6%. So we continue to see NIM expansion. As we look out into 2023, I think there's a couple of factors; one is that our modeling, we're expecting peak fed funds in the second quarter of around 450, right. And so given that dynamic and our beta which we're forecasting, again, in like the low 30s over the next four quarters, we continue to see NIM expansion. Now, we see NIM expansion going into the first quarter and then we see more modest NIM expansion in the back half of the year. So, I think we still feel really positive about the prospects in 2023. The dynamic here is that, even though we have higher deposit pricing which we are expecting, our asset book is repricing more significantly.

Okay, that's great. Is the 30% -- the low 30s, that's [indiscernible] is that a total?

I'm sorry. Is that for all deposits.

Just interest-bearing [Multiple Speakers]

Yes. I'm looking at the total deposit costs. And I would say lower 30s over the course of four quarters.

Great. And then if I could, the actions you took in the quarter to clean up credit, could you just provide a little bit more color on that. I think you said you -- I think there is a loan sale, maybe, I guess what prompted this? Could you consider more and I guess, how should we be thinking about the confidence in credit going into the year?

Yeah. Chris, happy to talk about it and I think it's important to talk about it. I think it was less to clean up credit and more literally to kind of optimize our balance sheet going forward. So we've talked publicly in the beginning that after diligence in closing the deal, we liked all the businesses, but over the next four to six quarters from close as good stewards of capital, we would continue to look at all of our businesses to see whether they remain strategic, whether the risk return dynamics were strong, whether or not there were any potential kind of credit weaknesses as you looked out over paradigm shifts and so we took the opportunity. I mean, think about it, we grew loans around 5%, including the disposition of over $500 million in assets and with the tailwinds from our asset sensitivity and the strong organic loan growth in key segments, we thought it was a great time to take those actions. And if you think about it again, look at the total charges related to those actions over the -- over $500 million, the average sale price was like $0.98 on the dollar. So this certainly weren't sale of distressed assets. And there were note sales in there, there were portfolio sales, some to regulated banks. So this was not kind of a clean-up of credit right in front of us, but obviously, in a higher expectation of spread environment. There is an interest-rate impact on the discount, on the prices and there were some note sales of non-strategic office for example that we thought would be now would be a good time to dispose. So we just thought it was a really smart move and obviously, we think it will benefit us going forward as much from a return-on-equity perspective as from an avoid credit issue perspective.

That's great color. I agree. Good move. Should we expect more into the end of the year or is this kind of it?

I don't see anything right now. So we don't have that in our guidance. I don't think it's going to be a reflection of what we do every quarter going forward. We really like the businesses we're in. But obviously, as we said, we'll continue to look at the dynamics of the combined portfolios. And so, if there are opportunities that makes sense from an economic perspective or give us more flexibility going forward or protect us from potential paradigm shifts in credit, we'll do it, but nothing that's in our sights.

Great. Thanks, John.

Thank you.

Your next question comes from the line of Mark Fitzgibbon with Piper Sandler.

Hey, guys good morning.

Hey, Mark. Good morning.

Glenn, I wonder if you could share with us what is your -- the spot rate on deposits are today?

Sure. I know that we ended the quarter -- I think we're -- let's see, I have that here somewhere. I would put it in a range of -- let me -- yes, it might be -- say in the range of 60 basis points, 60 basis points to 65 basis points.

Okay, great. And then secondly, just to kind of follow-up on one of the earlier questions about credit. I guess I'm curious how you guys are -- when you do your modeling, how you're thinking about the provision line?

Yeah. I mean, Mark, as you know, we think a lot about the provision line and we have a relatively conservative bias, but that doesn't always factor in particularly with CECL and the way it works now. So, I would say at a high level and then Glenn can certainly feel free to fill in. The dynamics this quarter were significant loan growth, right, which requires a higher reserve. The Moody's scenario which us and many of our peers use was kind of worse, right, which requires in general, directionally more reserves. Then you saw our credit stats, which as I said, I used the word remarkably not to brag, just to be like surprising in this environment, right, that our NPAs and our classifieds were down materially. So that's kind of a good guy, if you will. And then I will tell you that as I'm looking at the portfolio, one encouraging kind of data point for me is that in each of the last three consecutive quarters, the average rating risk -- the average weighted risk rating of our originations is actually better than on a material basis than the actual weighted average risk rating of the existing commercial portfolio translated into the fact that we are bringing on lower risk assets. Then we have each sequential quarter, which ends up bringing down the overall weighted average risk rating, which again would be a good guy. So you saw those dynamics, bigger loan portfolio, more reserves, worse forward-looking economic scenarios from Moody's, more reserves, better asset quality metrics, lower reserves and then higher quality originations, lower reserves and that's kind of where we end up. We feel really good. If you look at our peers, Mark, we are still top quartile, at least in terms of our reserve coverage ratios, and I'm pretty pleased with where we are. We also have a lot of capital. So, that's kind of the way I'm thinking about it.

Yeah. The only thing I would add to that Mark is that, John talked about the loan growth of $2.2 billion, $20 million provision against that. And then, if you look at the macro factors, so we have $11 million on the slide here. But it's really two things. One, if you just took out the Moody's impact and the fact that they slashed GDP estimates. I mean that's, probably $20 million and sort of clawing that back is $9 million, so the net $11 million of those two things and that $9 million is really related to, as John highlighted, the improvement that we see in NPLs and our folks [indiscernible] commercial classifieds, et cetera at a weighted risk metric that's improving.

Great. And lastly, I wonder if you could give us a sense for what your loan pipelines look like today? And maybe also share with us what the commercial line utilization rates are?

Yeah. I'd say, we're still tracking all the different [indiscernible]. I would characterize the line utilization as flat to slightly up, not materially, across all of our commercial businesses, Mark. And I am not sure what that evidence is. I mean, I think still solid demand, but they're not -- it's not expanding at a crazy margin in ABL, for example, which is usually a harbinger of faster working capital cycles. I would say flat to marginally up. Pipeline is -- the pipeline is relatively strong in certain sectors. I kind of feel like we'll see a flattening of loan growth over the next couple of quarters in kind of core middle-market areas. We have seen some slowdown in the trading of real estate assets or in the sponsor book in terms of people selling companies and buying companies. So that has an impact, but if I look just at my pipeline report, which, obviously, I did last night, it's robust and it's similar, as you see slightly above third quarter going into fourth quarter, where there is usually a heightened amount of activity.

Thank you.

Hey, Mark, before you go, let me just clarify something. I may have misunderstood the question. On our deposit cost for the second-quarter. I think we exited like at 41 basis points, but on the fourth quarter, we're expecting that to be in the range of 55 basis points to 60 basis points, just for clarification.

Thank you.

Sure.

Thanks a lot, Mark.

Your next question comes from the line of Casey Haire with Jefferies.

Yeah. Hi, thanks. Good morning, guys.

Hi, Casey.

How're you guys doing? Glenn, just to clarify. I think you meant -- you said third quarter, it exited the quarter, the [930] (ph) spot rate for deposit costs ended 55 basis points, 60 basis points or you expect fourth quarter to end --

I said the third quarter -- the third quarter right now, we're at 41 basis points. And then as you go into the fourth quarter with our beta assumptions, we're probably in range of 55 basis points to 60 basis points.

Got you, okay. Thanks for clarifying. All right. So, I was wondering about the funding strategy in the fourth quarter underlying your NII guide here. So in the third quarter, you guys kind of had a nice balance between a rebound in the muni deposits, run down of securities and a little bit of borrowings. What is the outlook for the fourth quarter and beyond here?

Yes. So, great question. So if you look at our loan guidance and you say sort of take a right in the middle between 2% and 3%, you probably had [$1.2 billion] (ph) or something like that. So let's just use that as a proxy. I think the thing that's really encouraging about the franchise is that -- we've pointed this out a few times that we have so many multiple levers of funding and liquidity sources, that's really encouraging. So as I look at funding going into the fourth quarter and even beyond, some of the key drivers will be things like the continued run-off of our securities portfolio as we invest that in loans. I think we have deposit growth in some of our commercial segments, obviously, HSA as we get towards the first part of next year. And then we have digital deposit gathering sources, whether it's [Brio] (ph), whether it’s banking-as-a-service, things like that. And then lastly, from a liquidity standpoint, we have plenty of sources of funds as far as funds that we can draw down on, but that would be sort of last thing we do. So we continue to feel good about our funding ability.

Got you. Okay. And the guide is predicated on another 100 bps of Fed hikes here. What kind of upside is there? I mean, the forward curve is at 475 by year end. What kind of upside would there be if it plays out as the curve expects?

Yeah. I mean, look, we're using our estimate right now of 450, obviously, there's more upside. You can figure it out mathematically, but I don't -- I guess, the thing I would point out is, the significance of our assets repricing and the slowness of betas coming around. So I don't have that. Where our model has it peaking at 450, if there's upside to that? That would be additive generally.

Okay, very good. And just last one on the credit front. So the $500 million disposition, was there anything -- was there any -- was the sponsor and specialty finance book touched and just any color on the -- if my math is right, there was about $60 million of commercial losses outside of the disposition, just any color on what was driving that?

Yeah. Nothing in sponsor and specialty was disposed of. And with respect to their core 13 basis points that I reflected driven by two commercial credits, Casey, one of which had been classified since pre-pandemic and finally capitulated, neither of them were in the same geography asset class or kind of had anything that I would say is systemic in there, I feel pretty good about 13 basis points of charge-offs at this point in the cycle, so nothing to say except two unique credits that ended up having a loss given [indiscernible] at the end of the day, unfortunately.

Understood. Thank you, guys.

Thank you.

Your next question comes from the line of Steven Alexopoulos with JP Morgan.

Hey, good morning everyone.

Hey, Steve.

I wanted to start on the deposit side. So if we look at non-interest bearing deposit balances, you actually had pretty decent growth in the quarter, while banks everywhere were seeing outflows. How did you buck the trend in the quarter and do you now expect to see outflows of those moving forward?

Yes, Steve, obviously, it's relatively good news, but we're also pretty realistic about it. There was some seasonal inflows from government deposits, right? And so our focus going forward is on making sure that as we kind of go through the next few quarters that our focus is on continuing where we're growing loans to grow full relationships, to grow commercial deposits. Obviously, we're going to get the benefit of HSA as we get to year-end and first quarter. So, I think we did it largely because we've got really sticky deposits in our retail franchise. I think we've got really good commercial solid deposits with our relationships, but I would have to say that a lot of the reason we were able to claim a 2% deposit growth when there were outflows was a seasonal flow-in from government deposits. So as Glenn said, I think what's great right now about the way that our balance sheet is made up is we do benefit from this asset sensitivity significantly. Obviously, we're taking prudent measures to make sure whenever the time comes when Fed fund rate comes down, we were protecting our cash flows, but it does give us some pricing flexibility in key relationship areas on deposits and obviously, we're focused now on continuing to generate core deposits, but we've got HSA, we've got the direct bank in Brio which is a higher cost deposit, but nonetheless, a deposit that we found to be stickier than we originally thought it would be. And then we've got obviously all the diversified business banking, commercial segments, small business and retail. So it's going to be work and we're continuing to focus on it, right, because if you're growing loans at the clip we are, we need to make sure that we're continuing to generate good sticky deposits going forward, but we'll take the victory of growing deposits in the quarter, but we also did benefit from government seasonality.

Okay. John, can you size that for us? What was that benefit from the seasonal inflow from government deposits?

Well, I think it was about $800 million, Steve.

Yeah, quarter-over-quarter, right, so then there was sort of a decline in the commercial. I think we have [indiscernible] and offset by some wholesale funding.

Okay. I wanted to also ask, so the loan-to-deposit ratio has moved up quite a bit over the last few quarters. Where do you see that stabilizing?

So we feel good about operating in the high 80s% to 90% range given the environment today. So that's where I would expect it to be. In fact, as I look out over the next couple of quarters, that's where -- that's exactly where it is.

Got you, okay. Thanks. And then finally, so, regarding the acquisition of People, this deal has attracted quite a bit of attention in Connecticut, particularly around the system conversion that didn't seem to go as planned. How much of an opportunity is there for you? You're the bank I think of most that could benefit from what's going on there? And have you seen any increase in client acquisition related to all the negative news on that? Thanks.

Steve, you can't ask that -- you can't get me on that question. I have such respect to that bank. Look, we've talked about this in the past that it's interesting in a lot of our key businesses, we really don't overlap with Peoples, and we didn't overlap with Peoples, and we don't overlap with the combined M&T Peoples. There obviously had been some disruption. Peoples Bank clients are loyal because Peoples is a really good bank. There are opportunities, obviously, with colleague disruption there as well, because that's not an MOE, it's an acquisition. And so there are opportunities from a personnel perspective and from a client perspective over time. But, as I said, it's a good bank and I wouldn't want to comment on specific opportunities.

Okay. Fair enough. Thanks for taking my questions.

Thanks, Steve.

Your next question comes from the line of Matthew Breese with Stephens Inc.

Good morning.

Hi, Matt. Good morning.

Hey, John, you alluded to this earlier, just talking about maybe a softening of loan growth next year, but I was hoping you could better kind of frame that for us. I think historically, you've always positioned the bank to be kind of a high single-digit grower. Obviously, the company in the last few quarters have been better than that. How would you kind of frame for us what next year expectations are? And then secondarily, just a sense for current rate on the pipeline. Yeah, I'll leave it there.

Yeah. No, great question. And we're sort of not changing guidance. I think we're 8% to 10% year in and year out. This year, I think we've been selective. We've got a couple of categories that have really driven growth and I think we're fortunate that they tend to be categories with lower loss given default, which I'm happy about in this cycle. As I mentioned earlier to one of the questions, our pipeline remains robust. I think we're going to have the ability and the luxury and I think many of our competitors will as well be a little bit more selective on rate and structure just given the fact that some of the nonbank lenders and their cost of funds and other dynamics are changing the nature of the marketplace. So I still feel like when we made the announcement in April of 2021, one of the premises of the deal was that we on a combined basis could grow our commercial loans 8% to 10% year in and year out. We're obviously benefited by a bigger balance sheet and higher hold levels which we've talked about. So even if the loan market and loan demand slows a little bit, some of the niches and verticals and relationships that we have continue to enable us to grow loans. So in our model, we're still looking at 8% to 10% loan growth next year, regardless of kind of what the overall demand environment is. And I believe we can do it safely. If -- we don't want Jason on the call, obviously, because you never want your Chief Credit Risk Officer on the earnings call, that generally portends to bad things. But if he were here, I think we're able to kind of narrow our focus in resilient businesses, stay away from things we think are more cyclical and continue to grow loans safely at 8% to 10%.

The only thing I would add to that is, when you look at the quarter, I think our originations were probably about -- and this is the third quarter, at about 5.20% -- 5.2%, right? And so as we look out, it's probably going to be closer to the range of like 550 to 600 origination rates.

Understood. Okay. And then could you just talk about digital deposits, the balances between Brio Direct and then the Banking as a Service segment? And how much of your funding projections should we be thinking rely on these buckets versus traditional street retail and commercial?

Yes, Matt, sure. And I think I've been pretty consistent in saying we've tried to lean in, in those areas. Obviously, Brio is up running and proven and we're able to generate some deposits there. We did in the second quarter, we did in the third quarter. Glenn can give you the number. As it relates to Banking as a Service, I don't know whether this is a pivot in narrative. But in the second quarter, I talked about the fact that we have three or four relationships that are live with a pipeline of about $500 million to $750 million of deposits, but that we really didn't factor in significant profitability or contribution nor did we factor in significant investment in the Banking as a Service space. I think the update there is, things are a little slower than we thought. Luis and I continue to kind of narrow our focus in those areas where we think we can drive core deposits and drive kind of liquidity. We're not factoring in significant funding from the BAS channel over the course of 2023. So we're not relying on that in our model. That would be upside gravy. With respect to Brio, we do expect to have that as part of our arsenal and maybe, Glenn, you can [Multiple Speakers]

Yeah, sure. So, I think -- just to start like, digital direct is probably about $1.1 billion right now. And so with the biggest driver of that being Brio. But as you know, Brio is like more of a higher beta type product, but it is a lever that we have that we can get good funding. And as long as we're turning it into loans in the range of 550 to 600, that's a pretty good funding source. So I think Brio is one channel that we have that we can pull the lever, we can adjust that pretty quickly. And then as John mentioned, the banking as a service and stuff like that. But more importantly, I think besides securities portfolio running off, we expect to have deposit growth in commercial segments. HSA, as you know, will come in in the first quarter. That's the enrollment period. So we should see a pop on the HSA as well. So there's -- again, I keep coming back to because I think it's really unique for us is that we have so many multiple sources of funding that will continue to distinguish us. And certainly, it's playing out in our financial forecast.

Okay. Thank you. And then last one from me, just going back to the loan sale. I think there's been some lingering questions on whether or not there were areas of the Sterling portfolio that would eventually be exited or continue to be part of the story. Did the loan sale have anything to do with kind of legacy Sterling ancillary segments? And if so, what were those?

Yes. I'm not going to talk specifically. I think the overall theme is, both banks had kind of suboptimal risk return businesses. And as we work through them as a $70 billion bank now, we have the opportunity to decide whether or not we can either accelerate and correct and improve businesses or decide to exit. So I guess I'm trying not to be [indiscernible]. I think the answer is kind of not specifically related to legacy Sterling, but related to the entire organization. There are suboptimal portfolios that kind of we've looked at and moved through. We were able to kind of act on everything we identified in the quarter as things where we didn't think we were going to be able to get return for the appropriate risk or as I said on a couple of select note sales in key areas where there may be paradigm shifts like office, we were able to kind of lighten our exposure. So I'm going to leave it at that. And I don't think it's a worry. You characterize it as kind of like a worry, but there are subscale and suboptimal businesses that we will over time figure out whether or not we want to accelerate or whether we want to exit and whether that exit is a loan sale or just a winddown of the business that will happen over time. But right now, we love the portfolio of assets. We like the credit quality a lot in the entire bank when you bring all the portfolios together.

Understood, okay. That's all I had. Thanks for taking my questions.

Thank you.

Your next question comes from the line of Jared Shaw with Wells Fargo Securities.

Hi, good morning. This is Timur Braziler filling in for Jared.

Hey, Timur.

Hey, guys. Maybe just starting on the bond book and using that as a source of funds, does that slow with the expectation that loan growth slows? And does that pretty much end in the first quarter as HSA seasonality kicks in? I guess what's a good kind of base we should be thinking about for the bond book?

So no, I think you would continue to see -- first of all, it has extended with the rising rates. So our cash flow has come down a little bit, but still for the quarter, if you're using something in the range of like $250 million, I think that's pretty good, right? So that's how I would generally model it. But we continue to reinvest and what came off in the quarter -- in the third quarter was like $238 million. It came off at 2.83%, right? So if we can reinvest that in loans, you can see the spread difference, right? So, we'll continue to do that as a source of funding for loans going forward. Did you have a second part to that question?

Well, just with HSA coming on in the first quarter and that being used as a fund [indiscernible] that kind of slow in '23? Or is that the strategy that will be used in '23 as well?

I mean, I think we've talked about this, but I think if you look at total book at $15 billion, we sort of think of it as -- part of it is that the deployment of the excess liquidity we had back a couple of quarters ago. And so that's done well for us from an earnings standpoint, but it's always been our attention to sort of move that into the loan book and pick up 150 basis points or now 200 basis points in doing so. So even with HSA coming in in the first quarter, given our loan growth for the year, I think that will still be a good source of funding for us.

Okay. And then maybe just bigger picture on the Sterling integration. I mean, the results post deal closing have already been quite strong. Integration is still kind of slated for middle of next year. What changes once that integration is complete? Is that just you'll be able to take out some more expenses? Or do you expect to see some operational gains kind of in how lending or deposit generation is being conducted?

Yes, that's a really interesting question. I think it won't have a material impact on our ability to generate revenue, right? One of the things we talked about with this transaction is the complementary nature. And again, I always harp on this, and I'll take the opportunity to do it again, is that a lot of times when MOEs don't deliver either in time or they don't deliver ever, it's not because of the cost saves. This wasn't the cost save deal, only 10% of the combined cost save, no banking center consolidation out of the gate, right? It was really about the fact that we were able to put two banks together where everyone could continue focusing on their customer because there was virtually no overlap from a retail business banking or commercial perspective. And I think that's proven out. So when we get the technology integration and conversion done next July, I don't think that signals our addition to accelerate revenue except to your point of having maybe a more resilient and scalable operational platform. But for us, what it will do is, we will finally get to retire one of two core systems. We'll kind of finally get to retire several commercial subledgers and make us more efficient over time. So, we do feel like our operational effectiveness will be better. Our operational efficiency and our cost structure will certainly go down. And that's one of the things we're excited about. You've seen obviously inflationary pressures on the industry throughout. We still have another 12 months to 18 months of the ability to offset some of the pressures of inflationary expenses on wages and other things by the fact that we still haven't consolidated three call centers. We still haven't fully gotten to our conversion on our core system, so all of that should give us kind of more flexibility from an expense perspective. I don't think it will change the trajectory of revenue growth.

Okay, great. And then just last for me, more of a modeling question. The scheduled accretion guide of $14.6 million in 4Q '22, do you have any visibility as to what accelerated accretion in the quarter could be, just kind of looking at the delta between third quarter accretion and the fourth quarter guide? And I guess for the third quarter accretion, was any of that component driven by the loan -- the $500 million of loan sales, that kind of drive any of the accelerated accretion component there?

No. I mean this is generally, its prepayments. I mean accretion is down obviously quarter-over-quarter, but there'll be volatility. Look, when we announced and put in the -- you see the impact of purchase accounting back on page 18 on the slide, but that was just based on scheduling. And obviously, as customers prepay and stuff like that, that will accelerate, right? I think there's probably about seven -- maybe smaller amount, it's probably $600,000 to $700,000 due to the loan sale in that accretion note. It's not meaningful.

Okay. But looking at the -- I guess, it's hard to look at the paydown schedule, but should we be assuming a similar level kind of accelerated accretion in the fourth quarter or is that --

Well, we gave it to you. We laid it out for you there. It's like on the loan side, its $17 million, right? And that's our best estimate right now, Timur, it could change based on prepayment activity and stuff like that.

Got it. Great, thank you.

Thank you.

Thanks.

Your next question comes from the line of Laurie Hunsicker with Compass Point.

Yeah, hi, thanks. Good morning. On AOCI, what was that intangible common equity this quarter on a dollar basis?

Without AOCI?

No, no. Just what was AOCI drag in the intangible common equity?

So AOCI in the third quarter impact was -- its $688 million, right, that's after tax. So that's an increase of about $242 million quarter-over-quarter.

Perfect, perfect. Okay, great. And then John and Glenn, just going back to the $500 million sale and I appreciate you don't want to break out what's legacy Webster versus legacy Sterling. How much of that was offset? And then kind of what were the other larger components in there? And then just a refresh on office, right, we had last quarter, you gave us, it was $2.2 billion of which $520 million was in New York. Do you have -- or NYC, I guess, proper, do you have a refresh on what that is as of 3Q? Thanks.

Sure. Sure. I'm happy to do that. So the impact on our office exposure between the asset sales and other just general amortization and payoffs is about $75 million. So we're $75 million lighter on total office exposure than what we had walked through, and I'll refresh those numbers for you in a second. And the rest of the stuff related to kind of general C&I activity in terms of the $500 million, so general C&I businesses. I would say that if to refresh office, if you recall, there's not really a material change except for the $75 million or so reduction. So we talked about $2.2 billion in total office exposure, about a little over $500 million of which was kind of stabilized medical office, which has a much better operating profile and I think is not subject to paradigm shifts that would impact traditional office. So if you take that $1.7 billion remaining roughly, about half of it is Class A. The other half is Class B, C, which is what we're focused on the most. So again, take the maybe 50-50 of the asset sales, you're down to about $800 million in terms of B, C office exposure. The total New York City office exposure in the five boroughs is around $400 million. That remained largely unchanged, and that's about split 50-50 A and then B and C. We haven't seen really a change in the underlying risk ratings or classified contents there, although we're not taking our focus off of it. So -- and obviously, evidenced by the fact that some of our discrete node sales were in that category, Laurie. But also again, reminding you that we sold all of those loans at a combined rate of $0.98 on the dollar. We weren't selling loans with identified loss content, we're just making decisions to kind of eliminate non-strategic assets that over time could have a lower value.

Got it, okay. And just so that I'm clear, I had in my notes last quarter, $520 million was New York City. That's now down to $400 million?

Let me check, maybe it's for -- oh, I think medical is also in that, Laurie. So nonmedical office in New York, around $400 million.

And at this time, there are no further questions.

Great. Thank you very much for joining us today and have a wonderful day.

This concludes today's conference. You may now disconnect.