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Webster Financial Corp  (NYSE:WBS)
Q3 2018 Earnings Conference Call
Oct. 18, 2018, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the Webster Financial Corporation's Third Quarter 2018 Earnings Call. I will now introduce Webster's Director of Investor Relations, Terry Mangan. Please go ahead, sir.

Terry Mangan -- Director, Investor Relations

Thank you, Michelle. Welcome to Webster. This conference is being recorded. Also, this presentation includes forward-looking statements within the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995 with respect to Webster's financial conditions, results of operations, and business and financial performance.

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

Additional information concerning risks, uncertainties, assumptions, and other factors that could cause actual results to materially differ from these in the forward-looking statements is contained in Webster Financial's public filings with the Securities and Exchange Commission, including our Form 8-K containing our earnings release for the third quarter of 2018.

I'll now introduce John Ciulla, President and CEO of Webster.

John Ciulla -- President and Chief Executive Officer

Thanks, Terry. Good morning, everyone. Welcome to Webster's Third Quarter 2018 Earnings Call. CFO, Glenn Maclnnes and I will review business and financial performance for the quarter. HSA Bank President, Chad Wilkins will then join us for Q&A. I'll begin on slide two. I'm really proud of the team's performance this quarter. Continued execution on Webster's strategic priorities to aggressively grow HSA Banks. Expand commercial banking and transform community banking resulted in a record level of quarterly net income.

Our strategic management framework continues to ensure a disciplined approach to capital allocation where capital and resources flow to those businesses that have the highest potential to generate economic profit over time for the benefit of our stakeholders. Leveraging the combination of our management framework and our differentiated business model has resulted in another quarter of strong financial performance.

Earnings per share of $1.06 in the third quarter represent a new quarterly record. Adjusting for discrete tax benefits specific to the quarter and a final accrual for FDIC insurance premiums related to prior periods. Our EPS for Q3 was $0.98. Performance was driven by pre-provision net revenue growth of 18% from a year ago. Loan growth and a higher net interest margin along with an increased level of commercial loan and HSA fees led to our 36th consecutive quarter of year-over-year revenue growth.

We've now posted three consecutive quarters of year-over-year revenue growth in excess of 10%. In Q3, total revenue of over 300 million was more than 13% better than a year ago and more than 3% better than last quarter. Adjusted expenses increased less than 9% year-over-year, resulting in the sixth consecutive quarter of positive operating leverage.

Our efficiency ratio remained below 58% and it's been below 60% for five consecutive quarters. Webster's transformed balance sheet has played a crucial role in our success. Our loan portfolio yield is 100 basis points higher than in the third quarter of 2015, which is just prior to when the fed began raising short-term interest rates.

The yield on our commercial portfolio has improved to 142 basis points over that period. On the other side of the balance sheet, our cost of deposits has increased only 18 basis points, over this period influenced by stability in low cost transactional and HSA deposits. This dynamic has been driving our NIM improvement over the last several years.

Webster's asset quality remained stable with net charge-offs in Q3 totaling just under $6 million. Turning to slide three. Total loan growth compared to a year ago was 5% with commercial loan growth above 10% and consumer loans declined 3%. As I indicated at the Barclays Conference in September, this performance is consistent with our strategic focus on expanding commercial banking.

Consistent with the broader market consumer balances have been affected by lower mortgage origination volumes and continued reductions in outstanding home equity balances. Deposits grew 5.5% from a year ago, funding all of our loan growth and two-thirds of the year-over-year reduction in borrowings. As you can see on the slide, the portfolio yield on loans grew significantly faster than our cost of deposits as compared to the prior year.

Starting on slide four, I'll review the lines of business. Commercial banking reported another strong quarter in Q3 and the loan portfolio exceeded $10 billion for the first time. Non-interest income achieved a record quarterly level as well. Loans grow almost 11% year-over-year and approximately 4% linked quarter due to strong originations in both commercial real estate and middle market sponsor and specialty.

Lower creep payoffs in the quarter also contributed to net loan growth. Commercial banking generated more than $18 million of non-interest income during the quarter, driven primarily by loan syndication fees and swap revenue on the increased (inaudible) originations. Our continued investment in commercial businesses and the focused execution by our bankers have resulted in consistent growth and strong performance. Commercial banking generated $65 million of PPNR in Q3, representing growth of 14.5% from a year ago.

Asset quality metrics in the commercial banking loan portfolio remained stable and at cycle lows. Turning to slide five. HSA Bank's Q3 performance continues to underscore the bidirectional value of HSA Bank and Webster particularly in this rising rate environment. Our 2.7 million accounts comprise 5.6 billion in low-cost long duration deposits that help fund Webster's earning assets, and an additional $1.6 billion in linked investment balances.

Total accounts were 12% higher than a year ago and footings per account are 6% higher. Combination of account growth and account seasoning resulted in year-over-year growth in total footings of $1.2 billion or 19%. HSA Bank's quarterly revenue of $59 million grew 28% from a year ago.

The 38% year-over-year increase in net interest income was derived from a 15% increase in average deposit balances and a higher net credit rate. Year-over-year expense growth was 13%, evidencing our continued investment in this differentiating business. HSA Bank generated positive operating leverage, resulting in pre-tax net revenue of $28 million, which grew 49% from a year ago.

We continue to see positive signs from our investments in HSA Bank's growth teams in all stages of our pipeline as we head into the important January 1 enrollment season. Progress has been greatest in the direct to employer channel where we have focused our sales activities over the past couple of years.

Going to slide six. Community banking continues to provide high quality deposits for the organization. Deposits grew by 4% year-over-year, including an increase of $158 million or more than 6% in business deposit. Business loan originations were up 29% year-over-year, and we are proud to have recently been recognized by the small business administration at the top SBA lender by dollar volume for all of New England. This adds to our long history of being the number one SBA lender in Connecticut.

Total business loan balances grew 6% year-over-year, while total consumer loan balances declined 3% resulting in a 2% reduction in total loan balances in the community bank. Total revenue for community banking grew 4% year-over-year, deposit growth and improved spreads drove 5% growth in net interest income. Total non-interest income in this segment declined modestly from a year ago.

Investment revenue growth was offset by a decline in mortgage banking revenue from lower origination volumes. The net result was $33 million of PPNR in Q3 for community banking, representing growth of 5% year-over- year. I'd also like to take a moment to congratulate the team and our customer care center as Webster Bank was ranked first in the New England region for call center satisfaction in the J.D. Power 2018 U.S. Retail Banking Satisfaction Study, demonstrating Webster's continued commitment to customer service and customer experience.

With that, I'll turn the call over to Glenn.

Glenn MacInnes -- Executive Vice President and Chief Financial Officer

Thanks, John. Slide seven provides highlights of Webster's average balance sheet. Average loans grew 1% linked quarter to $18.1 billion and 4% year-over-year. Loan growth was led by C&I, which increased to $174 million or 2.7% from June 30th.

Year-over-year C&I increased to $693 million or 12%. Loan originations for the quarter totaled 1.4 billion and fundings were 1.1 billion with commercial accounting for 1.2 billion of the originations and 776 million of the fundings. Loan payoffs totaled $713 [ph] million, which were down from $905 million in Q2.

As John highlighted the linked quarter decline in consumer loans reflects lower origination volume and residential portfolio coupled with continued pay downs in the home equity portfolio. Average deposits increased 502 million or 2.3% from Q2, this was led by a seasonal increase of 359 million in public funds and CD growth of 203 million versus prior year average deposits increased 970 million or 4.6% with HSA Bank representing over 700 million of the increase.

Deposit growth exceeded loan fundings for both the linked quarter and year-over-year resulting in a reduction of borrowings. Our borrowings asset ratio improved to 8.2% compared to 9.9% at June 30th and 10% a year ago. Our loan to deposit ratio remains favorable at 83%. Our ability to fully fund loan growth through multiple deposit channels continues to position us well for growth while providing a competitive funding advantage.

In common equity Tier 1 and tangible common equity ratios remained strong supported by our earnings growth. Slide eight summarizes our Q3 income statement and drivers of our record quarterly earnings. Revenue of 303 million increased 3.2% to a quarterly record. On a year-over-year basis, total revenue grew 13.5% led by an increase of 29 million in net interest income. Non-interest expense decreased 1.7 million linked quarter. The quarter includes an additional 2.9 million in FDIC expense for periods prior to 2018.

Reported PPNR of 124 million in Q3 increased 9.7% linked quarter and 18% from prior year. Loan loss provision for the quarter was 10.5 million and continues to reflect loan growth and stable credit quality. The effective tax rate of 12.1% in Q3 includes $8.5 million of a one-time discrete benefit related to tax planning strategies in connection with tax reform. The overall result is a record level of net income available to common shareholders. The efficiency ratio which excludes incremental deposit insurance remained below 58% for the second consecutive quarter.

Slide nine provides additional detail on our 18% year-over-year, pre-provision net revenue increase. Net interest income grew by $29 million or 15%, 20.8 million is due to rate and 8.8 million due to volume. The rate benefit is a result of a 57 basis point improvement in loan yield and a 12 basis point increase in deposit costs. When measured against 76 basis point increase in average fed funds rate, this resulted in a loan beta of 75% and a deposit beta of 16%.

The combined result is a 31 basis point increase in year-over-year net interest margin. The increase in non-interest income reflects higher commercial activity and HSA fees and the increase in non-interest expense includes incremental FDIC expense, higher compensation and benefits and technology expense.

Slide 10 provides additional detail on net interest income, which had a linked quarter increase of 5.4 million. Our performance continues to benefit from a significant amount of the loans resetting 30 days or less. At September 30th, 7.1 billion of loans are indexed to one month LIBOR and 2.6 billion are indexed to prime.

Combined, this represents 53% of our total loan portfolio. Another 19% of our loans reset at least once before final maturity. Combined 72% of our loans are priced on a floating or periodic basis. For the quarter, the yield on interest earning assets increased seven basis points, while the cost of interest bearing liabilities increased four basis points. This resulted in a four basis point improvement in NIM to 3.61%.

Slide 11 highlights, non-interest income, which increased 4 million from Q2. As anticipated, we had a higher level of commercial fees this quarter. On a year-over-year basis, non-interest income increased 6.4 million. This was led by commercial fees and account growth at HSA Bank. Mortgage banking revenue declined 1.1 million from prior year due to lower origination volume.

Slide 12 highlights non-interest expense trend. On a linked quarter basis, expenses decreased 1.7 million. Adjusted for the incremental deposit insurance and facilities optimization costs in both Q2 and Q3, the linked quarter expense increase was 4 million and this was primarily driven by higher medical costs. Year-over-year expense increased 17 million, this was driven by 2.9 million of incremental FDIC expense, an increase of 3 million in medical cost, 2.5 million from annual merit and 1.8 million from strategic hires.

Slide 13 highlights our key asset quality metrics. We continue to have a positive near-term view of asset quality. The net charge off ratio was 13 basis points and it's 15 basis points year-to-date. The allowance for loan and lease loss is now 212 million as the provision again exceeded net charge-offs in support of loan growth. The allowance represents a 116 basis points of total loans.

Slide 14 provides our outlook for Q4 compared to Q3. We expect average loan growth to be in the range of 1% to 2% once again led by commercial loans. We expect average interest earning assets to grow around 1%. We expect NIM to be up four to six basis points driven by expected increase in average one month LIBOR and prime.

Given our earning assets and NIM expectations, we expect net interest income to increase between 6 million and 8 million. Non-interest income is likely to be down between 3 million and 4 million as a result of strong Q3 commercial activity. We expect our efficiency ratio to continue to be in the range of last two quarters. Our provision will be driven by loan growth, portfolio mix, net charge-offs and our portfolio quality. We expect our tax rate on a non-FTE basis to be approximately 20%. Lastly, we expect our average diluted share count to be similar to Q3's level.

With that, I'll turn the things back over to John.

John Ciulla -- President and Chief Executive Officer

Thank you very much, Glenn. I'll conclude by complementing our Webster and HSA Bankers on another solid quarter. And I'd like to thank our shareholders for the confidence they placed on us as we pursue our vision to rank among the highest performing regional banks in the country.

With that we'll open it up for questions.

Questions and Answers:

Operator

Thank you. We'll now be conducting a question-and-answer session. (Operator Instructions) Our first question comes from the line of Steven Alexopoulos with JPMorgan. Please proceed with your question.

Steven Alexopoulos -- JPMorgan -- Analyst

Hey, good morning, everybody.

John Ciulla -- President and Chief Executive Officer

Hey, Steve.

Glenn MacInnes -- Executive Vice President and Chief Financial Officer

Hey, Steve.

Steven Alexopoulos -- JPMorgan -- Analyst

I wanted to start on deposits, the only real pressure pointing on deposit cost for you guys are time deposits and with the loan to deposit ratio, it is only 83%, what's the thoughts here behind such as aggressive growth in CDs?

John Ciulla -- President and Chief Executive Officer

Yes, Steve, I mean I wouldn't characterize it as aggressive growth in CDs as we've said and we spoke about this a lot in the last few quarters. We know that we have the benefit of HSA, so that we don't have to be overly aggressive in chasing deposits.

However, we do want to be disciplined because behind those CD clients and behind many of our consumer clients are mortgages and other products that are profitable for us. So, it's important for us to look at our deposit rates by region, by business line and make sure that we're being competitive enough to maintain our deposit.

So, customer preferences are changing, CDs are obviously increasing with us and with our competitive set, but we're going to be competitive, but I think we're not going to be ridiculous in terms of the rates we will pursue.

Glenn MacInnes -- Executive Vice President and Chief Financial Officer

And Steve, I would add to, this is Glenn that we've seen now for the second quarter a migration is somewhat slowed in the third quarter of savings to CDs. So, last quarter was more pronounced, but we've seen a migration of customers moving from a savings product at 20 basis points to 25 basis points, so it's sort of like a 10 month to 12 month CD rate. It's also keeping our current customers.

Steven Alexopoulos -- JPMorgan -- Analyst

Okay. Glenn, could you walk us through the expected change in deposit costs in 4Q that underlies the NIM guidance for up another four to six?

Glenn MacInnes -- Executive Vice President and Chief Financial Officer

So, we see -- we're up six basis points. I think going into the fourth quarter, we'd be up three basis to four basis points on deposit cost.

Steven Alexopoulos -- JPMorgan -- Analyst

Okay.

Glenn MacInnes -- Executive Vice President and Chief Financial Officer

I think what's encouraging to us is as we look at this through the cycle and you've done some work on this, but if I look at from the third quarter '15 and the third quarter of '18, our deposit betas say 10.5%, if you do the same for the asset side, third quarter '15 to third quarter '18 our asset beta or loan beta is about 47%. We continue to keep that mix.

Steven Alexopoulos -- JPMorgan -- Analyst

Right, OK. Then shifting gears to loans, with loan growth trending in the 5% range. Is there reasonable you could move back into the planning horizon range, which is 7% to 8% as we think about next year or is mid-single digit the new norm?

John Ciulla -- President and Chief Executive Officer

I mean, I think, it's mix right, Steve. So, we think and I've said over and over again that sort of 10% bogey on commercial loan growth is the sweet spot for our ability to outperform. We think the market, but also not have to give on credit quality, and so it really comes down to what we do on the consumer side, you know, we're launching some consumer products student loan refinance, personal loans, but really on the mortgage side, we think we do have some opportunity, we're down, like the market is down, but we're down a little bit more than the market on mortgage.

And right now, we're looking at our pricing, we're looking at turn times, we're looking at digitization of the process, we're looking at revisiting our correspondent channel. So, I think, it's really going to be dependent on what we can do in terms of growing the consumer loan balances to get back up to that 7% or 8%.

Steven Alexopoulos -- JPMorgan -- Analyst

Okay. That's helpful. And just the last one, I have to ask Chad a question, I know, the annual enrollment for health plans is now under way and I know it's early, but any indicator so far that tell you how the enrollment season is going, and what it could mean for HSA account growth? Thanks.

Charles Wilkins -- President, HSA Bank

Yeah, thanks, Steve. The first thing I'd say is when we talk about new account production for one-one that we have to remember that 80% of our accounts come from the existing employers and 20% from new, also about half of our production comes from direct sales activity and another half comes from partner production, which is less, we have less visibility to. So, in the segments and channels where we have the most influence and focus, we're seeing positive signs and believe that we're headed for a strong one-one. We have better new account production as compared to the first quarter of this year, we are expecting better production than we had first quarter this year.

And some signs that I throw out there are proposal activity has been up significantly, especially with large employers. Our pipeline size is several time larger at this point this year than last and both in terms of the number of size of opportunities. We have more wins last year significantly more wins that we had last year both in the number and size and we've had more transfer groups this year.

So, really positive signs and then I mentioned our -- from our relationship management standpoint, we have been better aligned with our large existing accounts. So, we anticipate having higher retention and potentially improve yields there. All of that said, there are a lot of factors that impact enrollments and plan selection, but more encouraged by what we're seeing as point, Steve.

Steven Alexopoulos -- JPMorgan -- Analyst

Terrific. Thanks for all the color, guys.

John Ciulla -- President and Chief Executive Officer

Thanks, Steve.

Operator

Thank you. Our next question comes from the line of Collyn Gilbert with KBW. Please proceed with your question.

Collyn Gilbert -- KBW -- Analyst

Thanks. Good morning, gentlemen. Just maybe John or Glenn just a question on the some of the trends you're seeing within the commercial book. Well, I know, you had indicated, I missed it, but I can look with the transcript the payoffs that you saw this quarter. But just curious as to what your outlook is for payoff within the commercial book, as we look out in the fourth quarter and then just more broadly into next year?

John Ciulla -- President and Chief Executive Officer

Sure Collyn, I've probably been really bad at predicting them and they have been lumpy, you know, it's funny we obviously saw a really good linked quarter growth, which resulted in double-digit year-over-year growth. But just to put that into framework, we actually had about $80 million less in commercial loan originations this quarter than we did last quarter, but we had $70 million fewer payoffs this quarter than we did last quarter.

So we've seen payoffs kind of they peaked in 2Q they trended down fourth quarter is usually pretty, usually a pretty active quarter both from an origination and a payoff perspective. So, I don't think we're going to see a change in sort of the trajectory are trending. And it all depends particularly in some of our commercial real estate transactions where we could get a $30 million or $40 million pay down, it could really shift things toward the end of the quarter.

So, I can't give you a whole lot of visibility, except to say that we don't see anything in the marketplace that would indicate there'd be a sudden shift in increase in pay-downs or lack of refinancing activity. So, I would say it would be similar to prior quarters and this one.

Collyn Gilbert -- KBW -- Analyst

Okay, that's helpful and then Glenn, just back to your comment on your thoughts that perhaps you've seen slowing migration from the CD from savings to CDs or just that's a pretty controlled deposit data that you're expecting for the fourth quarter, I realize, obviously some of that is HSA driven, but just again more generally kind of what you're seeing in the market you had indicated behaviors within your own deposit base. But what you're seeing maybe more broadly as to kind of longer-term deposit pricing pressure? Given the rate.

Glenn MacInnes -- Executive Vice President and Chief Financial Officer

Yes, I think, the most aggressive market for us is the metro areas Boston, New York to some extent, Boston has been very hard as a market. So, a lot of our promotional pricing to the extent we do it is in the Boston Market. So, that's where we're seeing most of the pressure on higher costs.

I think that we're very conscious of the fact that we have a competitive advantage way to say we're also very conscious of the fact that we're in the Northeast where the typical bank has a high loan to deposit ratio and then you coupled that with the larger banks, which eventually we think we want to unwinding of QE and through the value on from an LCR standpoint on retail deposits.

It could be the perfect storm, so we continue to monitor that we haven't seen it yet. When we look at our forecast and we go out a couple of quarters, we think that our deposit beta will stay relatively constant. But we're also very conscious of later in 2017, it could accelerate a little bit, sorry, 2019.

Collyn Gilbert -- KBW -- Analyst

Yeah, OK. Okay, that's helpful, and then just again kind of a broad question on expenses. You guys had indicated year-over-year expense is up 13% you've articulated you going to continue to invest in the business were necessary to keep the efficiency below 60. What would be -- what are some of the initiatives kind of on the docket for either expense growth or expense cuts. And then I guess I'd asked that same question to Chad, recognizing that it's been a big investment year in HSA building up a sales force. How do they see sort of the trajectory in the mix of expenses migrating into next year?

Glenn MacInnes -- Executive Vice President and Chief Financial Officer

Let me start with that Glenn and then I'll turn it over to Chad, he has done a lot of work out there. But generally on the core bank side it's everything from a digital banking or mobile upgrades and replacement it's infrastructure sort of related projects like a customer hubs, it's continuing all customer data that we can use for sorting and marketing network segmentation things that are ongoing as far as the security.

Also on the facility side there's investments whether it's our Stanford corporate hub site or HSA expanding the HSA square footage. There's still continues to be a lot of continuous improvement type of initiatives here. So that's ongoing and then the last thing I would say is our expenses sort of follow our strategic priorities and that if you look at the HSA Bank, you look at commercial and retail those are -- that order that are lowest efficiency to highest efficiency ratio. So, we're allocating capital to those that continue to generate higher returns.

And I'll turn it over to Chad because I know they have a lot of initiatives going on in HSA as well.

Charles Wilkins -- President, HSA Bank

Thanks, Glenn and Collyn. I'd say that the big spiky investments that we've made in the past, bringing in consultants helping us with our operational excellence initiatives and so on are behind us and we've also brought in resources to help us with our continuous improvement execution.

So things like automated workflow that we'll be rolling out over the next couple of years will drive operating leverage for us. So that we can continue to invest in things like our investment platform, which by the way, we just launched guided portfolio in October here this year, which allows us to offer tools to consumers to -- for decision support and to rebalance their portfolios also higher quality funds, lower cost, higher quality funds and also an asset-based fee associated with it.

So we're really excited to have that in the market. We're also launching in the beginning of the year, a new RIA investment platform that allows us to work with 401k plan advisors, which is a really fast growing channel for us and we expect to get a lot of business from that offering as well. So, it allows RIA to offer in HSA and manage the investments and also earn income on that offering.

So we are looking to partner more effectively in that channel. So we're making a lot of investments across our consumer -- customer experience and capabilities, also we'll invest in our sales teams and growth teams as we see a good positive ROI to continue to grow HSAs in the market.

Collyn Gilbert -- KBW -- Analyst

Okay. That's helpful. I will leave it there. Thanks, guys.

Glenn MacInnes -- Executive Vice President and Chief Financial Officer

Thanks, Collyn.

Operator

Thank you. Our next question comes from the line of Mark Fitzgibbon with Sandler O'Neill. Please proceed with your question.

Mark Fitzgibbon -- Sandler O'Neill -- Analyst

Hey, guys, good morning.

John Ciulla -- President and Chief Executive Officer

Good morning, Mark.

Mark Fitzgibbon -- Sandler O'Neill -- Analyst

First question I had is for Chad, Chad that 20 basis point rate on your HSA deposit is amazing. When do you think we might see the inertia from the HSA customers change where they might start to require higher deposit rates, and when that happens, what sort of magnitude of change would you participate?

Charles Wilkins -- President, HSA Bank

Yeah, I think, the -- we still haven't seen any real pressure on our rates and there has been any movement across the industry because we monitor that pretty closely, and when we think about rates are pricing, we're thinking about it more holistically, we look at all of the fees associated with the offering, and we have looked at reducing our better aligning some of our nuisance fees and things like that in order to better improve the customer experience. So, we've seen more pressure on monthly fees and other fees associated with HSAs rather than the rates that we charge on the deposits.

So, in terms of, what we expect next year, we'll continue to monitor the market, we'll continue to get feedback from our customers and make adjustments where we see necessary, we do forecast out where we expect to increase rates and we've actually have performed better than what we forecast from that perspective. So, don't expect any real significant changes in that short time.

Glenn MacInnes -- Executive Vice President and Chief Financial Officer

And Mark one thing I'd add to behaviorally is that you see increases in investment balances. So, if you do have enough in your HSA account to be concerned about what your return is you have the option of going into an investment account we also think that has the effect of taking some pressure off of the actual rate under the deposit.

Mark Fitzgibbon -- Sandler O'Neill -- Analyst

Okay. So, then Glenn on your NIM guidance for next quarter. Does that assume a flat cost of funds on the HSA?

Glenn MacInnes -- Executive Vice President and Chief Financial Officer

On the HSA, we stay flat at 20 basis points.

Mark Fitzgibbon -- Sandler O'Neill -- Analyst

Okay, great. And then, can you update us on the branch optimization plan where you are in that?

Glenn MacInnes -- Executive Vice President and Chief Financial Officer

Sure. And so, I think, year-over-year, we've reduced our branch size including the most recent sale that you probably saw by ten. And so on just a year-over-year basis, we were able to take out about, I would say, about 40,000 square footage within our branch network. And obviously that effort continues. And so, I think, we look at continuing to optimize and so you'll see sort of smaller numbers of square footage. I was pointing to Harvard Square as an example was 5,000 square feet, where we have an opportunity to sublease that which we're doing, you'll see that kind of movement.

John Ciulla -- President and Chief Executive Officer

Yeah, Mark, you know, the strategy going forward continues to be the same. We don't have anything right in front of us, but we are constantly reviewing our banking center footprint. We think the banking centers are critical, a delivery channel even though customer preferences are changing. So, over time, we may consolidate make smaller we may add in certain situations. One thing I will tell you is we'll likely to have fewer square feet in play year-over-year over year-over-year, but we think we are moving as quickly as we can to be more efficient, but also not disrupt the customer experience at all, and make sure that we have that channel as a vibrant channel.

Glenn MacInnes -- Executive Vice President and Chief Financial Officer

Let's stay on that, Mark, is if you go back and if you look at our trends say back at 2010 you strip out the expansion into the Boston market were down from 2010, 181 branches banking centers to 148, so down 33. So, I think, we've been fairly aggressive that rationalizing the network.

Mark Fitzgibbon -- Sandler O'Neill -- Analyst

Okay. And then lastly, you guys and you've answered this in the past, but I'm curious if your views change. You have a strong relative acquisition currency. Can you see getting back into M&A of other banks are fee-based businesses say in the next few quarters?

John Ciulla -- President and Chief Executive Officer

Mark the answer stays the same as we sit here, each quarter obviously, we always look at everything on the strategic plate, but with the progress we're making in our differentiated businesses, the organic growth that we're showing, it would be highly unlikely that we would enter a whole bank acquisition transaction.

Mark Fitzgibbon -- Sandler O'Neill -- Analyst

Thank you.

Operator

Thank you. Our next question comes from the line of David Chiaverini with Wedbush Securities. Please proceed with your question.

David Chiaverini -- Wedbush Securities -- Analyst

Hi, thanks. Couple of questions for you. First, given the building liquidity on the balance sheet, you mentioned about 83% loan to deposit ratio, which is the lowest in years, good to see. And the borrowings to assets ratio that's coming down, I guess, first I think you've said previously that you're targeting a mid single-digit type level for borrowings to assets. Is that still the case?

Glenn MacInnes -- Executive Vice President and Chief Financial Officer

Mid-single, yeah, I think, that's still the case, part of what you see, David, you see the influx of the public funds, which is seasonal, and so we were able to take advantage of that by reducing reposed by reducing fed funds and further reducing some FHLB borrowings. So, it's about a $300 million swing there, the reduction in borrowings, but you'll see that ebb and flow.

David Chiaverini -- Wedbush Securities -- Analyst

And since we're kind of approaching that targeted level, I'm assuming you're going to start building the securities portfolio, more meaningfully going forward, considering the strong deposit growth you're seeing in HSA. Is that a correct assumption?

Glenn MacInnes -- Executive Vice President and Chief Financial Officer

So, we think that the securities portfolio will remain in the range of 28% to 30% of our assets, and so to the extent we grow assets, you would expect it to grow, but only marginally.

David Chiaverini -- Wedbush Securities -- Analyst

Got it. And then sticking with the securities portfolio, when I look at the yield, you're earning over the first nine months of 2018. It's actually down versus the same period last year, despite rates moving up. So, the question is, why hasn't this moved up and do you have any plans to kind of change that duration or get that yield up at all?

Glenn MacInnes -- Executive Vice President and Chief Financial Officer

So, we wouldn't change the duration until such point we thought that the curve was inverting and that would extend the portfolio. I think as far as the yield, the thing you have to look at is the prepayment speeds, which are impacting amortization within that, and so I think as you go into fourth quarter, you would expect to see the prepayment speeds come down, and that's about $1 million, so that will increase the yield on the portfolio.

David Chiaverini -- Wedbush Securities -- Analyst

Okay, got it. And then shifting gears to HSA I was intrigued by Chad's comment that the pipeline is several times larger this year heading into the enrollment season versus last year. What are the main drivers to that?

Charles Wilkins -- President, HSA Bank

Yeah, as you know, we've invested a lot in our growth teams over the last few years, I mean, over three years, we've tripled the size of the sales and relationship management teams. We've also invested in a lot of resources, things like methodology, sales tools and fracking so on, so that we're not only trying to increase our capacity, but our productivity as well and so we're seeing the positive results of all of those investments right now.

David Chiaverini -- Wedbush Securities -- Analyst

Okay. And then the last one from me is more housekeeping, but when I look at the loan and lease related fees of 11 million, that's above the run rate of about 6 million over the past few quarters, anything unusual in there?

John Ciulla -- President and Chief Executive Officer

Yeah, I think, as we highlighted, we had a commercial transaction in the third quarter, which was about 3.2 million.

Glenn MacInnes -- Executive Vice President and Chief Financial Officer

We had four transactions -- $4 million in syndication fees in the quarter, which is more episodic than run rate, so that impacted that feeling.

David Chiaverini -- Wedbush Securities -- Analyst

Got it. Thanks very much.

John Ciulla -- President and Chief Executive Officer

You are welcome.

Operator

Thank you. Our next question comes from the line of Matthew Breese with Piper Jaffray. Please proceed with your question.

Matthew Breese -- Piper Jaffray -- Analyst

Good morning, everybody.

Glenn MacInnes -- Executive Vice President and Chief Financial Officer

Hey, Matt.

Matthew Breese -- Piper Jaffray -- Analyst

And I wanted to go back to the lower loan originations versus growth comments you made. I know you addressed the prepayment side of this, but are you having more success capturing term sheets and maybe with that you could comment on the competitive dynamics of your markets?

Glenn MacInnes -- Executive Vice President and Chief Financial Officer

Yeah, I would say, it's really just timing. I don't think we're having more success capturing term sheets and, I would say, I'm sure you read in the paper, I think, overtime in certain areas, in certain geographies, in certain asset classes there has been an increase in competition and lowering of spreads, so you see more competition.

I feel like we have and I've said this over and over again, when I think about our commercial loan growth, we have so many levers to pull with expanding middle market geographies with a bunch of really strong industry verticals, asset-based lending, equipment finance and commercial real estate, that any one quarter, any one of those business units or geographies can contribute more or less and so, I would say, we're kind of sticking to our knitting with respect to risk appetite.

We are losing a lot of deals, we're winning some deals and then our quarterly growth, as I've said, we target that sort of 10% annualized growth rate across that portfolio of assets. In any one quarter, we can under-perform or outperform that based on the deals we've won and based on the level of prepayment speeds. So, I really can't tell you that things have changed much over the last, let's say, four quarters except obviously competition continues to ratchet it up slightly.

Matthew Breese -- Piper Jaffray -- Analyst

Understood. Okay. And then maybe just going back to your Boston comments. First, maybe just some updated loan and deposit figures, but then secondly we've heard more recently that larger competitors like JPMorgan, M&T yesterday said they might be pushing toward that market. Giving the wealth of deposits, you have in the HSA front, could we see a strategic shift here, as it seems this already competitive market is going to get even more so?

John Ciulla -- President and Chief Executive Officer

Yeah, I think, that's a good question and you've already seen us kind of modify our game plan in terms of really moving toward profitability and retention of really core customers instead of chasing deposits and loans for the sake of building deposits and loans.

So, you are right, it is the most competitive part of our franchise market. It will only get more competitive when chase arrives. We are head of our five year loan plan marginally, and we are about $500 million in deposits, almost three years into a five year plan.

So, we are behind on our deposit acquisition, but we've been, I think, more disciplined with respect to pricing and looking to get full relationships. The market as a whole for us is still really strategically important and we continue to be very optimistic. For example, we just reached our full contingent of business bankers in that market, we've got seven FTE's, those banking centers are really necessary to provide coverage and momentum for those business bankers and we're seeing a pipeline build there.

We are cross selling our middle market and corporate customers in Boston. Bank at work, which we couldn't do before we had banking center network, but we have momentum in wealth, we have momentum in consumer finance and in mortgages as well. And you may know that we have two offices, we have our middle market and government bankers and business bankers in our Franklin Street, but we also have an office in the Back Bay, where most of our sponsor and specialty bankers are located. So, we've got billions of dollars of loans originated from that market. We have momentum and holistically that banking center footprint there, which we continue to manage and trying and get more efficient continues to add value to the overall market. From a consumer perspective only, it will continue to be competitive, we believe that, but we think we can be competitive as long as we're patient and have the right expectations.

Matthew Breese -- Piper Jaffray -- Analyst

Great. Okay, understood. Glenn, Maybe one for you, just considering the rate environment, the outlook for rates at some point over the next 12, 18 months, could we see Webster start to take some asset sensitivity off the table and what are the maneuvers you might, due to accomplish that?

Glenn MacInnes -- Executive Vice President and Chief Financial Officer

Sure. And, I think, depending on where the long end of the curve is, we would consider that. And so, absolutely, if we see it turning that way, and I think the maneuvers that we would consider, would be extending the investment portfolio from 4.9 years out.

We would also consider boarding more fixed, more fixed, fixed assets, whether it's residential mortgages or boarding commercial real estate type assets or we could do a fixed pay float swap, to the extent, we want to do that. So, there are several levers available to us to sort of take some of the asset sensitivity off the page.

Matthew Breese -- Piper Jaffray -- Analyst

Okay. So, that's what I had just on the syndication fees up this quarter. I just wanted to get an update on the, what's the scale and scope of that business. What are the loans tied to, what's in that portfolio?

Glenn MacInnes -- Executive Vice President and Chief Financial Officer

Yeah, I mean, it's -- so in 2012, we've talked about this publicly over the last six years, we've really in earnest built out of capital markets and distribution capability, we really only use the balance sheet for those under-writings and arrangements in areas where we have deep industry knowledge expertise or strong sponsor management relationship.

So, you see most of those indications either in commercial real estate or in our sponsor and specialty group. You can probably tell from the episodic nature of those fees that we're not syndicating a handful of deals every quarter. We use the tool to not only generate fees for us, but also allow us to participate at a higher level with higher quality firms.

So I'll give you an example, the one we did this quarter was a company that we had been the lead back for through a couple of iterations and then as it got bigger and we sold. We had such a good relationship with the management team that they asked us to lead that we understand the industry very well.

So we actually executed our largest syndication successfully in this quarter. I can tell you in the last six years, we've successfully arranged our underwritten over 80 transactions, but again we use that tool appropriately and obviously to manage our hold level. So, at the end of the day, we underwrote a $220 million transaction and we're holding around $35 million of it and we can generate fees. So, I hope, that gives you some sort of sense of scale.

Matthew Breese -- Piper Jaffray -- Analyst

Understood. Okay, thank you. That's all I had.

Glenn MacInnes -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Erik Zwick with Boenning & Scattergood. Please proceed with your question.

Erik Zwick -- Boenning & Scattergood -- Analyst

Good morning, guys.

Glenn MacInnes -- Executive Vice President and Chief Financial Officer

Good morning.

Erik Zwick -- Boenning & Scattergood -- Analyst

Overall, credit quality remained strong, which I guess is not too surprising, just looking to the tables. The commercial non-real estate non-accruals increased about 18 million in the quarter. Not really huge concern is actually, pretty flat year-over-year. But can you provide some colors to the particular industries or businesses that those borrowers were involved in that drove the 3Q increase and whether you're noticing any commonalities?

Glenn MacInnes -- Executive Vice President and Chief Financial Officer

Yeah, what I will tell you is that, it is too commercial credit the industry, there are really specific to those credits and they don't represent anything from an industry perspective, a geography perspective or even a weakness in underwriting perspective, they didn't come out of the same group. So we don't speak to specific credits underlying there, but as you said on an absolute value ticked up a little bit on a relative value, it's still at cycle lows in terms of our total NPAs.

Erik Zwick -- Boenning & Scattergood -- Analyst

Okay. And then switching gears and maybe a bigger kind of picture question for Chad. One of the expectations that you previously communicated is that the number of participants that you classify as savers should grow over time and I continue to read reports that indicate the majority of Americans do not have adequate retirement or investments savings and many are still letting paycheck, the paycheck that despite the long expansion kind of, I think, expansion period that we're in. So, with that backdrop, what are the strategies that you can employ the target actual favors as opposed to spenders and how confident are you in the ability to increase that share of savers versus they're just growing them on an absolute basis. At the same rate as towage as a participant.

Charles Wilkins -- President, HSA Bank

It's a great question and it's really the heart of our focus is working with individuals to make them more aware of the ability to save long term for healthcare, you know, what that need is and giving them tools and resources to help them move in that direction.

We haven't seen a big difference in the percentages of spend or save in investor over the year as we continue to grow and build out the portfolio. But we have invested a lot of resources in marketing materials and people to reach out to our employer partners and our health plan partners and deliver those tools.

We've built out things like the health plan calculators, so hope you picked the right health plan, contribution tools to help you make direct contributions. So, we're -- and built and hired resources that can work with our employers to get those in front of their employees and consumers, so they can make the right decision.

So we believe there's a lot of opportunity there. And we are -- when we are able to employ those tools and communications, we're seeing, we're moving the dial. And I think that's reflected in our solid footings growth over the year as compared to our account growth.

Erik Zwick -- Boenning & Scattergood -- Analyst

I appreciate the color. Thanks for taking my questions today.

Glenn MacInnes -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Thank you. Our final question comes from the line of Jared Shaw with Wells Fargo Securities. Please proceed with your question.

Jared Shaw -- Wells Fargo Securities -- Analyst

Hi. Good morning.

John Ciulla -- President and Chief Executive Officer

Good morning.

Glenn MacInnes -- Executive Vice President and Chief Financial Officer

Good morning.

Jared Shaw -- Wells Fargo Securities -- Analyst

Just looking at the discussion around growing on the consumer side, how big of a push into the consumer side, you are really looking to make. And as we look out over the next few years, could we expect to see consumer being a bigger part of the balance sheet on the lending side.

Glenn MacInnes -- Executive Vice President and Chief Financial Officer

I don't -- I think, you'll see us trying to meet our customers needs by creating products that are more digital and more streamlined on the consumer side, but the truth is with the growth trajectory and our strategic priorities you will not see the balance sheet shift back the other way. So, we've often talked when I arrived here we were about two-thirds consumer, which was mortgage and home equity, one-third commercial. We've pretty much flipped that we're almost to a full two-thirds commercial and business banking, and one-third consumer. I don't think you'll see it start to shift back. But you'll see the relative change in the balance sheet slow hopefully from higher consumer loan growth.

Jared Shaw -- Wells Fargo Securities -- Analyst

All right. Thank you.

Operator

Thank you. There are no further questions. At this time, I would like to turn the call back over to Mr. Ciulla for any closing remarks.

John Ciulla -- President and Chief Executive Officer

Thank you all for your interest in Webster and have a great day.

Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

Duration: 48 minutes

Call participants:

Terry Mangan -- Director, Investor Relations

John Ciulla -- President and Chief Executive Officer

Glenn MacInnes -- Executive Vice President and Chief Financial Officer

Steven Alexopoulos -- JPMorgan -- Analyst

Charles Wilkins -- President, HSA Bank

Collyn Gilbert -- KBW -- Analyst

Mark Fitzgibbon -- Sandler O'Neill -- Analyst

David Chiaverini -- Wedbush Securities -- Analyst

Matthew Breese -- Piper Jaffray -- Analyst

Erik Zwick -- Boenning & Scattergood -- Analyst

Jared Shaw -- Wells Fargo Securities -- Analyst

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