Good morning, and welcome to the Webster Financial Corporation fourth quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A Q&A session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this event is being recorded. I would now like to introduce Webster's Director of Investor Relations, Kristen Manginelli, to introduce the call. Mrs. Manginelli, please go ahead.
Thank you, Daryl. Good morning, and welcome. Earlier this morning, we issued a press release to announce Webster Financial Corporation's fourth quarter 2021 earnings. On the call today, we will provide some brief comments regarding the company's fourth quarter earnings. Today's presentation slides have been posted on the company's investor relations website. Before we begin our remarks, I want to remind you that the comments made by management may include forward-looking statements within the meanings of the Private Securities Litigation Reform Act of 1995 and are subject to the safe harbor rule. 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. I'll now introduce Webster's Chairman and CEO, John Ciulla.
Thanks, Kristen. Good morning, and thank you for joining Webster's fourth quarter earnings call. CFO Glenn MacInnes and I are here in snowy Waterbury to review our performance for the quarter and full year 2021. I will also provide a status update on our strategic initiatives and our impending merger with Sterling, after which Glenn and I will take your questions. 2021 was a transformational year for Webster. We delivered strong financial and strategic performance through a dynamic economic environment while navigating the challenges of the continued pandemic. As we move ahead in 2022, we continue to see robust economic activity across our expanding footprint, including strengthening confidence from our business and consumer clients with respect to demand for products and services, and lending activity has continued to accelerate.
The outlook for the interest rate environment is looking more promising, a macro trend for which we are very well-positioned to benefit. Our credit metrics also reflect both the solid economic backdrop and the quality of our risk management process. Overall, despite the continued uncertainty surrounding the ongoing impact of the pandemic, we are optimistic about the trajectory of our business as we head into 2022. With respect to our internal transformational project, we continue to make significant progress on revenue enhancements and operational efficiencies throughout the organization, which will complement the merger as we integrate the two companies. On the revenue side, we enhanced digital customer experiences across all business lines through targeted technology investments. While expenses fell modestly above our fourth quarter 2021 target, the delta was driven largely by incentive compensation accruals reflecting strong production by our bankers.
When compared with Q4 2020, we made significant progress in reducing core compensation and occupancy expense. In fact, year-over-year, we reduced our real estate square footage by more than 15% and materially and permanently reduced our overall operating cost structure. We received Federal Reserve approval for our merger with Sterling on December 17th, and we plan to close on February 1st. Our integration planning process is complete, and we are ready to bring these two strong organizations together. I'll begin the financial report on slide two with an overview of the quarter, which reflects our strong performance. Our adjusted earnings per share in Q4 were $1.31, up from $0.99 a year ago. Our fourth quarter performance includes $13.7 million of net pre-tax charges related to the merger and our strategic initiatives.
Our fourth quarter adjusted return on common equity was 14.6%, and the adjusted return on tangible common equity was 17.7%. Excluding PPP, linked quarter loan balances grew by 16% annualized. Tangible common equity grew by 8% and is $208 million higher than a year ago. Total adjusted revenue in Q4 was 6.5% higher than a year ago, while adjusted expenses decreased 3%, demonstrating strong operating leverage. Our efficiency ratio improved to 55%, a decrease of 542 basis points from a year ago. Our provision was a $15 million benefit as both our credit metrics and the forecast for economic conditions continue to improve. The provision release was net of a $12 million reserve build tied to loan growth. Underlying asset quality is solid.
NPLs, net charge-offs, and commercial classified loans, all as a percentage of portfolio, improved from a year ago. I'm now on slide three. Excluding PPP, total loans grew over 8% from a year ago, led by record commercial loan growth of $1.3 billion or nearly 10%. Commercial Banking again increased loan originations, accelerating to $1.8 billion, up solidly from a year ago, driven by growth in commercial real estate, sponsor and specialty, and Business Banking verticals. Commercial loan fundings of $1.3 billion were up 50% from a year ago, reflecting the expertise of our bankers and improving client loan demand. Consumer loans grew 5.2% or $351 million compared to the prior year, driven by robust residential mortgage activity and our late 2020 decision to balance sheet conforming production. I'm now on slide four.
Deposits grew 9.2% year-over-year with growth across every business line. Core deposits grew by $3.2 billion and represent 94% of total deposits compared to 91% a year ago as CDs decreased $690 million from a year ago. Our deposit costs continue to decline and our total cost in the quarter was 5 basis points for all deposits. On slide five, you'll see the full year 2021 financial highlights. On a full year GAAP basis, our PPNR improved to $479 million from $418 million a year ago. Our full year EPS of $4.42 is a record for Webster as our net income of $399 million and tangible book value per share of $30.22.
We were able to achieve this strong year-over-year growth even as we reduced core operating expenses and our real estate footprint, as I mentioned earlier. Slide six provides an overview of the transaction and integration timeline for our merger with Sterling. We are excited to begin operating as a combined company as we approach the legal merger date. We have a detailed conversion and integration plan in place, and we are positioned to begin operating as one organization on February first. We've begun welcoming clients to the new Webster and plan to convert all legacy Sterling customers to the Webster brand immediately upon close. With a primary focus on optimizing customer experience during the integration, we plan to fully consolidate the operations over the next 18 months. With that, I'll now turn the call over to Glenn for a more detailed financial review.
Thanks, John, and good morning, everyone. We reported solid results in the quarter evidenced by strong loan growth, favorable credit performance, and continued execution on our strategic and merger initiatives. I'll begin with our average balance sheet on slide seven. Average securities increased $1.4 billion linked quarter and represented 29% of average total assets. During the quarter, we purchased approximately $1.6 billion in securities with a weighted average yield of 1.44% and a duration of 4.1 years. Securities called, matured, or paid down totaled approximately $500 million with a yield of 2.04%. Average cash balances held at the Fed totaled $1.2 billion, a decrease of $1.1 billion linked quarter as we deployed liquidity into loan growth and the securities portfolio.
Average loans increased $364 million or 1.7% linked quarter, primarily driven by increases in C&I, commercial real estate, and residential mortgages. This was partially offset by PPP loan forgiveness and lower consumer loan balances. During the quarter, forgiveness on PPP loans totaled $183 million, and outstanding balances at year-end were $215 million. In Q4, we recognized $7.5 million of PPP deferred fee accretion, which was down from $16 million prior quarter. Remaining deferred PPP fees totaled $8 million. Excluding PPP, average loans grew $677 million or 3.2%. Average commercial loans grew $454 million or 3.2%, while residential mortgage loans increased $273 million or 5.4%. Average deposits grew $270 million or 0.9% linked quarter.
The increase was driven by continued growth in Commercial Banking transactional deposits, which were partially offset by a seasonal decline in public funds and a reduction in higher cost CDs. To give you some business line trends, on a period-end basis, Commercial Banking deposits are up 18% from a year ago, while Consumer and Small Business grew 5.3% and 14.3% respectively. HSA deposits grew 4% year-over-year or 7% on a core basis, and total HSA footings grew 11.5% year-over-year. Average borrowings were effectively flat to Q3 and down $750 million from prior year. Loan-to-deposit ratio was 74.6% on December 31st. The Common Equity Tier 1 ratio decreased 5 basis points linked-quarter to 11.72%.
The tangible common equity ratio increased 26 basis points to 7.97%, and tangible book value grew 2% linked quarter and 7.8% from prior year. Slide eight highlights our GAAP performance and adjustments to reported income available to common. During the quarter, we recognized a net of $10 million after-tax charges related to our merger and strategic initiatives. On an adjusted basis, income available to common was $119 million or $1.31 per share, resulting in a 14.6% return on average common equity and a 17.7% return on tangible common equity. On slide nine, we provide our reported to adjusted income statement.
Net interest income decreased by $3 million linked quarter, driven by lower PPP fee accretion of $8.5 million and a lower yield on the securities portfolio, partially offset by continued loan growth. Net interest margin was 2.73%, down 7 basis points linked quarter. This was the net result of a 10 basis point reduction from lower PPP fee accretion, offset by a 3 basis point improvement in our core NIM. As compared to prior year, net interest income increased $6 million, driven by strong loan growth and reduced funding cost. Non-interest income increased $6.3 million linked quarter, primarily driven by higher realized gains and fair value adjustments on direct investments, BOLI income, and gain on a sale of a commercial loan. Compared to prior year, non-interest income grew $13.4 million.
This largely reflects an increase of $8.9 million related to the factors highlighted in the quarter-over-quarter variance, as well as an increase in deposit service and wealth management fees. Adjusted non-interest expense increased $1.8 million from prior quarter, reflective of seasonal increases in temporary staffing and medical expenses. Versus prior year, non-interest expense declined $5 million due to our previously announced efficiency initiatives resulting in lower occupancy costs, compensation, and other expenses, which were partially offset by an increase in performance-based compensation. Pre-provision net revenue was $141 million in Q4. This compares to $139 million in Q3 and $116 million in prior year.
Our loan loss provision in the quarter was a net benefit of $15 million, and the adjusted tax rate was 22.2%, an increase of 158 basis points linked quarter. The result is an adjusted net income of $119 million or $1.31 per share, an increase of $0.23 over the prior quarter. On slide 10, we have provided an update on our strategic initiatives. We are pleased to have achieved $10 million in quarterly run rate expense savings, which was driven by a reduction of approximately 15% in both FTE and occupancy square footage. In the fourth quarter, this was partially offset by $7 million in expenses we do not anticipate in our run rate going forward.
The increase was primarily tied to performance-based incentive accruals driven by loan and revenue growth, credit quality, and progress on our strategic initiatives. We also delivered on other initiatives in technology, including a new digital onboarding experience for consumers, along with various initiatives to support growth in the commercial bank. In the second quarter, we will launch a new digital experience for employers of our HSA business. We will continue to capitalize on strategic initiatives as we begin our integration with Sterling. Turning to slide 11, I'll review the results of our fourth quarter allowance for loan loss under CECL. In the quarter, we reported a net provision benefit of $15 million.
Our allowance of $301 million was down $14 million, the net result of adding $12 million in reserves for loan growth, which was more than offset by the benefits of continued improvement in asset quality trends and our macroeconomic outlook. The allowance coverage ratio, excluding PPP loans, was 1.37%. Slide 12 highlights our key asset quality metrics reflecting strong credit quality performance trends. Non-performing loans in the upper left increased $9 million from Q3. Increases were concentrated in C&I, with partial offsets in commercial real estate and residential mortgage. NPLs as a percent of total loans are 49 basis points, down from 78 basis points a year ago. In terms of net charge-offs in the upper right, we realized a $1.2 million net recovery in the quarter.
For the full year, we recorded $4 million in net charge-offs, which is its lowest full-year level since 2005. Commercial classified loans in the lower left decreased $90 million from Q3 and represented 186 basis points of total commercial loans. Slide 13 highlights our strong capital levels. Regulatory capital ratios exceed well-capitalized levels by substantial amounts. Our common equity Tier 1 ratio of 11.72% exceeds well-capitalized levels by more than $1.2 billion. Likewise, our Tier 1 risk-based capital of 12.32% exceeds well-capitalized levels by $1 billion. With that, I'll turn things back over to John for closing remarks.
Thanks, Glenn. It's been a uniquely eventful year here at Webster. In addition to executing through a year impacted by the pandemic, we delivered on the internal initiatives we outlined a year ago while also announcing our merger with Sterling. Throughout it all, we managed to generate strong performance broadly and particularly from a loan growth, asset quality, and customer service perspective. I want to give a special thank you to all our bankers for continuing to perform at such a high level during a period of challenge and rapid change. Throughout the year, we have been recognized by a number of third parties for our outstanding performance, market-leading customer satisfaction and experience, and for being a great place to work.
Today, I can share that for 2021, Webster was once again the top SBA lender by dollar value-volume in New England, reflecting the work of our outstanding bankers. Finally, I again want to express how enthusiastic I am about the pending close of our merger. This is a transformative transaction that will greatly benefit both banks' clients, colleagues, communities, and shareholders. We are creating a unique financial institution, a bank with a differentiated funding base that includes HSA Bank and our combined Consumer and Commercial Banking businesses. We have a broad range of regional and national asset generation capabilities, particularly through a growing Commercial Banking franchise with deep industry specialization and a growing geographic footprint. We have a highly dense and economically robust core footprint.
We have the ability to draw on outstanding talent from within both organizations, and we are the optimal size to be nimble and responsive to our clients while having the scale, sophistication, and balance sheet to meet all of our clients' growing needs. With that, Daryl, Glenn and I are prepared to take questions.
Thank you. We will now be conducting the Q&A session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for your questions. Our first question comes from the line of Chris McGratty with KBW. Please proceed with your questions.
Hey, good morning, everybody.
Morning, Chris.
John, maybe I'll ask the question I asked when the merger was announced, and I asked about the pro forma growth rate of the company. Clearly your numbers are heading in the right direction and Sterling's are too, although a little bit more bumpy. Can you just update us on kind of how we should be thinking about combined organic growth in 2022?
Sure. I'll throw the general thought out there that with respect to all of the guidance we put out on the 19th of April, seems like a long time ago because it was that we're kind of still sticking to those assumptions as we look at the marketplace now. You know, obviously we did have a really strong loan growth in the fourth quarter. We had record originations. We also had record payoffs. Sterling had good solid core loan growth. You know, a couple of Mortgage Warehouse and a couple of other areas were a little bit more volatile.
I still think we think 8%-10% annual total loan growth for the next couple of years is doable, is our target, taking into consideration, you know, a more competitive environment, but also a continually improving economic environment with better loan demand, more business confidence, more consumer confidence. From an asset growth perspective, I still think we dial into 8%-10% net growth expectations as a combined organization, you know, over the next couple of years.
That's great. My follow-up would be, given the capital position that you're in, the strong capital position, how do I think about potentially getting to 8-10 versus using a buyback that you've talked about in the past?
Yeah, I mean, I think, you know, with respect to capital, you know, all of the executives on both sides that are involved are in alignment. We have definitely excess capital, some $600 million-$750 million, depending on kind of one-time expenses. You know, we modeled in a $400 million share buyback, because we wanted to sort of show usage of capital in our original model. But, you know, as we do all the time, we kind of prioritize deploying capital first to organic growth, portfolio acquisitions, horizontal products for some of our differentiated business lines. Obviously, we then look at our payout ratio, our dividend, and depending on market conditions, you know, we have opportunistic opportunity to buy back shares. You know, it's still on the table.
We're looking at it, but I think we're going to be kind of disciplined as we always are, make the right economic decisions and be opportunistic, Chris, with respect to share buybacks.
Okay. Still on the table, but perhaps maybe not the full 400 given the momentum and growth. Is that a fair conclusion?
Sure.
Okay, great. Thank you.
Thank you. Our next question has come from the line of Brock Vandervliet with UBS. Please proceed with your questions.
Hey, good morning.
Morning, Brock.
Thanks for the morning. Thanks for the question. Just following up on the merger. One, if you could just review the size of the Mortgage Warehouse portfolio on a pro forma basis. You know, second, how are you looking at that as a potential headwind, especially with you know, rates up pretty smartly here, having choked off a lot of potential refi activity and mortgage looking like a smaller you know, smaller driver. In addition, as we think about you know, loan growth going forward, are you likely to continue to portfolio those agency loans as you have been, or would you look to sell more of those?
I'll give you the general thing while Glenn looks up the number on the Mortgage Warehouse. We've been really consistent, and what we're going to do is we're going to continue the activities in both organizations on February 1, kind of full speed. We love the levers. There aren't any asset classes or business lines right now that we think are, you know, either too volatile, too credit risky, don't make sense. We love having expanded geographies and a ton of, you know, probably more than 20 separate commercial and consumer lending activities to draw on, which means we don't have to throw the bomb or take incremental risk or give in to bad pricing conditions in any one of them.
What I would say is, first as it relates to Mortgage Warehouse, you know, there it is dependent on what the market conditions are. We'll make the right decisions in terms of putting down the accelerator or backing off depending on the risk-return metrics and where we are, which really applies, Brock, to every single one of the activities, you know, we're involved in. Having all of that diversification and geographic diversification is what gives us confidence in being able to grow loans at 8%-10% in areas that have good risk-return metrics. What we've said in all of our non-deal roadshows and at the beginning is then over the course of the next, say, 12-18 months, as we always do, we'll be looking at capital deployment and saying, "Hey, are some of these business lines not as strategic?
Or are the market dynamics not really favorable for us? Or are we too small to really make a difference?" We'll obviously redeploy capital into those areas where we can generate the most economic profit, generate the most growth. I don't have any concern or view or worry about any of the asset classes. I don't think that something like Mortgage Warehouse on the size balance sheet we have pro forma will stop us from getting to our net loan growth numbers, even if things aren't kind of cranking there. That's kind of where we sit, and we'll make the appropriate capital allocation decisions farther down the road.
Got it. Okay. Appreciate the color. Just as a quick follow-up, has there been any lift in the C&I utilization rate yet, or is that still kind of stuck where it's been?
You know, there has been, as a matter of fact. I was just reviewing that. So I know ABL for us, which is a relatively, you know, I'd say small, but it's not a driver of overall loan growth. But it had really a good increase in utilization both linked quarter and significantly from last year, which was pretty much a low point back up to around 50%. I think which portends well for, you know, general asset conversion cycles, working capital usage, building of inventory. The rest of our commercial utilization was up slightly. So I would say overall, C&I line utilization is up materially from the low a year ago, not quite back to pre-pandemic utilization levels.
That's great. Thanks for all the color, Jeff.
You got it, Brock.
Thank you. Our next question comes from the line of Laurie Hunsicker with Compass Point. Please proceed with your question.
Great. Hi. Thanks. Good morning.
Hey, Laurie.
Just sticking with the theme of looking at you guys pro forma. Can you help us think about what your margin looks like if we look at it ex PPP plus Sterling, layering in the debt restructure and any other restructuring that you're doing? How should we be thinking about that?
Hey, Laurie, it's Glenn. Let me give you some context to that. I think when we look at our margin, we're probably at a starting point of about 2.95 on NIM on a combined basis if I look at that for the fourth quarter anyway. We are still working through you know, we're still working through most of the assumptions on accretion and marks and things like that. I can tell you that we're generally in line with the disclosures that we've made on the announcement. We'll give you an update on that during our Q1 earnings call.
Right.
With respect to looking out and asset sensitivity, I mean, one of the things that we are looking at is, you know, you know that both organizations are very asset sensitive. If we look at this and we say we're forecasting three rate increases in 2022, one in May, one in July, and one in December. You don't really get the full year benefit of that one in December. The impact, just to give you a sense of that, on net interest income is about 3% in 2022. On a full year basis, meaning getting the benefit of three rate hikes on an annual basis, it's probably double, a little more than double that.
The dynamic there is, of course, that, you know, we have our loan book, which is about 60+% floating and periodic. So there are some floors against that. But generally, that's what's driving the asset sensitivity. The other assumption, of course, is on a deposit beta. We're currently at about 11-12% beta for the first 50 basis point move. Then it probably goes up to closer to, like, 20%. At least that's how we're forecasting for the third move. I hope that gives you some sense of how we're thinking about it from an asset sensitivity standpoint.
Yes. Very, very helpful. Just quick question. I know you said you were still working through it, but anything that you can give us in terms of accretion income, what that number is gonna look like either on your margin, either in dollars.
No. You know, we're working through the PCD, non-PCD, you know, mixes as we speak as we get closer to legal day one. So we'll give you an update on that as we get to Q1 earnings.
Okay. Pro forma intangibles, do you have a refresh on what that's gonna look like?
Same thing. It's all related as we make our marks and stuff like that.
Got it. Okay. Just on credit, just hoping that you can comment a little bit, you know, on both the commercial loans. Your C&I nonperformers up pretty sharply in the quarter. From the standpoint of STL, they had another CRE loan sale. Looks like the charge-off rate there was 9.5%. Is that just sort of fourth quarter cleanup in terms of how STL is looking at the CRE? They've obviously been selling some of their special mention and substandard, or how are you approaching that? Just anything that you can give us around your C&I book. Thanks.
Sure, Laurie. No, I think your characterization of the asset sales at Sterling is right. It's sort of cleanup and opportunistic without taking significant loss in non-strategic assets, which I think is prudent. You know, for us, you know, like we have two commercial loans that ended up going NPL, you know, on a huge, obviously, $14 billion loan portfolio. So we don't see anything in there that's significant. And obviously, we have adequate reserves. And we've been really pleased, quite frankly. You know, our NPLs came down significantly because we sold a bunch of consumer, kind of older NPL consumer loans, actually, and we were able to get a recovery at the price we sold them for. So we don't think that this tick up is material. We're not seeing any negative trending.
Our overall risk rating and weighted average risk rating in the portfolio is really strong. You know, I've said, you know, in many forums, I think it's almost silly how good the asset quality is. Obviously, we're being very careful thinking about whether in any sectors or industries there's any kind of, you know, structural weakness as we come, hopefully, out of the pandemic with people having operated in this environment. We really see strength in C&I. I think they see it on the other side. We're focused on office, you know, the long term, how people work and office. I think everybody's on both sides. Sterling and Webster have very low loan to values and conservative underwriting. Feel really good about C&I and CRE across the board in both banks.
Great. Thanks. I'll leave it there.
Thanks, Laurie.
Thank you. Our next question has come from the line of Matthew Breese with Stephens. Please proceed with your question.
Good morning.
Hey, Matt.
On page six of the presentation, you know, you mentioned that over the next 18 months, you intend to unlock revenue synergies from the Sterling deal. You also mentioned the consolidation of facilities. I was just hoping you could flesh those two items out a little bit and what are the, you know, P&L and balance sheet impacts that you're alluding to.
Matt, I think it's a bit on the cost side. Glenn can walk you through kind of the high level. You know, we're still working through quantifying the revenue synergies as we bring the two banks together, and we're going to give you a lot more detail and a lot more guidance for over the next 12 months in the first quarter combined earnings call. I'll leave it there. You know, I've mentioned things like larger hold levels. Obviously, that's something that we're already benefiting from, if you will, with respect to our pipeline and our opportunities. You know, we've got more fee revenue opportunities across wealth, and we've seen some momentum there.
We've got great cross-sell opportunities with HSA, both selling to our larger commercial companies, customers across both banks to HSA and HSA helping us with others. We're able to invest, and we've got a pretty good roadmap on digital investment on, you know, banking as a service, some of the stuff you saw Sterling do with respect to blockchain. There's just a lot of exciting things going on, and we're quantifying the economic benefits. None of that is kind of in, as we said, the April 19, 2021, you know, forward forecast. So we'll be able to provide you kind of more economic information around those activities in the first quarter.
Understood. Okay.
Matt, you know, I might be able to give you a little more context on how we're thinking of this. You know, we look at our core operating expense for both organizations in the fourth quarter, and they combine to about $287 million. You know, that's basically our starting point based on the fourth quarter. You can sort of annualize that and say that that's sort of the core base. As you know, at the time of announcement, we said, you know, we thought we could achieve $120 million or 10% of the for the combined organization. I think we continue to believe that that's achievable over the two-year period.
That, you know, over two years, you would expect that to come out. We also said at the time of announcement, we thought we'd get about 75% of that or $90 million in the first full calendar year. You know, at the time, we thought we were going to close on October first, and that's now sort of moved to February first. That slides it out a little, at least from a calendar year standpoint. Now we estimate in 2022, we'll probably get about $60 million of that or 50%. The remaining 50%, again, we feel really good about getting in 2023.
You can sort of take that, those two sort of data points, you know, the core operating expense and what our target is for 2022 as well as 2023, and sort of get a sense of how the expenses are going to roll out. The only thing I would say is, you know, there's going to be seasonality in the quarterly expense numbers. You're going to see that. You always see it in the first quarter, where you see higher FICA taxes and things like that. In the fourth quarter, you always see us sort of ramping up a little on temporary expense for HSA.
Then the other thing I would point out is that none of these include any, you know, impact of inflation to the core base. That's something that we're keenly taking a look at. Of course, you know, Laurie asked the question, but things like intangibles, CDIs, PCD, non-PCD, that'll all have an impact on earnings as well. Lastly, any additional investments that we make in the business, we decide mid-year to do a lift out or something like that, and there's nothing on the radar. If we decide to do something like that, of course, you'd expect the expenses to reflect that.
At the end of the day, you know, we'll be able to provide a lot more clarity on our first quarter earnings call on how we're thinking about the rest of the year as well as 2023.
Yeah. To put a fine point, Glenn mentioned, you know, wage inflation, other inflationary pressures on costs. I mean, I think we wouldn't be genuine if we didn't think that could be a headwind. I will say that to the extent that also results in more interest rate increases over time, obviously we'll benefit on the top line. With respect to delivering, you know, the ROATC targets, the ROA targets, loan growth targets, we feel pretty confident that regardless of the environment, we'll be able to deliver on those.
Understood. Okay. Next one for me is just a two-parter on HSA. You know, the first one is just any sort of color on, you know, first quarter account opening, just given where we are in enrollment season. The second part is just, you know, as we rewind the tape a little bit, you know, and think about Webster progressing through the last rate hiking cycle. You know, for HSA, I also recall it being a time where you were heavily investing in the infrastructure of that business. As we think about the next rate hiking cycle for HSA, could the profitability of the underlying subsidiary be that much better or exceed last cycle because so much of the infrastructure has already been built?
Yeah. I mean, I'll take the second one first. I think the answer is yes. We should have more operating leverage as we move forward. I think, you know, our operations are more resilient. We've invested in kind of infrastructure. You know, as Glenn said, in the second quarter, we're rolling out kind of a more bespoke customer experience. Through this portal we've been working on. I do think, you know, while there'll be kind of variable costs with respect to growth, if there are opportunities that we should be able to capture more of the value, as interest rates increase. As it relates to this enrollment season, it's too early to tell. Our current reports are that we're looking similar to last year with respect to new account growth.
Matt, similar kind of dynamics where we're continuing to do better in bringing in new employers, direct to employer, and you know that's been an emphasis, for us over the last, say, three to five years, and that's really, satisfying for us. What's interesting is we still are seeing a bit of a muted environment in terms of new account enrollments with existing employers. That probably is a result of, you know, the continued muted, employment growth, and not a lot of hiring going on across our employer customer base. Because if you recall, the convention used to be year in and year out, some 75%-80% of our new accounts actually came from existing partners and existing customers. That number's going down a little bit, even as we're bringing in more employers.
I think that means we'll have more opportunity, hopefully, if we get a more robust hiring environment, to have some more organic account growth. We still think it's about kind of flat to last year when we look at January over January. Obviously, as you know, we only have a little bit of insight into the full enrollment period in the quarter right now.
Understood. Okay. Last one for me. You know, earlier this month, Sterling put out a press release indicating they would join the USDF Consortium. You had mentioned blockchain as a potential catalyst in the future. You know, where this has been most effective, real-time payments, has been when it's applied to certain ecosystems, and I couldn't help but think that with HSA, you know, you have a healthcare-related ecosystem where real-time payments could be impactful. One, maybe just curious your thoughts on real-time blockchain-enabled payments, bank to bank. And secondly, you know, could this be something that gives you a leg up on the competition HSA-wise? That's all I had. Thank you.
Yeah, great question and a smart one, Matt. I don't wanna get too far ahead of ourselves, and obviously, we operate both of these banks completely separately till we get to February first. We're obviously, you know, intimately aware of and excited about the relationships that the Sterling folks have gotten into and sort of an effective economic way to be a first mover to learn a lot. There are tons of use cases with respect to, you know, the USDF announcement. You know, you think about mortgage lending, consumer lending. You think about real-time, 24-hour cheap payments. You think about information with respect to BSA, AML.
To your point, fine point, we do think there are opportunities given where we sit in the healthcare ecosystem, to deploy this technology to differentiate our business there. You know, our expectations now are we've got a lot of smart people thinking about this. This gives us a front row seat. I think there will be use cases that will actually be deployed in 2022. We don't have any economics built in, with respect to our, you know, 2022 forecast because we wanna be conservative. One of the more exciting opportunities is kind of in the healthcare payment space, because we're already, you know, kind of nestled right in there. The answer is yes.
Thank you. Our next question has come from the line of Casey Haire with Jefferies. Please proceed with your questions.
Yeah, thanks. Good morning, guys.
Hey, Casey.
I wanted to touch on capital. You know, you guys and Sterling both above 11% CET1. Your legal day one, you guys are gonna be in great shape capital-wise. John, can you just give us a refresh as to what ratio is most important to you and what you'll manage to pro forma?
Yeah, sure. Casey, it's Glenn. I think, you know, at the time of announcement, we said we were looking at common equity tier one, and we were looking at a ratio, a target ratio over the course of two years to be closer to 10.5%. If you look at where we are today, pro forma, that implies probably excess capital of about $750 million to your point. Now, there will be some one-time charges against that, but, you know, that's where we are.
Casey, I answered as of the first question out of the gate, too, and I don't know if you heard it. You know, I think we had put in $400 million in stock buybacks into our model because we wanted to model an effective use of capital. You know, and as we've said in every non-deal roadshow throughout and in our last earnings call, we're gonna continue to apply a disciplined approach to capital management here, meaning first prize is deploy that capital into organic asset growth, you know, complementary products for our differentiated businesses, you know, portfolio purchases. Then obviously, we look at market conditions where our capital is and think about opportunities on the dividend and stock repurchase. We'll be opportunistic. It's clearly on the table.
We definitely have excess capital. You know, we're gonna take the same disciplined approach to making the right economic decision given market conditions at the time.
Okay. Understood. Apologies if I missed this, but the securities portfolio stepped up nicely in the fourth quarter. I mean, you guys had outlined that, but can you just give us an update as to, you know, what's the appetite to continue to grow that? And then, you know, where are new money yields today versus that 1.44.
Yeah.
Repurchase level in the fourth quarter?
Yeah. You know, we're at 29%, and I think at our all-time high going back a couple years ago, we were as high as 32%, 33% of total assets. I don't see it, and particularly with the consolidation, it'll come back down to, you know, to the low 20s. One of the things we will do, Casey, is you know, for the most part, the Sterling portfolio will be booked as AFS. That'll give us sort of flip it. It will be 60/40, say, AFS, and that'll give us optionality on the investment portfolio as well.
You know, we took those actions, you know, given our excess liquidity, we drew down the excess liquidity that we're holding at the Fed about $1.1 billion, and we thought that was prudent. We still have significant cash flow. If you look at our investment portfolio, it's about $500 million a quarter, and Sterling's is, say, $250 million. We still have significant cash flow on both sides there. Then you have the loan cash flow on top of it. I think we did this. We took a little more duration on the balance sheet, at 4.1 years on what we purchased, but we also preserved a lot of optionality going forward.
Okay, great. Just last for me on the new money loan yields. I know I haven't stripped out the PPP impact, but you know, obviously that was lower. You know, 3.43% overall, where are they today and specifically the commercial at 4.12%, you know, where are those coming in?
Well, you know, in our yields, obviously we've got significant variability in the yields depending on the mix of loans. I would say, let me start from a credit spread perspective. We're continuing to see pretty competitive market. I'd say year-over-year, when we look at the origination spreads, you know, they're down marginally. But you know, we have from a coupon perspective, you think about I'll give you in the quarter, you know, our sponsor and specialty business at like a 4.45%. You know, our commercial real estate institutional grade, more closer to 2% to 2.25%. You know, we think obviously with a significant percentage of our C&I commercial real estate loans floating, we get some rate increases.
We could see a material lift in yield and obviously a delay in an increase in our deposit costs is what we're thinking. I would say loan yields are, you know, they were 3.24 on origination in commercial, on a blended basis, which is driven, you know, again, largely by where those originations come from.
Great. Thank you.
Casey. Thank you.
Thank you. There are no further questions at this time. I would like to turn the call back over to John Ciulla for any closing comments.
Thank you very much, Daryl. I appreciate everybody's interest in the company and participation this morning on the call. I know there are a lot of announcements today, and I can just reiterate we are so excited to be putting these two great banks together and great people on both sides and really excited about the future. Thanks for joining us.
This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.