Good morning for us here. We appreciate obviously your interest in the company, and we thank you for many of you for the support we've received over the years. The second slide in the presentation has our disclosure on forward-looking statements, which applies both to the presentation and our remarks today. You know, our hope is at the end of the presentation this morning, we will have provided our existing shareholders and the analysts who cover us with additional confidence in our future and demonstrate to prospective investors that the Webster story is a compelling one. Before we start, you likely saw our filing yesterday regarding the delay of our 10-K report. To provide context around the filing, we are currently reviewing employees' entitlements to certain IT systems. Our review is substantially complete, and there's no evidence of any issues to date.
For clarity, this is not related to a cyber event, nor is it related to any BSA/AML issue. It's an internal access management process. We do not expect there to be any changes in the previously reported financial statements, and we fully expect to file our 10-K within the 15 days specified in yesterday's filing. We also believe that there are no increased costs or expenses related to remediation. We're really excited about today, and I think, I'm most excited about you. You guys have probably heard me ad nauseam on earnings calls and investor meetings. I'm really excited for you to meet the team today, and see, I think, their organic enthusiasm about the company that we're building. Acknowledging that it's an interesting time to hold an investor conference with the ever-changing macro environment.
We knew for us this was an ideal time to talk to you about this company one year after legal day one of our transformational merger of equals. We're not here today to talk about pivots in strategy, the introduction of shiny new technology and product offerings, and we're not introducing aggressive expansion into new geographies. What we do want to accomplish, in my view, is pretty simple. We'll talk about what we believe to be a financially high-performing company with differentiated funding and loan origination profiles, all enhanced through last year's transformational merger. After I provide a brief overview of the company, I'll turn it over to the most talented management team I've ever worked with. You'll hear about our management framework, our priorities, our operating philosophies, and infrastructure.
We'll walk you through our three high-performing lines of business and why we think we can continue to win in a competitive environment. We'll highlight the unique aspects of our franchise and what we believe to be our competitive differentiations. We'll talk to you about the culture we've built, which is not a soft measure. It's an important measure, particularly in the midst of an integration. Our CRO will talk to you about our strong risk framework and commitment to overall risk management. Jason will give you another transparent and detailed walk through of our $50 billion loan portfolio. Most of you know me, I'm biased to credit, and at the risk of offending my other colleagues, Jason's is my favorite part of the presentation. We take great pride in our credit risk process and the way we build our portfolio.
In my view, from talking with people over and over again, I do think that there are times a misconception about our credit risk profile and what's in our portfolio. I love Jason's slides, and we'll be here to answer any questions, and I really think that that will be a highlight of the presentation. Glenn will, of course, provide the financial overview, and we'll have a lot of time to field questions throughout the morning and at the end of the presentation. All of this, we hope, will help illustrate why Webster is an attractive investment. We're not overly reliant on any one asset class or source of growth, and we pursue growth where good risk-return opportunities lie. We believe we're uniquely funded.
Our deposit beta through the fourth quarter was just 15%, which has allowed the company to significantly increase its profitability. We have a clear line of sight to funding sources that will allow us to continue to sensibly and profitably grow our balance sheet in an environment where liquidity is becoming more precious every day for the industry. Our funding profile also allows us to maximize our profitability in a variety of interest rate environments, and the team will talk to that later. We have a tremendous optionality. We have capital flexibility. We've got a strong capital position, and we've got great earnings power in front of us. We operate efficiently, and we have the ability to invest in our franchise.
You know, we talked about this often, that this merger was not a cost savings activity, that it is a growth story. We fully believe that. We fully believe that we have the opportunity as a bank to consistently generate operating leverage. Finally, we have great people. We have people in the right seats, not only with the management team you'll see today, but also throughout the whole of our organization. Really quickly on page six, which is up now, with an overview for those of you who are less familiar with the bank. We're one of the top 25 biggest commercial banks headquartered in the United States by assets. Our brick-and-mortar financial centers and corporate campuses span the I-95 corridor from Boston to New York. Our HQ is in Stamford, Connecticut, right in the middle of that footprint.
Our footprint encompasses some of the most attractive demographics in the country. We're commercially focused with a vast majority of our asset mix and PPNR coming from commercial business banking, corporate, and capital markets activities. Our retail banking franchise remains critical, but as you've heard me say before, we think the distribution of commoditized retail products is not where we're able to differentiate ourselves. We run an extremely profitable franchise posting a 23% return on tangible equity in the fourth quarter of 2022. On slide seven, I think this is an important slide. Again, there are no numbers on it, but it talks about our vision and our mission and our values. It's about providing our organization the tools to deliver top market performance, strong and mutually beneficial relationships with clients, and a rewarding experience for our colleagues.
The six key values you see at the bottom, they set the tone for how our company conducts its business, how we treat each other as colleagues in our organization, how we interact with our clients, and how we invest in our communities. It's all defined by those values. This model resonates with our colleagues. I'll note here what I mentioned in the January earnings call, which is the complementary nature of the merger, along with our values-based culture, has enabled us to attract great talent, and importantly, to retain virtually every client-facing colleague that we have in the organization during the first year. I think that's generally unusual in big transformational mergers. People are coming after your people. They think it's a time of disruption.
Because we had no real geographic overlap, and because I think we've built a good culture, we've been able to keep our customer-facing people very happy, which has in turn allowed clients to not have any disruption or change in the way products and services are delivered to them. I think that's why we were able to keep the revenue momentum that people worry about when you engage in a big merger. On page eight, a little more on culture. We set out two years ago when we announced the merger to define a culture of the bank. We knew it would be hard putting two big companies together, and it would require purposeful and unique efforts to make it work. Focal point of our integration, we have dedicated work stream.
Just like you have work streams for technology and business units as you're integrating, we had a separate culture work stream, and we underwent a comprehensive review of culture to identify the characteristics that would ensure our success. I will tell you that between the time we announced the deal in April of 2021 and when we closed the deal last February, this leadership team, pro forma, spent tens of hours together defining the culture. What are our expectations of how our colleagues behave? How are we gonna define ourselves in terms of excellence? What are we gonna do with respect to our underlying values? The words mattered.
We talked about it, and we refined it, and we held hands, and we said, "This is it." We said, even if we have great bankers or great colleagues who execute well, if they don't buy into the culture and they're not part of our team, we don't want them here. We've been, I think, exacting in making sure that we have cultural integrity, and we think that it really does provide a competitive advantage for us. We actually put a program. We invested a couple million dollars. We had some external resources, and we had a real purposeful program in place to roll out our culture. We held 140 live sessions with colleagues, in aggregate dedicating about 15,000 hours to the process.
I will tell you, coming out of a pandemic and in a multi-campus footprint, not only was this important for culture, but it actually gave hundreds of colleagues the opportunity to be with each other, right? To kind of spur that culture building. We found those sessions to be really, really productive. It's resonated. Our colleagues acknowledged a strong understanding of the values through surveys, and it's not one and done. We're working to maintain that momentum. We now have a dedicated team of culture facilitators, I like to call them pied pipers, who throughout the organization continue to reinforce culture and keep the programming going. You'll hear more about values and culture later from Marissa and Hav. We, we believe we've got great businesses. I...
Probably everybody believes they have great businesses, I think our performance to date has demonstrated that we're differentiated. Our commercial bank, of which I was a part of and kinda grew up in, has a high touch, really strong RM, single point of delivery model, where we have grown loans 10% CAGR for about as far as I can remember. It's something we always talk about on the phone calls. Sometimes I get your good questions that say there's no way you can keep growing loans safely at 10%. Then, of course, when the environment gets a little skittish, you tell us, "Why are you trying to grow loans at 10%?" In...
You know, every year, we can find opportunities with the right risk-return metrics, given our portfolio of opportunities, to continue to grow assets safely and comfortably in areas that we understand, and I think that's differentiating. As I said, our retail bank, and you'll hear from James later, and Chris obviously on commercial, we have really, really good retail clients with sticky deposits who really like us across around 200 banking centers. As I mentioned earlier, when we talk about being commercially focused, it doesn't mean we take our eye off the ball. We invest a lot in digital capabilities. We make sure that we can meet our retail clients in the channels they want to meet us in, and we value that deposit franchise.
You'll hear a little bit more from James about the segments in particular that we think we can not only maintain but potentially grow. Chad is here to talk about HSA. I think many of you know well about our differentiated deposit platform, but many of you may not. I think Chad's presentation is a good mix of being able to give you a primer on the industry, where we stand, and what our strategies are. Fast-growing fees. Of course, low cost, long duration deposits that allow us to fund at an advantageous cost. I believe our biggest differentiator is our diverse funding profile. On slide 10, you see it here. The folks will go into more detail, but suffice to say, you know, we have lots of levers to pull.
Lots of levers to pull in a challenging liquidity environment. We have four unique channels with interesting growth opportunities and funding characteristics. I mentioned the retail deposits. Our commercial bank has over time been working with a goal to ultimately self-fund, and we have a real focus on making sure that when we're bringing in new relationships that it's not just lending, they're full relationships with operating accounts and deposits. We found some really creative ways to grow all the commercial deposit categories, and that remains to be a focus. We just talked about HSA. Then Corporate Treasury and interLINK, Luis will go into a deeper dive on the rationale behind what we think is a really, really great acquisition that we made during a time of strength to give us lots and lots of flexibility.
There's so many opportunities for us, depending on the environment and depending on where we are, and depending on asset growth, to be able to self-fund through deposits all of that growth. On the other side of the balance sheet, we have a really diverse set of verticals. I think this will go into not only our ability to execute and grow regardless of what's going on in certain segments or certain geographies, but you'll also hear in credit that this provides us with great diversity and it avoids having to have a significant concentration in any one asset class, any one geography, or any one business line. We take advantage of great market conditions. We go into areas depending on what the risk-return metrics are at a particular time in the cycle. We never have to throw the bomb.
We're not a one-trick pony. We don't have to put the pedal down and hope that that asset class performs or that we have opportunities. We have a broad array of origination channels. We operate across a broad set of geographies, local, regional, national. We have expertise across a lot of verticals, and we don't worry, as I said, about concentrations. You'll hear much more about that as we move forward. This is obviously my favorite slide. We got on the phone in April of 2021, and we announced a transformational merger. Two like-minded partners coming together with a defined strategy to create a bank with top decile financial performance, a really efficient model, and one that we thought was sustainable through various cycles.
Those are the metrics that we talked about in terms of our two-year horizon that we would deliver. As you see, in one year, we've been able to exceed our ROA, ROE, efficiency ratio targets through, I think, strong execution. Obviously, we recognize through some help from some good interest rates. The interest rate environment was not the sole driver. I mean, we outperformed in volume, in fee growth, in new customer acquisition. We're really proud coming together in the middle of a big integration to be able to deliver these numbers in the first year. I'm excited about the day. Really happy you're joining us. I hope you can feel the enthusiasm. Most important takeaway, again, for us today is not about buying into new, you know, crazy initiatives.
It's about understanding who we are as an organization and what we've created. We're a traditional mid-size regional bank operating in an attractive geography in full relationships with C&I, CRE, business banking, and retail, all enhanced by some strong differentiated national businesses like HSA Bank and Sponsor and Specialty. Great funding and origination profiles. We're gonna have a couple breaks in the middle and some Q&A after credit, for example, so that if questions are fresh on your mind, and I think Luis and I will take one, and then a Q&A session at the end. I do wanna say the other EMC member that's here is Elzbieta Cieslik. Elzbieta, you wanna stand up for a second? She's our chief audit officer. Because we wanna make sure we can answer all your questions, we have a bunch of people from Glenn's team here.
Bronco, Patrick, and Ben are here, and Christy Conn in Commercial is also here. They'll introduce themselves to you either during the presentation or during lunch. Again, thanks for being here. We hope you enjoy the day. I get the opportunity now. You know, we talked about an MOE. It was an MOE, and we created what I think is a better management team than either company had prior to the MOE. I think Luis is a great example of that, kind of my partner here, our COO, and he has responsibility right now for technology, operations, retail banking, overseeing it, and a bunch of other things that I'm gonna forget about Luis. A key cog and a great and fun guy to work with. Luis, why don't you to come up and address the group.
Thank you, John. Good morning, everyone. Usually, when we do these, you know, meetings internally and so forth, I always take an opportunity to make a wisecrack about John, which is always very well received. Today, since he was very nice to me, I'm gonna actually be very nice to him too, and I'll take the high road and won't, you know, say anything. Again, thanks everybody for, you know, for joining us today. I'm Luis Massiani. I'm the Chief Operating Officer for the bank.
I guess, you know, John rattled off some of the things that I do, but, you know, also have, you know, a fair amount of and a scope of, you know, supervision and responsibility for, you know, other areas of the organization, including innovation, products, digital, and, you know, kind of the worlds of marketing and so forth, and internal communications. You know, today we are going to... Actually, let me figure out how this works. There we go. Perfect. It's a good thing that I'm the technology guy, considering I couldn't figure out the clicker.
You know, today we're going to talk about, you know, in each one of the sections that we're going to go through today, my, you know, my colleagues and partners are going to run you through what are the five key messages that we want to leave everybody with. You know, in this section, you know, we're going to talk a little bit more about how we prioritize and think about things strategically, and so what are the initiatives and things that we focus on from the perspective of individual business lines as well as how we make that all come together as part of the company. You know, we're also going to talk about how we, you know, align strategically across all of the various business lines and units that we have.
We're going to talk a lot about funding. You know, John already put up a couple slides up there. We're going to, you know, it's going to be a recurring theme through the, you know, through the entirety of the presentation today. We're very proud and, you know, excited about the, you know, the deposit businesses that we're in. The world, from our perspective, has never changed, although it's always, it always seems like in, you know, low rate environments, everybody forgets about, you know, how important a good, solid and attractive deposit funding base is. Then, you know, when we've had situations and environments like the one that we've seen for the last 12 months, everybody reminds itself that the business of banking is about funding, funding.
We're going to talk a lot about how that funding comes into play from the perspective of everything that we do. I'm then going to invite, you know, Vikram Nafde, our CIO, who's going to come up and, you know, talk, you know, a little bit about how we think the world or what are the focuses and focus and initiatives that we have, you know, from a tech perspective. I'm also going to talk a little bit about where we are from an integration perspective, where we've been making a tremendous amount of progress, not just on the systems and technology side, which is where everybody focuses on, because that's where the vast majority of operating expense savings come in.
In addition to that, we've had, you know, 1 million different work streams that we've been focusing on from the perspective of people and processes that have also been very, very important to us from an integration perspective. Strategic priorities. This is a page that, you know, that Javier Evans, our Chief Human Resources Officer, will talk to you later today about all the things that we've been doing from a cultural perspective. Everything that we've done from the perspective of bringing the two companies together is in some way, shape, or form, we've kind of plastered this page across the entirety of the organization, you know, 1 million different times.
We love this page because we think that it does a fantastic job of, you know, kind of explaining what we want people to focus on, how we want them to act and to, you know, kind of conduct themselves inside of the organization, how we want them to interact with others, and what are the things that we consider to be important and focus areas from the perspective of balancing what we do from a business and a profitability perspective and a growth perspective relative to continuing to manage everything that we do from a risk management perspective. In today's presentations, each one of these, like, six pillars of our strategic management framework is going to be covered by, you know, somebody on the management team.
From a growth drivers perspective, you're going to hear from, you know, Chris, James, and Chad. From a risk management perspective, you're going to hear from, you know, from Dan and the team on, you know, on the risk side. You know, Vikram will talk about IT as I, as will I. Then we're going to wrap all of this up with, you know, with a good view of what we're doing from a corporate perspective. From a corporate citizenship perspective, sorry. We've obviously put out some very significant and, you know, good targets out there from the perspective of what we're doing in investing in the community and CRA. We're making very good progress from that perspective, Marissa Weidner will, you know, will run you through what we're doing there.
From a management framework and a strategic management framework, this summarizes how we think about the world and how we've we figure out what are the things that we need to focus on. On the left side of the page, it's all about, you know, creating a level playing field, which we think about it from the perspective of having a very robust, you know, analysis of what economic profits are for everything that we do, then utilizing that to figure out where are the places that we need to focus on both short-term and long-term to make sure that the, you know, that the things where we're dedicating our time, resources, and dollars are the places that make the most amount of benefit and impact for, you know, for the company.
Every single business line, every project, every strategic initiative that we have, be it organic or inorganic, is viewed through that same lens of economic profit. You know, Glenn will talk a little bit later on about how we do that from a, you know, from a mechanical perspective. That is the framework that we use to make sure that we are 100% focused on the right things and that we're 100% focused on the things that we believe are going to result in both the biggest short-term impact as well as long-term impact. On the right side of the page, it kind of, it's the way that we distill that long-term vision and framework into smaller bite sizes that are easy to explain and digest for everybody, you know, across the organization.
As I look at this page, I, you know, I've, and as we were preparing for, you know, today, I actually think that the, you know, the ordering of one, two, three, and four should actually, you know, be flipped because everything that we do does start with number four, which is our people. You know, we want to have a talented, motivated, and engaged colleague base. Both organizations had the same exact philosophy when we came together, which is, you know, we train and develop folks. We believe, you know, consistently in promoting from within. We provide the ability and the opportunity for people to have a clear career path in the organization. We believe in giving them increasing levels of responsibility consistently if they are, you know, top performers.
You package all of that in, you create a, you know, good and competitive compensation framework, you end up having a highly talented, highly motivated, highly engaged, you know, colleague base. If you have that, it makes number three substantially easier. You know, happy colleagues, motivated colleagues are, you know, folks that, take care of their clients and make it easier for folks to take care of their clients. One of the things that we're most proud of as we're a year into this or slightly past a year into this merger, is that for the past 13 months, we've had no meaningful attrition from the perspective of personnel. We've had no meaningful attrition from the perspective of clients, be it on the consumer, commercial, or HSA side.
That is clearly shown in the fact that, you know, the financial performance that we've had through 2022 reflects that that is the case. We've had great continuity from a people perspective. Our colleagues have done a great job of covering their clients and have made this transaction pretty darn seamless for, you know, for, you know, for their clientele, which has been great. On number two, we're very clear in asking our folks not to be all things to all people. We have clearly demonstrated and believe that we have, you know, specific subsectors and client sectors that we focus on.
We believe that those chosen sectors of middle market, corporate, mass affluent consumer, small business, and HSA are places where we can compete very effectively and where we can generate, you know, competitive advantages that allow us to generate better returns and better results over time. When you package all those three things together, it makes number one very easy. That's one of the reasons why we today have a 20%+ ROE and a 1.5% ROA. We have a clear path. We know what we're doing in the business sectors in which we're in. When you package all of that together with a, you know, with a talented, you know, kind of senior leadership team and talented colleagues below it results in great.
Great profit.
You know, profitability and ROA dynamics. From a corporate priorities perspective, what are we thinking about at the top of the house? John alluded to this before, and he put up some slides on both loans and deposits and how our business lines and verticals work. You know, first and foremost, we have a diversified and growing balance sheet today. We're going to continue to focus on having a diversified and growing balance sheet with a very good mix and blend of earning assets. With those seven or eight different verticals that you saw, you know, John put up on the screen. Given that mix of business, we are able to generate all types of loans, be it from a geography perspective, industry sector. We can generate consumer and commercial.
We can generate loans across a whole spectrum of interest rate characteristics. you know, we believe that that is the right thing to do. We believe that having that flexibility is what allows us to make the capital allocation decisions and strategies that we want to do and gives us a substantial amount of flexibility in how we manage the business long term. That's only the left side of the balance sheet. On the right side of the balance sheet, we've done exactly the same thing. We have, you know, four or five different deposit verticals, each one of them having very different dynamics to them.
One where the flexibility that we've created there allows us to manage each one of those verticals differently so as to not have to cannibalize other parts of our deposit book and other parts of our business if we decide that there's places where we want to be more aggressive to generate growth versus being more less aggressive in other areas. Again, John alluded to our beta that we've seen through the cycle. Glenn will do the same thing in his presentation. We have an industry-leading beta. The reason for that is the fact that we have a very, very diversified mix of businesses on both the asset and deposit side.
In particular, the deposit side, it gives us a tremendous amount of flexibility of how we price deposits and how we figure out which are the verticals that are best positioned for us to be able to grow those deposits. Lastly, you'll see there that we have, you know, we have been an extremely asset-sensitive bank. In some way, shape, or form, given the mix of business that we have and how good our deposit funding base is, we're always going to be somewhat asset sensitive.
However, we do realize full well that it's a great opportunity today to start kind of shaving off some of that as-asset sensitivity and becoming a more neutral, you know, balance sheet or having the positioning of our balance sheet be a little bit more neutral given what could be potential, you know, decreasing rate environments and Fed, you know, decreasing rate environments. Today, Glenn will run us through some of the things that we're doing short term, you know, on an inorganic basis, we'll call it, from the perspective of some of the tactics that we've been using to insulate the balance sheet from a potential decreasing rate environment.
We're also very much focused on utilizing that mix of business that we have on both the loans and deposit side to do that organically over time, where again, given the flexibility that we have, we feel like we can better position the balance sheet to make it more efficient, more optimal through any interest rate environment. You know, from a capital allocation perspective, you know, we've talked about that a little bit already. I think that both banks, when they came together, had, you know, were extremely well-run organizations that had already done a substantial amount of pruning and of restructuring of specific, you know, business lines and areas that were, you know, potentially not running as efficiently as they could.
you know, however, we do realize that the reality of an organization of our size today relative to where the two banks were on a standalone basis, not everything that the two banks did on a standalone basis are things that we necessarily are going to continue to do going forward because, again, we're bigger, we're more profitable. Things that used to move the needle before don't necessarily move the needle going forward. you know, from that perspective, we very purposefully decided not to upset the apple cart and not make this a restructuring of a balance sheet or a restructuring initiative, you know, out of the gate.
Rest assured that we are looking at everything that we do, again, through that economic lens, and economic profit lens that I was alluding to before to make 100% sure that going forward, we continue to focus on, you know, exclusively the things that we should be focusing on to generate the best, you know, returns that we can. Finally, you know, we're super proud of our 40% or low 40s, top-performing low 40s efficiency ratio. Want to make sure that everybody understands that we get this question a lot. Does that mean that we're not investing in the business? Does it mean that we are, you know, underinvesting and so forth? It's not. We are investing in the right places.
The low 40s efficiency ratio, as we run through the presentations with my colleagues, you'll see that it's driven by the mix of business that we have and where we have decided to focus our efforts going forward. We are very optimistic and excited about the fact too that as we continue to go through 2023, we have a substantial amount of cost savings initiatives and operating expense savings opportunities that are continuing to come up from the perspective of fully merging the two organizations.
Not all of that will drop to the bottom line because we are reinvesting across the board in all the business lines that we have. We are very, you know, optimistic about our ability to being able to continue to manage OpEx in what has been a pretty tough and inflationary environment for, you know, for a lot of people out there. On this page, I won't say, you know, a whole lot because we're, you know, each one of the business line heads, you know, with Chris, James, and Chad will get, you know, will run you through the, you know, specific initiatives that they have.
you know, on the bottom of the page, we're also gonna get into a lot of information regarding what, you know, the individual business line growth dynamics and trajectories are. Then Glenn, at the end of the presentation, is going to take all of this from a, you know, and consolidate it from a top-of-the-house perspective to, you know, provide some good clarity and info on where we see the business headed from a short-term perspective and long-term perspective on the operating performance side and on, you know, financial metrics. From a deposit perspective, I said, I guess I apologize that we're being a little bit repetitive on this front. you know, it's going to get more repetitive as we go through this.
This is the, you know, single number, you know, biggest differentiator that we have in our view relative to, you know, peer banks and, you know, banks of our, of our size. We have a very, very well-diversified and very well-funded balance sheet. We love the fact that we have a great mix of business between consumer and commercial. We have a great differentiator in HSA, which is something that nobody else has in, you know, the bank space, especially in our, you know, at our size. 83% of our funding consists of our deposit funding, and our funding consists of those three business lines. We augment that through digital and, you know, fintech partnerships, the last of which is, you know, with the interLINK acquisition that we completed in January.
What we, you know, what we like the most about the mix of business that we have on the deposit side is that each one of these channels, as I said before, is differentiated. Some of them are more rate sensitive than others. Some of them have better operating expense characteristics than others. When you factor in and when we look at the mix of business that we have, and you factor in the total cost to serve from an interest expense perspective and an operating expense perspective, each one of these deposit channels is extremely efficient. That is one of the reasons as to why we're able to have that low, you know, efficiency ratio that we have is that everything that we do is again looked at from that prism of being able to build scalable and efficient businesses.
In some cases, that comes from the fact that it's a very low cost, you know, sticky source of funds. In some cases, it comes from the fact that it's just a great operating expense dynamic. When you put all of that together, it results in a very, very attractive, you know, mix of deposit gathering capabilities. A little bit on interLINK. You know, so we completed the transaction in January, so mid-January or so. You know, we've now, you know, we've owned interLINK for, you know, for about a 45-day window or so. The business when we acquired it had about $9 billion in assets under management, and it services about 500,000 retail brokerage accounts.
We have 15 broker-dealer relationships there that are both direct and indirect through, you know, through some various relationships and partnerships that we have. You know, over time, we will work and have started to work with a lot of these broker-dealer relationships to figure out what are other things that we can do from the perspective of not just managing their cash flow sweep business but also providing other banking services and products, both to the broker-dealers themselves as well as to their broker-dealer and retail, you know, channel clients. We, you know, we like that a lot, and we think that there's a tremendous amount of opportunity there.
Most importantly, you know, the reason for, you know, one of the key reasons for doing this is that we did want to, you know, it has nothing really to do from the perspective of the other deposit verticals that we have, which will continue to grow with the, you know, with the types of growth rate dynamics that we've shown here in the presentation before. It's the fact that we were very confident, and we believe in just having as much access to funding and creating the best amount of funding flexibility that we can, which we think this business brings for us in a very, very efficient basis. You know, Glenn has alluded to this before in various earnings calls and so forth.
You know, we think that we're gonna be at somewhere between $2.5 billion- $3 billion of deposits in this business by the end of the first quarter. As of the end of February, we're already at just under $2 billion in deposits or so. Every metric that we had laid out from the perspective of the amount of deposit liquidity that that was gonna generate, we've actually exceeded at this point, which we are very, you know, happy about. The receptivity, as I said before, as we've had conversations and more detailed conversations with the, you know, 15 partners that are part of this business today with us have been really, really good.
We're very excited about this becoming a larger piece of what we do from both a deposit and a lending perspective. Again, down the road with no, you know, no specific milestones or timelines of when we're gonna do some of these things but again, just the, you know, the ability to figure out other consumer and commercial deposit products and small business products that we can put through this channel as well as potentially HSA. We're very excited about that. Vikram, where are you? Vikram Nafde is our CIO. He's gonna run us through, you know, a couple pages here on how we're thinking about the world of technology and the various things that we are focused on from an initiatives perspective. Why don't you come up, Vikram? You can make a wisecrack about John if you want.
Go ahead, buddy. I'll resist it.
All right. Good morning, everyone. I'm Vikram Nafde, the Chief Information Officer of Webster Bank, and I'm super excited to be here today. I'm gonna take about five minutes or so, talk to you about a couple of things. One, Luis already talked about kind of top of the house corporate-level strategic themes. I want to spend just a couple of minutes to talk about the technology strategic themes and how we just kind of view the world of technology at Webster Bank. Then I'll get into the very specific near-term technology priorities that we have and the outcomes we're achieving already.
Speaking of the core and timeless kind of strategic themes, number one, we start by ensuring our technology strategy is fully integrated with our business and enterprise strategy, and we view our kind of technology solutions as step functions to help achieve business growth. Number two, we believe in creating a superior technology experience both for our clients as well as the colleagues who serve them. All the investments that we're making in the technology side, they really are meant to be, number one, foster colleague collaboration, automate business workflows to the extent we can, and of course, create a frictionless technology experience for our customers. Number three, we are actively building a robust feature-rich and integrated tech stack based on our technology North Star.
Number four, we have purpose-built an engineering culture where 40-plus autonomous agile DevOps teams work closely together and with our business stakeholders to deliver value for our clients every day. Number five, of course, at the heart of all the technology and processes are our people. We have been spending a lot of time and money to attract, retain, and develop a competitive, diverse, and future-ready technology workforce. Lastly, it's really important that we do all of this in a safe and secure environment and protect the bank's and clients' assets. Now coming to the more specific near-term... Am I turning this? Now coming to the specific near-term focus areas and outcomes. You'll see on the left business value delivery.
Luis will actually talk to you in just a minute about the tremendous progress we're making on integration overall, technology integration, but also the core conversion program that we are about to hit this summer. All the technology teams are laser-focused on ensuring we complete core conversion this summer and gain the business capabilities as well as the synergies that go with it. In addition, though, we are also actively working on various other business projects, including enhanced pricing and credit tools for commercial, combined Salesforce for consumer and commercial bank, a new digital account opening tool, as well as a new mobile tool. Number two, on the technology capabilities side, cloud and data. These are the cornerstones for our technology enablement roadmap, and we've already achieved a lot of things on those two fronts with more to come.
95+% of our apps are already on the cloud, and that really allows for scaling of growth and faster and more reliable technology. From a business value perspective, we can now pivot more rapidly, as evidenced by the quick completion of the interLINK deal. Again, thanks to the cloud as well as the network engineering rearchitectures, the banking centers and hub sites now have improved speeds, allowing them to serve our customers even faster. Coming to the data modernization journey, we've been on the journey now investing in next-gen cloud-based capabilities to truly harness the power of data and tap into market trends. We've already built a cloud-first enterprise data management platform for unified and holistic data storage and management. We've also rolled out cloud-based master and reference data management products for better data integrity, completeness and timeliness.
Lastly, we have built enterprise analytics tools and capabilities as well as data science practices for better data decisioning and to gain business insights based on customer journeys. The third pillar on Operational Excellence and op model. The cloud and data moves I explained, they also help us tremendously on the Operational Excellence side via a reliable and scalable tech stack that can be tuned up and down based on the business needs and demand. In addition, we have built a very collaborative scale agile operating model where, as I said, 40-plus DevOps agile teams work together daily but also come together every quarter, in person for three days along with the business stakeholders to plan together, commit together, and to ensure my first point on the previous slide that the technology strategy is fully aligned and integrated with the enterprise strategy.
Lastly, we made tremendous progress in hiring top-end diverse technology talent in a pretty competitive market last year. We also leveraged global partnerships with tier one vendors to scale on demand and fill any skill gaps. The last pillar here, safety and soundness. Our cybersecurity risk governance approach is fully aligned with our corporate risk strategy. Our post-merger integration efforts actually included a sustained push on organizational understanding of cybersecurity, with focused trainings and communications. We also conducted cybersecurity tabletop exercises with our executive management and a full board. In summary, I think technology will continue to be a key enabler of Webster Bank's strategy and growth this year and into the future. I couldn't be happier and prouder to partner with this terrific management team and executive team to propel the bank forward.
With that, thank you very much, and I'll hand it back over to Luis for an update on integration and core.
Thank you, Vikram. We have the new baseball pitch clock back there, which shows that we're already over schedule. Vikram did not heed that it was blinking red for him. You know, appreciate that, Vikram. You know, very quickly just to wrap up on, you know, on the last slide. I think I've presented this, you know, page like 100 times in the last, you know, quarter or so, in all of our various internal meetings. You know, I think it does a really good job of demonstrating all the various things that we, you know, that we're focused on and working on right now from an integration perspective.
As I said before, everybody always focuses on the IT and tech side, and that is, of course, critical to everything that we do. Integrating two organizations of this size has 1 million different things associated with it from both the people, process, and a technology perspective. You know, on the top of the page, you see some of the things that we've been doing from a core banking perspective and the progress that we've made in starting to integrate a fair amount of our business lines. You know, we do have a very big and key milestone in July, mid-July of this year where we are, you know, we're going to, you know, fully, you know, convert and be on one fully integrated, deposit, system and platform.
We're very excited about what that is gonna allow us to do from a scalability and an efficiency and a growth perspective. Then you see on the bottom left of the page, you know, all of the other things that we've been doing from the perspective of cultural alignment, you know, title alignment, compensation alignment across the organization, you know, payroll systems and so forth. Again, you know, don't, we never lose sight of the fact that it's not just technology, that it is a bunch of different things that we need to do.
At the same time, you see there on the bottom, you know, kind of in the middle of the page, we don't just focus on the integration, we're also building for the future, and we are working closely, as we've talked about at length now, on how we, you know, kind of interact and manage with the business lines and figuring out what is most impactful and making sure that we can continue to work through parallel work streams of integration, as well as building out for, you know, for what the business lines need to be able to achieve, you know, their goals and objectives. Thank you.
We're gonna put the burden on you a little bit. We've got a Q&A session after the business line, if there are questions on business line strategies or particular execution things, can you hold? We have another section after risk and credit risk, where we can go deep on credit. At the end, obviously, questions on Glenn and NIM and all the other things you like to ask and Glenn likes to answer. This one, we're gonna take 5 minutes here in the room. If there are any questions, top of the house, you know, corporate development, management framework, strategies, any of that stuff, happy to take an early question. Culture.
More of a question on capital allocation, which was a theme. You highlighted the balanced business model, the diversification. I think, Luis, you talked about potential tweaks is in the third quarter. Maybe thoughts on just broader capital allocation with all the capital you're generating.
I mean, I think, you know, we generate a lot of capital through earnings. We've got a good base. We do have opportunities to invest in our core businesses. You saw the interLINK acquisition. We have organic loan growth, portfolio potential acquisition. You know, what we think we can do internally with respect to capital allocation is first. Then, you know, we've got a pretty, I think, rigorous program around making sure that our dividend is competitive. Obviously you saw us buy back $300 million of shares before the market got a little bit disintermediated and there was more uncertainty in the economy. I think, you know, we have internal opportunities to deploy capital, then we look to the appropriate level given the operating environment and excess capital generation to return capital to shareholders.
Within that, as Luis said, we have so many different activities. We also have opportunities to pair and redeploy capital. You saw us, we announced in the third quarter, I believe, a pretty significant portfolio sale. We just didn't think it was strategic. We didn't think we had the opportunity to leverage that business, and it was less of a full relationship business. We sold a $500 million plus portfolio and, you know, redeployed it into some of the stuff that Chris is doing in terms of accelerating other commercial loan growth categories. I think we're thinking about it all the time. You know, I'll answer the question that may be implied but not asked from a, you know, a corporate development perspective. We're also aligned.
We've got a lot of work to do to finish integrating the organization. Right now we don't think whole bank acquisition is particularly interesting. We always say, "Never say never." I probably said that for seven years and then announced a really transformational merger of equals. You know, there are a lot of sellers. We're not an interested buyer right now in terms of, you know, smaller whole banks. We don't think that strategically it gives us a lot of advantage, but maybe a great deposit franchise and other things down the road, but that's probably, you know, four-eight quarters away from us thinking about doing anything.
What we will do is a Bend acquisition to help bolster our technology at HSA Bank or an interLINK, which continues to build out our broader profile, or an acquisition of teams in a commercial banking business or an acquisition of a portfolio. I don't know if you have anything else you want to add to that?
No. I think it was well said. Nothing to add.
Steve?
Yeah. I had a few questions, actually. First, your opening comments when you said the purpose of the deal was to create and grow the company. When I look at the planning targets, right, if I look just at loan growth, and I think back when we were in these seats at other investor days, they're about the same, maybe marginally lower than like what Legacy Webster was doing. Are you just being conservative with these targets given the macro uncertainty, or do you look at this new franchise and say, "Yeah, it's about the same growth potential as Legacy Webster?
It's a great question and always a difficult one. I don't think we're sandbagging. You know, I know that wasn't the implication. You know, we said we could do 8%-10%. We did 15% loan growth in the first year. That's largely because we have a bigger balance sheet. We were able to service our existing customers with higher hold levels. I've given the examples 1 million times. Our relationships in commercial real estate or in commercial banking where when the total debt requirement was over $50 million, we were oftentimes leading the deal and selling a portion for risk management purposes, and now that's squarely in our ability to hold. That kind of accelerated growth a little bit.
I do think we believe that we're in an environment where we're less confident that the macro loan growth dynamics or loan demand dynamics will be as strong as they've been the last few years. I think that tempers a little bit. I think when you look at our total loan growth categories too, and, you know, James will talk about this a little bit, we've had decent mortgage loan growth. Obviously, in this environment, we probably won't. Not as attractive for either the borrowers or potentially the bank. I think, you know, I still think we'll hit 10% loan growth in commercial banking categories. We may not grow the retail categories and consumer lending categories as much.
I think it's a combination of a little bit of a more challenging loan demand environment with where we are from a mix perspective. Do I think over the three-year period, the CAGR could be higher than that? Sure. I think that's an area we could outperform.
Secondly, not to leap way ahead, if we look at the targets for PPNR and the NII outlook for the next three years, you say in the footnotes, you assume rate cuts peak at five and then go down to 3.5. If rates don't go down, let's say they go to the 5% you're calling out and stay there, how do these numbers change on NII and PPNR growth?
Yeah, I mean, I, Glenn, you can give it a shot. I mean, the macro answer to that question too is there'll be more pressure on betas and the cost of funds. Obviously, we have a lot of floating rate loans, so that would give us net more revenue and more PPNR. Look, if you look at our, you know, we're we have a lot of execution ahead of us. It's a competitive landscape. If you look at the PPNR numbers we're throwing in there, you know, those are top decile growth numbers over three years to our peer group. As we said, we are anticipating a pivot during the three years from a Fed funds perspective. I don't know, Glenn, do you wanna?
Yeah. I mean, Steve, you're sort of jumping ahead, but we have Fed funds coming down actually toward the tail end of the year, 25 basis points. If you think about it this way, for every 25 basis points, it's worth about $20 million annually to net interest income. You know, you can sort of build it off of that. That's our asset sensitivity. I'm gonna talk a lot more about that because there's other dynamics within that too.
Okay. We'll go to the next section.
Are we good?
Yeah, sure. Thanks. Thanks a lot, Luis. We're, we're gonna hear from the three business line leaders, all really talented executives, industry and domain experts. The first up is Chris Motl, who runs Commercial Banking. Chris and I both started at Webster within a month of each other in 2004, and we work really closely together. He has a unique ability to identify talent, to keep that talent motivated and happy. I've never worked with somebody who has never missed a plan or a budget, over a 20-year period of time. Chris is that kind of unique leader, who also can identify opportunities in the market.
He'll talk about fund banking and some other areas where if we have to balance credit concerns with asset growth, then he just kinda knows where to go, and he knows how to manage the business. I'm really excited to introduce first up, Chris Motl.
Good morning, everyone. With that introduction, this is where you actually just sit down instead of presenting. John, did you want your drink from up here, by the way? What I'm gonna do is do an overview, strategic overview of the commercial bank and how it does drive strong performance for the bank. Hopefully at the end of the day, we get to some key takeaways for you. Commercial with the merger especially has a really strong and deep-rooted customer base within our core footprint. Secondly, we have some national businesses that provide some asset diversification and some real opportunities to accelerate our growth when we need to on the loan side.
Lastly, we need to continue to build out on the treasury management side, both through people and systems to figure out how to really grow the deposits in the commercial bank. That's our last goal. Right now today, we have about 650 bankers or colleagues that, you know, serve 18,000 clients and provide strong financial performance, which is demonstrated on the slide. Just gonna go through two metrics. One is actually not on the slide, return on adjusted average capital, which is about 19% for the commercial bank, number one. It shows that we do provide a return in excess of our cost of capital, number one.
Number two, I think like we were talking about before on do we allocate capital correctly, we actually report out not just the line of businesses within the Commercial Bank, but also at the business units within the Commercial Bank to make sure all business units are providing a return on their capital. The second metric I'll point out is actually PPNR per FTE or colleague, $1.7 million. The reason I point this out, I think it really demonstrates lines of business that can scale, that can really provide some returns from a contribution perspective. This number will backtrack, which is interesting if you watch it over a period of time, quarterly, annually, that it will backtrack when we invest in obviously employees or people. Over a period of time, that number will continue to grow upward.
I think this slide says a lot here primarily for the last three quarters. It's not just, you know, you look at the last four quarters. We had a stub period for first quarter, obviously. Couple things I'll highlight is in the fourth quarter, you see a pretty significant spike in our PPNR. That's twofold. One is the loans we booked in the first three quarters after the merger, and then obviously the rate environment. The second one I'll point out is on the expense side, expense management. We have expenses flat for three quarters. Those are all full quarters with the full commercial bank merged, right? What we tried to do after the merger is take. You know, we started out with 600 employees. We have 650, you know, a year later or 11 months later.
We replaced some of the overlap in senior management within the commercial bank with originators and execution people, which would be our portfolio managers and our originators. Sorry about that. Sorry about that. Oops, there we go. I think we have a proven strategy. You know, it shows in the performance, I think, over the last 10 years. I think we have very strong lending capabilities, and that's due to our colleagues, right, our bankers. I think we hire very good bankers. We have a lot of bankers from larger institutions, and so forth, and I think we actually punch above our weight. Our treasury management products that we offer right now are at peer or large bank levels, so I think we can continue to offer that service as good. On the merger benefits, we talk about the colleagues, the bankers.
We deepened the bench significantly with the merger within the commercial bank. Both banks had very strong commercial bankers, and we just deepened that bench. We also have some scale now, whereas investing in just one bank wasn't profitable. Now we can invest in the treasury side or other areas because it makes more sense. Additionally, some of our lines of business, due to the merger, are much more relevant today than they were separately. What I hope to show in a few slides is we have a strong regional presence in our national banks, our national lines of business, so we have a lot of levers to pull in order to grow the loans and hopefully deposits in the future. The only other thing I'd say is we have on here sophistication of the marketplace. The marketplace continually becomes more sophisticated.
What we're seeing because we do have our sponsor business is PE firms and institutional CRE firms keep coming lower down in the middle market and even lower middle market. Some of our borrowers are actually demanding just not even sponsor owned. They're demanding much more sophisticated loans so they can get returns on their investments. On the regional side, the merger we had was actually very complementary for the lines of business. You know, we had 10,000 borrowers within the regional footprint. There were only 40 borrowers that overlapped actually upon the merger, so obviously very complementary on that side. On the national side, when I talked about scale of the lines of business, we had two ABL teams, each with $1.7 billion in, you know, commitments.
Today, we have 1 ABL team that has a national presence and a very significant presence, over three and a half billion dollars in commitments. Equipment finance today for us is a one and a half billion dollar business. The scale of those businesses makes us more relevant within the national marketplace. Additionally, we use increased holds with a bigger balance sheet opportunistically within commercial real estate, sponsor, and public sector finance, which I'll talk about more. Again, on the scale side for investments, right, we invest in our client experience and our employee experience. We insourced our derivatives right after we merged, which is obviously economics positive for the bank. We're rolling out right now pCard, corporate card. We're integrating our online banking system.
I'm not going to talk about the conversion much, but I will refer to it later. In this, you know, we have a system that we're going to that will provide and fill all the gaps for our customers. Sorry. This button gets in the way sometimes. On the colleague experience. We implemented Sageworks. Sageworks is a credit product management tool. It helps us to give consistency on the credit side, compliance, financial reporting. We implemented Salesforce more across the whole commercial bank for sales enablement. Lastly, we've implemented PrecisionLender. This is a real-time market data for pricing on loans and deposits. We'll start getting into the regional and national a little deeper. The one that's interesting is we always think that Webster always had a very strong sponsor and sponsor in our national presence.
The fact of the matter is, after the merger, we have 61% of our contribution coming from our regional business. This is full relationship commercial real estate C&I. They leverage Webster's brand in the marketplace, either through our branch network, through our advertising and so forth. The other thing I'd say about the national business versus our I mean, the regional business versus our national business is the churn is much lower. That helps obviously drive you don't need as much new volume to replace because we don't have it coming out of the other side, whereas the national business, the churn is much higher. How are we going to grow in the future on the regional business? Prospecting tools we'll provide for our RMs, increased calling efforts.
We'll hire some more originators so we have more feet on the street, then centralize the underwriting portfolio managers so that our RMs can be out there originating new business. On the national side, you'll see it's 39% of the contribution. I think we differentiate in the marketplace either through product or industry knowledge. A lot of mid-cap banks have national business. I think we have a lot of national business. I think we're pretty good at it. We've been doing it for a long time. I think every mid-cap bank needs it to actually help on the loan side to help moderate and accelerate it when need be. Product expertise would be our ABL team, equipment finance, and public sector finance. On the industry expertise within Sponsor and Specialty, we have tech and infrastructure, healthcare, and environmental services. How will we grow national in the future?
We'll get into deeper dives, but fund banking was one area we grew in 2022. We'll continue to focus on public sector finance, especially with the higher rate, interest rate environment. Now let's look a little further at the regional business. These are the lines of business within regional. We'll start, you know, 90% of the clients are in market. Core footprint, selling to owners of, you know, the businesses and, you know, select small public traded. Middle market focuses on C&I borrowers, owner-occupied, commercial real estate. Revenue is greater than $25 million. Most clients, like I said, are family-owned businesses, full relationship, leverage the brand within the footprint. On commercial real estate, we focus on real estate developers. This is sort of where it's changing.
A lot of the institutional commercial real estate developers and so forth, you know, they're going national. We're starting to follow them similar as we did in Sponsor and Specialty. The verticals, which is the next one, is actually a deposit gatherer. We have our Government Banking here, and this is the deposit side of Government Banking, not actually the lending side. We have Law Firm Banking and Property Management and Not-for-Profit. All that go, you know, we differentiate sort of on the industry side to gather the deposits. Business Banking, very similar to our Middle Market team, but focused really between $2 million-$25 million of revenue. Again, deposit focused. As you see that we actually have more deposits than loans. Lastly I'll talk about is of a Private Banking.
We take private banking and sort of wrap it around to actually support our clients, right? To deepen the relationships. Also, we have direct calling efforts. The good news with the merger is we just hired a new private banker in New York City and Long Island due to the merger, because we're getting a lot of referrals out of the middle market teams and pre teams within that footprint. Now I'm going to speak a little to our differentiated national businesses. Our national businesses make up about 40% of our PPNR. What the difference is these businesses, we can actually accelerate the loan growth when need be. We can help moderate it when need be. There's a lot of flexibility, a lot of levers to pull. Sponsor and Specialty focuses on private equity firms.
Very large marketplace, obviously, with a national presence instead of just regional. ABL and commercial services. Commercial services would be our factoring business and our payroll finance business. Again, national focus with these businesses. We will use the product regionally. Public sector finance provides short-term, mid-term, and long-term fixed rates. Helps with the asset sensitivity of the balance sheet. This is to municipalities, states, and government entities. Mortgage warehouse. This is one business, obviously, with the higher interest rate environments, a lot of headwinds right now. We have a team that processes 2,000 loans every month and is a well-oiled machine. Lastly, equipment finance. They provide medium-ticket leases for equipment to middle market clients, primarily east of the Mississippi and Texas. Again, the merger created a business here that has $1.5 billion exposure.
Before I jump into this slide, I actually agree with John. Jason's presentation is my most exciting one too. The reason I say that is we have a great culture, but when you're doing transactions and onboarding credit, you also need a credit culture. Right after the merger, Jason and I had a lot of conversations about the credit culture we wanted to create at Webster, right? It's interesting, we both come from institutions where the credit team, the line of business would put their credit, you know, committee armor on to go to battle. Jason and I are like, "We're not gonna have that environment within the bank." Him and I get along very well personally, but also professionally respect each other. What it does, and I think why we'll have strong credit performance, is we don't know...
If you have the battle when the line of business is in power, you book deals you probably shouldn't. When it goes the other way, credit says no to all the good deals you should be booking. I think we have a great relationship outside of, you know, that. We pre-screen every deal that comes in. It gets a green light from credit side line of business. I think what we do is get a much better... That's how we get the growth when we need more consistently over a long period of time. Now I want to do a deep dive in four of our lines of business, then also our treasury management. This represents about 88% of our loans, 90% of our PPNR.
Hopefully it helps a little tell the story again on how, you know, we make strategic decisions in certain areas to drive the growth and the financial performance. First, I want to start with the commercial real estate group. I'll try to point out some of the metrics on the page. Hopefully, it's helpful. 54%, this is, you know, organic growth. It doesn't include merger related, so it's normalized. 54% origination growth year-over-year. That's really attributed to two things. Larger holds, obviously. We went from $17.6 million average hold to just around $22 million, and that's for the book. We're obviously following sponsors out of market, right? That really helps on national presence a little bit in generating it. This drove $5.2 billion in originations.
The other thing I'll mention is in 2022, obviously with the interest rate environment, churn significantly reduced, right. We went from pretty high churn in all lines of business to pretty much nothing. There were no opportunistic refis because the rate environment credit spreads were either widening or staying at the same. Rates were higher. People weren't getting advantage of refi, number one. Number two, div recaps into our cash outs were not occurring. People were not doing, what would you say, inappropriate purposes or use of funds. Lastly, the M&A environment just slowed down completely. You'll see our favorite asset class here, focus is multifamily, industrial, healthcare. Within the other is also student housing and life sciences. Those are our asset classes we prefer in 2022 and will not change in 2023.
The reason we believe when we follow our institutional commercial real estate outside of market is because we have colleagues that have good asset class expertise. Webster's pro-credit process, quite frankly, that we learned from Sponsor and Specialty of building deep relationships with sponsors and following their expertise out of market, makes us execute these deals well and actually take appropriate risk. Lastly, many of the commercial real estate sponsors, just like in Sponsor and Specialty, are within the Boston, New York City corridor, so it makes it much easier to build relationships with the principals. We're gonna get into the regional, there's three lines of business here that make up our regional book. It'd be middle market, business banking, and then our verticals. How do we approach the market? In middle market, we have a New England team.
Actually, in Metro New York, we have multiple teams and then a Philly team. In business banking, same geographic approach, Boston, Rhode Island team, Connecticut team, New York City, Metro team. Then again, on the verticals, we differentiate some with like law firm banking and property management. The other things I'll point out on this are obviously commitment to the community here. Strong number one New England SBA lender, strong net promoter score, showing we have a strong service model for our customers. Again, 12%, which is lower than the three, and you'll see the other two lines of business. Why is that, right? Do not really help in the middle market business, right? We have calling officers that have been calling for many years. The cycle time is very long, so it'll take a while for those to take hold.
The benefit to that is a much lower churn, right? If the churn isn't there, we don't need to originate as much to get some growth. Again, that shows the stickiness of the clients within middle market. How are we growing 2023? Continued hard work, investment in a handful of new originators, New Haven, New York City, and also Boston, Rhode Island. Lastly, centralize our underwriting portfolio management. Freeze up the originators to go out and originate business. Now we're going to get into Sponsoring Specialty. Like John said, we started together 18 and a half years ago. We didn't just start, and we were actually hired to start Sponsoring Specialty. We've been doing this for 18 years.
I don't think I know the reason we've been successful is because I've hired and John has hired much better bankers than us to build the team, both within the line of business and on the credit side. We have, you know, experienced, very experienced colleagues, bankers in this, in this vertical, which make the difference. When we did the merger, one of the reasons for the merger was to create a bigger balance sheet to let this team run a little faster, a little harder. You'll see that in the loan originations up 137%. How did we do that? One is fund banking. You hear about fund banking. This is capital call subscription lines to our private equity firms.
For the last 10-15 years, private equity firms came to me and said, "These are our go-to firms. Chris, will you look at a subscription line, a capital call line?" We did not have the balance sheet to support those requests, quite frankly. With a $70 billion balance sheet, we have the balance sheet to support the request. Fund banking literally went from zero at merger time to about $1.2 billion by the end of the year in outstandings. We also built this business by really narrowing our focus on the sponsors we deal with and going deep with them. 131 sponsors with the team. 33% of our exposure is with 10 sponsors, the top 10. Boston Ventures, I'll give them an example, or BV.
You know, lower middle market, midcap, middle market type sponsor and focused on some industry verticals up in Boston. John and I have banked them more than 20 years, each individually and now at Webster. For 2023, the growth methodology here is not going to change at all from 2022. It's going to be fund banking, lender finance, which I didn't talk about. We actually got about $300 million-$400 million growth in lender finance, which is lending to finance companies as a percentage of their loans, and then selective larger holds. Before I turn to our treasury management, I thought I'd go through quickly, public sector finance. Public sector finance actually had the largest increase in originations at almost 200%.
We strategically, as we knew we were going into a credit cycle, the interest rate environment going up, obviously the higher inflation. Jason and I talked. We looked for a few areas that we could selectively grow. One was public sector finance, fund banking, lender finance. All three of those are lower risk. I'm sure Jason will talk about them. That's why his presentation is the most exciting one today. But in all seriousness, almost 200% origination growth, that was due to two things really. One is increased volume, and we did become more aggressive, I would say, on pricing as rates went up. These are fixed-rate loans. You know, average life is between 5 and 10 years. Helps on you know, on the sensitivity of our balance sheet, number one. Number two. We did take higher hold positions.
Those two things were really what drove the growth here. The one you'll notice is the book is geographically diversified, number one. Number two, I think the credit metrics here are pretty strong, AA2, AA3, that's the borrower profile. Again, similar to sponsor, especially, we will not change anything here in 2023 to grow the balance sheet. Finally, I'll go through some of our treasury management because, you know, when we had Webster, we always had HSA Bank. I thank Chad for, I think, about 10 years funding my loan growth. That story is coming to an end, unfortunately for me, as it was actually really fun just booking loans. Now we actually have to focus on growing the deposits, which, a lot of lenders don't even know what a deposit is, so it makes it fun.
Few things I'll talk about. One is we have the conversion this summer, you know, we're gonna move about 4,500 customers onto a different platform. The other customers will stay there, obviously there's gonna be some disruption, even the movement's gonna be tough. We're gonna need good client communication. We're gonna have to plan continuously for seamless integration be prepared for any issues so that we can follow up with our customers. Obviously, we're concerned from some perspective. We're working hard to make sure we're ahead of it, we're gonna work with our customers to get through it. The other thing we need to do right after the conversion is really look at fintech opportunities, meaning how can we give digital platform to our customers also provide a banker experience?
That should become seamless over a period of time. Continue to align our sales, implementation, and servicing teams. We're running two different platforms today for cash management. After the conversion, we're gonna have to align everything appropriately. Product investment. Right now, we're rolling out pCard and corporate card for the entire bank, and I think that'll be great. We will own the credit, so we will get increased economics. 1031 product. Right after conversion, like every other bank out there, really invest in real-time payments. I think this is a pretty good slide here. What do we have right now in deposits within the commercial bank? What's it made up of? $20 billion deposits, 75% penetration of our borrowers. That is actually split 83% regional, 27% national.
I think it's a good mix. What we need to do in the future is figure out, especially now that you don't have to go into a branch, no offense, James, how do we get the national borrowers to use products we have digitally and really drive that penetration up? 61% of deposits are DDA, I think we need to move that even further as we get more of the operating business. Lastly, if you look at this, we actually have pretty good P times V growth as a combined organization, which is right at market. If we execute on our strategy, hopefully we will produce these results or we will produce these results. Like I said, we're investing in the business heavily. We should invest on the colleague side.
We're hiring colleagues, 6% increase in colleague count over the next few years. We're investing in tech, 11% investment in tech over the next few years, which will obviously produce the results that you see there, which I'm not gonna go through. I'm sure there'll be much more discussion later about, how much loan growth we're gonna have and deposit growth and PPNR. I'll leave that for later. Thank you for your time. I'd like to turn it over to our consumer banking head, James Griffin. Thank you.
Thanks, Chris. Appreciate it. After all the kind words John had about Chris, I thought he would have given a little better effort there with my introduction, but that's all right. Hey, good morning, everybody. I'm James Griffin, head of the consumer bank here at Webster. Let me figure out how to use this. There we go. Oh, wrong way. I have the opportunity here this morning to kind of take you through the consumer bank here at Webster. I'm gonna talk a little bit about who we are, a little bit about how we've performed, and then really talk about the value that we think we can create on a go-forward basis for clients, for the bank, ultimately for shareholders as well.
As we go through this, I think when you listen to John talk, you listen to Luis talk and others, you know, deposits, deposits. I think that is a theme that will come screaming through as we go through it, and you'll see kind of how we see the world with consumer banking as well as how it fits here at Webster. Four key takeaways that I'd like you to have as I go through my slides here. One is, you know, end state, we are gonna have a diverse set of funding solutions. You know, Chris, not only did he not compliment me, but then he took a shot at the branch network, which was nice. The reality is, you know, you have to have a more diverse strategy within consumer banking.
You can't just rely on the branches. We do think, and you'll see from some of the performance metrics, that we have a best-in-class consumer bank and retail franchise, and we can preserve a lot of what our clients love about us around the branch network. We also think there's an opportunity for relationship management to be better and add more value to our clients as well as to the bank, increase operating leverage through relationship management. We also think there's an opportunity on the digital banking side, which is an untapped you know, resource, I think, for the traditional, you know, business that both organizations have. Secondly, we're not gonna be all things to all people. You know, we're gonna look at where we're gonna get return. We're gonna look at these segments. We're gonna look at the channels that make sense for us.
You know, I think you've heard John talk about we're not looking to expand brick-and-mortar and de novo and things like that. We're looking at our portfolio, we're looking at our markets, and we're looking at opportunity and where we can get return, and we're gonna be very smart about that. We're gonna drive efficiency. You know, you'll see we've got a very strong efficiency ratio going into 2023. And it's gonna be an ongoing focus for us. You know, we're not going to look to load up on expenses to be all things to all people. We're gonna be very smart around how we allocate expense. Lastly, you know, deposits, deposits.
You know, right now, for the first time, there's over 700 colleagues in consumer banking as we brought these two companies together that are solely, not solely focused, but primarily focused, I would say, on deposit generation. You know, there's a deposit incentive program across all of consumer banking. We understand it's a strategic priority, the entire consumer bank is focused on it. Here's a little bit of who we are, how we've performed. Little under $24 billion in deposits. You know, you look at loans, little under $10 billion in loans. We've got 201 banking centers. We like to think for a bank our size in the Northeast, where we are, $113 million on average per banking center is best in class for a bank our size.
You look, I just said the efficiency ratio. 49% efficiency ratio coming out of Q4, very, very strong. Deposit beta. You heard John talk about as a company, we manage to a 15% deposit beta. In consumer banking, we manage to an 8% deposit beta, and that helped us from a results perspective, which I'll talk about in a second. And lastly, you could see strong PPNR results, good trend there as we've had tailwinds from the rate environment and managed to a low deposit beta, and you'll see that in a second. This is how we look at deposits and how we kinda segment our book and think about the channels banking center as well as digital.
When you look at this here, you could see small business, little over $4 billion in deposits. You know, right now, low cost, sticky relationship deposits there, core deposits. We think we have an opportunity there. I'll talk about it in a little while. Mass affluent. Probably a surprise to some. If you look here, we've got almost $14 billion of our about $18.5 billion in consumer deposits that are in the mass affluent space, not the mass market space. You know, from a retail franchise perspective, we think we have an opportunity to deepen relationships there, grow relationships there, and really be very targeted in the way that we're looking at managing the portfolio and growing the portfolio. Mass market, little under $5 billion. We're not going to chase mass market, right?
The economics are not the same as they used to be in traditional retail businesses around mass market growth. We're not gonna chase it. We'll have products, we'll have services, we will open accounts, we will service accounts. We'll do what that segment needs and wants from us as a bank, but we're not going to over-invest to grow that segment. You look at digital here. We've got $1 billion in BrioDirect, you know, and that's by design. You know, what we have proven out over the last few years is that we can turn BrioDirect on or turn it off as the company needs. Again, you've heard about diversification, optionality, pulling different levers. BrioDirect is one of those.
What I'll talk about in a few minutes is the opportunity to scale the technology in BrioDirect to the traditional book. We can look at acquisition in a more cost-effective way, deepening relationships in a more cost-effective way. The consumer lending business, in my view, what this should really be is kind of the residential lending business, right? We've got about $9.3 billion in high-quality residential loans. We are not in the unsecured lending business. We are not in the credit card business. This is a. Jason will talk about it in a little while. This is a very strong portfolio. You could see here, good strong credit quality, good FICO scores, low LTVs. It's all generated through strong branch partnerships. It's generated through a good inside and outside sales team in footprint.
You know, overall, good quality residential lending book that is more of a relationship play for us than anything else. We have grown this, high single digits, low double digits as the environment has changed and the rate environment has changed with regard to refis. We have the opportunity to continue to look at this as a relationship business, which we'll do as we go forward. We think there's an opportunity in New York. You know, we think that the portfolio in New York is on tap, and we haven't, you know, had to penetrate that portfolio from a consumer lending perspective or a residential lending perspective. Over the course of time, if needed, we do think there's an opportunity there. As I said, you know, track record of strong performance, right?
Tailwinds of the rate environment managed to a very, very low beta. You can see here good strong performance throughout 2022. On the expense side of this, right? Make no mistake, the increase is not a trend that we're gonna continue to see. As I said at the beginning, a key takeaway here and one of our core tenets is to make sure that we're efficiently running this and investing where we need to. This is just a product of some internal movement, geography movement as we finalize the internal org structure, as well as some initial investments that we've made in the segments, as well as the digital channel that we're going to be leveraging as we move forward. Value creation.
You know, I said at the opening, we do think we have an opportunity through segmentation and focusing on, you know, kind of the digital channel and target segments to really add value to our clients, add value to the bank, add value to shareholders, right? If you looked at the segments, you know, earlier that I put out there for small business and mass affluent, there's about $18 billion there. We think we have an opportunity to really, you know, taking a look at the commercial bank and kind of emulating a little bit more of the, of the kind of relationship management model that's in place, decoupled from branch operations that can deepen relationships in a different way than a transactional retail environment. We're gonna invest in that.
Early returns are good in the places that we have deployed the model. I'll talk about that in a couple of minutes. You've heard me talk about, you know, digital. We think we have an opportunity and a significant upside, not just in BrioDirect and to be able to pull that lever, you know, as hard as we would need to as a bank, but also scale that technology into the traditional space. We think we can modernize residential lending, right? Right now, it's a traditional, strong, efficient lending franchise, but we do think we have an opportunity to deploy technology into that business. Lastly, the real estate portfolio. You know, both organizations coming together. We're focused on making sure we're being very smart around how we were managing the banking center network.
If you think about the strategy that I'm laying out here between relationship managers and digital capabilities, that will just add to the options that we're gonna have going forward. We reduced our real estate portfolio over the last 5 years in the branch network by about 36%. That's going to be a continued focus of ours as we, as we move forward. A little bit of a kind of double click here on the deposit opportunities that I've talked about. Small business. You know, what we have done in New York, and when we get to conversion, we're gonna be able to do it across all of New England as well, is kind of emulate a commercial banking business a little bit more on the consumer side and in the small business space.
Get away from just transactional business and accounts to more relationship management, deposit gathering, treasury services, lending, you know, things of that nature. The early returns have been good, right? If I look at 2022 and the relationship managers that we have in place in New York, we've got about 25+ relationship managers that have brought in $250 million in new to bank deposits. The average client that we were bringing in was about a $75,000 average balance per client. Average in this segment's about $25,000. The reason the average is so much lower is because it's often viewed as a transactional business driven through the branches.
We've kind of taken from the commercial teams and said, "Hey, we think there's a real opportunity to serve this segment in a different way," and we've had some good early returns on it. Same thing on the mass affluent side. We've been very cautious around the rollout of this in New York. You know, making sure that when we're investing in relationship managers, we're getting a return on that. If you look at, you know, what we have here in terms of an opportunity, you know, 13% share of a deposit wallet. We think there is an upside in that the $14 billion that I said is in this portfolio, and we think we can penetrate it through the relationship management teams.
What we have seen is that if a client meets with a relationship manager, we get more of their business. It's a different conversation. It's a different approach. Last year, we had 2,800 clients that were not in what we call private client in our New York space. When they met with a relationship manager, they increased their deposits with us. New to bank, we generated about $150 million in new deposits last year through those interactions. We've laid that against branch interactions, and we see a significant increase there. We think we have an opportunity as we get through conversion to expand that model, expand that strategy. Then BrioDirect, as I said, we can go harder here, we can go slower here.
This is a lever that is proven to generate deposits. We do think we have the opportunity to scale the technology into the traditional business. In line with our strategy, you can see we're getting quality customers. $50,000 average balance per customer. We're not chasing mass market. We're not just chasing volume. We're chasing quality customers in the target segments that we're strategically focused on. Digital sales. You know, in 2022, 28% of the accounts that we opened were opened digitally. For a bank our size, we think that's a very strong number.
If you look at what we're trying to do here and what we're going to do here as we move forward, it's more in line with the super regionals and the national players with regard to a digital strategy and a relationship strategy. As we move forward, we're gonna be able to lower costs because of that. We're gonna be able to increase operating leverage cost because of that. As we get through conversion, we can go a little bit more aggressively around testing the digital technology against the traditional book in footprint. You can see here the trend that we're expecting, right? This year, somewhat flat in terms of digital account opening as a percentage of overall accounts.
As we get into next year and then beyond, 40% and 50% plus of what we're going to be able to do through an acquisition perspective should come digitally, as we deploy the technology across the entire book. Lastly, you can just see here our performance objectives, you know, that we believe are very doable based off of the strategies we've laid out and the way that we're looking at the business. You know, low to mid-single digits in loans, deposits, as well as PPNR, with a strong focus on overall deposit generation, operating leverage, as I said, and driving overall efficiency, so we can, you know, position this business for Webster the way it needs to be positioned. With that, I know we'll take questions later.
Let me turn it over to Chad to talk about HSA. Thanks, everybody.
Good morning, everyone. I'm Chad Wilkins. I lead the HSA Bank division for Webster Bank. First I wanted to thank everybody for being here in person today. It's nice to be able to do this thing in person again. I also want to let you know that I got married Saturday and John made me come back. This is my honeymoon. Thank you for joining me on my honeymoon here today. You've heard a little bit about our key takeaways and our growth strategies at HSA Bank. I'll just hit them at the beginning here again.
They are to maximize customer acquisition by exceeding customer expectations and delivering value, to deepen engagement and penetration within our customer base, and to invest in an enhanced customer experience ecosystem that drives positive outcomes for our customers. I will expand on these in a lot of detail today because these efforts are already underway and we're achieving great results as a result of them. And we're gonna continue to build on those results, and I'll explain how we're gonna do that throughout the presentation. First, many of you may be covering HSA Bank for the first time. Some of you I've been talking with for about nine years since I've been here. Some of you are new coming from covering Sterling Bank.
I'll start with a little bit of background on HSA, and what's an HSA. Yes, I get that question a lot these days and even how to use an HSA. An HSA is a consumer-owned tax-advantaged account that when paired with a high deductible or a qualified health plan, can be used to pay for qualified medical expenses. The consumer benefits by having funds go in tax-free, the funds grow tax-free, and they're tax-free when they withdraw the funds. Many refer to these accounts as a 401(k) for healthcare, but in reality, they're a much more tax-effective savings vehicle than a 401(k) as I'll show you some examples of that in a little bit.
The employees benefit greatly from that or consumers benefit, but also employers benefit from typically having lower premiums associated with these accounts and or these types of plans, and also the payroll contributions that go in. They get the tax benefits of those. We also do complementary products, other products, FSAs, so flexible spending arrangements, COBRA, health reimbursement arrangements, and so on. I'll talk about some more of those as we go through the presentation this morning. The benefits to Webster are pretty clear. We provide a stable, you hear us say this all the time, a stable funding source of low-cost, sticky, growing deposits. We also have a fee income, growing fee income associated with these accounts, both interchange and monthly account fees associated with them.
Next, I wanted to talk a little bit about our mission at HSA Bank because it's not just about offering great products and great service, but also it's about making sure that, you know, from a mission standpoint, we help our individuals, employers, and partners simplify complex health and wealth decisions by delivering personalized insights, experiences, and solutions that drive value and tangible outcome. If we do these things well, we'll help our customers maximize the value they receive from our solutions and also grow our accounts and balances and win in the marketplace. With that in mind, our strategy remains pretty simple. It's to win more logos, penetrate the base, and drive positive outcomes for our consumers.
For those of you who were with us at our last Investor Day, it was back in 2017, September 2017, so about five years ago, I thought it'd be fun to share some stats of our growth progress since that time. Since then, assets of under administration have grown from $6 billion-$11 billion. Deposits are up from $4.9 billion-$7.9 billion, and accounts have grown from $2.4 million to over $3 million, even after some of the roll-off of our TPA accounts, a sizable amount of TPA accounts over this, those last few years. As a result, we've grown revenue from $134 million-$323 million, and PPNR from $50 million-$170 million as of the end of last year.
The growth has been all organic. We haven't made a real material acquisition since our purchase of the JPMorgan Chase portfolio back in 2015. I'll expand on each of these areas a bit as I go through the presentation this morning. This next slide speaks to the significant growth opportunity that remains in the health account space. HSA has benefited significantly by being an early entrant in a fast-growing market. We've leveraged that position to expand our offering to other complementary accounts that provide both growth opportunity and allow us to compete more effectively in the space. Moving on to the HSA growth. Focusing specifically on HSA growth trends, as most of you know, Devenir publishes both an annual and mid-year survey on HSA market growth.
Account and deposit growth rates as of the Devenir's mid-year 2022 survey were 9% and 8% respectively. As we have stated, our goal is to be at industry growth rates or better. As of, 2022 mid-year growth, survey, HSA Bank core deposit and account growth was essentially there. As the market has matured, customers have become more demanding, requiring continued investment and innovation to meet their needs. As a result, we have seen significant consolidation in this space, with the top five providers now taking 5%-69% of the market. To maximize our opportunity to grow, it's important to understand and meet the needs of partners, employers, and consumers. All face a myriad of interconnected decisions.
For employers, it includes selecting and managing the vendors it takes to bring together a good benefits design for their employees and demonstrating a positive ROI. As a result, employers are requiring a broad suite of solutions, data integrations, flawless service, and a customer experience that gauges their employees to help them make good decisions. In our case, good decisions regarding their health and wealth that leads to positive outcomes. For consumers, it's the same thing as employees. In this case, we are speaking or marketing directly to individuals. Not making the right decision regarding health and wealth can cost them dearly. Things like picking the right benefits, navigating the healthcare system, or choosing the right amount to put into your 401(k) or your HSA.
We're winning in the market not because we're the biggest, but because we help clients achieve desired outcomes, ensure a seamless delivery, and help their employees optimize their health and wealth product lineup. Why is this focus on education so important? It's because a material percentage of consumers aren't engaged, and as a result, they're making poor decisions with regard to their health and wealth, and they're losing a fair amount of money as a result. More than 10% of consumers are choosing the wrong health plan when given a choice. A wrong decision here can cost a consumer over $1,000 a year in premium costs. Many consumers don't fully understand the tools and resources that they have available to them.
Most importantly, they don't appreciate the triple tax benefit of an HSA that I described a few minutes ago. Most believe that a 401(k) is the best healthcare savings vehicle for healthcare expenditures in retirement, and they're leaving significant money on the table compared to leveraging an HSA account. The result is they're not prepared for healthcare in retirement. In fact, 90% of Americans aren't saving even half of what is needed for a couple in retirement. Currently, the research estimates that $600,000 after the age of 65 is required to pay for the remaining years of healthcare. Helping consumers shift these behaviors create short and long-term benefits for consumers, employers, and HSA Bank and Webster. Our account holders fall into three main categories.
Today, the majority use their HSA as a spending vehicle, with 68% falling into the spending category, with balances less than 2,000. These account holders essentially spend virtually everything they put into the account on healthcare expenses. With our help, a growing number are beginning to understand the value of the HSA as a funding vehicle for healthcare, and they're optimizing their spending. We encourage account holders to first fund the account, then save to cover the deductible, then start saving and investing to save for retirement for your healthcare costs in retirement. The benefits to HSA are obvious. There's a $7,500 average balance difference between spenders and savers. In fact, for every 10% of spenders that we shift to savers, we can deliver a 20% growth in revenue.
This is why we've been laser focused on this opportunity. We're making progress. In 2018, since 2018, we've seen a 14% increase in our saver population and a 65% increase in our investor population. Clearly, to compete in this space and be successful, you have to do a lot more than simply offer an HSA account. We do. HSA Bank has been expanding our solutions and capabilities consistently over the last several years to meet the demands of our partners, employers, and customers. Today, we offer a comprehensive suite of products to include FSAs, HRAs, LSAs. There's a lot of As, right? Lifestyle spending accounts are LSAs. We've been adding accounts like this every year.
We do commuter accounts, COBRA, because offering a multi-account solution is critical to competing for employers, particularly large employers. This portfolio is smaller today, but it's growing fast, and it creates great in-fee income for us. Notional accounts were up, when we refer to FSAs, HRAs, et cetera as notional accounts. They're up 80% year-over-year in 2022 to over 115,000, and they're expected to grow at a 20% rate over the compounded annual growth rate over the planning period. It's also important to be a thought leader in this space to make sure that the market, our employers, our consumers all understand the benefits of an HSA. With that in mind, we pioneered the Health Wealth Index and many other tools and education materials and campaigns to help our employers and customers.
We leverage this knowledge and these resources to drive engagement with consumers via email campaigns, webinars, via web and mobile interactions, and in collaboration with our employer customers. Many of our competitors are satisfied once the account is open. We believe that's just the start. We know that engaged consumers have 20% higher balances than employers who are engaged with us and, in aggregate, 72% higher employer-employee balances. These resources are delivering a great experience and is a requirement that we don't stop with table stakes. We have continued to evolve, invest, and deploy over the last year and continue to innovate and provide in order to provide the best user experience in the industry. As I said, we're continuing to invest because we wanna continue to automate and scale all of these types of solutions.
To that end, we delivered a new employer portal in the first half of last year and now have over 50,000 partners and employer program administrators using the system. The new experience gives them access to insights and opportunities and the tools and the resources to act on those. It acts almost as a virtual account manager, helping employers optimize the program. It allows us to go much deeper into the portfolio with to drive these insights and these activities. We also acquired the Bend platform in February of 2022. We've already deployed this platform to more than 3 million members in the fourth quarter of last year.
The new modern flexible experience will now do the same thing for consumers that I just described for the employers once we scale and once we complete the integration of our data, analytics, and our CRM capabilities in 2023. We'll leverage these capabilities to improve deposit growth, increase retention, and reduce the expense per account over the planning period. As I said at the beginning of the presentation, our strategy remains pretty simple and consistent. We plan to focus on winning new logos, penetrate the base, and deliver positive outcomes for our consumers. Results in 2022 reflected success in each of these areas. For example, we increased the number of new employers signed in 2022 by 12%, totaling 2,184 new employers. We also increased the number of accounts tied to these employers by 26%.
We sold our three largest relationships last year in terms of total HSA accounts, total balances, and our largest notional account sale to date. We have over 30,000 employers with 1.9 million members. More importantly, the opportunity they represent is 8 million employees that have not selected an HSA account. By deepening these relationships with personalized segmentation and marketing activities, we can grow our base. Lastly, and perhaps most importantly, we have an annual base of 3 million consumers who rely on us to help make educated decisions about their health and wealth. Our average balance per account is already the highest in the industry, and we're making good progress and have a significant opportunity to accelerate by leveraging this platform.
With our continued focus on investments in these key areas, we anticipate to accelerate growth in new accounts and an improved retention rate, driving account growth in the 6%-8% range over the planning period. Account growth and improved net contribution rate will result in an expected 10%+ deposit growth rate over the planning period as well. We further expect to get more efficient and reduce our operating expenses per account by about 2%-4% by 2025. The ultimate result of all of these efforts is an expected 15%-17% growth rate in our pre-tax net revenue over the three-year planning period. We like our position, we like our strategic direction, and our growth prospects as we look forward. Thank you.
At this point, I think we're gonna turn it over to John to kick off Q&A.
Yeah. Okay. Can you make it this way?
Go ahead.
Hey, thanks a lot. Actually had 2 questions. First for Chad. You know, you look back over the last 9 years since HSA has been a part of the bank, and the competitive dynamics have really changed a lot. How are you competing or how have you had to change when you're now competing against companies like Fidelity, that are bringing, you know, a bigger platform to the employers? Are you bringing in new employer relationships here? Are you having to do more revenue sharing or things like that, or how does it look?
Yeah. I'd say that's why I focus so much of my discussion on the customer experience because larger employers are getting more focused on driving the outcomes for their employees, right? They realize that not enough people are taking advantage of an HSA who should, and also they're not investing enough in retirement and so on. They have the same thoughts around how folks use 401(k). We have been very focused on making sure that we have the tools, resources, programs, even campaigns that are designed, marketing campaigns that we can customize for employers specifically to go after that opportunity with their employees. We've been able to demonstrate the difference between our results and the rest of the industry, which has really helped us.
We've won more large logos over the last few years than we have in history. We continue to get better in terms of competing for those highly competitive deals. We do, we fight above our weight. We're not using price to win all this. We're definitely competitive. We can price with anybody because, frankly, we've got a better P&L position than most of our competitors. I think we're winning more because we can drive outcomes, and that's our, that's our focus and reason for our investments.
Great. Thanks. Congratulations on the merge.
Thank you.
James, I just had a question for you. You know, when we look at the target for 40% and 50% digital openings going forward, what's the backdrop of the branch network look like in that environment? Is there an opportunity to continue to really pull back on the physical delivery locations? How much of a cost savings opportunity is there with, you know, moving to 40% to 50%?
Yeah. The short answer is yes, right? You know, if you look at what we're gonna do strategically right now, I think our customers identify with the branch network, right? Both organizations coming together, we have a customer base that identifies with the branch network. We're gonna spend more time expanding the way that they view us, right? Digitally as well as through a relationship management model, and that's gonna create optionality. You know, shrinking the footprint by 36% over the last five years, both organizations have been focused on that, and that's not going to stop. Having right now an average balance per branch of $113 million is strong, right? There's not really that low-hanging fruit.
Between the digital channel and the relationship management, you know, strategy, we do believe we're gonna create more optionality for, you know, us to look at the branch network, continue to be smart about, you know, taking expenses out, but not at the detriment of the deposit franchise and the customers.
Thank you.
Yep.
Jared, if I could add one thing, James is spot on. I think it's, you know, we had no branch, no square foot reduction embedded in our performance in the first year. Obviously, a lot of these MOEs that you see had a lot of savings come out of branch reduction. As James said, we can be a little bit more patient. We're always reviewing to see whether we need the square footage we have, and we know over time we'll have less square footage than we do today. We wanna get through the conversion, make sure we're not putting too much disruption on our clients. Thereafter, we do have the benefit of branch consolidation, which quite frankly, is not fully baked into the numbers that we have as well.
Yeah. Hi, how are you doing, John? I have a follow-up for you. You mentioned portfolio acquisitions earlier. That was a strategy that was, you know, pursued on the legacy Sterling side that kind of had mixed reviews from investors, you know, over time. Could you help us understand how much of that is gonna be part of the go-forward strategy? When you say portfolio acquisitions, is there specific sizes that you can help us think about?
Yeah. I mean, actually, we have not done anything, right, in the first year. We've actually pared back non-strategic businesses. We don't... You know, as long as we have organic loan growth in the key categories where we feel like we have competitive advantage
Portfolio acquisitions would really be used to enhance that. I think you should think about it. Right now, we have kind of nothing in target. We have no commercial asset classes that we feel that we're not in right now that we want to explore, and that could happen over time if there are interesting opportunities geographically or asset class-wise. The way I would ask you to think about it is maybe slightly different than before, would be around an opportunity to build scale in ABL. An opportunity that Chris sees in a new healthcare vertical or something where we could lift out a team and some assets to immediately pay for the acquisition. I don't think you'll see us doing disparate portfolio purchases.
I think you could see us deploy capital into existing businesses to make us more relevant or add to our capabilities.
Chris, I did just have two quick questions for you. I noticed on slide 33 that medical office was one of the areas that you were looking to, you know, de-emphasize to some extent. I understand office, but medical office has been one area that, you know, folks have talked about as an area of strength. I wanted to ask why on medical office?
Yeah. I think that actually might be an error. We're looking at medical office opportunities, right? Ones where you have practices that. I'll have to take a look at the slide. I apologize. It is not one place we're pulling back. I don't think we're gonna go into aggressively any longer. Definitely, you know, stay where we are, status quo. I hope that helps. Shouldn't be completely de-emphasized, but status quo.
Got it. Then the $1.3 billion of fund banking that you have, I guess, should we think about that as, you know, where that's $1.3 billion of, you know, Webster originated where you guys are the lead? Or how much of that has been, like, bombed out to you where, you know, maybe another bank is the lead and you have a piece of it?
Yeah, no. I mean, on the bilateral, it takes time, right? We're new into the marketplace, it takes some time to get the brand going. You know, obviously, our go-to sponsors, we have opportunities there. The issue you have is, you know, everyone knows the 800-pound gorilla is Silicon Valley Bank, right? They have, what, $40 billion in commitments in capital subscription lines. Huge pullbacks. The reason we had an opportunity there, and huge pullback from the large banks, the JP Morgans, the Citibank, Bank of America, and this, right? They had to sell some assets to get their capital ratios back into check. We did take advantage of that. Right now, you know, it's building the brand. With that said, most of them are bilat deals, meaning two bank deals, maybe, so we have a relationship.
Again, you know, we focus on enhancing our Sponsor and Specialty relationships here, right? It's ones that we have strong relationships already. The Boston Ventures, I'll give you example that comes around. We're definitely participating even though Silicon Valley Bank is the lead. There's Silicon Valley Bank and us, right? Ironically, Silicon Valley Bank doesn't actually do a lot of their portfolio transactions, which is interesting. On the other side, right, if we're trying to find a way to get into a sponsor, we have a call in effort, we will participate in there to have. It's easier to enter when you go in to have a conversation with the management team or the partners at the private equity firm. Make a commitment to their, you know, subscription line.
Hi, Manan Gosalia, Morgan Stanley. Chad, question for you. You spoke about some of the, you know, more medium and longer term trends, why more employees should choose an HSA offering. Are there any recent trends that you can speak to that might push more employees to choose an HSA product in the near term? For instance, because inflation is higher, could more employees be choosing the higher deductible plan and therefore have more HSA product?
I think the trends that most impact HSA plans is high medical costs, right? If inflation starts to impact and drive up medical costs, it drives up the cost of health plans. Employers typically look at ways to shift their plans to a more reasonable approach. We might be getting tailwinds over the next few years as a result of that. Also the employment market, right? I think in a strong employment market, they benefits programs tend to be more focused on providing as much benefit coverage as you can, and they pull back a little bit in the weaker ones. You know, if the labor market starts to weaken, that could be a tailwind too.
You know, I think in the meantime, we are focused on there's a huge opportunity to just if we can activate, motivate, and have the people take action on these things. There's a lot of growth opportunity within our own portfolios.
Right. Perfect. Thanks. James, you spoke about a majority of the deposits coming from the mass affluent segment. Maybe as I think of that, because they have higher balances, it should be a higher beta product. Is that in line with how you look at it, and can you talk to some of the more recent trends you're seeing there?
Yeah. No. That's a good question. Typically, yes, right? You know, you might have seen, like First Republic, you know, they've got a mass affluent strategy, and last year, they flipped about $9 billion, I believe, from core to higher rate products. You know, if you look at our customer base, I don't think it's as rate sensitive. Yes, there's rate sensitivity there. Yes, we're gonna see a rising beta as others are this year. I don't believe it's as rate sensitive as some, though it will play a role. No doubt about it.
Okay, thanks.
Yep.
Thanks, guys. Question for Chris on the funding strategy in the Commercial Bank? John opened up the remarks talking about a strategy for the Commercial Bank to self-fund. You know, by my math, the loan deposit ratio on the Commercial Bank is a little over 200%, and you have loans outgrowing deposits. I guess just trying to square that with John's remarks. Is that more of a longer-term strategy and-
That's my performance plan from him. In all seriousness, it's a great question. You know, I can give you a few examples. I'll say it's a moonshot objective, right? With that said, I'll probably retire the day we meet the 100% loan-to-deposit ratio. The fact of the matter is, we had a very interesting... I'll give you an example. The only way I think commercial banks are going to do this is a few things. One is through fintech partnerships, which we do in our property management side, right? We partner with fintechs. We actually pay for the software for the depositing company, right? It's sub-accounting. You have a bunch of stuff, and you get large deposits. Deposits are 50% DDA, 50% MMDA. One obviously goes up as rates go up.
The other one stays pretty static at zero, right? Because it pays for the cash management side and the software. That's one, and we have to find more ways to partner and find other verticals that do that. Intralinks is an example of the businesses out there that are disintermediating the deposits in commercial, quite frankly, right? We had a company that came in through our sponsor team. They collect, you know, slip and fall at worker's claims on... They get the deposit up front, and then over time, they pay for physical therapy. We just locked in a $400 million deposit, $100 million for 3 years, $400 million for five years. They're getting pretty much Fed funds rate a little off, but we swapped it to a floating rate.
We've swapped the fixed rate the customer receives. We will pay floating. It's a very, you know, first time we've done it, so I think we're going to see other opportunities out like this. It's going to be large, sticky. You know, let's be honest, the larger goal is to get to where you have operating accounts, you get the free deposits, you leverage your cash management system as best you can. I think you have to be best in class on the customer service side. You have to have a product that makes sense. I don't think you can go down the path where you customize. You know, I know SVB customizes all their products for their customers. That's where I get into the fund banking, where it's going to become a little more difficult, right?
They go in and customize the cash management for the private equity firms. I don't think we can do that, but I think we have to have a product that's there so that we're a viable alternative for them. I think it's a long-term strategy. There's a lot of levers to pull in, I think, an environment that's changing constantly. I don't know if that answers the question. I can give you a date if you want. It's probably gonna be January 3rd, 2035.
Hey guys. I had a question first for Chris. If we look at slide 31- 32, you have the regional segments and the national segments. Regional has a lot more deposits, obviously more costs associated with those. I was curious, what's the return on allocated capital for the regional segment versus the commercial segment? How do you think about capital allocation relative to that?
It's flip-flopped, right, with the deposit value, right? Over the last year. Previous, the national business sponsor, if you add them up, they actually had a better return on just the loans, right? You weren't getting much value out of the deposit side from an internal perspective of how you allocate everything out. On the regional side, with the deposit value going up, that's why, you know, I don't think we're necessarily... It's the balance of allocating capital between the two, right? With the fact that you have, I look at it as you have a national footprint that you can go address versus a regional footprint where we're penetrated at, like, 25% already. It's sort of the balance between the two.
I don't think we're, we just, what you say, shift capital and it'll come in as much as where do you have opportunities for new business? Where do you have opportunities to hire the talent and then really drive the business? Make sure that as you allocate the capital out, you're getting the products out there and the services or loans that you get a return on those individually. I don't think we're going to reallocate between the two as much as where do we have the most opportunity, depending on where the funding is for the Bank and the funding. We look at, you know, James's, you know, loans versus my loans and then where do we have the opportunities. It's sort of balancing all that. I don't know if that answers the question really.
Let me also just make a. This may be a simplistic approach, but see, obviously all of our commercial banking activities, because we're pretty disciplined about them, hurdle our cost of capital and generate economic profit, and they tend to be pretty profitable businesses. You're right. You take something like Sponsor and Specialty, even if you apply a higher EL to it's a pretty low-cost distribution and it's really, really profitable, right? In the middle market, we're using kind of the branches and leveraging. We've got bigger teams regionally, though the credit spreads are probably lower. The average life of a traditional middle market relationship, 10- 12 years, higher deposits related to the loan. If you look at it, the dynamics are all interesting and a little bit different.
We do, as Chris was saying, we don't really say, "Hey, we're going to spend all of our time going out of market because we think Sponsor and Specialty is the way to go." Actually, there's more volatility there. There's potentially more credit risk. It's out of market. We are fundamentally a regional Boston and New York commercial bank. That's where most of our activity is. That's how most of all of you value us. Then we take our opportunities to find pockets where we can get really high returns without changing the dynamic of the bank or changing the risk profile of the bank. I think we do look at every single business that Chris has up on there, look at the allocation of capital. What's the real cost to operate? What are the kind of hidden costs to operate?
How do people view, like all of you out there, how do people view what we're building as core franchise value and not just a portfolio of disparate activities? It kind of all goes in there. Each of the businesses, you know, generates well in excess of our implied 10% cost of capital.
Got it. Thank you. Chad, if we look at the 10% or 10%+ deposit growth over the planning horizon, still fairly strong, but used to be a 20% business. Is 10% the new normal for the HSA business from a growth perspective?
I'd say the way we look at the planning period is thinking about where the market is today, right? That's about where the deposit growth rates have been over the past year. We're right in that range with the market. I think it depends on some of the tailwinds, right? Are we gonna get some tailwinds with regard to medical costs or from the employment market and so on? If we do, we'll benefit from that as we go forward. I think as I said, some of it depends on our ability We don't know yet how well we can do in driving better results at scale and penetrating our existing portfolio and driving consumers to save more.
I think, the platform should, you know, over the next couple of years, we'll see, you know, how successful those are, but we think we can hit that 10%, over the planning period for sure.
Okay. We'll have time for more questions at the end. I'm being signaled. We'll take a break now and return at 10:50 A.M., we'll start promptly with risk and Jason's presentation that I know we're all looking forward to.
Okay. Great, thanks for coming back.
Someone said to me, "What are you gonna do during the risk portion of the presentation? You're gonna lose the audience." For those of you who know me, I'm a big music fan, and I make the analogy that the risk part of the presentation is like the drum solo. Some people may kind of choose to check out, but you shouldn't, because it's oftentimes kind of the pièce de résistance of the entire concert. In all seriousness, many of you I've known for a long time, and I think I hope I've imparted in you my deep respect and understanding that credit risk, enterprise risk structure compliance is kind of key to everything we do. You can't have a good, resilient bank that can grow and perform unless you have a focus on risk.
We thought it was really important to make sure that Dan and Jason had some time with you, and there'll be a Q&A period after that. Dan Bley, our Chief Risk Officer.
Thanks, John. Thanks, everyone, for coming back for the risk portion. Appreciate it. Prepare to be dazzled. How do we start? Okay, good afternoon. I'm Dan Bley, Chief Risk Officer for Webster, and I really appreciate this opportunity to provide additional insights into Webster's risk program, our risk culture, and the continuous advancement of our risk management capabilities. I hope you'll walk away with an appreciation for Webster's risk framework, the strength of our culture, and confidence that we're well-positioned to meet the OCC's heightened standards that go into effect in 2024. I've been Webster's CRO since 2010. The bank's been on a consistent and deliberate journey building a durable risk management program and a strong risk culture that values good governance, accountability, and continuous improvement. To this end, the bank's been investing in our risk infrastructure for many years.
The merger with Sterling allowed us to reinvest cost synergies and more sophisticated risk management programs. The banks had similar risk frameworks, each bank had different areas of strength. After the merger, we were quickly able to combine the risk organization, select the strongest leaders and staff, integrate risk profile, risk policies and technology and process, and lay the plans for continued advancement. Risk management at Webster is implemented through a comprehensive enterprise risk framework that's been in place for many years and continues to evolve. It's integrated, forward-looking, and disciplined. The framework covers the entire organization and all areas of risk. It starts and ends with the alignment of risk appetite and corporate strategy, it's supported by a strong risk culture.
The governance programs draw on the board and management as we establish and frequently review risk tolerance limits, and we drive for disciplined risk identification and control programs. These are brought together with a corporate-level, forward-looking stress testing program that directly informs our capital and liquidity targets. Our risk governance remains solid, with a long-standing risk committee of the board that carries deep understanding of the business, provides guidance and effective challenge to the organization. Our newly constituted board and the risk committee specifically has a well-rounded and diverse mix of experiences that effectively intersects with Webster's top risk categories. Tone at the top within the organization is also strong, with the full executive team participating in our Enterprise Risk Management Committee and a significant commitment of human and financial capital to risk management activities.
The three lines of defense model is well-developed, with frontline units directly responsible for the risks that they generate, supported by independent risk managers acting as risk advisors and controllers. Our third line, audit and credit review, report directly to the Audit and Risk Committee of the Board directly. In fact, Webster's audit and credit risk review functions are very well-developed and have long-standing positive reviews from regulators, and those were reaffirmed after the merger. In fact, we're told that Webster is one of the very few mid-sized banks with such a high rating across both of those functions. Aligning of risk appetite and corporate strategy is critical to the success of our strategy and remains a top priority for the enterprise risk program.
We maintain this alignment through an ongoing strategic planning process with risk team involvement at the line of business and corporate level when considering and implementing lending and deposit-gathering strategies, new products, new processes. It's a combination of top-down and bottom-up planning and alignment, considering the impact of all these strategies on the line of business and on the bank as a whole. We articulate risk appetite through the key risk indicators and tolerances at the board level and at the line of business level. When we establish these tolerances, we consider the market conditions, economic environment, risk-return profile, our experience, and the regulatory environment. Our leadership carries deep and diverse experience, the combination of which is really ideal for ensuring healthy and credible risk management challenge, debates, and well-considered decisions that balance risk and reward. Foundational to any effective risk management program is risk culture.
No matter how good our frameworks and our policies are written, we're only as good as the culture that the behaviors support. Our best risk management tools are people. When we have the right skills, the motivation, the tools to identify and assess and remediate, we will win. Our risk culture is derived from the corporate culture that John described earlier, with deliberate emphasis on integrity, collaboration, accountability, respect, and ethical behavior. After the merger, some of these words may have changed, but the cultural values and behaviors really are not a far leap for either bank's employees, and they're already quite deeply rooted. As a guide to all employees, we articulate our risk management expectations through Webster's principles of risk management. At Webster, every employee is considered a risk manager, and risk management responsibilities are embedded into their personal objectives.
We incent our colleagues for effective risk management. We strongly encourage and support self-identification of issues. We see more and more issues identified by the staff rather than by auditors or by regulators. The revenue generators are also the risk owners. They're expected to operate within risk tolerances that are ultimately decided by independent risk functions and the board. Risk tolerance levels are independently monitored by risk personnel and are continuously reviewed for alignment with strategy and for effectiveness. Balancing risk and reward is a core principle. The pricing decisions made by the line, as you heard today, utilize risk-adjusted return on capital models. At the business unit level, Webster uses economic profit models that consider credit and financial risks when building strategies and making decisions. Another key principle relates to compliance. At Webster, we approach compliance proactively and with intense respect for the laws, regulations, and regulators.
We work hard to maintain proactive dialogue with our regulators to align with their expectations and minimize surprises. This is evidenced by our solid regulatory standing, and our level of matters requiring attention, or MRAs, that for a sustained period of time have either been zero or very limited. By engaging with the regulators and executing effectively, we believe that Webster's been able to implement solid and cost-effective risk management programs and avoid falling under regulatory duress. Our strong risk culture will continue to be a key differentiator for Webster. The top risk categories of the company are listed on the left of the slide. They really didn't change due to the merger of Webster and Sterling.
That said, the merger and subsequent transactions in 2022 did result in many risk mitigating benefits, some of which you've already heard. From a credit perspective, our portfolio became more diversified. From a financial risk perspective, we expanded our funding options. At HSA, we have more direct ownership of our technology. From a risk management perspective, some of the savings that we've generated through the merger have been reinvested in experienced risk staff and more sophisticated risk managing capabilities, particularly in information or cyber risk management. While operational and reputational risks are somewhat elevated during this period of transition, ultimately through the consolidation of the banks, we'll drive for more simplicity and better execution across our business processes.
We have achieved a lot of consolidation, bringing together our enterprise risk, operating risk, compliance, information risk programs. The integration of our BSA infrastructure will generate significant cost saves and improved effectiveness. We'll expect to be on a single BSA platform in Q2. During 2023, we'll complete the integration of all of our systems and processes across the risk categories. Regulatory expectations for a bank our size will officially shift to what the OCC calls heightened standards in the middle of 2024. That's applicable to banks over $50 billion, and it applies four quarters after reporting a $50 billion dollar asset size and effective 18 months after that. I believe confidently that Webster has all the foundational elements needed to remain in line with regulatory expectations, and that any required advancements are well understood and have been factored into our long-range plans.
We're in active dialogue with the OCC to ensure success. The really, the message here is that we really don't believe heightened standards to be a cliff event for Webster. We've been building our risk programs with our eyes to crossing this threshold for many years. Looking forward, with Webster's current risk profile, our strong risk culture and risk partnership and disciplined processes, I believe we're well positioned to excel through any business cycle. In conclusion, I shared with you today a view that Webster's risk culture, risk management programs are comprehensive and strong. We have the expertise and the disciplines in place to ensure effective alignment of our risk appetite with our corporate strategy to drive performance. Our commitment to continuous improvement will ensure that this sustains for many years to come. Thanks for the time today.
I'll also be able to answer questions at the break. At this point, I want to pass the baton to my good colleague and Chief Credit Officer, Jason Soto. Thank you.
Okay. Nope, wrong way.
Green button.
Thank you. Got it. Thank you, Dan. Good morning, everyone. John and Chris really played up my slides. I'm really hoping you guys actually like them. He actually hasn't communicated my comp yet for the year. I'm hoping it goes well. I'm gonna give you a brief overview of how we manage credit risk. I'll touch on asset quality trends, then provide you with some detail behind our major loan segments, including commercial real estate, C&I, and consumer. I'll also give you some detail on our traditional loan exposure, traditional office exposure, as well as our Sponsor and Specialty portfolio. One note is the view that I am presenting is a little bit more product-based versus line of business-based that you saw early in the presentation.
It's just the way I think about the book from a correlated risk standpoint. The way we think about managing credit risk can be likened to a three-legged stool. First, and critically important, is we define our strategies carefully, and we revisit them as the environment and growth objectives shift. Chris Motl, James Griffin, and I talk frequently with the product teams to develop and drive alignment. Chris mentioned culture in our relationship earlier in his presentation, which I think really sets the tone for the organization. In some respects, I really think about it as our secret sauce. We've created a culture that we think is balanced and respectful and has limited tension that we believe enables better dialogue and decision-making.
Based on these strategies, we establish underwriting guidelines that and procedures that lay out the general parameters under which we will lend and maintain specific limits to govern concentrations and risk appetite. We adjust those parameters as the environment is shifting. Couple of examples of how that's happened in the current environment is we revised our home equity requirements, and we revised our commercial real estate stress case scenarios and rent growth assumptions. With respect to portfolio management, we have regular reviews by industry, product, large borrower, and problem loans. All segments of the portfolio are reviewed throughout the year by the lines of business and the credit teams. Problem loans are actually reviewed eight times per year. This gets enhanced as appropriate.
As you can imagine, in the current environment, we've been spending a lot of time on our traditional office portfolio, as well as loans that are maturing in 2023 that were booked in a very different rate environment and could present higher refinance risk. Chris Motl mentioned earlier that post-merger, we transitioned to a common portfolio management system, and we're driving enhanced data collection and analytics. The last thing I'll say, and Dan Bley just mentioned it as well, is that our underwriting and portfolio management processes are routinely evaluated by both internal and external stakeholders, including our regulators. These reviews have resulted in very limited findings. On this slide, and this was discussed a little earlier in the presentation, our growth in 2022 was quite strong and diverse, mostly driven by commercial.
Going back to the strategy discussion that I just mentioned, we decided early last year to focus our commercial growth on higher quality segments, including higher rated segments, including public sector, fund banking, and lender finance. On the right side of this page, you can see that these higher rated originations actually drove down the weighted average risk rating in the portfolio or the WAR, as we call it. Our rating scale is from one to 10, with one-six being pass-rated loans and 7 to 10 being criticized loans. The WAR in 2022 improved from 4.54- 4.35 because the average rating of our quarterly originations was in the low four range, and the percentage of loans that are high pass, which is four or greater, actually increased to almost 50% of the portfolio.
May not seem like a large movement, but on a $40 billion portfolio, it's actually quite meaningful and has improved the overall risk profile of the book. Moving to asset quality, you can see the positive trends in problem asset metrics, which also help reduce the WAR in the portfolio. On the top left, you can see in 2022 the non-performing rate declined to 41 basis points, which is a 33% decrease versus 2021. Charges for the year were at the lower end of the five-year pre-COVID range. On the top right, criticized and classified loans declined 35% year-over-year.
On the bottom left, it's interesting, despite the fact that our overall reserve coverage declined to 1.2% throughout the year because our problem loan exposure declined so meaningfully, we've actually increased coverage on non-performing and classified loans. Coverage on non-performing is up to almost three-one , and coverage on classified is up to one-one . The next slide shows some detail on our commercial real estate portfolio, which is roughly $20 billion in exposure. On the left, 51% of the portfolio is in New York, with 37% of that in New York City and the outer boroughs. Outside of New York, the next highest concentrations are in Southeast, Connecticut, New Jersey, and Massachusetts, which collectively represent 33%. On the right, you can see that multifamily represents 34% and industrial is second largest at 16%.
The rest of the exposure is spread across multiple property types that each represent less than 10%. You could also see the overall asset quality of the book is pretty high. We classified a non-accrual rate to 0.9% and 0.2%. While the traditional office and retail problem loan metrics are slightly elevated, the levels overall are still quite manageable. Going into traditional office. It represents just under $1.5 billion of exposure, 7% of the commercial real estate book, 3% of total loans. Now classified represents just 1.8%, which on a dollar basis is $26 million, right? That's spread across a handful of deals with only one larger one at $18 million. The overall metrics of the portfolio are fairly strong, as you can see on the right side of the page.
Loan-to-value and debt service coverage ratios are conservative, though I'll say clearly both are under pressure, right? Given the secular shift in the industry as well as rising interest and cap rates. The portfolio has high occupancy at 87% and roughly 10% near term annual lease roll. Importantly, more than half the exposure has some level of incremental contractual support in the form of debt service reserves of some portion of partial guarantee. We have a bit more confidence in those situations that the sponsor will work with us, and we'll be able to get through some challenges on those deals. That said, we obviously have longer term concerns in the sector we're proactively trying to manage down as we did in 2022.
Through note sales, exits and amortization, we reduced exposure by $175 million or roughly 11%. We will continue to be opportunistic, exiting deals and finding ways to mitigate that downside risk. Shifting over to C&I, which is a $21 billion exposure overall. On the left, you can see the breakout by industry, which is heaviest concentrations in finance, services and public sector. Important to note that within these larger categories, the diversification by borrower and end market is actually quite high. On the right, the largest portfolio segment is sponsor and specialty at 39%. I'll detail that more on the next slide. Next largest is middle market and small business, which is primarily, as Chris described, in footprint lending and really represents some of our strongest and broadest relationships.
Public finance, Chris discussed, investment-grade lending to municipalities around the country. The balance of exposure in ABL, equipment and mortgage warehouse are asset heavy, well-collateralized deals. You can see here that the overall asset quality is pretty strong in this book as well. This slide shows all the sponsor portfolio segments. As a reminder, we've been engaged in sponsor and leverage lending for almost 20 years. Starting on the left, we've strategically changed the mix of the book over the last five-seven years. Key takeaway is that we moved away from segments that historically have been more troubled and susceptible in downturns, and increasingly focused on segments that have higher revenue visibility, long-term tailwinds and higher ratings. As we've discussed, we partner on these deals with top-tier private equity sponsors that have meaningful junior capital invested below us.
The largest segments are technology and infrastructure, lender finance and fund banking, which represent roughly 2/3 of the book. Of note is that within these three segments, they have less than 1% classified loans and essentially no non-accrual loans. The overall book is very much in line with the C&I total portfolio. Across the book, there's really only one large non-accrual loan at $26 million. Looking at the credit metrics, the average senior and total leverage is 3.5x-4x by 4.5x, with fixed charge coverage ratios over 2x. Not on the page, but the cov-lite percentage is roughly 5%.
Perhaps most importantly is the average loan to enterprise value for these deals is roughly 35%, which means on average, there's typically 2x the junior capital and equity below us in the capital structure. Leveraged loans within Sponsor represent $2.6 billion or roughly 33% of the book. I will note that overall leveraged loans post-merger declined from just over 70% of capital to just over 40% of capital, or from 9% of loans to just under 6% of loans. Leverage is roughly 0.5x-1x higher than the total averages, while fixed charge coverage and loan to value are over 2x and roughly 40%. Classified loans are a bit elevated at close to 5%, and that non-accrual you see is the same deal that's in the generalist book for $2 million.
Over the last six years, we've had a total of $16 million in charges on three deals, only one of which was material at $13 million. Finally, this slide gives a little detail on the almost $10 billion consumer portfolio. On the left, you can see the book is primarily in Connecticut, Massachusetts and New York. On the right, the book is 82% first mortgages, which are mostly fixed rate versus adjustable rate mortgages. The balance is primarily home equity. As James mentioned, we have essentially no, virtually no, unsecured exposure. The average FICO in the book is well over 700, with only 9% below 700, and the average loan to value is well below 80% with only 5% above 80%.
Half the home equity book is actually in a first lien position where there's no first mortgage in front of us. Our own repossessed real estate is just five properties, $2.3 million. We've had net recoveries in the business for the last four quarters. So far we've not seen any material uptick in delinquency or problem loans as a result of higher rates, though obviously something we're monitoring, particularly on the home equity book. In conclusion, notwithstanding all the positive metrics and trends that I've just highlighted, I do acknowledge that we are in a rapidly shifting environment, and we certainly expect to see an increase in migration and challenging deal situations.
When I consider the overall mix and diversification of the portfolio, the prudent way that we underwrite new deals and manage the book, as well as the experienced teams and reserve coverage levels that we have and the culture that we've developed to be very open and transparent about situations, I'm really confident that we're well positioned to manage through the market challenges ahead of us. Thank you.
All right. We'll take questions on credit or general risk if people have them. No, no? Chris.
Yeah. Thanks, John. A lot of detail on the, on the credit. I think one of the overhangs on your stock is just the uncertainty of how this, the sponsor book will perform. If you take a step back, how are you thinking about just normalized credit costs? I know normalized is a tough one to answer, but I think in the deck you say 17 basis points recently.
Can you help us throw some numbers around that?
You wanna give it a shot?
Sure. I mean, if you look historically, we were averaging about 20- 21 basis point. I'm sorry. If you look historically, we're managing or averaging about 20- 21 basis points for a number of years, right? I would expect to get back to at least that range on average, but you certainly can have some quarters where it's higher than that. If you were to ask me, I think 25 basis points is probably a decent potential target, with some quarters above that and some quarters below. On average, you know, over the next year and a half, you know, I would think that's reasonable.
I mean, I would just say, 'cause, you know, as a former chief credit officer, this has been a weird time because even the five years before the pandemic, the 19-20 basis point kind of annualized charge-off rate for us was well below historical norms in the commercial categories, right? The whole industry hasn't really seen, you know, since the financial crisis, significant sort of normalized what we would put in our models as, you know, loss given default and probability of default. I think Jason's probably right. It'll, you know, as you said, I think the key for us here is to show you very transparently what's in the book.
When I made the comment early on that I think sometimes there's a misperception, I think if you look at what's in the Sponsor and Specialty book in terms of, you know, 20 years of execution, certain industries that have recurring, predictable, sustainable cash flows, the big portion of that book that's not leveraged and is in, you know, lender finance and fund banking. If you look at our commercial real estate and the LTVs and the debt service coverage ratios and the occupancy rates, you know, we have a very kinda traditional regional middle market credit profile.
I might also just add that if you look at our performance through the last cycle, what you saw was a pretty big migration in term of risk ratings, and we should expect that given the leverage on some of these borrowers. That didn't necessarily translate into NPLs and charges that were materially above the rest of the portfolio, right? From a risk reward standpoint, we're always very comfortable that, you know, it's worth that. You know, I would expect to see some migration upwards, but, you know, the sponsors step up, right? We've seen it over and over again. On good business models, they step up, they put in capital, and, you know, we're able to sort of navigate through the tough times.
You know, on the sponsor book, when we look at the overall growth expectations for the bank, should we assume that that stays relatively stable as a percentage of the loan book, or are you willing to see more growth there proportionally to the rest of the book?
Well, I think as Chris showed, one of the reasons we had kinda disproportionate growth was in the categories of fund bank. If you take the traditional sponsor acquisition finance business, one of the reasons why we've had a lot of originations and it hasn't grown disproportionately is because the average life of a private equity investment is three to five years. In good times, the wonderful thing about that is we collect fees, we get deposits. Oftentimes, we keep the deposit relationship after the private equity firm flips the platform company, right? What we saw this year, as Chris mentioned earlier, was kind of a cessation of buyers and sellers meeting. The loan growth was not really driven by much higher originations. It was driven by the fact that payoffs were lower and we had higher holds.
I would think we've always taken a barbell approach to this business, right? We've always said we're gonna grow proportionally with the rest of our collateralized exposure with commercial real estate, kinda take a barbell approach. I don't think you'll see us putting kind of the pedal down, particularly in this environment. In that whole sponsor area, we'll remain more focused on the higher quality, lower risk assets, and we'll support our existing sponsors. Prepays will have an impact, but, you know, we're not gonna try and grow at 200% in a year.
Hi, guys. Excuse me. I just wanted to ask a few questions around the office. I appreciate all the detail. I think between 2023 and 2024, it looks like about 20% of the leases roll off.
Yes.
Could you help us understand what the, you know, interest rate is those borrowers are paying today versus what or currently versus what it would look like if they were re-underwritten today?
Yeah. So great question, right? The trigger point for problems in the book will be when leases mature and people are rolling. You would expect, in a lot of cases, they might wanna reduce space or expect lower rent or both. That's separate from the refinance issue, right? What I can tell you is we've done a really deep dive on not just office, but the entire portfolio of maturing loans in 2023, including $300 million or so within office that mature during that time period. We've identified, you know, a handful of deals, less than $100 million, that we have some concerns about. Again, some of those have contractual support, and we've already been proactively talking to sponsors about, "Hey, will you put some equity in if we give you some, you know, an extension," right?
We're having success in those conversations. We're making a decision to, "Look, I don't wanna ride this out for the next three years. I'll take a discount, sell it back to the sponsor, and move on with life." We're making a lot of those decisions based on what we think of the property. Good question, but, you know, $few hundred million is. Less than that we're truly concerned about.
Just on the origination, LTV is about 50%.
Mm-hmm.
On some of the properties that we've seen the defaults on, like, you know, the folks are taking a bath on them and just handing the keys over and walking away. Jason, I'm over here, by the way.
I'm sorry. Thank you. I'm having trouble finding... I don't know.
It's all bad to having you here.
I'm gonna check my hearing.
We were trying to trick him.
I'm sorry.
No worries. No worries. You know, they've been taking big losses, and they've just been turning the keys over because their equity is basically wiped out. You know, the origination LTV is 50%. Help us think about, you know, your read on how the valuations of this book look today. I guess.
Yeah
... you know, any indication as to, you know, I guess on the $100 million that you've kind of identified, if you're kind of doing reappraisals, you know, what those appraisals are looking like. I know it's early days and kind of the office wipe out.
Yeah. It's kind of all over the place. I guess the best thing I could do is I can give you an example, right? We had an office building outside of D.C. that's vacant, right? If our recovery on that loan was purely based on re-leasing that up, I would tell you we're underwater right now. We had some extra collateral on the side as a parcel of land that could be developed, right, for residential purposes, that was part of the justification of doing a deal, is having some boot collateral. That said, that could take multiple years. You know, we made a decision, look, we're gonna get out of this loan. We can take a little hit, sell it back to the sponsors so they control it. You know, that...
those are the kind of situations that we're dealing with. Overall, we have some buildings that, you know. I can think of one deal that we did last year that we closed, and it was a 10-year lease to the army of engineers, right? We did a three or five-year deal. Plenty of term left on the term, right, to amortize out. We needed to. We have a lot of deals that might fit that category or we're 30% loan-to-value. Even if it's now 60%, we think we have enough cushion and they're good sponsors that will support the properties. We're really focused on those where, okay, we think we could really be underwater. Not. The average is 10%, but you have some properties that are 20%- 25% lease roll this year, right?
That could be in a worse situation, right? Those are just averages. We're just trying to be proactive going after those. You could see a material 25%, 30%, 35% increase in loan-to-value, then throw in the interest rate impact, which also gives you a discount, and it's pretty substantial.
I'm actually really proud of the fact that, and we're trying to be as transparent as possible. If you look at the credit statistics of this book, they're strong, you know. Obviously you could wait around and figure out whether you've got a problem three or four years down the road. I'm proud of the team to be really proactive. You know, almost the entire portfolio is performing. We have high debt service, low LTVs. We've got really good sponsors. We've got people where these properties are located to, New York City, five boroughs. You've got the ability to reposition properties into retail, industrial mixed use. I think there are lots of ways out, but we're thinking, I think, a few steps ahead.
I hope that the slide on office gives you comfort that we, you know, we have not reached in that asset category. We're not originating in it. We're also very self-aware that there could be a paradigm shift, you know, moving forward.
Hi. Maybe a follow-up on the sponsor side. You know, you spoke about how you're moving away from sectors that have been through stress and prior downturns. The largest segment, I guess, is still tech and infrastructure. How are you thinking about the exposure in that segment, given that it might not have seen stress in prior downturns but might be seeing more stress now?
Yeah. It's funny. Anytime you have a conversation and people hear tech, they think obsolescence and problems. I get that. What I can tell you is what we're doing is financing unique technologies that mostly have contractual software recurring revenue. If we target 70% recurring revenue, we're doing these deals at even lower loan-to-values than the averages at 35%. In many cases, there's three, four times the amount of equity from really known sponsors that we've done business with for a long time. You know, it's a unique software that's providing an automation or value that didn't exist or was done in Excel files or very manually historically for a lot of these companies. I'm not gonna sit here and say every single one of them will work out the way it's planned, right?
Sometimes they're a little nichey, but with the sponsor relations that we have, we feel pretty good. The only data point we have is through COVID, right? We had a big portfolio of this, that was a very different, right, downturn. The data point we have is you didn't see high level of churn, right? We generally have 90%+ churn of recurring retention on customers and 70% recurring revenue. What we saw was a slowdown in new installations, not a churn of the existing base. That's what we're expecting for the most part. Again, if you look at the classified loan stats for technology, you're well under 1% and no non-accruals.
Steve. Oh. What was that?
Yeah.
Okay, let's see. We're gonna go a little longer on credit, make sure everybody feels good.
For Jason. You can tell from all the questions there's concern on commercial real estate office and then sponsor for Webster. From your view, do you agree? Do you think that's where the two major risks are in the portfolio? Separately, what are you seeing in credit that people are not talking about...
Mm-hmm
where you could see credit risk growing and in 12 months we'll all be talking about that?
Yeah.
Thanks.
Good question. Do I agree is Sponsor the right place to be concerned about?
Agree.
Yeah. If you ask me where I'm most concerned right now, it's the maturing CRE loans that were booked three-four years ago. Interest rates have gone up 4% or 5%. You can have a perfectly performing, fully leased property that was generating a 1.7 x debt service coverage. That just because of the rise in rates, still fully leased, is now generating a 1.2 or 1.3 coverage, right? That's a different profile of the loan. That's where I've been spending the most amount of time between that and office, because office, I just, you know, It's permanently changed, in my opinion. Will it, you know, I don't think it's going away. People still want space. I enjoy seeing people, but it's changed, right? Between office and maturing CRE loans, that's where I'm most concerned.
On the sponsor side and C&I side, we look at the maturing loans as well, but we've done interest rate sensitivities. Generally, on those loans, you have much higher fixed charge coverage ratios to withstand the pressure from higher rates, right? Ultimately, it's getting through, we hope, right? We're getting through a period of time here where rates will start to come back down, and some of the deals we book today will probably be some of the best deals that we've booked in a long time because you'll have cushion when rates start to come back down. I am worried We have not seen the full impact of inflation or interest rates in the portfolio yet. As quickly as that happened, it hasn't hit the trailing twelve-month financials that we're getting for our borrowers.
I think it's going to get bumpier over the next few quarters. I'm worried about permanent labor increases and companies' ability to pass that to customers. We're seeing a little bit of that stress in healthcare services, a little bit less in skilled nursing. Those are areas that I am sort of more focused on.
All right. Thanks, guys.
Good?
Yeah. Thank you very much. Always my reminder on Sponsor and Specialty is first, when you think about leveraged enterprise loans, they're a very small portion of the portfolio, and we've been doing it for 20 years with really good credit performance. I'll leave it there. Now we get to shift to Marissa. This is a really important discussion around us wanting to also be good corporate citizens. The only thing I will say, Marissa, you can start walking up here because I'll try and be quick, is we made a conscious decision when we did the merger that we were of the size and scale that we could have a dedicated group for corporate responsibility and have a Chief Corporate Responsibility Officer.
If you think about taking everything in philanthropy and community support and fair lending and CRA and supplier diversity, when people in banks try and work on those things, it's usually a project of a group, and they're like, "Yeah, I'll help out," and, "Yeah, I'll help out." We have an incredible leader that reports directly to me who wakes up every morning making sure that we nail all of those things. Marissa, welcome.
Thank you, John. Still good morning, right? We haven't gotten to lunch yet, good morning, everybody. As John said, I'm Marissa Weidner, I'm a Chief Corporate Responsibility Officer. Should get the clicker. That might be helpful. Well, John already told you what I do. I was going to tell you all the areas that corporate responsibility covers, but we can skip that. Let me just, before I get into our key takeaways, tell you why we really believe it's so important, not just because I wake up every day and I care about this. The reality of it is that entire management team that you've heard from and beyond wakes up every day and cares about it.
We really believe that putting it all under one umbrella is enabling us to have a more coordinated approach and quite frankly, a more efficient approach to deliver on Webster's strategic priorities, but most specifically on our priority of corporate citizenship. When I'm done here in the few minutes that I have, I want you to walk away with three things. One is understand that everything that we're doing in our community investment strategy, which you'll hear about, is driving equity in our communities. That's really what our foundational goal is. Community engagement, it's embedded across the whole organization.
I don't mean community engagement just from the standpoint of performing community service hours, which is critically important, but I mean community engagement in the thought process of how we're going to deliver on our community investment strategy, making sure that every element of our business is included in it. Then we're invested. Not only are we invested with dollars, which you're going to see, but we're also invested with our time, our talent, our expertise in giving back. One of our primary focus areas is our community investment strategy. Following the merger, we announced a $6.5 billion three-year community investment strategy. We didn't do it in a vacuum. We went out into the community, and we listened. We needed to understand what the needs were in the community.
We met with over 100 nonprofit agencies from New York all the way through Boston. We said, "What do you need, and how can we help?" As a result, we developed our community investment strategy. Four focus areas, as you can see on the slide. First, we really believe we need to support affordable housing and homeownership. We have actually hired community liaison officers that are spanning across our footprint. We've done that in partnership with James and his consumer bank network. They're really wholly focused on making sure that we're getting folks to understand what steps they need to take to achieve that dream of homeownership. They're out in the community, they're educating folks. They're also holding their hand and getting them through the process to, at the end of the day, give them the keys so that they own their first home.
We're driving that, making sure that we are funding and investing dollars to kind of bridge that gap. Many folks want that dream of homeownership, but it's that down payment that stands between them and achieving their dream. We're investing dollars to bridge that gap, and with a down payment assistance program. Of course, we're making sure that we're deepening our multifamily best practices. We're investing in small businesses. Small business is a growth engine, and we know that. We're really zeroing in on our minority and women-owned businesses because we believe that that's a great area, obviously, of focus, but we believe that there's a lot of potential there as well. In addition to our own supplier diversity strategy, John told you we cover that, I just want to step back. This is our first year.
It's our foundational year of creating a supplier diversity strategy, and I'll get into that a little bit more. We're also we've launched a minority and women-owned business banking team, so a dedicated banking team to service this segment. We're very thrilled about that. We see the business opportunity by pairing this banking team with the supplier diversity strategy to help grow the business for Webster. We're promoting engagement in the community. We have a coordinated and centralized approach now where we are providing opportunities for community service for colleagues at every level of the organization. Of course, we want our senior leaders out there representing us on the nonprofit boards, but every colleague has an opportunity to get out and perform community service, and we're coordinating all of that.
We're accelerating our diversity, equity, inclusion, and belonging goals in our communities in partnership with human resources. You're going to hear from Javier and our business resource groups. We have advisory councils. When we created this strategy, we also knew we did the listening tour, but how are we going to hold ourselves accountable? How are we going to stay in constant feedback? We have three community advisory councils to cover our markets, one in New York, one in Connecticut, and one in Rhode Island and Massachusetts. We meet with them periodically, and we talk to them about the progress against our strategy, and we talk to them about the challenges that we're facing. We ask them for what they're seeing in the community, and together, we kind of come up with some solutions to help us make sure that we meet those goals.
We're increasing access to banking services. By meeting with these advisory councils, we're hearing what the needs are, making sure that we have the right products. When you think about the fact that we've launched a minority women-owned business banking team, what products do they need, and how can we work together to deliver on those products? I told you, $6.5 billion over three years. Key takeaway here, you can see there's six areas that we're focused on. 1+ 1 needed to equal more than two when we came up with this number. Legacy Sterling, we don't like using that word anymore, but the Sterling organization and the Webster organization, individually standing on their own when we brought them together, we wanted to make sure it added up to more than two.
In some of these areas, the goals are more aggressive than others, but either way, they're all more than each individual company had, and they equal up to about a 20% increase overall. Another area of focus is ESG. We wanted to go beyond a report to build a program. You know, every year we put out an ESG report, and what we decided this year was, okay, let's build the foundation for an actual program beyond putting out the report. We did a materiality assessment and a gap analysis, which kind of formed the framework for us to help kind of think about what are our objectives, what are our KPIs. We for this year, we mapped all of our data for the first time to the SASB Index. We had not done that previously.
You're going to see that come out in the coming weeks. We renamed our report to the Corporate Responsibility Report because we feel it better reflects our strategic focus. Of course, we're making sure we have the right data controls in place in partnership with Elzbieta, our internal audit team. Then, of course, not of course, but as you can see here, we really wanted to focus all of our information on four areas: economic vitality, 'cause it's critically important to Webster, our environment, how we value our people, and responsible governance. While we have a lot of areas that we're responsible for, these are the four key priorities that we're focused on. Of course, continuing to execute against our community investment strategy and making sure that we're thinking about what are the right innovative solutions to offer.
ESG, building on our program, we're working with every area of the business to identify what the appropriate goals are so that we can drive performance going forward. We're onboarding the platform that we need to properly track the data and make sure that we can measure progress throughout the year. From CRA and fair responsible banking. How many of you have heard of CRA modernization? We've been talking about that for quite some time. That's coming down the pipe, and we're going to be ready for that. We're also going to be ready for the Section 1071 small business data collection rule. Most importantly, while we want to make sure we're executing against our CRA and fair and responsible banking goals, we've got that focus on how can we continue to increase lending to low to moderate-income borrowers and minorities. Supplier diversity.
When you think about supplier diversity, like I said, we're building the foundation here. This year, we've laid out the groundwork. We have a new supplier diversity standard. We're working with all of the partners that we need to across the business. What you'll see us do in the next year is really push that out both internally to all of our colleagues, not the next year, this year, all of our colleagues, and then externally to the communities because our goal here is to increase our diverse spend. 2022 was a great year. It was our first year of having the Office of Corporate Responsibility. We announced our strategy. I mean, we hired the community liaison officers. We created the advisory councils, as I said. We launched a new product, the Webster Connect Checking product, built the foundation, et cetera.
You can see all of that here. And we have a lot of upcoming initiatives. But the one that I am most inspired by is the fact that we're going to launch a Special Purpose Credit Program. We're going to pilot that. Been working with Jason. He's been very willing to look at how can we do that, and I'm very inspired by that because I think it's going to help us move the needle. That being said, I just want to leave you with...It's not just putting money into the community. It's not just lending. It's time. It's talent. It's everything that we're doing. But most importantly, it's about how we're growing our business as well, so we're making a very solid impact on our communities. I believe strongly in that. We're growing our business, and I'm very excited about what the future brings.
Now it's my pleasure to turn it over to who we call my partner in crime, our CHRO, Javier Evans.
Thanks, Melissa. Well, we're almost there. We know it's me and the G-man and then lunch. Good morning. I'm Javier Evans, and I'd like to spend the next few minutes just talking about our vision for human resources and give you a sense of the work that we're doing here at Webster. Here we go. Human resources plays a critical role in our success, not only by providing top talent to grow our businesses, but keeping our colleagues engaged, motivated, so they can perform at their best. To that end, the three takeaways I wanna leave you with today are around, one, you know, we're firmly committed to our culture. You heard a lot about culture today, and you'll continue to hear that. Two, providing our lines of businesses with the key talent to fuel their future growth.
Three, providing an inclusive workplace where our colleagues can thrive. 2022 was a particularly exciting year for human resources. We brought together over 4,100 colleagues under one dynamic culture. Looking ahead, we'll continue to execute strategies that will ensure that we continue to develop and perform, you know, and continue to perform and being one of the best mid-sized banks in the country. To accomplish this, we need to continue to enrich our colleague experience by focusing on a couple of key principle areas. First and foremost, it's important to remember that the cornerstone of our bank is our colleagues. We need to be able to attract, retain, motivate, and most importantly, develop their skills so that they will continue to excel in this culture. Second is ensuring that diversity, equity, inclusion, and belonging is at the forefront of what we do.
DEIB is not just an HR initiative. It's an ongoing way of doing business across our company that ensures we have an inclusive workplace where every colleague can be their true authentic self. Third, we continually look at our compensation and benefit programs that we offer so that they remain competitive and contemporary and cost-effective. Today, colleagues can take advantage of programs like child and elder care, mental health programs, and student loan debt repayment. Our compensation plans ensure colleagues are recognized and rewarded for achieving high performance, no matter what areas of the Bank that they work in. Enhancing and expanding our digital capabilities is the fourth way we'll be delivering a premier colleague experience. Streamlining and automating processes will make it easier for colleagues across the Bank and HR to execute routine tasks.
The fifth and most important way we deliver premier colleague experience will be by promoting our culture across the organization at every level. To be a top-performing bank, you need a strong culture that's built upon core values that are modeled each and every day. To accomplish this, we embed our values in everything that we do. To ensure our colleagues understand and embrace what it means to be a Webster colleague, we conducted over 140 in-person and virtual cultural sessions in 2022. This year, we're assigning cultural e-learning sessions to all of our new hires, and we'll continue to drive the cultural pieces throughout the organization. I'm proud to say that in 2022, we were also recognized by both Forbes and Newsweek as being a best and trusted employer.
What makes us a great place to work? We feel it's part of our DEIB philosophy, which focuses on the 3- Cs, our colleagues, clients, and community. DEIB is an integral part of what we do, from attracting and developing qualified candidates to developing colleagues by providing them the skills they need to advance their careers. We have eight Business Resource Groups with memberships consisting of over 800 colleagues and allies. Each BRG, as we call them, is sponsored by a member of the Executive Management Committee and provides events, educational programs, and networking opportunities for all our colleagues. Our DEIB Council consists of 39 members and is chaired by John Ciulla and John Guy from our Business Banking Group. The council provides the thought leadership and guidance that empowers our Business Resource Groups.
We hold ourselves accountable to our DEIB efforts by providing transparent reporting and results. The DEIB scorecard provides reporting on where we stand in relation to our goals, including the support of women, minority, LGBTQ, and disability-owned businesses. I'm proud to report that we're exceeding our KPIs for gender and people of color diversity across the bank. Today, women make up 63% of our workforce, and people of color comprise 33% of all colleagues. While we're pleased that we're exceeding our KPIs in these areas, we continually strive for improvements in these metrics. Looking ahead, we will continue to focus on attracting and developing women and people of color to ensure that they can advance into key management roles. I want to touch upon our main strategic priorities for 2023. Our first initiative pertains to our culture.
As we know, culture is not static and needs to be nurtured. One of the ways we'll be enhancing our culture and colleague experience is with the implementation of additional programs that reward top-performing colleagues across the company. Our next initiative is to continue to enhance our DEIB efforts. While we have made great strides, as I said before, we'll look to broaden programs in 2023 to ensure that we continue to grow in these areas. Third, we have a dedicated team of learning and development professionals who will lend their expertise and professionalism to our colleagues during core conversion. They will ensure our colleagues are confident, capable, and ready to provide a seamless and smooth experience for all of our clients. Our final initiative is in one that's extremely, one of them extremely excited about, transforming human resources.
We're making a significant investment in a new HR system, Workday. The platform will replace what we have today, which is a multi-system approach, which is currently used in HR. It will give us a state-of-the-art, user-friendly system that will result in streamlined processes and efficiencies. In closing, we'll continue to create value for the organization, our clients, and our shareholders by providing talent that is engaged, driven, and focused on excellence. With that, I have the distinct pleasure of introducing Glenn MacInnes, from, who's our CFO. Glenn?
All right. Thanks, Javier. Good afternoon, everyone. It's good to see some familiar faces in person after the last couple of years. Hope you've enjoyed the session so far. Hello to everyone that's on the webcast as well. I'm gonna start with... Where do I point this thing? That's it. If the Chief Technology Officer couldn't get it, I can't get it anyway. Listen, I'm gonna start with a couple things, items we're gonna cover today, and they're highlighted here on this slide. This includes our approach to maximizing economic profit, our interest rate risk management actions, the flexibility provided by our liquidity and capital, and our efforts in optimizing our organization.
I'll start with our overarching goal, which is to maximize economic profit by allocating capital to the highest potential opportunities as determined by risk-adjusted returns. To do so, we deploy capital in businesses with secular growth opportunities and attractive competitive dynamics. You've heard about some of these initiatives today. In commercial banking, we're building out verticals that complement our existing businesses while capturing the entirety of customer relationships and improving customer service. On the consumer banking side, we're investing in digital channels while expanding our share of wallet. In HSA, we're investing in tools to enhance our client acquisition and retention while building an industry-leading customer experience that will deepen relationships with our employers, health plans, and consumers. In our corporate functions, we're diversifying funding channels and optimizing the securities portfolio. We're also maintaining a continued focus on efficiency.
The combination of these strategies will allow us to return a considerable amount of excess capital to shareholders with a total payout ratio in the range of 60%-70%. In addition to returning capital to shareholders, we expect to generate returns that exceed targets communicated at merger announcement. In particular, we expect our return on tangible common equity above 20% in 2023, with a long-term outlook of around 20%. You've heard a lot from our business discuss their individual PP&R performance last year, and here we have a consolidated view of revenue expenses in PP&R. As you can see, we've generated significant positive operating leverage over the year, and this illustrates our ability to deliver top-line growth and demonstrates expense discipline while investing in our diverse businesses.
The expense trend reflects the benefits of projects completed throughout the year, including the elimination of staffing redundancies, a 50% reduction in corporate facility square footage. These projects will provide partial year benefit in 2022 and will generate run rate savings in 2023 and beyond. The expense trend also incorporates investments in our business lines, which include the acquisition of Bend, the addition of frontline staff in the commercial bank, and increased performance-based compensation across the enterprise driven by strong performance. Synergies, investments, balance sheet growth, and the rate environment combine to generate positive operating leverage with a significant decline in the efficiency ratio. Here you see a trend in our PPNR contribution for each line of business.
By effectively allocating capital to the highest potential opportunities, we will enhance the growth in each of our business lines and the profitability for the bank as a whole. As we look out over a three-year horizon, we expect to see the PPNR contribution will grow most significantly in Commercial Banking and HSA Bank. We anticipate Commercial Banking should generate around 70% of our PPNR, while HSA builds from its current 10% toward the low teens. The outcome was the basis for our merger, increased capacity to invest in the business lines with the highest potential to drive long-term earnings growth. As the financial results are borne out in the performance of our company just one year in. On the next two slides, I'll highlight the substantial momentum we have achieved since the closing of the merger.
We've grown our loan book by 15%. While lowering the average risk rate of our portfolio, as Jason pointed out. Deposits were relatively flat against the backdrop of industry-wide outflows of pandemic-related liquidity and seasonality in our municipal banking business. Since quarter end, we've grown our deposit book by $1.2 billion, including $400 million in HSA Bank, $700 million in the municipal portfolio, and $1.8 billion from interLINK. This was offset by a targeted runoff of about $1.6 billion of wholesale deposits. Our adjusted earnings grew to $1.60 a share last quarter from $1.24 in the first quarter of 2022. As you see here, our efficiency ratio has improved from 49%- 40%.
The results are generating strong returns for our shareholders, including $407 million in adjusted PPNR in the fourth quarter of 2022, which was 47% up from the first quarter. Adjusted return on average assets of 1.61% increased 24 basis points from the first quarter and was 21 basis points higher than our target at merger announcement. The return on average tangible common equity of 23% on an adjusted basis was up 591 basis points from the first quarter and 500 basis points higher than the target at merger announcement. Let me move into a little bit about our approach on interest rate management, which will support sustainable long-term financial performance.
We've taken a number of actions to reduce our interest rate sensitivity and anticipate we will continue to do so throughout the duration of the year. These actions include the sale of $400 million in investment securities, which were reinvested at a significantly higher yield and a 4-year duration. As a result, we'll recognize a $16.8 million loss on the sale in Q1 but have been reinvested at a yield that is 500 basis points higher. The transaction has an earn back of less than 1 year and helps us with reduce our asset sensitivity. In addition, we swapped $1.2 billion in loans from floating to fixed.
The swaps booked to date resulted in receiving 3.79% fixed rate for 3.5 years, starting in the Q3 of 2023. Our plan is to execute additional swaps opportunistically throughout the year. Finally, we've entered into just under $3 billion in costless collars, which will protect our net interest margin should we see a more significant downturn in rates. The outstanding notional amount is all forward, starting with zero premium expense. The weighted average start date is at the end of 2023, with maturities going through 2026, providing us with approximately 3.5 years of protection. The weighted average floor is just under 2%, with caps in the high 4% range.
Additional actions we anticipate to further provide interest income stability include the opportunity to swap $2 billion in loans, $2 billion in additional loans from floating to fixed, $200 million-$250 million in costless collars, along with the reinvestment of securities cash flow of approximately $300 million a quarter, as well as opportunistic security purchases. Overall, the cumulative effect of these actions will be neutral to 2023 net interest income and beneficial to 2024 in a down rate scenario. As the trend on the bottom chart illustrates, we've made considerable progress in reducing our asset sensitivity to both a ramp down and shock down scenario. We anticipate a further reduction in this measure as the full impact of our actions are reflected in future periods.
The next slide provides some context on our near-term drivers and net interest margin. Underlying our financial outlook, we have assumed another 25 basis points of Fed funds increases to 5% and a 25 basis point reduction in the fourth quarter, followed by Fed funds reaching 3.5% by year-end 2025. As discussed during the fourth quarter earnings call, we are projecting a through-to-cycle beta of 30%. Should rates be higher than we are anticipating, it would provide additional benefit to net interest income. In 2023, we'll continue to benefit from Fed actions on the short end, given 60% of our loan portfolio or $30 billion in balances are floating. We'll also benefit from the maturity of fixed rate loans and securities.
For example, in total, we have $12 billion in fixed rate loans and securities, with expected cash flow including secure, scheduled maturities over the next 24 months. Of this, $9 billion in fixed rate loans carry an average portfolio yield of 3.65%, while the $3 billion in securities carry an average yield of 2%. As these earning assets mature, we'll likely redeploy those funds into forecasted market rates, which are 200-300 basis points higher. Our balance sheet flexibility, as you see on this slide, is supported by exceptionally strong liquidity and capital profiles. As you can see here, our total deposit book of $54 billion is a mix between our various lines of businesses.
The diversity of our funding sources across commercial, consumer, HSA, and corporate channels will allow us to deliver core deposit growth while efficiently managing the all-in cost of deposits. As we fully integrate interLINK, we will see our funding mix by business shift but expect to see deposit growth across all funding segments. In the long term, we expect to manage our loan-to-deposit ratio in the range of 90% while maintaining a significant level of additional funding capacity and secured borrowings. As highlighted here, at the end of the fourth quarter, we had roughly $13 billion in additional borrowing capacity between unencumbered cash and securities and unutilized FHLB and Fed borrowings. Our capital levels continue to be strong, and in the near term, we expect to generate approximately $100 million-$125 million in excess capital per quarter after providing for organic balance sheet growth and dividends.
As you can see, we remain in excess of regulatory well-capitalized levels with a common equity Tier 1 ratio of 10.7%, a Tier 1 leverage of 8.9%, Tier 1 capital of 11.2%, and total capital of 13.2%. As many of you are aware, our TCE ratio of 7.4% is near the top of our peer group. Based on our modeling, we would maintain an adequate level of capital even in a regulatory severely adverse stress scenario. For the intermediate term, we expect we will continue to target a common equity Tier 1 ratio of 10.5%, a level we feel adequately supports both a robust growth profile and a measure of conservatism.
In addition to our healthy starting position, we remain disciplined on our approach to deploying capital. Over the intermediate term, we would generally expect a third of our excess capital to be allocated toward organic growth, a quarter toward dividends, and roughly 40% toward buybacks, opportunistic acquisitions, and investments. As John pointed out earlier, we're less interested in brick-and-mortar acquisitions but would entertain investments and opportunities that would enhance our business. The Bend and interLINK acquisition, both announced last year, reflect the profile of strategic actions we would consider. To wrap up the day, I'll provide a recap of our long-term impact of strategic initiatives that my colleagues reviewed today. I'll start with the commercial bank. As you have seen through our performance in 2022, we have a diverse set of high-performing commercial banking teams.
We plan to add to those teams to enhance existing business performance. The deep industry expertise and the complementary nature of both regional and national-focused teams will allow us to grow loans in the range of $3 billion-$4 billion annually over the next three years. On the deposit side, you heard Chris speak about the number of initiatives to deliver incremental funding to the bank. I would highlight opportunities in the property management space where we have a strong partnership with technology partners, the launch of the 1031 deposit product, growth in business banking where deposits significantly exceed loans, and our focus on deepening our relationships. In total, these initiatives will allow our commercial bank franchise to grow deposits by approximately $1 billion annually. Moving to consumer, you heard James speak about the significant opportunity to drive deposit growth in small business and mass affluent segments.
In addition, we'll continue investments in digital account onboarding to complement our traditional banking center model. While we expect the rate environment to continue to disrupt deposit flows from checking and savings, we believe that our full suite of product offerings will allow us to grow deposits in the consumer banking segment between $700 million and $1.3 billion annually. Outside of deposits, we'll continue to leverage our strong base in the banking centers to serve our consumer lending needs. Lastly, we'll focus on maintaining positive operating leverage as consumer preferences have continued to shift, and we have an opportunity to optimize the branch network and overall delivery model. Finally, on HSA, Chad spoke in detail about the progress we have made in our recent Bend acquisition and moving 3 million accounts to the Bend experience.
Our investments in technology in the HSA space will allow us to further benefit from the significant funding advantage of these low-cost, long-duration deposits, which grow at a rate exceeding the bank as a whole. The technology investments will improve customer engagement and partner satisfaction, which all translates to growth in new accounts, deposits, and the average balance per account. Overall, we expect to ramp up our annual deposit growth in HSA Bank to $1 billion-plus with a three-year CAGR north of 10% and in line with market growth rates. Very quickly, we have provided our full year 2023 outlook here. It remains basically the same to what we provided just over a month ago at earnings.
We'll continue to provide quarterly updates, particularly as it relates to the constantly evolving interest rate environment. Here we summarize our performance estimates over the next three years. This incorporates all that you've heard from my colleagues today as well as our forecast future rates. From a big picture perspective, we believe our differentiated business mix of business lines will allow us to grow our balance sheet in excess of peers. Our unique deposit channels will fund loan growth while maintaining a solid and flexible funding profile.
As summarized, we would expect annualized results through 2025 in the following ranges: loan growth of 7%-9% per year, deposit growth of 7%-9% annually, or closer to 4%-5% excluding Interlink, net interest income growth of 10%-12% per year, and we expect to maintain our efficiency ratio in the range of 40%. In the short term, our efficiency ratio will benefit from the completion of merger-related projects, including staffing redundancies, and corporate facilities actions, and the core banking conversion scheduled for later this year. In 2024 and beyond, we'll begin to generate tangible benefits from the technology investments in each of our business lines through back-office process improvements and the optimization of our retail footprint.
The net effect of the revenue growth and continued focus on efficiency will be PPNR growth in the range of 11%-13%. We'll continue to target a 10.5% common equity Tier 1 ratio, assuming no changes to the macroeconomic outlook. Finally, as I mentioned earlier, we expect to deliver long-term return on tangible common equity in the range of 20%, with returns above 20% in 2023. We remain enthusiastic about the strategic direction of our company and anticipated financial results. In addition to the pride in generating these results for our shareholders, this performance and the investments we're making in our organization will provide tremendous opportunity for our colleagues and our clients to grow alongside Webster.
I'll now turn it over to John for closing remarks.
I will not, I'll not repeat. You know, you saw Luis at the outset put this slide up, and he mentioned that most every colleague across our 4,000 strong banking group has this on their desk. They understand what we're trying to accomplish, and that we're aligned, and I think it's important, and I feel like we're aligned and integrated and operating as one strong company right now. We're gonna take questions. You know, the last thing, the comment I'll make, the editorial is, I think you see performance up there that if we can execute on it's top decile, top quartile performance among our peers. No matter how you measure it, we're gonna continue to invest in our business.
I think the great thing over the three-year period is we're not counting on any random new activity, hitting new segments, buying new portfolios, adding new teams. This is really just our ability to take the momentum we have, the really good colleagues we have, and continuing to execute. Anything else we can identify, and we will, we're not certainly sitting on our laurels, is kind of gravy and incremental to this. I feel very confident in our ability from a volume and a relationship and a funding perspective to hit these targets, and hopefully we'll have a macro environment that cooperates with all of us in the industry. With that, let's open it up to questions on anything, and all of the executives are there to answer them.
A question on the capital ratio. At 10.5%, your capital ratio levels are way higher than what you would need from a regulatory perspective. You know, as you fully integrate the merger and as you move further and further away from that, is there more room to bring that 10.5% ratio lower?
Yeah, there probably is. I think we talk about it, and we're determined that that's the right level right now, given some of the potential macro uncertainty in the market, and as you said, some of the integration activities we're going through. Right now, that is the right target, and obviously, we revisit. We're kind of happy that in this environment, after this merger, we were able to buy back, you know, $300 million worth of shares, and we still have a really robust capital level. It's the right target for now and for the foreseeable future until we get a real change in kind of the, let's say, the risk macro environment. Fair enough?
Yeah. Perfect.
Glenn, maybe I'll follow up on that over here. 20% ROTCE for two more years, right? I get it's a pretty awesome outlook. Why not return to the buyback? Or I guess maybe thoughts on getting timing of the buyback.
Well, I don't think we took it off the table. If you looked at I did the capital deployment schedule, I think there were three buckets there on how we look at it, and about 40% was buybacks or, you know, strategic investments. We're generating, you know, by my estimate, in excess of $300 million a quarter in excess capital. Say $75 million's going to dividend, right? Another $110 million-$120 million is going to growth, right, on the loan book, and then the rest is sort of more discretionary at our... Right?
Is there any buyback in that 20% ROTCE for next year factored?
Yeah. Yeah, we do. We do presume that we get back to closer to a level of, like, $400 million a year, somewhere around there. Yeah, there's two factors in that 20%, right? I'm gonna keep going now. Because obviously you have the AOCI impact as well, right? There's sort of two things going in there. Even if I were to strip out the AOCI and the capital purchases, we're still at the very high level, close, just below 20.
Glenn, over here.
This is hard.
Yeah.
Feels like it.
On interLINK, you gave us some guidance for 2023. How should we be thinking about that as a % of funding in the longer-term plan? Is that?
Yeah.
Is that gonna be growing as a percentage?
Yeah.
of overall funding?
I think it could be as much as 18%, 15%-18% over the longer term, depending on, you know. Again, the beauty of interLINK is the optionality, right? To the extent we exceed our growth targets on our core deposits in commercial or retail, and we can look at the cost of funds there versus alternative cost of funds in BrioDirect and things like that, it's hard to handicap it, but we have that lever to pull from an optionality standpoint. I think Luis' slide showed about 10% where we are today, and I think that could grow as high as 18%, again, given how we're thinking about it.
Great. Thanks.
Hey, Glenn, over here. Right here. There we go. Jason knows where you are now.
Yeah. I just gotta remember to look at the opposite direction.
I have two questions for you, just to follow up on interLINK. I understand it's a little bit, it's more just kinda like swapping the FHLB borrowings because they're kind of FHLB-like. Does it do anything at all in terms of your interest rate sensitivity holistically, or is it neutral?
Effectively it is swapping between funding, but those are all on the short end of the curve, so it does help, arguably. Branko Djapic, who's our treasurer, will tell me that all the time, that, you know, any new deposit we originate, if they're short term like that, helps our asset sensitivity, but it's on the margin.
Got it. I just wanted to follow up on, it said a couple times in there, you think, like, continue to reposition the securities book. I guess maybe a twofold question, is that more around?
You know, targeting purchases and, you know.
Yeah.
-kind of effectively-
Yeah.
managing duration and yield. You know, you did sell some, so do you have any portion of the securities portfolio.
Yeah.
that you've kind of earmarked as potential sale with a manageable loss going forward?
Yeah. We use our securities portfolio obviously from to manage our risk-weighted asset profile. We use it obviously for liquidity and then to manage interest rate risk. That's more of what you saw over the last two quarters. We did a little bit in the fourth quarter. We did some more in the first quarter. I mean, there's some credit maybe out there on the securities portfolio we might consider, but we're pretty good about where we are right now. I think we sold a total of, between the two quarters, fourth quarter and first quarter, about $450 million. The economics of it were really what drove it.
I mentioned the 0.7-year payback, you know, we got about 500 basis points on it. Secondary, because we went out four years, it allowed us to reduce our asset sensitivity. It was an easy decision to make. I think for the most part, we're good there. We may opportunistically, you know, increase the size of the portfolio, the securities portfolio, depending on what we see on the loan growth side.
Before we stay in the room, there are a couple of questions, and I don't want the web people to hang up. Why don't you give them to Mike, I think credit.
Yeah. yeah. A couple of questions,
Jason.
online. Yeah. You can start right there. I'll hand you the mic, Jason. For Matthew Breese, on the LTVs you provided in the sponsor book, roughly about 40% from the presentation, you know, how are those values derived and how often are they reassessed?
Sure. They're derived either from the purchase multiple of, you know, when the company was bought. We also look at sort of discounted cash flow methods. We look at, you know, other methods. We have a, we have a developed enterprise value model that sort of validates what the purchase price was. It's reevaluated at least annually. It could be within the year if there's some sort of substantive amendment, acquisition, upsize. It is looked at it very carefully.
One other for you, while we're at it. What portion of the multifamily portfolio is rent regulated? What, if any, signs of stress are you seeing?
Yep. It's about a billion and a half. If I look at the multifamily in New York, we had total $6.6 billion. Within New York, it's about $3.7 billion. If I look at the asset quality of that, it's essentially right in line. Our classified loan rate in New York is 1%, is $38 million, and our non-accrual is almost nonexistent. No signs as of yet that we're seeing stress in rent regulated or multifamily in New York.
Additional questions in the room? Yes.
Hey. Two questions on the commercial bank. You had mentioned a couple of times the opportunity that still remains from higher hold limits. I guess, what's the remaining tailwind from the higher hold limits, and what's the timeframe that that could be captured? The second part, looking at the kind of local versus national mix, that 60/40, as the business normalizes and grows over the next couple of years, is that 60/40 split going to remain as is, or do you see that being more 50/50 as national businesses continue to expand?
Yeah. The first one, the whole-
I'm over here, just so everyone knows. On the hold position, I think we have quite a bit of tailwinds there. It's twofold. The benefit we have, right, with the hold position is we can actually increase our outstandings without actually increasing the borrower count, which really helps the line of business to scale. Right? That's the goal number one. After that, you sort of go, you know, continue. We have customers that I would say have some churn. We replace it with a different hold position. I think we have a good, I would say 18-24 months on just reengineering the hold positions across the whole commercial bank. Second question was on the mix of 61, 60/40. You know, the opportunities are just a lot more in the national businesses.
I would assume we'll trend towards the 50/50 over time, especially on the loan side and PPNR side. The one we have to really start to work on, like I said before, is on deposit side, so we have more deposits out of the national businesses.
I always make a point on the hold levels, which I think is critical, and I always bring it back to risk, though. A lot of people, I've obviously watched mergers and companies get bigger over time, and you oftentimes hear, "Having a bigger balance sheet will allow us to attract better talent and go after a whole new market." That's not our story here, which I think is an important differentiator. We had borrowers in C&I, sponsors in commercial real estate, and in our Sponsor and Specialty business who have been waiting for us to have a bigger balance sheet. We're not putting additional debt on a company and making it more risky. We're just in a $75 million deal now.
We can hold it rather than syndicate it out or be the lead in a two or three-bank deal. I just want to make that point that we have a built-in, to Chris's point about tailwinds, a built-in demand just by being the sole bilateral lender rather than having to club deals for risk management purposes. And we're not, you know, going into new risk classes or stressing the strength of our credit or underwriting teams either. This is right in our wheelhouse.
Question for the G man. Just want to clarify on the deposit beta. On the on the fourth quarter call, I think you talked about a 25% ex-interLINK.
Yeah.
I think today you're talking about-
Yep.
30% all in with interLINK.
Yep. That's where our guidance is today, 30% all in with interLINK.
Okay.
Right.
Good.
And that's-
Just wanted to follow up on the 10-K delay. The way you guys kind of all talk about it is
Kind of reminds me of the Super Bowl, right? The refs throwing a ticky-tack flag late. Obviously had some negative implications. Not seeing any change to the guide. We're gonna see the 10-K in two weeks. We're all gonna move on. Is there anything that we're missing here? Because it just doesn't, you know.
You wanna take it?
I mean, Chris, let me first of all say I'm not happy about it, right? We have two things we need to fix. I think the characteristic is right on, we've done our work internally, and now we have our independent outside auditors making sure that our work is valid. We don't see anything that would increase expenses, change our financial report, you know, I'm not happy. We're a prideful bank about making sure we file things on time and making sure our control environment's strong. I hope you didn't think we were making light of it, we don't think it has any material implications on, you know, any public disclosures or any financial statements.
I had a couple of questions. On HSA Bank first, I'm right here. Given the surge in rates, is Chad seeing more pressure to pay higher rates on HSA deposits? Maybe share the conversation with employers, what you're hearing from them.
We don't get a lot of pressure on rates. We have raised rates slightly, as you see. We up around 15 basis points now. We are looking at it pretty closely. We have it in the plan to raise rates at some point this, over the next couple of quarters, we're not getting the kind of pressure that you might expect.
Thank you. On client satisfaction's mentioned and throughout the day. Can you talk about where you are today, where you're strong, areas to improve, or where you expect that moving to overall?
Yes. We know you're focused on NPS scores. I think if you look at it, you know, one of the things we talked about, we have opportunity in various areas of our footprint and in various segments to improve customer satisfaction on the retail side. On the commercial side, you saw some of the scores Chris put up there. Greenwich Associates, other third parties that do small business NPS scores, we're among the best. I said when we announced the deal and we came here at one point, it was interesting that before we closed the transaction, Greenwich identified five banks across the country in middle market customer client satisfaction. Both Sterling and Webster prior to merger were two of the five banks. I think it goes to the commercial focus, the fact that our RMs do great work.
In the retail side, it's kinda hit or miss depending on segment. I think you heard James say that what we wanna make sure we're doing is we're delivering for all of our clients and all of our segments the basic needs, but that our focus is in certain areas in the retail channel. I think, you know, we will likely, and I don't wanna say that. We care about the client greatly, and we're working hard. And full stop, we have opportunity to improve across the spectrum on retail NPS. In our select segments, we do really well. I think that's where we start, and we kinda prioritize service levels, and we kinda prioritize based on the key segments.
Over time, you know, we'll homogenize and harmonize across the whole footprint, and we'll have a better NPS score. James, I don't know if you wanna add to that. Am I on the right track?
Yes. This on? Yep. Actually just got the first view of the combined organization and client satisfaction scores, right? We had a little bit of a drag in New York, which I think everybody knew. In New England, they were really strong scores. The good news is we've seen the upward trend in New York over the last four or five quarters. On LB1 , we put in place some specific tactics to make sure we were addressing some of the gaps that were in place pre LB1 . As John said, it's a focus. You know, the segments, those scores are consistently happy, but overall, we needed to make sure that we were bringing it together. We've taken some steps. We're seeing some progress, and we'll continue to do that.
Thanks. John, maybe one final one for you. When you think about holding the senior team accountable, right, for what we heard today, what are the KPIs you're most focused on so your vision of this new company becomes realized?
Sure. I mean, I think it's a combination, right. It starts obviously with financial performance, but financial performance as I like the way Luis put it. He flipped one through four, right. Financial performance means behaving in the right way, making sure we're creating a good environment for our colleagues, making sure we have a diverse group of colleagues that we promote them, that we pay them well, that we motivate them. At the end of the day, each of these leaders here has to be a great leader, a great manager. They have to exhibit the behaviors that we expect from a culture and values perspective. You know, so far so good. Obviously, risk, compliance, control environment as an overarching obvious, you know, baseline execution requirement. I think it's kinda totality.
When we think about financial performance, it's not just about getting to the numbers. It's about getting to the numbers in the right way. I think that's one of the reasons why I really love this team. I think they're great. They're do the right thing people, they're really talented at what they do. Thanks, Steve.
John, in the prepared remarks, you talked about no square footage reductions in year one, right? You alluded to potentially that's on the table. Do we see the benefit to the bottom line when you pull that lever, or is that gonna be put back into the business?
Yeah, I mean, that's a great question. I don't know. You know, obviously, all the synergies we're getting out of this organization, it's kind of fungible where we're reinvesting and where we're not. What I will tell you, Chris, is to my earlier point, we don't have square footage reduction in the branch footprint built into this. Regardless of whether we use that as incremental investment to drive future growth and revenue growth, or whether we take it to the bottom line as cost saves, it should be incremental to where we are. If the macro environment throws headwinds at us, it's another opportunity to get even more efficient or maintain that kind of low 40s efficiency ratio in our target.
you know, we look at it, I think, you know, prior to the, to MOE, both banks talked about this a lot. I think we realize the importance of connectivity with our retail clients. Branches aren't going away, but obviously, traffic in the branches continues to decline. Once we're through the conversion, you know, we'll have a pretty deliberate plan about just making sure... It may not be, as we've talked about, it may not be the number of branches, it may be the size of the branches, it may be the way we look at physical distribution. There's no question that if you pinned me down, I would say we would have, you know, meaningful square footage reduction year-over-year-over-year as we move forward and as we improve our digital capabilities.
Okay.
Well, I.
One more for you, John.
One more. Sorry.
Sorry.
No, that's all right.
Just curious, if we end up getting more rate hikes than you have built into your forecast, obviously, you'd benefit on the margin side, on the NII side, presumably. Just interested in your thoughts on, you know, how quickly that would affect credit, and if there's some kind of level where the credit costs would overwhelm the benefits on the margin.
You wanna talk about impact of rising rates and where you start to think it's dangerous with respect to debt service coverage and other elements of If it goes higher than our current planned Fed funds?
Look, as I mentioned before, it's already having a substantial impact on debt service coverage ratios, right? You can take that 1.7 to out to a 1.3. If it goes up incrementally, that's only gonna provide a little more pressure, particularly for those borrowers on the margin. So it will have an impact, you know. In terms of new deals, we're structuring to those higher rates and stress higher. I think, again, we're putting on high quality loans right now, but it could have an incrementally detrimental impact to some borrowers.
I mean, the way we kind of look at it is another 50 basis points or 100 basis points off of our plan gives us more benefit on the loan yields, slight detriment offset a little bit by higher funding costs and probably higher betas. If you start to think about another couple 100 basis points, I think, you know, you'll find that that will matter more with respect to the borrowers. As Jason said, he just went through an entire, I don't know whether he did a 2% above where we think. What was your stress? 4% stress rate? Didn't see kind of a meaningful degradation in the overall portfolio. I think, you know, we still have a little room, but obviously, we watch that carefully from a credit perspective.
All right. Well, it was a long morning. Thank you to everybody on the web. It's great to see so many familiar faces. We appreciate your interest in the company. Thanks for dedicating a full morning to us. We do have lunch out here to the extent you can stay and talk to some of the executives of the company. Thank you.