Good morning. Welcome to Webster Financial's Third Quarter 2023 Earnings Call. Please note this event is being recorded. I would now like to introduce Webster's Director of Investor Relations, Emlen Harmon to introduce the call. Mr. Harmon, please go ahead.

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

Thanks, Emlen. Good morning, and welcome to Webster Financial Corporation's Third Quarter 2023 Earnings Call. We appreciate you joining us. I'll provide remarks on our high-level results and operations before turning it over to Glenn to cover our financial results in greater detail. The results we announced today further illustrate the power of Webster in terms of earnings potential as well as our sound operating and risk profile. We continue to enhance our liquidity position. And in contrast to broader industry trends, we grew deposits by $1.6 billion. We also grew our net interest income and materially expanded net interest margin in the quarter. In the quarter, we also completed our core systems conversion, marking a significant milestone in our integration, and we are pleased with the outcome and did so with limited client disruption. Our streamlined technology architecture will allow us to further enhance client experience and more efficiently deliver for our clients in the future. Achieving this outcome took an exceptional effort on the part of our colleagues, particularly our client-facing colleagues and those dedicated to the conversion. I want to express the gratitude of our executive team, directors, and shareholders for their efforts. With the core conversion complete, we expect our company's financial potential will become even more evident over the near to medium term and we will have significantly more opportunity to build upon our operating capabilities going forward, including services that allow us to enhance noninterest income in our commercial, consumer, and HSA businesses. Furthermore, our colleagues will direct their full attention to continuing to grow the organization as they deepen existing and develop new client relationships, enhance our product capabilities and client service, raise Webster's market profile and keep operations running smoothly. With that as an introduction, I'll get into our financial highlights for the quarter. I'll start on slide two. On an adjusted basis, we generated EPS of $1.55, with solid results across nearly all of our income statement lines and PPNR grew 2% from the prior quarter. This generated an adjusted return on assets of nearly 1.5% and an adjusted return on tangible common equity of 21%. Our efficiency ratio remained at 42%, among the best in the industry. We grew our deposits by almost 3% over the prior quarter and we were able to grow net interest income despite a decline in loans. As we have discussed in our prior calls and at our Investor Day in March, we've continued to evaluate our capital allocation and the risk-return dynamics across lending businesses since our merger closed nearly two years ago. We've discussed with many of you that the time would come to deemphasize some businesses where our resources and capital could be better allocated and we are starting to see some of that today, particularly in an environment where liquidity is at a premium and the credit environment remains uncertain. In the quarter, we focused our loan origination efforts on franchise building, full relationships, C&I, and non-office commercial real estate. We purposely deemphasized our mortgage warehouse activities where balances materially declined. As a result of our deposit growth and more targeted loan origination activities, our loan-to-deposit ratio improved to 83%, providing us a ton of flexibility as we move forward. We have a solid loan pipeline and feel good about our ability to continue to safely grow earning assets, even with the backdrop of sluggish loan demand. Our common equity Tier 1 ratio and TCE ratio are strong at 11.2% and 7.2%, respectively. Our robust capital position and returns provide us a great deal of flexibility and optionality in terms of capital deployment, whether it be organic growth, share repurchases, payment on our common dividend, or in selective instances, executing on complementary acquisitions such as the interLINK and Bend transactions that we've executed on over the last two years. On slide three, we again provide a profile of our diverse and unique deposit funding. Many of you have seen this slide a few times now, but we'd like to highlight what we believe to be one of our key competitive advantages, particularly as deposits exit the banking system. The deposit growth we generated this quarter was a team effort with most of these channels contributing and Glenn will provide more details on our deposit growth shortly. This business profile also enables our robust liquidity position, which we review on the following slide, slide four. We again increased our immediately available liquidity to $19.8 billion from $18 billion last quarter. In the most recent quarter, our uninsured deposits fell to 22% of total from 25% last quarter and our liquidity coverage of those uninsured deposits grew to 148% versus 124% last quarter. I'll touch on our office CRE portfolio and credit in general as we turn to slide five. Office loan exposure continues to be a focus of our conversations with investors and we continue to actively manage our risk in that asset class. Notably, we've proactively reduced our office exposure, which is now under $1.2 billion or 2.3% of loans. Including actions taken this quarter, we've reduced the portfolio by $500 million since the second quarter of 2022 or 30% of the original balance. The portfolio is generally well secured with an at-origination weighted average LTV of 54% and a current debt service coverage ratio of 1.9 times. No delinquencies in the portfolio and a low level of non-accruing assets. Note that of the remaining portfolio, almost two-thirds of our exposure has some level of tertiary support in the form of a guarantee or reserve. Overall, while it's clear that the credit environment remains uncertain and that the industry trend indicates some level of bumpiness as we move forward, we remain generally pleased with the resilience and credit metrics in our existing loan portfolio. While our commercial classified increased in the quarter, they remain well below pre-pandemic levels. Our nonperforming loans and charge-offs remain stable and at historically favorable levels. We continue to add to our overall allowance for credit losses and our 1.27% coverage of loans and leases compares favorably to peers. We continue to proactively manage credit exposure in our portfolio to ensure early identification of problem credits. I'll now turn it over to Glenn to provide more details on the quarter.

Thanks, John, and good morning, everyone. I'll start on slide six with our GAAP and adjusted earnings. We reported GAAP net income to common shareholders of $222 million with earnings per share of $1.28. On an adjusted basis, we reported net income to common shareholders of $267 million and EPS of $1.55, excluding $62 million in pre-tax merger-related expense. Merger-related charges were associated with our core conversion, which was completed in the third quarter and will decline significantly in the fourth quarter. Next, I will review our balance sheet trends, beginning on slide seven. Total assets were $73 billion at period end, down $900 million from the second quarter. Interest-bearing deposits, primarily cash held at the Fed, were $1.8 billion at period end. We averaged $1.2 billion in cash for the quarter in line with what we anticipate going forward. Our security balances were relatively flat in the quarter as we reinvested proceeds from majorities in sales. Loans were down $1.5 billion, reflective of both lower loan demand and a decline in nonstrategic loan categories. Deposits grew $1.6 billion in the quarter, and we reduced borrowings by $2.6 billion. Deposit growth was across several product types and business lines, including over $250 million in noninterest-bearing deposit growth. Our loan-to-deposit ratio was 83% in the quarter, down from 88% last quarter and we anticipate operating in the mid-80s going forward. Our capital levels are consistently strong. The common equity Tier 1 ratio was 11.2%, and our tangible common equity ratio was 7.2%. Tangible book value decreased to $29.48 per share reflecting the impact of AOCI, the dividend, and a small share repurchase. This was partially offset by retained earnings. Unrealized security losses, included in tangible book value increased to $819 million after tax from $645 million last quarter, driven by higher rates. In a steady interest rate environment, we anticipate roughly $125 million of this would accrete back into capital annually. Loan trends are highlighted on slide eight. In total, loans were down by $1.5 billion or 3% on a linked quarter basis. The Commercial Bank continues to drive loan trends, where declines were reflective of both lower demand and declines in nonstrategic categories. Mortgage warehouse was down $600 million. Commercial real estate was down $100 million as we continue to reduce our office exposure and C&I was lower by $900 million. The yield on the loan portfolio increased 14 basis points and floating and periodic loans were 59% of total loans at quarter end. We provide additional detail on deposits on slide nine. With total deposits of $1.6 billion from prior quarter or 2.7%. We saw growth in all major deposit categories with the exception of savings. Growth was aided by the seasonal inflow in public funds, along with growth in interLINK, commercial and HSA. In our commercial business, we continue to recapture balances that have left in search of diversity earlier this year as well as new clients. Our total deposit costs were up 24 basis points to 196 basis points for a cumulative cycle-to-date total deposit beta of 37%. On slide 10, we have updated the forward progression of our deposit beta assumptions. We anticipate our cycle-to-date beta will reach 40% in the fourth quarter of this year. While the macro data has pushed out the interest rate cycle, we would still anticipate a beta in the low to mid-40s by the middle of 2024. Our expectations here align with our outlook for which we assume no further Fed increases at this point with cuts beginning at the back half of 2024. Moving to slide 11, we highlight our reported to adjusted income statement compared to our adjusted earnings for the prior period. Overall, adjusted net income was up $7 million over prior quarter. Net interest income was up $3.3 million as we continue to benefit from our asset-sensitive balance sheet. Adjusted noninterest income was flat while expenses were down $2.3 million. We also benefited from a lower tax rate, which was 20.1% this quarter, down from 21.7% in the second quarter. Partially offsetting these trends, the provision was up $5 million. The net interest margin was 3.49%, up 14 basis points from the prior quarter. The NIM benefited from more normalized on-balance sheet liquidity as well as our asset-sensitive position and our efficiency ratio was 42%. On slide 12, we highlight net interest income, which grew $3.3 million linked quarter. Net interest margin increased 14 basis points from the prior quarter. Our yield on earning assets increased 17 basis points from the prior quarter and the pace of deposit pricing moderated to 24 basis points. It's important to note that our total cost of funds were up just four basis points as growth in core deposit categories was used to replace wholesale funding and brokered CDs. On slide 13, we highlight our noninterest income, which was flat to prior quarter. An increase in derivative valuation and direct investment gains was offset by declines in deposit service fees. Transaction activity tied to commercial clients remained slow in the third quarter, though the outlook is improving into next year. The year-over-year decrease was primarily driven by $10 million in lower client deposit fees, $7 million lower loan-related fees, $4 million from the outsourcing of the consumer investment service platform and lower client hedging activity. Noninterest expense is on slide 14. We reported adjusted expenses of $301 million, down $2 million from the prior quarter. Reductions in professional fees, occupancy, and marketing were partially offset by higher employee benefits and technology expense. Slide 15 details components of our allowance for credit losses, which were up $6 million over prior quarter. After reporting $29 million in net charge-offs, we incurred a $36 million provision expense for macro-owned credit factors, partially offset by the impact of lower loan balances. As a result, our allowance coverage to loans increased to 127 basis points from 122 basis points last quarter. Slide 16 highlights our key asset quality metrics. On the upper left, nonperforming assets are flat to prior quarter and prior year with nonperforming loans representing just 43% of loans, 43 basis points of loans. Commercial classified loans as a percent of commercial loans increased to 174 basis points from 139 basis points as classified loans increased by $118 million on an absolute basis. The balance was up as we saw a migration of a few larger credits that we expect to cure over time. Net charge-offs in the upper right totaled $29 million or 23 basis points of average loans on an annualized basis. We divested another $78 million in office loans in the quarter. These divestitures generated $13 million of the $29 million in net charge-offs. Worth repeating, our total office exposure declined $110 million, inclusive of other actions this quarter. On slide 17, we maintained strong capital levels. All capital levels remain in excess of regulatory and internal targets. Our common equity Tier 1 ratio was 11.2%, and our tangible common equity ratio was 7.2%. Our tangible book value was $29.48 a share. Including the AFS mark on our securities portfolio, our common equity Tier 1 ratio would be approximately 9.5% as of September 30th. I'll wrap up my comments on slide 18 with our fourth quarter outlook. We expect loans to grow in the range of 1% to 2% with growth focused in strategic segments. We expect core deposits to be in the range of third quarter with a year-end loan-to-deposit ratio in the mid-80s. We expect net interest income of $580 million to $590 million on a non-FTE basis and excluding accretion approximately $4 million in accretion would be added to the interest income outlook, and for those modeling net interest income on an FTE basis, I would add roughly $17 million to the outlook. Our net interest income outlook assumes no further Fed increases. We currently expect NIM to be flat to the third quarter. Non-interest income should be approximately $90 million. Core expenses are expected to be around $305 million with an efficiency ratio in the range of 42%. Our expense outlook excludes the FDIC special assessment. We expect an effective tax rate of 21%. We'll continue to be prudent managers of capital and target a common equity Tier 1 ratio of 10.5%. With that, I'll turn it back to John for closing remarks.

Thanks a lot, Glenn. As I wrap up my remarks, I want to hit on the implications of the proposed regulatory changes for banks in excess of $100 billion in assets as it's among the topics we're most frequently asked about. We anticipate it will be several years before we reach the asset threshold at which the proposed regulations would impact Webster. During that time, both the application of the regulations and the operating environment may significantly change. As you would expect, we've already begun to build the necessary capabilities, talent, and investment to tackle the enhanced risk framework requirements that may apply to us as we approach $100 billion, just as we have tackled the OCC's heightened standard requirements that came with crossing the $50 billion threshold. While there will likely be increased financial burdens such as required debt issuance and compliance costs, there could be several paths to absorbing and overcoming these challenges, including our increased scale and earnings power. In the near term, we believe our size brings a unique mix of scale and agility relative to many of our regional bank peers. We'll utilize our strong operating position to grow in our key markets and business lines, allocating our resources to the highest return opportunities, all within a disciplined risk management framework. With that, I want to wrap up my comments by saying thank you to all our colleagues for their strong efforts, both in moving our strategy forward, completing the conversion and getting us to where we are today. Operator, with that, Glenn and I will open up the line to questions.

Thank you. Your first question comes from the line of Chris McGratty of Keefe, Bruyette, & Woods. Your line is open.

Great. Good morning.

Hey, Chris.

John, maybe a high-level question. This ongoing derisking that you've been doing, I guess where are you in terms of like how much more do you think you need to do? I mean the loss rates on the office, the implied loss rates on the office from this quarter looks a bit higher than what you've been doing for the last several quarters. Could you just kind of big picture, where are you in terms of derisking the book?

Yes, it's an interesting situation. I don't believe there's a specific timeline for this. As I mentioned, we feel relatively confident about the $1.2 billion in office assets we currently have, especially regarding credit enhancements and ongoing portfolio management. We're evaluating loans based on their strategic importance, whether they involve investors and clients we have established relationships with, or if they are standalone transactions, and analyzing the relevant metrics and dynamics. Each quarter, Jason and the team assess whether any particular loan may not be strategic for us, or if there's a viable opportunity to divest at a reasonable economic cost. We're not pursuing a systematic reduction of our exposure but are rather being opportunistic and making sound economic decisions. Many of these loans are likely to refinance or pay off successfully, although some may encounter challenges in the future due to shifts in the market. We plan to maintain our focus on a portfolio of around $25 million to $75 million for the quarter. If a strategically and economically favorable opportunity to exit certain credits arises, we will take it, but we are not urgently trying to eliminate our exposure.

Okay. That's helpful. Maybe, Glenn, you gave the loan to deposit and expectations to the balance sheet. How should we be thinking about just the level of borrowings and securities growth from here or decline?

I think I'll address securities first. We're currently around $14 million to $14.5 million, and I expect it to stay within that range over the next couple of quarters, depending on loan growth. Regarding borrowings, we are at a point where we anticipate remaining relatively flat, around the $2 billion mark.

Okay. And maybe last one. One of your peers turned the buyback back this quarter. I'm interested in your updated thoughts on whether buybacks at this point of the cycle makes sense?

Yes, Chris, I think it's a great question. We bought back $50 million in the quarter in Q3. We clearly have capital levels and capacity to generate capital to continue the program. I would tell you that we're looking at this from a position of having good flexibility, but also recognizing that we want to make sure that we have capital if we do a tuck-in acquisition, if we do grow loans significantly, if we see cracks in the market from a credit perspective. So I guess the way I would characterize it is I wouldn't rule it out, but I think we're being a little bit more cautious as we look in the fourth quarter to our activities in that area.

Okay. Thanks. Thanks, John.

Thank you.

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

Yeah, thanks. Good morning, everyone. Just following up, I guess, Glenn, on the NIM. So NIM is going to be flat in the fourth quarter and borrowings, which obviously helped in the third quarter, the decline there. Sounds like they're going to be flat. So what is the offset to the beta creep that you expect to keep NIM flat? Is it loan growth? Just looking for a little color on what holds NIM stable in the fourth quarter?

Sure. Some of it is due to loan growth, and we also benefit from the interest rates on loans when they are periodically re-priced. Additionally, there is a slight improvement in our net interest margin from an earnings perspective. However, we believe this will be somewhat offset by the anticipated deposit growth and costs as we move into the fourth quarter. As I mentioned earlier, we expect some pressure on deposits going into the fourth quarter, but it should be significantly more moderate than what we have seen in the previous couple of quarters.

Okay, great. I have a question about the funding strategy. Your deposit growth looks to be broad-based, and InterLINK is contributing significantly, as noted on slide five, which shows it accounts for 9% of your deposit franchise. In the long term, do you anticipate reaching a ceiling for InterLINK, or is 9% the ideal level? I'm trying to understand how much potential growth there is for this component.

So we're in the process of doing our outlook over the next couple of quarters and actually years. So I think if we're at 9% now depending on our sources of funds and other sources of funds that could go plus or minus. It could go as high as 15%, but that's something that we're still in the process of planning right now, Casey.

Got it. Okay. And just one last question for me. Regarding efficiency, I realize it's early for 2024, but your efficiency at 42% is clearly better than most of the companies I follow. John, you mentioned there are going to be some financial challenges in preparing the bank to become a $100 billion entity. Can you elaborate on that? Or do you anticipate letting the efficiency ratio increase?

Yes, that's a good question. We're currently working through our plan and are not ready to provide guidance for 2024. However, we still see opportunities as we consolidate sub-ledgers and back office processes, as well as call centers. We continue to have merger-related cost-saving opportunities, and I feel positive about our current position. We also see potential to invest and grow, especially if the market shows positive signs regarding loan growth and people feel confident about a soft landing. We believe we can identify additional teams in commercial banking to bring on board. We are definitely investing in various products such as capital markets, foreign exchange, cards, and other commercial treasury products to enhance our noninterest income. Our view is that we can maintain an efficiency ratio in the low 40s. Any additional cost savings can be used for investing in key products, services, and personnel. If we can deliver the results we committed to during the merger—20% ROATC, 1.5 ROA, and an efficiency ratio in the low 40s—I believe our size, scale, and momentum will help us maintain that efficiency without compromising future investment. Looking ahead three years, as we approach a $100 billion balance sheet, I believe we will have more options and will be better positioned than others in a similar situation, thanks to our efficient operating model.

Great. Thank you.

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

Hey, good morning. I know office CRE grabs a lot of the attention these days, but I was curious thoughts and updated color on the sponsor specialty and leveraged loan book. How have those portfolios been performing in a higher rate environment?

Yes, we are doing well. We have mentioned previously that the companies we underwrite typically have reliable and predictable cash flow sources, including recurring cash flows and contractual arrangements. So far, we haven't noticed significant declines in the credit quality. It appears to be in line with the overall portfolio, likely experiencing some moderate negative risk rating changes, but it's not concerning us. Predicting the future is always challenging, but one of the advantages of this portfolio is the established relationships with private equity firms we've worked with for 10 to 20 years, who are financially strong and actively raising new funds, making them unlikely to let go of these valuable companies. There is no doubt that these loans are typically floating rate, meaning their debt servicing costs have risen. They usually have lower contractual amortization. Thus, the primary concern has been interest expenses, but so far, companies have demonstrated strong capacity to manage their debt obligations. We take comfort in the backing of strong private equity firms in case challenges arise. We typically collaborate with them to navigate any issues, and the deals have continued to perform well. Overall, it seems that the portfolio is managing to handle the increased interest rates effectively, and we are seeing stable performance.

And then just a reminder, what is the size of what meets the definition of leveraged loans and then anything beyond that, that would be considered a syndicated loan portfolio?

Yes, it's complicated because there's overlap everywhere. We've reported that our regulatory, statutory leverage loans have remained relatively flat over the past few quarters, making up about 6% of our total loan book, which is approximately $3 billion. Most of that is in our sponsor and specialty book. Our shared national credits account for about 12%, with some part of that being leveraged, but about 12% of total loans overall. This percentage has actually decreased from pre-merger Webster figures due to the mix that has come together from Webster and Sterling. There's no distinct performance difference here. I've explained our approach to shared national credits many times over the last 15 years. We don't have a buy-side desk; we aren't a facilitator for big banks or non-banks syndicating loans. Our use of shared national credits during this time has been strategic, focusing on geography or product. This involves middle market or corporate companies within our middle market footprint where we have opportunities for cross-selling and direct access to management, even in cases where they have a $700 million credit facility, which we cannot entirely fund. Thus, we engage in that credit and cross-sell. Our expertise lies in technology and other specific industries within our sponsor and specialty group, where we strategically participate with access to management. We underwrite and manage our shared national credits in the same way as bilateral credits, and our Shared National Credit book has a weighted average risk rating that is about 0.5 turns, or 50 basis points, better than the overall weighted average risk rating of our commercial portfolio. This is due to the resilience and diverse revenue streams of these larger companies. These are the key points, and I wanted to share our approach to underwriting and participating in shared national credits.

So understanding it's likely a blend of the leverage loan portfolio, probably some real estate in there. Is it fair to assume the underwriting characteristics like sponsor and specialty, from a leverage perspective are similar to that book and from a commercial real estate perspective, or similar to the LTVs and debt service coverage ratios we find in that?

Yes, I think that's a fair statement. But I'll also tell you, we have very little shared national credit exposure in commercial real estate and I mean very little. Most of our shared national credit exposure is in sponsor and specialty, in our middle market geography groups on mid-corporate and large corporate relationships we have. And then we have some in asset-based lending, those are the ones I worry about the least. Those are larger retailers, strong agents, cash dominion we generally don't have any problems with those transactions. So we don't have very much shared national credit exposure in commercial real estate. It's just not been one of our tools.

Understood. Okay. Last one for me. John, you had mentioned keeping capital handy for perhaps tuck-in acquisitions. I know historically, it's been discussions around perhaps HSA tuck-in acquisitions, but I was curious if that comment meant anything broader is in whole banks or other sorts of fee income vehicles?

Yes. No, great question. And I think we quite clearly mean sort of complementary acquisitions around fee generating or deposit gathering businesses where we have a path to some organic growth but would like to enhance and speed up that path to get a better balance of noninterest income and interest income rather than a whole bank acquisition. We don't feel that right now, you never say never, and I've learned my lesson there. But given where we are, the great integration and conversion we just did, given the look at the dynamics in the marketplace, I would say highly unlikely whole bank activity on the inorganic side and it would be something that would be targeted on further low-cost deposit gathering or fee-generating businesses that are complementary to our existing activities.

Great. I'll leave it there. Thank you for taking all my questions.

Thank you.

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

Glenn, I wonder I wondered if you could share your thoughts on restructuring or selling available-for-sale securities in the fourth quarter, given that rates may be stuck at this level for a while.

Yes. So it is something we looked at, Mark, and you know that we did that in the first quarter of this year, we restructured about $400 million at that time. What I would say is it's something we continually look at. And we balance that obviously because our capital levels and our capital forecast and things that we see as far as that. So I'll leave it at there. It's something that we continue to look at. And there's obviously some opportunity there is competing against capital for other initiatives as well. So that's where we are on that.

Okay. And then can you update us on how much you sold in this quarter in performing office loans and roughly where you sold those relative to par?

So I think in my comments, it was $78 million that we sold. And if you just do the math on the provision of $13 million, that equates to about $0.83 on the dollar.

Okay. Great. And then lastly, hopefully, there aren't any more failed banks, but if there are, would Webster be a likely interested buyer in some FDIC transactions?

Yes, Mark, it's interesting. I mentioned to Matt that whole bank acquisitions are not a top priority for us. However, if a clear strategic opportunity arises that makes economic sense, I wouldn't completely rule us out. I'm hopeful there won't be any more failed banks, but if we continue executing well and the situation stabilizes, we should be in a strong position with the right financial characteristics to potentially acquire a strategic bank if the opportunity presents itself. So while it's not part of our current game plan, we can't exclude the possibility.

Thank you.

Thank you.

Thank you. Your next question comes from Brod Preston of UBS. Your line is open.

Hi. Good morning, everyone. How are you?

Good morning.

Sorry I joined a little bit late. So if I repeat anything, just feel free to tell me to review the transcript. But I did think, John, I think I saw you gave the shared national credit percentage at 12%. Do you happen to have, which you guys are the lead underwriter on, and the agent on?

Yes, less than 5% of that.

Okay. So less than 5 of the 12.

Correct.

To do that. Okay. Cool. And do you have and what the reserve on the office portfolio is at this point?

We haven't disclosed that number. Obviously, it's moved up and it's at a higher level than the overall portfolio. But we don't disclose that, Brody.

And Brody, it's Glenn. I want to point out that we’ve detailed this on page 15 of the slides. You can see that the lower loan balances had an impact of $8 million. Additionally, the third quarter macro and credit environment saw an increase of 43. If you examine the chart below, there hasn’t been much change in unemployment, GDP growth, and similar indicators. A part of that is risk migration, which is reflected in the classified segment, and that’s how I would describe it.

Thank you. And your last question comes from the line of Laurie Hunsicker of Seaport Research Partners. Your line is open.

Great. Hi, thanks. John and Glenn, good morning. So just wanted to circle back to office here. So slide four is great. But just wondered a couple of things. Number one, can you help us think about specifically in New York City and Boston of that $1.17 billion. How much of that is New York City Class A versus B? How much is Boston, Class A versus B? And then also your slide four is only investor. Can you help us think about the owner-occupied book, how big that is? Any concerns that you're seeing there? Obviously owner-occupied is lower risk, but there's still some of the same risk. And then the last part of the office question, the jump in past-due loans from $46 million to $71 million, roughly, how much of that $20 million jump was office related? Thank you.

I may need you to revisit the last question, but the mix of Class A and Class B properties is approximately equal at 50-50 across all markets, reflecting the overall situation. We currently have about 23% of our remaining offices in New York City, which also breaks down to about 50% Class A and 50% Class B. In Boston, which represents a smaller segment at under 10%, the distribution is similarly about 50-50 between Class A and Class B. Regarding non-investor commercial real estate and owner-occupied commercial real estate, these include commercial and industrial companies we lend to that have office collateral. This represents a relatively minor part of our overall portfolio, totaling around $250 million. We classify these as commercial and industrial loans based on the cash flows of the borrowing companies, with office collateral serving as an additional source of repayment. We have not observed any deterioration in that portfolio. And what was the last question, Laurie?

Thanks for that. Regarding the increase in past-due loans from $46 million to $71 million, how much of that was related to office loans, if any?

That's a great question. I don't know if I know the answer to that offhand. But I will tell you one thing is that there was a $15 million payment made on the 2nd of October. So one of them was an administrative delinquency. And so that would tell you that we're down from $42 million to whatever that would be, $27 million, if I can do my math right. Mostly equipment finance loans in there. So it really wasn't commercial real estate.

Yes, it's not.

You got it.

There are no further questions at this time. I will now turn the call over to John Ciulla, CEO, for closing remarks.

Thank you very much for joining us on this long call this morning. Enjoy the day.

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