Daniel Tamayo: Okay. Thanks for all the color guys. Appreciate it.
John Ciulla: Thank you.
Operator: Your next question comes from the line of Steve Alexopoulos of JPMorgan. Your line is open.
Alex Lau: Hey, good morning, everyone. Alex Lau on for Steve.
John Ciulla: Hey Alex.
Alex Lau: I wanted to touch on deposits. So noninterest-bearing deposits were up on a period end basis in the quarter. What drove that uptick? Was the seasonal inflows? And is it fair to say that these customers chasing higher yield products and these demand balances are largely done?
Glenn MacInnes: Yes. So let me take that, and John. But I think there is a portion of the increase in noninterest-bearing deposits that was related to the government inflow, which is seasonality. But I think the bigger point is we’ve gone back and looked at DDA because we’re — as we look at our forecast, and I’ve gone back to all the way back to 2019 when — if I add the combination of Webster and Sterling, we had about $40 billion in combined deposits. And at that point, the DDA represented about 21%. If I look at the third quarter and did the same sort of analysis, and I stripped out the impact of interLINK that’s relatively new, we’d be in that 21% range. So it’s pre-pandemic. And if I look to where we are, it’s typically run about 21%.
I think there will be some continued normalization in the average balances as customers move, and we’ve looked at this on a customer-by-customer basis. So there is some migration into higher higher-yielding type of products. But I think some of that to say, I think we’ll get normalization over the next couple of quarters, but I think some of that will be offset by growth opportunities through — whether it’s new relationship, acquisitions or treasury management type services. So I think if you think about that 114, we have, there’ll be puts and takes on that over the course of time, and we’re not giving guidance for ’24, that should be somewhere in the range.
John Ciulla: I agree with that, Glenn. Yes, Alex, I think your last statement was right that we’re going to continue to see a creep up of the deposit cost there in the core, but the rate of increase is slowing down because the customer behavior, people that were more in tune and it was more important to them to chase rate have done so.
Alex Lau: Thank you. And speaking of growth opportunities, now that the conversion with Sterling is done, do you see any material cross-selling opportunities in terms of growing these demand deposits now that you’re integrated with Sterling?
John Ciulla: Yes. I mean I think I kind of hinted to that, Alex, that one of the things that’s getting on our single core platform now and also being able to kind of pivot our resources to development and build out. We’ve got a robust plan on the treasury side in commercial, and that’s broadly defined with cash management products FX, capital markets, other products, corporate card, where we believe that having deeper penetration and having a broader product set for our really loyal commercial customers will have the added benefit of growing core operating deposits. So I do think that, that’s something that we believe we can execute on and we believe we’ll be successful as we move forward post conversion.
Alex Lau: And then I just had a follow-up on the HSA business. So these balances for the past three quarters have been in the $2.2 billion range. Can you talk about what it would take in the macro environment for a stronger HSA adoption for these balances to start increasing, John, I think you said mid to high single-digit. How do we get to the higher end of the range? Would a weaker job market actually benefit this range? Thanks.
John Ciulla: Yes, it’s interesting. We used to answer these questions all the time. But I think generally, higher health care costs push companies to higher adoption of full replacement, high-deductible health plans definitely, in a recessionary environment, if labor market is not quite as tight, companies are more willing to move to higher replacement costs. I will tell you, we believe that part of full transparency, right, part of the reason the market slowed a bit is that there’s been significant penetration and adoption now. So there aren’t as many greenfields in terms of new opportunities. But in this economic environment and in this job market environment, we have obviously seen slower growth and I’m not rooting for a worse job market or a big recession so that we get a slight increase in our HSA growth.
But I think those are some of the dynamics. There are higher health care costs coming in. So I do know that people are continuing to look at it and Chad does see opportunity, and we’re obviously got a lot of RFPs out there. But the market from the 20% growth days, down to the 10% growth days, there’s a lot of dynamics there, and it’s not just economic. It’s also just a maturing of the industry.
Operator: Thank you. [Operator Instructions] The next question comes from the line of Bernie Von Gizycki of Deutsche Bank. Your line is open.
Bernard Von Gizycki: Hi. Good morning. My question is on fees specifically. So you talked about the pressure on fees from less capital markets activity, but you have seen signs of an improving outlook into next year. What are you hearing from clients? What signs do you see that helps drive that improving outlook? And maybe if I just combine this on the Sterling integration, you basically highlighted some areas in treasury cash management but in the fee side, could you provide any size timing of these opportunities? So capital markets pick up next year and Sterling integration opportunities sizing?
John Ciulla: Yes, it’s a great question. I think I’ll stick with Glenn’s comments that we’re working through our plan right now for ’24, and we haven’t sized some of those opportunities and the timing of the rollout. As it relates to BAU and organic where we are, we did see in the quarter a relatively healthy level of noninterest income and underneath that were some good signs, a little bit more of direct investment equity tag in income, which shows some more activity on the sponsor side and that people may be getting more active as they normally do at year-end. And so we’re — that’s a good sign for us as we move forward. Obviously, the swap market, given where interest rates are has been kind of down, but we may see some more activity just given the fact that the Fed may pivot.
So there’s some decent signs and then we’ll be able to, as we give guidance in Q4, we run out our road map on plan, be able to maybe size some of the incremental benefit of post-conversion investment.
Operator: Thank you. Your next question comes from the line of Timur Braziler of Wells Fargo. Your line is open.
