Jim Smith - Chairman, Chief Executive Officer Joe Savage - President Glenn MacInnes - Chief Financial Officer, Executive Vice President.

Dave Rochester - Deutsche Bank Jared Shaw - Wells Fargo Securities Casey Haire - Jefferies Collyn Gilbert - KBW Martinus Burke - FBR Capital Market.

Good morning and welcome to Webster Financial Corporation’s, First Quarter 2015 Results Conference Call. This conference is being recorded.

Also, this presentation includes forward-looking statements within the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 with respect to Webster’s financial condition, results of operations, and business and financial performance.

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

Additional information concerning risks, uncertainties, assumptions and other factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the Webster Financials public filings within the Securities and Exchange Commission, including our Form 8-K containing our earnings release for the first quarter of 2015.

I’ll now introduce your host, Mr. Jim Smith, Chairman and CEO of Webster. Please go ahead, sir. .

Thank you Adam and good morning everyone. Welcome to Webster’s first quarter earnings call and webcast. CFO, Glenn MacInnes, and I will review business and financial results, after which President Joe Savage, Glenn and I will take questions.

Results for the first quarter reflect continuing solid performance and further progress in expanding our commercial banking business, transforming our community banking and private banking models and growing HSA Bank, including through the January acquisition of JPMorgan Chase’s Health Savings Account business.

Beginning on slide two, quarterly net income of $49.7 million increased 5% year-over-year excluding Volcker Rule related securities gains a year ago, while earnings per share increased 4% on that basis. Return on average common equity was 8.6% and return on average tangible common equity was 11.8%.

Given Webster’ strong capital position and solid earnings, the Board plans to consider an increase in the regular quarterly cash dividend when it meets next week. All my further comments will be based on core operating earnings.

First I want to acknowledge the greater than anticipated margin pressure in the quarter, which drove the net interest margin down, a more than anticipated seven basis points linked quarter after three consecutive quarters of relative margin stability.

As a result, net interest income while 3% higher than a year ago was slightly below the Q4 level as the earnings asset growth didn’t fully offset lower spreads. This result is similar to our experience in Q2 last year. Glenn will describe it in more detail.

The NIM was affected by multiple factors, notably lower rates as evidenced by the 30 basis point linked quarter decline in the average 10 year swap rate and the effect on reinvestment yields.

Additionally, continuing mix shift in commercial banking originations towards lower yielding floating rate CRE loans pressured the NIM as has competitive pricing across all asset classes. That said, our modestly asset sensitive balance sheet will boost yields once short-term rates begin to rise.

On slide three, year-over-year results wear aided by solid Q1 loan growth. Overall loan balances grew 10% year-over-year with originations across the bank again at near record levels. Each key loan segment posted linked quarter and year-over-year growth. Originations showed impressive resilience given the softer pipelines at the end of Q4.

Once again strength in commercial and commercial real-estate loans accounted for most of the growth, growing on a combined basis 3% linked quarter and 14% year-over-year.

Non-interest income grew 27% year-over-year to a record, aided by a 20% gain in commercial banking fee revenue and reflecting in particular the HSA acquisition without which non-interest income would have grown 12%. Core revenue grew year-over-year for the 22nd consecutive quarter.

Expenses grew at a lower rate than revenues year over year for the 16th straight quarter as we reported an efficiently ratio of 60% or better for the 8th straight quarter. This in turn produced a 10% increase in pre-provision net revenue or PPNR.

The quarterly loan loss provision increased slightly linked quarter to $9.75 million, marking the 5th straight quarter in which we added the net reserves after net charge-offs.

Ongoing loan growth was accompanied by little change in most asset quality measures apart from an increased level of non-performing loans in commercial banking, where three seasoned loans in various stages of resolution were moved to non-performing. Turning to slide four you can see the recent quarterly trends for loans and deposits.

In addition to the increase in commercial loans to 57% of total loans over the past year, you can also see floating and periodic rate loans as a percent of total loans continue to increase now at 68%. Combined transactional and HSA deposits now represent 53% of total deposits compared to 45% a year ago.

The loan to deposit ratio is now 81% compared to 86% a year ago and the borrowing to asset ratio was 13% compared to 18% a year ago. These are powerful ratios that underscore Webster balance sheet strength, strong liquidity position and most especially the overall value of the HSA business to Webster.

Slide five shows progress for a year ago and our key loan portfolios with growth in each segment and particular strength in the commercial categories. Slide six shows the sustained revenue growth and expense discipline that have resulted in consistent growth in PPNR. Line of business performance begins with slide seven.

Commercial banking continues to perform at a high level, growing loans, revenue and economic profit or earning regional and national recognition from its middle market customers for excellence in client service.

Loans grew about 4% linked quarter and 15% year-over-year, a result of quarterly originations of $640 million and funding of $483 million, both representing record Q1 loan activity with our traditionally slower first quarter.

Out bankers have excelled in attracting new customers across all business units in all geographies, with particularly strong results in commercial real-estate. The portfolio yield decline was partly attributable to the delayed effect of record originations and payoffs in Q4 as well as loan mix in Q1 originations.

Q1 similar to Q4 saw a greater proportion of high quality, lower yielding investor CRE fundings, representing 44% of Q1 originations. It’s noteworthy that our commercial loans will be sensitive to eventual increases in shorter rates, since 82% of CRE loans and 85% of CNI loans are floating rate or re-priced periodically.

Deposits and transaction accounts were up strongly year-over-year, a comparison that eliminates the seasonality impact of government deposits and demonstrates positive momentum in core deposit growth. Commercial banking posted PPNR growth of 17% compared to Q1, 2014 and positive operating leverage of 9%.

Moving now to community banking, slide nine shows the business banking unit continuing its loan growth trajectory, while loan demand and pipeline remain relatively soft. The higher focus on portfolio management continues to improve balances. The loan portfolio yield decreased as we move up market and due to competitive pricing pressure.

Our focus on high value businesses resulted in net interest income growth, increased market share and deposit growth of over 8% year-over-year. Looking at the personal banking unit on slide 10, overall consumer loan balances grew year-over-year in linked quarter and the end of the period loan pipeline is up sharply.

Overall Resi mortgage production rose 20% linked quarter and over 130% year-over-year continuing our rapid growth in Jumbo originations through retail and corresponding channels. Consistent with our mass affluent focus 90% of mortgages originated per portfolio were Jumbos.

The linked quarter increase in personal banking deposits reflects the strongest growth in years in net new checking accounts. Investment assets under administration grew 7.5% year-over-year to $2.8 billion driven by a combination of new asset inflows and market gains.

Our new production for investments was soft in the quarter, the pipeline for advice appointments increased by over 65%, which would positively affect production and revenues. Community banking continues to make progress along its transformational strategic road map. Customer satisfaction is high and notably so in the key mass affluent segment.

Our new banking center incentive program delivered over 20% year-over-year improvement in productivity as our customers increasingly shift to electronic and mobile transaction channels and our bankers continually transition their roles to providing customer advice.

Slide 11 shows that despite these many positive achievements in community banking and its transformation, PPNR declined 7% year-over-year, due primarily to the effects of the persistent low interest rate environment on the value of deposits. Slide 12 presents the results of Webster Private Bank.

Strong loan growth continues with significant year-over-year increases in balances, originations and pipeline. With the separate path private banking model now established, assets under management production turned net positive in Q1 with net inflows growing markedly as the quarter progressed.

The AUM pipeline is strong and growing, propelled by more sophisticated investment strategies, a broad asset allocation program and a new sales incentive plan aligned more closely with the private bank strategic priority of growing AUM.

Slide 13 presents the results of HSA Bank, where the effects of its mid-January acquisition of JPMorgan Chase’s health savings account business are readily visible.

This can easily be described as HSA Bank’s best quarter ever and that we opened 315,000 new accounts between Legacy HSA Bank and the acquired HSA platform, compared to the 118,000 new accounts opened last year.

Total footings now stand at $4.6 billion of which deposits totaled about $3.5 billion and represent 20% of Webster’s $17.5 billion in total deposits. Slide 14 shows our diverse distribution channels and the rapid growth we’re making and moving deeper into the employer and health plan space. HSA Bank got its start working with insurance agents.

When we went into business we obtained a list of 10,000 insurance agents and began calling them up one at a time saying we wanted to provide the HSA if one of their clients bought a high deductable health plan, that’s how we built that network.

It’s difficult to replicate and is very sticky and we built it out by signing up one agent at a time over 20 years. We probably do better in that space than anyone. In recent years we’ve significantly increased our focus on health plan partnerships and large employer groups to the extent that they now account for most of our new account production.

Adding new product capabilities last year such as flexible spending accounts, health reimbursement accounts and commuter benefit accounts was integral to our ability to pursue that strategy.

You can see it from the slide that the JPM portfolio acquisition accelerated that strategic transition, given the plethora of large employers in their base, as well as the contractual relationships we’ve developed with two of the five largest healthcare insurers. Another distinguishing feature of HSA Bank is our average deposit balance.

According to Devenir’s 2014 year end survey, HSA Bank’s average account balance of $2,400 is the highest among the top 10 in the industry, which represents 65% of industry assets and 37% higher than the median for the top 10.

We believe this is a reflection of our balanced approach to the market as our insurance broker channel tends to yield higher deposit balances on a per account basis, while our partner channel drives faster account growth. Slide 15 shows the continued progression of HSA Bank’s growth and PPNR.

Growth in Q1 compared to a year ago reflects the recent acquisition and ongoing growth in the legacy business. Here is the beauty of HSA Bank to Webster. Most importantly, it provides a rapidly growing source of stable, long duration, low cost core funding.

It generates substantial non-interest income, requires little capital to support and is significantly EP positive.

Given that HSA is our scaled business, our position as a market leader provides competitive advantage in pursuit of growth and our position as a bank enables us to deliver a single end-to-end solution to health plans, employers and consumers.

Finally we’ve scheduled an Investor Day for June 17 in Westport, Connecticut where our executives will discuss their strategies and progress towards their financial goals. We hope many of you will be able to join us. Terry will provide details shortly.

And for those of you who want to do a deep dive into the world of HSA’s, we are planning a HSA Investor Day in our Milwaukee HSA Bank offices later in the summer. Now I’ll turn it over to Glenn for financial comments. .

Thank you, Jim. I’m going to begin on slide 16 which summarizes our core earnings drivers. Our average interest-earning assets grew $539 million compared to the fourth quarter. Half the growth was attributable to our loan portfolio with the remaining growth, the result of incremental securities purchase made in connection with the HAS acquisition.

Net interest margin at 310 basis points was down seven basis points from Q4. We anticipated a four basis point NIM compression from our loan and investment portfolios as noted on our last earnings call.

The unexpected compression was the result of a decline of two basis points associated with lower than anticipated pre-payment activity at quarter end, and a deferral of a planned commercial loan transaction and a one basis points decline associated with holding reserves at the federal reserve as a result of our HSA acquisition.

Our 3% linked quarter growth in earnings assets coupled with NIM compression and too fewer days resulted in net interest income of $159.8 million. While down less than 1% from prior quarter net interest income is up 3% over prior year. Core non-interest income increased by $4.2 million or 8% on a linked quarter basis to a new quarterly record.

The primary driver was the addition of new and acquired HSA accounts. Core expenses were up $5.5 million over Q4, with the majority of the increase associated with the HSA acquisition. Taken together our core pre-provision net revenue totaled $84.7 million, down 2% linked quarter, but up over 10% from prior year.

And as you see, pre tax GAAP reported income totaled $73.8 million for the quarter, up 3% over prior year. Reported net income of $49.7 million includes an effective tax rate of 32.6%. Slide 17 highlights the drivers of net interest margin versus prior quarter.

As highlighted, we achieved quarterly growth and average interest earning assets of $539 million or 3%. The securities portfolio had average linked quarter growth of $173 million as we completed the planned purchase of $500 million in securities associated with the HSA acquisition. Recall that we purchased about half the HSA related securities in Q4.

During the quarter we purchased a total of $570 million in securities with a yield of 272 basis points and a duration of 5.2 years. The longer average duration was due to the combination of our typical portfolio purchases, which had a roughly four year duration and the incremental HSA related purchases with a six year duration.

Securities portfolio cash flow totaled $282 million in the quarter, with a yield of 294 basis points. As a result, despite a four basis point reduction in yield, portfolio interest income increased by 600,000 versus the prior quarter. Average loan balances grew $278 million and the portfolio yield declined seven basis points linked quarter.

The decline in interest on our loan portfolio $1.8 million was primarily driven by too fewer days in the quarter and interest on total interest earning assets declined by $800,000 or seven basis points. Average deposits increased $1.7 billion in the quarter, largely in connection with the HSA acquisition and core seasonal deposit growth.

The rate on deposits declined two basis points to 27 basis points driven by a three basis point reduction in HSA Bank’s cost. Average borrowings decreased $1.1 billion as a result of a reduction in short term FHLB borrowings, which was planned as part of the HSA acquisition to reduce interest rate risks.

As you see the average cost increased 45 basis points to 162 basis points, while borrowing expense declined $174,000 for the quarter. In summary, continued strong balance sheet growth was offset by NIM compression and too fewer days in the quarter, resulting in a $884,000 decline in net interest income.

On slide 18 we provide addition detail on core non-interest income, which increased $4.3 million or 8% versus the prior quarter. Mortgage banking revenue, the top box increased $584,000 on settlement volume of $75 million. The spread for the quarter was 208 basis points, which was up 37 basis points over the prior quarter.

Wealth and investment services highlighted in brown declined by $628,000 due to lower anticipated volume in Webster Investment Services in the latter part of the quarter.

Loan and related fees in green dropped $2.7 million as we had highlighted significant prepayment activity in Q4 and deposit service fees increased $6.7 million, primarily reflective of incremental monthly service charges and interchange fees associated with the HSA Bank acquisition.

Slide 19 highlights our core non-interest expense which was up $5.5 million from Q4 and $8.9 million in the prior year. Occupancy expense highlighted in light green increased $2.1 million versus prior quarter with approximately $1.8 million attributable to snow removal.

Technology expense highlighted in dark green increased by $3.4 million as a result of $3.6 million in transitional service costs associated with the HSA acquisition and $600,000 in expense associated with the new HSA technology platform.

Other expense benefited by a favorable adjustment in the quarter to our unfunded reserve, which was somewhat offset by higher loan related expenses. Slide 20 highlights results of ongoing expense discipline, while continuing to invest in the business.

As you see, despite seasonal expenses we continue to operate with an efficiency ratio at or below 60%, which we have now achieved for eight consecutive quarters.

Turning to slide 21, as we have discussed on past calls, we have been making a conscious shift to become more asset sensitive and this slide shows the progress we have made over the last two years. Here you see our interest sensitivity profiles as we get closer to a tightening and monetary policy, which we expect to occur later in the year.

The HSA acquisition is included in the 2015 numbers and has added about 200 basis points to our asset sensitivity. Our sensitivity on this chart assumes deposit rates react immediately to changes in market rates. Any lag in timing of deposit rate increases or bold twister scenario would improve the results significantly.

I would encourage you to review pages 26 and 27 of our appendix, which highlight the significant structural changes we have made in our balance sheet since 2004, the last time the Federal Reserve raised rates.

Turning now to Slide 22, which highlights our asset quality metrics, non-performing loans in the upper left increased to $152 million and were 1.07% of total loans. The $22 million increase was driven by three loans in the commercial banking segment. One of the loans is in advanced stages of resolution and we expect to cure over the next two quarters.

Past due loans in the upper right saw an increase of $2.8 million due to one commercial account that has since been bought current and the reclassification of $2.1 million of residential mortgage loans from non-accrual to accrual status based on full government guarantee. Past due loans now represent 32 basis points of total loans.

Commercial classified loans in the bottom left decreased $2 million and remain at pre recession levels of about 3% of commercial loans. Our annualized net charge off rate remained at 20 basis points on $7 million of net charge offs in the quarter. This represents the fifth consecutive quarter at or below 25 basis points.

Assuming recent economic trends remain intact, key asset quality metrics are expected to remain relatively strong. Slide 23 highlights our capital position. As expected, our ratios declined from December levels as a result of strong asset growth and the HSA acquisition.

Nonetheless the ratios remain well in excess of the fully phased in Basel well-capitalized levels, as well as our internal targets.

Tangible common equity declined 25 basis points from December 31, largely as a result of an increase of $50.2 million in good will and other intangible assets reflective of the HSA acquisition, plus overall asset growth of around 2.5% in the quarter. Note that this quarter we are reporting our capital ratios under Basel III rules for the first time.

In the appendix you will see that leverage and Tier I capital ratios declined due to the reclassification, 75% of our $75 million of trust preferred securities from Tier I to Tier II capital. The remaining TruPS will be reclassified next year.

TCE Tier I comp common and total risk based capital ratios were not affected by the change in capital retreatment TruPS.

Risk weighting changes in some categories also impacted some of the regulatory ratios such as Tier I common shown on this slide and the Tier I common ratio shown here retained earnings growth to offset the increase in intangibles during our quarter. The entire decline in the ratio was due to an increase in the risk weighted assets.

About half of the risk weighted assets increase was due to balance sheet growth, while the remainder was due to changes in Basel III. The decline in Tier I common brings us closest to our longer term target of about 10%.

Our strong capital position and solid earnings continue to support asset growth, provide for future increases in the dividend and selective buybacks and enable us to confidently pass the annual regulatory severely adverse stress scenario. Before turning it back over to Jim, I’ll provide a few comments on our expectations for the second quarter.

Overall average interest-earning assets will grow approximately 2% to 3%. We expect average loan growth to be up approximately 2% to 3% with growth in all portfolios. We expect to see continued pressure on net interest margin, assuming the level of the 10-year swap and its spread to mortgage rates remains in today’s range.

We expect a three to five basis-point compressions in Q2, driven by lower securities and commercial yields. That being said, we expect an increase of up to $2 million to $3 million in net interest income over Q1, driven by loan and investment volume with some offset in NIM compression.

Leading indicators of credit continue to signal strong asset quality. Given the outlook for loan growth in Q2, we see modest increase in the Q2 provision. Regarding non-interest income, we expect an increase of up to $3 million over Q1, core non-interest income of $57.8 million.

This will be driven by a full quarter of fees associated with the HSA acquisition and our expected rebound in wealth management. We anticipate our expense base will increase as a result of a full quarter of the HSA transition expense along with bank wide investments of people and technology.

That being said, we will continue to demonstrate a disciplined approach to investing and expect to operate the core expenses at a target level to keep our efficiency at or below 60%.

Our expected effective tax rate on a non-FTE basis should be around 33% due to increased earnings and lower tax exempt income and we expect our average diluted share count to be in the range of 90.8 million shares. So with that, I’ll turn things back over to Jim..

Thanks Glenn. I think it’s clear we’re making meaningful strides along the pathway to high performance as we’re investing our capital resources and energy and growth strategies that are designed to create value for our customers and shareholders alike. Now let’s open it up for comments and questions..

Thank you. [Operator Instructions] Our first question comes from the line of Dave Rochester from Deutsche Bank. Please go ahead with your question..

Hey, good morning guys..

Good morning Dave..

Good morning Dave..

Hey, I was really surprised that the stronger loan growth this quarter on an end-of-period basis. I was just wondering if this actually surprised you guys as well and then if you could just comment on why maybe the average loan growth guidance seems to be a little conservative there.

Normally you guys experience a little bit of a pickup in the second quarter. You would think with the strong end-of-period growth this quarter you might see maybe at the upper end of that range or higher..

Hey Dave, this is Joe. We were positively surprised with respect to the loan growth and I think one of the things we guided you on last quarter was we were expecting greater prepay volumes in the commercial real estate book. Not only did that not come to pass, but in fact we grew that business better than we had originally projected.

So we were quite pleased with it. We do think we’ll see some prepay activity in the second quarter, but I always go back to the markets, the broad markets we’re doing business in, all of the arrows effectively we have in our quiver. Our guys continue to surprise even us to the upside.

So it was a good quarter for us, but we’ll be muted in our expectations with respect to second quarter given the prepay activity that we’re expecting. So I hope that helps..

Great, yes. No, that does. Glenn on the margin, the three to five basis points of pressure you’re talking about, that’s just a little bit lower than what you had been talking about last quarter, assuming that the curve remains relatively stable.

We’re just wondering if this three to five is a good assumption for the next few quarters as well or if you see some relief in the back part of the year?.

We see some relief in the back part of the year and Dave the other thing I’d highlight is there’s one basis point in there that is a result of us keeping funds at the fed too, which really doesn’t play off on earnings. It is about one basis point..

Got you. And I guess on capital it seems like you guys have a decent amount of excess capital there.

I know you mentioned raising the dividend later this quarter, are you thinking at some point you might be comfortable with buying back stock? Is there anything you’re waiting on before you start buying back stock?.

I’ll respond to that. We actually have made some acquisitions like if we issue shares in a management recognition program and we buy it back.

So we’ve actually whittled down our authority towards probably around $35 million right now and I think we’ve said before that we look at stock buybacks more opportunistically and we are using our capital to capitalize our loan growth.

We like the idea of a more permanent return of capital through the dividend program, so that I think you should look more there than to ongoing share repurchase as a means of returning capital, but it is in the quiver.

It’s a possibility, maybe even expanding the buyback authority at some point down the line, but for now we would look at it as opportunistically. .

Great. And Jim just on the wealth and investment fees, you had talked about some of the stuffs that you taken to grow that business and improve the level of fees there.

You changed the incentive plans, what else can you do and what are you expecting for growth in that line this year?.

Well, I want to say we’re very excited about our Private Bank and we made a lot of changes there over the last couple of years and we’re pretty well through what we call the model shift. We have highly qualified investment advisors; Yves Cochez who is our Chief Investment Strategist. He extraordinary resonates in the market.

He’s got a lot to do with why that pipeline is bursting at this point.

So we’re very pleased to see that model shift is taking a so called separate path to the private bank, so they can provide a complete set of services both lending and deposit and investment advisory, state planning, financial planning to all of the potential customers in the Webster Bank base today as well as in the market.

It bodes well for revenue growth in the future and I think you see that in the pipeline numbers there at the end of the first quarter..

Hey Dave, this is Joe. Let me just say that one important point to everything Jim said. Jim is spot on, the chassis is good, we like it, we think we’ve got the right levels of leadership in the group and the thing that’s really going to get this thing going is continuing to add to our sales folk.

We add some irons in the fire there and to the extent that we can realize that that will accelerate the path, but the chassis is in good shape. So I just wanted to second Jim’s comment on that..

But I will comment that we are a little perplexed at the fact we didn’t have a higher growth rate in the brokerage side of the business; the Webster Investment Services where we’ve got about $2.8 billion of assets under administration and we don’t know whether people didn’t want to keep their appointments in the first quarter or what it may have been and we do have a very strong backlog of appointments, which we expect will have a positive impact in Q2, but we are looking for a growth there as well.

And I want to point out that we’ve also been in the process of converting a lot of the revenue in the brokerage channel to recurring revenue, where now well over 30% of revenue is in fact recurring.

So that actually in some ways creates a bit of a drag over the near term and overall revenue growth, but is very positive for a stable revenue growth over the longer term..

All right, great. Thanks guys..

Thank you..

Thank you. Our next question comes from the line of Jared Shaw with Wells Fargo Securities. Please go ahead with your question..

Hi, good morning..

Good morning Jared..

Can we just spend a couple of minutes just talking about the – on the expense side. You had mentioned that there was the increased cost for store removal and then you also talked about transitional HSA expenses.

Should we be excluding those from the growth rate guidance that you’re giving going forward?.

Jared, it’s Glenn, good morning. They are in the guidance for the second quarter. The thing with the transitional expenses is that they will eventually wind down as we get into the fourth quarter, so I’m not sure if that gives you enough.

But we had indicated last time that we expected incremental costs associated with the HSA transaction of about $5 million in the quarter. A big piece of that is attributable, say 75% distributable to sort of transitional services that will eventually wind down.

We’re basically running two platforms and so we have the HSA, the JPM HSA on their platform and we have our AV1 [ph] platform, so there’s sort of a bubble in the cost on that..

Okay, and that’s going to be with us sort of throughout 2015?.

No, it tapers off. It peaks in the second and third quarter and then it starts tapering down and it will be gone by end of first quarter ’16..

Okay, and then as we – in the past you’ve spoken about how the fee income generated from the HSA deposits covers about 90% of the expenses, will that still be the case this year or is this more of the transition we’re going to be looking at overall elevated expenses?.

It will be slightly below that and then it will follow and in the fourth quarter or first quarter it will return to more normal levels..

Okay. Then when we look at the shifting to the commercial loan yields….

Hey Jared, I’m sorry to interrupt and the other thing you know, keep in mind that we don’t have a full quarter of HSA revenue or expense – JPM HSA revenue or expense as we close mid month right. You can expect another say $1.2 million, $1.3 million in additional fee revenue coming in in the second quarter.

Again, that’s part of my guidance, but then a little less than $1 million in additional expense as well. I just want to make sure you get that, because it wasn’t a normal quarter, the first quarter..

Right, okay. That’s helpful, thanks. Looking at the yield on commercial lending, you had mentioned that pricing was getting tighter and that there’s more of a focus on fixed versus floating.

Are you swapping out fixed or floating or is that a more customer preference at this point?.

Jared, this is Joe. We’re doing virtually no fixed other than in our equipment finance books.

Now again, I’m referring to the commercial book, I’m not talking about the business bank as part of our community banking role, but we are doing full swaps, so our book is as Jim said right in his opening comments, you blended two of those together and roughly 84% of the business that we have currently on our books is float and I can’t think of a fixed year we’ve done in the last six months.

I’m sure there are some, but I can’t, so that’s the world we’re in right now and we like that..

Okay, great. Thank you very much..

Thank you..

Thank you. Our next question comes from the line of Casey Haire with Jefferies. Please go ahead with your question..

Hey, good morning guys. .

Hi Casey..

So on the other expense line you mentioned there was a benefit from an unfunded reserve. I was just wondering what that amount was and what kind of credit was it pertaining to..

Good morning. As we went through and looked at our reserve models, we came to the conclusion that we probably had more access there and that some of it was probably captured in our ALLL calculation as well. So this is unfunded reserve.

So this is meant to cover the 90 day period when a loan is booked until such time it moves that they draw down and then it moves to the regular loan book and as a reserve establish more. The total amount was about $2.5 million and it was just about evenly offset with additional loan expense within that other category..

Got you. Okay. And then just keeping on the credit point, I mean it sounds like you guys are pretty good or feeling good about the asset quality, but you guys the new non-accruals was an outsized number for you guys.

Just curious what was driving that?.

Sure. Hey Casey, this is Joe and yes, we do feel good about our non-accruals and as you well know the classified loans are the feedstock for really how we go and that’s why Glenn brought that up in his particular comment.

And you know further and again, I’m just going to limit my comments in answering your question to the almost $7 billion commercial book and heretofore we’ve been running at about 20 basis points.

So when you think of our business with loans that range from $5 million to $25 million to $30 million stuff moves and when it comes in, it can have a large effect on the book of business. These particular assets that Glenn noted in his comments were about a third in the CRE book, two-thirds in the CNI book.

I think the great news is our credit life partners. We had these things in gun sites since all the way back at 2010 and as Glenn said, we’re going to expect to see these things move through their paces. Certainly possibly over the next quarter or two, but certainly within the year and that’s not all of them, but a few of them.

So I guess what I would say is from our vantage point we see this as a part of doing our business. We had them under radar and we think you’ll see lumpy things occur over a period of time and maybe we’ll get back to 20 basis points, but quite frankly, obviously those are levels that we have never been at.

So it’s something that we see as part of our process of being – approaching a $7 billion commercial book. I don’t know if that help..

Yes, no. That’s very helpful, thank you. And then Jim, just last one for you; big picture question on HSA. Just curious what the appetite is? If this is a funding source that is going to be a double digit growth category for you, what is the appetite? Presumably your liquidity profile will improve. Loans and deposits will dip even below that 81% now.

Just curious what your appetite is to pursue maybe national business opportunities or maybe run with a more robust treasury platform.

Just what’s the appetite on the asset side if you do get explosive growth on the HSA side?.

Yes, it’s a great question and we talk about it a lot. What it really boils down to is that we’ve got pretty good loan growth and having HSA bank in addition to regular deposit channels is very helpful to us.

In fact if you were to look at the growth in HSA bank over the last several years, it matches up almost exactly with the growth in the commercial loan book. So we’re able to fund all of this organically, which is why you can see our borrowings going down and that’s part of the strength that the HSA bank brings to the overall balance sheet.

So no, we’re not thinking about getting international lending businesses. We’ve got regional lending businesses as it is, our commercial real estate, asset based lending, equipment finance, we’re moving out the middle market as well into the regional space.

So I think we’re in a really good place for HSA to support what we plan as organic growth in the Webster book..

And the other thing is that if you have this, the explosive growth and it’s quite possible that the growth rate of 20 plus will continue for several years, our growth rate actually could ramp up once we have everything in place here, that we have a safety valve that as much as we value the deposits as a funding source if we wanted to, we could sell off the deposits as other competitors do.

So we’re in a wonderful position as a bank to have the funding source, but also to have the capability to off load some of those deposits if we chose. Not the plan, but it could be….

Okay. So broker deposits I guess would be – as of now the broker deposits would bet the preferred method rather than pursuing national business lines. .

I wouldn’t necessarily call them broker deposits, but they maybe deposits we wouldn’t hold on our balance sheet, that’s true and right now we’re not choosing one over the other. We’re just saying that we’re focused on organic growth in the regional businesses that we’re in today. We don’t have plans right now to open up the national platform.

We may expand the region that we serve through ABL and through equipment finance and CRE gradually. As you know we’re down to Philadelphia where we’ve been for several years on a CRE side moving middle market down there. CRE is now in Washington DC.

So there is a lot of things that are percolating that we think are going to absorb these excess deposits based on the plan that’s in place today. If we need to think more broadly than that, of course we will, but for now we don’t think we have to. .

Okay, great, and Glenn sorry just one last one. You mentioned you expect NIM relief in the back half of the year.

I’m just curious what kind of forward curve are you baking in?.

So if I look at the forward curve, today and we say 221 in the 10 years by the end of the year. 241 by say the end of 2016, and 253 by the end of end of 2017, we would bottom out late 2015. And actually we’d begin according to our model – based on our model we begin to approach 350 NIM by the end of ‘19. .

Got you. .

How is that for….

That’s great color, thank you. I guess 2025. .

Can we talk about ’18. .

Thanks guys. .

Okay, thank you..

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

Thanks. Good morning guys. .

Good morning Collyn..

Good morning Collyn. .

Just on the HSA side Glenn, and you know obviously in your slides I think you guys break out the revenue.

But what was the fee component of that this quarter tied to HSA?.

So if we, in the first quarter say we did $6.5 million in non-interest income you could pretty much evenly split it between fees and interchange. It’s all rolled up in deposit services, but the interchange revenue which is about half of that, and that’s just on the JPM business. It’s pretty, it’s pretty consistent across the whole business as well. .

Okay, so that $6.5 million is applicable to the HSA business for both. .

Applicable to the acquisition. I thought that....

To JP Morgan?.

Yes. .

No, I just meant all in, right, because the numbers you’ve given in your slide deck is all in on the PPR and I just wondered of that revenue number that’s on the slide deck how much is fees?.

Okay, I’m sorry. So the non-interest income piece that’s on that slide deck for the first quarter for HSA Bank, it’s a total of $15 million fees, fees and net. So revenue is split as well between net interest income and fees. .

Got it, okay, okay, that’s helpful, thank you. And then just one other question on HSA, you guys have mentioned the account openings that you saw this quarter and you know obviously an amazing ramp up from last year, do you have thoughts on where you think kind of some of the account openings can go next year. .

Well, I think the guideline is to say that we think we can grow this business at 20% plus over the next couple of years anyway, that would be the best way to look at it.

I’d rather not just pick a number, but to say that the growth rate should stay intact and having implemented an industry leading platform for technology, as well as added the various accounts and now we’ve got the National Healthcare Insurers as well and the large employers that if anything we could see the ramp up increasing.

We don’t want to predict it, but we are very bullish on this business. .

Collyn, let me just add to that. What we typically see is the number of accounts we opened in the first quarter on a full year basis is double. So meaning, if we open up a 125,000 accounts in the first quarter, by the end of the year we typically have 250,000.

So you can look at the 315,000 that way and say that on a full year basis, given the core business as well as the acquisition, we could be on target to open up the 600,000 accounts. .

Okay, that would be my next question, how much of the account growth in the year comes actually in the first quarter. Okay, that’s super helpful.

Okay and then just circling back, and I know obviously asset qualities have been really strong, but just the three credits that popped up this quarter, were any of those tied to energy?.

Collyn, this is Joe. No, they were not tied to energy. The classic CNI in our footprint, classic CRE, ICRE in our footprint and the CRE side just lost a tenant, a couple of tenants in a nice property and no energy. Energy only helps us on the equipment finance side with respect to those parties operating that heavy machinery.

So we don’t have any exposure on the energy side to speak off..

Okay, okay, all right that’s helpful. And then just one final question, Glenn so the FHLB advances you have left on the balance sheet now, I’m assuming that you obviously got rid of the overnight so that the duration of those is longer.

What is the average duration on those that are left?.

It’s about 1.7 years. .

Okay. Okay, that’s all I had thanks..

Okay, thank you. .

Thank you Collyn. .

Thank you. Our next question comes from the line of Bob Ramsey with FBR Capital Market. Please go ahead with your question. .

Hey Bob, we can’t hear you very well. .

Hi, this is Martinus Burke in for Bob Ramsey. .

Yes, how are you doing?.

Good, how are you?.

Good. .

You mentioned a few headwinds regarding...

You need to speak up a little bit. .

Sorry about that. You mentioned a few headwinds regarding the NIM [inaudible] pricing and also for competitive pricing markets.

Can you give some color about the [inaudible] pricing markets?.

I’m sorry, would you mind repeating the question. We had a hard time hearing that.

Hello?.

Gentlemen, that questioner has dropped their line. .

Okay. .

We have no further questions in our queue..

Yes, I think we may have dropped another one. Okay, so if there’s no additional questions. .

Terry and I can follow up any additional questions as well today. .

Right, so if anybody did not get to ask a question, I think there may have been one more in the queue. We’ll make sure we follow-up directly, okay. Okay, Adam thank you very much. Thank you all for being with us today. .

Thank you ladies and Gentlemen. This does conclude our teleconference for today. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day..