Below is transcript of the Webster Financial Corporation (NYSE:WBS)’s Q4 2014 Earnings Conference Call, held on Thursday, January 22, 2015, at 9:00 am EST. Elizabeth Park Capital Management, Polaris Capital Management and Decade Capital Management was among Webster Financial Corporation (NYSE:WBS) shareholders at the end of the third quarter.
Webster Financial Corporation (NYSE:WBS) is a bank holding company and financial holding company. Webster serves consumers, businesses, not-for-profit organizations and governmental entities with a distribution network of 169 banking centers and 309 automated teller machines (ATMs), as well as a range of telephone, Internet, and mobile banking services.
Company Representatives:
James C. Smith – Chairman & Chief Executive Officer Webster
Joseph J. Savage – President
Glenn I. MacInnes – Chief Financial Officer
Analysts:
Bob Ramsey – FBR Capital Markets
Dean Rochester – Dolce May
Casey Haire – Jefferies
Mark Fitzgibbon – Sandal O’Neill and Partners
Operator
Good morning and welcome to the Webster financial corporation’s 4th quarter 2014 results conference call. This conversation is being recorded; also this presentation includes forward looking statements with the provision of the private security litigation format of 1995. With respect to last year’s financial position, results of operations and business and financial performance. Webster’s based these forward looking statements of current and projections about future events. Actual results might differ materially from those projections in the forward looking statements. Additional, information concerning risks and certain key assumptions and other factors that could cause actual results to materially differ from the forward looking statements. This contains the Webster financials public filings with the security exchanging commission. Including our form PK. Containing our earnings release from the fourth quarter of 2014. I would now introduce your host James C. Smith, Chairman & CEO Webster. Please go ahead sir.
James C. Smith – Chairman & Chief Executive Officer Webster
Thank you Kevin. Good morning everyone. Welcome to Webster’s 4th quarter earnings call and webcast. CFO Glenn I. MacInnes and I will review business and financial performance after which President Joseph J. Savage, Glennn and I will take questions. Webster moved further along the path to high performance for the 4th quarter and the full year 2014. With our sustained growth and progress driven by a succession of solid strategic choices. We’ve invested our capital resources and energy in growth strategies that are adding values to customers and shareholders. Beginning I would like to record quarterly that income at 51 million dollars, increased 6% at over a year. Excluding over rule OTTI Q4 2013. While earning per share also increased 6 % on this basis. Full year net income reached a milestone in 200 million. Return on common average equity in the quarter was 8.8%. And return on average tangible common equity was 11.8%, holding steady due to higher capital levels, resulting from earnings growth. All my further comments will be based on core operating earnings. Looking at slides 3 & 4, year over year results were driven by solid Q4 loan group. Overall loan balances grew 3% linked quarter and over 9% year over year. With origination’s across the bank in year record levels.
Once again strength in commercial and commercial real estate loans of 5% linked quarters and 15% year over year counted for most of the growth. Quite notably the net interest margin was unchanged at 317. Which speaks to our rigorous pricing discipline. Predicated on relationship profitability and validated by independent outside sources. The strong loan growth and stable nim produced record quarterly net interest income. Night interest income grew 5% link quarter and 4% year over year with particular strength in loan fees. Apart from the 1.8 million year over year decline in mortgage banking revenue, growth was almost 8%. Poor pre-provision net revenue or PPNR grew nearly 3% linked quarter and over 4% year over year to another record. We now report a 21 consecutive quarters of year over year revenue growth dating back to 2009.
Expenses again grew at a lower rate than revenues. Both linked quarter and year over year. Even as we continually invest in our shows and strategies and in risk infrastructure. The net result once again is an efficiency ratio below 16%. Pushing PPNR up 8% linked quarter to another record. The quarter with low loss provision remained in 9.5 million. As loan growth was accompanied by continuing improvement in asset quality. Key quality metric credits are at levels not seen since 2007. Reflecting the improving economy in vigilant mismanagement. We’ve now built reserves in 4 straight quarters totaling about 7 million net add to reserves for the year 2014. Versus a prior year, net release fund reserves of 24 million.
Turning to slide 5, to put performance into full year context, state revenue growth and expense discipline that resulted in record PPNR of 327 million in 2014. Up over 8% from prior year. We’ve now delivered five consecutive years of positive out-bringing leverage. And our full year efficiency ratio has steadily improved over that time by 700 basis points. This performance distinguishes Webster from most of our peers. So, I’ve six demonstrations to balance sheet drivers behind Webster’s multi-year track record and PPNR growth and positive operating leverage. For instance, commercial loans have grown by more than half in 4 years. And now represent 56% of total loans compared to 45% at the end of 2010. Transaction accounts have grown 73% since that time and represent 48% of deposits versus 32% a year in 2010.
The duration of our assets is much shorter than it was prior to the last upgrade cycle 10 years ago. And the duration of our liabilities is longer. So, we’re well positioned for short rate up scenario. I now turn the line to business performance beginning on slide 7. Commercial banking continues to perform at a high level. Growing loans, revenue and economic profit. Are there any regional and national recognition form its middle market customers for excellence in client service. Commercial banking loans improve 5% linked quarter and 16 and a half year over year propelled by record quarterly originations of over 900 million. And record fundings of over 660 million.
Reflecting both strong lending activity and new customer acquisition across all business units at all geographies. Anticipated Q1 pay-offs combined with a smaller pipeline due to exceptionally strong loan conversion in Q4 may affect loan growth near term. The portfolio yields a client one basis performing quarter for the decline in the yield on new findings, reflects origination mix more than competitive pricing pressure. Q4 similar to Q2 sold a greater proportions of high quality lower investor CRE funding representing 31% of Q4 commercial originations. Compared to 10% in Q3. We continue to exhibit strong pricing discipline in the commercial bank. SNP which each quarter provides objective pricing information on our loan originations and portfolio compared to the market. Recently, applying that compared to our peers, Webster’s use more selective use of price as a key lever to win business. As resulted in margins remaining at a premium to the market.
The overall deposit decrease link quarter reflect seasonality in municipal deposits. Transaction deposits increase 12% linked quarter and now represent 64% of total commercial deposits up for 52% a year ago. This accounts for the year over year decline in deposit costs and evidence is strong momentum in establishing and growing primary bank relationships. On slide 8 for the full year 2014, the commercial banking segment posted positive operating leverage of over 8%. PPNR is growing rapidly and consistently since 2010.
Moving on community banking, slide 9 shows banking unit continues to grow both, higher originations 3 % link quarters and 20 % years over of loan growth. The portfolio is increased by 11 basis link quarter which equates to approximately 3 basis points in loan yield for the quarter. In summary the lower securities yield and unchanged loan yield resulted in a net reduction of 1 basis point in the earning asset yield. The reduction was more than offset by an increase in average earning assets resulting in 3.7 million increase in interest income. Average deposits increased 19 million. Demand deposits increased by 63 million or two percent offset by seasonal outflows in public deposits. The rate paid on deposits was 29 basis points for third straight quarter with a one basis point decline in cost of core deposits offsetting at 3 basis point increase in CDs. Average borrowings increased by 415 million while the average cost declined by 7 basis points.
The incremental funding was primarily short termed FHOB advances at a cost of around 22 basis points. The net result in Q4 was a increase of about 600,000 in interest expense on borrowings. We expect short term borrowings to fall by about 1 million on average in Q1 due to the HSA acquisition and seasonal growth in public deposits. In summary earning asset growth and a stable name resulted in a 3.2 million increase in net interest income. Slide 18 provides details details on core non-interest income which increased 2.5 million or 5 percent versus prior quarter. Loan fees increased 2.9 million linked quarter as a result of pre-payment revenue. Other income increased 1.4 million primarily from Bowly proceeds. This was off-set by lower mortgage banking revenue as a result of a nine percent linked quarter decrease in settlement buying along with modest declines in deposit fees. Slide 19 highlights our core non-interest expense which was up 2.7 million from both Q3 and prior year.
The linked quarter increased reflects approximately 2 million from a seasonal increase in medical expense, 1 million in expense as a result of an increase in our stock price and 1 million from higher incentive payments. Our expense discipline and continued focus on operating leverage are reflected on our efficiency ratio on the next slide. As you see on slide 20 solid revenue growth and continued expense control lead to an efficiency ratio below 59 percent. 33 basis points lower linked quarter and 65 basis points lower than prior year. The next 3 slides focus on the transformation of our interest rate risk profile to a more asset sensitive position in anticipation of rising short term rates. Slide 21 summarizes changes to our earning asset mix since 2004, the last time we saw short term rates increase. As you will see we are a much different bank today on both sides of the balance sheet from what we were ten years ago. As a result we feel we are much better positioned for a rising rate environment than ever before.
The numbers shaded in blue show floating rate earning assets have increased from 19 percent to 35 percent of total earning assets since 2004. Also note 85 percent of our commercial real estate portfolio is floating or periodic. Periodic securities CNI and commercial real estate loans typically have 90 day rate resets. The periodic ressie mortgages are primarily 5 and 7 year arms. Slide 22 shows even more dramatic changes on the liability side , transaction accounts have more than doubled and with the addition of the JPM business we’ll compromise 42 percent of liabilities versus 16 percent ten years ago. We’ve also taken actions to lengthen our time deposits and borrowings in fact after we paid down short term borrowings in Q1 the remaining portfolio will have duration of around 2 years. Turing to slide 23, 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 .
Here you see our interest sensitivity profile as we get closer to a tightening of monitory policy which we expect to recur later in the year. We have made this shift at minimum cost to our name and net interest income. In fact our name declined only 10 basis points over this time period despite a very challenging rate environment. The HSA acquisition is included in 2014 year end numbers and has added 2 percent for asset sensitivity. We expect to invest about 500 million of the deposits in securities and use remaining proceeds to pay down short term borrowings. In Q4 we have already purchased about half of that and expect to complete the investment program by April. Our asset sensitivity assumes deposits rates react immediately to changes in market rates. A lag in timing of deposit rate increases or a ball twister scenario would improve our results significantly. Turning now to Slide 24 which highlights our Asset Quality Metrix. Non-performing loans in the upper left declined to a 132 million and were .95 percent of total loans. Our lowest level since Q4 of 2007.
New non-accruals were up about 1.5 million to 25 million though noticeably below the prior year level of 40 million. Pass through loans in the upper right also show another quarterly decrease and now represent .29 percent of total loans. Commercial price defined loans in the bottom left increased 13 million and remain in with the recent trend while continue to represent a little over 3 percent of commercial loans. Our annualized net charge off rate of 20 basis points on 6.7 million of net charge offs in the quarter represents the fourth consecutive quarter at or below 25 basis points. The full year charge off rate was 23 basis points compared to 48 basis points in 2013. Assuming recent economic trends remain intact continue improvement in net keys quality matrix is expected as we head into 2015.
By 25 highlights are capital position, the ratios that you see here decline slightly from the levels at September 30 but remain well in excess of the fully phased in Bozzel 3 well capitalized level and our internal targets. Strong asset growth impacted capital ratios this quarter. Tangible common equity was impacted due to a year end pension liability valuation adjustment of 21 million which lowered the ratio by 10 basis points. The decline in tier one comma was driven by strong asset growth. The HSA acquisition will impact this ratio by about another 30 basis points in Q1 and bring us closer to our long term target of 10 percent. Our strong capital position and solid earnings continue to support asset growth, provide for future increases in a dividend of selected buy backs 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 first quarter. Overall, average interest earning assets will grow onto 3 % which includes security, purchases and connection with the HSA acquisition. We expect average loan growth to be up to approximately 2 % with growth expected to be led by CNI. We expect to see continued pressure on net interest margin and assuming the level of the ten year swap and it’s spread to mortgage rates remaining for this range, we would expect 2 to 4 basis point compression in Q1 driven by lower securities and commercial yields. That being said, we expect an increase of up to one million in net interest income over Q4, driven by loan and investment volume with some losses in compression.
Leading indicators of credit continue to signal further improvement in national equality. Given the outlook for loan growth in Q1, we expect to see a modest increase in the Q1 provision. Regarding non-interest income, We expect an increase of 10 to 11 % over Q4 core level. This is driven primarily by an increase in deposit service fees as a result of our HSA acquisition in addition to higher wealth and investment fees, with some offset from lower loan prepayment revenue. While our expense base will increase by approximately 5 million from the HSA acquisition we will continue to demonstrate a disciplined approach to investing in the business and expect to operate with core operating expenses at a targeted level to keep our efficiency ratio below 60%. Our expected effect of tax rate on a non-FTE basis should be around 33% due to increased earnings and lower tax exempt income. And we expect the average delude share count to be in a range of 90.7 million shares. So with that, I’ll turn things back over to Jim.
James C. Smith – Chairman & Chief Executive Officer Webster
Thank you Cam. Before we begin Q and A, I just want to take a moment to acknowledge the reason to hide recognition Of Glenn Terry Investors overall investor relations program is nominated by analysts who cover us on institutional investor magazines 2015 company rankings. Congratulations John. We’ll now take your comments and questions.
Operator:
Thank you let me just brief you on the Question and Answer session. If you want to ask a question, please press *1 on your telephone keypad. The confirmation tone will indicate your line in in the question queue. You may press *2 if you’d like to move your question from the queue. For participants using speaker equipment, it may be necessary to take up your handset before pressing the * keys. Once you ask a question today, please press *1 at the start. Our First question today comes from Bob Ramsey from FBR Capital Markets. Please pursue with your question.
Bob Ramsey – FBR Capital Markets
Hi this is Bob Ramsey from FBR Capital Markets . Could you highlight your expectations for the non-interest income, going forward I saw that it was showed some growth this year and how should I think about it going forward?
Glenn I. MacInnes – Chief Financial Officer
Will I think you have to first see the factor in thee acquisition. Which will gross non interest income. And guides we gave 10 to 11 percent quarter over quarter given that we have high expectations for growth in the HSA I think you’d see that increase as the year goes on and we’re fully on board the seasonal enrollment. And the I think you’d see increase in wealth and investment management as the year progresses so I would use that as the general guideline.
Bob Ramsey – FBR Capital Markets
Got it, thank you very much.
Operator:
Thank you. Next question from Dean Rochester from Dolce May, please proceed with your question.
Dean Rochester – Dolce May
Hey, good morning guys. Regarding your NIM guidance just curious what your allot was for securities premium and expense how your managing that and what that expense was for the fourth quarter?
Glenn I. MacInnes – Chief Financial Officer
Good Morning. The expense for the fourth quarter was 13 million and we’re thinking it’s generally flat right now, going into the first quarter.
Dean Rochester – Dolce May
Great, thanks. And then you mentioned the bol e proceeds in that other income line, I was just wondering is that line going to remain fairly stable from here or is that just a one time kind of pay off that will see the line decline?
Glenn I. MacInnes – Chief Financial Officer
Well I’ve seen some volume but I think that be necessary there. In the the fourth quarter it was definitely a onetime item, I wouldn’t build it in as reoccurring.
Dean Rochester – Dolce May
Is all that sum included in your ten to eleven percent?
Glenn I. MacInnes – Chief Financial Officer
Oh, yeah. It’s all inclusive. I don’t include Bol E, I don’t forecast out Bol E increases. So it’s the 10 to 11 I gave is core revenue, according to non-interest rate.
Dean Rochester – Dolce May
Got you. So switching to the HSA Bank deal it sounds like you already bought or pre-bought half of that 500 million dollar securities you were planning to purchase. Sorry if I’ve missed this but what are securities and investments rates on these purchases and where are re-investment rates today?
Glenn I. MacInnes – Chief Financial Officer
So what we bought was, say about 250 million at 287.
Dean Rochester – Dolce May
Great and where are you seeing rates today generally?
Glenn I. MacInnes – Chief Financial Officer
They’re within that range. OK, so when we buy the second piece I think we’d expect to be somewhere from 275 to 3, somewhere around there.
Dean Rochester – Dolce May
And what does that make the securities that you guys purchased?
Glenn I. MacInnes – Chief Financial Officer
It’s all primarily HNCCMBS, CLOs and some immunity, very small amount of immunities there.
Dean Rochester – Dolce May
Perfect, and then, your comments on extending durational liabilities, I was just wondering if you guys think you’re pretty much done with that or we should expect to see some growth in CDs or maybe you’ve turned down borrowing something like that.
Glenn I. MacInnes – Chief Financial Officer
No, we think we have more opportunity there. I think some of it will come from the pay down from the HSA acquisition but we have a product set that includes some additional CDs, retail CDs, we have a bump up CD that we just launched as a 3 year CD. We also have pour five year offering out there. We also have another 150 million in forward swaps that will help extend that as well.
Dean Rochester – Dolce May
Ok, thanks for that and I just want housekeeping items, just curious what the breakdown of that intangible bank would be, HSA bank deal, Goodwill versus CDI and then what your expectation is for the amortization expense.
Glenn I. MacInnes – Chief Financial Officer
We’re not final on that amount as yet so over the next couple of weeks we’ll be out with that.
Dean Rochester – Dolce May
Is that 5 million increased expense roughly corporate your wealth on that? Your general thoughts at this point.
Glenn I. MacInnes – Chief Financial Officer
Yeah it does.
Dean Rochester – Dolce May
Ok perfect, alright thanks Glenn.
Operator:
Alright our next question today is from Casey Haire, Jeffrey’s. Please proceed with your question.
Casey Haire – Jefferies
Hey good morning guys. This question on a loan pipeline sounds like a strong fourth quarter production to pull forward some of the loan growth from the first quarter. Just curious if you could quantify the size of the pipeline versus September 30th and just broadly speaking as we look forward to 2015 your view on whether or not you’ll be able to do better than the billion in 3 loan growth that you saw in 2014.
Joseph J. Savage – President
Hi Casey this is Joe, how are you?
Casey Haire – Jefferies
Doing well.
Joseph J. Savage – President
Great, good. Pipeline actually we’re delighted, pipeline ended the year at a little over200 million dollars and of course we’re happy to have the business in house, a fact that I went over with the team yesterday, we’re already starting to see a rebuild. I would mention that 200+ is not inconsistent with some prior periods or prior end of years in times pass. So we’re not particularly concerned about rebuilding. It does remain to be seen with respect to the growth that we will achieving whether or not we can reciprocate that this year but what is really, really good news and I should probably take a pause to say that John took over the relief at the commercial bank and he’s here in and if you’ll note the transaction or the change, the transition has been absolutely seamless. I would say that we would expect consistent performance and that really has everything to do with heading the RNs and we’ve grown our RNs and we’ve got about 70+ that are in the marketplace today and we all are doing very, very well so long answer to your short question, expect us to perform at about those levels could be more termed in the book but we’re in a good place.
Glenn I. MacInnes – Chief Financial Officer
Casey let me just add one thing to that if I look at the total pipeline, Joe’s highlighting all the progress on the commercial but I think we’re probably looking on a pipeline of 650 to 675 at the quarter and I think we ended the year somewhere around 800, little over 800. A lot of that came in and was pulled down as you see in our 3 percent loan growth so I think we’re rebuilding it across the business.
Casey Haire – Jefferies
Okay, great and the Cam just one for you, on fly 23 the asset sensitivity, I’m assuming that is not profitable enough for the HSA transaction, so what would that look like?
Glenn I. MacInnes – Chief Financial Officer
In the 8.5 if that’s what you meant, about 2 .
Casey Haire – Jefferies
Great.
Glenn I. MacInnes – Chief Financial Officer
2% at the HSA, so that is in there because we model that going forward so about 2% of the 8.5 is relative to HSA.
Casey Haire – Jefferies
Oh for the deal that was closed on January 13th?
Glenn I. MacInnes – Chief Financial Officer
That’s right. We will model that in the rest of it. If you look at it 2% is due to organic growth and portfolio positioning, another 1% from floating rate securities so there’s a few but the answer is about 2% of the 8 and a half with HSA.
Casey Haire – Jefferies
Understood, thank you.
Glenn I. MacInnes – Chief Financial Officer
You’re welcome.
Operator:
Thank you, our next question today is coming from Mark Fitzgibbon of Sandal O’Neill and Partners.
Mark Fitzgibbon – Sandal O’Neill and Partners
Hey guys good morning. You guys have done a great job driving the cost structure lower and you metrix look relatively favorable relative to your peers, I guess I’m wondering is there room longer term to drive costs lower or do you think the expense run rate is going to flatten out for a while here?
Glenn I. MacInnes – Chief Financial Officer
Good morning. So we appreciate your compliment Mark and we have had a lot of success at driving down expenses and I think we’ve been saying more and more on calls recently that we look to keep the efficiency ratio under 60 as we continue to invest in our strategies and our businesses that are generating economic profit so it’s less about squeezing more out of the ratio, and it’s more about level setting and investing in the business as we go forward with the idea that increasing revenues will absorb the expenses required to advance the strategies so less about significant positive operating leverage and more about keeping the efficiency ratio under 60 so we can continue to invest in our businesses. Let me, if I may, just add Mark as you know there’s pluses and minuses as we continue to rationalize our branch network in fact it’s part of the 2.7 million at one time as a couple hundred thousand that’s due to re-stacking of 5 or 6 offices into solidation so the community bank and the businesses continue rationalized distribution. That money is being reinvested in revenue generating type of businesses so that’s a process that’s continuing all while we keep the efficiency ratio at or below 60%.
Mark Fitzgibbon – Sandal O’Neill and Partners
OK, and then secondly, I wondered if you could share with us your thoughts on your capital ratios, obviously you’ve had good growth as well. Do you envision needing to raise capital in 2015?
Glenn I. MacInnes – Chief Financial Officer
No, we feel good about where we are, we’re in excess. I mean we have a slide, we’re weighing the back of the deck on page 50 that shows where we are versus capital but even by own internal targets we’re in excess of capital by a couple hundred million so we feel good about our structure right now.
Mark Fitzgibbon – Sandal O’Neill and Partners
OK, and then lastly my question is on sort of commercial lending. We’ve been hearing a lot about tight spreads in that space and I notice that your commercial loan yields actually rose a little bit this quarter. I wondered if you could tell us what was driving that.
Joseph J. Savage – President
Mark this is Joe, our yields in the commercial bank, I think it’s the Biz Bank may have gone up a little bit but overall in the commercial bank they were down a little bit. I think the story there would be that we’re delighted that we’re holding the line with respect to yields and spreads and Jim made the comment earlier, this is a lot of discipline in the organization regarding how we price, and getting ray rod and ANP has cooperated. I hate to have you think that things are going to get better on the yields and spreads. I think you might want to jump in.
Glenn I. MacInnes – Chief Financial Officer
Yeah, Mark you may have missed my comments but I highlighted there was about a million dollars in the quarter over quarter increase which is probably wiped three basis points in the loan yield for total book. Three basis points I would say on the loan yield and probably a point and a half on that. Some of that will always happen every quarter but I think that would just spike out quarter over quarter as well.
Glenn I. MacInnes – Chief Financial Officer
Yeah I did miss that. What was that, prepayment?
Glenn I. MacInnes – Chief Financial Officer
No in the quarter we had a million dollars income that came in on nonaccrual loans so a million dollars on the loan portfolio is worth about three basis points and then if you always nim you’re probably at a point and a half somewhere here or there.
Joseph J. Savage – President
Yeah and Mark this is Joe again, I think the story with respect to yields would be, we talked to all our people, they think pricing is stabilizing a little bit and that’s good news for us and you know we held on pretty well with respect to spread business and we think that’s a probably a good way to look at it. The challenge that we face of course is the stuff that’s rolling and is at these current markets rates and when we have a roll loss that puts some pressure on yields and spreads but we managed it pretty well as you noted.
Mark Fitzgibbon – Sandal O’Neill and Partners
Great, thank you.
Operator:
Our next question today is from Jerry. Please proceed with your question.
Timur Braziler
Hey good morning, this is actually Timur Braziler filling in for Jerry. My first question goes back to the assets sensitivity picture. The acquisition of the HSAs deposits that generally improved your overall assets sensitivity profile, might there be any opportunity on the asset side to try and up some yield today or will that just be held on to until rates finally start to move.
Glenn I. MacInnes – Chief Financial Officer
Well I think that, some of that will happen obviously when rates begin to move. We did invest, we will invest about half a million in the investment portfolio with the HSA. So we’ll take up some income from that. And we’ll be paying that in the loan fees during the first quarter and it’s probably that 800, 900 million a debt they’ll be borrowing so we’ll pick up some there as well.
Timur Braziler
Ok, but as far as the strategy, particularly for the investment security portfolio is, that’s not going to happen?
Glenn I. MacInnes – Chief Financial Officer
No, I don’t see us doing that.
Timur Braziler
And then looking at the length quarter increase within common benefits, it looks like it looks like it’s a little bit higher than that of a year ago quarter. I was just wondering, what portion of that increase has NE contributed to the new incentives plan rolled out during 2014?
Glenn I. MacInnes – Chief Financial Officer
Yeah, a bigger piece of it was related to the strong volume and strong finish we saw in the commercial size, so that piece and another piece I would highlight is we did see a pop in medical expense and typically we do see one in the fourth quarter but even one year over year basis probably we’re at 500 to 715,000 dollars so that was something we had anticipated two quarters ago. But that’s the way it came in. The community banks incentive program is quarterly so it’s running and it’s monthly payments so it’s not as much
The community banks incentive program is quarterly so it’s running and there’s monthly payment so you’re not gonna see as much of a pop there. Although we have seen more productivity and we have higher payoffs so it’s hitting on all cylinders. But the bigger driver was the strong finish on the commercial banks.
Right whats happening is the consumer incentive program is not net increasing pay-offs it’s allocating them better to value derived.
Timur Braziler:
And I guess a quick follow up on the incentive plan. Can we just touch on where that program is on a roll out perspective versus the original plan?
We’re fully rolled out on the community bank side. And have been for 3 quarters now. And we’re getting traction productivity so our productivity is up about 11%. And we’re so tightly lined up with profitability that we’re selling the right product so lot of good things happening there. I think we continue to look at where we’re rolling out next. Whether it’s our call centre or other lines of business. But I think we’ve been very satisfied where we are on the community bank side.
Okay great. Nice quarter.
Operator:
Our next question today is from Matthew Kelly from Strategy. Please proceed with the question
Matthew Kelly – Strategy
Hi guys. Just to clarify a couple of things on the income side. So there was a onetime, non-recurrent bow lee gain in the other interest income, what was that specifically?
Joseph J. Savage – President
Well that’s proceeds we re-state as part of the death benefit.
Matthew Kelly – Strategy
I’m saying what was the dollar mode of that?
Joseph J. Savage – President
It was about a million and 4.
Matthew Kelly – Strategy
What are your thoughts around the loan related fee income fixed by this quarter? do you think that gets back to the 5 million dollar run rate you had been running at last couple of quarters or we’re gonna see an increase there?
Joseph J. Savage – President
It’s more and better I guess would be the better way to describe it. I think it might not be at that level. I always like to think in terms of the year rather than specifically with respect to a quarter. Last year we did very very well on the slot side. We did very well on the prepays to very very well on amendments. And we’re always looking for that year over year performance. Will it be as good as 8 or as low as 5? It’s something that we look at all the time. There’s good momentum, swap side, on the amendments fees. It’s a little stickier and slower with respect to syndication. So there’s so many elements push for better associated with it. That it’s really hard to predict that on a quarter to quarter basis. Cash management stepping up very very nicely for us so we’re happy with that. We saw 7% year on year lift not with-standing loosing a large client. So these are good things that are heading our way.
Matthew Kelly – Strategy
Follow up question for Joe. On slide 36 looking at the 380 million of commercial real estate origination. What was the yield on your per-origination on the fourth quarter?
Joseph J. Savage – President
I’ll have to look for those originations. While we’re trying to find the information we’re doing a lot of multi-family in that so we came in at.. 266 was the yield on that business. Remember that’s heavy swap and it’s all flow essentially. So we’re pretty happy with that.
Matthew Kelly – Strategy
Okay. Question for Glennn, you talked about earlier about premium amortization expense will be flat in the first quarter. Obviously long rates are down quite a bit. What’s driving that confidence level when the game’s flat?
Glenn I. MacInnes – Chief Financial Officer
Part of it is the spread between a ten year and thirty year and the lag. So there’s sorta two factors. So we’ve seen the spread widen and we look at this and we look at the 10 year versus the 30 year and that’s sort of used as a benchmark for CPRs. And how we think they’ll either decrease or accelerate. So that’s a big factor I think. The spread is now at 150, 160. You go back a year and a half ago it was 125, 140 or somewhere around there so it’s actually widened so you see the decrease in the 10 year but you don’t necessarily see atleast as far as an indicator the 30 year coming down as much. It’s not moving a lot so it’s widening. That’s part of it and then there’ the lag. So we might see more of it. I think we could see 13 but you could see it accelerate as we get into the second and third quarter.
Matthew Kelly – Strategy
Gotcha. Okay. Last question so the FDIC came as I was in guidance on what constitutes broker deposits that guidance’s off two or three weeks ago. Do you think there’ll be any impact on the HSA deposit business ? Your business or your competitor’s business on how HSA deposits are classified. I know that you guys have a direct operation with some of your competitors, operate though a trustee type of model. Can you talk about that and what you’ve learned since that memo came up from the FDIC ?
Glenn I. MacInnes – Chief Financial Officer
Sure that was a very interesting memo. Good guidance I know that maybe a couple of calls too with regard to certain portfolios at banks. I guess what we wanna focus on is our deposits are retail deposits, they’re not broker deposits. I think I’ll let the other players speak for themselves. But I think it could have an impact on the competitive landscape. We’ve always said that one of the most important aspects of HSA to us is the value of the deposits being able to fund our loans and be considered as retail transactional deposits so we’re a 100% confident that that’s the case. I think best part of the value of being a bank and being able to have a full vertical here in terms of all the way through enrollment and service and holding the deposits gives our model a competitive advantage over others.
Matthew Kelly – Strategy
Okay. Got it. Great. Thank you.
Operator:
Thank you. You’ve reached the end of our Q & A session. Let’s turn the call over to management for any further enclosing comments.
Glenn I. MacInnes – Chief Financial Officer
Thank you very much for being with us today. Thank you Kevin. Good day.
Operator:
Thank you. That concludes today’s tele-conference. You may disconnect the line to this conference. Have a wonderful day. We thank you for your participation today.
