Good morning and welcome to Webster Financial Corporation’s fourth quarter 2019 earnings call. I will now introduce Webster’s Director of Investor Relations, Terry Mangan. Please go ahead, sir.

Thank you Michelle. Welcome to Webster. 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 the 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 Webster Financial’s public filings with the Securities and Exchange Commission, including our Form 8-K containing our earnings release for the fourth quarter of 2019. I’ll now introduce Webster’s President and CEO, John Ciulla.

Thanks Terry. Good morning everyone. Thank you for joining Webster’s fourth quarter 2019 earnings call. CFO Glenn MacInnes and I will review business and financial performance for the quarter. HSA Bank President, Chad Wilkins is here with us in Waterbury and will be available during Q&A. I’ll begin my comments on Slide 2. Webster’s fourth quarter results demonstrate our ongoing commitment to strong execution on our strategic priorities. Earnings per share were $0.96 in Q4. This compares to $1.01 in both Q3 and Q4 of 2018, when each period is adjusted for one-time items. The decline resulted from a reduced level of net interest income relative to each prior period primarily driven by the full impact of three Fed interest cut rates during the second half of 2019, a lower than expected LIBOR rate in Q4, and a mix shift in the loan portfolio to lower yielding, high quality CRE loans. Assuming no further Fed action in 2020, our net interest income is expected to grow beginning in Q1 and continuing throughout the year. We anticipate full-year 2020 net interest income will meet or exceed the $955 million generated in 2019 based upon our current asset growth forecast. All other metrics in the quarter were favorable. Loan growth was strong as commercial loans grew 10% from a year ago or by more than $1.1 billion. Total footings at HSA Bank increased 18% from a year ago, for growth of almost $1.3 billion during the year. Disciplined expense control resulted in flat linked quarter non-interest expense and credit metrics remained remarkably strong, contributing to our lowest quarterly provision in more than seven years. In Q4, non-performing loans, net charge-offs and classified assets were all lower as a percentage of total loans when compared to both the prior quarter and the prior…

Thanks John. I’ll begin on our average balance sheet on Slide 6. Average loans grew $335 million or 1.7% linked quarter. Growth continues to be led by the commercial business. In the quarter, we had significant growth in commercial real estate, which increased $355 million versus the third quarter and more than $800 million from a year ago. Commercial loans now represent 64% of total loans compared to 63% in prior year. Consumer loan performance was led by growth in residential mortgages with some offset from continued reduction in home equity. Versus prior year, our $1.4 billion of total loan growth was fully funded by deposit growth. Combined low cost transactional and HSA deposits have increased more than $1 billion from last year and now represent 58% of total deposits. Their combined cost was 13 basis points in Q4 and 12 basis points in prior year. The Q1 seasonal inflow of HSA and public funds deposits will fund loan growth and reduce short term borrowings. Slide 7 summarizes our Q4 income statement and drivers of quarterly earnings. Net interest income was $9 million lower than prior quarter. This was primarily due to a 38 basis point reduction in average one-month LIBOR contributing to a reduction in interest income of $18 million. This was partially offset by lower deposit costs of $3 million, reflecting a reduction of five basis points, and we also realized a benefit of $6 million from loan and security balance growth. Likewise, net interest margin was 22 basis points lower than Q3. The drop in loan yields reduced NIM by 23 basis points, which was primarily driven by lower LIBOR rates. Growth in loan and securities also compressed NIM another six basis points. This was partially offset by seven basis points due to reduction in rate on…

Thanks Glenn. Webster enters this new decade and our 85th year from a position of strength based on our efforts and accomplishments in the decade just ended. We will continue to focus on executing against our strategic priorities, always with a long term view of maximizing economic profits and continuing to build franchise value. We are fortunate to be guided in our strategic direction by an accomplished board of directors. I’m pleased to cite four of Webster’s board members - Liz Flynn, Carol Hayles, Karen Osar, and Lauren States for their recent recognition among Women Inc’s 2019 Most Influential Corporate Board Directors. As always, I’d like to acknowledge our 3,400 values-based bankers for their outstanding contributions and their unwavering commitment to our customers, our communities, and to each other. Finally before we open it up for questions, I’d like to take a minute to comment on the announcement we made this morning that, consistent with our well-planned, multi-year transition, Jim Smith has announced that he will be retiring from Webster’s board of directors effective at our April annual shareholders meeting, at which time I will become Chairman of the Board. On behalf of our board of directors and all Webster bankers, I’d like to again acknowledge and thank Jim for his incredible contributions to Webster and the communities we serve over his distinguished 44-year career. I’d also like to thank him personally for his guidance, support and friendship during my time at Webster and particularly during the period of transition. He is truly a remarkable person. With that, Michelle, I’m happy to open it up for questions.

[Operator instructions] Our first question comes from the line of Steven Alexopoulos with JP Morgan. Please proceed with your question.

Hey, good morning everybody.

Morning Steve.

I’d like to start first looking at the guidance on NIM. The up one to three basis points in 1Q20 is a very favorable trend. Glenn, what are you seeing that leads you to think NIM will expand in the first quarter?

Part of that, Steve, is the inflow of both HSA and public funds, which will allow us to pay down some FHLB borrowings, so that will help NIM. We also have CD maturities and promotional savings repricing, which will also be favorable to both net interest income and NIM.

Okay. Once we get beyond the first quarter, Glenn, how are you thinking about NIM for the rest of 2020?

It’s sort of flattish for the next couple quarters.

Okay, got you. Thank you. For Chad, on HSA Bank, can you talk about how the enrollment season went for HSA and how you’re feeling about 1Q20 account and deposit growth, based on what you saw?

Steve, it’s John. I’ll let Chad obviously provide some color. Obviously we say the same thing at this time of the year, which is it’s too early to make a firm call, but the guidance we’ll provide is to date in January, we’re tracking really almost on top of the ranges we had last year, both in inflow of deposits and new account openings. If you think of those numbers, that’s about $400 million in new deposits and in the ballpark of 250,000 accounts, so we’re tracking kind of where we were last year, and obviously we’ll be able to give you much a better indication at the next earnings call when the enrollment period wraps.

Yes, the only thing I’d add, John, is that we continue to see the strongest performance in the channels where we have the most influence on growth activities, and we’re going to have the [indiscernible] study coming out between now and the end of the first quarter and we’ll have full results to report on when we get there as well.

One comment I’ll make, Steve, maybe to anticipate other questions on the call too, there was no impact in Q4 of any of the account movements that we talked about in Q3, so we didn’t receive any compensation from some of those accounts leaving, and none of those accounts left during the quarter, so fourth quarter was not impacted by the information we guided [indiscernible] to in Q3.

Okay, thank you. Final question, if we look at full year loan and deposit growth for 2019, they were each running above the two-year CAGR. Do you think that you can continue pacing above that historical CAGR in 2020? Thanks.

You may have noticed I said in the beginning of my remarks, which was an important point I wanted to make, that I felt we would meet or exceed our total net interest income for the year based on our current asset growth forecasts, and I think that’s a great question. Right now, our loan growth forecast is slightly below what we did between ’18 and ’19, so I think we’re relatively confident we can keep running at that relative pace, maybe slightly below on loans, and when you factor in growth in the securities portfolio, we don’t think that our asset growth metrics or aspirations are too aggressive.

Okay, thanks. Before I sign off, John, congratulations on the chairman role and best of luck to Jim Smith in retirement. Thanks for taking my questions.

Thank you very much.

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

Thanks, good morning everyone. My first question is around the growth that you saw this quarter and how you guys are seeing that trend in 2020, because obviously as you guys indicated, the mix this quarter of higher CRE versus C&I impacted the NIM. Number one, where did the extraordinary growth from CRE come from and then maybe just some commentary as to how you see that playing out in 2020, and then also maybe just some of the dynamics within C&I as to why that growth didn’t necessarily materialize, perhaps, to what you were thinking.

Sure, happy to do that, Collyn, and thanks for the question. It’s an interesting underlying story. I always talk about the fact that we’ve got this diverse source of loan growth, both geographically, in product set and in business line. I wish I could say that we could just simply pull levers and have growth in certain areas, so I think this quarter just happened to be a quarter of light payoffs in commercial real estate. I’ll provide some detail on that because I think it’s also important to know that we’re not being too aggressive in any one area. We had extraordinary growth in our investor commercial CRE book, but that was on about $375 million in new fundings. That compares to $360 million in new fundings fourth quarter of last year, so really our origination levels were not materially higher. The difference in the story in CRE was we had $132 million in payoffs this Q4 as opposed to $290 million in payoffs the year before. There doesn’t seem to be a trend line or any dynamics that are driving that, but I think it’s an important point to make that we didn’t have outsized CRE originations, we had significantly lower CRE payoffs. The story is similar in C&I. In sponsored and specialty business, for instance, which you know has been a big driver of high yielding loan growth for us, we had originations of something like $240 million in Q4 as opposed to around $200 million last Q4, but we had $296 million, almost $300 million in payoffs in that sponsored and specialty business, resulting in an actual decline in the second half of the year. So it’s really a payoff story more than outsized originations, and as you heard me talk about, the net result is a slightly lower yield on the loans and a slight improvement in weighted average risk rating and credit quality in the portfolio. I think you’ll see more of that going forward. You’ll see a different mix in different quarters, just depending on with our, I think, disciplined credit choices where we have opportunities across our footprint.

Okay. Do you have a sense of, maybe within the guidance that you’re offering, what you think pay downs will do this year? Do you think they’ll slow?

I think if you look at our expectations again, and it’s hard to predict in the various categories, I think we anticipate similar origination volumes and similar pay down metrics. Obviously that could change quarter to quarter, but if we look back over history, if you look at it on kind of a trailing four-quarter basis, you get a pretty good sense. The short answer to your question is we are not anticipating some sort of macro change that would either lower prepays or drive them higher.

Okay, that’s helpful. Thank you. Glenn, the comment on the timing on pushing through some of these lower deposit costs in the first quarter, I’m just curious where your head is and how you’re pricing some of your CD rates now and just how aggressive you think you could be on some of those, assuming--I know all your guidance assumes no more Fed cuts, so just getting a sense of where you think ultimately some of those deposit costs can go.

If I look at total deposit costs for Q4, I think it was somewhere around 54 basis points. We think on average in the first quarter, that could drop down to 47 basis points, and a lot of that is, like I indicated, shortening the term of CDs, also our asset sensitivity, but it’s also pulling back on some of the promotional rates that we have out there.

Okay.

Just for context, our seven-month CD is at 160 and we have a savings promotion that’s out there at 180 right now.

Okay, thank you for that. Chad, a question for you. It’s perhaps an obvious question that maybe you don’t necessarily want to hear, but when we talk about HSA, and John, you had indicated that you’re tracking similar to where you guys tracked in 2019, I guess the simple question is why is growth not higher? Given all that you’ve done, all the investments you’ve made within the sales force and infrastructure, just curious as to why growth isn’t coming on higher.

Collyn, in 2019 we actually saw higher growth rates in our new accounts with new employers, so a little bit lower with our existing employers, and as you know, a large portion of our new accounts come from existing employers, so really it was an enrollment base. There’s a lot of factors that impact enrollments in health plans and consequently in HSA. I do believe we have the opportunity to influence that to a greater extent as we go into 2020s. We’ve conducted a lot of pilots and programs in 2019 that were targeted at providing decision support tools and programs to our employers which showed really positive results in terms of both penetration and deposit rates with customers, so we’re looking to accelerate that as we go into 2020. But again, a lot depends on the macro environment and how that influences enrollments as well.

All right, thank you. I will leave it there. Thanks guys.

Thanks Collyn.

Thank you. Our next question comes from the line of Mark Fitzgibbon with Piper Sandler. Please proceed with your question.

Hey guys, good morning, and let me echo what’s already been said, congratulating both John and Jim in their new roles.

Thanks, it’s good to hear from you.

First question, I’m curious, John, can you give us a little update on how things are going in Boston, and also help us maybe size your business these days in Philadelphia and D.C. markets?

Sure. Boston continues to track. We’ve made no secret that it’s probably the most competitive market we have with respect to cost of customer acquisition and deposit pricing, and that really hasn’t abated much. You’ve all read that JP Morgan is there as well, which continues to make the market competitive. We continue to make progress. I think we’re on track to hit our goal in terms of asset growth in loans and deposits, and again it’s been probably more costly than the rest of our footprint. We are past breakeven for a year now. I think we had about $700,000 in just retail bank contribution there, which we try and track to be honest with ourselves and honest with you. Obviously our profitability in the market, overall market is pretty strong, because that’s really the epicenter of our sponsor and specialty business, a lot of our sponsor relationships. We’ve got a great commercial real estate book there, a couple of billion dollars in loans. We’re happy with where the market is. We continue to need to reduce square footage - you know, our banking centers there are big and they don’t need to be that big, so we’re making some progress on that front. But all in all, we think it’s a critical market, it’s a fast growing market, there are more cranes in the sky in that city than you could imagine, so we do think that our physical presence there and our retail presence there helps our wealth management and all of our commercial banking. I would say good, not over-performing and not under-performing, kind of right on our expectations. With respect to the other markets, Mark, obviously we don’t have any retail footprint in those other markets, in Philadelphia or in D.C. We’ve got good traction. We’ve been in the Philadelphia market from a commercial real estate perspective for over 10 years now. We’ve had a lot of growth in that market. Our total loans in Philadelphia in the south Jersey, Philadelphia, Pennsylvania area approached $2 billion, excellent asset quality, full relationships with middle market customers. The vast majority of those outstandings are commercial real estate and we had ABL there. So again, you’ve heard our philosophy - we don’t look at it as a loan production office, we look at it as a core market. We expect cash management and other relationships with our borrowers there, and we’re okay with growing at a modest pace because we don’t want to be the lender of last resort. I’d say D.C., which is not as critical to us right now, we’ve got asset-based lending and commercial real estate, but we’re talking a couple of hundred million dollars in exposure there and it hasn’t been really a significant growth market for us recently.

Okay. Secondly John, the market seems to be enamored of MOEs these days. I guess I’m curious, are there banks out there that you could see a combination with would make sense to you?

Do you want me to give you the specific names, Mark?

Sure!

No, look - obviously there’s a lot more chatter, and there are some compelling reasons, I think, why banks are choosing to gain scale. We think gaining scale over time is important. We really haven’t shifted our focus or made a significant pivot in that regard. Obviously as I said, there’s a lot more discussions, CEOs are talking with each other. There are compelling reasons, both from a technology investment perspective, higher capital scale, access to data, all the reasons why it’s better. You know, if we were three times the size, we’d probably spend the same amount on AML BSA as we do now. I understand the compelling rationale. We would never say never, but we are very much focused on continuing to grow and exploit our differentiated capabilities. I’ll leave it at that, to say we’re not focused on M&A as a primary strategic goal right now, but we would never say never.

Thank you.

Thank you. Our next question comes from the line of David Chiaverini with Wedbush Securities. Please proceed with your question.

Hi, thanks. A couple questions for you. First on expenses, I was just curious, is there anything on the expense front you could do to offset some of the recent NIM pressure as we look to 2020? The reason I ask, it looks like based on the efficiency guidance of 58%, it looks like some of the operating leverage could reverse a little bit.

David, great question. I’ll let Glenn provide some fuller context. I think it’s the appropriate question to ask. I think we’ve demonstrated to the market over a sustained period of time that we have good expense discipline and expense control. We have not been aspirational about really aggressively reducing expenses because we’ve talked about how important it is to continue to invest in our organic growth and our differentiated businesses, particularly in commercial and HSA, and we’ve done that. I think it will set us well over the long term. The short answer is yes, we have opportunities and we’re working on many of them right now: business process automation in the middle and back office, we’ve got a lot of things rolling there. We have fewer people in operations this year than we did last year, and we’ll continue that trend, so we think we can really start to bend the curve with the use of technology automation, middle office efficiency. So yes, we do have tools available to us and not all of that is layered in our forward forecast. We want to make sure that we’re not hurting our organic growth and our long term franchise build, but we do have levers to pull with respect to expense control.

Yes, and I would just say you have to keep in mind the first quarter has a couple things. You have the higher FICO costs which somewhat offset some of the medical costs, so there’s some ins and outs there, Dave. But to John’s point, I think we have opportunity both in the middle and back office, as well as optimizing as we continue to do with community bank.

Great, thanks for that. Shifting to the NII and some of the NIM commentary, the leverage strategy that you guys kind of spoke about last quarter, where you had purchased, I think it was about $640 million of securities funded by FHLB borrowings, do you plan to unwind that with the deposit inflows in the first quarter, or conversely, do you plan to add to that leverage strategy?

I can tell you we’re likely not unwinding it, and if you look at our earning asset growth, to John’s earlier comments, you have both loan growth and proportionate security growth.

Great, then the last one--go ahead?

No, I’m sorry, David. Go ahead.

Continuing with the discussion on NIM, your interest rate sensitivity, you mentioned about how it was reduced this quarter. How low would you like to take that interest rate sensitivity?

We’d like to move closer to neutral. I think the only caveat to that is we want to preserve some of the upside as well. I think if you look at our slide deck back on Page 20, you can see the progress we’ve made, particularly in a short end down scenario, on the falling rate scenario, you can see the progress. Part of adding investment securities, part of the balance sheet positioning we did in the second and third quarter certainly helped that. Also, the fact that we have absorbed three Fed cuts as well, and if you look out, at least as far as we’re looking at, more stability in both Fed funds, one-month LIBOR and three-month LIBOR, which will sort of keep that constant, and then actions we take on top of that, whether it’s adding more fixed rate assets in the form of residential or equipment finance, investment securities portfolio, or shortening as we have our borrowings and some of the CD promotions and things like that will have a positive impact going forward.

Thanks very much.

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

Hi, good morning everybody. Just also wanted to give my congratulations to you, John, and Jim for a great career. As a Connecticut resident, I certainly hope Jim stays fully engaged in the opportunities to help improve the financial situation and fiscal situation here in the state.

Thanks for that comment, and I think I can--even though Jim is not here, I can tell you, rest assured, that he will continue to be involved in policy around the state.

That’s great to hear. Maybe just circling back on the HSA, Chad or John, have you noticed any of the rhetoric around the political environment right now in Medicare-for-all impacting any of the employers’ decisions to adopt a high deductible healthcare plan, or is that really not flowing into their internal HR discussions at this point?

It’s interesting. Some of what I’ll tell you is speculation and others obviously what we know. I think on a macro level, obviously the chances of full Medicare-for-all, single payer seem to have gone down with changes in the various polls, and that rhetoric seems to have gone away a little bit. As we’ve said, we’ve always been confident that, given our current healthcare system, that that wasn’t a real risk in the short term. There has been more discussion in various state capitals around high deductible health plans and so on and so forth. We actually don’t think that that is the dialog that could be driving maybe lower adoptability. As we’ve said all along, we think that there is a [indiscernible] compression across the industry based on a 3.5% or 3.4% unemployment rate, where when companies are having to be more and more aggressive in competing for talent, that they are optically trying to provide richer, more fuller benefits, and that may have slowed the whole industry down over the last couple years, as you’ve seen. We are not seeing, and I’ll let Chad put a finer point on it, the dialog around the virtuous nature or lack thereof of high deductible health plans actually impacting employers’ decisions not to offer them or encourage their employers to adopt them.

Yes, I totally agree, John. That was spot on.

Okay, great. Thanks. Then capital management, I hear what you said around M&A and focusing organically, but when you look at capital, you continue to build it here. It looks like that’s going to continue as we go forward. Outside of M&A, should we expect to see Webster be more active in trying to, either through the dividend or through a buyback again, return more capital?

Good question. I’ll be really transparent here. Obviously our primary desire is to use capital to grow the balance sheet to support above-market loan growth, to look and try and make some key investments or acquisitions in the HSA space or portfolios or people in commercial banking as we continue to expand those. We’ve obviously been working diligently in those areas and looking at opportunities. Absent that, you saw in the third quarter we had an increase in our authorization to $200 million for stock repurchase, so if those internal strategic things don’t work, we’ll then look at other capital actions, either another increase in the dividend - you know, we had a significant increase in the dividend, and if none of those are available to us, I think what you’ll see is us being more likely to buy back shares over the next couple quarters.

That’s great color, thanks. Then just finally for Glenn, what’s the percentage of the loan book now tied to one-month LIBOR and prime? Has that changed?

We have about $8.3 billion tied to one-month LIBOR and another, say, $2.5 billion tied to prime.

Great, thank you.

On a total book of $20 billion.

Great, thanks.

Thank you. Our next question comes from the line of Laurie Hunsicker with Compass Point. Please proceed with your question.

Yes, hi, thanks. Good morning, and John and Jim, I just want to also echo what others have said - congratulations. Going back to HSAs, can you help us think about--we saw a drop, I guess if you will, in HSAs--rather an increase in HSA efficiency ratio, so it’d been previously running 50%, 51% and it was 55%. Can you help us think about how that is going to look going forward?

Sure. I think a lot will depend on the enrollment period, as Chad highlighted, and the balances that we get. I think one of the factors that is driving that, Laurie, is the reduction in the credit rate. If you just look from year-over-year, fourth quarter versus prior year’s fourth quarter, the credit rate that we apply to the deposits is down 15 basis points, so on a base of $6.5 billion, that has an impact. That’s one of the things you see driving that. The other side of it is on the expense side, as Chad pointed out, we continue to invest in the front end, customer experience, things like that, all for the longer view of capturing more market share.

Okay, that’s helpful. Do you all have any goals with respect to what you would like HSA PPNR to be relative to Webster’s PPNR as you roll forward? And again, that had been tracking closer to 25%, it came in at 23% this quarter. How should we be thinking about that next year? Thanks.

It’s a very interesting question, Laurie. We’ve always managed it as, and you’ve heard Jim say this before me so this is about a five-year consistent message, is that we want to maximize the value of HSA given it’s growth potential and it’s unique characteristics. We don’t look at it as what is the optimal level of contribution. Our real focus is at some point, if it got to be too big a concentration risk or other elements, we might think about other strategic alternatives. But right now in this--you know, if you look at it from round numbers, the commercial bank is contributing about 50% of PPNR. For the full year 2019, Chad’s group is about 25% to 30%, and then the balance in community banking. We think that’s a really good mix and, based on our forecast going forward, Chad will be a bigger contributor relative to community banking, but it certainly won’t get to a place where we think we need to make adjustments in our strategy.

Okay, that’s great. Can you just update us on the relationships you flagged last quarter? You had the likely departure of two custodial HSA relationships from the third party administrator wholesale portfolio. I think one was being acquired and one was becoming a non-bank custodian. Can you just help us think about where we are in seeing that reflected in the balances?

Yes, and I can answer that question, I think really easily and clearly. The guidance doesn’t change, meaning over the next six quarters that whole activity will result in financial neutrality, given the fact that we get exit fees and some other income as those accounts leave. In 4Q19, no accounts moved and we received none of that compensation, so there was no noise in 4Q numbers either in balances or in the P&L related to those, and we believe that will start impacting us in the first quarter when we report to you on our full enrollment period. As we said last quarter, we will provide in each quarter growth dynamics of HSA with and without those two custodial accounts, and we’ll let you know what’s moved out and what portion of income is also related to exit fees and others. We’ll be very careful and very transparent, but in Q4 there was no impact at all.

Okay. Would you just remind us what those two relationships constitute, just in terms of HSA deposits as well as investments?

Yes, we reported that in the last quarter. I’m looking up the notes.

I think we had an estimate last quarter that put it around--I backed into $700 million, but I just didn’t have anything specific and I didn’t know if you had anything that was more tightened down.

We’re just grabbing the number for you.

Okay, great. One other question while you’re looking at that, Glenn--oh, go ahead?

Three-ninety in accounts, and 550--

Right, 390,000 accounts, roughly 550 in balances related to two accounts.

And that’s 550 in deposits or in total footings?

Deposits.

In deposits - okay, perfect. Super helpful. Glenn, two more quick questions. Number one, you’re lending club balance, and then number two, if you could just help us think about tax rate. I think you said in your comments 22% to 23%, which is a slight change, I think, from where we were previously at 21%, and I just wanted to understand that change. Thanks.

I’m sorry, your first question, I didn’t get.

Oh, I was just looking for the balance on the lending club loans.

It’s $177 million, flat to last quarter. No issues, no changes in asset quality.

The only thing I would say about our full year forecast on taxes, it’s primarily driven by lower tax credits and other discrete benefits that we received in 2019.

Okay, great. Thanks. Thanks very much.

Thank you Laurie.

Thank you. Our next question comes from the line of Matthew Breese with Stephens Inc. Please proceed with your question.

Good morning everybody.

Hey Matt, good morning.

Just curious, I was hoping you could talk a little bit about new commercial real estate and C&I loan yields and spreads, and how that compares to what’s on the average balance sheet today.

Sure, I’ll give you a little bit of data. I’ll give you a perspective on originated 4Q CRE. The average spread was 152, so if you think about the LIBOR plus 152 in our CRE as opposed to LIBOR plus mid-3s in sponsored specialty, that kind of gives you the delta in spreads and what mix can do ultimately when we have a mix change. What else can I answer for you?

How have spreads evolved over the past year?

I would say they’re about--in CRE in this quarter, they’re about 25 to 30 basis points lower than they were a year ago, and I think as I look at all of the transactions that came in, I think it’s just a result of asset quality, less a result of competitive nature. We had a lot of high quality, low LTV, high debt service coverage deals come in, in 4Q, so again I don’t think that tells me anything about the competitive landscape as much as it does the quality of the transactions we brought in the fourth quarter.

Understood. My last question is around the growth outlook - still very strong. If you go to the middle or high end, you’re still looking at mid to high single digit loan growth, and versus some of your peers, including in-market peers, it’s strikingly higher. What do you attribute that to?

We looked internally at our momentum. We have the highest 12/31 pipeline in commercial bank that we’ve had over the last 10 years, and obviously we had a really good fourth quarter with respect to growth, so I think we go into the year with some good momentum on our average loan balances, which is what drives net interest income and a pretty strong pipeline. Some of the areas that generally are good growth drivers for us had slower second halves of the year, and just where we are, we think that given, as I said Collyn earlier in the call, given our wide portfolio of geographies and different business lines and expertise in certain industry segments, we think that that mid single digits, if you will, on a total portfolio basis is a good number. Our commercial loan growth, including investor CRE, is probably going to be slightly higher than that with our consumer lending categories being slightly lower.

Okay, and as we think about commercial real estate growth this quarter versus perhaps the past two or three, was there a change in where you lent geography-wise, and if so, where were you more focused this quarter than in prior periods?

It’s a great question, Matt. Our chief risk officer is here in the room, came in before and had given me the data that there’s actually really almost no geographic disparity from prior quarters, so it really was a question, as I mentioned earlier, of significantly fewer pay downs. Our originations in CRE were about the same dollar size in fundings as they were a year ago 4Q, it was just payments were down significantly. I took a look at the data with respect to property type, geography, weighted average loan to value, and debt service coverage, and none of those metrics really changed, so I would say it’s blocking and tackling, business as usual, no change in strategy, not different dynamics, just significantly fewer pay downs.

Understood, okay. Just one more, if I could sneak it in. You mentioned potential portfolio opportunities in your capital management commentary, and I’d never really considered that for you before, never thought it was on the radar. Can you just be a little bit more specific as to what you meant? I’m assuming loan portfolios, but could you clarify; and if so, what types of asset classes and geographies are you looking for? If you’ve looked at opportunities in the past, could you just give us a sense for how many?

Sure. We’ve been consistent. We have talked about it, Matt, and it is referring to commercial loan portfolios in particular. I would say we look for areas where we have expertise. We’ve looked at equipment finance portfolios, some secured loan portfolios to kind of offset some of our sponsored and specialty enterprise reliant exposure. We look for good yielding, economically profitable portfolio acquisitions that will either enhance an existing specialty or an existing line of business, or provide us with an inroad into something that we find attractive at the current period of time. The truth of the matter is we have not in the last, at least eight quarters, besides the residential mortgage portfolio acquisition that we did up in Boston for strategic purposes, we have not successfully acquired a commercial loan portfolio over the course of the last eight quarters.

Understood. Okay, that’s all I had. I appreciate taking my questions. Thank you.

Anytime. Thank you for the questions.

Thank you. There are no further questions at this time. I’d like to turn the call back over to Mr. Ciulla for any closing remarks.

Thank you. We appreciate everybody’s participation this morning and have a great day.

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.