Webster Financial Corp (WBS) 2018 Q1 法說會逐字稿

Good morning, and welcome to the Webster Financial Corporation's First Quarter 2018 Earnings Call.

I will now introduce Webster's Director of Investor Relations, Terry Mangan.

Please go ahead, sir.

Thank you, Donna.

Welcome to Webster Financial Corporation's First Quarter 2018 Results Conference Call.

This conference is being recorded.

Also this presentation includes forward-looking statements within the Safe Harbor provision 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 growth.

Actual results may 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 material differ -- 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 first quarter of 2018.

I'll now introduce John Ciulla, President and CEO of Webster.

Thanks, Terry, and good morning, everyone.

Welcome to Webster's First Quarter 2018 Earnings Call.

CFO, Glenn MacInnes; and I will review the quarter.

And then HSA Bank President, Chad Wilkins, will join us to take questions.

I'll begin on Slide 2. As evidenced by our first quarter reported results, we continue to make meaningful progress on execution of our strategic priorities: aggressively growing HSA Bank; expanding Commercial Banking; and optimizing and transforming Community Banking, all of which create value for customers and maximize Webster's economic profit over time.

Ongoing revenue momentum, disciplined expense management and stable credit quality are driving economic profit at Webster.

In Q1, diluted earnings per share of $0.85 reflect record levels of net interest income and PPNR, along with the benefit of a lower federal tax rate.

We've now earned in excess of our cost of capital for the fourth consecutive quarter and our tangible book value per share has increased 7.5% from a year ago.

Continued loan growth and a 22-basis point year-over-year increase in the net interest margin led to our 34th consecutive quarter of year-over-year revenue growth.

We continue to benefit from our asset-sensitive balance sheet as we are able to fund floating rate commercial loans with low cost long-duration deposits.

In Q1, total revenues increased over 10% from a year ago, while expenses increased less than 5% resulting in the fourth consecutive quarter of positive operating leverage.

Our efficiency ratio was below 60% for the third consecutive quarter.

Asset quality remains stable as nonperforming assets and charge-offs remain at cycle lows.

The positive aspects of Webster's balance sheet transformation are evident on Slide 3. The overall portfolio yield on loans in Q1 is 40 basis points higher than a year ago.

We've benefited from higher rates, particularly LIBOR, over the past year as more than 70% of our loans are floating rate were reset periodically.

Deposits grew 5.6% year-over-year to $21 billion, funding loan growth and allowing us to further reduce borrowings.

Our strong deposit growth has resulted in a loan-to-deposit ratio of 83% at the end of Q1.

I'll now turn to the line of business performance beginning with Commercial Banking on Slide 4. Year-over-year revenue growth of 9%, slightly outpaced expense growth of 8%, as we continue to invest in people and technology.

This resulted in positive operating leverage and PPNR growth of nearly 10%.

Commercial Banking's linked-quarter loan growth was 3.9% or better than 15% on an annualized basis, driven by strong fundings and a lower level of payoffs.

Year-over-year loan growth was over 6%.

While elevated payoffs muted loan growth in 2017, first quarter 2018 performance supports our planning horizon annual loan growth target of 10%.

Continued strength in our middle-market C&I businesses, which includes our differentiated sponsor and specialty business, was the primary driver of the $362 million of total commercial net loan growth in the quarter.

Year-over-year, middle-market balances were up 12% as we saw loan growth across all geographies.

The Commercial Banking pipeline remained solid at March 31.

With $6.7 billion or 69% of the Commercial Banking's $9.7 billion loan portfolio resetting in 30 days or less, the portfolio yield increased 26 basis points from Q4 and 60 basis points from a year ago.

Solid year-over-year average loan growth coupled with higher deposit margins resulted in an 8% increase in net interest income when compared to prior year's first quarter.

Increased investor CRE activity in the quarter contributed to a significant increase in client interest rate hedging activity, which helped drive noninterest income growth of 14% when compared to prior year, treasury services revenue also contributed to the lift in noninterest income.

Consistent with overall bank trends, asset quality metrics in commercial remained stable.

Turning to Slide 5. HSA Bank's Q1 results clearly demonstrate its ability to grow.

Revenue increased 28% from a year ago while expense growth was 12% resulting in strong operating leverage and substantial pretax net revenue growth of nearly 60%.

We are driving increased profitability in this fast-growing business, while continuing to invest in technology, customer service, sales activities and people.

Revenue growth was led by net interest income, which increased 37% from a year ago as a result of a 15% increase in average deposit balances and higher interest rates.

HSA Bank's cost of deposits remained flat at 20 basis points, evidencing the long-term benefits of these low-cost long-duration deposits.

Our more than 2.6 million accounts have increased by 279,000 or 12% from a year ago, while footings have grown by more than $1 billion or over 18%.

New accounts of 335,000 in Q1 were 36,000 less than prior year.

The slowdown in growth, which we discussed on our Q4 earnings call in January, is generally consistent with broader industry trends.

New account growth was strongest in our direct-to-employer channel where we've focused our sales and relationship management activities and investments.

It is worth noting that our unfunded accounts are just over 5% of total accounts compared to an industry average of 20%.

This results in more profitable and productive account performance for HSA Bank.

Our growth strategy remains focused on large direct-to-employer relationships and strategic partnerships, while we continue to educate our account holders and employers on the value of growing their HSA account balances.

Moving to Slide 6. Community Banking delivered strong PPNR growth of 15% year-over-year driven by growth in overall balances and deposit spreads, coupled with continued optimization of expenses.

Total end of period loan balances grew by 2% year-over-year, primarily driven by 7% growth in Business Banking loans.

Total deposit balances grew by 4%, primarily due to growth in business deposits.

The combination of deposit and loan growth coupled with improved deposit spreads drove 6% growth in net interest income year-over-year.

A reduction in mortgage banking fee income was largely offset by significant growth in value-added fees such as credit and debit cards, treasury services, swaps and investment fees.

Assets under administration grew by 10% year-over-year, primarily driven by 37% growth in new sales production, resulting in total investment revenue growth of 15% year-over-year.

Community Banking continued to make progress along its transformational road map including a 4% reduction in banking center square footage, and a growth in active mobile banking households of over 10% year-over-year.

With revenue growth of over 4%, coupled with expense growth under 2%, Community Banking delivered positive operating leverage.

With that, I'll turn the call over to Glenn.

Thanks, John.

Slide 7 provides highlights of Webster's average balance sheet.

Average loans grew 1.4% linked quarter.

This was led by C&I growth of $215 million or 3.6%, which was in excess of the industry trends.

Deposits grew 2.1% linked quarter.

This was led by HSA Bank deposit growth of $498 million or 10%, with Q1 being the seasonally strongest quarter of the year versus prior year deposits increased $1.4 billion or almost 7% with HSA Bank representing 50% of the increase.

The growth in deposits funded all our loan growth and more than 3 quarters of the $855 million reduction in borrowings.

Borrowings at period-end continue to decline and now represent 8.8% of assets, this compares to 11.4% a year ago and 14% 2 years ago.

Our loan-to-deposit ratio of 83.3% remains favorable relative to regional peers and the industry.

Common equity Tier 1 and tangible common equity ratios remain strong.

Tangible common equity exceeded $2 billion and increased 7.4% from prior year.

Slide 8 summarizes our Q1 income statement and factors contributing to record quarterly earnings.

Total revenue growth of 10.6% was led by net interest income, which grew over $21 million or 11.2% from prior year.

The revenue growth was a result of a 22-basis point increase in net interest margin along with interest-earning asset growth of $717 million.

On a linked-quarter basis, NII grew $9.2 million and NIM increased 11 basis points.

Noninterest income posted solid year-over-year and linked-quarter increases led by HSA Bank.

Year-over-year growth in noninterest expense primarily reflects strategic hires and annual merit increases.

Adjusting for onetime cost of $6.4 million in Q4, the linked-quarter increase was $7 million.

Taken together, PPNR of $111 million in Q1 increased 21% from prior year.

Our loan loss provision was $11 million in Q1, reflecting loan growth and stable credit quality.

Q1's effective tax rate of 20% reflects the new 21% federal rate and includes tax benefits from equity-based compensation.

As a result, we reported record level of net income available to common shareholders.

Our efficiency ratio was 59.8% in the quarter, an improvement of 234 basis points from a year ago, despite lower FTE revenue as a result of tax reform.

Details of the efficiency ratio calculation are shown on Slide 16.

Slide 9 provides additional details on PPNR performance.

The waterfall chart reflects the drivers of the 21% growth in PPNR versus prior year.

NII grew $21.5 million, $11.5 million due to rate and $9.8 million due to volume.

The rate benefit includes a 40 basis point improvement in loan yield and a 7 basis point increase in deposit cost.

This equates to a loan beta of 55% and a deposit beta of 10% when measured against the 73 basis point increase in the average fed funds rate.

Commercial Banking PPNR grew by more than $5 million, primarily driven by loan growth and higher client hedging income.

Just under half the total PPNR growth came from HSA Bank, which grew average deposits by 14.6%, while deposit spreads improved by 40 basis points.

Community Banking had strong performance as PPNR grew $3.5 million or 14.7%.

This was primarily driven by growth in deposits and improved deposit spreads.

Slide 10 provides additional detail on NII, which had a linked quarter increase of $9.2 million.

This reflects a 12 basis point increase in the yield on interest-earning assets, while the cost of interest-bearing liabilities increased just 2 basis points.

The result was an 11 basis point improvement in NIM to 3.44%.

Linked quarter loan portfolio yield increased 17 basis points to 4.37%.

The securities portfolio yield decreased 4 basis points to 2.91%, which reflects a lower FTE adjustment.

The significant increase in the average 1-month and 3-month LIBOR rates was beneficial to our performance.

On the funding side, we had a 1 basis point linked quarter increase in the cost of deposits and a 2 basis point increase in the cost of liabilities.

Slide 11 details noninterest income with linked quarter and year-over-year increases led primarily by HSA Bank.

Linked quarter HSA Bank had a seasonal increase in interchange revenue of $2.2 million and $1.5 million of higher account fees.

Compared to prior year, HSA Bank's account fees increased by $2.1 million or 19%.

Interchange revenue increased by $1.3 million or over 15%.

Both reflect growth in the number of accounts.

Slide 12 highlights our noninterest expense trend.

Adjusting for onetime costs of $6.4 million in Q4, the linked quarter increase was $7 million, primarily reflecting seasonal items.

The $7.8 million year-over-year increase primarily reflects strategic hires and annual merit increases.

HSA Bank represents $2.5 million of the overall increase.

Slide 13 highlights our key asset quality metrics.

Portfolio quality remains stable.

Net charge-offs of $5.6 million declined to their lowest level in over 10 years.

Our allowance for loan and lease loss is now $205 million and represents 115 basis points of total loans.

Slide 14 provides our outlook for Q2 compared to Q1.

We expect average loan growth to be in the range of 1.5% to 2.5%.

We expect average interest-earning assets to grow approximately 1% to 2% as total securities stay relatively flat.

We expect NIM to be up 6 to 9 basis points.

This incorporates a full quarter effect of the 25 basis point fed hike in March and an expected 25 basis point hike in June.

We expect to be at the higher end of this range if LIBOR remains -- maintains its current spread to fed funds and deposit betas remain low.

Given our earning asset and NIM expectations, we expect NII to increase between $7 million and $10 million.

Noninterest income is likely to be approximately $1 million to $2 million higher driven by retail and commercial activity.

We expect our efficiency ratio to be below 60%.

We do anticipate a $2.2 million charge in Q2 related to the previously announced closure of 4 banking centers which is not part of our efficiency ratio.

Our provision will be driven by loan growth, portfolio mix, net charge-offs and our portfolio quality.

We expect our tax rate on a non-FTE basis to be approximately 22%.

Lastly, we expect our average diluted share count to be similar to Q1's level of 92.3 million shares.

With that, I'll turn things back over to John.

Thank you, Glenn.

Before we open up for questions, I'd just like to take a minute and acknowledge our almost 3,400 outstanding Webster and HSA Bankers.

We're very pleased, obviously, with this quarter's results, and they reflect the hard work, the dedication and the commitment to customer service and outstanding performance that they provide every day, and so I want to take an opportunity to thank all of our employees for their great work.

And with that, I'll open it up for questions.

(Operator Instructions) Our first question is coming from Steven Alexopoulos of JP Morgan.

I wanted to start, maybe for Glenn.

Looking at the loan yields increasing 17 bps quarter-over-quarter.

Were there any one time or unusual items in there?

Maybe elevated loan fees or something?

No, Steve, it's all driven primarily by 1-month and 3-month LIBOR.

Okay.

So it was a clean number.

Okay.

Yes.

And then a few questions on HSA Bank, maybe for Chad.

What's driving the slower pace of the overall account growth?

Did you lose any major customers in the quarter?

Yes, we have -- it's really more industry-trend related.

We actually signed more employers ended in the channels and segments that we're focused on in the first quarter than we did last year.

And -- but the yields are down, and those -- the employers -- and the yields are down across the rest of our portfolio and in every segment and channel.

So if you looked at some of the studies that are out there, Kaiser Family Foundation, Devenir, Mercer and so on, they all reflect some sort of a slowdown in the industry.

That said, those employers and their employees are now customers and we have access to them down the road.

So they'll eventually become HSA account holders.

So we're going to keep doing what we're doing.

We think we're focused on the right things.

So Chad, does that mean low double-digit growth for the new accounts is the new normal?

No.

I'd say that -- again, when I think the -- if you look at the studies, not just what the most recent year reflects, but if you look at the study over time, you see increases and decreases in growth rates, right?

They fluctuate.

And they're impacted by things like the economy, Cadillac Tax, medical cost ratios, employment rates and things like that.

And so those things change.

And we've had some pretty good tailwinds over the last couple of years.

And so I think this is a point in time.

We still are really bullish on the fact that only about 20% of eligible employees are in high deductible health plans in HSAs, and only about half of employers have HSA plans.

So we're going to keep focusing on the opportunity.

And we think we're doing the right things in terms of investing in our customer experience, investing in sales.

And so we believe we can get after the targets that we're committed to.

Okay.

And then, looking at the PTNR, up 60% year-over-year, which is remarkable.

Can you walk through the sharp increase in revenue over the past year?

I don't know if there's any change in the way you account for spread revenue.

And talk about the ability to keep expense growth in this low double-digit range?

Let me start, Chad.

Steve, it's Glenn.

And so you're seeing some of the benefit in HSA Bank in at 60% from a rising rate environment, in that if you were to look at prior year, the FTP rate provided to the HSA Bank is up 40 basis points.

So if you were to strip that out, and said hold rates constant, as an example, the PPNR growth would be just below 30%.

So that is significant.

The other key driver for the quarter in HSA, and most of that is seasonal, if you go from Q4 to Q1, is the spike in interchange revenue.

And that's reflective of the volume, 6.2 million swipes in the quarter, which is up about 1 million from prior quarter, and that's because people have not reached a deductible.

So they're using their HSAs, those that are spenders.

And then if you look at the volume year-over-year, that's all driven by account growth.

I don't know, Chad, if you want to add something to that.

Yes, the only thing I'd add is we are starting to see some of the efficiency gains that we've been -- where we've been investing in operational excellence and continuous improvement.

You see our expense growth came down about 4% year-over-year, which we're pretty happy about.

But that we are still continuing to invest is just we're starting to see benefits of the investments we've made in prior years.

Okay.

Glenn, you had spoken -- this a few quarters ago -- about a PTNR expectation in the 25% to 30% range for this year.

Do you still think that's the case or should we expect upside to that?

In the HSA Bank?

Yes, just in HSA Bank.

Yes.

So I think we're still thinking -- I think we said 30-plus at Investor Day.

So given where we are right now, we still feel pretty good about that.

And as Chad pointed out, Steve, there's some volatility in the industry year-over-year.

And he's gone back and looked I think 5 years when we sat down, but there's ins and outs.

So -- but I think generally, we still feel good about the targets we put out for Investor Day, particularly with respect to HSA.

Our next question is coming from Jared Shaw of Wells Fargo.

Just following up on the HSA commentary with the growth in the interchange.

Are you seeing any change in customer behavior there as people become more comfortable with your HSA?

So is that growth in interchange volume really just a function of more customers on the system or are you seeing more usage per customer?

Well, Jared, I think there's a couple of things that impact interchange.

One is, we try to -- we continue to work to make sure that folks are using the debit card for all of their expenditures, right?

Because there's multiple ways that you can pay for your medical expenses.

So we really try to help them to make it easy for them to use that.

Another is -- it's a heavy flu season this year, right?

So the medical issues can drive spend in from quarter-to-quarter.

And I think that might have some influence on it as well.

And the other thing I'd say is we have a pretty productive account base, right?

So you look at our unfunded accounts is at 5% this year, which is down year-over-year.

So we just have very good productive accounts as compared to the industry.

Okay.

And then, on the commercial loan growth side, it looks like originations were unchanged year-over-year, maybe down a little bit from fourth quarter, but the balance growth is good.

Was that driven by lower paydowns and prepayments this quarter or higher utilization?

And I guess how should we expect those trends of prepayment utilization to go as we're going through the rest of the quarters?

Jared, it's John.

I would say that it is a reflection of prepayment activity.

And obviously, in the fourth quarter, we were talking about the fact that some of our originations, that we had planned, were slipping into the first quarter.

That happened and we had a higher level of payoffs throughout the year in 2017.

It's not utilization driven so it's really payoffs, M&A related and other borrower-payoffs, transactional in commercial real estate.

And it's very difficult for us to predict from quarter-to-quarter what will happen.

And one of the things that you've heard me say over and over again is that, I think our Commercial Banking business, including commercial real estate, is a 10% annualized growth business over the long term.

And we had 5 years heading into 2017 in that 12% to 14% range.

2007 slowed not because of originations but because of higher prepays.

In the first quarter, we benefited from some slippage in the fourth quarter into the first quarter in originations, and we did have lower prepays.

So I don't set our new target at 16% annualized where we'd be.

I still think it's going to be 10%.

It's harder to predict what will happen over the next 3 quarters, but I still think our 10% commercial bank loan target is the right target.

Okay.

Great.

And then maybe for Glenn, just looking at the borrowings and the continued growth in HSA.

Should we -- I guess, what's the duration of the borrowing portfolio now?

And what's the expectation as we go forward?

Could we see that actually go to 0 or would you want to keep some of that liquidity available?

No.

So I think on the duration side, we're about 1 year on borrowings.

And I think our guidance would be that we wouldn't want to go much below 6% of assets, which will probably get you to about $1.5 billion, $1.6 million.

Our next question is coming from Collyn Gilbert of KBW.

Just to follow up on Jared's question on the loan growth.

But specifically, on the origination yields, because in your slide deck, you're showing good origination yields coming in this quarter, like a big jump from the fourth quarter if we look on the commercial side, specifically within investor CRE.

And John, just curious if you can give us a little bit more color as to what's going on there?

Is it a function of maybe a little bit less growth than what you saw in the fourth quarter or just some dynamics around that?

Is it driven geographically?

Because it just seems like that trend is different than what we're seeing at some of the other banks.

It's mostly mix and Collyn, with the yields and the spreads are different stories.

Our spreads have remained pretty much stable over the last several quarters.

So what we're getting paid for risk on the credit spreads hasn't really moved that much, and it's fortunately flattened out.

We're not seeing a whole lot of spread compression.

But because so much of our portfolio is tied to 1-month and 3-month LIBOR, and the mix in the quarter was skewed towards sponsor and specialty business, which tends to have higher yields, as we've talked about in the past, we really just saw the benefit of higher LIBOR driving higher yields.

Okay, okay, that's helpful.

And then can you just, John, give us sort of an update, or Glenn, on your views about -- this question's come up to a lot of banks.

I know we talked about it earlier in the year that the tax savings, the risk of that being competed away through increased competitive pricing.

It sounded like at the time you guys were firm in holding the line there and perhaps not lowering your return thresholds, as it relates to that.

Can you just kind of give us an update on how you're thinking about that as we sit today?

Yes, I would say we're in the exact same place which is, we probably feel over time -- just like in deposit pricing, we feel like we're probably closer to a point in time where the market deposit cost will rise.

Just we had said earlier, as you said that over time, the tax reform would have that impact.

We have not seen it yet.

And we have been able to hold firm on what we expect to get paid for taking risk.

And we've been able to be reasonable in our deposit pricing and our loan pricing.

Every time we're out there, we want to strike the right deal with the customer.

We want to make sure that we're driving reasonable shareholder returns, but we're also creating an appropriate bargain with our customers and providing value to them either through deposit pricing or through loan pricing.

But so far, Collyn, we haven't really seen anything that's creeped into our metrics or our financial performance.

Glenn, I don't know if you have anything to add.

I think that's exactly where we are right now.

Okay, okay, okay, that's helpful.

And then, Chad, just a question for you on HSA.

That's good color as you kind of put in context the volatility that we could see in the account growth given cyclical or economic trends.

I'm just curious, do you happen to have what the last or what the lowest level of year-over-year HSA account growth was?

Just -- I know you mentioned Cadillac Tax, just trying to put in the 12% or so of year-over-year account growth this quarter.

I mean has it dipped as low as that in the past historically from an industry standpoint?

I don't have that answer off the top of my head, Collyn.

I'll have to go back and take a look at that.

We can follow up with that.

Yes, let's follow up with that rather than...

Okay, okay, okay.

And then given your comments, I think maybe I know the answer to this, but you don't seem necessarily rattled by this, and you're comfortable with the outlook.

Does -- is there -- would there get to a point where you change kind of the incentives to the employer or the employee to sort of ramp up that adoption rate?

Or are you still too early in kind of the cycle to change any of the way you kind of price or approach the employer relationship?

Yes, I'd say we're not at that point where we're pulling a price lever to try to drive growth.

We think that there's -- one of the things that when you reach a little bit of friction in the industry, I think, doing things better.

And making sure we're educating employers on giving their employees the right tools to pick the right plans, working with our consumers and making sure that they know the value of saving for health care and retirement and the need to do so.

We've done some -- if you look at our balance growth, I'm pretty happy with where our balance growth is given the account growth.

And I think part of that is due to the fact that we've been really hitting hard target messaging and education into the portfolio.

And where we've done control groups, we've seen a 20% difference in deposit rates.

So I think we can really influence growth rates by just working harder and doing things better, particularly in this industry that I feel is -- that there is a lack of real good understanding and education.

So we're going to focus on that.

And I think we're doing -- back to what I said before -- I really believe we're doing all the right things and we're seeing the kind of results that we want to see.

And I believe that enrollment rates will begin to catch up.

Okay, okay, that's helpful.

And then if you guys said it, I apologize.

It's an obvious thing.

But on Slide 5 of the deck, when you cover the HSA Bank, the footings per account jumped to 2,000 or 2,500 or whatever -- a huge jump from fourth quarter.

What did you say was the drive of that increase?

I think the main drivers behind that are twofold.

One is our deposit growth rates are outpacing, and our total assets growth rates are outpacing our account growth rates this quarter is one thing.

And then our -- the percent of unfunded accounts has come down as well.

So we're seeing our average balance per account to go up, if that's your question.

Okay, okay.

Yes.

It's just -- what I was speculating...

Collyn, it's Glenn.

I just want to make sure.

So the footings per account, $2,593, are up $30 from prior quarter and $145 from prior year.

I think I want to make sure, so I think that's seasoning, just normal seasoning, as Chad points out.

Okay.

Up $30.

Right, right, right.

Sorry, read that wrong.

Right.

Got it.

Okay my apologies.

It's like 1%, a little over 1% (inaudible).

Our next question is coming from David Chiaverini of Wedbush Securities.

I wanted to follow up on that last line of questioning.

So mentioned about how the deposit growth in HSA, 15% roughly year-over-year outpaced the 12% account growth.

I committed to memory that I think the last time you mentioned it about 75% of the accounts had less than $500 in balances.

First question is just, has that number changed?

Just update us on what that percentage is, and if that still applies?

And then as a follow up, can you remind us what is the typical average balance for an account that's been open for 2 years?

Yes, to the first question, the mix, the percentage of balances by spending tier hasn't changed materially.

And the average balance -- and what was the second question?

I'm sorry.

So it's related to seasoning.

So when these accounts become, say 2 years old, what's the average balance at that point?

So typically, the average balance in the first year Dave is like $860, and then it goes up like to $1,200 in increments of $200 to $300 a year.

So it's such that if you get a 10-year account, it's like $7,300.

And that's on average.

So you guys should still get a nice tailwind of deposit growth, even though the loan growth is slowing?

Yes.

No, I think -- that's exactly right.

And as people -- to Chad's point earlier, as we educate people to become -- to adopt to high deductible plan and move once they're in there from a spender to a saver, we start to realize a lot of benefits.

I think the critical thing, as Chad mentioned, we're all focused on making all the investments to attract as many new accounts as we can.

But the wonderful thing is, once we've attracted a relationship like a new employer, not everybody has adopted a high deductible plan in HSA.

So within our customer relationships, we have organic account growth.

And then within all of the accounts in our portfolio, we have the season -- seasoning, that Glenn just described.

So there is an organic growth in deposits that happens just by the passage of time.

And Dave, you committed to memory the right numbers.

I mean we said 74% of our customers were spenders.

And they had an average balance at that time of $473.

But as you move to spenders, which we have 22%, the balances go up to an average on a total base of $6,800.

And then an investor has an average investment balance of $16,000, and a deposit balance of a little over $5,000.

So you're thinking correctly as far as the tailwind comment.

Great.

And then shifting to the net interest margin.

So the asset sensitivity, I think, is coming in higher than most expenses -- most expected.

11 basis points in the first quarter and now the guidance of 6 to 9 basis points in the second quarter.

Is this kind of the new normal going forward seeing these big jumps in the NIM as rate hikes occur?

Or is this more of a temporary phenomenon based on what you originated in the past quarter or 2?

I think the key driver there, and John sort of touched on it is, when we look at the second half of the year, is how the deposit betas are going to behave.

And so we think going -- obviously, from fourth quarter to first quarter, you see that type of increase.

And going into the second quarter, we haven't seen much in the way of movement in deposit beta.

But we're 10 -- our deposit beta is 10.

I think going quarter-over-quarter, it was like 4. But our historical average on deposit betas is more like mid-30s.

So if you assume that with the second rate hike in June, deposit pressure is going to come along, then you could see some erosion in that type of trend.

And it's probably worth 3 to 4 basis points to NIM.

So if I look at a base case scenario, I show -- and I show a normalized deposit beta beginning, say, the third quarter, I see NIM slowing down -- NIM improvement quarter-over-quarter slowing down to 3 to 4 basis points.

The wildcard within that is the actual deposit beta.

So to the extent deposits don't move, you could add 3 to 4 on top of that.

That's great color.

And then my last question is just regarding the branch closings that you mentioned about taking a $2.2 million charge in the second quarter.

Do you have additional plans of branch consolidations as the year progresses?

Or how are you thinking about the branch footprint over the next 12 to 18 months?

We've said all along we have a very consistent approach to constantly evaluating opportunities to reduce square footage and make banking centers more efficient which could mean consolidation, closure or even adding branches or moving locations if it optimizes the core footprint.

I would say at this point in time, we don't have any other identified closures, but I can tell you that over time, we'll continue to not necessarily reduce the overall number of banking centers, but certainly reduce the square footage.

Our next question is coming from Matthew Breese of Piper Jaffray.

Glenn, just going back to the NIM conversation.

I appreciate the longer-term color.

But I just wanted to get a sense for the impacts from the flattening of the yield curve.

And if we continue to see the 2 to 10 spread is now 45 or 50 basis points, if that slips another 10, 20 bps, does that hurt that 3 to 4 basis points expectation in the back half of the year?

In the back half of the year, it might have some impact but it's not that significant.

Okay.

Okay.

And then, maybe one for you, John.

Could you just talk about the competitive dynamics across your footprint?

And whether or not there are any differences in terms of rationality of products and pricing in certain geographies versus others?

Sure.

It's interesting, and we examine that pretty closely.

And I would say and we just talked about it last week.

I don't -- we don't see a lot of differentiation across our geographies, maybe, multifamily in New York, which has always been overheated, but we're not really a player there.

So there may be certain asset classes in certain geographies that have nuances.

Overall, if you sort of say that there's a consistent competitive landscape, it is competitive.

There's a lot of liquidity out there, obviously.

Not only from the banks but from the nonbank lenders.

And we're not the only one that, I know, have commented on that this go around.

So I would say it's competitive.

Spreads are not expanding.

We're fortunate that we haven't seen credit spreads really contract anymore.

But they're relatively low in the cycle, commercial real estate deals, L plus 175 to L plus 225, similar probably on middle markets.

So competitive.

We're fortunate, again, I think in that we have not only a broader geography that we've really developed over the course of the last dozen years or so, but we also have the sponsor and specialty business where we really do have expertise in a bunch of industry verticals that for us has given us, we think, more looks at good transactions and better credit selection.

So I would say it's still very competitive.

There's a lot of liquidity both from banks and nonbanks, but we don't see the -- I think my old boss, Joe Savage, here used to say silly season.

But we haven't really seen the silly season irrationality that we saw before the Great Recession.

So I think we've been able to maintain our discipline on risk selection and structure in a competitive environment.

And I think our differentiated geographies and business lines have enabled us to grow at what I feel over of the last several years has been at clip a little bit better than the market.

Understood.

Okay.

And my last one, if you could just talk a little bit about the opportunities out there for purchasing HSA accounts and deposits.

I thought I saw an application to buy First Tennessee, and just wanted some details on that?

Well, first on the First Tennessee transaction.

I was just -- that's a small portfolio they had picked up, I think, through an acquisition.

So -- and they weren't in the business so we kind of picked that up.

Nothing material there.

But the -- we are constantly looking at the industry.

And any time a portfolio has come up and become available, we've taken a look at it.

And so -- again, we evaluate them on a case-by-case basis and it has to make sense from a growth and from an investment standpoint for us to participate in the transaction.

So we expect to see more.

There have been several that have come up over the last few years.

I expect there'll be more, and we'll continue to take a look at them as they become available.

We think that the ones that have less than 1% market share will eventually need to rationalize their business model.

And given the investment that's required in this business, may choose to seek a partner as opposed to going it alone.

As a follow up there, how many of those opportunities are in existence with less than 1% share?

And then what is the pricing like for these portfolios?

Well, pricing varies.

I mean, I think if you go to the larger portfolios, the more pronounced portfolios, the pricing was reasonably higher.

Some of the smaller ones there, you're more in the business of them conveying the business and working out some kind of arrangement with you as opposed to deposit pricing.

At this time, I would like to turn the floor back over to management for any additional or closing comments.

Thank you very much for joining us this morning.

Have a great day.

Ladies and gentlemen, thank you for your participation.

This concludes today's conference.

You may disconnect your lines at this time and have a wonderful day.