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Webster Financial Corp (Conn)  (NYSE:WBS)
Q4 2018 Earnings Conference Call
Jan. 24, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

See all our earnings call transcripts.

Prepared Remarks:

Operator

Good morning and welcome to Webster Financial Corporation's Fourth Quarter 2018 Earnings Conference Call. I will now introduce Webster's Director of Investor Relations, Terry Mangan. Please go ahead, sir.

Terry Mangan -- Director of Investor Relations

Thank you, Christine. 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 2018.

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

John R. Ciulla -- President and Chief Executive Officer

Thanks, Terry. And good morning, everyone. Welcome to Webster's fourth quarter 2018 earnings call. CFO, Glenn Maclnnes and I will review business and financial performance for the quarter. HSA Bank President, Chad Wilkins, will then join us here in Waterbury for Q&A.

I'll begin on slide two. When I became Webster's CEO just over a year ago, I thought to assure all of our stakeholders that our transition in leadership would not entail a pivot in the strategy.

Our results in the fourth quarter and in all of 2018 demonstrate clearly the positive outcomes of our well executed long-term strategy. We're very pleased with the progress we've made. Reported earnings per share were $1.05 in the fourth quarter, adjusted for one-time items EPS was a $1.01 compared to $0.98 in Q3 and $0.71 a year ago.

Pre-provision net revenue in Q4 grew 36% from a year ago, loan growth and a higher net interest margin led to our 37th consecutive quarter of year-over-year revenue growth. Each quarter of 2018, saw year-over-year revenue growth in excess of 10%. In Q4, total revenue was 15% higher than a year ago, while expenses increased approximately 2%. This resulted in the 7th consecutive quarter of positive operating leverage. The efficiency ratio drop below 57% to the lowest level in my 15 years at Webster. Webster's asset quality also remain stable.

Turning to slide three. Loans grew 5% from a year ago, with commercial loans growing 12% and consumer loans declining 4%. This performance is consistent with our strategic focus on expanding commercial banking. As with the industry, consumer balances have been affected by lower mortgage origination volumes and continued reductions in home equity balances, driven by changing customer preference.

Commercial loans now represent 63% of total loans compared to 60% a year ago. Deposits grew 4% from a year ago, health savings accounts represented more than 80% of the deposit growth and were unchanged in cost from a year ago, a 20 basis points. The net take-away is that our loan portfolio yield was 65 basis points higher than a year ago, while the cost of deposits increased only 17 basis points.

Starting on slide four, I'll review the lines of business. Commercial banking reported solid fourth quarter and full year results, loans grew 1.4% linked quarter and a 11.9% year-over-year. Linked quarter growth was led by commercial real estate, which increased 4.1%. CRE represented almost 40% of the quarter's originations and approximately 75% of commercial banking fourth quarter net loan growth.

Our pipeline remain solid, as we enter Q1 even with the strong origination performance in Q4. Continued investment and focused execution have generated consistent growth and strong profitability. Year-over-year revenue growth of $9 million was led by net interest income, which increased to 11%, while non-interest income was up modestly. Asset quality metrics in the commercial banking loan portfolio remain stable and at cycle lows. Our commercial classified loans at year-end 2018 represent less than 3% of total commercial loans, the lowest level in over a 11 years.

Turning to slide five. HSA bank closed out 2018 with another solid quarter performance and entered 2019 with momentum. Our 2.7 million accounts are comprised of $5.7 billion in low-cost, long duration deposits and 1.5 billion in linked investment balances. New account production in 2018 totaled 701,000 accounts. Total accounts were 11% higher than a year ago and footings per account are 3% higher. The combination of account growth and account seasoning resulted in year-over-year growth in total footings of 14%. Recent equity market performance is the primary cause of the linked quarter decline in investment balances.

Quarterly revenue at HSA grew 27% from a year ago, net interest income was 35% higher from a 14% increase in average deposits and a higher net credit rate. Year-over-year expense growth was 8% resulting in positive operating leverage and pre-tax net revenue growth of 57% from a year ago. In addition, so far this month, deposits have grown approximately $400 million from year-end and we expect new account production this January to exceed that of January last year.

Moving to slide six. Community banking continued to make solid progress, along its transformational road map and delivered another solid quarter. Deposits grew by 3% year-over-year, with balance growth in both business and consumer deposits. Business loans grew over 6% year-over-year, driven by solid originations across all markets. Consumer loans declined 4% as I mentioned earlier.

Total net interest income grew 5% year-over-year, driven by deposit growth and increased deposit spreads. Total non-interest income was essentially flat, apart from a gain of $4.6 million on the strategic sale of six banking centers in Q4. Increased deposit related fee income was offset by decreased revenues from mortgage banking activities. For the full-year 2018 our ongoing optimization initiatives, resulted in a 7% reduction in banking center square footage.

Total non-interest expense increased 6% year-over-year, as we continue to invest in our bankers, technology and enhanced customer value proposition. Overall PPNR was $36.5 million, including the gain and the sale of the aforementioned banking centers in Q4.

Before I turn it over to Glenn, I'd like to highlight on page seven. Our PPNR growth for the full-year, both on a consolidated and a line of business basis, which demonstrates the significant progress we've made in organically growing our business. All three lines of business, generated in excess of 10% PPNR growth resulting in consolidated PPNR growth from 2017 to 2018 of 22.5%.

I will now turn the call over to Glenn.

Glenn I. Maclnnes -- Executive Vice President & Chief Financial Officer

Thanks John. The slide eight provides highlights of Webster's average balance sheet. Average loans grew 2% linked quarter to $18.4 million and 5% year-over-year. Loan growth was led by commercial real estate, which increased $242 million or 5.2% from September 30th. Loan originations for the quarter totaled $1.6 billion and fundings were $1.2 billion, with commercial loans accounting for $1.4 billion and $1 billion respectively.

Loan paydowns totaled $1.1 billion, which were up from $713 million in Q3, as we saw higher levels of paydowns in commercial real estate and middle market. The linked quarter decline in consumer loans reflects continued pay downs of home equity lines, consistent with industry trends. Year-over-year, average loans increased $922 million or just over 5%. The net result of commercial loan growth of 11%, partially offset by a 4% decline in consumer.

Average deposits increased $20 million from Q3. This was driven by growth in consumer and business banking. The banking center sale, which reduced average deposit balances by around $100 million and seasonality in public funds. Year-over-year, average deposits increased $970 million or 4.6%, with HSA Bank representing over $700 million or 72% of the increase. Our loan to deposit ratio of 84%, remains well below the Northeast medium of 101%.

Common equity Tier 1, and tangible common equity ratios remained strong, supported by our earnings growth. And tangible book value per share increased more than 9% from prior year and has increased 15 consecutive quarters.

Side nine summarizes our Q4 income statement and drivers of quarterly earnings. Net interest income totaled $237 million and increased $7 million or 3% from Q3. Of this, $5 million was the result of higher rates and $2 million from additional volume, versus prior year, net interest income grew $32 million or 16%. Non-interesting income increased modestly from Q3 and includes the gain on sale. On a year-over-year basis, non-interest income increased $7 million, due to higher levels of fee income in HSA, higher commercial loan fees and the gain on sale. Non-interest expense decreased $4 million linked quarter. Recall our third quarter included a final true up of $2.9 million in FDIC expense for periods prior to 2018.

Absent this, expenses were basically flat. Non-interest expense increased $3.7 million versus prior year primarily from additional investments in our businesses. I'll provide more detail on coming slides. Reported PPNR of $136 million in Q4 increased 9.4% linked quarter and 36% from prior year. Loan loss provision for the quarter was $10 million and continues to be reflective of loan growth and stable credit quality. The effective tax rate was 21.3%, which was higher than anticipated, primarily due to timing of tax planning projects that are under way.

The efficiency ratio of 56.2% was more than 1 point below Q3. Slide ten provides additional detail on year-over-year pre-provision net revenue, which increased 36%. Net interest income grew by $32 million or 16%. $22 million driven by rate and $10 million from volume. The rate component is primarily the net result of a 65 basis point improvement in loan yield and a 17 basis point increase in deposit costs. When measured against the 99 basis point increase in the average Fed funds rate, this resulted in a loan beta of 66% and a a deposit beta of just 17%. Combined, this drove a 33 basis point increase in net interest margin to 3.66%.

Slide 11 provides additional detail on net interest income, which increased $6.8 million linked quarter. Our performance continues to benefit from a significant amount of loans with rates resetting in 30 days or less. At December 31st, $7.3 billion of loans were indexed to one month LIBOR and $2.5 billion were indexed to Prime. Combined this represents 53% of our total loan portfolio. Another 19% of our loans reset at least once before final maturity. As a result 72% of our loans are priced on a floating or periodic basis. We provided additional detail on the nature of our earning asset and funding mix on page 19 of the appendix.

For the quarter, the yield on interest-earning assets increased 12 basis points, while the cost of interest bearing liabilities increased only 7 basis points. This resulted in a 5 basis point improvement in NIM to 3.66%. Slide 12 highlights non-interest income, which increased 879,000 from Q3. As we highlighted, Q4 includes a $4.6 million gain on sale. Partially offsetting this for lower loan fees of $2.9 million, as Q3 included higher syndication fees. A seasonal decline in HSA fee income, as a participant achieved deductibles and lower mortgage revenue driven by lower origination volume. Versus prior year, non-interest income increased $7.1 million, as a result of strong HSA account growth, loan related fees and the gain on sale.

Slide 13 highlights our non-interest expense trend. On a linked quarter basis, expenses decreased to $4 million, primarily as a result of lower FDIC expense due to a true up of $2.9 million in Q3 and a lower run rate of $1.7 million. Year-over-year, expenses increased $3.7 million. Adjusted for $6.1 million of one-time items in prior year, expenses increased $9.5 million. The increase is a result of ongoing investments in our businesses, including strategic hires, annual merit increases, technology and marketing spend.

Slide 14 highlights our key asset quality metrics. Non-performing loans in the upper left, remained about 84 basis points of total loans. Net charge-offs in the upper right were $9.5 million in the quarter, representing 21 basis points annualized and were 16 basis points for the full-year 2018. And as John highlighted, commercial classified loans were below 3%, for the first time since the second quarter of 2007.

The provision of $10 million brings our allowance for loan loss to $212 million, representing a coverage ratio of 115 basis points. Slide 15 provides our outlook for Q1 compared to Q4. We expect the average loans to increase around 1%, once again led by commercial loans.

We expect average interest earning assets to also grow around 1%. We expect NIM to be up 7 basis points to 9 basis points, driven by the December Fed hike and the seasonal Q1 info of HSA deposits utilized to pay down short-term borrowings. Given our earning asset, NIM expectations, we expect net interest income to increase between $4 million and $6 million. This includes a reduction of $3 million from two fewer days in Q1. GAAP non-interest income is likely to be lower linked-quarter, as a result of the Q4 gain on sale.

On an adjusted basis, we expect it to be $1 million to $2 million higher, driven by higher HSA fee income. We expect our efficiency ratio to be below 58% and our provision will be driven by loan growth, mix and quality. We expect our tax rate on a non-FTE basis to be approximately 21% and lastly we expect our average diluted share count to be similar to Q4's.

I'll turn things now back over to John.

John R. Ciulla -- President and Chief Executive Officer

Thanks a lot Glenn. An external proof point of our well executed strategy came recently with Bank Director Magazine's identification of Webster, as the best overall bank in the northeast and Number Two nationally in its 2019 RankingBanking study.

Webster was also the top bank in the northeast in the key categories of best board, best small business strategy and best technology strategy. I'd like to take this opportunity to express my congratulations and appreciation to Websters' board of directors and all Websters' bankers on the Webster Bank recognition, a great quarter and our continued commitment to the communities we serve.

We'll now open it up for questions.

Questions and Answers:

Operator

Thank you. We will now be conducted a question-answer-session.

(Operator Instructions) Thank you our first question comes from the line of Steve Alexopoulos with J.P.Morgan. Please proceed with your question.

Steven Alexopoulos -- J.P.Morgan -- Analyst

Hey, good morning everybody.

John R. Ciulla -- President and Chief Executive Officer

Good morning, Steve.

Glenn I. Maclnnes -- Executive Vice President & Chief Financial Officer

Good morning, Steve.

Steven Alexopoulos -- J.P.Morgan -- Analyst

I'd like to start on the margin. You had good expansion in the fourth quarter and the guidance implies good expansion coming in 1Q, given we have the benefit of the December hike. Assuming the Feds now on hold -- maybe for Glenn, how do you see the NIM progressing beyond the first quarter, if the Fed funds rate is pretty flat for the rest of the year?

Glenn I. Maclnnes -- Executive Vice President & Chief Financial Officer

So I think, if -- right now our baseline forecast is for the Fed to go up in June and the long end, I mean, the tenure to be about 3%. But if I -- we assume the Fed stays put, meaning Fed fund stay at 2.50% in the tenure, stays around 2.70%, 2.75%, I think, what you would see is a quarter-over-quarter reduction of 1 basis points to 2 basis points in NIM.

That being said, and that's primarily driven by investment yields coming down 2 basis points, loan yields staying basically flat. Some additional cost on deposits, as it catches up to previous like the December rate hike. So 50 basis points, maybe go up a few basis points. And then borrowing cost, again driven by the December hike maybe up 2 basis points. All that being said, our net interest income, will still increase somewhere between $2 million to $3 million a quarter.

Steven Alexopoulos -- J.P.Morgan -- Analyst

Okay that's helpful. Thank you. And then on HSA Bank, maybe for Chad. So you guys had consistent through the year, which was great. Now that -- we have the fourth quarter enrollment season now done, what are you seeing? And Chad are you seeing any improvement to the 11% year-over-year account opening pace you've been seeing?

Chad Wilkins -- President

Yes, so the -- well, the enrollment season's not quite done yet, Steve, and we are still in middle of it, but in '18, as John stated, we had over 700,000 new accounts opened. And so far in January, we're slightly ahead of the same period last year. And growth is greatest in our DTE channel, which is where we've been investing the most. We're actually up about 28% in that channel. And we've talked about the fact that we've been building pipeline throughout the year, so we're really happy with that traction. And that's making up for some slower growth in other channels. So we're -- we think, we've really made the right move investing in our capabilities there.

Steven Alexopoulos -- J.P.Morgan -- Analyst

Okay that's helpful. And then finally on credit may be for John. So there's been a ton of attention on leverage lending. Even last night, Texas Capital reported charge-offs in their leverage lending portfolio. And this is something that can -- is more and more coming up for Webster. One, could you size the leverage lending portfolio, you know, give some color on the type of leverage lending that you're doing and maybe walk us through the risk profile of those loans, should the economy see a downturn? Thanks.

John R. Ciulla -- President and Chief Executive Officer

Sure Steve. I think, it is a timely question and before -- I'll provide some metrics and sizing on leverage loans but I'd obviously like to give you some context on that first. And I always reiterate we don't have a leverage lending desk or a group dedicated to originating leverage lending in the broader market. I think, that's really important.

Obviously we do in the normal course, originate loans that meet the regulatory definition of leverage, and those are primarily in our sponsor and specialty group, right? And if you remember -- and the reason I think, it's differentiating for us is that, we started that sponsor and specialty group in 2004 it was Chris Motl, our current Head of Commercial Banking and myself had founded that group. We've engaged in the activity of providing financing for portfolio companies and private equity firms and directly to management teams in that group, where we have most of our -- the vast majority of our leverage lending. For 15 years, as an OCC-regulated bank, it's been very profitable and we've had outstanding credit performance.

We've got a great leader in that group, Andre Paquette and we've been able to -- in our geography and given our commitment to this business over 15 years, we've been able to attract terrific teams of both originators, portfolio managers, underwriters and importantly credit executives, who really understand the business. And so it's a differentiator for us, as you know, with HSA, as a funding source, we've really been able to outperform from a NIM expansion perspective.

So that group in sponsor and specialty, includes industry specific-verticals technology, media and telecom, healthcare, environmental services and a few other industries. We picked the industries that have predictable, sustainable protectable cash flows. And I've said that over 15 years, when we've talked to people and that's the basic premise. So we've avoided industries like transportation, oil and gas and retail in that space. Things that are more cyclical in a downturn. And it's served us well during the Great Recession and we expect it to serve us well during the next cycle.

And we have within those specialties, substantial diversification in each sector. So why do we have the specialized lending group? Well, and I've said this publicly and forgive me for repeating it. We think it, allows us better credit selection because of the quality that people we have in our deep industry knowledge. It gives us broader loan opportunities across geographies. It gives us, the ability to get paid more appropriately for risk because we add value and expertise in the situations and it allows us to develop deep relationships with private equity sponsors and management team that generally lead to better outcomes during tough times, we certainly saw that during the Great Recession.

And I want to give you one data point, if I can on sponsor and specialty performance. We went back and we looked at 2008, through full-year 2018 that's a 11 years of net charge-offs. And if we look at the total commercial bank of Webster and we compare it to Fed data on C&I and CRE, we stack-up pretty much in-line with the market.

So I'll make the statement and ask you to accept that Webster's commercial bank net charge-off performance over the last 11 years, which by the way includes the two years of highest charge-offs at the end of the Great Recession, is in-line with Fed data. Within our bank, that sponsor and specialty group had the lowest annual charge-off rate of all of our lines of business within commercial. Lower than commercial real estate, lower than asset-based lending, lower than equipment finance and lower than regional middle market. And I think, it's something we're proud of. It's the most profitable unit and it's had the lowest net charge-offs, including period of times during the Great Recession on an average annual basis.

Okay, let me talk about leverage loans specifically to your question. We are not a general market participant, as I said before. I think, that's really important from a differentiation perspective, because the market whether it's investors, whoever is looking at this, they basically in my view have three big concerns around leverage lending. Are we stretching as an industry and the shadow banking market, are we stretching leverage multiples that we put on companies, number one. Two, the structure go out of the window with things like covenant lite as a measure of that and three, are people taking big underwriting positions, like the big banks did during the Great Recession on leverage loans where when the market sees is, they're stuck with a lot of inventory, they can't distribute it and they end-up taking big writedowns.

Well, let me give you some of Webster's view in those three areas. The loans we originate that are leveraged, based on funded debt at close on average, carry more than a full turn less leverage than is reported in the broader leveraged market both on a senior debt and total debt basis. And we looked at S&P in the broader middle market and large cap leverage space and we're a full turn of senior leverage and a full turn of total leverage lower than the market. I believe that demonstrates that we're not chasing the maximum leverage yields that we see in the broader market. Also based on S&P, LCD and Bloomberg data across the broader middle market and large cap leverage space, somewhere between 55% and 80% of those transactions are what's called covenant lite. I think, most of you on the phone understand that, meaning that we've lost the ability to measure or restrict the borrower's performance via leverage covenants, debt service covenants and so on and so forth.

In Webster's leverage lending book of loans that are leveraged funded at close, only 6% of our deals are covenant lite, once we lead, once we participate-in or once where we're only the bilateral lender, evidencing that we're staying more disciplined to structure. And with respect to underwriting an inventory, you heard us talk about our largest underwriting in sponsor and specialty in the third quarter, where we made something like $3.5 million in syndication fees. While the market got choppy in the fourth quarter and I can tell you, we took commensurate steps. We don't have any leveraged lending, underwriting or inventory at 12/31/18. So we have no exposure to inability to underwrite because I think, we react well to the market.

So let me cite it for you Steve. You know, It's difficult, there is a myriad of definitions. Banks have latitude to be able to define leverage loans, within the guidance of the regulator and within frequently asked questions that are issued by the OCC.

What I'm going to do is, I'm going to try and provide you metrics here on the loans that we look at, at origination are leveraged based on funding debt to cash flows. We've tracked this category by the way for more than 10 years from a performance perspective. Generally leverage on these deals exceed three times, senior debt to cash flow by four times total debt to cash flow on a funded basis. However, consistent with regulatory guidance, there are some industries where those thresholds, 3/4 (ph) may change based on characteristics of the industry.

So here's -- we have about $1.1 billion of loans that meet that threshold. So at close and at origination the funded senior and total debt to cash flow exceeds 3/4 (ph) generally. That represents about 6% of our overall loan portfolio balance funded at the end of the year. And let me give you some stats on that $1.1 billion. That balance when compared to our leverage loan balance in 2006 before the Great Recession, is only at a slightly higher percentage of Tier 1 capital plus reserves, meaning that over that period of time, we've grown our leverage lending exposure commensurate with the growth in capital and size of the bank which we think is appropriate. So that we're sizing it well.

The weighted average risk rating of those loans, which flows into our provisioning is in-line with the commercial banks, overall weighted average risk rating. The percentage of the criticized loans in that $1.1 billion is lower than the general commercial loan population. And you heard Glenn and I mentioned in our 12 year -- at our 12 year low of commercial classifieds, we posted 2.7% of commercial classifieds. We have no funded leveraged loans at close as of 12/31 (ph). So even within that relatively small percentage of commercial loans that are classified, none of the $1.1 billion in loans are classified at 12/31/18.

And we've had zero charge-offs in the $1.1 billion bucket over the last two years, including no contribution from leveraged loans in the charge-offs in the fourth quarter. So I hope that gives you a sense of size. In addition to the actual loans that are leveraged, we track under regulatory guidance, loans that are not leveraged at origination but could become leveraged, if the unfunded commitments in those transactions are fully drawn. Those are not leveraged loans at present, but we track them because we monitor our portfolio very carefully. And just again to give you a size that's an additional $450 million of funded loans.

But those are -- have the ability to become leveraged, but are not leveraged currently under the cash flow definition. So, the only thing I'm going to wrap up and I know, I went on for a while, but I wanted to put it in context and let you know, that we're very proud of what we've accomplished. We think, we're differentiated, we think, we're disciplined and we don't chase the market but we are in the business of taking risk. And I think, I always say this, Steve, you probably heard me even back when I was a Chief Credit Risk Officer, we've grown our commercial loan portfolio by $7 billion across all asset classes in the last 15 years and we've now experienced one of the longest expansion periods and a very benign credit environment.

So we expect credit losses for the industry obviously to increase as we enter the next cycle but when that occurs, we think, we have the capabilities, talent, capital and loan loss reserves to maximize the outcome there. So I hope that gives you sort of a full complete, you know, -- I like talking about the commercial bank. But I wanted to make sure, I put in context that $1.1 billion.

Steven Alexopoulos -- J.P.Morgan -- Analyst

John, thank you. That was extremely helpful. I appreciate the thorough response. And thanks for taking my questions.

Operator

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

David Chiaverini -- Wedbush Securities -- Analyst

Hi good morning, thanks. A couple of questions. Just starting with the six banking centers that were sold. What's the strategy kind of going forward? Do you see any additional branches kind of that can be consolidated over the next few quarters?

John R. Ciulla -- President and Chief Executive Officer

I hate to give you the stock answer but in general and as we've said, we do not have anything in the current pipeline. I will tell you that we are constantly evaluating our footprint to ultimately reduce square footage and become as efficient, as we can and we say reduce square footage intentionally because we think, that banking centers are still a critical delivery channel for us. We've made a lot of progress in branch consolidation over the last several years, as you know, including the sale of the six branches in eastern Connecticut and Springfield during the fourth quarter.

So we'll continue to evaluate. We may add branches and locations, we may consolidate additional locations. Our ultimate goal is to reduce square footage and be able to redeploy that capital into technology spend.

David Chiaverini -- Wedbush Securities -- Analyst

Okay. And my follow up question is on loan growth. So loan growth was pretty solid in the quarter and I was kind of surprised to see pay-downs were up so significantly from $700 million in third quarter to $1.1 billion in the fourth quarter. What's kind of the outlook on pay-downs looking into the first quarter here? And assuming we see those pay-downs subside, I imagine that's going to provide a nice boost to loan growth.

John R. Ciulla -- President and Chief Executive Officer

Yeah. I mean, I think that's a good perspective. It was an interesting quarter for us because we had good -- in the commercial bank. We had good average loan growth quarter-to-quarter but the spot wasn't up that much because we had such significant prepays at the end of the quarter.

And I say that just to let you know, it's very difficult for us to predict because a lot of our prepayment activity particularly in commercial real estate and in sponsor and specialty tends to come at quarter end because it's based on the closing of transactions that seem to close around them. I would say right now, we don't see the same level of prepays that we saw at year-end which is encouraging. And as we mentioned, we've got a pretty strong pipeline. So we're hoping that your perspective is accurate that we'll see a reasonable amount of originations and a muted amount of pay-off. But it's too early for us to give you a really good indication.

David Chiaverini -- Wedbush Securities -- Analyst

Thanks very much.

Operator

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

Jared Shaw -- Wells Fargo Securities -- Analyst

Hi. Good morning.

John R. Ciulla -- President and Chief Executive Officer

Good Morning Jared.

Glenn I. Maclnnes -- Executive Vice President & Chief Financial Officer

Good Morning Jared.

Jared Shaw -- Wells Fargo Securities -- Analyst

Just shifting back to HSA for a few seconds here. How are you seeing the seasoning of the existing accounts? When I'm looking at, call it, the fee income due accounts that's continuing to march higher? Are you see -- are the new accounts in the vintages seasoning as expected. And any color you can give there would be helpful?

Chad Wilkins -- President

Yeah. Hi Jared, this is Chad. I'd say yes. There -- the trends continue to remain consistent with regards to seasoning. I think, what you're seeing on the increase in the fee revenue was really more related to the mix, we've been selling more and direct to employer channel and I think, that's reflected in the growth in fee revenue.

Jared Shaw -- Wells Fargo Securities -- Analyst

So should that continue to march higher through this enrollment? Is that what you think?

John R. Ciulla -- President and Chief Executive Officer

It has. I mean, year-over-year, for instance interchange, Jared, it's about like 18% primarily driven by account growth, right? Account fees on a whole are up 10%. But as Chad points out, there is seasonality in this right? So as employees head to deductible and things like that you'll see it and we saw some of that in the fourth quarter.

Jared Shaw -- Wells Fargo Securities -- Analyst

Yeah, OK. All right. Great.

John R. Ciulla -- President and Chief Executive Officer

But generally the trend is -- as we grow accounts that it would march higher.

Jared Shaw -- Wells Fargo Securities -- Analyst

Okay. And then Glenn maybe -- how are you thinking about when you look at that the full-year 2019 loan growth given the headwinds from consumer, should we continue to expect to see commercial be a bigger piece of the pie, as we go through the year in addition to just CRE maybe?

John R. Ciulla -- President and Chief Executive Officer

Yes, I think, that both commercial and commercial real estate are -- will be the two drivers as we go through 2019. I think, residential mortgages are probably like mid-single digits and we continue even as we look forward to forecast a decline in home equity loans.

Jared Shaw -- Wells Fargo Securities -- Analyst

Okay. And then any color you can give on the commercial charge-offs increase this quarter?

Glenn I. Maclnnes -- Executive Vice President & Chief Financial Officer

Yeah sure, there are four credits in there, modest charges on those four credits and I'll give you my perspective on them. We had average charge-offs -- or about full-year charge-off, 16 basis points as opposed to 20 basis points to prior year and 23 three basis points.

So obviously we're still seeing lower trending overall. But on those four credits, none of them are in the same geography, none of them are in the same business unit. There doesn't seem to be any correlated risk and I think, an important point is two of them are sort of three plus year old credits and the other two are more than five years old.

So I think, what I take from that is -- it's not demonstrating any sort of weakening discipline in credit underwriting. They're all unique circumstances and so we're obviously really pleased with where the overall commercial and total bank net charge-offs are and the way they are trending.

Jared Shaw -- Wells Fargo Securities -- Analyst

Great. Thanks very much.

Operator

Our next question comes from the line of Matthew Breese with Piper Jaffray. Please proceed with your question.

Matthew Breese -- Piper Jaffray -- Analyst

Just a follow-up on that question, were the charge-offs in the syndicated or sponsor and specialty finance portfolio? Or were those traditional C&I loans?

Glenn I. Maclnnes -- Executive Vice President & Chief Financial Officer

More traditional C&I loans.

Matthew Breese -- Piper Jaffray -- Analyst

Okay, and then could you comment on the in that bucket, we also saw year-over-year some decent migration upwards in NPLs, what was driving that?

John R. Ciulla -- President and Chief Executive Officer

NPLs are flat kind of quarter-to-quarter or what -- I'm sorry.

Matthew Breese -- Piper Jaffray -- Analyst

Year-over-year commercial non-performing loans are up $62 million from $39 million, I just wanted to get a summary of kind of what drove that $20 million -- some odd million increase year-over-year.

Glenn I. Maclnnes -- Executive Vice President & Chief Financial Officer

Again, it's kind of across the board situational, so it's not in any of the kind of general seasoning of the portfolio as it grows. So there's not a area in the bank with respect to division unit or certain industry segments that are contributing to that it's just the normal ebb & flow of credit performance.

Matthew Breese -- Piper Jaffray -- Analyst

Understood, OK. Focusing on the Northern New England markets, the Boston markets, a couple of smaller competitors, but very competitive on the deposit side of things have been announced for takeouts. Has that led to any sort of reprieve in deposit competition of pricing in that market?

John R. Ciulla -- President and Chief Executive Officer

No it really hasn't, because on the other side you see the arrival of PNC and J.P. Morgan that just opened up their first branch there and -- and they're hitting the ground very competitively. So we still -- and obviously anticipating a question like this, Boston is still the most competitive market for us from a new customer acquisition and a deposit pricing perspective. But I will add that we've had a couple of really good quarters in a row and our year-over-year performance there with respect to deposit and loan growth is tracking now back toward our original projections of $1 billion in deposits and $500 million in loans over the five year projection. But we're having to be more aggressive from a pricing and acquisition and a deposit pricing perspective. So we have not seen a reprieve to directly answer your question.

Matthew Breese -- Piper Jaffray -- Analyst

Okay. Is that true across your footprint, if you take-out Boston? Are you seeing any sort of change from a promotional or special product?

John R. Ciulla -- President and Chief Executive Officer

Some of the big banks -- some of the big banks in say, Fairchester what we call Fairfield and Westchester Counties right? It's really in the more mass affluent and metro markets where we see more big bank competition on the size of initial offer and on rate. And I think, we're very fortunate that we have such a nice market share in sort of central Connecticut and the competitive landscape, where most of our retail deposits has been less subject to aggressive pricing.

Matthew Breese -- Piper Jaffray -- Analyst

Understood. Okay, just last one, as you think about HSA accounts and deposit balances year-over-year, how should, we be thinking about that for year-end '19 or is it too early to tell at this point?

Chad Wilkins -- President

Yeah it's too early to tell for '19, all I can tell you is that from an account standpoint and deposits we're tracking ahead of last year at the same point in time. And you know, historically trends tend to continue with what we see in January and the first quarters tend to continue throughout the year.

Matthew Breese -- Piper Jaffray -- Analyst

Okay, understood. That's all I had. Thank you.

John R. Ciulla -- President and Chief Executive Officer

Thank you for your question.

Operator

Mr. Ciulla we have no further questions at this time. I would now like to turn the floor back over to you for closing comments.

John R. Ciulla -- President and Chief Executive Officer

Thank you everybody have a wonderful day.

Operator

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

Duration: 40 minutes

Call participants:

Terry Mangan -- Director of Investor Relations

John R. Ciulla -- President and Chief Executive Officer

Glenn I. Maclnnes -- Executive Vice President & Chief Financial Officer

Steven Alexopoulos -- J.P.Morgan -- Analyst

Chad Wilkins -- President

David Chiaverini -- Wedbush Securities -- Analyst

Jared Shaw -- Wells Fargo Securities -- Analyst

Matthew Breese -- Piper Jaffray -- Analyst

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