Q4 2020 People's United Financial Inc Earnings Call
Good day, ladies and gentlemen, Andrew.
Welcome to the People's United Financial Inc, fourth quarter, and full year 'twenty 'twenty earnings Conference call.
My name is joelle and I will be your coordinator for today at this time all participants are in a listen only mode. Following the prepared remarks, there will be a question and answer session.
He would like to participate in this portion of the call tooth Press Star followed by one at any time during the conference.
Assistance is needed at any time during the call. Please press star followed by zero and a coordinator will be happy to assist you.
A reminder, this conference is being recorded for replay purposes.
I'd now like to turn the peso presentation over to Mr. Andrew Hersom Senior Vice President of Investor Relations for People's United Financial Inc. Please go ahead Sir.
Good afternoon, and thank you for joining us today.
On the call review, our fourth quarter and full year 2020 results are Jack Barnes, Chairman and Chief Executive Officer, David Rosato, Chief Financial Officer, Kirk Walters corporate development, and strategic planning, Jeff Tangle, President and Jeff Hoyt, Chief Accounting Officer, Please remember to refer to our forward look.
Statements on slide one of this presentation, which is posted on our Investor Relations website People's Dotcom backslash investors with that I'll turn the call over to Jack.
Thank you Andrew.
Afternoon, we appreciate everyone joining us today and hope you and your loved ones are remaining safe and healthy.
Let's begin by turning to the full year overview on slide two.
We are pleased with our performance in 2020, especially in light of the uncertain economic environment caused by the pandemic.
Full year financial and operating results were strong and reflects the resilience of People's United and its employees and customers.
Net income of $573 million increased 10% from here, though.
On a per common share basis net income was up five cents to $1 32.
Operating earnings of $535 million or $1 27 per common share declined 3% and 12, respectively.
It is important to note we completed the sale of the People's United Insurance Agency in November and realized a pre tax gain net of expenses of $75 $9 million, which is not included in operating earnings.
Pre provision net revenue of $827 million increased $89 million or 12% from a year ago.
Reflecting the success of recent acquisitions and solid execution across core operations.
Total operating revenues of nearly $2 billion increased eight 5% driven by higher net interest income, partially offset by modestly lower fee revenues.
Operating expenses.
116, 5 billion, which includes a full year of United and Belmont results were up 6%.
Notably <unk>.
Operating expenses ended the year below the level at the lower end of the 'twenty 'twenty one outlook range, we provided a year ago.
119 billion.
The increase in revenues along with a continued emphasis on controlling expenses and realizing projected cost savings from acquisitions lowered the full year efficiency ratio of 160 basis points to 54.2%, marking the seventh consecutive year of improvement.
Turning to the balance sheet period end loans and deposits increased 1% and 20% respectively from year end 2019.
Excluding <unk> the loan portfolio.
Portfolio decreased approximately $2 billion or 5% driven.
Driven by lower retail balances of approximately $2 3 billion.
Modestly offset by commercial loan growth of $251 million.
The decline in retail balances was mostly due to our planned reduction of residential mortgages as we remixed the balance sheet with a focus on higher yielding portfolios.
The impact of the pandemic on the economy was evidenced in the commercial portfolio growth.
While for the year.
Demand within the commercial real estate and C&I middle market businesses was limited due to reduced economic activity and funding provided by the P. P. P loans.
Conversely, our mortgage warehouse and leaf businesses experienced strong growth.
Warehouse ended 2020, with a record balances of $3 $4 billion, which more than doubled from 2019.
The period end balances increased 19% from the prior year.
Felipe.
Which we acquired in 2017 has been a terrific addition to People's United franchise leave has successfully leveraged the liquidity and funding provided by the bank and other synergies to achieve significant growth, while maintaining both excellent asset quality and high yields.
Balances ended 2020 at nearly $2 billion up from approximately $730 million at the time of the acquisition.
Asset quality remains excellent.
Net charge offs to average total loans were 11 basis points for the full year.
These results are indicative of the company's conservative approach to underwriting diversified loan portfolio.
And deep customer relationships, we are particularly pleased by that.
The reduction in loan deferrals.
We are at $271 million or 6% of total loans.
From $1 $6 billion or three 5% of total loans at the close of the third quarter.
Additionally, deferrals have continued to decline since year end.
As of January 15, total deferrals were down to $110 million or less than 3% of total loans.
We remain committed to supporting our high quality customer base and help them navigate these difficult economic times.
With our intention as discussed last quarter, we provided post second deferral modifications to customers in need of further assistance approximately $1 billion in loans received modifications.
The majority of the modifications are in commercial real estate with the largest concentrations within the hospitality sector and as expected.
Moving on to slide three.
As consumer preferences evolve.
More digitally driven experiences we have continually enhanced technology capabilities to deliver value provide convenience and create efficiencies as a result customers are increasingly utilizing our online and mobile platforms, where their banking needs.
Given these accelerating digital banking trends and shifts in our retail shopping behaviors.
Today, the decision not to renew our existing in store branch contract with stop and shop, and Connecticut, and New York upon exploration.
We operate 140 stop and shop branches.
Four in Connecticut, and 56 in New York, our contract in Connecticut expires at the end of January 2022, while the New York contract goes to mid year 2022.
Currently discussions with stop and shop on renewal terms are ongoing.
Although our shop in shop relationship has provided meaningful value to the bank and its customers over more than two decades. This decision provides us the opportunity to further optimize our branch network, while providing the same level of personalized service across.
Each of our channels.
In addition cost savings achieved over time by not renewing these contracts will enable further investment in our digital capabilities and traditional branch network.
Remain committed to serving customers in the manner in which they want to interact with us whether it be in person at our branch virtually through our online and mobile platforms or a combination of both.
We are confident customer and deposit retention will be very strong due to the customer portfolio profile of our shop in shop branches, increasing adoption of digital platforms expanded traditional branch footprint proximity.
Tween in store and traditional locations.
And trends and retail shopping behavior.
While in store branches comprise approximately half of our total branches in Connecticut, and New York, only 40% of the customers and 30% of the deposit balances are domiciled in these locations.
In addition in store customers carry balances that I only 64% of traditional branch customers.
Furthermore, only 20% of our branch deposit balances in these two states are associated with customers that actually visited an in store branch in 2020.
As previously mentioned customers are increasingly utilizing our online and mobile platforms.
Digital engagement has increased significantly year over year.
For example, mobile log ons are up 40%.
Digital enrollments have increased 25%.
Mobile wallet transactions are up 162% and we have experienced a 66% increase in active mobile deposit customers.
Notably our in store customers are 13% more digitally active than those at traditional branches and only 10% of deposit balances are associated with customers that you'd stop and shop branches in 2020.
But did not utilize digital channel.
Importantly, the strength of our hub and spoke branch model, we built over time created a high level of overlap between our in store and traditional branches.
That's 75% of our stop and shop branches and 77% of our stop and shop branch deposits are domiciled within five miles of one of our traditional locations.
In addition, recent bank acquisitions.
Suffolk, and New York, Farmington, and United and Connecticut have expanded and better optimize our traditional branch footprint in these states as well as providing customers a greater.
Number of convenient drive other facilities.
Finally <unk>.
Changing trends in retail shopping behavior has become apparent.
The availability of delivery and curbside pickup options, which have become more prominent during the pandemic have impacted foot traffic inside the stores.
Additionally, discount stores and wholesale clubs and convenience stores have increased their share of grocery spend.
<unk> share of the traditional grocery stores has declined.
With that.
David to discuss the fourth quarter results.
Thank you Jack.
I'll begin on slide four with an overview of the fourth quarter.
We concluded the year with a solid financial performance in the fourth quarter operating earnings of $147 $7 million increased 2% linked quarter.
On a per common share basis operating earnings were 35 cents up one site.
Provision for credit losses on loans decreased for the second consecutive quarter to $14 7 million and further strengthened the allowance for credit losses to total loans by three basis points to 97 basis points or 102 basis points. Excluding P. P. P loans.
Operating pre provision net revenue of $196.6 million declined 3% from the third quarter due to modestly lower net interest income.
Largely offset by slightly higher fee income and lower expenses.
Finally, it is important to note the effective tax rate in the fourth quarter reflected a $7 1 million dollar benefit related to the revaluation of certain state deferred tax assets.
Moving to slide five net interest income of $382 8 million decreased $8 6 million or 2% from the third quarter.
Decline was driven by the loan portfolio, which unfavorably impacted net interest income by $15 $5 million.
This headwind was partially offset by lower deposit costs, which benefited net interest income by $6 4 million.
Lower borrowings and higher balances in the securities portfolio also collectively benefited net interest income by $500000.
Notably during 2020, we have reduced borrowings by over $4 billion on a period end basis.
As a result of $8 $5 billion of deposit growth since the beginning of the year.
Net interest income included $20 million from PPP during the quarter, which consist of $15 4 million in fees and $4 6 million in net interest income.
These results reflects $6 million related to loans were given in the quarter.
As displayed on slide six net interest margin of 284 was 13 basis points lower than the third quarter, primarily due to increased excess liquidity, which unfavorably impacted the margin by nine basis points.
Lower yields in the loan and securities portfolios also unfavorably impacted the margin by seven basis points and two basis points respectively.
In the loan portfolio, new business yields remained lower than the total portfolio yield however, new business yields and credit spreads modestly improved in the quarter.
The largest offset to these negative effects was our continued discipline in managing deposit pricing, which benefited the margin by five basis points.
Average deposit costs were 24 basis points in the fourth quarter compared to 29 basis points in the third quarter, marking the sixth consecutive quarter of lower deposit cost.
Finally P. P. P had a two basis point favorable impact on net interest margin for the quarter.
Turning to loans turning to loans on slide seven average balances were down $792 million or 2% from the third quarter.
Period end loans decreased approximately $1 4 billion or 3%.
The loan portfolio continues to be impacted by reduced retail balances and a low demand for our commercial real estate and middle market C&I businesses due to limited economic activity.
On a period end basis retail loans decreased $715 million, mostly attributable to our planned reduction in residential mortgages, which lowered balances by $577 million from the close of the third quarter.
Commercial loans were down 647 million, which included a $289 million decline in P. P. P balances due to forgiveness and a combined $107 million reduction in our run off portfolios.
Conversely loans benefited from record mortgage warehouse balances and strong growth by leaf.
Mortgage warehouse period end balances closed the quarter at $3 4 billion up $161 million from September 30, as results continued to be driven by robust mortgage origination activity and the addition of new customer relationships.
<unk> average and period end balances grew 5% and 6% respectively from the third quarter.
Balances in the transactional portion of the New York multifamily portfolio, which is in runoff mode ended the quarter at $512 million down $47 million linked quarter and $225 million for the year.
In addition, the period end balance for the United loans, we have chosen to run off was $845 million.
A decline of 60 million from from September 30th and $268 million since year end 2019.
Moving to deposits on slide eight.
Average balances were up $1 1 billion or 2% from the third quarter.
While period end balances grew two and a half billion or 5%.
The growth, which helped to lower the loan to deposit ratio to 84% was broad based as balances increased across our retail commercial and municipal businesses.
Both average and period end balances were up across all categories with the exception of time deposits.
Higher cost Cds rolled off.
Average time balances decreased 865 million linked quarter, while on a period end basis balances were down $668 million.
The decrease in time deposits as a reflection of customer preference for liquidity during this uncertain economic and low interest rate environment.
Importantly period end noninterest bearing deposits increased for the seventh consecutive quarter balances of 15.9 billion were up $1 8 billion from the end of the third quarter and $6 1 billion for the year non.
Noninterest bearing deposits now account for more than 30% of total period end balances up from 22% a year ago.
Turning to slide nine non interest income of $178 2 million increased $77 1 million or 76% linked quarter.
As referenced earlier, we completed the sale of People's United Insurance Agency, Realizing a $75 9 million dollar gains.
Excluding this gain operating non interest income $102 3 million with $1 2 million or 1% from the third quarter.
This increase was driven by commercial bank lending fees, which were up 2.8 million, primarily driven by higher pre loan prepayment fees.
An increase in customer interest rate swap income of $1 billion.
And higher operating lease income and cash management fees, which collectively benefited noninterest income by 800000.
In addition, other noninterest income was up $2 2 million, primarily due to the mark to market of one equity security position.
The largest offset to these increases was a $5 $6 million reduction in insurance revenues due to the sale of P. U I E. In early November.
On slide 10, noninterest expense of $293 4 million decreased $200000 linked quarter.
The fourth quarter included $4 9 million of non operating costs.
An increase of $300000 compared to the third quarter and Mark They went in the following categories.
$3 8 million in other noninterest expense 800000 in professional and outside services, and 300000 and equipment and occupancy.
Occupancy and equipment.
Excluding non operating costs noninterest expense of $288 5 million decreased $500000 compared to the previous quarter.
Noninterest expense benefited from lower regulatory assessments and operating lease expense, which were down one and a half million dollars and $800000 respectively from the third quarter.
Conversely, noninterest expense was unfavorable impacted by higher costs and occupancy and equipment of $2 4 million due to seasonality and professional and outside services of $1 $4 million related to the timing of projects.
Briefly on slide 11, the efficiency ratio of 55, 5% increased 170 basis points linked quarter, primarily due to modestly lower revenues.
As I stated last quarter, we will remain very diligent in our management of expenses and continue to be focused on enhancing operating leverage as we move forward in this current low interest rate environment.
As Jack mentioned earlier, our asset quality remains excellent as displayed on slide 12.
Net loan charge offs to average total loans of 12 basis points improved three basis points linked quarter.
Nonperforming assets as a percentage of loans and Oreo or 78 basis points was seven basis points higher compared to the third quarter.
This increase was attributable to our motor coach portfolio in the People's capital and leasing business within equipment finance.
The motor coach segment has been significantly impacted by the pandemic, primarily due to the decline in tourism.
Looking at slide 13, it as evidenced the gain related to the <unk> sale had a significant favorable impact on fourth quarter returns. However on an operating basis returns were generally consistent with the third quarter.
Operating return on average assets of 95 basis points increased one basis point, while operating return on average tangible equity of 13, 3% was down slightly from 13, 4%.
Finally on slide 14 capital ratios continued to be strong given our diversified business mix and long history of exceptional risk management. It is again important to note adjusting for PPP loans, the pro forma tier one leverage ratio at quarter end is eight <unk>.
7% from the holding company compared to eight 4%.
And nine 1% for the bank compared to eight 7%. Additionally.
Additionally, the TCE ratio excluding P. P. P is approximately seven 8% compared to the reported seven and a half or so.
Before turning the call over to Jack to go to go over our 'twenty 'twenty one outlook I wanted to mention that we are still in the process of performing our annual goodwill impairment assessment.
Additional time is necessary to complete the analysis given the complexities brought about by the macroeconomic effects with the pandemic.
Particularly the current and projected low interest rate environment and a decline in bank stock valuations last fall, including on the company's annual assessment date of October 1st.
Any potential goodwill impairment charge could be material to reported earnings but would represent a noncash charge and have no effect on cash balances liquidity or tangible equity.
In addition, because goodwill and other intangible assets are not included in the calculation of regulatory capital, our well capitalized regulatory capital ratios would not be affected by this potential non cash expense <unk>.
<unk> will be completed prior to the filing of our annual report on form <unk> form 10-K with the FCC.
With that I'd like to turn it over to Jack.
Thank you David.
Looking forward, we are cautiously optimistic about the economy as society continues to adjust to the pandemic.
In particular, we are pleased banking activity trends continued to improve despite ongoing social distancing protocols.
We're also hopeful the vaccines will help restore a bit of normalcy and potentially help to accelerate economic improvement in the latter half of the year.
However.
A lot of uncertainty remains.
We entered 2021 in a position of strength. The recent surge in the virus nationwide in a prolonged low interest rate environment presents a challenging backdrop for loan growth net interest income and margin.
Despite these headwinds we are very confident in the resilience of our franchise to maintain strong execution across our operations and further invest in digital capabilities and deliver exceptional service to customers.
With that backdrop in mind, let me outline our full year outlook for 'twenty and 'twenty one as listed on Slide 15. It is important to note our announcement today on the decision not to renew our existing in store branch contracts with stop and shop will not have an impact on 2020.
<unk> financial results.
Yes.
We expect to grow loans, excluding PPP balances in the range of zero to 3% on period end basis.
<unk> balances totaling $2 $3 billion at year end.
Our current expectation as these loans will be forgiven in the first half of 2021.
Secondly, we anticipate.
Anticipated period end balance deposit balances to change in the range of down 2% to up 2%. This expectation is reflective of the significant deposit growth in 2020 and uncertainty of additional government stimulus measures.
We expect net interest income to decrease in the range of 2% to 4%.
Embedded in this outlook is the expectation for net interest margin to be in the range of 285 to $2 95.
This net interest margin range is derived from many different factors one of which is an assumption of no change in the fed funds rate during the year.
Operating non interest income is expected to grow in the range of 1% to 3%.
And adjusted 2020 operating base of $372 million, which excludes 28 million of non interest income from the <unk> and $17 million gain from the sale of loans acquired in the United transaction.
Operating non interest expense, which excludes merger related costs.
Anticipated to be in the range of 1.15 billion to $1, one 8 billion as compared to one point.
142 billion in 2020.
Which excludes $23 million of People's United Insurance expense.
This expense outlook reflects our continued commitment to invest in digital capabilities to further enhance efficiencies and convenience of customers.
We also expect to maintain excellent credit quality with a provision in the range of $60 million to $80 million the wider range compared to prior year's outlook is indicative of continued uncertainty caused by the pandemic.
In addition, we anticipate our effective tax rate for the year to be in the range of 20% to 22%.
Finally, we plan to maintain strong capital levels with an expectation that at year end holding company common equity tier one capital ratio will be in the range of 10% to 10.5%.
That concludes our prepared remarks, we'll be happy to answer any questions that you may have operator do please proceed to the Q&A portion of the call.
Ladies and gentlemen, we are ready to open the lines up for your questions. If you wish to ask a question. Please press star followed by one on your Touchtone telephone.
Your question has been answered or you wish to withdraw your question press the pound again press star one to ask a question.
Standby for your first question.
Your first question comes from Casey Haire with Jefferies. Your line is now open.
Hey, good evening, everyone. This is are you on zanger on for Casey.
Hey.
Just.
Following up on the stop and shop commentary.
No I understand it's it's it's it's a 'twenty two event.
Maybe could you help us think about some of the financial impacts.
Like the deposit attrition, maybe fees and expenses.
Granted I think you mentioned earlier that.
There will be expense kind of reallocated and some of the investment side, but just trying to get a feel for.
How twenty-two can shake out.
Sure.
Thank you for recognizing this is a big strategic decision for us, but it really doesn't have much of an impact in or it doesn't have an impact in 'twenty.
'twenty one.
B.
When we when we look out the you know.
The cost the total cost to run the combined stage stop and shops, including.
Rent.
Comp and.
Equipment et cetera is has a number in the $60 million to $70 million range.
So there's a large opportunity for us over time.
In that and as we as John said in his comments, we've got there's contractual run down periods for this.
From a financial perspective.
There's a large opportunity for us over time.
We've spent a lot of time on this decision and thinking about it and the Jack went through a lot of statistics in his prepared comments about.
<unk> seen substantially higher levels of.
Digital engagement.
The fact that some of the recent acquisitions have changed the complexion of our traditional branch network, which gives us confidence that we can do this with a very reasonable and small risk of deposit attrition over time.
We have.
A pretty long track record of.
Closing branches optimizing the branch system over time, and we've been really successful at retaining customers basically redirecting them to nearby.
Ranch's and.
So that gives us a lot of confidence.
We've described over the years, a kind of a hub and spoke approach to the way we've established.
Established our branch system in Connecticut, and we weren't able to replicate that some in New York and it really is that many of our shop in shop branches are fairly close to our traditional branch. So we've always recognized that as a business model risk going into the <unk>.
Stores, and we intentionally created that hub and spoke approach and.
And as the World has changed.
And customers' preferences have changed we now feel we need to take advantage of the expiration of these contracts and take this strategic step.
Thanks for that and just switching over to the loan growth side.
There are some headwinds.
As expected.
Runoffs still going on and Rajiv.
Multifamily in the United Buck.
I guess what are the key drivers for kind of the net loan growth.
As we look at 'twenty one.
Yeah.
It's David.
Growth is.
As they go down the balance sheet.
Is the continued success that we've had in equipment finance and I would say, particularly led by sleep.
Some of the specialized industry verticals that we've talked about in the past whether it's Paul.
Our franchise lending fund banking et cetera.
The in 2020, we as the planned strategy. When we are remixing the balance sheet. We also face the headwind of a declining residential mortgage portfolio that process from our perspective has has.
We've got we've gotten to where we want to be for an allocation of the balance sheet. So as we look forward, we'll start to see some growth in the residential mortgage loans.
Mortgage warehouse.
Is <unk>.
Had a banner year, obviously in 2020, but rates are low refinance opportunities are still out there for a large part of the mortgage universe. So we think we will be able to hold back.
Balances fairly well in that business.
That was part of it is I would say R.
Are offset by continued.
Reduced activity in our commercial real estate book.
Thank you.
Okay.
Thank you. Your next question comes from Dave Rochester, with Compass point. Your line is now open.
Hey, good evening guys just on that last question.
In terms of one off in acquired loans runoff in New York City multifamily or do you guys have left in that or what are you expecting for this year maybe.
Sure Dave Good question. So the New York multifamily was ended the year at $512 million.
It came down $225 million in <unk>.
<unk>.
We think run off next year will probably be $100 million to $150 million.
And then in the United portfolio, we ended the year in the runoff section of that of that portfolio of $845 million.
So that came down $268 million last year.
We think the run off there will be about $200 million to $300 million.
Great.
Guide includes the net of all that.
Yes, it does.
Yep Okay.
Great and then just on the NIM Guide was wondering what youre assuming for the shape of the curve I know you talked about not assuming rate hikes.
And then it looks like the guide assumes upside from the <unk>. So I'm just wondering what you see driving that consistent unwind. If some of this excess liquidity build or maybe the P. P P forgiveness fees or something like that.
Yeah, well I think you hit on most of what I was going to bring up Dave So.
The $2 85 to 95 is.
Jack said is predicated on no change in.
The fed funds rate over the year, we have seen a modest steepening of the yield curve and think we will see a.
A bit more as the year unfolds b.
Some of the components that we're thinking about the the one that.
Really we came to bear on the margin in the fourth quarter was the excess liquidity right. So so we had if you look on that.
The short term investment line in the press release Youll see that we were up $3 $3 billion in the fourth quarter.
The reality is that money.
Sitting at the fed right now at.
At 10 basis points, so that had.
<unk> 20 in the fourth quarter.
Nine basis point negative impact from the margin.
We invested we grew the securities portfolio about $1 billion in the fourth quarter and we are continuing to.
Deploy some of that excess liquidity into the securities market.
So we'll be able to reverse.
Some of that nine basis point drag there.
Thank you.
That will probably.
Offset some of the positive benefit we think we will get in.
The debt pay off of the PPP piece, right, which is in Jack's comments talked about in the first half of the year. So about half of our loan book is.
Floating and it's really not going to change much but half of the loan book is fixed rate.
And if there was about 5 billion in equipment financing there that cash flow is fairly nicely and each.
Each quarter, we expect to get a little better reinvestment yields on that half of the loan portfolio, so that and deploying them.
Some of that excess liquidity and picking up you know a little over 100 to 120 basis points on that excess liquidity or some of the major drivers were thinking about.
Around that loan guidance.
Alright, I'm, sorry around the margin guidance.
And so for the NII growth.
How much in way of securities growth.
For the year at this point Rob.
For 'twenty there is call it about up.
Another billion dollars.
Net growth.
Okay.
Great and then maybe just switching to capital real quick.
Like you're already at the top of your target CET one range. So.
I was just wondering what youre thinking about in terms of maybe buybacks or M&A.
You've got some loan growth in your guide so you'll need some to support that but if you're already at the top of your range and you're making more money. He may have some some extra do something with.
Yeah.
True we are at the top of the range and we.
We didn't feel we'd wanted to change the range in guidance from an outlook perspective. The reality is and we talked about this I think last quarter, when we announced the insurance sale that was about 15 basis points.
Bruce the equity levels, we continue to think about and once in a while I'll talk to.
Our board about buybacks.
And that.
That is certainly something that might happen over the course of the year.
It's not planned today, it's not.
It's not in our guidance, but it is definitely just one of those capital management tools that we have regular periodic discussions with our board around.
And then on M&A any updated thoughts there.
Jack.
I would say no updated thoughts and I think continues.
You too.
Look at the environment and have discussions.
With people in.
Obviously, there's been a lot less.
That's happened out there and I think the I think the challenges around the.
The environment, certainly, causing people to at least look at their strategic alternatives and considered.
Centered on that as opposed to continuing to find a way here.
Yep, Okay, great. Thanks, guys appreciate it.
Thank you.
Thank you. Your next question comes from Mark Fitzgibbon with Piper Sandler Your line is now open hey.
Hey, guys good afternoon.
Mark Hey, Mark.
Just a couple of quick follow ups on the in store thing.
Apologize if you've mentioned this but how many of the in store locations can you actually in 2022.
How many can we close in 2022.
Yeah Yeah.
Bye.
At the end of 2022, they will all have been closed and Mark there's a there's a strength there was an original agreed upon schedule.
They can see how 23, I'm, sorry, all through 'twenty, three and and.
And that's well laid out and it's kind of.
10 years ago, with Paul that actually 20 years ago with both parties in an orderly unwind. If there was one would would kind of go by county and.
We don't have.
Finger tips on that summary, right here, but well.
We can will begin to share that as we move through this but we are we indicated we are actively talking with stop and shop and we are about.
Both are those schedules and also where we might continue working with them.
Well it won't be a big footprint, but.
We believe that we will reach.
You know some agreement with them following those discussions.
Presumably Jack they'll bring it in other partner.
So I guess I'm curious do these branches have to stay dark for a period of time. After you close them before somebody else could sort of moving there.
No.
We watch the in store market.
Mostly mark as you can imagine then.
In store presence.
Across the industry is spending decline for some time.
That'll be an awfully big thing for anybody to take on and we're not expecting they will.
<unk>.
So that's our view on that and we have traditional branches close by so we are we like I said, we're confident we'll move those customers to the traditional branches and be successful.
But aren't you.
Unexpected.
And then David I Am curious on you had touched upon the $3 billion of short term investments.
Did I hear correctly that you expect to put about $1 billion of that to work in the securities portfolio.
Yes, Mark.
<unk>.
We grew the securities portfolio of about a $1 billion on a net basis in Q4.
At the end of the year, we were sitting on three 7 billion in change of liquidity.
So and that was up in the quarter of $3 3 billion. So.
About half of our current thinking is about $1 billion of that $3. Three at least right now we will deploy in the first half of 2021.
Okay.
Thank you and then just lastly to follow up on the M&A question.
Jack It sounds like there's a lot of things going on out there could you envision.
Doing a bigger sort of M O kind of transaction is that something that you would consider.
Well I would say that but we look at the landscape all the time.
And you know there's there's at least some potential eventually that we would that we would consider that with the right partner I would say I definitely would not say.
Absolutely not.
But those are difficult.
And.
But certainly possible I don't we I guess I would say it this way as well what we're really confident in our track record of execution on M&A and if we felt like there was an appropriate.
I think that I would.
I would feel very good about our talented folks going and taking something on there but.
Those those are low probabilities.
Thank you.
Thank you. Your next question comes from Chris Mcgratty with <unk>. Your line is now open.
Hey, good afternoon.
Our growth.
Hey, guys I, just want I'm, sorry for going back to the stop N shop, I want make sure I get the impact right.
You guys said $60 million to $70 million of expenses related to this action.
Nothing nothing this year, but next year.
For any reinvestment that would be the savings from that I guess number one is that is that the right way to think about it and we've seen others do branch closures and maybe 50% gets reinvested as that mine. The ZIP code about how you were thinking about a potential state net savings.
In 2022.
So that $60 million to $70 million as our all in cost for the totality of stop and shop branches in both states. So that's about right.
Comp and benefits occupancy all land.
We did not say.
What percentage of that would be reinvested, specifically, but that is the opportunity from a cost savings.
Yeah, well we're already in.
Vesting.
Our digital capabilities, it's very steadily for years, and we will certainly come in it again in 2021 to fall this year.
Where it simply made the point that it is going to give us the capabilities to use some of it but I wouldn't use the thought of 50%.
I don't think I don't think as I sit here today that that we would feel like we would need that much.
Okay. So that that net benefit would be about 22 of them I got it okay.
And I'm really thinking about that more.
So 23 event not a 'twenty two event.
Okay. Okay. That's helpful.
Just one more on the on the P. P P I.
I think you gave the numbers.
In the quarter about $20 million, how much what's left on the fees and then secondarily.
What are the thoughts on the brown to participation.
Participation.
Sure so.
<unk> is.
In the in 2020.
The total net interest and impact of fees and interest income was $47 million.
Now that was over three quarters, obviously, you know second third and it was ramping up over and over that period of time, we're making the assumption that what remains on the books.
All be forgiven in the first two quarters of the year 'twenty.
That number is just about the same amount it's about $50 million.
Alright, that's total between the 1% in the MFA is correct okay.
Yes, that's the total.
And then make strength.
And then.
So were actually calling what's going on right now P. P. P three internally.
And that's just starting to ramp up.
Only been at it two days now.
We're.
Our thoughts around that are not embedded.
And what is the outlook, we're sharing today I'll just share.
But I think other was this morning at approximately 2500 applications already.
Mostly on the small small size less than $150000.
And Andrew.
Good utilization of our technology, and our portal customers I've actually making money.
Implications themselves.
Needing to engage with our bankers so.
It's early but seems to be active we're not expecting it's going to be anywhere near PPP won.
But we didn't you know we don't know.
So.
Okay.
Great. Thanks, Thanks, a lot for taking the question.
Thanks.
Thank you. Your next question comes from Ken Zerbe with Morgan Stanley. Your line is now open.
Alright, great. Thanks.
Maybe just a little more of a theoretical question for you if you don't mind.
I always think about banks and branches, obviously people have not been going into them as much but they are definitely used as a marketing tool and it's great to have that brand.
It's out there.
I shop in shop in shop, I see People's.
It's definitely very helpful. Like how are you guys thinking about.
That aspect of it like it needs more actually more specifically, how do you think about growing the business.
Without sort of that I'm going to say quote free marketing.
Of having branches in many more locations.
Yeah, well I I am.
I appreciate what you're saying and noting that and I think tradition traditional branches do that force as well right and historically always had.
And even though maybe.
Maybe we're presence where we're very much committed to that meaning bigger signage and you know more card is going by et cetera.
So that and the other thing that in terms of growing the business. We are doing so much more in the digital marketing space.
Then you know, it's just ramping up incredibly fast and and so our messaging.
Two people is coming more through the technology and non cell phone and the computer.
<unk> offers.
Visibility on product and what the brand is doing what also what we're doing in the community who use digital a lot to talk about our our community activities and the foundation as well.
Got it okay. That's helpful.
And then just a separate question in terms of the goodwill write down or the goodwill impairment test that youre doing.
I guess I, maybe that caught me a little bit off guard I wouldn't expect in this environment.
Debt, we would see any goodwill write downs could you just talk about what parts of your business or potentially subject.
That might be most at risk of.
Of a write down.
Yeah, Hey, Hey, Ken it's David.
So what we we.
We tried to say in those prepared remarks in the press release is yeah. This is an accounting exercise.
The date that we do this happens to be October 1st.
So a bit.
A part of that.
Process, you know a complicated.
<unk> has to do with market cap on the day of.
Assessment, which for US we had a $10 17.
$10 17 stock price $4 $3 billion market cap.
And also there is analysis relative to peers Boston the peers, we're all trading about one to one point.
<unk> eight to one one times tangible book value.
That is a piece of it so.
You run that assessment that accounting exercise over the units that we report.
In our public documents, so that's just commercial retail and wealth management in our three operating businesses.
So it's it's complicated it was it's a difficult a valuation date, but it is the day that's.
These assessments happen every year.
Sometimes more often but at a minimum.
What's <unk>.
Somewhat interesting by this is.
At year end, we had a market cap that was up another billing them two to $1 three from that point.
We were doing this at 12 31, there it wouldn't be an issue right there wouldn't it wouldn't be the possibility of an impairment charge, but we're dealing in working with our outside auditors and valuation.
James team that we work with and where we're doing it around the date that we have to it's proven to be a difficult day.
For us.
Got it okay I understand alright, thank you very much.
Youre welcome. Thank you. Your next question comes from Steven Duong with RBC capital markets. Your line is now open.
Okay.
Hi, good evening guys.
I think they've just.
Just wanted to touch on.
On the margin.
Your cost of total deposits is continues to climb lower do you think that by the end of this year you would fall below 20 basis points.
Yeah.
I think that is that is possible. If we continue to see these.
My word massive inflows of deposits into our company.
And we're not the obviously the only one who is experiencing that then I think the industry needs to do what they can to preserve margin.
It's possible we know what the role is on R. R.
Our CD book.
That's the part of the book that there's contractual pricing on but there is a fair theres a large differential between those Cds that are rolling off in our current offering rate and Thats why that book is going down and the money is.
Because rates are so low just as going to noninterest bearing accounts with us or.
Funny market rates EBIT, lower theres, a theres, a clear preference for liquidity amongst customers and because the industry is.
Thanks.
This is an industry issue, there's really very little opportunity for customers to go elsewhere for any great pick up debt meaningful enough to make it worthwhile so basically.
That's the long answer to yes, I think that's possible.
Okay great.
And with all of these deposits.
I know you guys are taking your.
Peter will be borrowings down considerably you still.
Is it going to be stable now going forward or.
Can we expect that to go down further.
The home loan advances that are on the books now are all term advances at this point, so and they are at relatively good rates. So.
We really haven't spent a lot of time thinking about prepaying them and incurring any modest charge to do that.
So I don't know the exact term structure of how much might come off this year.
But whatever it is that's probably all the change will be and it will be relatively modest.
Got it and if I could just squeeze one last one in just on your NIM guidance.
Is that that's not assuming a further steepening in the yield curve.
Well, it's just based on current forwards what I was trying to say is.
Short rates are not going to move this year, that's what the market's telling us that's what the fed is going up but we have seen.
A modest steepening of the yield curve.
Yeah.
In the last call it two months and I would say market expectation is for a little bit more.
Steepening, but it's it's it's relatively modest.
Got it appreciate it thank you.
Yeah.
Youre welcome.
Your next question comes from Matthew Breese with Stephens, Inc. Your line is now open.
Good evening everybody.
And maybe just go into the provision in the credit outlook I appreciate the guidance on the provision for this year.
Just curious you know given the sharp reduction in deferrals and the clear comfort on the credit front could you give us just a little bit more color or insight as to how you think charge offs might trend this year.
Yeah.
Yeah right now.
You know where.
We're not looking at a dramatic shift.
At all.
Performance has been really good actually.
Really pleasing when I think about what we've all been through here.
10 months, so think about.
Delinquency is has gone in.
How we and banks have dealt with people that were.
No.
I'll say anomaly.
From a charge off perspective, our experienced this year is really on unique situations most of them pre pandemic kind of kind of a troubled situations and.
Like in the past, we we get those once in a while but not.
High level.
Okay, and then with that in mind, considering where the reserve is you know.
How long might it take for you to get back to that seasonal day, one level edge as you know.
The pandemic is increasingly put in our rearview mirror.
Boy, that's a tough that's a tough one but a guess on that.
Yeah, Yeah clear.
Clearly agree with that.
You know.
We put a provision estimate out there we spread it $20 million, which is the first time, we've ever done that as a company and normally.
We're always comfortable with 10 and were always with it within that range, we just spread it an extra 10 from the perspective that.
Things are getting better.
That's clear.
Charge offs for us for the last couple of quarters have been rare.
Relatively low and steady we've.
We've been able to bring provision.
Expense down you've seen some banks.
Start to release reserves.
<unk>.
We've been a little reluctant to do that yet.
Think that will probably unfold, we hope that unfolds in 2021, but we just want to be conservative in our.
Viewpoints.
At this point.
And.
You know it's really.
Cecil scenario driven.
Which is another way of saying its economic forecast driven.
Understood Okay.
And then just going back to M&A.
You know maybe I was hoping you could provide some color on the markets.
Across your footprint that you want to be bigger and you want to be better in the stack order, where there was a target and you would take advantage of it.
One of those markets.
Well I'm not ready to go there.
You could look at our whole footprint.
No, but where we're aware of it.
And.
We've always said.
And we've been saying that we've always done moving book across our markets for opportunities.
To do end market deals and then also look at markets adjacent.
Got it Okay and then just last one from me you know with all the digital discussion.
I just wanted to ask you to get your thoughts on the OCC letter from a couple of weeks ago.
James to blockchain stable points for payments that you've made all these investments in digital technology is that something that you've been pursuing we don't hear a lot of regional banks.
Certainly not a lot of community banks talking about this and just curious what your thoughts were there.
Yeah, we have we have not been pursuing it.
Certainly pay attention like others around the Collyn, that's all developing but it's not not anything that's stuff that we're working on.
Yeah.
Great. That's all I had thank you.
<unk>.
Thank you. Your next question comes from David Bishop with Seaport Global Securities. Your line is now open.
Yeah, Thank you gentlemen, and good evening.
I had a question you'd mentioned that you're expecting some benefit from.
The roll off of Cds.
The higher rate to a low rate just curious what the.
What that differential is in terms of our offering.
Fields on the CD portfolio.
Top of my head day, but I don't have the exact numbers, but I think that current differential is about 150 basis points or so.
It's quite significant are offering rates are.
Is it dependent on term mark.
Probably only gets up to maybe 30 or 40 basis points.
Got it and then.
Noted the strength and I know, it's been building across the other year on the commercial lending fee side in terms of fee income just maybe some commentary in terms of the outlook for our commercial banking fees into 2021.
Yeah, I mean, thank you for recognizing even.
Even in a pandemic year.
Commercial banking lending fees.
We're up.
There is there is some good news and bad news in there.
I'd say the bad news is we did benefit from commercial real estate, mostly payoff fees right. We like the we like the prepayment fee, we hate to lose the balance.
So so that's the one that's hard to call and that's the you know.
The good news bad news piece that we experienced that every year. The the good news when I think about commercial banking fees is the.
Even in the.
This year, we've seen nice syndication fees out of our efforts to build those capabilities were leading more credit deals, we're earning servicing fees on some of those deals whether it's in our health care, Our fund banking group or even <unk>.
Mortgage warehouse group.
The day commercial.
B activity in generation capabilities continue to get stronger.
Last year was a tough year for our interest rate swap business, we were down about $9 million.
In aggregate year over year, and you know, where we stand ready for every customer interest we have it's just when when origination activities are subdued.
Those activities are also subdued as soon as.
Activity levels come back we will see a resumption of those of those fees and they they are the type of piece that will come back.
Strongly in quickly.
Got it I appreciate the color. Thank you.
Youre welcome.
At this time there are no questions in the queue again to ask a question. Please press star one.
Ladies and gentlemen, since there are no further questions in the queue.
I'd now like to turn the call over to Mr. Barnes for closing remarks.
In closing we are pleased with our fourth quarter performance, which provided a solid finish to a strong 2020 or people's United, especially in light of the uncertain economic environment caused by the pandemic.
These results reflect the strength and resilience of our franchise.
Looking ahead.
We are cautiously optimistic about economic trends in 2021 and continue to be confident in our ability to successfully execute and an operating in any operating environment.
Most importantly, we remain committed to providing personalized service and delivering value and convenience to customers across all of our branch network and digital platforms. Thank.
Thank you all stay healthy and have a good evening.
Thank you for your participation in today's conference. This concludes the presentation you may now disconnect good day.
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