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People's United Financial (NASDAQ:PBCT)

Q1 2013 Earnings Call

April 18, 2013 8:00 am ET

Executives

Peter Goulding

John P. Barnes - Chief Executive Officer, President, Director, Member of Treasury & Finance Committee, Member of Enterprise Risk Committee, Chief Executive Officer of The People's United Bank, President of The People's United Bank and Director of The People's United Bank

Kirk W. Walters - Chief Financial Officer, Senior Executive Vice President, Director and Member of Enterprise Risk Committee

Analysts

Mark T. Fitzgibbon - Sandler O'Neill + Partners, L.P., Research Division

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Collyn Bement Gilbert - Keefe, Bruyette, & Woods, Inc., Research Division

Matthew Brandon Kelley - Sterne Agee & Leach Inc., Research Division

Bob Ramsey - FBR Capital Markets & Co., Research Division

Casey Haire - Jefferies & Company, Inc., Research Division

Karti Bhatt

David Rochester - Deutsche Bank AG, Research Division

Rahul Patil - Evercore Partners Inc., Research Division

Operator

Good day, ladies and gentlemen, and welcome to the People's United Financial Inc. First Quarter Earnings Conference Call. My name is Erica, and I'll be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to Mr. Peter Goulding, Senior Vice President of Corporate Development and Investor Relations for People's United Financial Inc. Please proceed, sir.

Peter Goulding

Good morning, and thank you for joining us today. Jack Barnes, President and Chief Executive Officer; Kirk Walters, Chief Financial Officer; along with Jeff Hoyt, our Controller, are here with me to review our first quarter results. Please remember to refer to our forward-looking statements on Slide 1 of this presentation, which is posted on our website, peoples.com, under Investor Relations.

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

John P. Barnes

Thank you, Peter. Good morning, everyone. Appreciate you joining us today. Before we get into the particulars of the quarter, I'd like to share some thoughts about how we are continuing to build franchise value. We are consistent with our conservative approach building this franchise for the long term. The way we address investment choices on business units, talent, compliance, stress testing, new product development and more, will position us very well in the years ahead. Of course, it is an art, especially given the low interest rate environment to keep improving shareholder returns while making investments in some areas and streamlining others.

Ultimately, we are shareholders and our choices are designed to maximize shareholder returns not only in the near term but over the medium and long term. We feel good about our progress moving the company forward.

Now with respect to the first quarter results, on Slide 2, operating earnings were $57.9 million or $0.18 per share, with net income of $52.5 million or $0.16 per share. The net interest margin declined by 25 basis points to 3.38% compared to 3.63% in the fourth quarter. The decline was expected and was due to a number of factors that Kirk will cover in a few minutes. We believe that our net interest margin has now largely stabilized in line with our guidance in January, which should allow net interest income to grow at a pace similar to our growth in earning assets.

We are very pleased the end of period loans grew at an 8% annualized rate in the first quarter. If we were to look at the quarterly averages, annualized loan growth was even stronger at 10%. Either way, our loan growth this quarter is a continuation of our momentum which began in the third quarter of last year, and occurred despite the fact that the first quarter is historically a seasonally slower quarter for loan growth. Further, our pipeline remains strong and runoff in the acquired portfolio has slowed as we predicted in January.

The efficiency ratio for the quarter rose to 64.1% from 63.1% in the fourth quarter primarily due to a lower net interest income. Expected growth in net interest income combined with fee income expansion and expense control will produce efficiency ratio progress in the quarters ahead. We remain focused on attaining a 55% efficiency ratio by the fourth quarter of 2014.

Asset quality remains strong. One of the most important lessons learned during my 30 years in banking, including my time as an FDIC examiner and a chief credit officer is that sound underwriting is the only way to confidently grow a balance sheet. With a period of prolonged low interest rates and above-average capital levels comes the opportunity to repurchase shares at a discount to our earnings power in a normalized rate environment. Share repurchases also have the effect of helping to normalize both our dividend payout ratio and return on average tangible equity. Accordingly, we stepped up our repurchase activity this quarter repurchasing 11.1 million shares, up from 4.7 million shares last quarter. Still, capital ratios remain strong especially in light of our relatively low risk business model at approximately 140 basis points above peers on a tangible equity to tangible asset basis.

With that, I'll pass it to Kirk to discuss the quarter in more detail.

Kirk W. Walters

Thank you, Jack. On Slide 3, you can see a breakdown of the elements contributing to our 3.38% margin results for the quarter. As you recall, the fourth quarter operating net interest margin is 3.63%. As expected, higher average securities balances pressured our margin by 7 basis points. The securities portfolio represents 15% of total assets, which although up from the middle of last year remains below our peer medium.

The full quarter impact of our December senior note offering and fewer calendar days in the first quarter negatively impacted our margin by 5 basis points each, or 10 basis points in total. The effects of lower yield in new loan volume and acquired loan accretion reduced the margin by 4 basis points and 3 basis points, respectively.

On an encouraging note, we only lost 2 basis points related to loan repricing and amortization this quarter, which is largely offset by lower deposit rates and a better mix, which benefited the margin by 1 basis point.

In the quarters ahead, we will be working hard to increase the level of DDAs to help offset some of the decline in loan yields. As Jack mentioned earlier, we anticipate our net interest margin has largely stabilized having worked through significant levels of acquired loan runoff and over 4 years of repricing on the originated portfolio.

Slide 4 links closely with our discussion of the net interest margin. For the quarter, interest accretion on acquired loans totaled approximately $37 million and the carrying amount of acquired loans at period end totaled $2.1 billion, down from $2.2 billion last quarter and $3.4 billion 1 year ago. All of these portfolios are seasoned at this point, and since we aggressively dealt with some of the more troubled loans first, we continue to believe that our acquired loan portfolio credit marks will prove to be sufficient.

Slide 5 was designed to provide clarity around the cumbersome acquired loan accounting. There are 3 main takeaways here. First, as shown in the middle of the left-hand column, the weighted average cash coupon on the acquired loan portfolio is 5.16% this quarter. With that number, observers can make their own estimates about the speed of prepayments in this lower rate environment.

Second, the impact to the amortization, the original discount applied to the loans at the time of the acquisitions is 14 basis points this quarter. This level has remained relatively constant over the past few quarters.

Third and finally, the additional accretion associated with original discount contributed $0.02 to our first quarter 2013 earnings. This is once again a level consistent with recent quarters.

Over time, as the acquired loans repay mature or settled, the amortization original discount will dissipate, keeping in mind that acquired loan portfolio runoffs has now slowed considerably from the levels witnessed last year.

Slide 6 provides a breakdown of the elements contributing to our net increase in loans. The loan portfolio grew $424 million or 7.8% annualized. This is a testament to our expanded footprint, as well as progress in our heritage markets and strengthened product line up.

We experienced acquired loan runoff of $155 million this quarter, down from almost $400 million in the fourth quarter of 2012. The acquired loan portfolio runoff is expected to remain at these lower levels through the balance of the year, given our resolution of significant problem assets, continued portfolio seasoning and longer duration of the remaining assets.

Originated loan growth for the quarter totaled approximately $580 million. As in prior quarters, growth came from a variety of products and geographic areas. Commercial real estate contributed 65% of total originated loan growth or $377 million, including $198 million from New York commercial real estate. The portfolio remains broadly diversified with most relationships well below $25 million.

C&I contributed 11% or $66 million. Within C&I we saw strength across all categories.

Residential mortgages contributed 17% or $96 million of originated loan growth in the first quarter. Approximately 88% of the residential mortgage originations held for investment were hybrid adjustable-rate mortgages. In the first quarter of 2013, the average loan origination size was 667,500. The average FICO score was 758 with an average LTV of 65%. The residential mortgage pipeline is up 6% quarter-over-quarter and 65% of the pipeline is jumbo product. One positive from all the mortgage banking activity is continued strong gains in sale income. A trend which now seems likely to continue for at least the first half of 2013.

New home equity commitment closings totaled $183 million compared to $172 million in the fourth quarter of 2012. In terms of recent originations, average size of first quarter 2000 (sic) [ 2013 ] originations was $141,300. The average FICO score for the first quarter 2013 originations is 762 with an average combined loan-to-value of 58%. It's important to note that 100% of home equity loans were retail originated with 65% in the first lien position.

As you think about next quarter, our municipal business tends to be seasonally lower in the second quarter as their fiscal year end activity negatively impacts loan and deposit balances. The actual business fundamentals within this customer base is strong. It is merely a timing issue.

You can see on Slide 7 a breakdown of the elements contributing to our net increase in deposits. Retail deposits increased by $172 million, while commercial deposits decreased $131 million. We continue to improve the mix of our deposit base with time deposits decreasing $120 million over the quarter. The improved deposit mix and efforts throughout our franchise to lower deposit cost, particularly in the acquired markets, contributed to a further decline in deposit cost to 39 basis points.

The larger deposit opportunities relate to acquired deposits, continuing to increase our deposit mix in favor of non-interest-bearing deposits, and a better utilization of our Southern New York branches. Acquired deposits represent 15% of total deposits and weighted average cost of 73 basis points. Over time, these rates will continue to move towards our franchise average deposit costs.

Noninterest income grew 14.5% over the prior year period with growth in almost every fee income business, as business leaders and relationship managers continue to bring our customer focus banking model to our expanded geographic footprint.

As shown on Slide 8, on a linked quarter basis, non-interest income decreased $1.4 million from a very strong fourth quarter level. Insurance revenue had a seasonally stronger quarter, while bank service charges were seasonally lighter due to typically lower levels of overdraft fees. Loan prepayment fees and gains on loan sales also decreased by $800,000, $700,000, respectively. Loan prepayment fees were fairly high during the past 2 quarters and we anticipate lighter levels in the quarters ahead. I would also note that our brokerage business improved on a linked quarter basis. This was driven by both better engagement from retail customers and through additional customers added in some of our newer markets.

On Slide 9, we illustrate the key components of our changes in non-interest expense. From an operating expense perspective, payroll-related costs increased $2.7 million, which is largely seasonal as a result of higher payroll taxes and 401(k) match expenses associated with the restart of annual limits. Net REO costs were higher by higher by $1.1 million as a result of fewer gains in REO this quarter as compared to last quarter. More than offsetting these items were lower professional and outside service costs, which was driven by better pricing and vendor credits. The net impact was a $500,000 reduction in operating expenses for the quarter. Nonoperating expense increases were driven by branch closure accruals, 4 branches in New York and 1 branch in Connecticut.

Slides 10 and 11 are a reminder of our excellent credit quality. Once again, we did see an improvement in non-performing assets this quarter from already industry-leading levels. Originated non-performing assets at 1.42% of originated loans and REO remain well below our peer group and top 50 banks, and are down from 1.85% in the first quarter of 2012.

Looking at Slide 11, net charge-offs remain low at 24 basis points compared to 19 basis points last quarter and 22 basis points 1 year ago. Excluding the acquired loan charge-offs, which were primarily due to a single loan within the acquired RiverBank portfolio, net charge-offs this quarter were 18 basis points. These levels continue to reflect the minimal loss content in non-performing assets and are well below peers.

Over the last 4 quarters, charge-offs against specific reserves represent approximately 59% of total charge-offs. As such, we understand our credit issues well and typically at very few new credit events each quarter.

Now I'll pass it back to Jack.

John P. Barnes

Thank you, Kirk. Slide 12 highlights our ability to grow both sides of the balance sheet. We continue to make progress on loan and deposit growth on a per share basis, while maintaining excellent asset quality. Over the past 2 years loans per share and deposits per share have grown at a compound annual rates of 16% and 13%, respectively.

Operating return on average assets for the fourth quarter was 77 basis points. This decline was driven by both a larger balance sheet and a lower net interest margin. Progress will be driven by loan and deposit growth, a stabilized net interest margin, fee income growth and a disciplined approach to expenses. Further in the future, with our highly asset sensitive balance sheet, we look forward to rates returning to more historically normal levels.

Slide 14 illustrates the improvement in our return on average tangible equity on the low levels of 2010. We expect to see continued improvement on this metric as we improve profitability and thoughtfully deploy capital. Still, our capital levels remain approximately 140 basis points over peers on a tangible common equity to tangible asset basis. Normalizing our equity base to be consistent with our peers shows that our return on average tangible equity is 10.6%.

On Slide 15, we see the capital levels at the holding company and the bank remains strong with our tangible common equity ratio at 9.6% and Tier 1 common at 12%. Which compares well to our peers at 8.2% and 10.5%, respectively.

At this point in a very long low interest rate cycle, we are taking actions to hold net interest income steady, increase fee income, reduce cost and return capital to shareholders while we strategically invest in the business for the years ahead. Our robust pipelines and strong originated loan growth contributed to a continued momentum in our franchise. The strength of our platform allows us to attract and retain exceptional talent and provides a sustainable competitive advantage.

We will not take on unfamiliar credit risk or interest rate risk. When the environment does improve, we will be well positioned. This concludes our presentation. Now we'll be happy to answer any questions that you may have. Operator, we're ready for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from the line of Mark Fitzgibbon with Sandler O'Neill.

Mark T. Fitzgibbon - Sandler O'Neill + Partners, L.P., Research Division

In the operating expense reconciliation, you detailed a $6.2 million write-down of banking house assets. I wondered if you could explain what that is. And also from which deal the $300,000 in acquisition costs come from?

Kirk W. Walters

The write-down in terms of banking assets, which is what we're reporting as nonoperating, is the branch closures, and the -- or is primarily the branch closures. And that was, we closed 4 branches out in New York in Long Island, which was when we announced the acquisition of the branches from Citizens, at the time we had said that we expected everything settled in to have some branch closures there. So 4 were in Long Island and 1 was in Connecticut here.

Mark T. Fitzgibbon - Sandler O'Neill + Partners, L.P., Research Division

Okay. And then secondly, by my calculation, Kirk, the earn-back on the buyback is a little over 8 years and obviously you have some tangible book dilution this quarter. Do you worry at all about buying your stock back at these levels and what it may do to your tangible book value?

Kirk W. Walters

Well I think there's a variety of factors that play into the buyback. I mean, we think about the impact in tangible book value. We also certainly think about continuing to get our dividend payout ratio down, which is a relevant factor in the equation and continuing to bring our capital into line with peers, so from an overall performance standpoint that we get more and more back in line. So I think there's a combination of things that we look at in analyzing the buyback and thinking about the process of doing that.

Mark T. Fitzgibbon - Sandler O'Neill + Partners, L.P., Research Division

Okay. And then lastly, on the margin. Did your assumption for the margin stabilizing here reflect the expectation for low interest rates for a while?

Kirk W. Walters

The answer is yes. And I would say they stabilized within the range and the guidance that we gave earlier in the year in January of 3.30% to 3.40%. I think as you look at the margin, the impact this quarter, there was a number of sort of structural items from the fact that in the fourth quarter of last year we built a larger securities portfolio. We kept that effectively flat, but we had it for the whole quarter. The senior notes that we issued in December, of course, we have for the whole quarter. So a number of items that were in there were structural items that we had pointed out last January is going to impact but stabilized within that range.

Operator

Your next question comes from the line of Steven Alexopoulos with JPMorgan.

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

First, in terms of the buybacks stepping up this quarter given that your stock price was higher in 1Q than it was in 4Q. Is this a sign of maybe a lack of good M&A opportunities?

John P. Barnes

I mean we actually, we, as we've talked about in the past, we've got the higher level of authorization last year and we've continued to move in a consistent pattern, if you will, certainly increase the pace of the buyback now, but continued to move through those authorizations. And I think that we think of it separately, if you will, as compared to M&A activity.

Kirk W. Walters

Yes, I would generally say that in the M&A space, as it has evolved over the last few years, even in smaller deals, there's very few deals that occur in the banking space that are straight-cash deals. So most of the deals have a significant component of equity that ends up being issued within the deal as well. So we do tend to think about them in different places.

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

But it's separate from opportunity for M&A, so what is the key variable? I think you were 56 million or so buyback the last quarter, and you're up to 144 million this quarter. So what was it that changed that drove the step up in buybacks?

Kirk W. Walters

Wow, I mean, a couple of things I would say. First the fact that it was late in last quarter that we raised the debt if you remember it's in early December, and received the approvals and such for the increased buybacks. So obviously we are limited in a quarter in terms of the periods in which we can buy back in the days and that activity there. So there's just a practical reality in there in terms of what we could do fourth quarter versus first quarter because everything we announced in both the debt and the buyback authorization was in early December.

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

So from this point forward, should we expect it around $140 million or so a quarter is that how we should think about it?

Kirk W. Walters

I think the pace that we did in the first quarter subject to market's liquidity and the standard caveats is consistent with the pace that you should expect.

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

And then just to follow up on Mark's question on the margin and stability, just curious in some of your assumptions. First do you plan on adding to the securities portfolio at all this year? And then maybe secondly, could you walk us through the strategy to grow DDA and is that at all to replace Homeland bank, advances or anything like that?

Kirk W. Walters

In terms of the securities portfolio, our expectation is we'll be holding it flat for the quarter or flat for the year. So as maturities and cash flow occurs, we'll reinvest that. But we won't be growing the securities portfolio. And I would remind you that the first quarter, of course, we lost 5 basis points in the margin because the calendar day count that gradually comes back in throughout the balance of the year as well. On the DDA growth side, if you look back at the acquisitions that we did, those entities in most cases had a lower DDA mix than what we as a total company had. And we think that as if you look at our overall cost of funds compared to a lot of our peers, we think the primary difference at this point, relates to the fact that our DDA mix is lower. So our expectation is that -- we've been very focused on growing DDAs, particularly in the standard markets that we've entered. And I think the activity all in all has been good and that will be used predominantly to fund loans as we're growing the loan books.

John P. Barnes

I'd just add, Steve, it's Jack, that there's a couple of things come to my mind in terms of kind of the strategy of doing it. One is that we continue to have a very active promotions within our retail banking group to build DDA across the franchise. And we are very effective at executing on those types of campaigns. And the other is in Business Banking, we are very focused on continuing to make progress in our Business Banking group and look at Business Banking as a key growth area in terms of deposits. We're very successful there. But we definitely believe we have room to improve the deposit to loan mix in our Business Banking group. So those are 2 big areas of focus on growing DDAs.

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Okay, that's helpful. So Kirk, you say you're 3.30% to 3.40% margin for the rest of the quarter is for this year?

Kirk W. Walters

That's the guidance that we gave in January. And that continues to be our guidance for the margin. That's correct.

Operator

Your next question comes from the line of Collyn Gilbert with KBW.

Collyn Bement Gilbert - Keefe, Bruyette, & Woods, Inc., Research Division

Just to sort of take us back and ask sort of big picture conceptual question. On the 55% efficiency ratio that you guys have targeted for fourth quarter, it just seems like it's quite a leap from where we stand today. And the environment is still challenging. And just, can you just talk conceptually how you think you're going to get there within the business?

Kirk W. Walters

Well, I would reference you back to the guidance that we gave in January in terms of where we are looking for loan growth and deposit growth, growing the balance sheet and continuing to grind away the expenses, while we're expanding our fee income. And that's the real equation to getting to that number. So we remain very focused on it. We know that it's not an easy goal to get to, particularly considering the expectation, this low interest rate environment for an extended period. But we, at this point, remain overall I'd say very focused on getting there. And it is through organically growing the balance sheet, but really grinding away at our other businesses both on a fee income side and in the expense side.

Collyn Bement Gilbert - Keefe, Bruyette, & Woods, Inc., Research Division

Okay, okay. And then just sort of along those lines too, Kirk, when you think about "normal earnings" I mean how are you thinking about that? Because I guess I look at the business and I look at your balance sheet and with the pace of buybacks and the anticipated balance sheet growth that you're just talking about, you guys are going to kind of get to a pretty normal capital levels, it seems like by the end of this year. So to me, that seems normal in the sense of there's not additional levers that you really can pull once you sort of get there. So again, maybe kind of walk us through the progression of what normal means and how, where are the levers to get you there, what are we not seeing?

Kirk W. Walters

I'm not real sure what your question is, Collyn. If your question relates to do we think capital levels after we finish this buyback and if we continue to have good success on the loan growth front, at that point are getting closer and closer to the peer group, et cetera, the answer is yes. I think we are getting much closer there. I think normal, if you want to ask a question of what all of us would hope is a normal environment, somewhere down the road, is an environment where you have normal interest rates. And as you know we continue to have a very asset-sensitive balance sheet as we reported in the press release, 100 basis points with the $48 million on the net interest income and so, if that's the question, that's we've answered in there as well. But for right now, we're expecting that we will continue to have low rates. And that being said, we stuck to our net in, in terms of the percentage of our portfolios, the floating rate, we've continued to have relatively low durations on the securities portfolio and continue to grind away at our businesses and expanding them.

Collyn Bement Gilbert - Keefe, Bruyette, & Woods, Inc., Research Division

Okay, okay. That's helpful. And then just one final question, we had a smaller sort of merger of similar sizes in the New York market announced a few weeks ago. What do you guys think about that? I mean, sort of conceptually with the strains that have faced the industry, and do you think those types of mergers make sense? Could you all see yourselves doing something like that? If you could just kind of give us your thoughts on the notion of sort of mergers of similar size, just to try to get some economies of scale and cut costs.

John P. Barnes

Well, we think, we appreciate consolidation is a good idea in the industry. And we certainly are also appreciate the markets that deal took place. And obviously very active in wanting to grow our presence there as well. So in relation to our own appetite for those types of deals, we certainly, those opportunities, there are a few for us and we continue to work at relationships over time and think about those types of opportunities no different than the rest of the alternatives that are out there for us.

Operator

Your next question comes from the line of Matthew Kelley with Sterne Agee.

Matthew Brandon Kelley - Sterne Agee & Leach Inc., Research Division

On the commercial banking growth that you outlined, the $498 million, could you just talk about the yield that you're getting on both C&I and CRE during the quarter on new originations?

Kirk W. Walters

As we've discussed in the past, we don't give out really specific yields because we do tend to be very focused on spreads. But I think when you look at overall spreads, what we saw on a linked quarter basis was a pretty consistent spreads overall on commercial loans or spread of all the businesses run to a little over 300 basis points or right around 300 basis points over the underlying indices relating to those loans. With a range of probably on the lower end in some of the businesses of 260 to higher end in terms of 370, 380 with the clear outlier being the People's United Equipment Finance business, the old FinFed, which has quite a bit higher spreads.

Matthew Brandon Kelley - Sterne Agee & Leach Inc., Research Division

Okay. And would the low end of that range, the 260, be the multifamily product priced over 5-year treasuries, I assume?

Kirk W. Walters

No, probably the lower end, if you're looking at the averages of our businesses and we don't give out information directly on multifamily. We do in terms of our overall CREs, but if you look at the lower end of that business, it'd probably be in some of the really high quality middle market C&I type credits.

Matthew Brandon Kelley - Sterne Agee & Leach Inc., Research Division

Okay, got it. Next question, the allowance for originated loans has been drifting down, they are 88 basis points. Is that kind of the low point here, they're going to stabilize and will provisions going forward going to match the growth in charge-offs?

Kirk W. Walters

No we don't really -- as we go through the process, we really don't focus on an absolute number. I think we give you a lot of detail in our slide deck, which looks at the amount that we have against commercial loans, the amount we have against retail loans. And we have excellent coverage in the commercial portfolio in terms of the allowance not only against NPAs but in overall levels, especially considering our history. And a significant part of our prevision every quarter that we're putting away is for the new loan growth. So we do, over time, that probably will stabilize in a little bit better, but we really look at in the pieces that we've given you the detail that's in the Appendix of the slide deck.

Matthew Brandon Kelley - Sterne Agee & Leach Inc., Research Division

Last question just on your deposit service charges, down 4% this quarter, 5% last quarter. I mean how much of these changes are seasonal versus secular changes in consumer behavior, particularly in overdraft? And where you think that's going?

John P. Barnes

So from our perspective, as we look at the first quarter and our historical results, first quarter is typically low for us. And we think that, that has a lot to do with our customer base and the levels of deposits that they carry on a seasonal basis in the first quarter versus others. And that impact things like the number of overdrafts and other things that occur. So a variety of things that would tell us it's more, we think it's more seasonal and history tells us that. And we don't think there's any long-term change in customer behavior.

Operator

The next question comes from the line of Bob Ramsey with FBR.

Bob Ramsey - FBR Capital Markets & Co., Research Division

I would just want a clarity. I'm not sure if I understood you right or not, Kirk. But did you say as far as share repurchases go, do you expect a similar pace market conditions permitting through the rest of the year as the first quarter? So basically 11 million shares a quarter, give or take?

Kirk W. Walters

No, what I was responding to when the question came up earlier from Steve is obviously we are limited by authorization out there of 10%. So if you look at the pace that we would be exercising that authorization, subject to market conditions and a variety of things, one, we would certainly expect to complete that authorization this year and the pace could be similar to what we saw in the first quarter, which means that might be done a little earlier.

Bob Ramsey - FBR Capital Markets & Co., Research Division

Okay, that helps. And then as you think about sort of longer term, I know you've announced about capital a few ways, I mean completing the authorization does bring capital down sort of more in line with peers. Next year, do you sort of go back to the historical pace of 5% of shares outstanding or how do you think about longer term, the buyback opportunity?

Kirk W. Walters

We, at this point, really given no guidance after this year regarding any buy back activity. I think a lot of it will continue to be focused on the rate of growth that we have in our loan portfolio and overall what's going on with the balance sheet and also what goes on with the finalization of Basel III rigs and a variety of things. So the only guidance we're giving at this point is in relation to the existing authorization that we have in place.

Bob Ramsey - FBR Capital Markets & Co., Research Division

Okay. And then can you tell me with the $6.2 million write-down related to the branch closures, what line is that actually in, is it in the other line?

Kirk W. Walters

If you look at the P&L, yes, that's in the other lines.

Bob Ramsey - FBR Capital Markets & Co., Research Division

Okay. And then as you think about the seasonal impact of the higher FICO expenses, et cetera, this quarter, how much improvement is there sequentially next quarter? How much will expenses come down just from the seasonal factors?

Kirk W. Walters

Well, the seasonal factors relating to FICO, the 401(k) matches and some of that is about $3 million.

Bob Ramsey - FBR Capital Markets & Co., Research Division

Great. And then lastly, I sort of want to touch a little more on margin. I know you all said you continue to think you'll be in 3.30% to 3.40% range for the year. Is that a full year number or are you saying that in every quarter of the year you guys are going to be within that range?

Kirk W. Walters

The guidance that we've given is for the year as a whole. So in terms of that range, 3.30% to 3.40% is for the year as a whole.

Bob Ramsey - FBR Capital Markets & Co., Research Division

Okay, and then since you're at 3.38% today and you guys are saying that margin has hopefully now largely stabilized, does that suggest you could be closer to the high end of the range or does stabilize sort of mean you're not going to see 25 basis points because there were a lot of sort of unusual factors this quarter and the pace continues down but just at a much more manageable pace?

Kirk W. Walters

What we're referencing in stabilized is stabilized within that range of 3.30% to 3.40% for the year and I think you hit the nail on the head that we did have a lot of what I would say our most structural items that were very apparent when we've announced earnings for the fourth quarter and were embedded in the margin guidance that we gave you in January and things we pointed out in January.

Bob Ramsey - FBR Capital Markets & Co., Research Division

Okay, okay. But I guess certainly stabilized doesn't mean stable overall because you still do have the pressure from loan yields and the higher-yielding acquired loans wearing off, et cetera?

Kirk W. Walters

Exactly. We still -- once again, we've given guidance within the range of 3.30% to 3.40%. I think that's pretty tight guidance to be put out there and we certainly have given you all the pieces here just to see how things move back and forth. And I'd remind everybody once again that we gave up 5 basis points on calendar days and as the year goes, you get that back in.

Operator

Your next question comes from the line of Casey Haire with Jefferies.

Casey Haire - Jefferies & Company, Inc., Research Division

I saw the short-term borrowings ticked up again this quarter. I was just wondering if the NIM guide for this year relies on more tapping the short-term borrowings.

Kirk W. Walters

No, I think what's impacting the short-term borrowings really is the, a, the pace of loan growth, which continued to be very good this quarter and we're certainly very pleased with it. And the fact is seasonality in our deposit bases and as you can see, we do tend to have some seasonality, particularly over on the commercial side but also within the retail side as well. So that tends to drive more where we're at in the borrowing. Certainly our preference remains to be deposit funded, we remain very focused on them.

Casey Haire - Jefferies & Company, Inc., Research Division

Okay. And then just sort of a longer term question. You guys obviously show up pretty well on assimilation tables for higher rates. And I can certainly appreciate that the C&I, the floating rate loans are 40%. But there should be -- there's decent interest rate risk in some of the other buckets, commercial real estate and resi mortgage. I'm just a little surprised to see such a strong move and then I was wondering if you could talk me through that and what am I missing?

Kirk W. Walters

Well, the overall level of floating rate loans that we have I think you referenced a 40% number it's probably closer to 35%, 36% in terms of the overall. But that is, those loans are primarily tied to 1 month LIBOR prime. And so when rates do move, those move fairly quickly. And also we've structured our securities portfolio in a way that we have significant cash flow coming off every month, so, and when you look at a lot of the other loans and such that we have on the books, overall, you tend to see shorter tenures and good cash flow off those as well. So that asset sensitivity number we've been reporting has been pretty consistent, really flex the consistency of the balance sheet, mix of businesses and how we run the business.

Operator

Your next question comes from the line of Kenneth Bruce with Bank of America Merrill Lynch.

Karti Bhatt

It's actually Karti Bhatt on for Ken Bruce. Most of my questions have been answered, just one quick one. On OpEx, I mean, you talked about some seasonal aspects but is there any more room to run and just squeezing expenses, core expenses down further?

Kirk W. Walters

We gave guidance earlier in the year in terms of a range. And we are continuing to, quarter-after-quarter, grind out that number and grind it down and continue to take actions such as you saw this quarter with some more consolidation of branches and looking at different items. So the answer is, yes, we believe that we can continue to grind it down while it come in huge pieces, no, but we are very focused on it with the internal processes and everything that we are doing.

Operator

Your next question comes from the line of Dave Rochester with Deutsche Bank.

David Rochester - Deutsche Bank AG, Research Division

Kirk, you touched on the accretion add to the margin of 14 bps this quarter. Are there any lumpy drop offs in that coming up this year in 2014?

Kirk W. Walters

In terms of the impact on the overall margin on the accretion side and you're referencing our one table that we have in there, which I'm glad you're using it. But to the question is it lumpy at this point? No. I mean we sort of worked our way through the old FinFed acquisition, which was lumpiest part for us because those were short duration assets and now we're into a much steadier runoff in terms of the portfolio.

David Rochester - Deutsche Bank AG, Research Division

And should we expect most of that to be gone by 2014 or does that push into 2015?

Kirk W. Walters

We haven't given a guidance as to the remaining duration of that portfolio. They typically were bank like assets, probably some remaining focus in the commercial real estate area and so the tenor is probably a little longer than what you're talking about.

David Rochester - Deutsche Bank AG, Research Division

And just going back to what you were saying earlier on the loan spreads. It sounds like incremental loan production yields are still below the originated portfolio yields. So just trying to figure out where the margin stability or the relative stability is going to come from if originated book yields are still moving lower while the accretion is just going to gradually decline. Are you still looking for a maybe decent opportunity to move funding costs lower?

Kirk W. Walters

Well, I mean, it's a couple of things. First, I'll remind you that we put out the range of the margin of 3.30% to 3.40% and that's the context in which we're making our comments. I think if you look at the overall new yield on loans coming in at this point for overall for the loan portfolio, it's within 25 to 30 basis points of existing yields in the portfolio. So we do see it stabilizing more there. And we, also, as we've pointed out earlier, first quarter is always tough on us on a day count standpoint and you get that coming back in as well. On the funding side, our biggest opportunities come from 2 places. Really the acquired deposits still are the relatively high rate and those will roll off as in many cases the CDs mature and such and gives us an opportunity. And that relates to about 15% of our portfolio. And the other part is with Jack's comments earlier on the growing the noninterest bearing deposits and getting them back to levels that were consistent with what we had before we did all the acquisitions. So those are the other opportunities that we're very focused on that will continue to help mitigate some of the natural pressure that you have in terms of portfolio.

David Rochester - Deutsche Bank AG, Research Division

Just one last one. You had mentioned, I think, just under $200 million of your CRE came from New York. I was Just wondering how much of that was multifamily? And if you can talk about the competitive dynamics you're seeing there?

Kirk W. Walters

The majority of what we have coming out of New York is multifamily. And as I've been very familiar with that market for a long time, and it is a very competitive market. But we overall entered the market with an extremely experienced team of folks that are very focused on overall relationships and accordingly, and also focused on making sure that the flow of product is not on the larger loans but in particular on the smaller loans, where the price and dynamics remain for all intents and purposes, reasonable.

Operator

[Operator Instructions] Your next question comes from the line of John Pancari with Evercore Partners.

Rahul Patil - Evercore Partners Inc., Research Division

This is Rahul Patil on behalf of John. Just had a quick question on loan growth. How much did mortgage warehouse lending contributed to the loan growth this quarter?

Kirk W. Walters

Actually if you look at mortgage warehouse lending and we gave some guidance on this in January as well, we actually saw that come down on a linked quarter basis. In the fourth quarter, the utilization rates in mortgage warehouse were very high. And as we came into this quarter, we saw the overall warehouse lending come down into a little more, still on the higher end, but a little more normal utilization rate. So they did not contribute to the growth this quarter.

Rahul Patil - Evercore Partners Inc., Research Division

Okay. And then are you still comfortable with the high single digit to mid-teens loan growth outlook for the year?

John P. Barnes

Yes, we are. One of the nice things about this quarter, outside of the growth that we've got from the New York commercial real estate, we had very good performance across all of the markets and business lines generally. So we're very pleased with how we're moving forward.

Kirk W. Walters

And I think the other item that's important to note is that the pace of runoff on the acquired loans came back within our expectations. So that certainly helps in terms of giving comfort to that original guidance.

Rahul Patil - Evercore Partners Inc., Research Division

Okay. And then just lastly coming back to the NIM. Regarding the competitive landscape out there, are you still seeing the similar degree of loan pricing competition in the markets today in terms of pricing and structure? And is there any particular market or loan type where the competition has kind of recently picked up?

John P. Barnes

I think generally we are seeing very competitive environment again across all, in all the markets and in all business lines. Everybody is competing very hard to grow assets in this environment. We are sticking to our fundamental approaches there and we're certainly not willing to stretch on asset quality and underwriting standards, but we are seeing a very competitive environment in terms of pricing.

Operator

Ladies and gentlemen, since there are no further questions in the queue, I now like to turn the call over to Mr. Goulding for our closing remarks.

Peter Goulding

Thank you again for joining us today. We appreciate your interest in People's United. If you should have any questions, please feel free to contact me at (203) 338-6799.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. And everyone, have a great day.

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