People's United Financial's (PBCT) CEO Jack Barnes on Q4 2015 Results - Earnings Call Transcript

| About: People's United (PBCT)

People's United Financial Inc., (NASDAQ:PBCT)

Q4 2015 Earnings Conference Call

January 20, 2016 5:00 PM ET

Executives

Andrew Hersom - SVP, IR

Jack Barnes - President & CEO

David Rosato - CFO

Analysts

Bob Ramsey - FBR

Casey Haire - Jefferies

David Darst - Guggenheim Securities

Collyn Gilbert - KBW

Matthew Breese - Piper Jaffray

Operator

Welcome to the People's United Financial Incorporated Fourth Quarter and Full-Year 2015 Earnings Conference Call. My name is Andrew and I will be your coordinator for today. [Operator Instructions]. I would now like to turn the presentation over to Mr. Andrew Hersom, Senior Vice President of Investor Relations for People's United Financial Incorporated. Please go ahead, sir.

Andrew Hersom

Thank you and good afternoon and thank you for joining us today. Here with me to review our fourth quarter and full-year 2015 results are Jack Barnes, President and Chief Executive Officer; David Rosato, Chief Financial Officer; Kirk Walters, Senior Executive Vice President; and Jeff Hoyt, our Controller. 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.

Jack Barnes

Thank you, Andrew. Good afternoon. Appreciate everyone joining us today. As you have already seen from our release earlier today, we reported operating earnings per share of $0.22 for the fourth quarter, bringing the full year result to $0.87 per share, a 6% increase from the prior year. This marks the sixth consecutive year of growth in operating earnings per share. These results are driven by the strategic investments we have made in talent, products and services. Throughout 2015, we continued to move the Company forward by organically growing loans and deposits, strengthening fee businesses, implementing technology enhancements and furthering cross-sell efforts.

As always, we continue to evaluate the best ways to serve our customers and improve operating efficiency. As such, on November 1 we closed on the sale of our payroll services business to the Company's current payroll software licensor and entered into a long-term referral agreement. The sale provides customers high quality payroll solutions at comparable cost and minimal transition impact.

Also during the quarter we strengthened our consumer credit card offering by entering into a new partnership with Elan Financial Services, a subsidiary of U.S. Bank. This arrangement provides consumers with a full suite of MasterCard-branded products with valuable reward options, as well as access to enhance payments technology. This is an exciting opportunity to meet the ongoing needs of our customers while generating additional revenue for the Company.

Now I'd like to discuss our results in further detail. I will speak to our full-year performance which can be seen on slides 2 through 8. And consistent with past January calls, I will also outline our goals for 2016. David will follow to go over the fourth quarter results.

Our 2015 performance reflects ongoing revenue growth and proactive expense management. Record full-year operating earnings of $263 million increased over 7% from the prior year. The continued successful execution of our business strategies is demonstrated by strong annual loan and deposit growth of 7% and 9% respectively, as well as sustained excellent asset quality across all of our portfolios. Operating results were driven by revenue growth of 3%, reflecting improvements in both net interest income and non-interest income.

Despite net interest margin compression of 21 basis points, net interest income grew 2%, primarily driven by continued loan growth as well as higher average balances and yields in the securities portfolio. These improvements were partially offset by runoff in the acquired loan portfolio and modestly higher deposit costs. The net interest margin continued to be impacted by new business yields remaining lower than the total portfolio yield. However, it's worth noting that the pace of the net interest margin decline moderated during the course of the year and was flat from the third to fourth quarter.

Non-interest income, excluding non-operating gains in both years, increased 4%, primarily due to higher commercial banking lending fees and a continued success of our customer interest rate swap business. Non-interest expenses increased 2%. Non-operating expenses increased $3.4 million which is mainly attributable to higher branch closing costs.

In 2015 we closed 18 branches compared to 8 in the prior year as we continued to optimize our branch delivery channel. Since the beginning of 2011 we have closed 54 branches which were mostly traditional branches. During the same time period we opened 25 branches, of which 16 are more cost efficient in-store locations. In-store branches also provide us the unique opportunity to engage with the 3.3 million shoppers who visit Connecticut and New York Stop and Shop locations each week.

From an operating perspective, expenses increased less than 2%, primarily due to higher costs related to compensation and benefits, as well as professional and outside services. Overall, we're pleased with the Company's performance this year and our ability to sustain momentum we have built in recent years.

On slide 9, we included a snapshot of last year's goals compared to the actual results. As you can see, we were in line with all of our goals with the exception of the operating expenses which were slightly above the expected range. However, we remain confident in our ability to control costs going forward, notwithstanding the continued impact of higher regulatory compliance costs, as well as our ongoing commitment to strategically invest in the Company to create value for both customers and shareholders.

I wanted to take a moment on slide 10 to reflect on the significant progress we have made moving the Company forward over the past five years, particularly in light of the operating environment. We have been consistent in our approach, building the franchise for the long term. Over this time, we have remained committed to investing strategically to further grow the franchise and our expanded footprint, as well as deepen our presence across all of our heritage markets. We have also never wavered from our approach to relationship banking which customers recognize as an important differentiator.

Our extensive suite of products is comparable to that of the larger banks and our focus on exceptional customer service at the local level has uniquely positioned us in the Northeast Corridor. Accordingly, our balance sheet has experienced annual loan growth of over 10% since 2010. Importantly, this growth has more than offset significant net interest margin compression. As a result, net interest income excluding accretion has increased at an annual rate of over 7% during the period.

Additionally, over the past five years we have strengthened our fee-based businesses, as evidenced by 4% annual growth in non-interest income, despite industry headwinds. Building on this progress continues to be an important area of focus in order to further diversify revenues.

Finally, we look at the totality of our customer relationships from not only loan and fee income perspectives, but also deposits. Deposits are a large component of profitability. As such, we have emphasized deposit gathering across the organization and have made it clear that deposits are an integral part of customer relationships. Success of these efforts is demonstrated by the annual growth of organic deposits of well over 7% since 2010, with particularly strong results last year.

Turning to slide 11, you can see how our approach to building the franchise has favorably impacted profitability. Over the past five years full-year operating earnings per share has increased from $0.34 to $0.87, a compound annual growth rate of over 20%. This increase was primarily driven by our ability to grow earning assets both organically and through acquisitions which enabled us to more than offset the negative impacts of the extended low interest rate environment on net interest margin.

Given our unique position in the market which will drive continued increases in earning assets and our commitment to further strengthen fee-based businesses, we're confident in our ability to deliver consistent, quality earnings growth for shareholders.

Turning to slide 12, before discussing our goals for the New Year, I wanted to mention a reporting change in the coming year. Beginning with first quarter 2016 results, we will no longer classify expenses related to ordinary and recurring branch closures and severance as non-operating. We believe this decision will help to simplify our financial disclosures. In order to he provide a better understanding of underlying performance and trends, we will continue to highlight items of significance that we consider nonrecurring or infrequent in nature which impact GAAP results.

With this reporting change impacting our expense goal in mind, let me outline our goals for the full year 2016. First goal is to grow our loan portfolio in the range of 6% to 8%. Secondly, our continued emphasis on gathering deposits is expected to drive deposit growth in the 4% to 6% range. This assumes no growth in brokered deposits. The next goal is for net interest income to grow in the range of 7% to 9%. Embedded in this goal is the expectation for net interest margin to be in the range of 2.85% to 2.95%. This net interest margin range is derived from many different factors, one of which is an assumption of one 25- basis point rate increase in mid-2016.

We expect non-interest income levels, after adjusting for the gain on the sale of the Company's payroll services business, to be consistent year over year. Total expenses for the year are expected to be in the range of $865 million to $885 million as compared to 2015 total expenses of $861 million. The range includes expenses related to seven planned branch openings, of which six are in-store branches. We will maintain excellent credit quality, with a provision in the range of $40 million to $50 million.

Finally, we will maintain strong capital levels, with an expectation that tangible common equity to tangible assets will finish the year in the range of 7% to 7.2%. In addition, as we have mentioned on previous calls, we expect to issue preferreds in the second half of the year. We look forward to executing on the opportunities we have created to achieve these goals. With that, I'll pass it to David to discuss the fourth quarter in more detail.

David Rosato

Thank you, Jack. With respect to our fourth quarter performance, please turn to slide 13 for an overview. Operating earnings increased 3% from the prior-year quarter to $67 million. On a per share basis, operating earnings were $0.22, consistent year over year. I will discuss the other results shown on this overview on subsequent slides.

On slide 14 we provide the detail behind the linked quarter increase in net interest income of $4 million or 2% from the third quarter. Higher average balances and yields in the securities portfolio, as well as strong loan growth, increased net interest income by $2.7 million and $2.2 million respectively. Net interest income also benefited from slightly lower deposit cost.

On slide 15, net interest margin of 2.87% was consistent with the third quarter. This marks the first time net interest margins has not declined on a linked quarter basis since the fourth quarter of 2011. Higher average balances and yields in the securities portfolio increased the margin by 1 basis point. While new loan volume unfavorably impacted margin by 1 basis point, as new business yields remained lower than the total loan portfolio yield.

Turning to slide 16, as we discussed previously, the fourth quarter historically has been our strongest in terms of loan originations. And the fourth quarter of 2015 continued this trend. The loan portfolio grew $739 million or 11% annualized from the third quarter, marking the 21st consecutive quarter of growth. Originated loan growth for the quarter totaled $784 million. Originated loans in the commercial portfolio increased $685 million from the third quarter, as growth was broadly diversified.

C&I contributed $207 million of total originated growth, while commercial real estate and equipment financing added $260 million and $145 million respectively. Within C&I the mortgage warehouse quarter-end balance was $963 million, up $124 million from September 30, as balances were aided by TRID-related purchase delays which have since subsided. Retail contributed $99 million of originated loan growth which was driven by residential mortgage growth of $86 million.

As is our practice, most of the residential mortgages retained in our portfolio were hybrid adjustable rate mortgages. The consumer portfolio had $13 million of originated growth, its largest quarterly increase in over a year. We experienced acquired loan runoff of $45 million this quarter, compared to $59 million in the third quarter. The remaining balance of the acquired portfolio at quarter end was $797 million.

Slide 17 shows the change in deposits by segment from the third quarter. Total deposits increased $137 million or 2% on an annualized basis. As planned, we reduced brokered deposits by nearly $100 million during the quarter. As such organic deposit growth was $232 million or 4% annualized. Retail grew $251 million or 5% annualized in the quarter, compared to a $114 million reduction in commercial. Excluding the reduction in brokered deposits, retail grew $345 million or 8% annualized. In commercial, the seasonality in our municipal business had a negative impact on deposits of $170 million during the fourth quarter.

It is also worth noting that our cost of deposits came down 1 basis point in the quarter. Overall, we're very pleased with our progress-gathering deposits. As we maintain emphasis on franchise-wide cross-sell and deposit gathering efforts, we should continue to see further growth.

On slide 18 we take a closer look at the change in non-interest income which, excluding the $9.2 million gain from the sale of the payroll services business, declined $3 million or 3%, from the third quarter. As expected, insurance revenues lowered non-interest income by $1.6 million due to the seasonal nature of insurance renewals. In addition, lower bank service charges, primarily due to three fewer business days in the fourth quarter and lower commercial banking fees, negatively impacted non-interest income by $1.4 million and $1.1 million respectively.

On slide 19 we illustrate the key components of changes in non-interest expenses on a linked quarter basis. Non-operating expenses increased $3.7 million, reflecting lease buyouts on branches that were previously closed, as well as severance-related costs. From an operating perspective, expenses improved nearly $1 million from the third quarter due to a decrease in compensation and benefits. Expenses were also favorably impacted by lower regulatory assessments of $2.4 million as a result of a credit received for overpayment of FDIC assessments in prior quarters.

A primary offset to these improvements was a $900,000 increase in professional and outside services. Similar to previous quarters this year, the increase is primarily related to costs associated with a number of initiatives focusing on enhancing our product offerings and processes.

Fourth quarter operating expenses were modestly higher than the $211 million we guided to on October's call as a result of higher than expected incentives, as well as the timing of costs related to healthcare, a single REO property and professional and outside services. As we have discussed before, we continue to tightly control expenses while investing in revenue producing initiatives and covering the higher cost of regulatory compliance.

As a reminder, payroll taxes, 401-K matches and winter-related operational costs are highest in the first quarter of the year. Accordingly, based on historical experience, expenses are expected to be approximately $5 million higher in the first quarter compared to the fourth quarter total expenses of $217 million.

The next slide displays our efficiency ratio improvement in the fourth quarter compared to recent quarters. As we have mentioned before, continuing to improve operating leverage through revenue growth and effective expense management remains a highly important focus of the Company.

Slide 21 is a reminder of our excellent credit quality across each of our portfolios. Originated non-performing assets as a percentage of originated loans and REO at 66 basis points remains below our peer group and top 50 banks and has improved from 88 basis points in the fourth quarter of 2014.

Net charge-offs for the quarter remained at a very low level. These levels reflect the minimal loss content in our non-performing assets as well as our conservative and well-defined underwriting philosophy that has served us so well for many years. As shown on slide 22, operating return on average assets decreased slightly, but remained generally consistent with recent quarters. Our return on average assets continues to be impacted by the interest rate environment. Our return on average tangible equity was 10.2% for the fourth quarter, a decrease of 30 basis points on a linked quarter basis, but an improvement of 10 basis points compared to the prior-year quarter. As we continue to focus on improving profitability, we expect to see further progress in this metric over time.

Turning to slide 23, capital levels at the holding company and the bank continue to be strong, especially in light of our diversified business mix and history of exceptional credit risk management. Finally, on slide 24, we display our interest rate risk profile for both parallel rate changes and yield curve twists. As you can see, we remain asset sensitive and well positioned for rising interest rates as our loan mix continues to trend towards floating rate loans. At yearend, 42% of the loan portfolio was either one-month LIBOR or prime-based, up from 38% a year ago, as 56% of originations in 2015 were floating rate loans.

Now, I'd like to pass it back to Jack to wrap up.

Jack Barnes

Thank you, David. Looking ahead to the New Year, the franchise is well positioned to achieve ongoing growth as we continue to execute on the significant opportunities that exist across our attractive footprint, particularly in the Boston and New York markets. We remain focused on improving profitability while continuing to build the business for long-term success.

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]. Our first question comes from the line of Bob Ramsey from FBR. Your line is open.

Bob Ramsey

My first question, I want to be sure I heard you correctly. On the expense guide for the first quarter, I know you said it would be up by about $5 million. Was that from the GAAP $217 million or from the operating $213 million base?

Jack Barnes

That's the GAAP $217 million.

Bob Ramsey

Okay. So something in the ballpark of $222 million is what you expect in the first quarter.

Jack Barnes

That's correct, Bob.

Bob Ramsey

Okay. And then on the fee income guidance for the year, I know you guys expect it to be more or less flat. Maybe you could just give a little bit more color about sort of which lines are growing which lines are contracting and sort of how you shake out at the flat number overall?

David Rosato

Sure, Bob. It's David. So underlying that, there's solid growth across wealth management, cash management. And from the highest level, the fee income challenge for us which is really an industry issue, is just bank service charges and within that we're really talking about NSF fees. That was down year over year 2014 to 2015 and we would expect a similar trend from 2015 to 2016.

Bob Ramsey

Okay. But I guess still in 2015 you all, let me check here before I say - your total deposit fees were relatively flat. You were down a few million, but you were able to offset that with growth in all of the other line items. And so if we do a similar sort of level of maybe decline in 2016 on that area, I guess I'm just curious why you're not seeing more offset in the other lines?

Jack Barnes

Well, we're seeing I guess, again, if you look across wealth management which will grow - we expect our wealth management business to grow in the 7% to 8% range year over year, insurance revenue will be up over 10%, call it 10% to 12% year over year, cash management will be 6% to 8% as well. So the offsets would be the bank service charges.

The other thing I would mention would be - we also will have strong growth in our business credit card income. That will probably be about $2.5 million or so over the course of the year. As a reminder, we did the payroll services sale that we mentioned, that's a little over $4 million of a headwind as well.

David Rosato

Gain on sale in the mortgage business down.

Jack Barnes

Yes, gain on sale will be down modestly.

Bob Ramsey

Maybe part of what I'm missing was the payroll services sale. And so thanks for pointing out that's about $4 million. What is the expense side of that piece? Just want to be sure I kind of take it out everywhere appropriately.

Jack Barnes

That expense base is about $3.3 million, $3.4 million,.

Operator

Thank you. Our next question comes from the line of Casey Haire from Jefferies. Your line is open.

Casey Haire

So wanted to, I guess, touch on I guess, first clarify on the fee guide. Is that maintained non-interest levels with 2015 of $343 million? Is that about right? Or is that versus the fourth quarter run rate?

Jack Barnes

No, it's full year, the $343 million.

Casey Haire

And the payroll business, the $4 million of fees, that's per annum or is that per quarter?

Jack Barnes

That's per annum.

Casey Haire

Now switching to NII, if I layer in your loan and deposit growth, it looks like the loan balances are going to grow more than deposits and take your loan to deposit ratio above 100%. So you had mentioned you're not going to use brokered deposits. Was it going to be the funding source for the incremental loan growth above deposit growth?

Jack Barnes

It will be wholesale borrowings, most likely from the Home Loan Bank of Boston.

David Rosato

It's still coming in right around--

Jack Barnes

Yes.

David Rosato

We're not expecting it to go much further over 100%.

Jack Barnes

That's correct.

Casey Haire

Right, yes. No, it's not much. But, okay, understood. I'm assuming that's going to be relatively short term in nature, those borrowings?

Jack Barnes

Yes. With the way we see the economic and interest rate environment today, that would be our plan.

Casey Haire

Okay. So I guess what I'm wondering is we have - and you also have a Fed hike baked in mid-year 2016. We also have the one from December last month, with some wholesale borrowings which could help your funding source. Why is NIM going to be flat on the year? Wouldn't that be stronger with those kind of tailwinds?

Jack Barnes

You're right from the benefit that we receive for our asset sensitivity across an ever-growing loan book that's floating. But there also is an assumption there with what's been going on in the last several weeks about a flattening of the yield curve. So we've seen 20 to 25 basis points come out of the whole yield curve in the last couple weeks and that gives us a little bit of pause.

Casey Haire

Just last one from me. You guys mentioned M&A as something you guys were looking to pursue last quarter. Just any updated thoughts there and activity levels, chatter, et cetera?

Jack Barnes

I would say no new color and I know we got more questions on it last quarter. I'd say our general efforts on the M&A front, looking to be opportunistic and certainly have relationships has been consistent for quite some time. And it's the same now. So certainly would be interested in good opportunities if we can make them happen.

Operator

Thank you. Our next question comes from the line of David Darst from Guggenheim Securities. Your line is open.

David Darst

Jack, just following up on the M&A question, is there a size fit that you would kind of consider optimal to keep you in a comfortable range below $50 billion?

Jack Barnes

No. I think last quarter we mentioned $2 billion to $10 billion. Is that a kind of hard line on both ends? No. Again, I think I was trying to be responsive to a specific question about size last time. But there is a variety of potential partners across the Northeast that we find a good match for us in terms of business model, et cetera. We would be interested if it makes sense across the size spectrum, if you will.

David Darst

Okay. And then as you're looking at growing your core deposits this year, are you anticipating any more deposit competition or do you think you'll have to raise rates to gather the funding that you want?

David Rosato

The short answer is no, not really. To date, we really haven't seen any change in level of competition on deposits in our market. Again, we've only seen one Fed move. But I tend to think that is going to stick. So we've been able to continue to deepen relationships and grow our deposits across all fronts, meaning retail, commercial and then government banking within the commercial segment as well very nicely last year and we expect that to continue this year as well.

David Darst

Okay. Just on the GE headquarters relocation, do you think that there's any impact either to Connecticut or Boston for you from that?

Jack Barnes

I would say yes, naturally, but nothing - I think short term material in nature, had very disappointed phone calls from Fairfield County and some very happy phone calls from Boston. So interesting how it impacts different parts of our footprint. But the Boston folks are very optimistic about it over time. When we look at Connecticut, Fairfield County, naturally it's a big disappointment to lose that headquarters.

If we look at our portfolio, we have a very modest amount of personal loans, residential loans to the GE employees. And when you really stop and think about it, some of those mortgages are 20 years old and some are 10 years old and some are a couple years old. So when you think about it from an impact of the portfolios and the bank deposits, et cetera, it's not going to be significant.

Over time, I think depending on how many people, they're talking about 200 people going from Connecticut. So again, when you think about the real estate market and other things, we don't expect it to be significant.

David Rosato

I would just add, the GE Capital has been going on for about 1.5 years now and we haven't seen any impact, noticeable impact from that as well.

Operator

[Operator Instructions]. Our next question comes from the line of Collyn Gilbert from KBW. Your line is open.

Collyn Gilbert

Dave, maybe could you just talk a little bit about the securities portfolio? And I guess maybe specifically what's driving the strategy to grow that book? I think it was up a fair bit this quarter, just how you're thinking about that.

David Rosato

Sure. We have grown it in the last year. Really the strategy - and there was some growth in the fourth quarter as well. Part of it is to create interest income in this low rate environment in a very low risk asset class. But also what we did in the fourth quarter was really, in our view, in response to what we thought was a developing weakness in the economy.

So we were starting to watch what was going on in the commodity space. Didn't think we'd have anything like what were experienced in the last couple of weeks. But we decided it was probably prudent to put a little more leverage on the balance sheet. From a mix of securities, we're not doing anything different than what we've done in the past. So there was a small reduction in short CMO paper, but the growth - that was replaced and then the additional growth was primarily in 15-year pass-throughs. And then we added to our municipal securities book as well.

But that's been our strategy for the last couple of years from an asset selection perspective. So really just what changed was a little bit of a growing sense that a little more fixed rate assets on the books was appropriate.

Collyn Gilbert

And maybe we could kind of segue to my next question? Just on your general outlook for the environment, the economic environment. Commercial real estate, obviously there's been increased discussion around exposures there and increasing leverage there. Can you just talk a little about maybe what you're seeing in the market and just what your general view is overall?

Jack Barnes

I think our general view - I've been not overly optimistic, but I've been optimistic through the end of the year. The jobs report, the end of the year, 290,000, I felt like certainly the Fed was going to move and that the general momentum was going to continue. And in the last three weeks obviously there's been a lot of fear about China and oil prices, et cetera. It still doesn't feel to me like that cautious optimism needs to change.

Our companies - our customers and the companies that we do business with are going to continue to make progress and operate at a profitable level. Consumers have deleveraged. You look at our numbers around problem loans and the like and the demand side, things are pretty good. So we're concerned about certainly the noise right now and concerned about what it's doing for the yield curve, et cetera. But I'd say we're cautiously optimistic that the U.S. economy and the Northeast economy is going to continue to move forward at a similar pace to where we've been.

We certainly appreciate the regulatory concerns about commercial real estate. And I would say the largest piece of that is concern about rates staying as low as they've been for as long and what's that done to cap rates and valuations. But when we look at our portfolio and the performance of it, we feel very good about the consistency and our approach to underwriting over time and including right up until today. And the performance of the credits have been very strong. Our non-performers, our delinquency, our charge-off in commercial real estate is quite modest. And we believe it will continue to be that way.

So a lot of discipline in our underwriting, I hope that the messages from the regulators will take some of the more competitive counters that we sometimes get with customers off the table. I hope it slows some people down that are being a little too aggressive, but we'll see.

Collyn Gilbert

And then one just final housekeeping, Dave what tax rate should we use for 2016?

David Rosato

33.5%.

Operator

Our next question comes from the line of Bob Ramsey from FBR. Your line is open.

Bob Ramsey

Just a quick housekeeping, could you tell me where the payroll services revenue line which line item does that go in? Is it in the Other line?

David Rosato

Yes, it's in other.

Bob Ramsey

In terms of margin, I know you've given sort of an outlook for the year. I was wondering if you could help us sort of think about what the trajectory looks like? I guess maybe particularly how we start the year off in the first quarter. Do you see any modest lift from the move that took place in December or do we start a little bit lower and then build? Or just kind of curious how you're thinking about it?

David Rosato

Sure. What's somewhat interesting is normally you lose two days in the first quarter which usually has about a 5 basis point impact. We have a leap year this year. So just rates not changing, you would have this year about a 3 basis point decline in the margin. That will be offset with the action by the Feds last month.

So at this point with the uncertainties around the steepness of the yield curve, I would expect that, for the full year, we would be right about the middle of the guidance that we're giving. And I would think around a fairly steady margin over the course of the year, similar to what you saw in 2015.

If you go back and look at the quarters in 2015, we were down, I believe, 9 basis points from first to second quarter, down 1 second to third and then flat in the third and fourth. And so we've really seen a flattening out of the margin on a quarter-to quarter basis. So aside from a little noise in this quarter from day count negative, Fed tightening last month a positive, we'll have roughly a fairly flat margin over the course of the year.

Operator

Thank you. Our next question comes from the line of Matthew Breese from Piper Jaffray. Your line is open.

Matthew Breese

Just thinking about the preferred equity offering, I know you've given some detail on it in the past. Now that we're closer, I was just hoping for an updated estimate on the size of that offering.

Jack Barnes

We haven't really changed our thinking around that. So the size is in the $200 million to $250 million range. Timing is still in the back half of the year.

Matthew Breese

Okay. And then going back to the M&A discussion, I know you outlined some size parameters. But across your footprint, are there any geographies you find more or less attractive? How would you think about maybe going outside of your core footprint and looking for contiguous geographies?

Jack Barnes

We would be and have been, open to contiguous adjacent markets, again, that fit our profile and continue to build the franchise in, I guess, what we would consider a logical way. We like having the franchise cover the market effectively and kind of benefit from that contiguous branch footprint and bankers in the markets in a consistent way. So across the Northeast Corridor, including adjacent markets are on our list, if you will.

Operator

[Operator Instructions]. Ladies and gentlemen, since there are no further questions in the queue, I would like to turn the call back over to Mr. Hersom for closing remarks.

Andrew Hersom

Thank you again for joining us today. We appreciate your interest in People's United. If you should have any additional questions, please feel free to contact me at 203-338-4581. Have a great night.

Operator

Ladies and gentlemen, thank you again for your participation in today's conference. This now concludes the presentation and you may all disconnect your telephone lines at this time. Everyone have a great day.

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