People's United Financial Inc (PBCT) Q4 2020 Earnings Call Transcript

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People's United Financial Inc (PBCT)
Q4 2020 Earnings Call
Jan 21, 2021, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the People's United Financial, Inc. Fourth Quarter and Full-Year 2020 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. [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, Inc. Please go ahead, sir.

Andrew Hersom -- Senior Vice President of Investor Relations

Good afternoon, and thank you for joining us today. On the call to 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 Tengel, President; and Jeff Hoyt, Chief Accounting Officer. Please remember to refer to our forward-looking statements on Slide 1 of this presentation, which is posted on our Investor Relations website at peoples.com/investors.

With that, I will turn the call over to Jack.

John P. Barnes -- Chairman of the Board and Chief Executive Officer

Thank you, Andrew, and good 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 2. 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 reflect the resilience of People's United, its employees and customers.

Net income of $573 million, increased 10% from a year ago, and on a per common share basis, net income was up $0.05 to $1.32. Operating earnings of $535 million or $1.27 per common share, declined 3% and $0.12 respectively. It is important to note, we completed the sale of 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 8.5%, driven by higher net interest income, partially offset by modestly lower fee revenues. Operating expenses of $1.165 billion, which includes a full year of United and Belmont results were up 6%. Notably, operating expenses ended the year below the level -- the lower end of the 2021 outlook range we provided a year ago of $1.19 billion. The increase in revenues, along with our continued emphasis on controlling expenses and realizing projected cost savings from acquisitions, lowered the full year efficiency ratio 160 basis points to 54.2%, marking the 7th consecutive year of improvement.

Turning to the balance sheet. Period-end loans and deposits increased 1% and 20%, respectively, from year-end 2019. Excluding PPP, the loan portfolio decreased approximately $2 billion or 5%, 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 remix the balance sheet with a focus on higher yielding portfolios.

The impact of the pandemic on the economy was evident in the commercial portfolio throughout the year. Demand within the commercial real estate and C&I and middle market businesses was limited due to reduced economic activity and funding provided by PPP loans. Conversely, our mortgage warehouse and LEAF businesses experienced strong growth. Mortgage warehouse ended 2020 with a record balances of $3.4 billion, which more than doubled from 2019, while these period-end balances increased 19% from the prior year.

LEAF, which we acquired in 2017, has been a terrific addition to People's United franchise. We have 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. LEAF's balances ended 2020 at nearly $2 billion, up from approximately $730 million at the time of the acquisition.

Asset quality remains excellent as the 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 portfolios and deep customer relationships. We are particularly pleased by the continued reduction in loan deferrals which ended the year at $271 million or 0.6% of total loans, down from $1.6 billion or 3.5% of total loans at the close of the third quarter. Additionally, deferrals have continued to decline since year-end.

As of January 15th, total deferrals were down to $110 million or less than 0.3% of total loans. We remain committed to supporting our high-quality customer base and help them navigate these difficult economic times. Consistent with our intentions discussed last quarter, we provided post second deferral modifications to customers and need to further assistance. Approximately $1 billion in loans received modifications. Majority of the modifications are in commercial real estate, with the largest concentrations within the hospitality sector as expected.

Moving on to Slide 3. As consumer preferences evolve to a more digitally driven experiences, we have continually enhanced our technology capabilities to deliver value, provide convenience and create efficiencies. As a result, customers are increasingly utilizing our online and mobile platforms for their banking needs.

Given these accelerating digital banking trends and shifts in retail shopping behaviors, we announced today the decision not to renew our existing in-store branch contracts with Stop & Shop in Connecticut and New York upon expiration. We operate 140 Stop & Shop branches, 84 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 & Shop on renewal terms are ongoing.

Although our Stop & 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. We remain committed to serving customers in the manner in which they want to interact with us, whether it be in person at a 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 Stop & Shop branches, increasing adoption of digital platforms, expanded traditional branch footprint proximity between in-store and traditional locations and trends in 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 are 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 logins 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 then those at traditional branches and only 10% of deposit balances are associated with customers that use Stop & Shop branches in 2020, but did not utilize a 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. As such 75% of our Stop & Shop branches and 77% of our Stop & Shop branch deposits are domiciled within five miles of one of our traditional locations. In addition, recent bank acquisitions of Suffolk in New York, the Farmington and United in Connecticut have expanded and better optimized our traditional branch footprint in these states, as well as provided customers a greater number of convenient drive-up facilities.

Finally, changing trends in retail shopping behavior has become apparent. Availability of delivery and curbside pickup options, which have become more prominent during the pandemic, has impacted foot traffic inside stores. Additionally, discount stores and wholesale clubs and convenience stores have increased their share of grocery spend, while share of the traditional grocery stores has declined.

With that, here's David to discuss the fourth quarter results.

David Rosato -- Senior Executive Vice President and Chief Financial Officer

Thank you, Jack. I will begin on Slide 4 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 $0.35, up $0.01. 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 3 basis points to 97 basis points or 102 basis points excluding PPP loans. Operating pre-provision net revenue of $196.6 million, declined 3% from the third quarter due to modestly lower net interest income, partially 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 benefit related to the revaluation of certain state deferred tax assets.

Moving to Slide 5. Net interest income of $382.8 million, decreased $8.6 million or 2% from the third quarter, the 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 $500,000.

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 consists of $15.4 million in fees and $4.6 million in net interest income. These results reflect $6 million related to loans forgiven in the quarter.

As displayed on Slide 6, net interest margin of 2.84% was 13 basis points lower than the third quarter, primarily due to increased excess liquidity, which unfavorably impacted the margin by 9 basis points. Lower yields in the loan and securities portfolios also unfavorably impacted the margin by 7 basis points and 2 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 5 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 costs. Finally PPP had a 2 basis point favorable impact on net interest margin for the quarter.

Turning to loans on Slide 7. Average balances were down $792 million or 2% from the third quarter, while 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 $289 million decline in PPP 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 30th, as results continued to be driven by robust mortgage origination activity and the addition of new customer relationships. LEAF 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 runoff, was $845 million, a decline of $60 million from September 30th and $268 million since year-end 2019.

Moving to deposits on Slide 8. Average balances were up $1.1 billion or 2% from the third quarter, while period-end balances grew $2.5 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 as 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 is a reflection of customer preference for liquidity during this uncertain economic and low interest rate environment.

Importantly, period-end non-interest 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-interest bearing deposits now account for more than 30% of total period-end balances, up from 22% a year ago.

Turning to Slide 9, 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 gain. Excluding this gain, operating non-interest income of $102.3 million, grew $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 million and higher operating lease income and cash management fees, which collectively benefited non-interest income by $800,000.

In addition, other non-interest 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 PUIA in early November. On Slide 10th, non-interest expense of $293.4 million decreased $200,000 during the quarter. The fourth quarter included $4.9 million of non-operating costs, an increase of $300,000 compared to the third quarter, and they were in the following categories. $3.8 million in other non-interest expense, $800,000 in professional and outside services, and $300,000 in equipment and occupancy -- occupancy and equipment.

Excluding non-operating costs, non-interest expense of $288.5 million decreased $500,000 compared to the previous quarter. Non-interest expense benefited from lower regulatory assessments and operating lease expense, which were down $1.5 million and $800,000, respectively, from[Phonetic] the third quarter. Conversely, non-interest expense was unfavorably impacted by higher costs in 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 3 basis points linked quarter. Non-performing assets as a percentage of loans and REO of 78 basis points, a 7 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 is evident the gain related to the PUIA 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 continue 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 1 leverage ratio at quarter-end is 8.7% for the Holding Company, compared to 8.4%, and 9.1% for the Bank, compared to 8.7%. Additionally, the TCE ratio, excluding PPP is approximately 7.8% compared to the reported 7.5%.

Before turning the call over to Jack to go over our 2021 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 non-cash 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. The analysis will be completed prior to the filing of our annual report on Form 10-K with the SEC.

With that I'd like to turn it over to Jack.

John P. Barnes -- Chairman of the Board and Chief Executive Officer

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 continue to improve despite ongoing social distancing protocols. There are also hopeful 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.

While we enter 2021 in a position of strength, the recent surge in the virus nationwide and a prolonged low interest rate environment present 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, further invest in digital capabilities and deliver exceptional service to customers.

With that backdrop in mind, let me outline our full-year outlook for 2021 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 & Shop will not have an impact on 2021 financial results.

We expect to grow loans, excluding PPP balances, in the range of 0% to 3% on period-end basis. PPP balances totaling $2.3 billion at year-end. Our current expectation is 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 2.85% 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% from an adjusted 2020 operating base of $372 million, which excludes $28 million of non-interest income from the PUIA and a $17 million gain from the sale of loans acquired in the United transaction. Operating non-interest expense, which excludes merger-related costs, is anticipated to be in the range of $1.15 billion to $1.18 billion as compared to $1.142 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 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 1 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, could you please proceed to the Q&A portion of the call.

Questions and Answers:

Operator

Ladies and gentlemen, we are ready to open the lines up for your questions. [Operator Instructions] Your first question comes from Casey Haire with Jefferies. Your line is now open.

Juan -- Jefferies -- Analyst

Hey, good evening, everyone. This is Juan [Phonetic] on for Casey.

John P. Barnes -- Chairman of the Board and Chief Executive Officer

Hey.

David Rosato -- Senior Executive Vice President and Chief Financial Officer

Hi there.

Juan -- Jefferies -- Analyst

Just following up on the Stop & Shop commentary, I understand it's a 2022 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 into some of the investment side, but just trying to get a feel for how 2022 can shake out? Thanks.

David Rosato -- Senior Executive Vice President and Chief Financial Officer

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 2021. The -- when we look out, the total cost to run the combined stage Stop & Shops, including grant, comp and equipment, etc. is a number in the $60 million to $70 million range. So there is a large opportunity for us over time in that. And as we -- as Jack said in his comments, we've got -- there is contractual rundown periods for this.

So from a financial perspective, there is a large opportunity for us over time. We spent a lot of time on this decision, thinking about it, and the -- Jack went through a lot of statistics in his prepared comments about seeing 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.

John P. Barnes -- Chairman of the Board and Chief Executive Officer

We have a pretty long track record of closing branches, optimizing the branch system over time, and we've been really successful retaining customers, basically redirecting them to nearby branches. And so, that gives us a lot of confidence. We've described over the years, kind of, a hub-and-spoke approach to the way we've established our branch system in Connecticut, and we were able to replicate that some in New York. And it really is that many of our Stop & Shop branches are fairly close to traditional branch. So we've always recognized that as a business model risk going into the stores, and we intentionally created that hub-and-spoke approach. And as the world has changed and customers' preferences has changed, we now feel we need to take advantage of the expiration of these contracts and take this strategic step.

Juan -- Jefferies -- Analyst

Thanks for that. And just switching over to the loan growth side. There are some headwinds -- there is expected run offs still going on in resi and multifamily and the United book. I guess, what are the key drivers for kind of the net loan growth as we look at 2021?

David Rosato -- Senior Executive Vice President and Chief Financial Officer

Yeah. Hi, it's David. Growth is -- as I go down the balance sheet is the continued success that we've had in equipment finance, and I would say, particularly led by LEAF. Some of the specialized industry verticals that we've talked about in the past, whether it's franchise lending, fund banking, etc. The -- in 2020, we as a planned strategy when we are remixing the balance sheet, we also faced the headwind of the declining residential mortgage portfolio. That process from our perspective has -- 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 line.

Mortgage warehouse is -- 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 balances fairly well in that business. Those [Technical Issues] I would say are offset by continued reduced activity in our commercial real estate floor[Phonetic].

Juan -- Jefferies -- Analyst

Thank you.

Operator

Thank you. Your next question comes from Dave Rochester with Compass Point. Your line is now open.

Dave Rochester -- Compass Point -- Analyst

Hey, good evening, guys. Just on that last question in terms of run-off in acquired loans and run-off in the New York City multifamily, what do you guys have left in that or what do you expect for this year maybe?

David Rosato -- Senior Executive Vice President and Chief Financial Officer

Sure, Dave. Good question. So, the New York multifamily was ended the year at $512 million. So that came down $225 million in 2020. 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 run-off section 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.

Dave Rochester -- Compass Point -- Analyst

Great. And this -- then the loan guide includes the net of all that?

David Rosato -- Senior Executive Vice President and Chief Financial Officer

Yes. It does.

Dave Rochester -- Compass Point -- Analyst

Yeah. Okay. Great. And then, just on the NIM guide, was wondering what you're 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 4Q NIMs. So just wondering what you see driving that as assistant unwind some of the fact that liquidity build or maybe the PPP forgiveness fees or something like that?

David Rosato -- Senior Executive Vice President and Chief Financial Officer

Yeah, well, I think you hit on most of what I was going to bring up, Dave. So 2.85% to 2.95% is -- as Jack said, is predicated on no change in the Fed funds rate for the year. We have seen a modest steepening of the yield curve, and I think we'll see a bit more as the year unfolds. The -- some of the components that we're thinking about, the one that really we came to bear on the margin in the fourth quarter was the excess liquidity, right? So we had -- if you look on the short-term investment line in the press release, you will see that we were up $3.3 billion in the fourth quarter. The reality is that money is sitting at the Fed right now at 10 basis points. So that had in 2020 and the fourth quarter a 9 basis point negative impact to 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 9 basis point drag there. I think that will probably offset some of the positive benefit we think we'll get in the pay-off of the PPP, right, which 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 is about $5 billion equipment finance in there that cash flow is fairly nicely. And each quarter, we expect to get a little better reinvestment yields on that half of the loan portfolio. So that in deploying that -- some of that excess liquidity and picking up a little over 100 basis points to 120 basis points on that excess liquidity are some of the major drivers we're thinking about around that loan guidance -- I'm sorry, around the margin guidance.

Dave Rochester -- Compass Point -- Analyst

Yeah. And so for the NII guide, how much in the way securities growth does that bake-in for the year at this point?

David Rosato -- Senior Executive Vice President and Chief Financial Officer

For 2020, there is, call it, about another billion dollars net growth.

Dave Rochester -- Compass Point -- Analyst

Okay. Great, and then, maybe just switching to capital real quick, it looks like you're already at the top of your target CET1 range, so I was just wondering what you're 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, you may have some extra to do something with?

David Rosato -- Senior Executive Vice President and Chief Financial Officer

Yeah. True, we are at the top of the range, and we didn't feel we 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 boost equity levels. We continued to think about and once in a while talk to our Board about buybacks, and that is certainly something that might happen over the course of the year. It's not planned today, 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.

Dave Rochester -- Compass Point -- Analyst

And then on M&A any updated thoughts there?

John P. Barnes -- Chairman of the Board and Chief Executive Officer

It's Jack. I would say no updated thoughts. I think, we continued to look at the environment and had discussions with the people. And obviously, there has been a lot that's happened out there. I think the challenges around the environment certainly causing people to at least look at their strategic alternatives and consider that as opposed to continuing to fight the way here.

Dave Rochester -- Compass Point -- Analyst

Yeah. Okay. Great. Thanks, guys. Appreciate it.

David Rosato -- Senior Executive Vice President and Chief Financial Officer

Thank you.

Operator

Thank you. Your next question comes from Mark Fitzgibbon with Piper Sandler. Your line is now open.

Mark Fitzgibbon -- Piper Sandler -- Analyst

Hey, guys. Good afternoon.

David Rosato -- Senior Executive Vice President and Chief Financial Officer

Hey, Mark.

John P. Barnes -- Chairman of the Board and Chief Executive Officer

Hey, Mark.

Mark Fitzgibbon -- Piper Sandler -- Analyst

Just a couple of quick follow-ups on the in-store thing, and I apologize if you mentioned this, but how many of the in-store locations can you exit in 2022?

David Rosato -- Senior Executive Vice President and Chief Financial Officer

How many can we close in 2022?

Mark Fitzgibbon -- Piper Sandler -- Analyst

Yes.

David Rosato -- Senior Executive Vice President and Chief Financial Officer

By the end of 2022, they will all have been closed.

John P. Barnes -- Chairman of the Board and Chief Executive Officer

And Mark, there is an original agreed upon schedule that gets to 2023.

David Rosato -- Senior Executive Vice President and Chief Financial Officer

Yeah, I'm sorry for...

John P. Barnes -- Chairman of the Board and Chief Executive Officer

[Speech Overlap] 2023, and that's well laid out and just kind of agreed 10 years ago -- it was actually 20 years ago with both parties in an orderly online if there was one would kind of go by county, and we'll have our finger tips on that summary right here. But we'll -- we can -- we'll begin to share that as we move through this. But we are -- we indicated we're actively talking with Stop & Shop, and we are about both those schedules, and also where we might continue working with them. It won't be a big footprint, but we believe that we will reach some agreement with them following those discussions.

Mark Fitzgibbon -- Piper Sandler -- Analyst

Presumably, Jack, they'll bring in another partner. So I guess, I'm curious, did these branches have to stay dark for a period of time after you close them before somebody else could sort of move in there?

John P. Barnes -- Chairman of the Board and Chief Executive Officer

No. We watch the in-store market pretty closely, Mark, and you can imagine. And in-store presence across the industry is spending decline for some time. There'll be an awfully big thing for anybody to take on, and we're not expecting they will. So that's our view on that, and we have traditional branches closed by so we said we're confident, we'll move those customers to the traditional branches and be successful. But, we'll expect that.

Mark Fitzgibbon -- Piper Sandler -- Analyst

And then David, I'm 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?

David Rosato -- Senior Executive Vice President and Chief Financial Officer

Yeah, Mark. So -- we grew the securities portfolio about $1 billion on a net basis in Q4. At the end of the year, we were sitting on $3.7 billion in change of liquidity. So -- and that was up in the quarter $3.3 billion, so about half -- our current thinking is about $1 billion of that $3.3 billion. At least right now, we will deploy in the first half of 2021.

Mark Fitzgibbon -- Piper Sandler -- Analyst

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 MOE kind of transaction? Is that something that you would consider?

John P. Barnes -- Chairman of the Board and Chief Executive Officer

Well, I would say that we look at the landscape all the time, and there is at least some potential eventually that we would consider that with the right partner I would say. I would -- definitely would not say absolutely not. But those are difficult, and -- but certainly also I don't -- we -- I guess, I would say it this way as well, we're really confident in our track record and execution on M&A. And if we felt like there was an appropriate thing that I would feel very good about our talented folks going and taking something on there, but those are lower probability.

Mark Fitzgibbon -- Piper Sandler -- Analyst

Thank you.

Operator

Thank you. Your next question comes from Chris McGratty with KBW. Your line is now open.

Christopher McGratty -- Keefe, Bruyette & Woods -- Analyst

Hey, good afternoon.

David Rosato -- Senior Executive Vice President and Chief Financial Officer

Hi, Chris.

Christopher McGratty -- Keefe, Bruyette & Woods -- Analyst

Hey, guys. I just want to start by going back to the Stop & Shop. I just want to make sure I get the impact right. I think you guys said $60 million to $70 million of expenses related to this action. Nothing this year, but next year before any reinvestment that would be the savings from that. I guess, Number 1, is that the right way to think about it? And we've seen others do branch closures and maybe 50% gets reinvested, is that [Indecipherable] about how you're thinking about potential net savings in 2022?

David Rosato -- Senior Executive Vice President and Chief Financial Officer

So that $60 million to $70 million is our all-in cost for the totality of Stop & Shop branches in both states. So that's -- that comp and benefits, occupancy, all in, we did not say what percentage of that would be reinvested specifically. But that is the opportunity from a cost savings. Yeah, we're already investing in our digital capabilities very steadily for years, and we're certainly committed again in 2021 to follow this year. So we're simply making that 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 as I sit here today that we would feel like we would need that much.

Christopher McGratty -- Keefe, Bruyette & Woods -- Analyst

Okay. So that net benefit would be a 2022 event. I got it. Okay.

John P. Barnes -- Chairman of the Board and Chief Executive Officer

You should really think about that more as a 2023 event not a 2022 event.

Christopher McGratty -- Keefe, Bruyette & Woods -- Analyst

Okay. That's helpful. Just one more on the PPP, I think you gave the numbers of what was in the quarter about $20 million bucks. How much was left on the fees. And then secondarily, what are the thoughts on the ground to participation?

David Rosato -- Senior Executive Vice President and Chief Financial Officer

Sure. So in the -- in 2020, the total net interest impact of fees and interest income was $47 million. Now that was over three quarters obviously, second, third, and it was ramping up over that period of time. We're making the assumption that what remains on the books will all be forgiven in the first two quarters of the year 2020. That number is just about the same amount. It's about $50 million.

Christopher McGratty -- Keefe, Bruyette & Woods -- Analyst

Alright. Next total between the 1% and the fees, correct. Okay.

David Rosato -- Senior Executive Vice President and Chief Financial Officer

Yes. That's the total. And then -- so we're actually calling what's going on right now, PPP internally, and that's just starting to ramp up. It's -- we've only been at it two days now, and we -- our thoughts around that are not embedded in what -- in the outlook we're sharing today.

John P. Barnes -- Chairman of the Board and Chief Executive Officer

I'll just share. I think, this morning, approximately 2,500 applications already mostly on the small size, less than a 150,000 and good utilization of our technology and our portal customers actually making applications themselves not needing to engage with our bankers. So it's early, but it seems to be active. We're not expecting. It's going to be anywhere near PPP1, but we don't know. So...

Christopher McGratty -- Keefe, Bruyette & Woods -- Analyst

Great. Thanks a lot for taking the question.

David Rosato -- Senior Executive Vice President and Chief Financial Officer

Thanks.

Operator

Thank you. Your next question comes from Ken Zerbe with Morgan Stanley. Your line is now open.

Ken Zerbe -- Morgan Stanley -- Analyst

Alright. Great. Thanks. Maybe just a little more of a theoretical question for -- if you don't mind. When I was thinking about banks and branches, obviously people are not going into them as much but they're definitely used as a marketing tool. And it's great just to have that brand presence out there, just like because I shop in Stop & Shop I see People's is definitely very helpful, like how are you guys thinking about that aspect of it, like and then where you see more specifically how do you think about growing the business without sort of that, I'm going to say "Free marketing of having branches in many more locations."?

John P. Barnes -- Chairman of the Board and Chief Executive Officer

Yeah. Well, I appreciate what you're saying and noting that. And I think traditional branches do that for us as well, right, and historically, always had. And even a bigger presence and we are very much committed to that meaning bigger signage and more cars going by etc. So that and the other thing in terms of growing the business we are doing so much more in the digital marketing space then -- it's just ramping up incredibly fast. And so our messaging to people is coming more through the technology and the cellphone and the computer with offers and visibility on product and what the brand is doing. What -- also what we're doing in the community, we use digital a lot to talk about our community activities and the foundation as well.

Ken Zerbe -- Morgan Stanley -- Analyst

Got it. Okay. That's helpful. And then, just a separate question. In terms of the goodwill writedown or the goodwill impairment test that you're doing, I guess, I -- maybe that [Indecipherable] a little bit off guard, I wouldn't expect in this environment that we will see any goodwill writedowns, can you just talk about what parts of your business are potentially subject that might be most a risk of a write down? Thanks.

David Rosato -- Senior Executive Vice President and Chief Financial Officer

Yeah. Hey, Ken, it's David. So what we tried to say in those prepared remarks and 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, a complicated process has to do with market cap on the day of assessment, as which for us we had a $10.17 stock price, $4.3 billion market cap. And also there is analysis relative to peers -- us and the peers were all trading about 1 to -- 0.8 to 1.1 times tangible book value. So that is a piece of it.

So the -- 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 complicated. It's a difficult evaluation date, but it is the date that these assessments happen every year, sometimes more often, but at a minimum. The -- what's somewhat interesting by this is, at year-end, we had a market cap that was up another $1.2 billion to $1.3 from that point. If we were doing that at 12/31, it wouldn't be an issue, right. There wouldn't be the possibility of an impairment charge. But we're dealing and working with our outside auditors and our -- and valuation team that we work with, and where we're doing it around the date that we have to is proven to be a difficult date for us.

Ken Zerbe -- Morgan Stanley -- Analyst

Got it. Okay. I understand. Alright, thank you very much.

David Rosato -- Senior Executive Vice President and Chief Financial Officer

Your welcome.

Operator

Thank you. Your next question comes from Steven Duong with RBC Capital Markets. Your line is now open.

Steven Duong -- RBC Capital Markets -- Analyst

Hi. Good evening, guys.

David Rosato -- Senior Executive Vice President and Chief Financial Officer

Hi.

Steven Duong -- RBC Capital Markets -- Analyst

Just wanted to touch on the margin. Your cost of total deposit continues to climb lower. Do you think that by the end of this year, you'd fall below 20 basis points?

David Rosato -- Senior Executive Vice President and Chief Financial Officer

Yeah. I think that is possible if we continue to see these, in my word "massive inflows of deposits" into our Company, I -- and we're not obviously the only one who is experiencing that. Then I think the industry needs to do what they can to preserve margin. So it's possible. We know what the role is on our CD book. That's the part of the book that there is contractual pricing on. But there is a large differential between CDs that are rolling off in our current offering rates and that's why that book is going down and the money is -- because rates are so low just as going to non-interest bearing accounts with us or money market rates even lower.

There is a clear preference for liquidity among customers and because the industry is excellent. This is an industry issue. There's really very little opportunity for customers to go elsewhere for any great pick up that's meaningful enough to make it worthwhile. So that's the long answer too. Yes, I think it's possible.

Steven Duong -- RBC Capital Markets -- Analyst

Okay. Great. And with all these deposits, I know you guys are taking your FHLB borrowings down considerably. Do you still -- is it going to be stable now going forward or can we expect that to go down further?

David Rosato -- Senior Executive Vice President and Chief Financial Officer

The home loan advances that are on the book 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 that will be relatively modest.

Steven Duong -- RBC Capital Markets -- Analyst

Got it. And I'd like to just squeeze one last one in, just on your NIM guidance, is that -- that's not assuming a further steepening in the yield curve?

David Rosato -- Senior Executive Vice President and Chief Financial Officer

Well, it's just based on current forwards. What I was trying to say is short rates are not going to move this year, and that's what the market is telling us, that's what the Fed is telling us. But we have seen a modest steepening of the yield curve in the last, call it, two months, and I would say market expectation is for a little bit more steepening, but it's relatively modest.

Steven Duong -- RBC Capital Markets -- Analyst

Got it. Appreciate it. Thank you.

David Rosato -- Senior Executive Vice President and Chief Financial Officer

Your welcome.

Operator

Thank you. Your next question comes from Matthew Breese with Stephens, Inc. Your line is now open.

Matt Breese -- Stephens -- Analyst

Good evening, everybody.

David Rosato -- Senior Executive Vice President and Chief Financial Officer

Hi, Matt.

Matt Breese -- Stephens -- Analyst

Hey, maybe just go into the provision and the credit outlook, I appreciate the guidance on the provision for this year. Just curious 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 at the -- how you think charge-offs might trend this year?

John P. Barnes -- Chairman of the Board and Chief Executive Officer

Right now we're not looking at a dramatic shift at all. The performance has been really good. Actually, it's really pleasing when you think about what we've done through here in the last 10 months. So think about where delinquency has gone and how we and banks have dealt with people that were -- I'll say abnormally hit. But from a [Indecipherable] perspective, our experience this year is really on unique situations, most of them pre-pandemic and kind of troubled situations. And like the past, we get those once in a while, but not at a high level.

Matt Breese -- Stephens -- Analyst

Okay. And then, with that in mind considering where the reserve is, how long might it take for you to get back to that CECL day one level as the pandemic is increasingly put in the rearview mirror?

John P. Barnes -- Chairman of the Board and Chief Executive Officer

That's a tough one that gets on.

David Rosato -- Senior Executive Vice President and Chief Financial Officer

Yeah. I clearly agree with that. We put a provision estimate out there. We spread at $20 million, which is the first time we've ever done that as a company, and normally we're always comfortable with $10 million and we're always with it -- within that range. We've just spread it an extra $10 million from the perspective that -- things are getting better, that's clear. Charge-offs for us for the last couple of quarters have been relatively low and steady. We've been able to bring provision expense down. You've seen some banks start to release reserves.

We've been a little reluctant to do that, yet. We think that will probably unfold. We hope that unfolds in 2021, but we just want to be conservative in our viewpoint at this going. And it's really CECL scenario driven, which is another way of saying it's economic forecast-driven.

Matt Breese -- Stephens -- Analyst

Understood. Okay. And then, just going back to M&A, 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. If you had a stack order where there was a target and you would take advantage of it. What are those markets?

John P. Barnes -- Chairman of the Board and Chief Executive Officer

Well, I'm not ready to go there. You could look at our own footprint, and know that we are aware of it, and as we've always said we've [Indecipherable] always done, where we look across our markets for opportunities to do end-market deals and also look at market for Jason.

Matt Breese -- Stephens -- Analyst

Got it. Okay. And then, just last one from me, with all the digital discussion, I just wanted to ask your thoughts on the OCC letter from a couple of weeks ago. It pertains to blockchain and stable points for payments, as you've made all these investments in digital technology that's something 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 over there.

John P. Barnes -- Chairman of the Board and Chief Executive Officer

Yeah. We have not been pursuing it. Certainly pay attention like others on the call, that's all developing, but it's not anything that we're working on.

Matt Breese -- Stephens -- Analyst

Great. That's all I had. Thank you.

John P. Barnes -- Chairman of the Board and Chief Executive Officer

Thank you.

Operator

Thank you. Your next question comes from David Bishop with Seaport Global Securities. Your line is now open.

David Bishop -- Seaport Global -- Analyst

Yeah. Thank you, gentlemen. Good evening.

David Rosato -- Senior Executive Vice President and Chief Financial Officer

Hi, David.

David Bishop -- Seaport Global -- Analyst

Hey, one question you had mentioned that you're expecting some benefit from me, the roll off of CDs at a higher rate to a lower rate, Just curious what that differential is in terms of offering yields on the CD portfolio?

David Rosato -- Senior Executive Vice President and Chief Financial Officer

Top of my head, Dave, I don't have the exact numbers, but I think that current differential is about 150 basis points or so. It's quite significant. Our offering rates are dependent on [Indecipherable] probably only gets up to maybe 30 basis points or 40 basis points.

David Bishop -- Seaport Global -- Analyst

Got it, and then noted the strength, and I know it's been building across the year on the commercial lending fees side in terms of fee income, just maybe some commentary in terms of the outlook for commercial banking fees into 2021? Thanks.

John P. Barnes -- Chairman of the Board and Chief Executive Officer

Yeah, I mean. Thank you for recognizing even in a pandemic year. The commercial banking lending fees were up. 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 pay off fees, right. We like the prepayment fee we hate to lose the balance the. So that's the one that's hard to call. And that's that the good news, bad news piece that we experienced that every year. The good news, when I think about commercial banking fees is the -- even in this year we've seen nice syndication fees out of our efforts to build those capabilities. We're leading more credit deals. We're earning servicing fees on some of those deals, whether it's in our healthcare, our fund banking group or even our mortgage warehouse group. So the commercial fee activity and 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 where we stand ready for every customer interest we have, it's just when origination activities are subdued those activities are also subdued. As soon as activity levels come back, we'll see a resumption of those fees. And they are the type of fees that will come back strongly and quickly.

David Bishop -- Seaport Global -- Analyst

Got it. I appreciate the color. Thank you.

John P. Barnes -- Chairman of the Board and Chief Executive Officer

You're welcome.

Operator

Sir, at this time there are no questions in the queue. [Operator Instructions] 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.

John P. Barnes -- Chairman of the Board and Chief Executive Officer

In closing, we are pleased with our fourth quarter performance, which provided a solid finish to a strong 2020 for 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 in an operating -- any operating environment. Most importantly, we remain committed to providing personalized service and delivering value and convenience to customers across both our branch network and digital platforms. Thank you all. Stay healthy. Have a good evening.

Operator

[Operator Closing Remarks]

Duration: 70 minutes

Call participants:

Andrew Hersom -- Senior Vice President of Investor Relations

John P. Barnes -- Chairman of the Board and Chief Executive Officer

David Rosato -- Senior Executive Vice President and Chief Financial Officer

Juan -- Jefferies -- Analyst

Dave Rochester -- Compass Point -- Analyst

Mark Fitzgibbon -- Piper Sandler -- Analyst

Christopher McGratty -- Keefe, Bruyette & Woods -- Analyst

Ken Zerbe -- Morgan Stanley -- Analyst

Steven Duong -- RBC Capital Markets -- Analyst

Matt Breese -- Stephens -- Analyst

David Bishop -- Seaport Global -- Analyst

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