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People's United Financial Inc (NASDAQ:PBCT)
Q4 2019 Earnings Call
Jan 16, 2020, 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 2019 Earnings Conference Call. My name is Sherry and I'll 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 proceed, sir.

Andrew Hersom -- Senior Vice President of Investor Relations

Good afternoon and thank you for joining us today. Here with me to review our fourth quarter and full year 2019 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 website, peoples.com under Investor Relations. With that, I'll turn the call over to Jack.

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

Thank you, Andrew. Good afternoon. We appreciate everyone joining us today. Let's begin by turning to the full year overview on Slide 2. We are very pleased with the Company's financial and operating performance of 2019. It was another noteworthy year for People's United as we acquired two banks and a specialty finance company, enhanced our suite of banking technology and strengthened core capabilities. As a result, we continued to build the earnings power of the company while further solidifying its foundation to generate consistent and sustainable growth in the years ahead.

Commitment to our strategy of balancing organic growth and thoughtful M&A was evident during 2019. We began the year by acquiring VAR Technology, an innovative specialty finance company with an exclusive focus on the technology sector. VAR has been successfully integrated into LEAF Capital, excuse me, and transitioned from an origination-for-sale model to an origination-to-hold model. In April, we closed the acquisition of BSB Bancorp, the holding company for Belmont Bank and completed the core conversion in July. Belmont has added to the momentum our franchise is generating in the Greater Boston area. We are particularly pleased with the synergies provided by Belmont's commercial real estate team, which continues to generate strong production.

In November, we also closed the acquisition of United Financial Bancorp, the holding company for United Bank. The addition of United bolsters our already significant share of retail household and commercial clients across central Connecticut and western Massachusetts. The integration is progressing well. The core systems conversion will take place early in the second quarter and we are on track to realize projected cost saves.

Our strong results this year are a testament to the efforts of our employees, who successfully integrated VAR, completed the core system conversion for Belmont and advanced the integration of United, while continuing to deliver organic growth and enhanced profitability. This performance is further evidence that the integration of acquisitions is a significant core competency of People's United. Throughout 2019, we made further investments in technology platforms. As consumers continued to shift to digital channels, we launched several mobile device and online driven offerings this year, including our most recent offering of a digital small business solution for loans $250,000 or less.

Looking ahead, we remain committed to providing enhanced digital access as we aim to deliver an integrated service model that blends the best in customer service with digital solutions. As such, we'll continue to partner with fintech companies to bring greater efficiency, ease of use and scale to meet the evolving needs of our customers.

Looking at the full-year financial performance, operating earnings increased 20% from a year ago to $552 million, the highest in the Company's history. In addition, operating earnings of $1.39 per common share grew for the 10th consecutive year. These strong results generated an operating return on average tangible common equity of 14.7%, an increase of 10 basis points compared to the prior year.

Total revenues of $1.8 billion increased 15% year-over-year, driven by both organic growth and recent acquisitions. This increase reflects improvement in both net interest income and net non-interest income. Net interest income of $1.4 billion was up 14% from 2018 or 11% excluding United, within our full-year growth goal range of 11% to 13%. As you will recall, we updated our full-year goals earlier this year to include Belmont, but did not incorporate United as the acquisitions had yet to close. Despite the interest rate environment during the year and the easing of monetary policy by the Federal Reserve, our full year net interest margin expanded 2 basis points to 3.14%. Excluding United, the margin was 3.13%, which is within our 3.05% to 3.15% goal range.

Non-interest income, had a terrific year with an especially strong fourth quarter. Full-year results of $431 million, increased 18% or 13% on an operating basis, which far exceeded our 2% to 4% growth expectation. This increase was driven by a variety of lines, including a particularly high level of customer swap income. Operating non-interest income, excluding United, increased 11%.

From an operating perspective, total expenses of $1.097 billion were up $112 million from a year ago. We are pleased with these results, given the inclusion of United, Belmont and VAR into the franchise during the year and having Farmington on the books for a full 12 months. Excluding United, operating expenses were $1.074 billion, well within our full-year goal range of $1.06 billion to $1.08 billion. As a result of our revenue growth and the ability to control costs, while still making improvements and investments in the franchise, we continued to enhance operating leverage as demonstrated by 160 basis point improvement from the prior year in the efficiency ratio to 55.8%.

Period-end loans and deposits increased 24% and 21% respectively from a year ago, driven both by recent acquisitions and organic growth. Excluding United and the transactional portion of our New York multifamily portfolio, period-end loan balances were $38 billion, up 11% from year-end 2018, right in the middle of our 10% to 12% growth expectations for the year.

The addition -- excuse me, in addition to the inclusion of Belmont, these results were driven by strong results in mortgage warehouse lending, equipment finance and our specialized industry verticals within C&I, particularly -- excuse me, partially offset by continued headwinds within commercial real estate and home equity.

Period-end deposit balances, excluding United, were $38.3 billion, an increase of 6%, which was below our full-year goal of 10% to 12% growth. While we achieved meaningful growth in commercial deposits, retail balances declined modestly from 2018, due to some managed run off of higher cost deposits from Belmont and stand-alone People's United. Furthermore, a managed decline in brokered deposits also impacted the balances at year end.

Before looking ahead, it is important to briefly reflect on the significant progress of our franchise. Over the last 10 years, we have almost tripled total assets to nearly $60 billion, increased full-year operating earnings per share at an average annual rate of 16%, strengthened our presence in Metro New York and Greater Boston, deepened already strong positions within our heritage markets, and expanded our national businesses. At the same time, we have remained true to our roots of delivering superior service at a local level, maintaining exceptional asset quality and supporting our communities.

As we start a new decade, already filled with economic and competitive uncertainties, we are confident our long-term approach to managing the business will enable us to generate value for customers and shareholders, regardless of the operating environment. With that background in mind, let me outline our goals for the full year 2020, as listed on Slide 3. It is important to note the following goals incorporate a full year of Belmont and United. The first goal is to grow our core loan portfolio in the range of 2% to 4% on a period-end basis. The core loan portfolio excludes the run-off of select United loan portfolios, which ended 2019 with an aggregate balance of $1.346 billion. This balance is less than the approximately $1.8 billion in runoff we referenced at the acquisitions announcement due to a subsequent decision to sell $492 million of these loans. As such, these balances are included in the loans held for sale line on the balance sheet. We expect the runoff of the select United portfolios to be in the range of $300 million to $400 million for the full year.

Core loans also excludes the transactional portion of our New York multifamily portfolio, which is in run-off mode. Period-end balances for this portfolio finished 2019 at $737 million. We expect the run-off in the transactional New York multifamily portfolio to be in the range of $300 million to $400 million for the full year. After excluding these portfolios, the balance at year-end 2019 for core loans was $41.513 billion. Included in the 2% to 4% core loan growth is an assumption that residential mortgage balances will be unchanged from year-end 2019 as we continue to remix the balance sheet to focus on higher yielding portfolios. Secondly, period-end deposit growth is anticipated to be in a range of 2% to 4% as we continue to focus on gathering core customer deposits, while managing down higher cost portfolios.

The next goal is for net interest income to increase in the range of 9% to 11%. Embedded in this goal is the expectation for the net interest margin to be in the range of 3% to 3.1%. 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.

Moving on to non-interest income. As I mentioned earlier, total non-interest income had a -- we had a terrific year in 2019, including a very strong fourth quarter. The results were driven by a variety of lines, including some that have inherently lumpy results period to period. Our assumption is for a level of normalization to occur in 2020. As such, we expect non-interest income on an operating basis to grow in the range of 2% to 4% from $424 million in 2019.

Operating non-interest expenses which exclude merger-related costs, are anticipated to be in the range of $1.19 billion to $1.22 billion as compared to the $1.097 billion in 2019. As a reminder, this range includes a full year of results from Belmont and United. It is also important to note, the core system conversion for United is not expected until early in the second quarter. We also expect to maintain excellent credit quality with approved -- with a provision in the range of $40 million to $50 million. The higher provision level reflects expected loan growth and the impact of CECL. 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%. This goal does not contemplate any share repurchases during the year. As you will recall, we positioned the buyback program announced in July as an opportunistic capital management tool. As such, any decision to repurchase shares will be subject to market conditions.

With that, I will pass it to David to discuss the fourth quarter results.

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

Thank you, Jack. We concluded 2019 with strong financial performance as demonstrated by another quarter of record earnings. Operating earnings of $158.8 million, increased 17% linked quarter and reflected the acquisition of United, improved net interest margin and positive operating leverage. It is important to note, the fourth quarter included the following items, which were deemed non-operating: merger-related costs of $22.6 million pre-tax or $17.8 million after tax; an intangible asset write-off of $16.5 million pre-tax or $13 million after-tax related to the liquidation of our public mutual funds; a gain net of expenses of $7.6 million pre-tax or $6 million after-tax related to the sale of eight branches in Central Maine. The transaction closed in October and included approximately $104 million in loans, $262 million in deposits and $240 million of assets under management.

Turning to Slide 5, net interest income of $382.7 million increased $34 million or 10% from the third quarter. The loan portfolio contributed $23.2 million to the increase, due to higher balances. Lower deposit and borrowing costs benefited net interest income by $5.3 million and $2.7 million respectively. In addition, higher balances in the securities portfolio added $2.8 million. Overall, the inclusion of United added approximately $35 million to net interest income for the quarter.

As displayed on Slide 6, net interest margin of 3.14% expanded 2 basis points linked quarter. The margin benefited from continued disciplined management of deposit costs, remixing of the loan portfolio and the net effect of purchase accounting adjustments related to the United transaction. Excluding these purchase accounting adjustments, the margin was 3.09% or 3 basis points less than the third quarter. Lower borrowing costs favorably impacted net interest margin by 2 basis points, while lower loan yields reduced the margin by 5 basis points.

Turning to loans on Slide 7, average balances of $42 billion increased by $3.7 billion or 10% from the third quarter, driven primarily by the addition of United. On an organic basis, average balances increased $40 million or less than 1%. Period-end balances of $43.6 billion, increased $4.8 billion linked quarter, but were essentially flat excluding United. Organic commercial loan growth of $314 million was driven by solid results in commercial real estate, equipment finance, and C&I, partially offset by seasonally lower mortgage warehouse lending balances. The increase in commercial loans was offset by a $343 million decline in retail loans, mostly due to our planned reduction of residential mortgages as we continue to remix the balance sheet with a focus on higher yielding portfolios.

Commercial real estate organic growth was driven primarily by strong performance in Northern New England, particularly in Massachusetts. All three of our equipment finance businesses grew balances during the quarter, with LEAF once again generating excellent production. C&I continues to benefit from our specialized industry verticals, with especially good results in fund banking, healthcare, and franchise lending during the quarter.

Moving on to deposits on Slide 8, average balances of $42.2 billion, increased $3.5 billion or 9% from the third quarter, while period-end balances of $43.6 billion, were up $5 billion or 13%. The higher balances were driven by the inclusion of United. Excluding the acquisition, average and period-end balances decreased $97 million and $287 million [Phonetic] respectively, or less than 1% on each basis. While we achieved solid growth in commercial deposits, retail balances declined modestly due to some managed write-off of higher cost deposits. In addition, managed reduction and broker deposits also impacted balances.

We remain focused on controlling pricing as evidenced by a 13 basis point reduction in deposit costs during the quarter. Similar to the third quarter, we remain disciplined in managing costs across the franchise.

Looking to Slide 9, we continue to achieve strong non-interest income with $124.2 million in the fourth quarter. This result marks an increase of $18.2 million or 17% on a linked quarter basis.

Operating non-interest income, which excludes the $7.6 million gain, net of expenses from the sale of eight Central Maine branches, was $116.6 million, up $10.6 million or 10% from the third quarter. The inclusion of United added approximately $5 million to non-interest income in the quarter. By non-interest income category, the $10.6 million linked quarter increase was primarily driven by $3.3 million in higher customer interest rate swap income, a $1.9 million increase in bank service charges primarily attributable to the addition of United, $1.1 million in higher commercial banking fees, and a $7.7 million increase in other non-interest income. This increase was driven by several items including a $3.3 million gain on the sale leaseback of our office building in Burlington, Vermont and a $1.6 million benefit to non-interest income from the mark-to-market of one equity security position. These increases were partially offset by a $2.8 million decrease in insurance revenues, reflecting the seasonality of commercial insurance renewals, and a $600,000 decline in investment management fees, which was partially related to the $240 million of assets under management sold as part of the Central Maine branch sale.

On Slide 10, non-interest expense of $325.7 million, increased $44.3 million linked quarter. Included in the fourth quarter were $39.1 million of non-operating costs in the following categories: $25.5 million in other expenses; $7.5 million in compensation and benefits; $5.6 million in professional and outside services; and the remaining $500,000 in occupancy and equipment. In comparison, the third quarter incurred $5 million of non-operating costs. Excluding non-operating costs, non-interest expense of $286.6 million was up $10.2 million or 4% linked quarter. This increase was driven by the inclusion of United, which added approximately $24 million to operating non-interest expense in the quarter.

By expense category, the $10.2 million linked quarter increase was mostly due to $7 million in higher occupancy and equipment expenses, a $6.6 million increase in compensation and benefits, an additional $4 million in professional and outside service costs, and a $2 million increase in regulatory assessments. This variance was due to a lower third quarter assessment, resulting from an FDIC credit. The largest driver offsetting these increases was $10.9 million in lower other expenses. As a reminder, third quarter other expenses were unfavorably impacted by certain legal and other one-time operational costs.

Turning to Slide 11, the efficiency ratio of 53.7% improved 310 basis points from the third quarter and 140 basis points year-over-year, reflecting well-controlled expenses and higher revenues. Asset quality was once again exceptional across each of our portfolios as demonstrated on Slide 12. Originated non-performing assets as a percentage of originated loans and REO at 55 basis points is a 1 basis point improvement from the third quarter and below our peer group and Top 50 banks.

Net charge-offs of 6 basis points were unchanged from Q3 and continue to reflect the minimal loss content in our non-performing assets. Briefly on Slides 13 and 14, return on average assets and return on average tangible common equity declined 7 basis points and 120 basis points respectively from the third quarter. On an operating basis, both metrics improved. Operating return on average assets was up 8 basis points to 113 basis points, while operating return on average tangible common equity increased 80 basis points to 15.2%. Finally, capital ratios remained strong given our diversified business mix and long history of exceptional risk management.

This concludes our prepared remarks. We'll be happy to answer any questions you may have. Operator, we're ready for questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Mark Fitzgibbon with Piper Sandler.

Mark Fitzgibbon -- Piper Sandler -- Analyst

Hey, guys. Good afternoon.

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

Hey, Mark.

Mark Fitzgibbon -- Piper Sandler -- Analyst

First question I had is just to clarify a comment, Jack, you made about the loan balances. So, if we take the year-end loan balances of, call it $43.6 billion and that grows sort of 2% to 4%, and did I hear correctly that you're going to see run-off of $300 million to $400 million on the United portfolio this year and another $300 million to $400 million from New York multifamily run off?

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

Yes. That's correct, Mark.

Mark Fitzgibbon -- Piper Sandler -- Analyst

So, if loans -- split the difference on the growth 2% to 4%, say it's $1.3 billion [Phonetic] less somewhere between $600 million and $800 million of loan growth or run off, I should say?

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

Okay. The loan growth excludes the run off of [Speech Overlap].

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

Correct. So if you take the ending total loans of $43.6 billion, reduce the $1.346 billion of United and the multi-family book of $737 million, brings you down to $41.5 billion. So, that's the base that the loan growth is off of. Then, additionally we expect those two portfolios to run off between $300 million and $400 million each during the year.

Mark Fitzgibbon -- Piper Sandler -- Analyst

Got you. Okay. And then secondly, can you help us think about the purchase accounting impact on the margin over the next maybe quarter or two?

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

Yeah. So, we called out, Mark, the 5 basis points in Q4. That is a good number. The way I think about is kind of two components, obviously, the loan side and the deposit side. The loan purchase accounting will be with us for about four years. On the deposit side, most of that mark is around the CD portfolio, which is about a year. So, you're going to see a first half benefit, larger than the second half, but the second half will be a run rate for a couple of years.

Mark Fitzgibbon -- Piper Sandler -- Analyst

Okay. And then the $16.5 million write-off for intangible asset, what is the asset that the write-off is on? I didn't see it in the release anyway.

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

So that was the value that we attributed to the mutual fund business at acquisition of Gerstein Fisher.

Mark Fitzgibbon -- Piper Sandler -- Analyst

Okay. And then lastly, Jack. I wondered if you could comment on your outlook for M&A in the Northeast and has your view on bigger deals changed in light of how the market has received so well some of these larger transactions?

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

So, I really don't see the pace of M&A generally changing dramatically one way or the other in the Northeast I would say at this point. And in terms of appetite for larger deals, I mean, we've been willing to consider larger deals if appropriate, the right fix, etc. So -- and again, I don't think our view has changed. There is not many larger deals across our footprint. I will say that, if you look at our footprint and what's out there.

Mark Fitzgibbon -- Piper Sandler -- Analyst

Thank you.

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

Your're welcome.

Operator

Thank you. Our next question comes from Ken Zerbe with Morgan Stanley.

Ken Zerbe -- Morgan Stanley -- Analyst

Great, thanks.

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

Hi, Ken.

Ken Zerbe -- Morgan Stanley -- Analyst

Actually, I had a similar question -- line of -- line of thought here. Can you just give us the base that you're using for both the NII and the fees that you're growing off of? I just want to make sure we're on the same page.

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

Well, starting with the fees, the basis, the $424 million that we referenced, the base for the NII is just what is in the press release, which is $1.412 billion.

Ken Zerbe -- Morgan Stanley -- Analyst

Got you. Okay, perfect. That's helpful. And then, obviously your CE Tier 1 target, the 10% to 10.5% does not including buybacks. Could you just talk about how aggressive you might potentially be with buybacks. I mean is it -- could you get down to 9%, 9.5%. I'm trying to think of how to think about layering in buybacks on top of that base number.

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

So, Ken, what I would say is, when we announced the buyback and then in the call on the third quarter and today was the third time, we've used the term opportunistic. The 10% to 10.5% is the consistent capital level that we put out as a goal for last year as well. We managed within that last year and our intention would be to manage within that this year as well. And...

Ken Zerbe -- Morgan Stanley -- Analyst

Okay. So, I guess given zero buybacks this whole year, then, when you say opportunistic, it would not be a crazy assumption to assume zero buybacks next year as well. That's one possibility. Is that correct?

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

Well, there's a full range of possibilities from no buybacks to the full completion of the 5%, based on our views of the equity markets and obviously our stock in particular.

Ken Zerbe -- Morgan Stanley -- Analyst

Okay, understood. Thank you very much.

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

You're welcome.

Operator

Thank you. Our next question comes from Casey Haire with Jefferies.

Casey Haire -- Jefferies -- Analyst

Hey, thanks guys.

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

Hey, Casey.

Casey Haire -- Jefferies -- Analyst

How you doing?

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

Good.

Casey Haire -- Jefferies -- Analyst

Wanted to touch on the loan growth. So, the 2% to 4%, which buckets are going to be driving that. And should we -- it sounds like you guys are still happy to run down resi mortgage, like, what sort of headwinds should we expect from resi mortgage in 2020?

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

We're -- this is, Jack. Casey, we're -- as we've said in the script, we're expecting resi to basically stay flat, year end to year end. There's actually a lot of activity in there as you can imagine given amortizations and payoffs. So, one of the things that, I guess, I hope, is clear to everybody. We're very committed to resi mortgage in terms of delivering the product to our customer base. It's important part of the retail part of our bank. So it's -- there are some wholesale channels where we can do less and and as we've been saying, our focus is trying to remix gradually so that we're booking more higher yield portfolios and a softening, if you will, the percentage of -- reducing the percentage of residential mortgages overall on the balance sheet. So, that's where the resi is. I'd ask Jeff Tengle to talk about the loan growth in the other business lines.

Jeff Tengel -- President

Yeah. In the commercial business, we think it's going to be very similar to what we experienced this year. We're not expecting a lot of growth, if any, in our commercial real estate portfolio for all the reasons we've talked about in the past. And so, across the rest of our franchise, our core middle market business, particularly in our larger markets like Connecticut and Massachusetts, have had growth in 2019. We think that will continue in 2020. We've seen a lot of good growth across a number of the industry specialization businesses that David referenced. We think that momentum will continue into 2019 and our equipment finance businesses also had good growth in '19 and we expect that to continue in 2020. So, we feel really good about all of those commercial businesses and think that the pipeline there in pretty good shape and feel pretty confident going into the year.

Casey Haire -- Jefferies -- Analyst

Okay, great.

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

Hey, Casey. Just to put a number around our thinking about resi mortgages, if you go back to like June of '17. So, before the last three acquisitions, we had about 21% of the loan book in resi mortgages. At June of '19, it was up to almost 25%. And so we're just trying to bring that number down a few percentage points without selling anything out of it, to do it on a natural basis. And that will obviously bring up the commercial side, which yields more.

Casey Haire -- Jefferies -- Analyst

Understood. Got it, OK. And then just switching to the reserve side of things, with a lot of moving parts here, but just given all the ups and downs within the loan portfolio, but as we think about CECL and your adoption of it, how do you guys see, what do you see the go forward provision rate, the loan loss reserve ratio settling out as you adopt CECL?

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

Well, so we gave a provision guidance of $40 million to $50 million. That was inclusive of United. So that's --and $12.5 million a quarter is the way we're thinking about it and I think you should as well.

Ken Zerbe -- Morgan Stanley -- Analyst

Okay, all right. Okay, I'll leave it there. Thank you.

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

Thanks, Casey.

Operator

Thank you. Our next question comes from Jared Shaw with Wells Fargo Securities.

Jared Shaw -- Wells Fargo -- Analyst

Hey guys, good evening. Just a couple of questions I guess on the margin. So I hear you with the lower accretion as we go into the second half of the year, but are you, with the focus on the higher yielding loans as the area of growth, I guess, where are you seeing more of that incremental pressure on the margin? Is it repricing of the of the loan portfolio, or is there really just not much more room to move on the deposit side?

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

I would say it's a little bit of both. The -- so yeah, we had, we had three quick bad moves in kind of a compressed period of time in the third and fourth quarter. I would say by the time the quarter was over, the loan portfolio had kind of repriced any lags in there that had kind of come down. Remember, about 44% at this point of that of our loan portfolio is really one month LIBOR driven and one month LIBOR and down 34 basis points, I think it was in Q4. We telegraphed our guidance around steady interest rate, steady fed funds rate. So I think as the fixed piece of the portfolio rolls, you'll see some downward pressure there. I think if the Fed does not do anything all year, it will be harder to bring down deposit pricing. There'll be some positive role in our CD books and the other piece of that is, we're seeing good restrain across the industry on deposit pricing. So I just think in a steadier environment, the ability to make moves will be a little bit muted.

Jared Shaw -- Wells Fargo -- Analyst

Okay, thanks. And then on the securities portfolio, I know United had some CLOs. Were those completely gone by the end of the year and as a secondary part of that, what I guess drove that 5 basis point growth in the securities portfolio? Is that a purchase effort on your part or is that more just a mark-to-market on the portfolio that was acquired?

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

No. So they did have a CLO portfolio. That portfolio never hit our books, meaning it was gone before we acquired them. We did exactly like we said we would when we announced the deal. All those securities were liquidated. All that came over from their portfolio was a little over $300 million of securities that we would say are very much like the stuff that we own. Within the quarter, you saw, I believe, a 5 basis point improvement in the yield on the securities portfolio driven by the addition of some municipal bonds which in that portfolio as well as really good low levels of prepayment activity across the mortgage bank. So the amount of amortization that went through the portfolio was really well controlled in the fourth quarter, resulting in a higher yield.

Jared Shaw -- Wells Fargo -- Analyst

Okay, thanks. And then just finally for me. With the branches that were sold up in Maine, in a more compact branch footprint now I guess in Southern New England, are there areas where you could actually see or we could see the bank do some de novo expansion, whether it's South Shore Mass or more infill in the Boston area or would any future footprint expansion really be driven by M&A?

Jeff Tengel -- President

Jared, it's Jeff. I would say we just opened the Novo branch in the Seaport area in Boston. And we certainly would consider looking at other opportunities there. That branch, by the way is really off to a great start and we also did Penn Station in New York. And again, that's -- we're encouraged by that. It's off to a great start with a lot of activity there. So, we definitely are open to de novo. Love to build out the South Shore Boston and kind of considering and looking at our options there. And so, we're open to it. We actually are also closing, continuing to close branches. So kind of working to optimize the branch footprint all the time.

Jared Shaw -- Wells Fargo -- Analyst

Great, thanks a lot.

Jeff Tengel -- President

Yeah.

Operator

Thank you. Our next question comes from Steven Alexopoulos with JPMorgan.

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

Hi, everybody.

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

Hey, Steve.

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

Just a first follow-up on NIM. What's the assumed purchase accounting accretion benefit that's in the 2020 guidance? Is that around 5 basis points?

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

Yeah, just slightly below that, for the full year.

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

Okay. And then quite a few moving parts of the loan growth guidance. What are the expectations for reported total loans not making any adjustments? Where do you see total loan balances moving in 2020?

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

Well, it really is, it's that growth off that base that we gave that $43.5 billion [Phonetic] base.

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

2% to 4% [Phonetic] loan growth, but we've excluded some run-off in [Indecipherable].

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

Yeah, I'm sorry, I said -- I gave the wrong number off the base of $41.5 billion.

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

Right. I guess I'm trying to figure out when the position -- the company's position to start showing total loan growth that's more material ex all these run-off items. Doesn't sound like it's 2020.

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

Yeah, I mean, I think one thing -- it's when the commercial real estate market, however you want to describe it, it's clearly frothy and and it hits us in many different ways. It's our largest portfolio. So we've been, we did or is it Jeff a little over $2 billion in originations in '19 and we're basically flat. So we're active in the business. We're taking care of our customers, but we're getting payoffs from shadow banking companies. We're getting sale of properties. So it 's hard to predict. Steve, when that changes other than some kind of a change in my mind, the change in the, like a cycle change for us. Maybe a change in rate environments where that changes the dynamics. That's why I think when Jeff kind of referred to whether it's middle market business banking, the leasing companies, the verticals, we're actually doing quite well in a lot of our businesses and moving ourselves forward but that's challenging.

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

Okay and then -- thanks. And then finally on expenses. Are you -- for the guidance, you guys still assuming 75% phase in of UBNK cost saves in 2020? Is that still the assumption?

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

Yes. Yeah, no change.

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

Okay. And then the expense picture has been a little bit muddled because of all the deals. Dave, how do you think about just organic expense growth for the franchise ex any acquisitions?

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

You know, it's, I think about that as about a 2% growth -- 2% rate. And we've, I know every year there has been M&A activity in there, but that's really what it works out to be.

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

Okay. Thanks for taking my questions.

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

You're welcome.

Operator

Thank you. Our next question comes from Collyn Gilbert with CDW.

Collyn Gilbert -- Keefe, Bruyette & Woods -- Analyst

Thanks. Good evening, everyone. Just a few sort of housekeeping items. David, what was the balance in the mortgage warehouse portfolio this quarter?

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

It was about $1.4billion.

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

$1.4 billion.

Collyn Gilbert -- Keefe, Bruyette & Woods -- Analyst

Okay. And is your expectation for that in, I mean for balances to drop as you're kind of thinking about the book in total, the total loan book that you could see balances drop in 2020 for that line?

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

Yes. So, a small amount. I mean they came off a little bit in Q4, about $180 million or so. We expect a little a little bit of decline next year subject, I guess once again, I mean the mortgage book was completely different than we thought at the beginning of the year subject to level of interest rates and refi activity.

Collyn Gilbert -- Keefe, Bruyette & Woods -- Analyst

Okay. And then on the loans that you have in the held for sale, the resi mortgages that you guys are selling, what's the blended yield on those?

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

Well, so just to be clear, the $0.5 billion that you see that showed up on the loans held for sale are United Bank portfolios that subsequent to the deal, we decided to sell, and that work is in process.

Collyn Gilbert -- Keefe, Bruyette & Woods -- Analyst

Okay. So does that mean you can't offer what the yield was on those loans?

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

Yeah, we'd rather not.

Collyn Gilbert -- Keefe, Bruyette & Woods -- Analyst

Okay. And then just going back to the dynamics of the NIM, so, David, I understand you're saying that just if we're in a steady rate environment, there's probably less movement to see here. But can you just talk a little bit about what you're doing with your deposit offering rates right now? And then is there, would there be a catalyst that putting rate aside, that would cause you to kind of drop your deposit rates again, just trying to think about the flow-through of potentially lower funding going forward.

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

Sure. The -- so I would say, number one, the I would stress that, since the Fed started moving down, since the end of July, we've been very disciplined around deposit pricing across all of our businesses. But we've also would say that the industry has been well-disciplined as well which is important because when it when we have one or two players who aren't, it's difficult. So for example, today, our best CD offer out there is a six-month CD at a 1.70% [Phonetic], right. So, slightly below the top end of the Fed target range. The other thing that we did on the retail side is become less aggressive on money market promotions. So those offer rates are lower relative to where Fed funds target is and that's been another dynamic in the last six months. I don't see those type of -- that type of behavior changing in 2020 at least in the near term. So I just -- I think it's that day to day, our frontline folks being in front of customers trying to generate growth in new accounts and serving our customers. But we're able to do it in a slightly less promo environment. And the other thing I would add on is that we're really pleased with the work that our relationship mangers have done, going out proactively and having the conversation with customers about, the Fed raised rates and we raised deposit pricing. Now the Fed has lowered rates and we need to lower pricing and because of relationships and good communication, we feel really good that we've had nice success.

Collyn Gilbert -- Keefe, Bruyette & Woods -- Analyst

Okay, that's helpful. And I guess along those lines, if we think about recognizing obviously the incremental growth in the portfolio is going to be fairly low. But just the margin on the new business that's coming on in the wake of well, yes, we saw the curve steepen, it's still obviously very narrow, but are you kind of structurally seeing kind of a NIM benefit longer term that you're -- the incremental spread that you're putting on in the balance sheet is more than that 3% or is it less?

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

What I would say, actually Collyn, a little bit the other way. So we -- last quarter we referenced that differential came down from about 50 basis points in the second quarter to about 30 basis points in the third. That has moved down a bit in the fourth quarter subject to mix and shape of the yield curve. I think that's going, that dynamic will slowly come in, not expand.

Collyn Gilbert -- Keefe, Bruyette & Woods -- Analyst

Okay. And then...

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

Just to finish that thought. So there's two components to that right? There's interest rate benchmark interest rates and credit spreads. And what I would say is the driver is benchmark interest rates. Our credit spreads have been pretty steady in the back -- in the back half of last year and we don't expect that to change.

Collyn Gilbert -- Keefe, Bruyette & Woods -- Analyst

Okay. Okay, all right, that's helpful. And then the decision around selling the mutual fund -- some of the mutual funds, can you just walk through that or is that like specifically tied to the branches or just trying to understand what you guys are doing there?

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

Well, we did not sell the mutual fund. So we, they were public mutual funds, it is a little over $550 million we -- that were in Gerstein Fisher. We just stop using public mutual funds as the vehicle for those customers to invest. We're still managing that money. We just are doing it back in what we call our managed account group. So same customers, same investment strategies, just not in a public mutual fund format where we have higher cost to serve those customers.

Collyn Gilbert -- Keefe, Bruyette & Woods -- Analyst

Okay, that's helpful. Okay. And then just as we think about the initial accretion targets for UBNK. I think it was like $0.07 a share that you guys were looking for EPS accretion. How do you sort of see that folding in, because I think if we align what your -- some of the targets are, well, let me just ask that question, how do you see that $0.07 folding in?

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

So that $0.07, which was on a fully phased in cost basis, right? So and as Jack referenced the conversion will be done early in the second quarter and then there is a little bit of time before we get everything out, all the cost out and get to the permanent, if you will run rate. So everything around that transaction from purchase accounting, accretion, it's all on target. So no change in our expectations. The only change really is the rather than running off $1.8 billion of loans, we have decided to take that $0.5 billion and sell down. So that means that $0.5 billion of assets will be gone sooner than we originally thought, but it's actually not going to be material to the financial projections that we gave.

Collyn Gilbert -- Keefe, Bruyette & Woods -- Analyst

Okay. So that doesn't change that. Okay. That is, that's helpful. All right. I will leave it there. Thanks guys.

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

Thank you.

Operator

Thank you. Our next question comes from Matthew Breese with Stephens.

Matthew Breese -- Stephens -- Analyst

Good evening, everybody.

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

Evening, Matt.

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

Hi, Matt.

Matthew Breese -- Stephens -- Analyst

Hey, just wanted to confirm quick on CECL, the initial reserve guidance increase $40 million to $60 million, does that still hold and is that, should we expect a similar impact to capital?

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

So that's just for everyone's benefit. That's what we referenced on the third quarter call. As a reminder, that did not include United Bank. Our work around CECL continues. We now think that will actually be just around the lower end of that number when all is said and done. So, plus or minus $40 million. And then there will be some additional to United but that work is still in progress as well.

Matthew Breese -- Stephens -- Analyst

Could you give us some sort of a range perhaps? Is it significantly less or or more than the $40 million? Just for ballpark purposes.

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

Just for United?

Matthew Breese -- Stephens -- Analyst

Yes.

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

It's below -- it's below that.

Matthew Breese -- Stephens -- Analyst

Okay. And then considering, once we true it up, considering the moving parts, you'll be running off some of the UBNK. You are mix shifting more toward commercial, the overall reserve level relative to loans, is that an increasing or decreasing number?

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

I think it's about the same. The credit discipline of the company is unchanged. The changing nature or complexion of the credit risk on the balance sheet is not significantly different from where we have been historically.

Matthew Breese -- Stephens -- Analyst

Okay. So despite the mix shift, it will stay flat. Understood.

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

Yeah.

Matthew Breese -- Stephens -- Analyst

Your securities portfolio, just going back to Jared's question, just wanted to confirm because prior commentary was that you would sell roughly $550 million. Should we expect the $7.8 billion securities portfolio? Should we expect that to hold flat through 2020? Is that a good modeling estimate?

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

Yeah, that's fine. As I said, everything we said we would sell out of United, we did and actually some of it was as I referenced on the CLOs, they actually did it prior to acquisition. And so today those securities portfolio is about 13% of total assets. We've been there for a while, that's less than, some years we are running 15% but we are at [Phonetic][1:00:25.5] the level of interest rates pretty modest, steepness of the yield curve. We're pretty much going to keep things where they are as we see it today.

Matthew Breese -- Stephens -- Analyst

Understood. Okay and then my last one, just concerning your actions on the branch network, your comments on taking a look at the physical branch network, could you just remind us of the Stop & Shop supermarket branches? How many are there? How are they performing? Are they performing up to expectations? If there is a contract associated with them, when is that up for renewal? Just wanted to get a sense for as you consider the branch network, whether or not the supermarket branches are part of the long-term story.

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

Sure, I'll give you a couple of numbers. And then if Jack wants to make any other comment. So today, at year-end, we had about -- we have 450 branches across the franchise, the Stop & Shops across New York and Connecticut are about $150 million [Phonetic][1:01:34.7] 150 of the 450 branches. They are a critical part today and have been of our -- of our branch network there, a low-cost delivery source for us. And then, the contract that we talked about before is up in about two years. We also own an option to extend that if we want.

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

I would say just to add that we're working with Stop & Shop to look to the future and kind of, if you will, the model that we're using, and we're having some very constructive conversations of that. So -- but just work our way through that period and determine [Phonetic][1:02:24.2] where we go.

Matthew Breese -- Stephens -- Analyst

Understood. Okay and then just my last one, ticky-tacky really. Just considering the loan yields quarter over quarter, the equipment financing bucket only decreased 5 basis points. I was a little surprised by the movement there. Could you just give us a reminder of the typical equipment finance loan structure variable floating versus fixed and how much LEAF with the higher yielding component played into what was relatively a small move in that bucket?

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

So I will interpret your question as you were pleasantly surprised by the performance. The LEAF is the highest yielding portfolio of the three. So, everything across our three equipment platforms is fixed-rate production, right. Unlike our mortgage warehouse or ABL, which is 100% one month LIBOR, these are our fixed rate cash flows or a predominant amount of our fixed rate cash flows. And spreads and yield, spreads don't change that often and they're not -- the business, especially in LEAF and PUEFC, the old former Fin Fed are, it's a rate driven business, and they don't move that often. So that's how that yield even in a down 75 basis point Fed funds environment holds up. The largest of our three platforms, PCLC is lower yielding and more market-sensitive, but that is the business that we have held flat from an outstandings perspective for the last three years or so. And then don't forget, this was the year that at the beginning of the year, we bought [Indecipherable][1:04:19.0] technologies and we brought them into the fold. And they are a really nice high yield originator as well.

Matthew Breese -- Stephens -- Analyst

Understood. Could you give us an idea what the LEAF yield is? And that's my last question.

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

Sure. So that yield, just on a coupon yield, ignoring a nice fee income is yields from, call it 7% in a quarter to about 8%.

Matthew Breese -- Stephens -- Analyst

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

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

Thank you.

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

Thanks, Matt.

Operator

Thank you. And our next question will come from David Bishop with DA Davidson.

David Bishop -- D.A. Davidson -- Analyst

Yeah, good evening, gentlemen. Most of my -- yeah, good evening. Most of my questions have been answered but...

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

Sorry, we're having a hard time hearing you. David

David Bishop -- D.A. Davidson -- Analyst

Yeah. Most of my questions have been answered, but from a housekeeping perspective, the buyback, the current authorization, where does that stand again? Could you remind us?

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

We really have only bought a de minimis amount of shares back. So essentially zero.

David Bishop -- D.A. Davidson -- Analyst

Got it. And then from a purchase accounting accretion impact this quarter, do you have that from a dollar amount perspective, what that benefit was in the fourth quarter relative to the third quarter?

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

Fourth quarter pertaining to United was about $6.5 million.

David Bishop -- D.A. Davidson -- Analyst

And then the core legacy purchase accounting interest income from Belmont and others?

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

Those numbers have have gotten quite a bit smaller at this point. David, we'd have to come back and give you the details on that. We can take that offline. I can't remember exactly where Belmont was, at this point.

David Bishop -- D.A. Davidson -- Analyst

Got it. Will follow up offline. Okay, thank you guys.

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

Thank you.

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

You're welcome.

Operator

Ladies and gentlemen, this will conclude the time we have for questions. I would now like to turn the call over to Mr. Barnes for closing remarks.

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

Thank you. In closing, another quarter of record earnings provided a great finish to a strong 2019 for People's United. We were pleased with our performance during the fourth quarter, which was highlighted by improved net interest margin, lower deposit costs, continued remixing of the balance sheet with a focus on higher yielding portfolios, solid organic commercial loan growth, positive operating leverage, strong non-interest income and sustained excellent asset quality. Thank you for your interest in People's United. Have a good night.

Operator

[Operator Closing Remarks]

Duration: 67 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

Jeff Tengel -- President

Mark Fitzgibbon -- Piper Sandler -- Analyst

Ken Zerbe -- Morgan Stanley -- Analyst

Casey Haire -- Jefferies -- Analyst

Jared Shaw -- Wells Fargo -- Analyst

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

Collyn Gilbert -- Keefe, Bruyette & Woods -- Analyst

Matthew Breese -- Stephens -- Analyst

David Bishop -- D.A. Davidson -- Analyst

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