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People's United Financial Inc (PBCT) Q1 2019 Earnings Call Transcript

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People's United Financial Inc (NASDAQ: PBCT)
Q1 2019 Earnings Call
April 18, 2019 , 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. First Quarter 2019 Earnings Conference Call. My name is Sherry, 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 conference 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 first quarter 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 and Chief Executive Officer

Thank you, Andrew. Good afternoon. We appreciate everyone joining us today.

Let's begin by turning to the first quarter overview on Slide 2. We are pleased with our first quarter performance and continued success enhancing profitability. Operating earnings of $123 million increased 18% from a year ago and operating return on average tangible common equity of 14.4% improved 60 basis points.

On a per common share basis, operating earnings were $0.33, up $0.03 from the prior-year quarter. We continue to execute on revenue-producing initiatives and synergies created by recent acquisitions. Total revenues of $427 million increased 11% from the prior-year quarter and 1% linked quarter. These results were driven by higher net interest income reflecting net interest margin expansion as well as growth in non-interest income.

The margin improved 15 basis points year-over-year and 3 basis points linked quarter primarily due to higher yields on new business. While the first quarter is seasonally higher for expenses, total non-interest expenses excluding merger-related costs increased 3% from the fourth quarter. Our thoughtful approach to expense management has enabled us to control costs while continuing to make important investments in our digital capabilities. As a result of these investments and several new fintech partnerships, we continue to build out digital solutions for customers. Earlier this year, we launched an online and mobile residential mortgage and home equity lending portal to simplify and transform the way customers apply for a mortgage and home equity loan. Later this month, we will introduce a more advanced website that will offer a fully optimized user experience for mobile devices. The new peoples.com. will also provide, among other advancements, a customer-centric design focused on providing tailored solutions and an enhanced storefront feature to highlight key product areas.

In the second quarter, we will be significantly enhancing our online mobile deposit account opening solution, that will improve customer experience with its ease of use and speed. And also, in the second quarter, we expect to launch our new direct to client investment advisory solution, which will deliver an online portfolio management solution to customers. All of these enhancements allow us to provide a fast and efficient digital onboarding experience for our customers.

Moving on to loans in what is a seasonally slower quarter for growth, total period-end loans increased 1% from year end, our strongest first quarter growth rate since 2015. Solid results across C&I businesses and equipment finance more than offset lower commercial real estate balances, reflecting the importance of our portfolio's diversification. This quarter also benefited from a lower level of paydowns compared to recent quarters.

We are also very encouraged with the momentum being generated across our specialized industry verticals. In addition, loan pipelines at quarter end were solid, causing us to remain cautiously optimistic, despite in a highly competitive environment. We continue to be pleased with our ability to gather deposits as evidenced by period-end balances increasing $742 million or 2% from year end.

While we have achieved deposit growth across many of our markets, we are particularly pleased with the results in our New York franchise. Period-end balances in the state increased over $350 million from year end to $5.7 billion. Given this success, we are excited to open a new branch at Manhattan's Penn Station later this quarter. More than half a million passengers pass through the station every day, many of whom are commuters from Long Island, where we have significant presence. Our strong results this quarter are a testament to the hard work of our employees who successfully integrated the acquisition of VAR Technology, completed the core system conversion for Farmington Bank, and advanced the integration of Belmont, while continuing to deliver organic growth, sustained asset quality and enhanced profitability. This performance is further evidence that the integration of acquisitions is a significant core competency of People's United. I'm extremely proud of the efforts of our employees and their dedication to the Company. With the acquisition of Belmont complete, we are excited to leverage our expanded customer and employee base to build upon our strong organic growth in Massachusetts, particularly in the greater Boston area. Integration has gone very well. Core system conversion will take place in the third quarter and we remain confident in achieving the transaction's attractive returns. During the quarter, Jeff Tengel and I visited with Belmont employees and spent time with their customers. We came away from these meetings even more impressed with the talent that will be joining our team as well as with the strength and the quality of the customers they do business with.

The momentum our franchise is generating in the greater Boston area is significant. With the addition of Belmont, the recent establishment of three new specialized business lines to our Boston-based commercial team, and the opening of a branch in the vibrant Seaport District in the city this summer, we are optimistic about our growth opportunities in the region. In addition, our prudent capital management has enabled us to grow the business organically and invest strategically in the franchise while also providing that consistent cash return of capital to our shareholders. As such, we are proud to announce the Company's 26th consecutive annual common dividend increase. We remain committed to our strategy of annually increasing the common dividend while also continuing to reduce our common dividend payout ratio through earnings growth.

Before passing the call over to David to discuss the first quarter in more detail, I wanted to note we were honored to be recognized by Barron's as one of the top 100 most sustainable US companies for 2019. People's United was ranked number five among financial institutions and number 41 overall based on assessments of more than 200 performance indicators in five categories which include shareholders, employees, customers, planet and community. We are pleased to receive this noteworthy recognition and it is a reflection of our unwavering commitment to the Company's guiding principles.

With that, here's David.

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

Thank you, Jack. Turning to Slide 3, net interest income of $332.8 million was up modestly from the fourth quarter. The loan portfolio contributed $15.4 million of the increase to net interest income and benefited from higher yields on new business. Net interest income also benefited $1.8 million from a lower level of borrowings. The primary offsets to these increases were higher deposit costs and too few calendar days in the first quarter, which reduced net interest income by $12.2 million and $4 million respectively. Net interest margin of 3.20% expanded 3 basis points from the fourth quarter. As displayed on Slide 4, this expansion was primarily driven by the loan portfolio, which favorably impacted the margin by 15 basis points, as new business yields continued to increase and remain higher than the total portfolio yield. The margin also benefited 2 basis points from lower borrowings and a basis point from higher yields in the securities portfolio. Conversely, higher deposit costs lowered the margin by 11 basis points, while too few calendar days reduced the margin another 4 basis points.

Looking at loans on Slide 5, average balances of $35 billion increased by $30 million or less than 1% from the fourth quarter. On a period-end basis, loans ended the quarter at $35.5 billion, up $274 million or 1% from December 31st.

Solid results across middle market C&I, asset base lending, mortgage warehouse lending, healthcare and equipment finance more than offset lower commercial real estate balances. Growth in equipment finance was primarily driven by LEAF, which grew period-end balances by 11% linked quarter. Balances in the transactional portion of the New York multi-family portfolio, which is in runoff mode, ended the quarter at $940 million, down $27 million dollars from year end. While the decline during the quarter was less than anticipated, we continue to expect runoff in this portfolio to be $400 million to $500 million for the full year.

Moving on to deposits on Slide 6. We are encouraged by our continued success gathering deposits, as average balances of $36.5 billion increased $491 million or 1% linked quarter. Period-end balances of $36.9 billion grew $742 million or 2% from year end, lowering the loan-to-deposit ratio to 96%. The seasonality of our municipal business had a favorable impact on period-end deposits of nearly $600 million. As a reminder, the first and fourth quarters are typically our strongest quarters for deposit growth.

While our deposit costs were up 10 basis points for the quarter, we continue to focus on controlling pricing. While we have observed some very modest easing in deposit pricing mostly related to shorter term CD specials and corresponding rates, we still view the market as highly competitive. Our interest-bearing deposit beta is 32% since the beginning of the current cycle of increasing interest rates, up 5 percentage points from 27% at the end of the fourth quarter. In comparison, our loan yield beta is 42% during the same period which also increased 5 percentage points linked quarter from 37%. Over the past 12 months, our interest-bearing deposit and loan yield betas are 66% and 74% respectively.

Turning to non-interest income on Slide 7. Non-interest income of $94.6 million increased $5.9 million or 7% on a linked quarter basis. As you will recall, non-interest income in the fourth quarter included $10 million of security losses incurred as a tax planning strategy in response to tax reform related benefits recognized in the period. Excluding security losses, non-interest income decreased $4.1 million or 4% from the fourth quarter. This decline was primarily driven by a $4 million reduction in customer interest rate swap income which had a very strong fourth quarter, $1.8 million in lower commercial banking lending fee reflecting less prepayment income, and a $1.7 million decrease in bank service charges primarily resulting from fewer calendar days in the first quarter. Positively, insurance revenue was up $3.8 million in the quarter.

On Slide 8, non-interest expense of $277.2 million increased $14.5 million linked quarter. Included in the first quarter were $15 million of merger-related costs with $11.9 million in other non-interest expense primarily reflecting costs of 15 branch closures associated with the Farmington acquisition, $1.5 million in compensation and benefits, $1.2 million in professional and outside services and the remainder in occupancy and equipment. In comparison, the fourth quarter incurred $8 million of merger-related costs, which were largely in professional and outside services, as well as, compensation and benefits. It is important to know with the completion of the core systems conversion for Farmington in January, we have achieved all of the cost savings projected at the announcement of the transaction. Excluding merger-related costs, non-interest expenses $262.2 million increased $7.5 million or 3% linked quarter. The largest driver of the increase was $5.9 million in higher compensation and benefit costs, primarily reflecting seasonally higher payroll and benefit-related costs. In addition, professional and outside services increased $1.1 million.

Turning to Slide 9. The efficiency ratio of 57.3 increased 220 basis points from the fourth quarter, but improved 210 basis points from a year ago. The seasonally higher payroll and benefit costs in the first quarter were the primary reason the efficiency ratio increased on a linked quarter basis. We remain very pleased with the significant progress we have made and we will continue to seek ways to improve operating leverage.

Asset quality was once again exceptional across each of our portfolios as demonstrated on Slide 10. Originated, non-performing assets as a percentage of originated loans and REO at 54 basis points remains below our peer group and top 50 banks and has continued to decline. Net charge-offs of 6 basis points improved from an already low level and continued to reflect the minimal loss content in our non-performing assets.

As we have said previously, sustaining excellent asset quality is an important lever in building long-term value. As such, even though the credit environment continues to be benign and has been for an extended period, we remain committed to our conservative and well-defined underwriting process that has served us well for many years.

Moving to returns on Slide 11. Return on average assets of 96 basis points and return on average tangible common equity of 13%, which were each below the prior-year quarter and the fourth quarter. However, both metrics were meaningfully impacted by the merger-related expenses in the first quarter. On an operating basis, return on average assets was 103 basis points, while return on average tangible common equity was 14.4%, both improved from a year ago. As we continue to build the earnings power of the Company, we expect further improvement in these metrics.

Continuing on to Slide 12, capital ratios remained strong, given our diversified business mix and long history of exceptional risk management. It's important to note that the adoption of the new lease accounting standard on January 1st of this year increased risk weighted assets, resulting in a 5-basis point to 10-basis point decrease in risk-based capital ratios for both the holding company and the bank.

Before opening up the call for questions, I want to draw your attention to Slide 13, as we have provided an update for our -- full-year 2019 goals. As you will recall, the goals we outlined in January did not include Belmont given the close of the acquisition was still pending. This update simply reflects the addition of Belmont, as People's United stand-alone goals are unchanged. For reference, Belmont's period-end loans closed the first quarter at $2.71 billion and deposits ended at $2.11 billion respectively.

Our updated full-year 2019 goals with the inclusion of Belmont are as follows. We expect loan growth to finish the year in a range of 10% to 12%. As a reminder, this goal excludes the transactional portion of our New York multi-family portfolio, which is in runoff mode. Deposit growth is expected in the range of 10% to 12%. The net interest income growth range is expected to grow 13% to 15%. Embedded in this goal is the expectation for net interest margin to be in the range of 3.10% to 3.20%.

Belmont's full-year 2018 net interest margin was 2.23% compared to 3.12% for People's United. While we will be remixing Belmont's balance sheet and have already started the process, it will take some time to complete. As such, Belmont will have an unfavorable impact of 6 basis points on our full-year 2019 margin. As an additional reminder, we did not assume any increases in the Fed funds -- target rate and our margin outlook provided in January. Operating non-interest expenses which include merger-related costs -- which exclude merger-related costs are now in the range of $1.06 billion to $1.08 billion. Belmont's annual non-interest expense base was approximately $33 million. We expect to achieve 50% cost savings with half of the savings in year one and a 100% thereafter. Given the transaction closed on April 1st and the core systems conversion will occur in the third quarter, we expect to realize approximately $5 million of cost savings in 2019.

It is important to note that full-year goals for non-interest income provision the effective tax rate and capital remain unchanged. In addition, the updated goals do not include the impact of purchase accounting adjustments which we do not expect to materially affect full-year 2019 results.

Now we'll be happy to answer any questions you may have. Operator, we're ready for questions.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, we are ready to open up the line for your questions. (Operator Instructions) First question comes from Ken Zerbe with Morgan Stanley.

Kenneth Zerbe -- Morgan Stanley -- Analyst

Great. Thanks. Good evening. Just I'll start with a clarification question, just on the full-year goals slide, the loan growth of 10% to 12%, I just want to make sure I'm thinking about this right. You said growth is 10% to 12% for the full year. But it doesn't include the transactional piece. So should we build into the 10% to 12% and subtract $400 million to $500 million and then get to some presumably lower loan growth number. Is that -- on a net basis, that's the right way to think about it, right?

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

Yeah. So go to our 12/31 balance sheet, remove the New York multi-family. I'll give you that number in a sec what that number was. And then expect growth of 10% to 12%. At 12/31, the New York multi-family portfolio stood at $968 million.

Kenneth Zerbe -- Morgan Stanley -- Analyst

Got it. Understood. Okay. So on a net basis, this is going to be something lower than the 10% to 12%. All right. That does make sense. I guess more broadly just in terms of loan growth, could you just remind like -- I know you're saying that this is the stronger first quarter that you've had in a little bit of time, but looking back historically, that wasn't always the case. First quarter used to post fairly decent loan growth. Is there any reason why that's changing or is that -- should expect the first quarter stays lower and also if you can just broadly kind of take the question of what are you seeing in terms of loan growth on an organic basis ex-BSB? Thanks.

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

Sure, Ken, just to talk to the numbers for a sec. So in 2017 and 2018, the first quarter loan growth was minus 1% in '17, it was actually minus 6% in 2018. That in many respects was driven by elevated levels of payoffs, 2016, where commercial real estate payoffs were more subdued, we grew 1%. So you have to go back prior to 2016, when we were putting up 4% to 5% Q1 growth and the market has changed quite a bit over the years from that respect.

Kenneth Zerbe -- Morgan Stanley -- Analyst

Fair enough (Multiple Speakers) Go ahead.

John P. Barnes -- Chairman and Chief Executive Officer

I would just add that some of that growth in years past in the first quarter was from the multi-family portfolio that we've built up and the growth we're seeing in the first quarter of this year we've had headwinds in the commercial real estate business for the last couple of years and it's really been the acceleration of our middle market franchise in Connecticut and Massachusetts along with some of the specialty businesses that have enabled us to kind of outpace some of the sluggishness in the commercial real estate market.

Kenneth Zerbe -- Morgan Stanley -- Analyst

Got it. Okay. That totally makes sense. All right. Thank you very much for the question.

Operator

Thank you. Our next question comes from Dave Rochester with Deutsche Bank.

Dave Rochester -- Deutsche Bank -- Analyst

Good evening guys.

John P. Barnes -- Chairman and Chief Executive Officer

Hey, Dave.

Dave Rochester -- Deutsche Bank -- Analyst

On the NIM guidance range, it seems like you guys are effectively thinking the NIM trends should be fairly flat from here following the inclusion of Belmont. What are you guys taking in for the interest rate curve for the rest of the year? And then how long deposit costs will continue to increase from here?

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

Well, that's a hard question, Dave. Now what we're saying is really consistent with what we have been saying for the last couple of quarters. We will -- we expect a modest quarterly uptick in the NIM. We also expect deposit costs to continue to move up. However, we have seen a little bit lower levels of competition on the deposit front primarily in CDs. The --what's happening -- so that's abating a little bit, but it's not enough yet to change our overall expectations that you're still going to see a little bit of upward bias in deposit costs. The other thing that I would point out is and we've talked about this as well in the past is we have older loan business that is now rolling off and being replaced at higher benchmark interest rates and actually a little better credit spreads as well. So there's a -- the differential between the new business on the loans side and the existing portfolio is over 50 basis points at this point and we expect that to continue as the year develops. So you put the two together and we see a modest -- still a modest increase in the margin even without a movement in the Fed funds target rate.

Dave Rochester -- Deutsche Bank -- Analyst

Got you. And then just projecting the current interest rate curve through the end of this year effectively.

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

Yeah, I would say that the curve is a little flatter than when we gave guidance at the beginning of the year, but it's on the edges and not enough to change our overall thinking at this moment.

Dave Rochester -- Deutsche Bank -- Analyst

Okay. And just on the loans side, you highlighted the multi-family book runoff is a little bit lighter than expected. I was just wondering why you think that pace is going to pick up as much as your guidance would imply that $400 to $500 million? Are you seeing that kind of volume hitting reset periods this year? Is it due to that or are you expecting refi or purchase activity to pick up later this year? I was just wondering why that's pick up?

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

Yeah, well, what I think what we would say is it was -- we had more repays and refi's last year than we were thinking and we were pleasantly surprised in the first quarter, but we expect that to again resume.

John P. Barnes -- Chairman and Chief Executive Officer

You're going to think about it more like the first quarter surprised us in terms of the pace slowing and if we look at the average drop over the last couple of years we're just -- we're sticking with that expectation right now. We'll see what happens.

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

That book of business because it's in runoff mode continues to mature and you are correct that those loans have annual step-down prepayment functions and the borrowers and the brokers are very good at monitoring and picking at those spots. So that's highly dependent on the shape of the yield curve.

Dave Rochester -- Deutsche Bank -- Analyst

And you mentioned earlier just the roll off of lower yields and the loans. I mean that I would imagine that bucket probably has a number of three handles in that in terms of weight --

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

It does.

Dave Rochester -- Deutsche Bank -- Analyst

Okay. And then just one last one, just on the deal front, can you just give an update on what you guys are looking for that -- looking at this point from a size and geography perspective and the level of conversation activity you're seeing on M&A in the market?

John P. Barnes -- Chairman and Chief Executive Officer

So, I would say that basically our view in terms of geographic wanting to be in the footprint or adjacent remains the same. And the level of conversation is about the same. So continue to do the relationship building and having conversation with folks, but it's not changed dramatically from our perspective.

Dave Rochester -- Deutsche Bank -- Analyst

All right. Great. Thanks guys. Appreciate it.

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

Thank you.

John P. Barnes -- Chairman and Chief Executive Officer

Thanks, Dave.

Operator

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

Jared Shaw -- Wells Fargo Securities -- Analyst

Hi guys. How is everybody?

John P. Barnes -- Chairman and Chief Executive Officer

Hey, Jared.

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

Hey, Jared.

Jared Shaw -- Wells Fargo Securities -- Analyst

Maybe just sticking with the margin theme here for a second. What was the spot pricing on deposits and loans at the end of the quarter for new loans?

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

I mean, we tend not to just look at spot price at where we end a quarter. We tend to think about the business in aggregate that hits the folks over the course of the quarter and compare that to the portfolio yield. So, we had a portfolio yield. So you can see on the margin page in the press release of 4.48%. We had new business that was going on over the course of the quarter a little over 5%.

Jared Shaw -- Wells Fargo Securities -- Analyst

Okay.

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

That's the natural level. No more than 50 basis points.

Jared Shaw -- Wells Fargo Securities -- Analyst

Okay. Got it. Thanks. And then with the integration of Belmont and the opportunity with the mark-to-market there, any thoughts on moderating the asset sensitivity given the -- where the Fed is or should we expect that you're generally keeping a steady state on the overall asset sensitivity of the balance sheet?

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

Yeah, Jared, the addition of Belmont really won't have much of an impact on the aggregate company's sensitivity. As far as our thoughts around our interest rate risk positioning, as you know, we tend to be organically an asset-sensitive company meaning what hits the books every month increases asset sensitivity. We've held it in dollar terms pretty flat over the last couple of years, but reduced it on a percentage basis as the Company has grown. I wouldn't expect any major deviations from that. We're not preparing for a major Fed easing at this point, for example.

Jared Shaw -- Wells Fargo Securities -- Analyst

Okay and then I guess finally for me, Stop & Shop is in its second week of a strike here in the Northeast. Is that impacting the branch-based business there at all or how are you dealing with the strike?

John P. Barnes -- Chairman and Chief Executive Officer

Yeah, so we are staying open and most stores are open. We are very pleased with our employees and their handling of the situation and also appreciate that when the Stop & Shop workers know that it's a bank customer there, they also are handling the situation very well and making sure people easily get through. I would say, naturally, we're disappointed in the situation and we're seeing little lower traffic, not dramatically, but lower traffic and we are also seeing a pickup in traffic in some of our traditional branches. And so that is actually a very positive message for us. And when we think about our historical view toward the spoken wheel type of situation between the traditional branches and the Stop & Shops seems to be working out as expected.

Jared Shaw -- Wells Fargo Securities -- Analyst

Okay, thanks. And I guess just a final one for me. Have you seen any less pressure in the CRE market from the non-bank lenders now that -- you know now that the funding cost for them is higher? And do you think that you'll get to a point where you know true or organic CRE growth opportunities start coming back to the bank's face?

Jeff Tengel -- President, People's United

This is Jeff -- I don't think -- we have not seen a reduction in the level of competition from the non-bank lenders across the CMBS market or the insurance or the funds. Having said that, I do think that we continue to see good opportunities. As we've said in the past, we tend to stick with our customers. And so, a lot of them are privately held. They are investing their own money. So they're a little bit more judicious maybe than the recent funds are, but we still feel like we're able to provide more products and service to our customers, but the overall competitive landscape has not eased at all in my opinion.

Jared Shaw -- Wells Fargo Securities -- Analyst

Okay. Thanks for the color.

Operator

Thank you. Our next question comes from Austin Nicholas with Stephens.

Austin Nicholas -- Stephens -- Analyst

Hey guys. Good afternoon.

John P. Barnes -- Chairman and Chief Executive Officer

Hi Austin.

Austin Nicholas -- Stephens -- Analyst

Maybe just to dovetail on the branch discussion I guess --

John P. Barnes -- Chairman and Chief Executive Officer

Could you --

Austin Nicholas -- Stephens -- Analyst

Maybe --

John P. Barnes -- Chairman and Chief Executive Officer

Austin, could you speak into your mike a little closer -- can't hear you.

Austin Nicholas -- Stephens -- Analyst

Is it little better?

John P. Barnes -- Chairman and Chief Executive Officer

Yes. Thank you.

Austin Nicholas -- Stephens -- Analyst

Sorry about that. I guess if you think about the branch network, are there opportunities to optimize that as that -- maybe as you look at that in store branch network. How are you thinking about the strategy there at the same time as you kind of build out some of the new technology initiatives?

John P. Barnes -- Chairman and Chief Executive Officer

We are constantly evaluating that and also looking at kind of the changes that are going on generally in the marketplace and we have a contract that sets out to 2022. So, we continue to evaluate what's going on with our traffic and our customers' behavior and needs, also the traffic in grocery stores generally and other changes in the market. So, very well aware of it, stay right on top of it and we'll always be giving that consideration.

Austin Nicholas -- Stephens -- Analyst

Understood. And then maybe just looking at loan growth for the year. Appreciate the guidance. Maybe just thinking about the expected breakdown kind of where you would expect loan originations to come from between these specialty portfolios and some of the more traditional C&I and kind of -- not owner occupied type buckets, so that'll be helpful for any commentary on kind of how you'd think that that pie would be broken down in terms of originations?

Jeff Tengel -- President, People's United

Again, this is Jeff. I think you're going to continue to see the same trends we've seen in the first quarter. We're going to see good production from our equipment finance businesses, LEAF in particular, we'll continue to see good production and good momentum from the specialty businesses and we'll continue to see good production from our core C&I businesses in Massachusetts and Connecticut. All of those segments had a good first quarter and they all have pretty good pipeline. So we're pretty optimistic that we're going to move through the second quarter and the balance of the year with similar performance.

Austin Nicholas -- Stephens -- Analyst

Got it. And then maybe just one last -- last one I got in line with that thinking I guess just just thinking about the provisioning for incremental loan growth. I guess how should we be thinking about that you know with some of these specialty finance areas and then kind of the equipment finance businesses making up a little bit more of the growth. Any comments there would be helpful.

John P. Barnes -- Chairman and Chief Executive Officer

So we -- naturally we're doing detailed work on each portfolio and the behavior of those portfolios over time, and basically applying you know the general history and whatever factors we're applying to the different businesses based on the pace of growth within those businesses. So for instance, if you see more growth in equipment finance, then we're going to take our historical results from that and that will have a big impact on the way we're provisioning based on the pace of growth in the portfolio.

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

The only thing I would add to that Austin is, if you go back in time and look at us, you'll see our provision expense each quarter tends to grow throughout the year.

Austin Nicholas -- Stephens -- Analyst

Yep. Okay, great. Thanks for the questions guys.

John P. Barnes -- Chairman and Chief Executive Officer

Yep.

Operator

Thank you. Our next question comes from Mark Fitzgibbon with Sandler O'Neill.

Mark Fitzgibbon -- Sandler O'Neill -- Analyst

Hey guys. Good afternoon.

John P. Barnes -- Chairman and Chief Executive Officer

Hey, Mark.

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

Hey, Mark.

Mark Fitzgibbon -- Sandler O'Neill -- Analyst

David, first just to follow up on one of the comments you made earlier, it looked like in your slide deck the balance sheet became a touch more acid sensitive during the course of the quarter. Did I hear correctly that the plan is not to reduce acid sensitivity.

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

I would call the change in the quarter from my perspective relatively modest. The -- but yes there -- what I was referring to was, there is nothing that we're thinking about a significant change in asset sensitivity and due to --

Mark Fitzgibbon -- Sandler O'Neill -- Analyst

Okay. And then secondly on Page 16 in your slide deck where you have the breakdown of the loan portfolio by geography, it looks like the growth in states other than sort of your core footprint are growing at accelerated rates. I'm just curious what states is it occurring in and what types of lending are you doing in those markets?

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

You're referring to the blue other at (inaudible) I assume, so the three equipment finance platforms are national and they are the major driver of that.

Mark Fitzgibbon -- Sandler O'Neill -- Analyst

Okay. And then lastly given that you disclosed BSB, when do you think you might be in a position to contemplate additional acquisition?

John P. Barnes -- Chairman and Chief Executive Officer

We -- as we said a while ago we continue to work on our relationships and look at the landscape. So nothing more than -- more specific than that to offer you I guess, but obviously based on our history, we would expect to have opportunities and be willing to look at them, and as long as it makes sense for us from a metric standpoint, we're still willing to continue to recognize that acquisitions are a very nice way for us to move the company forward in our markets.

Mark Fitzgibbon -- Sandler O'Neill -- Analyst

Thank you.

Operator

Thank you. Our next question comes from Matthew Breese with Piper Jaffray.

Matthew Breese -- Piper Jaffray -- Analyst

Good evening, everybody.

John P. Barnes -- Chairman and Chief Executive Officer

Hi, Matt.

Matthew Breese -- Piper Jaffray -- Analyst

Just wanted to follow up on the provision question, it just seems like even to get to the low end of the guidance range, we need to see a pretty significant ramp from now until year end. So anyway question is, was there anything in there this quarter that drove it artificially lower and the next quarter and the ones thereafter we should see an accelerated provision rate?

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

Well, it wasn't artificial, it was low net charge-offs.

John P. Barnes -- Chairman and Chief Executive Officer

And the follow up with that, there's nothing that we're aware of that has us concerned about higher provisioning going forward other than hopefully solid loan growth.

Matthew Breese -- Piper Jaffray -- Analyst

Understood. Okay. And you're not seeing anything from a credit perspective on the horizon, nothing's changed there?

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

Correct.

Matthew Breese -- Piper Jaffray -- Analyst

Okay. And then just on the M&A comments, I know you mentioned no change in targets geographically, but given the bank's size now with Belmont, is there an asset threshold that you wouldn't look under -- is there a size of bank that would simply be too small for you at this point?

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

Yeah, so we continue to think about that. I think that banks in that 2-something billion dollar range are getting more difficult for us, as we think about undertaking the effort to execute the way we want it and the cost. So we don't think of it as our floor. But if you want to think about would we be likely to do something that's $1.5 billion, not very likely at all. And $2.5 billion, depending on the situation, might be around where we would be getting the low end.

Matthew Breese -- Piper Jaffray -- Analyst

Understood. Okay. And at this point, do you have any comments or guidance in regards to CECL and how that first day (inaudible) reserve is going to shakeout?

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

Not that we're prepared to make Matt, we continue to do all the work that you would expect a bank our size to be doing around CECL. And our expectation is in the back half of the year will be when we start disclosing a little bit of guidance around what we think the eventual impact will be. Right now, we're spending our time developing, refining, validating our loss methodologies across the portfolios and doing the necessary work to start parallel run later in the year.

Matthew Breese -- Piper Jaffray -- Analyst

Maybe as a follow-up, thinking about the current allowance or reserve methodology in terms of qualitative factors versus quantitative ones, what is the current breakdown of how you arrive at the current allowance from that perspective and do you expect it to be more quantitative driven under the CECL methodology?

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

Sure, Matt, I mean, ballpark quantitative, qualitative is about 50/50, right. And then obviously under CECL, it's a much more quantitative approach.

Matthew Breese -- Piper Jaffray -- Analyst

Okay. That's all I had. Thank you for taking my questions.

Operator

Thank you. Our next question comes from Brock Vandervliet with UBS.

Brock Vandervliet -- UBS -- Analyst

Good evening. Thanks for taking the question. On the New York multi-family, I know what your guidance is in terms of runoff for the year. There was very little in Q1, it seems like activity in that whole space has declined somewhat just due to the Fed stepping off the gas. Is that -- are a lot of these loans just coming right up against the refi date? Is that why you're so confident you'll see so much runoff this year?

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

I wouldn't use the term so confident from the perspective that we were a little surprised last year at the level. It was -- it is interesting that we saw high level of refi's last year, but we also did see some loans that went almost to the maturity date before they just appeared -- the -- so this year -- this is a -- it's an asset class that's a little hard to predict. It is clearly very interest rate dependent. It's also very competitive. And as it's broker driven which also has a whole another nuance to it. So we're giving you our best thought today, and we're recognizing that we experienced a lower level payoff in the first quarter than we expected, but we expect our initial thoughts to normalize.

Brock Vandervliet -- UBS -- Analyst

And have you ever -- do you disclose the yield in that portfolio or no?

John P. Barnes -- Chairman and Chief Executive Officer

Not specifically. So, Dave earlier on the call threw out about 3.50% or so yield, it's a little higher than that, but you know it's between 3.5% and call it about 3.75%.

Brock Vandervliet -- UBS -- Analyst

Got it. Okay. So as I think a bigger picture is the Belmont transaction closes your NIM or rebases 6 bps, 7 bps lower and then climbs from there and the climb is based on Belmont remixed resi arm repricing, New York multi-family runoff. Am I --

John P. Barnes -- Chairman and Chief Executive Officer

Yeah, I would add just new business going on at better than (inaudible). You know that's a little over 50 basis points that we gave as a response to Jared's question and the -- a little bit of mix change over the course of the year, if you -- the -- as LEAF continues to grow faster than our other businesses, that's positive. And where also -- you notice residential mortgage was flat linked quarter and we don't have large growth aspirations for that business once we take on Belmont close. So that part of the remix is a little less residential mortgage which happens to be the lowest yielding portfolio on our books at quarter end.

Brock Vandervliet -- UBS -- Analyst

Got it. Okay. Appreciate the color.

John P. Barnes -- Chairman and Chief Executive Officer

You're welcome.

Operator

Thank you. And our next question comes from Collyn Gilbert with KBW.

Collyn Gilbert -- KBW -- Analyst

Thanks. Good evening, guys.

John P. Barnes -- Chairman and Chief Executive Officer

Hi, Collyn.

Collyn Gilbert -- KBW -- Analyst

Just very quickly I just wanted to clarify, Dave, you said what was Belmont's margin at the end of the first quarter?

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

Well, we actually gave it for the full year of 2018. It was 2.23% for the full year. It was -- I don't know the exact number for Q1. But I think it was a touch lower.

Collyn Gilbert -- KBW -- Analyst

Okay. And then just --

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

Go ahead.

Collyn Gilbert -- KBW -- Analyst

Okay. And then just on the linked quarter, so 6 basis points lower coming into the second quarter with Belmont. But then I'm just thinking about the day count, so you had that 4 basis point decline because of day count which I presume would reverse in the second quarter I guess. I'd just think -- I would have thought that NIM would start -- would be trending higher than what you guys are guiding to. Is there something that's changed? Are you just taking a more cautious approach on one of the components with the low NIM guide?

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

I can't say that anything has changed specifically, whether we're being cautious or not. I think we'll find out over time. I think the cautiousness if we had one is more on the deposits side and what the level of competition will be, we call it out in the script a slight easing of some CD terms, but it's -- and we're hopeful that the pressure starts to recede a little bit but we're not betting on it at this point.

Collyn Gilbert -- KBW -- Analyst

Okay. That was all I --

John P. Barnes -- Chairman and Chief Executive Officer

Our expectations for the margin excluding Belmont did not shift, right.

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

We said the same thing in January as we said this afternoon by a slight increase in the margin on a quarterly basis as the year unfolds.

Collyn Gilbert -- KBW -- Analyst

Yes, OK. Got it. All right. Thanks guys.

John P. Barnes -- Chairman and Chief Executive Officer

You're welcome.

Operator

Ladies and gentlemen, since there are no further questions in the queue, I'd now like to turn the call back over to management for any closing remarks.

John P. Barnes -- Chairman and Chief Executive Officer

Thank you. In closing, our first quarter performance provided a strong start to the year and was highlighted by the closing of the acquisition of Belmont on April 1st, an 18% increase in operating earnings from a year ago, 210-basis point improvement year-over-year in the efficiency ratio reflecting higher revenues and well controlled expenses, further net interest margin expansion, strong deposit growth, lowering the loan to deposit ratio to 96% and sustained exceptional asset quality.

Finally, given the importance of dividend to our shareholders, we were proud to announce the Company's 26th consecutive annual common dividend increase. Thank you very much for your interest in People's United. Have a good night.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program, you may all disconnect, and have a wonderful day.

Duration: 55 minutes

Call participants:

Andrew Hersom -- Senior Vice President of Investor Relations

John P. Barnes -- Chairman and Chief Executive Officer

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

Kenneth Zerbe -- Morgan Stanley -- Analyst

Dave Rochester -- Deutsche Bank -- Analyst

Jared Shaw -- Wells Fargo Securities -- Analyst

Jeff Tengel -- President, People's United

Austin Nicholas -- Stephens -- Analyst

Mark Fitzgibbon -- Sandler O'Neill -- Analyst

Matthew Breese -- Piper Jaffray -- Analyst

Brock Vandervliet -- UBS -- Analyst

Collyn Gilbert -- KBW -- Analyst

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