People's United Financial, Inc.
Q1 2016 Earnings Call Transcript

Published: 21 Apr 2016

[Operator:]

Good day ladies and gentlemen and welcome to the People's United Financial Inc. First Quarter 2016 Earnings Conference Call. My name is Brian and I will be your coordinator for today. [Operator Instructions]. As a reminder this conference is being recorded for replay purpose. 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:]

Good morning and thank you for joining us today. Here with me to review our first quarter 2016 results are Jack Barnes, President and Chief Executive Officer; David Rosato, Chief Financial Officer; Kirk Walters, Senior Executive Vice President; and Jeff Hoyt, Chief Accounting Officer. Please remember to refer to our forward-looking statements on slide 1 of the presentation, which is posted on our website at peoples.com under Investor Relations. With that, I'll turn the call over to Jack.

[Jack Barnes:]

Thank you, Andrew. Good morning. Appreciate everyone joining us today. Turning to the overview with the first quarter on slide 2, our performance this quarter reflects our continued focus on further improving profitability, while moving the company forward with a long term view. Net income of $63 million or $0.21 per share, represents a 6% increase from the prior year quarter or 5% increase on a per share basis. On a linked quarter basis, net income was down from $71 million or $0.23 per share. However, as a reminder, fourth quarter net income included net after tax gain of $6 million or $0.02 per share, resulting from the sale of the company’s payroll services business. Revenues increased 2% from the prior year quarter and were essentially flat on a linked quarter basis when adjusted for the gains and sale of the payroll business. Net interest income continued to benefit from loan growth and higher average balances in the securities portfolio. While non-interest income was negatively impacted primarily by lower bank services charges and commercial banking lending fees. Total expenses were generally consistent on both a linked quarter basis and compared to the prior year quarter. As we have discussed before, we remain committed to our proactive expense management approach to tightly control cost while investing in revenue producing initiatives and covering the higher cost of regulatory compliance. Period-end loans grew for the 22nd consecutive quarter, although the 1% annualized growth rate is at slower pace than in recent periods, as the first quarter is typically a seasonally slower period for loan growth. Residential mortgage results remained strong with growth of 11% annualized, while commercial loan balances were slightly lower from year-end, however on a quarterly average basis, commercial loans grew more than 4% annualized. Given deposits are a large component of profitability and integral part of customer relationships, we are pleased with our continued success growing deposits as evidenced by the 11% annualized growth in organic deposits since year-end. As we maintain emphasis on franchise-wide cross-sell and deposit gathering efforts, we should continue to see further broad based growth. With that I’ll pass it to David to discuss the first quarter in more detail.

[David Rosato:]

Thank you Jack. On slide 3, we provide the detail behind the linked quarter increase and net interest income for the fourth quarter. Net interest income continued to benefit from loan growth, as well as our decision to increase the size of the securities portfolio in recent periods in light of the prolonged low interest rate environment. Even with this increase, the securities portfolio as a percentage of total assets remains low relative to peers at 17%. These benefits to net interest income were partially offset by an increase in borrowing cost and the impact of one less calendar day in the first quarter. On slide 4, we display the drivers behind the decline in net interest margin of 4 basis points from the fourth quarter to 283. New loan volume favorably impacted the margin by 3 basis points, as new business yields were higher than the total loan portfolio yield. One less calendar day in the first quarter, a lower securities portfolio yield, and higher borrowing cost each negatively impacted the margin by 2 basis points. The lower securities portfolio yield was driven in large part by a reduction in the dividend rate paid on Federal Reserve Bank stock Turning to slide 5, the loan portfolio grew $100 million or 1% annualized from the fourth quarter. Originated loan growth for the quarter totaled 132 million. Retail contributed a 133 million of originated loan growth, which was driven by strong residential mortgage growth of a 154 million, partially offset by lower balances in the consumer portfolio. As is our practice, most of the residential mortgages retained in our portfolio were hybrid adjustable rate mortgages. Originated loans in the commercial portfolio decreased $1 million from the fourth quarter. Commercial real estate and equipment financing contributed total originated growth of $27 million and $5 million respectively, while C&I originated balances declined by 33 million. Within C&I the mortgage warehouse quarter-end balance was 965 million up 2 million from year-end. We experienced acquired loan run-off of 32 million this quarter compared to 45 million in the fourth quarter. The remaining balance of the acquired portfolio at quarter end was 764 million Slide 6 shows the change in deposits by segment from the fourth quarter. Total deposits increased 688 million or 10% on annualized basis. We reduced broker deposits by 33 million during the quarter, therefore organic deposit growth was 721 million or 11% annualized. Commercial and retail grew deposits by $494 million and $194 million respectively. In commercial, the seasonality of our municipal business had a favorable impact on deposits of 333 million during the first quarter. Just as a reminder, the first and fourth quarters are typically our strongest quarters for deposit growth. It is also worth noting that our loan to deposit ratio was 98% at March 31, and our cost of deposits were consistent with the fourth quarter. On slide 7, we take a closer look at non-interest income which declined $2 million or 2% compared to the fourth quarter, when adjusting for the $9.2 million gain on the sale of the payroll services business. Insurance revenues increased non-interest income by $1.8 million primarily due to the seasonal nature of insurance renewals; in addition lower bank service charges and volume related commercial banking lending fees negatively impacted non-interest income by 1.2 million and 1.1 million respectively. On slide 8, we illustrate the key components of changes in non-interest expenses on a linked quarter basis. Total expenses of $217.3 million were flat with the fourth quarter, but better than the first quarter expectations we set forth at year-end. Included in fourth quarter total expenses was $2.5 million of write-downs of banking health assets related to lease buy-outs of previously closed branches. We did not have any write-downs of banking health assets in the first quarter, despite the closure of one branch. Total expenses in the first quarter were impacted by higher compensation and benefits, which increased 2.1 million from the fourth quarter, as a result of traditionally higher first quarter payroll related and benefit costs. In addition expenses related to regulatory assessments and occupancy and equipment were up $900,000 and $500,000 respectively. The primary offset to these increases was a $500,000 improvement in cost pertaining to outside and professional services. As you will recall on our conference call in January, we guided the first quarter expenses of approximately $222 million. Actual first quarter results were better than expectations due to lower costs related to volume driven incentives, healthcare, as well as seasonal expenses given the mild winter in the northeast. The next slide displays our efficiency ratio over recent quarters. As you are aware, beginning with results this quarter, we are no longer classifying expenses related to ordinary and reoccurring branch closures and severance is non-operating. In prior periods, these expenses were excluded from our efficiency ratio calculation. For comparability purposes, we have included on the slide what the metric would have been in prior periods with the inclusion of these expenses. While the efficiency ratio is higher due to the reporting change, overall trends are generally consistent. Continuing to improve operating leverage through revenue growth and effective expense management remains a highly important focus of the company. Slide 10 is a reminder of our excellent credit quality across each of our portfolios, originated non-performing assets as a percentage of originated loans and REO at 68 basis points remains below our peer group and top 50 banks and has improved from 80 basis points in the first quarter of 2015. As you may have noticed in our recently filed proxy statement, we have adjusted the composition of our peer group for 2016 to account for significant changes in the competitive landscape among financial institutions, including completed or recently announced acquisitions. For a list of companies in our revised peer group, please see page 17 of the presentation. Net charge-offs for the quarter remained at a very low level. These levels reflect the minimal loss content in our non-performing assets as well as our conservative and well defined underwriting philosophy that has served us so well for many years. As shown on slide 11, return on average assets decreased from recent quarters and continues to be impacted by the interest rate environment. Our return on average tangible equity was 9.4% for the first quarter, a decrease of 130 basis points on a linked quarter basis, but an improvement of 20 basis points compared to the prior year quarter. As we continue to focus on improving profitability, we expect to see progress in this metric over time. Turning to slide 12, capital levels at the holding company in the bank continue to be strong, especially in light of our diversified business mix and history of exceptional credit risk management. The tangible equity ratio improved 10 basis points from year-end to 730 primarily as a result of an improvement in the fair value of the available for sale securities portfolio. Capital ratios at the bank also improved from year-end, due to an equity contribution from the holding company in order to create a more cost effective capital structure. Finally, on slide 13, we display our interest rate risk profile for both parallel rate changes as well as yield curve twist. As you can see, we remain asset sensitive and well positioned for rising interest rates, particularly in an immediate parallel rate [job] scenario. Our short-end asset sensitivity is slightly lower than at year-end and as long as long-end rates came down in the first quarter, we became more susceptible to lower long-end rates as evidenced by the down 100 basis points yield curve twist scenario. Now with that, I’ll pass it back to Jack to wrap up.

[Jack Barnes:]

Thank you David. As we have mentioned before, we remain committed to making investments that create value for both customers and shareholders. As such, we are pleased to announce today the acquisition of Eagle Insurance Group, a full service agency and customer focused commercial insurance broker based in eastern Massachusetts. The acquisition deepens the company’s presence in the region as well as expands our already strong relationship and expertise in commercial loans. Additionally, we continue to strategically in talent throughout the organization to further move the company forward. In recent months, we have brought on board two key leaders who will enhance our revenue generation capabilities. Mark Melchione joined us from M&T to head up the bank’s New York commercial real estate group and brings more than 25 years of experience. Mark and his team will continue to strengthen and expand our lending and deposit gathering activities in the greater New York metro market, while maintaining the conservative and well defined underwriting philosophy that is the hallmark of People’s United. Additionally Mark Herron joined us from BB&T to become our new Chief Marketing Officer, brings more than 30 years of experience to the position. Mark will be leading all of our marketing efforts including branding, advertising, product development and digital marketing. Additionally, he will be working closely with our business lines to enhance sales force effectiveness and drive increased revenues to the bank. Finally, we are pleased to announce the Board voted to raise the dividend to an annual rate of $0.68 per share. This marks the 23rd consecutive year the dividend has been increased, which reflects our continued commitment to delivering value to our shareholders through the consistent return on capital. This concludes our presentation, and we’ll be happy to answer any questions that you may have. Operator, we are ready for questions.

[Operator:]

[Operator Instructions] Your first question comes from the line of Casey Haire with Jefferies. Your line is now open. Please go ahead.

[Casey Haire:]

Just wanted to touch on a couple of questions relating to the guide for 2016, starting off with net interest margin down 4 bps in the first quarter didn’t see much of the asset sensitivity. Obviously as you mentioned build the securities book, just wondering are we going to be adding to that more and does that put the NIM guide at risk. Whether you are still [focused] at 285, 295?

[David Rosato:]

Sure Casey its David. At this point there’s no change to guidance from our perspective. When I think about the margin, two things are probably important to mention. The first was the pace of securities; the growth in securities will most likely moderate over the balance of the year. We’ve seen growth in the last three quarters and that pace will slow down. Secondly, our margin was impacted by a little over 2 basis points because of the reduced volume of loans. Had we met our loan growth expectations for the quarter, you would have seen the margin come at 285 or so. And you had mentioned the asset sensitivity, so we benefited from the increase in LIBOR which occurred prior to the Fed increase in the fourth quarter, but also we gave back some of that as the yield curve flattened in the first quarter. So when we think about the margin over the balance of the year, the level of short term rates as well as the steepness of the yield curve will push our margin either way a few basis points as the year unfolds.

[Casey Haire:]

Okay, makes sense, and on the expense side, Dave you mentioned it was a late winner and obviously a seasonally slow one for loan growth. But the FICA bounce for you guys historically has been 5 million to 6 million. Are you guys fully accrued on the expense side, I’m just trying to get a sense of why the complying was so late this quarter.

[David Rosato:]

Yeah, we are fully accrued on the comp side or on the expense side. The milder weather was probably worth about $1 million in the quarter. The pace of hiring in the first quarter was a little slower than we expected, so that had a favorable impact, and healthcare was a positive in the quarter. As you remember in the third and fourth quarter we had a little negative surprise on the healthcare line. That helped by in the neighborhood of about $600,000.

[Casey Haire:]

Jack big picture question on the M&A front, I would think with the premium multiple that you guys enjoy, you guys could structure some pretty attractive M&A deals, obviously having seen that, just wondering if you could just give us an update on that front. Are you guys out there, and if you are what kind of snags are you running in to.

[Jack Barnes:]

Basically very consistent with the circle comments on the subject. We certainly continue to build and maintain our relationships with folks that we like to talk to and that is ongoing. Appreciate the observation on how our stock trades and where we are and that is fully appreciated on our end. I think we just continue to look for opportunities that will make sense for us and our shareholders to build a franchise and create value.

[Operator:]

Your next question comes from Bob Ramsey with FBR. Your line is now open. Please go ahead.

[Bob Ramsey:]

Just curios, honestly you’ve touched on expenses where it looked pretty good this quarter. Is there any change as to your full year run rate guidance, remind me, I think you all had said 865 to 885. Are you on a better trajectory or at least trending to the lower end?

[David Rosato:]

Again, no change in guidance on the expense at this point.

[Bob Ramsey:]

And then back I guess is the NIM question, so it sounds like with no change in guidance, you guys are planning on some margin expansion for more such as day to the year. How much of that if any is predicated on additional rate increases this year. I am just trying to get a sense of what the macro assumption is.

[David Rosato:]

So if you remember the 285, the 295 guidance back in January we laid out from a macro perspective we had built in one Fed tightening in mid-year of 25 basis points. In the first quarter we came full circle or did a round trip on Fed expectations - with the market did a round trip on Fed expectations. At this point the probability of that rate hike has probably been pushed out the end of the year by the market. But it’s too early to tell from our perspective. So no change to guidance, however that original guidance did have that rate increase baked in. What we mentioned in the prepared remarks was the fact that, and you saw in the press release, we had 1 basis point increase in the loan portfolio, and when you look at the securities portfolio was impacted by about $1.5 million from the change in the Federal Reserve Bank dividend policy. Previously that was a 6% on Fed stock and it’s come down to the 10 year treasury. So on a linked quarter basis that won’t be there next quarter. The good news is the stabilization of loan spreads and the fact that the new business that went on in the quarter was higher than the originated loan yield. So that bodes well going forward.

[Bob Ramsey:]

And then just in terms of loan growth, it sounds like most of the fullness this quarter you guys are seeing to be seasonal and still favor very good about the 6% to 8% pace for the year.

[Jack Barnes:]

Bob this is Jack. Yeah, we do. Again, if you look back on our history this first quarter is typically a lower. But the pace was a little slower than normal, and as David indicated earlier we expected. The good news from the story of our business mix if you will is, we had some geographies that did very well and others that were slower than usual. As we reflected on it, we look back at the fourth quarter, we had about 10% or 11% growth pace, so we had closed a lot of loans in December and think that some of that activity went in to the fourth quarter rather than pulled in to the first. As we kind of look forward and think about the pipelines across the businesses, we feel good about the guidance and what we will see in the quarters ahead.

[Bob Ramsey:]

Final question, just anything you can share with us about the Eagle Insurance acquisitions? I’m not really sure how big it is or how much impact it may have.

[Jack Barnes:]

So as I indicated it’s located in eastern Massachusetts. It’s actually a very nice tie-in in to our insurance company in terms of business mix. It has some fuel and petroleum distribution expertise, which we enjoy in our company as well. We have a lot of relationships across the northeast with fuel distributors, gasoline [spotters] and on the commercial side in terms of banking relationships, and we also enjoy with those companies a lot of insurance relationships and Mike Cox, the principal in Eagle also brings that type of expertise. It’s a little over $1 million in revenue and the principals and our company and Mike know each other. There’s some very good relationship there and its really one of the key things that Mike would say that attracted him to us, is the ability to come in to the leadership and the camaraderie around our company. So we’re looking forward to his positive impact.

[Operator:]

Your next question comes from Steven Alexopoulos with JPMorgan. Your line is now open. Please go ahead.

[Steven Alexopoulos:]

So in terms of the 2016 guidance you guys gave on the 4Q call, looks like you’ve reconfirmed expense NIM and loan growth. All the other items that you’ve provided is there any change at all to any of the guidance?

[Jack Barnes:]

No there isn’t.

[Steven Alexopoulos:]

Jack given the operating environment, how much of improvement in the efficiency ratio should we realistically expect this year? Maybe can you comment on some of the initiatives?

[Jack Barnes:]

Well as we look at it both in terms of through the year and in to the coming years, in our planning process what we see is basically continued focus on growing revenues and kind of leveraging the opportunities that we’ve created with the people that we have on the ground in the various businesses. We’ll continue to grow the revenue pieces and to continue to tightly manage expenses and reduce expenses where we can. We see it gradually - slowly but gradually improving over time. So I’m not going to give you a number for the end of the year, but we do see continued movement forward.

[Steven Alexopoulos:]

Just [America] announced that they brought an efficiency expert to help, what are your thoughts on an approach like that to try and maybe get a little more momentum.

[Jack Barnes:]

We really spend a lot of time Steve as we’ve said repeatedly in terms of focusing on managing all our expenses. We have an executive level expense management committee, EMAC that is meeting on a regular scheduled basis and on an ad-hoc basis probably close to everyday. We scrutinize every hire, every position refill if you will, replacement of folks that are leaving and we look at every contracts on a regular basis. We get ahead of those contracts as we’ve described overtime. I’d rather have us do that, the bankers on the ground with the understanding and the expertise of the company, then hire somebody to do it. I don’t think we need to do that.

[Steven Alexopoulos:]

And just final one to follow-up on the commentary on M&A. Would you guys consider a deal that would take you to or even above the CCAR line. Your 40 billion of assets today and maybe talk about some of the prep work you’re already doing for CCAR? Thanks.

[Jack Barnes:]

So we are doing prep work as we’ve described before. We actually have within our PMO structure our Project Management Office a full project that looks across the requirements to cross the $50 billion mark. And kind of like I just described with the consultant right here on the expenses, we’re putting time and energy in to understanding what it would mean and then attacking the work that goes in to preparing for that. So whether its moving from DFAS to CCAR filing or whether its writing a living will etcetera, etcetera understanding what it means, reaching out in the industry and understanding what other folks have done and we think really we’ve been preparing I’d say beyond, this is more than a year ago that we started this and it will continue forward with the idea that if we get to a spot where we’re crossing 50, whether its naturally organically or through acquisitions that we are prepared to do that, and basically we position ourselves so that has minimal impact and obviously it will have some impact, but we’ll minimize it.

[Steven Alexopoulos:]

Are you there today where you would consider transaction that took above that threshold more quickly?

[Jack Barnes:]

Yes. I would say we are not totally done but we got everything clearly insight. We’ve got a lot of work done, and if it were obviously the appropriate opportunity understanding the commitment and the strategically the importance of that type of transaction, we would consider it if it were right.

[David Rosato:]

Just to add a little color to that Steve, we have what we call readiness reviews teams that are set after cross functional. Each team has been assigned one of the requirements that we would be subject to if we cross 50. So whether it’s as Jack said, going from DFAS to CCAR or writing a living will or the broker rule, every one of those has a cross functional team that either has completed or still is in the boxes of completing the gap analysis, who then is charged with figuring out the timeline, the work structure and the expense involved to cross 50 both on an organic basis and then if we had to accelerate because we have the opportunity to do an M&A transaction. And as Jack said that process started over a year ago and we’ve been slowly incrementally building that in to our run rate.

[Operator:]

Your next question comes from Collyn Gilbert with KBW. Your line is now open. Please go ahead.

[Collyn Gilbert:]

Dave, I know you’ve been through this before, but just remind us again the strategy on the security side, how you thought about it this quarter and just the build given where we are in the cycle. I just want to make sure I sort of understand what your strategy is there?

[David Rosato:]

Sure. I can’t say there’s been any real change in strategy from a dollar perspective, we over the last couple of quarters we have increased the size of the securities portfolio. So it’s a little bit larger as a percentage of total assets. It is less than the lower allocation than you would see across our peer group. So it’s important to keep that in mind from our perspective. What we said last quarter was the rationale for increasing the size of the book was, we were getting concerned about the domestic economy and where our interest rates could possibly go, so we put a little bit more leverage on. And we did that to a lesser extent in the first quarter than we did in the fourth quarter. From a security selection makeup of the portfolio there’s really nothing that’s changed. We run a very conservative fixed income portfolio from the perspective that there is the mortgaged backed securities are all 10 or 15 years mortgages rather 30. We give up yield for that, but we have more defined cash flows. We do have a municipal portfolio that we run very high, its double A plus average credit quality, its well diversified, and it provides really nice yields for us. But there’s nothing funky in that portfolio, we are not doing anything stretch for yield or anything like that.

[Collyn Gilbert:]

That’s helpful. And then just in terms of mortgage banking, how are you guys thinking about the outlook for that for the year and what type of contributor do you think that’s going to be.

[Jack Barnes:]

Hi Collyn, this is Jack. I think the way to look at that from that way is first to think about the franchise and the growth that we’ve experienced and the opportunity created and we’ve had a substantial residential mortgage home equity business a long time in the franchise. But as we grew in to eastern Massachusetts and in to New York, we were under represented, right. We didn’t have the people on the ground to basically generate the build the business and we’ve been building that team, we referenced that probably a year ago and particularly when we bought on a new mortgage sales manager and that is beginning to bear fruit in some of the growth that we’re experiencing. So I think on the ground that’s the most important thing. I’ll just remind everybody we do certify mortgage folks in the branches and our company. So we do generate mortgages through our branch personnel and that’s a differentiator. And we also have a wholesale operation. So the combination of that I think gives us the right level of business flow across the foot print and there’s opportunity to keep improving that with the personnel on the ground. We looked at the year and thought that we would see, when we saw with the mortgage bankers, sat and Freddie and Fannie people expected a slower market, and we did expect some slowing, but offset by the efforts that I just described in terms of building the business. So right now, we’re seeing a decent flow of purchased activity and the recent rate changes have driven some refi’s again. So our pipeline is high as its been in recent times.

[Collyn Gilbert:]

Okay, that’s helpful. And then Jack just a follow-up on your comment about sort of spotting it within just your overall growth profile in terms of geographies, where are you seeing - kind of in light of it, seems like some negative commentary we are hearing about the Connecticut economy. May be if you could just talk about the geographies where you are seeing the most promise and the ones that are struggling a little bit more.

[Jack Barnes:]

Sure. I think I’ll start with things that have good momentum and that we certainly believe are going to move us - have moved us forward, loans that have been booked in the last several quarters including this one and where we see our pipeline strong and that would be Boston. Certainly New York and particularly on Long Island our personnel there are doing a great job across C&I and commercial real estate and those pipelines look very good. Our equipment finance unit particularly PCLC had a good quarter and has got a very good full pipeline. ABL pipeline is good, less volume in the first quarter but a lot of activity, and I think Connecticut was actually down in the (inaudible) portfolio in this quarter, but has been pretty steady. We have a lot of long term relationships there and we get a lot of repeat business from those customers. And on the C&I side Connecticut was okay in the quarter, but we had a couple of pay-offs that hurt our balances that came from actually companies being acquired and the acquirer just paying off our credit. So really, again I go back to where that comment came from. It is a mix, it always is depending on geography and business line. It definitely cycles as activity comes through the process.

[Collyn Gilbert:]

Okay, that’s helpful. And then just one final question, you’re mentioning equipment finance. Anything in particular driving the pickup in non-performing assets on a linked quarter in that portfolio.

[Jack Barnes:]

Yeah, we had a pretty granular want to say 8 to 10 credits that we went through our what we call our [PARM] or problem asset review and moved some of those credits in to non-performing. Couple of them were performing non-performing, but most of it was companies like someone that might own 10 or 25 cranes that has been deployed in different jobs where contracts were lost and they are redeploying those assets and in the meantime there’s cash flow strain. And until we see those units redeployed and the cash flow back, we would put something like that on non-performing.

[Collyn Gilbert:]

But you still feel good about that business in general, about the growth prospects?

[Jack Barnes:]

Yes. They are both doing very well.

[Operator:]

[Operator Instructions] our next question comes from Matthew Breese from Piper Jaffray. Your line is now open. Please go ahead.

[Matthew Breese:]

I was just curious, could you give us an update on new loan yield coming on to the balance sheet, which ones are accretive to the current and conversely which ones are still weighing on average loan yields?

[David Rosato:]

In aggregate as we said the new business that came on in the quarter was higher than the originated portfolio. When we look at spreads of new business relative to the existing portfolio individually the C&I - or if you look at our major portfolios, C&I is additive at this point, primarily reflected by the Fed move last quarter and one month LIBOR moving up that’s mostly uploading rate portfolio. Same thing would be for our HELOC portfolio. We’re still not additive with the longer term fixed rate loans that are more susceptible to the shape of the yield curve, so commercial real estate is still not additive. Equipment financing is likely negative as well at this point. ABL would be additive because again it’s a LIBOR portfolio. Hopefully that’s helpful.

[Matthew Breese:]

Yeah that is helpful. Just following up on the margin question, given that layout is what we’re hearing is that if the fed were to move in mid-year and the long end of the curve stays where it is, you would expect the LIBOR based loans actually prop up the margin, lift the margin, because we didn’t see it this quarter and that was a bit of a surprise.

[David Rosato:]

My response to Casey’s first question, when we think about them margin coming in, where it did, it was primarily driven by lower loan volumes and with that comment I’m not being specific to whether it was floating or fixed, it was just higher yielding asset that didn’t hit the books or hit the books at a lower volume rate than expected. So that’s really just the volume issue. When you think about our assets sensitivity, there’s two components, and that’s why we talk about yield curve swift and show the slide. So we try to show investors what the short end impacts are to us as well as long end. And with what happened in from mid-December or just in the last two quarters if you will is, we had benefit from rising short rates, fed funds and LIBOR. But some of that benefit was given back as the yield curve flattened. So when we look at the balance of the year, those two components will still come in to play as well as volume.

[Matthew Breese:]

And then with that could you provide us with an update on the loan pipeline today versus year-end or a year ago that gives you confidence not only that you’ll hit your growth guidance but the margin can benefit as well from better loan volumes.

[Jack Barnes:]

Sure, its Jack. I would characterize the commercial business pipelines, obviously not all of them but generally in about the same range they’ve been over the last year quarter-to-quarter. There’s a couple that are up a little more substantially, but for the most part I think if you think about the whole book the pipeline flow is about inline. On residential mortgage as I just mentioned, that’s up significantly and at a high point in recent times. So I hope that helps.

[Operator:]

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

[Andrew Hersom:]

Thank you again for joining us this morning. We appreciate your interest in People’s United. If you’d have any additional questions, please contact me at 203-338-4581. Have a great day.

[Operator:]

Thank you for your participation in today’s conference. This concludes the presentation, you may now disconnect. Good day.