People's United Financial, Inc. (PBCT)

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People's United Financial (PBCT)

Q4 2012 Earnings Call

January 17, 2013 5:00 pm ET


Peter Goulding

John P. Barnes - Chief Executive Officer, President, Director, Member of Executive Committee, Member of Treasury & Finance Committee, Member of Enterprise Risk Committee, Chief Executive Officer of the People's United Bank, President of the People's United Bank and Director of the People's United Bank

Kirk W. Walters - Chief Financial Officer, Senior Executive Vice President, Director and Member of Enterprise Risk Committee


Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Collyn Bement Gilbert - Stifel, Nicolaus & Co., Inc., Research Division

Damon Paul DelMonte - Keefe, Bruyette, & Woods, Inc., Research Division

Bob Ramsey - FBR Capital Markets & Co., Research Division

Matthew Brandon Kelley - Sterne Agee & Leach Inc., Research Division

Casey Haire - Jefferies & Company, Inc., Research Division

John G. Pancari - Evercore Partners Inc., Research Division

Matthew J. Keating - Barclays Capital, Research Division



Good day, ladies and gentlemen, and welcome to the People's United Financial Incorporated Fourth Quarter Earnings Conference Call. My name is Patrick, and I will be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to Mr. Peter Goulding, Senior Vice President of Corporate Development and Investor Relations for People's United Financial Inc. Please proceed, sir.

Peter Goulding

Good afternoon, and thank you for joining us today. Jack Barnes, President and Chief Executive Officer; Kirk Walters, our Chief Financial Officer; along with Jeff Hoyt, our Controller, are here with me to review our fourth quarter results. Before we get started, please remember to refer to our forward-looking statements on Slide 1 of our 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

Thank you, Peter. Good afternoon, everyone. Appreciate you joining us today. As has become our custom, in addition to reviewing the fourth quarter results, I'd like to reflect on the past year, as well as our goals for 2013. You'll recall that since I took over as CEO in mid-2010, we have had 2 primary objectives, optimizing existing businesses and efficiently deploying capital. In 2012, we executed well against both of these goals. 2012 was a year in which we continued to take action to enhance growth opportunities by expanding existing business lines and deepening our market presence. Our people made this progress possible by building new relationships across our footprint. We are also in a fortunate position to have outstanding fundamentals which allows us to continue to attract and retain talent throughout our franchise. We experienced growth in essentially every loan product and every fee income business, and we were able to grow loans at faster than market rates by bolstering our capabilities and a few underrepresented asset classes, including asset-based lending, New York commercial real estate, mortgage warehouse lending, private banking and wealth management. In addition, we extended our presence in Metro New York through the acquisition of 57 branches in Southern New York and also opened a flagship branch in Midtown Manhattan. These branches represent a significant source of future low-cost funding, asset-generation and an important connection with the current and future customers. We are able to make progress while interest rates remain low, and in fact, fell 30% at the short end of the yield curve since the beginning of 2012. As a reminder, approximately 35% of our loan portfolio is comprised of floating rate loans tied to short rates. Our progress allowed us to grow loans per share by 12% and deposits per share by 9% in 2012. Operating earnings grew 10% year-over-year to $254 million and our operating earnings per share grew 14% to $0.75. Our operating return on average assets was 90 basis points, up 1 basis point over 2011. Operating return on average tangible equity improved 130 basis points as we increased earnings and returned capital via dividends and share repurchases. Our revenue growth and highly disciplined approach to expenses drove the efficiency ratio from 64% in 2011 to 62.4% in 2012. In addition, asset quality strengthened further from the existing industry-leading levels.

On Slide 3, you can see our total loans and deposits grew 7% and 4%, respectively, which provides a good link to Slide 4. Slide 4 shows that our growth in loans and deposits was offset by lower interest rates which combined to produce relatively flat net interest income and revenue. Efficiency ratio improvements combined with our share repurchases serve to boost earnings per share by 14% year-over-year. As we mentioned at the start of the call, our rate environment will likely mask some of the benefits of the larger balance sheet at least as seen through the net interest income line. However, fee income growth, a disciplined approach to expenses and attractive -- excuse me, active capital management will continue to drive earnings per share progress. We have 6 goals for 2013: grow loans at high single digits to mid-teen rates by a momentum from current initiatives combined with slower loan runoff from the acquired loan portfolio. Second, increase deposits at a mid-single-digit rate. Third, maintain net interest income in the $900 million to $940 million range, which implies a 3.3% to 3.4% net interest margin. Grow fee income at mid-single-digit rate. Hold full year operating expenses flat at $815 million to $825 million. This effectively is a reduction considering the additional expenses we absorbed associated with our recent Southern New York branch acquisition in the middle of last year. And sixth, to preserve our fortress balance sheet with continuing excellent credit quality and strong capital levels. We remain on track to reach our 55% efficiency ratio goal late in 2014. Given the lower rate environment, our low risk profile, the natural position of our balance sheet towards floating rate loans and short duration investments, our 1.25% return on average assets goal is attainable, but in the near term, we probably need short rates to rise a bit. With that, I'll pass it to Kirk to discuss the quarter in more detail.

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