People's United Financial, Inc. (PBCT)
Q1 2010 Earnings Call
April 16, 2010 11:00 am ET
Philip Sherringham – President and Chief Executive Officer
Paul Burner – Senior Executive Vice President and Chief Financial Officer
Ken Zerbe – Morgan Stanley
Steven Alexopoulos – JP Morgan Securities
Christopher Nolan – Maxim Group
Bob Ramsey – FBR Capital Markets
Mark Fitzgibbon – Sandler O'Neill
David Hochstim – Buckingham Research Group
David Darst – Guggenheim Securities
Damon DelMonte – KBW
Collyn Gilbert – Stifel Nicolaus
Matthew Kelley – Sterne Agee
Richard Weiss – Janney Montgomery Scott
Kenneth Bruce – BofA Merrill Lynch
Previous Statements by PBCT
» People's United Financial, Inc. Q4 2009 Earnings Call Transcript
» People’s United Financial Inc. Q3 2009 Earnings Call Transcript
» People’s United Financial Inc. Q2 2009 Earnings Call Transcript
Thank you. Good morning everyone and welcome, of course, to the first quarter 2010 earnings conference call of People's United Financial. Again, I am Philip Sherringham, President and CEO; and I will be presenting our results today with Paul Burner, our CFO. Other members of our management team are here with us and may answer questions as appropriate. I will be speaking from our quarterly slide deck, which is available under investor relations at www.peoples.com.
As you all have seen in our earnings release, we're pleased to report that People's United continues to benefit from its fortress balance sheet, characterized by a strong capital position and ongoing solid asset quality. We continued to grow our commercial portfolio during the quarter while managing risk.
Other highlights of the quarter include the closing and integration of Financial Federal. This integration, which is substantially complete, has so far progressed very smoothly, and the operations immediately began adding to the bottom line.
Second, the successful conversion of our southern New England franchise onto a new FIF Metavante core systems platform reflecting a tremendous amount of time and effort by employees throughout the bank. This is something our investors don't see on a day-to-day basis, but it's a very important component of our growth strategy. It provides significant operating efficiencies and allows us to continue to offer the award-winning customer service for which we're known. We're looking forward to the conversion of our northern New England franchise in July, after which time our entire franchise will be on one core system.
Finally, a continued active due diligence process on both open banks and FDIC opportunities. We remain convinced that the best deployment of our excess capital is in FDIC-assisted and whole bank acquisitions in attractive markets with high population density. While it's difficult to predict with certainty, we are pursuing a number of opportunities and feel confident that we will have an announcement in the near future.
Before we move on to the presentation, I would like to remind you please to all be sure to read our forward-looking statement on slide one. Now, on to slide two.
Operating net income for the first quarter was $29.2 million or $0.08 a share excluding $23.4 million pre-tax or $0.04 a share after tax of nonrecurring charges related to systems conversion and acquisition-related expenses. The quarter's results reflect continued growth in our core loan portfolios and deposits, despite the challenging environments. Our margin benefited from the Financial Federal acquisition, increasing to 3.47% compared to fourth quarter's 3.19%. We will speak to that in greater detail a bit later.
Net loan chargeoffs for the quarter decreased to 26 basis points of average loans on an annualized basis from 38 basis points in the fourth quarter 2009, which was our second consecutive quarterly decline in net chargeoffs. On the other hand, due to continued economic weakness in our markets, our ratio of NPAs to originated loans, REO, and repossessed assets did increase to 1.74% from 1.44% in the fourth quarter.
I would note again that our asset quality has held up remarkably well on both a relative and absolute basis through this most recent recession, and we continue to enjoy limited loss content in our loan portfolio and that most of the bad news is substantially behind us. We are pleased that our industry-leading tangible equity ratio remains strong at 18.6% and actually increased 40 basis points as a result of the addition of Financial Federal. With that, I hand it over to Paul to provide you with details on the quarter. Paul.
Thank you, Philip, and good morning everyone. As Philip mentioned, our overall net interest margin increased to 3.47%, up 28 basis points from the 3.19% in the fourth quarter. Improvement in the spread was primarily due to higher yields in the loan portfolio due to the acquisition of Financial Federal, as well as the reduction in deposit costs.
Deposit costs of 78 basis points in the first quarter were down 16 basis points from the 94 basis points in the fourth quarter of 2009. For the month of March, our margin was 3.76%, which reflected the benefit of Financial Federal for the whole month; therefore we expect further improvement in the margin for the second quarter.
Moving on to slide four, as unemployment remains high and the economy remains weak, we saw an additional increase in nonperforming assets in the quarter. NPAs increased to 1.74% from 1.44% of loans and REO. As you can see in the footnote, due to the acquisition of Fin Fed and the 141(r) credit mark on their portfolio, we're presenting this information as a ratio of NPAs to originated loans. However, the NPAs do include acquired repossessed assets from Fin Fed.