PBCT

People's United Financial, Inc. (PBCT)

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People’s United Financial (PBCT)

Q2 2010 Earnings Call

July 16, 2010 11:00 am ET

Executives

Peter Goulding - VP, IR

Jack Barnes - Interim CEO, Senior EVP & CAO

Paul Burner - Senior EVP & CFO

Brian Dreyer - Senior EVP, Commercial Banking

Chantal Simon - EVP & CRO

Analysts

Steven Alexopoulos - JPMorgan

Ken Zerbe - Morgan Stanley

Bob Ramsey - FBR Capital

David Hochstim - Buckingham Research Group

Christopher Nolan - Maxim Group

Damon DelMonte - KBW

Mike Shafir - Sterne Agee

Collyn Gilbert - Stifel Nicolaus

David Darst - Guggenheim Securities

Mac Hodgson - SunTrust

Rick Weiss - Janney

Ken Bruce - Bank of America Merrill Lynch

Presentation

Operator

Good day ladies and gentlemen and welcome to the People’s United Financial Incorporated second quarter earnings conference call. My name is Eric. I’ll be your audio coordinator for today. (Operator Instructions). As a reminder, the conference is being recorded for replay purposes.

I would now like to turn the presentation over to Mr. Peter Goulding, Vice President of Investor Relations for People’s United Financial. Please proceed sir.

Peter Goulding

Good morning and thank you for joining us for today’s call. Jack Barnes, Interim President and Chief Executive Officer; Paul Burner, our Chief Financial Officer; and other members of the management team are gathered for the call.

Before we get started, please remember to refer to our forward-looking statements on slide one of our presentation which is posted on our website www.peoples.com under Investor Relations.

With that, I’ll turn the call over to Jack.

Jack Barnes

Thank you, Peter. Good morning again and welcome to the People’s United Financial Second Quarter 2010 Earnings Conference Call.

As you can see on slide two, this call has a dual purpose, both to outline our second quarter 2010 results and to provide detail on our two acquisitions announced yesterday.

On slide three, we provide an overview of our second quarter results. Operating net income for the quarter was $31.8 million or the $0.09 per share, excluding $23.2 million pre-tax or $0.05 per share of one time cost related to the former CEO’s separation agreement, merger related and system’s convergence cost.

The quarter’s results reflect continued growth in our core loan portfolios and deposits despite continued economic challenges.

The margin increased to 3.68% compared to 3.47% in the first quarter, primarily due to the full quarter benefit of the financial federal acquisition. Net charge-off increased to $17.8 million or 46 basis points from 26 basis points in the prior quarter. Both non-interest income and non-interest expense are higher primarily as a result of the acquisition of Financial Federal and Butler Bank.

On slide four, during the second quarter, we made significant progress in our systems conversion project. In fact this weekend, we will complete our core systems conversions including our customers in Vermont, New Hampshire, Massachusetts and Maine markets.

At the same time, we will be re-branding our branches in those markets to People’s United Bank. We are pleased to have reached this milestone which will provide instant recognition of the People’s United brand from Maine to New York.

Additionally, we continue to focus on organic growth with two new locations expected to be open in downtown Boston before year-end. These branches will provide an important extension of our growing footprints in the Greater Boston area.

During the second quarter, we repurchased $52 million of our common stock equal to 3.7 million shares at an average price of $13.98. The repurchase program was affected through open market purchases. We will continue to evaluate the returns available to us, by our share repurchases, relative to the rest of our capital deployment opportunities.

Finally, we have maintained our focus on becoming a preferred acquirer in the North East. We were pleased to announce yesterday our acquisition of Smithtown Bancorp and LSB Corp. which we will discuss in greater detail later in this call.

With that, I’ll hand it over to Paul to provide with you details on the quarter. Paul?

Paul Burner

Thank you Jack and good morning to you all. As Jack mentioned, our overall net interest margin increased to 3.68%, up 21 basis points from the 3.47% in the fourth quarter. The core margin improvement was primarily due to the acquisition of Financial Federal as well as lower deposit costs. As a reminder, Financial Federal closed on February 19.

Respectively, we see additional opportunity for improvement. You’ll notice on our June 30th balance sheet, an increase in the available for sale securities, we are now more willing to temporarily deploy excess capital in short-term investments yielding more than the fed funds rate than we previously have. This moderate change is in recognition that fund rates will likely remain low well into 2011. Investments to date have been concentrated in short-term agency debentures yielding approximately 90 basis points.

Moving on to slide six is unemployment remains high and the economy remains weak. We saw an additional increase in non-performing assets in the quarter. NPAs increased to 2.01% from 174 of loans in REO.

Compared to the first quarter average of our peer group in the top 50 banks however, our ratio remains extraordinarily healthy and less than half their levels and we continue to feel comfortable with our asset quality in the current environment. The acquisition of Financial Federal and Butler Bank served to increase the NPAs to loan ratio over the last couple of quarters as the ratio includes their REO and repos.

Slide seven. Net charge-offs in the commercial and equipment financing segment increased to 92 basis points annualized for the quarter from 15 basis points last quarter. The difference is $8.4 million which consisted of one CNI charge-off of $6 million and one equipment financing charge off of $2.4 million which are larger than normal individual charge-offs for those businesses.

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