People's United Financial, Inc. (PBCT)

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People's United Financial (PBCT)

Q2 2011 Earnings Call

July 21, 2011 5:00 pm ET


John Barnes - Chief Executive Officer, President, Director, Member Of Executive Committee, Member Of Treasury And 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

Peter Goulding - VP, IR

Kirk Walters - Chief Financial Officer


Matthew Kelley - Sterne Agee & Leach Inc.

Collyn Gilbert - Stifel, Nicolaus & Co., Inc.

Michael Turner - Compass Point Research & Trading, LLC

Ken Zerbe - Morgan Stanley

Christopher Nolan - CRT Capital Group LLC

Thomas Alonso - Macquarie Research

Bob Ramsey - FBR Capital Markets & Co.

Damon DelMonte - Keefe, Bruyette, & Woods, Inc.

Mac Hodgson - SunTrust Robinson Humphrey, Inc.



Good day, ladies and gentlemen, and welcome to the United Financial Incorporated Second Quarter Earnings Conference Call. My name is Kharma and I'll 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 call over to your host for today, Mr. Peter Goulding, First Vice President of Corporate Development and Investor Relations for People's United Financial Incorporated. 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 second quarter results. With that, I'll turn it over to Jack.

John Barnes

Thank you, Peter, and good afternoon, everyone. As I begin my comments, please keep in mind that our objectives have been and continue to be straightforward and twofold: One, optimizing the existing businesses; and two, efficiently deploying excess capital. The second quarter, much like the first, represents progress against those goals.

On Slide 2, we provide an overview of our second quarter results. Net income for the quarter was $51.2 million or $0.15 per share with operating net income of $57.3 million or $0.17 per share. Net interest margin for the second quarter was 4.13% compared to 4.16% in the first quarter and 3.87% in the fourth quarter. Recall that last quarter we expected our margin to remain above 4%. Excluding accretable yield reassessment, our core net interest margin came in at 4.09%. We continue to see solid loan growth of $164 million or 3.7% linked-quarter annualized. Deposits also grew at a 3.7% annualized rate. This growth occurred while deposit costs declined from 59 basis points to 58 basis points in the quarter. Our noninterest income increased by $2 million quarter-over-quarter, which includes a $7.2 million gain on acquired loan sales from the Smithtown portfolio. We continue to make progress on our efficiency ratio, which declined to 65.7% in the quarter from 66.2% in the first quarter. As many of you have heard us say during the quarter, we are committed to reducing our efficiency ratio to 55% within the next 2 years. As you'll hear in a minute, we've made additional progress beyond what's represented in the second quarter's results. Finally, while our nonperforming assets as a percentage of originated loans, REO and repossessed assets increased in the second quarter to 2.05% of loans and REO compared to 1.96% in the first quarter. This increase was entirely due to the effect of a single credit. Of course, we'll be providing additional color today on our asset quality, which remains a source of pride for the company.

On Slide 3, we review recent initiatives. Our Danversbank transaction closed on June 30, effective July 1 for the financial reporting purposes, which is why their numbers are not included in our second quarter results.

We're pleased to welcome Kevin Bottomley to our Board of Directors. He will provide strategic leadership for our Boston growth efforts. In addition, he brings 35 years of banking experience to our board. We expect to convert Danvers to our operating system and rebrand their branches early in the fourth quarter. We successfully completed the system conversion of Bank of Smithtown during the weekend of June 17, which will result in annual savings of $3 million. In total, we've exceeded our target cost savings at the time of acquisition announcement. We'll see the full quarter benefit of the conversion-related savings in the third quarter.

As we announced in our earnings release, we have also undertaken a number of franchise-wide initiatives that will result in approximately $20 million in annual cost savings. These include changes to our retirement programs and other benefits and headcount reduction, primarily in corporate positions. We'll see the full benefit of these changes in 2012. We continue to seek new opportunities for business growth and announced early this month our hire of Michael Maiorino who will head our asset-based lending group and report directly to Jeff Tengel, Head of Commercial Lending. Michael's responsibilities will also include oversight of our new mortgage warehouse business as we view this as an asset-based lending product. Michael joined us from Sovereign Bank, where he spent the past 9 years. While at Sovereign, he was Executive Vice President and Divisions President of Sovereign business capital, a $2 billion business and EVP, Debt Management and Recoveries. Prior to that, Michael was Division President at Fleet Capital, now Bank of America Business Capital, responsible for the Business Finance Division. We have high expectations for growth in this segment.

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