People's United Financial (PBCT)
Q4 2011 Earnings Call
January 19, 2012 5:00 pm ET
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Peter Goulding -
Kirk W. Walters - Chief Financial Officer
Ken A. Zerbe - Morgan Stanley, Research Division
Mark T. Fitzgibbon - Sandler O'Neill + Partners, L.P., Research Division
David Darst - Guggenheim Securities, LLC, Research Division
Casey Haire - Jefferies & Company, Inc., Research Division
Damon Paul DelMonte - Keefe, Bruyette, & Woods, Inc., Research Division
Michael Turner - Compass Point Research & Trading, LLC, Research Division
Collyn Bement Gilbert - Stifel, Nicolaus & Co., Inc., Research Division
Matthew Brandon Kelley - Sterne Agee & Leach Inc., Research Division
Good day, ladies and gentlemen, and welcome to the People's United Financial, Inc. Fourth Quarter Earnings Conference Call. My name is Carris, and I will be your cooperator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. And I would now like to turn the presentation over to Mr. Peter Goulding, First Vice President of Corporate Development and Investor Relations for People's United Financial, Inc. Please proceed, sir.
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. We appreciate you joining us today. Now is a good time of the year to reflect on the past year, as well as our goals for 2012. You will recall that throughout 2011, we have had 2 primary objectives: optimizing existing businesses and efficiently deploying capital. In 2011, we executed well against both of these goals. We've now integrated 5 acquisitions since 2010 and taken out more cuts -- costs than were estimated at the time of each transaction. Integration and systems conversions have become a core competency for this organization.
Further, we've become very focused on organic loan and deposit growth, having entered the large new markets of the Boston and New York City MSAs. Our momentum is based on our 170-year-old brand and outstanding customer service throughout the financial crisis. We offer the full breadth of products and services our customers need while providing a true relationship-based solution. All of this was accomplished while retaining strong asset quality, solid capital levels and a 5% dividend yield.
Our 2011 financial results show substantial improvement. Operating earnings grew $112 million or 89% year-over-year. Likewise, our operating return on average assets was 91 basis points, up 34 basis points or 60% over 2010.
The primary driver behind our improvement has been and continues to be loan and deposit growth per share. During 2011, loans per share grew 20%, and deposits per share grew 18%.
I want to share 6 goals for 2012. First, grow loans in the mid-single digit to low double digits. Second, increase deposits in the mid-single digits. Third, strive to maintain a net interest margin above 4% for the first half of the year and minimize the decline below 4% for the second half. Fourth, reduce operating expenses to a run rate of $790 million to $810 million. Kirk will provide more detail. But at the highest level, we've accomplished 2 things. We have completed benchmarking process for the entire company and instituted a number of organizational changes; and second, we've established an expense management committee, which will manage costs from a horizontal perspective in addition to the traditional vertical business unit perspective. Fifth, we will work to offset 40% to 60% of the impact of Dodd-Frank. We believe we've offset 20% already. And sixth, maintain a fortress balance sheet with continuing excellent credit quality and strong capital levels.
We know that if we execute on our intermediate-term goals, we will on our own, without M&A or interest rate improvement, reach our 55% efficiency ratio goal in mid-2013; and our 125 basis point return on average asset goal in 2014. We believe that there will be significant regulatory undertakings for all institutions in 2012 and later years as the numerous regulations are enacted under Dodd-Frank.
As we've said in the past, this is a significant tax on the industry, and we'll inevitably contribute to the fatigue factor, particularly among smaller players, specially in light of the additional lost revenue and the higher compliance costs related to Dodd-Frank. We know we can hit our financial goals on our own through organic growth, dividends and share repurchases, but we'll also be working diligently to get there faster via industry consolidation. Global deleveraging and the rising level of fatigue within the U.S. banking industry would provide acquisition opportunities in 2012 and 2013.
With that, I'll pass it to Kirk to discuss the quarter and the expense management initiatives in more detail. Kirk?
Kirk W. Walters
Thank you. On Slide 4, we provide an overview of our fourth quarter results. For the quarter, operating earnings were $58.7 million, or $0.17 per share; with a net income of $43 million, or $0.12 per share. The net interest margin improved to 4.16% compared to 4.11% in the third quarter. The improvement in the reported level is the result of cost recovery income resulting from better-than-expected performance on certain acquired loans in the Bank of Smithtown portfolio.