People's United Financial (PBCT)
Q3 2012 Earnings Call
October 18, 2012 5:00 pm ET
Previous Statements by PBCT
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Kirk W. Walters - Chief Financial Officer, Senior Executive Vice President, Director and Member of Enterprise Risk Committee
Preeti S. Dixit - JP Morgan Chase & Co, Research Division
Ken A. Zerbe - Morgan Stanley, Research Division
David Darst - Guggenheim Securities, LLC, Research Division
Collyn Bement Gilbert - Stifel, Nicolaus & Co., Inc., Research Division
Matthew Brandon Kelley - Sterne Agee & Leach Inc., Research Division
Damon Paul DelMonte - Keefe, Bruyette, & Woods, Inc., Research Division
Mark T. Fitzgibbon - Sandler O'Neill + Partners, L.P., Research Division
Bob Ramsey - FBR Capital Markets & Co., Research Division
Thomas Alonso - Macquarie Research
Michael Turner - Compass Point Research & Trading, LLC, Research Division
Dan Werner - Morningstar Inc., Research Division
Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division
Good day, ladies and gentlemen, and welcome to the People's United Financial Inc. Third Quarter Earnings Conference Call. My name is Regina, 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 presentation over to Mr. Peter Goulding, Senior 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 third 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. As always, we appreciate your joining us today. On Slide 2, we provide an overview of our third quarter results. For the quarter, operating earnings were $64.4 million or $0.19 per share, down from $67.2 million or $0.20 per share in the second quarter. Net income for the quarter was $62.2 million or $0.18 per share.
Operating net interest margin declined to 3.82% compared to 3.88% in the second quarter. The decline in the margin is primarily the result of lower loan yields which was partially offset by lower funding costs.
Total loan growth amounted to 8.8% on an annualized basis. We are very pleased to see this increased momentum, which is significant when considering the runoff in our acquired portfolios.
Noninterest income in the quarter increased $5.7 million to $81.4 million. This increase was primarily due to higher prepayment fees, seasonally strong insurance revenues, higher gain on sale of residential mortgages and increased operating lease income.
We are particularly pleased with the progress on our efficiency ratio, which improved to 61.4% from 61.5% in the second quarter. We were able to drive operating leverage while absorbing the full quarter expenses of the Citizens branch acquisition. With the growing balance sheet, supported by strategic revenue initiatives and identified expense reductions scheduled in the quarters ahead, we look forward to continued progress on our efficiency ratio as we push towards our goal of 55%.
Asset quality, a longtime hallmark of this institution, continues to impress as net charge-offs totaled just 18 basis points this quarter, which is the lowest level since the second quarter of 2009.
During the quarter, we repurchased 4.5 million shares or $53.5 million at a weighted average price of $11.90 per share. Year-to-date, we repurchased 13.5 million shares or $164 million at a weighted average price of $12.12 per share. This results in approximately $8.6 million of annual dividend saving. We have 4.5 million shares remaining in our existing share repurchase authorization.
Capital ratios remain strong, with the tangible equity ratio at 11.2% for the third quarter. We continue to make progress deploying in our capital through balance sheet growth, dividend payments and share repurchase activity.
Now I'd like to turn it over to Kirk.
Kirk W. Walters
Thank you, Jack. On Slide 3, you can see a breakdown of the elements contributing to our 3.89% net interest margin for the quarter. Lower loan yields negatively impacted the margin by 9 basis points, approximately 5 basis points of this decline related to the runoff of higher yielding loans in the acquired loan portfolio. The other 4 basis point decline related to a combination of originated loans coming on at lower rates, payoff and repricing.
Cost recovery income, which represents settlements and payoffs in the acquired loan portfolio in excess of the carrying amount, continued this quarter and amounted to $4.1 million, down from $4.7 million last quarter, which negatively impacted the margin by 1 basis point. These forces are partially offset by a 3 basis point improvement in funding rates and mix. Deposit costs are 41 basis point, down from 45 basis points last quarter and 58 basis points in the third quarter a year ago. As a reminder, the favorable effect of fair value amortization on acquired time deposits in the Danvers acquisition will end this month and negatively impact our fourth quarter net interest margin by approximately 2 basis points. In this rate environment, opportunities continue to exist to lower deposit cost. For example, average deposits and acquired markets represent approximately 17% of total average deposits, with a weighted average cost of 77 basis points, which reflects progress, but is still well above our franchise wide cost of deposits.