People's United Financial (PBCT)

Q3 2011 Earnings Call

October 20, 2011 5:00 pm ET


John P. 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 W. Walters - Chief Financial Officer


Christopher Nolan - CRT Capital Group LLC, Research Division

Bob Ramsey - FBR Capital Markets & Co., Research Division

Thomas Alonso - Macquarie Research

Damon Paul DelMonte - Keefe, Bruyette, & Woods, Inc., Research Division

Yanni Koulouriotis - Buckingham Research Group, Inc.

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 Third Quarter Earnings Conference Call. My name is Jeremy, 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, First Vice President of Corporate Development and Investor Relations for People's United Financial. 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 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, under the Investor Relations section.

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

John P. Barnes

Thank you, Peter, and good afternoon, everyone. On Slide 2, we provide an overview of our third quarter results. For the quarter, operating earnings were $67.3 million or $0.19 per share, with net income of $52.9 million or $0.15 per share. Once again, our objectives have been and continue to be straightforward and twofold: one, to optimize existing businesses; and two, efficiently deploy capital. The third quarter represents significant progress against these goals.

To the first objective, we have a simple strategy, which is to focus on organic loan and deposit growth while expanding our fee businesses and reducing noninterest expense. This quarter, loans grew at a 15% linked-quarter annualized rate. And deposits grew at a 6% annualized rate in a seasonally lowest period. While deposit rates declined by 2 basis points to 56 basis points in the quarter, our efficiency ratio improved to 63.1% in the quarter.

Another way we are optimizing the businesses is to fine -- by fine-tuning our balance sheet. During the quarter, we sold $507 million of mortgage-backed securities. This was done to reduce book value at risk resulting from higher prepayment speeds. Separately, we repaid FHLB advances acquired through the acquisitions of RiverBank and Danversbank, totaling $284 million in order to reduce our wholesale borrowings, which now only represent 1.7% of our total funding.

In environments like this, we know that asset quality is a critically important differentiator for us. Our asset quality has remained at industry-leading levels throughout this crisis. This quarter, our nonperforming assets, as a percentage of originated loans, REO and repossessed assets decreased to 1.88% of loans and REO compared to 2.05% in the second quarter of 2011.

Now onto the second objective, capital deployment. During the quarter, we repurchased $15.8 million shares of our common stock at a weighted average price of $11.81. While we were disappointed to see our stock trade at the levels it did in the third quarter, it presented us a significant opportunity to repurchase shares. It's worth noting we issued 18.5 million shares as part of the Danvers transaction at a price of $13.44. And since the Danvers transaction was announced in January, we repurchased 20.4 million shares at a weighted average price of $12.10, which offset the dilution from issuing stock in the transaction and effectively converted it to a cash transaction.

Additionally, we're pleased to announce that our board authorized an additional $18 million share repurchase program. This amounts to 5% of our current shares outstanding. This program does not have an expiration date. The progress on both of these objectives resulted in a stronger earnings stream, which produced an operating dividend payout ratio of 85%, down from 95% past quarter and 200.4% the prior year period.

On Slide 3, we review recent important initiatives. This past weekend, we successfully completed the Danvers core system conversion. This is our fourth successful core system conversion this year and our sixth over the past 2 years. The entire franchise now operates under a single core operating system and brand. The result of this experience is a true competency for this organization. We now have a strong track record of conversion execution, capturing targeted cost savings and now beginning to realize revenue synergies as well.

We have submitted an application to the Office of the Comptroller of the Currency to convert People's United Bank to a national bank charter from its current federal savings bank charter. The conversion to a national bank charter will enhance our ability to achieve our financial goals as our commercial growth will no longer be limited by the thrift lending test. Further, we will benefit from the OCC's deep understanding of and experience in supervising large commercially oriented financial institutions.

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