People's United Financial Management Discusses Q2 2012 Results - Earnings Call Transcript

People's United Financial (PBCT)

Q2 2012 Earnings Call

July 19, 2012 5:00 pm ET

Executives

Peter Goulding

John P. Barnes - Chief Executive Officer, President, Director, Member Of Executive Committee, Member Of Treasury & 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

Kirk W. Walters - Chief Financial Officer, Senior Executive Vice President, Director and Member of Enterprise Risk Committee

Analysts

Ken A. Zerbe - Morgan Stanley, Research Division

Collyn Bement Gilbert - Stifel, Nicolaus & Co., Inc., Research Division

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

Matthew Brandon Kelley - Sterne Agee & Leach Inc., Research Division

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

Casey Haire - Jefferies & Company, Inc., Research Division

Thomas Alonso - Macquarie Research

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the People's United Financial Inc. Second Quarter Earnings Conference Call. My name is Jeff, 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.

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. Before we get started, please remember to refer to our forward-looking statements on Slide 1 from 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, and good afternoon, everyone. We appreciate you joining us today. On Slide 2, we provide an overview of our second quarter results. For the quarter, operating earnings were $67.2 million or $0.20 per share, up from $60.6 million or $0.18 per share in the first quarter. Net income after -- net income for the quarter, including non-operating items, was $64.8 million or $0.19 per share. The net interest margin declined to 3.97% compared to the 4.01% in the first quarter. The decline in the margin is the result of lower loan yields and higher levels of securities purchased earlier in the quarter in anticipation of our receipt of the proceeds for the Citizens branch transaction late in the quarter. This is partially offset by cost recovery income related to negotiated settlements and payoffs in the acquired loan portfolio.

Loan growth, including runoff in the acquired portfolios, amounted to 2.3% on an annualized basis, which was entirely funded by deposit growth.

Originated loan growth was strong and amounted to 11.2% on an annualized basis. Noninterest income increased $3.3 million compared to the first quarter, reaching $75.7 million. This increase was primarily due to growth in cash management fees, operating lease income, prepayment fees and gain on sale of acquired loans.

The efficiency ratio improved to 61.5% from 63.2% in the first quarter. This is a result of improved operating leverage from higher revenues and lower expenses. Capital ratios remained strong with the tangible equity ratio at 11.5% for the second quarter. We continue to make progress deploying our capital through balance sheet growth and share repurchase activity.

On Slide 3, we discussed several recent initiatives. Most importantly, we continue to expand our presence in key growth markets such as the New York metro area. We recently completed the acquisition of 57 Citizens branches in the greater New York metro area and rebranded all of the acquired branches over the weekend of June 22. 53 of the branches are in Stop & Shop supermarkets and 4 are traditional branches.

Through these branches, we will be reaching approximately 900,000 weekly visitors to Stop & Shop stores, which will significantly strengthen our brand awareness in the country's largest MSA. We now serve customers in approximately 100 branches in the New York metro area. As is the case throughout our footprint, we strive to bank the market. As we continue to build our deposit footprint in the New York metro area, we are simultaneously adding asset generation capabilities.

First, as we have said about our Stop & Shop branches in Connecticut, we generate a substantial portion of our residential mortgage and home equity originations through these in-store branches. We also see significant commercial activity in these branches. In time, we expect the recently acquired branches will also become significant asset generators.

In addition, we have expanded our C&I and asset-based lending efforts in New York metro area, adding 5 seasoned in-market C&I lenders on Long Island and 2 ABL professionals.

Recently, we also added 3 senior New York commercial real estate professionals. These individuals have spent their careers focused on New York commercial real estate relationships and are well known to both the market and our management team. Further, within the last week, we added a senior private banking professional, who will lead our private banking business, including expansion in the New York metro and Boston.

Second, over the last few quarters, we have built upon the depth of our cash management talent, and we are now starting to see the benefit of their efforts. In addition, we've been working to deepen our brokerage penetration throughout the footprint.

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