People’s United Financial, Earnings Call INSIGHTS: Deposits Amortization Details, Cost Recovery Income

On Thursday, People’s United Financial, Inc. (NASDAQ:PBCT) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Deposits Amortization Details

Preeti Dixit – JPMorgan: This is actually Preeti Dixit on for Steve. Kirk, can you give us some more color on the amortization of the deposits that detracted from the margin this quarter? It sounds like from your prepared comments this is more one-off, so should we expect the deposit costs, I think, they’re 107 in the quarter to normalize or do they run at these levels?

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Kirk W. Walters – SEVP and CFO: The amortization that ran off in the quarter which related to Bank of Smithtown and such did cost us about 4 basis points. It’s a one-off, it’s gone at that point, at this point. And the other item that we tried to highlight was, the only remaining amortization we have in our deposits relates to the Danvers acquisition, and that will cease to be around – goes away in the fourth quarter, which will cost us about another 4 basis points. So, after those – after the Danvers piece is gone, which will be a one-time, then we have no more left.

Preeti Dixit – JPMorgan: Okay. So, and then we should expect that 107 to kind of trail down from there in terms of your time deposit cost?

Kirk W. Walters – SEVP and CFO: Well, the – remember, this amortization is reducing the cost of the deposits right.

Preeti Dixit – JPMorgan: Okay. Alright. That’s helpful.

Kirk W. Walters – SEVP and CFO: Yeah. When we acquired the institutions the time deposits were at rate higher than where the market was, so it’s bringing it down. So, like in this quarter, we actually brought our overall cost of deposits down 5 basis points which was good progress the one time basically offset for this quarter.

Preeti Dixit – JPMorgan: Okay so this is a new level for us, could you speak of the rates that securities were added on in the quarter and then should we expect to build cash from here. It seems like the balance pretty low and the end of the period?

John P. Barnes – President and CEO: To the first question we’re investing predominantly in the short tranche CMOs they’re coming on and about a 140 basis points so it’s really a cash substitute almost that we’re putting money into and we are keeping the duration of the securities portfolio right around three years. In terms of the second question we do on the deposit side, we do tend to hit our seasonal lows during that summer as we come into summer and then through August and then it starts building from there

Cost Recovery Income

Ken Zerbe – Morgan Stanley: Just hoping to get little more color on this cost recovery income. I guess I heard you guys say was just three transactional, is this something that was completely a one-off or and if not why would we see it again?

John P. Barnes – President and CEO: If you look back in the fourth quarter you’ll see we had cost recovery in term that quarter as well this comes about when we do the reassessments and it relates to loans that either are settled or paid off and we in essence get proceeds in excess of the amount of the carrying value of the loans. So we’ve chosen the wording discreet and transactional carefully because it’s not a case that it won’t be – that we won’t see more of this as we go, and the portfolios continued to run down, but it is erratic in terms of when it occurs and as it comes through.

Ken Zerbe – Morgan Stanley: Then maybe just more, taking a more – a broader approach to the margin, I guess, when you think about like all the items in terms of what runs off, what doesn’t the resetting of your loan and security yields, pretty big drop in NIM under the 389, ex the cost recovery item, when you look forward over the rest of the year any reason to assume that might not fall as much as it, or sort of an outlook on NIM please?

John P. Barnes – President and CEO: Sure.

Kirk W. Walters – SEVP and CFO: I think, that drop – the drop this quarter was a little bigger than what we would expect to see in the third and fourth quarters, as we have given guidance throughout the quarter, we do expect third and fourth quarter to continue to trickle down partially because of the rundown on the FinFed accretion, and also the Danvers fair value amortization running off in the fourth quarter. But this quarter we did lose about 8 basis points on loan repricings, and another 5 basis points on the securities side, and I would expect the security side that we won’t be probably adding as much to that portfolio, as we go into the latter part of this year. So, you wouldn’t see the impact there. And on the loan side, we would certainly hope that that would slow down from the level we experienced this quarter.

Ken Zerbe – Morgan Stanley: Got you. But the 8 basis points you’re talking about on the loan side does not have to do with the acquisitions, that’s just purely on straight originated loans?

Kirk W. Walters – SEVP and CFO: That is strictly on originated loans. And remember, 40% of our loan portfolio floats, and as short LIBOR and short rates have come down, we unfortunately have that pain.

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