Operator: Good day, ladies and gentlemen, and welcome to the People's United Financial Incorporated Second Quarter Earnings Conference Call. My name is Eric. I will be your audio coordinator for today. At this time, all participants are in a listen-only mode. Following the prepared remarks, there will be a question-and answer-session. (Operator Instructions). As a reminder, the conference is being recorded for replay purposes.
I would now like to turn the presentation over to Mr. Peter Goulding, Vice President of Investor Relations for People's United Financial. Please proceed, sir.
Peter Goulding - VP of IR: Good morning, and thank you for joining us for today's call. Jack Barnes, Interim President and Chief Executive Officer; Paul Burner, our Chief Financial Officer; and other members of our management team are gathered for the call.
Before we get started, please remember to refer to our forward-looking statements on slide one of our presentation, which is posted on our website, www.peoples.com, under Investor Relations.
With that, I will turn the call over to Jack.
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: Thank you, Peter. Good morning again, and welcome to the People's United Financial second quarter 2010 earnings conference call. As you can see on slide two, this call has a dual purpose, both to outline our second quarter 2010 results and to provide detail on our two acquisitions announced yesterday.
On slide three, we provide an overview of our second quarter results. Operating net income for the quarter was $31.8 million or $0.09 per share, excluding $23.2 million pre-tax or $0.05 per share of one-time costs related to the former CEO's separation agreement, merger-related and systems conversion costs.
The quarter's results reflect continued growth in our core loan portfolios and deposits despite continued economic challenges. The margin increased to 3.68%, compared to 3.47% in the first quarter, primarily due to the full quarter benefit of the Financial Federal acquisition.
Net charge-off increased to $17.8 million or 46 basis points from 26 basis points in the prior quarter. Both non-interest income and non-interest expense are higher primarily as a result of the acquisition of Financial Federal and Butler Bank.
On slide four, during the second quarter, we made significant progress in our systems conversion project. In fact, this weekend, we will complete our core systems conversion, including our customers in Vermont, New Hampshire, Massachusetts and Maine markets. At the same time, we will be re-branding our branches in those markets to People's United Bank. We're pleased to have reached this milestone, which will provide instant recognition of the People's United brand from Maine to New York.
Additionally, we continue to focus on organic growth with two new locations expected to be opened in downtown Boston before year end. These branches will provide an important extension of our growing footprint in the Greater Boston area.
During the second quarter, we repurchased $52 million of our common stock equal to 3.7 million shares at an average price of $13.98. The repurchase program was affected through open market purchases. We will continue to evaluate the returns available to us via share repurchases relative to the rest of our capital deployment opportunities.
Finally, we have maintained our focus on becoming a preferred acquirer in the Northeast. We were pleased to announce yesterday our acquisitions of Smithtown Bancorp and LSB Corp., which we will discuss in greater detail later in this call.
With that, I'll hand it over to Paul to provide you with details on the quarter. Paul?
Paul D. Burner - SEVP and CFO: Thank you, Jack, and good morning to you all. As Jack mentioned, our overall net interest margin increased to 3.68%, up 21 basis points from the 3.47% in the fourth quarter. The core margin improvement was primarily due to the acquisition of Financial Federal as well as lower deposit cost. As a reminder, Financial Federal closed on February 19.
Respectively, we see additional opportunity for improvement. You'll notice on our June 30 balance sheet an increase in the available for sale securities, we are now more willing to temporarily deploy excess capital and short-term investments yielding more than the Fed Funds rate than we previously have.
This moderate change is in recognition that Fed Funds rate will likely remain low well into 2011. Investments to date have been concentrated in short-term agency debentures yielding approximately 90 basis points.
Moving on to slide six is unemployment remains high and the economy remains weak. We saw an additional increase in non-performing assets in the quarter.
NDAs increased to 2.01% from 1.74% of loans in REO. Compared to the first quarter average of our peer group and the top 50 banks, however, our ratio remains extraordinarily healthy and less than half their levels and we continue to feel comfortable with our asset quality in the current environment.
The acquisition of Financial Federal and Butler Bank serve to increase the NPAs to loan ratio over the last couple of quarters is the ratio includes their REO and repos.
Slide seven, net charge-offs in the Commercial and Equipment Financing segment increased to 92 basis points annualized for the quarter from 15 basis points last quarter. The difference is $8.4 million, which consisted of one C&I charge-off of $6 million and one equipment financing charge-off of $2.4 million, which are larger than normal individual charge-offs for these businesses.
On slide eight, you can see a breakout of our commercial real estate credit performance. Our NPAs continue to hold steady at 1.23%, while our net charge-offs dropped to 35 basis points annualized.
Our portfolio is well diversified and we believe we will continue to see strong portfolio growth opportunities.
Slide nine illustrates our residential loan credit performance. As you can see, our NPLs have increased to 3.4%. Non-performing residential mortgage resolution is taking much longer than previously as a result of a much slower foreclosure process in the course.
As you can see in the bottom chart, our loss content has been low, and we believe it'll continue to be low because we have low loan-to-values at origination, and because approximately 83% of our non-performing loans have loan-to-value ratios less than 90%, this just leaves $14 million of non-performing loans with loan-to-values greater than 90%. Given attractive spreads, we've again begun holding some residential mortgages in portfolio.
On slide 10 you can see our home equity NPLs continue to be low, our net charge-offs declined again in the quarter to three basis points and utilization rates are steady at 48%. We continue to feel this is an important part of our retail customer relationships.
Slide 11 reflects our charge-off experience over the past few years. We believe that the range over the last three to four quarters is consistent with the current weak economic environment, and slide 12 speaks to our competitive advantage overall in the industry with the chart to both asset quality and capital.
With that, I'll now hand it back to Jack to describe the acquisitions we announced yesterday.
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: Thank you, Paul. I am pleased to talk about these two transactions. Slide 14 illustrates maps which show that Smithtown Bancorp and LSB acquisitions announced yesterday support our stated acquisition strategy of growth in contiguous and near-contiguous markets.
Smithtown Bancorp is based on Long Island with $2.4 billion in assets and 30 branches. It operates as Bank of Smithtown and is the largest commercial bank headquartered on Long Island. We're excited about the attractive branch network situated in high traffic locations and equipped in most cases with multi-lane drive-ups.
We've also learned that the Bank of Smithtown employees' quality of training and commitment to their customers is very similar to our award winning customer service experience. In total, Smithtown represents a natural extension of our brand within the New York City metro area and is an excellent complement to our existing commitment to convenience and customer service.
LSB Corp., with $800 million in assets and seven branches operates as RiverBank, a commercial bank headquartered in North Andover, Mass. We've been impressed with the team at LSB and look forward to working with them as we grow the combined franchise.
LSB Corp. is an excellent extension of our commitment to the Greater Boston and Massachusetts markets and a logical next step forward in our Butler Bank acquisition, which closed in April. With respect to Butler, you should note that after three months, we are pleased to have retained 97% of our customer deposits, well ahead of our expectations despite aggressive competitive efforts.
We expect LSB and Butler in combination to be further supported by the opening of our two branches later this year in downtown Boston. The seven-day branch location in the Prudential Center and a large branch in the heart of the financial district, which will contain wealth management and commercial banking personnel, as the largest bank headquartered in New England, it's only natural for us to be actively growing in the largest city in New England.
Slide 15 provides some detail that we've just discussed. Slide 16, summarizes our rationale for expansion into these attractive contiguous markets. Most importantly, both deals exceed our internal financial hurdles. We expect a greater than 15% internal rate of return and significant EPS accretion. In addition, we expect tangible book value dilution to be earned back period of approximately five years.
On slide 17, you see an overview of both banks loan portfolios. As of March 31, Smithtown Bancorp had a loan balance of $2 billion, NPAs made up 10.3% of loans and over the previous 12 months, they charged off 1.8% of loans. We believe the 10.4% is a conservative estimate of our cumulative future loan losses.
For the same period end, LSB Corp. had a loan balance of approximately $500 million, NPAs made up 2% of loans and over the previous 12 months, they charged off 18 basis points of loans. We believe 3% is the conservative estimate of cumulative future loan losses.
The slide 18, Smithtown Bancorp has deposit balances of $1.9 billion and a cost of 1.7% and 58% of deposits are in checking, savings, and money market accounts. LSB Corp. has deposit balance of approximately $500 million and a cost of 1.8% and 55% of deposits are in checking, savings and money market accounts.
Given our strong retail and commercial banking model, we believe we will be able to significantly lower these deposit costs over time.
Slide 19 provides a summary of key terms of the transactions. Smithtown Bancorp and LSB Corp. shareholder approval and regulatory approval is needed. I would note that People's United shareholder approval is not needed for either of these transactions.
We intend to repurchase the shares being issued in conjunction with the Smithtown transaction, and we expect both of these transactions to close in the fourth quarter of this year.
Slide 20 outlines key metrics and assumptions. We believe this is conservative pricing as we are paying 0.5 percent times tangible book for Smithtown and 1.5 tangible book for LSB. You will note we are assuming a very achievable 15% cost savings for Smithtown and 30% for LSB.
On slide 21, you can see the pro forma impact. These transactions increased our assets by $3 billion and deposits by $2.5 billion and add 37 branches to our network. We also expect earnings accretion of approximately $0.10 per share. And as stated earlier, we expect to earn the tangible book value dilution back within five years.
In summary, on slide 22, we are confident in how we are positioned. We have a strong balance sheet with a pro forma tangible capital ratio of 15%. Moreover, we are beginning to execute on a strong opportunity set. We closed Financial Federal and Butler in the first half of 2010, announced the acquisitions of Smithtown Bancorp and LSB Corp., and our acquisition pipeline remains robust.
We continue to drive growth and profitability improvements within our core businesses and are integrating our closed and recently announced acquisitions. In addition, we constantly evaluate the returns available via share repurchases and dividend payouts.
This concludes our presentation. Now, we'll be happy to answer any of the questions you may have.
Operator: Steven Alexopoulos, JPMorgan.
Steven Alexopoulos - JPMorgan: Maybe I'll start, Jack, given the condition in Smithtown and the work required essentially to turn it around, does this take you out of the market for acquisitions for a period of time, whether the case where it's relatively small and you could be back in the market near term?
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: We definitely view it the second way you describe that Steve. Given our size and the experienced commercial staff and work out staff that we have, in our assessment of the portfolio, we were very confident that we can work with the folks at Smithtown to move thorough those issues in an orderly way and well within our resources.
Steven Alexopoulos - JPMorgan: Secondly, Jack, when you look at the pipeline of opportunities for M&A you talked about, do they look a lot more like Smithtown, where they require some work, but they are relatively cheap or they are more like LSB, and which do you prefer out of those?
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: I really think, they are all very different right, and I think that both types of transactions will be available. I think, as we've discussed in the past, there are some institutions that the economic cycle has hit harder. And they are out there working through their issues. There are also many open banks that are struggling with the existing challenges in the economic cycle to grow earnings and to deal with pending issues like Reg reform and more willing to talk to us than they may have been in the past.
Steven Alexopoulos - JPMorgan: Maybe just size of what might be in the pipeline. Is it similar to these two or any larger ones out there?
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: We really don't want to go to any specific descriptions at this point. I would say there is – they hit the range, if you will.
Operator: Ken Zerbe, Morgan Stanley.
Ken Zerbe - Morgan Stanley: Just talked about the rationale to some extent for doing a lot of small deals, because I guess the big concern, and what I mean by that is, the big concern is, can you effectively continue an acquisition strategy where it's a billion here, a billion there, because that's going to take a lot of time and a lot of resources to eventually re-deploy your excess capital or is somewhere in your plans the potential for a much larger deal that might be little bit easier to integrate than many small ones?
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: Really, what we want to be is opportunistic and we're certainly not boxing ourselves into $1 billion or $2 billion deals, and understand what you're looking at today. I guess I would reinforce that we believe there are opportunities through the range of the deal sizes that would be attractive to us and it's just a matter of continuing to work at that and seize the opportunities as they come up.
Ken Zerbe - Morgan Stanley: The other question I had just, if you think about Boston, maybe talk a little bit about your longer term strategy there? Obviously, two de novo branches is a good start, but it seems that you would need a little bit more or a lot more density in that market to be really successful?
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: Basically, I'd say, we agree with you. And we are working the approach to Boston in several ways. We love to acquire, if that possibility is developed, but if not, we intend to be in Boston and be very noticeable. We have a long-term presence on the commercial banking side already. And we think our brand recognition is just going to increase by the acquisition of LSB and being more active in the Greater Boston area. And we're considered a very important market to, as we said in the opening, to the largest bank headquartered in New England.
Ken Zerbe - Morgan Stanley: And the last question I had just on buybacks, maybe talk a little bit about your outlook or how aggressive or not aggressive you might want to be with using the capital for buybacks going forward?
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: Well, I guess I would address that by noting that, you see that we took action in the quarter to act under the authorized buyback plan. We will continue to examine where the stock is and the attractiveness of what we believe investing in the franchise offers. We've illustrated our willingness to buy back and I think you can take that as evidence that when we see those returns are attractive we'll act.
Operator: Bob Ramsey, FBR Capital Markets.
Bob Ramsey - FBR Capital Markets: Could you talk about how you think about tangible book value dilutions, sort of, what's acceptable? Is a five-year earn back period a good guideline for future deals? Is that the maximum/minimum that you'd like to take or kind of your approach?
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: Basically we are satisfied, if you will, with the five-year period. We think it's a good result. We generally view it depending on the opportunity and the type of deal that's somewhere in the range of up to 10 years, in some cases it might make sense. So I definitely wouldn't want folks to feel like if it's more than five week, we wouldn't entertain it. As we all know, each opportunity is different.
Bob Ramsey - FBR Capital Markets: You also mentioned that you all are again portfolioing resi mortgages in the portfolio. Could you just touch on, are these all variable rate or are you doing fixed rate? What sort of yield you are putting on at the margins?
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: Well, we're basically looking in the 4% range, plus or minus depending on – some of them are one-year arms. We've also got three one, five one, seven one products out there. We are holding some 10 ones and some 15-year fixed. So it's a mix across that range. We've got the products out there, and those customers that are looking at the more variable rate product we're looking to hold, and we're offering some of our commercial and wealth management customers jumbos that are underwritten to our standards, but priced and structured the way we would like them.
Bob Ramsey - FBR Capital Markets: So, where are you portfolioing say jumbo 15-year fixed?
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: Where are we portfolioing?
Bob Ramsey - FBR Capital Markets: In terms of yield, so is that at 4%, at 5%, at 6%?
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: Yes, most of them are in the 4% range.
Paul D. Burner - SEVP and CFO: Yes, it would have a 4%.
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: Yes.
Bob Ramsey - FBR Capital Markets: Maybe could you also touch on the securities purchases that you all made in the quarter, sort of what the average yield and type of securities that you all are putting in the portfolio?
Paul D. Burner - SEVP and CFO: Sure. Actually, I had mentioned in the remarks, the bulk of what we purchased were short-term agency securities and we're really getting to enhance the yield on the excess capital we've been holding rather than just having it sit at the bed, earning 25 basis points. We've got about a 90 basis point yield on approximately $600 million. So, it is doing things little bit more at the margin to improve the yield and we won't need that capital until the securities mature.
Bob Ramsey - FBR Capital Markets: Are you guys still considering assisted deals outside of the New England market or the Northeastern market or are you more now focused on staying in the Northeast?
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: So, we are definitely more focused on staying in New England, mid-Atlantic region, Northeast. We don't want to firmly exclude ourselves from an opportunity, but realistically, we don't see many of those coming up as we move forward, but if they do, we will look selectively at what might be out there.
Operator: David Hochstim, Buckingham Research Group
David Hochstim - Buckingham Research Group: I wonder if you could give us some color on what you saw over the course of the second quarter in terms of commercial loan demand, was there a meaningful change, good early and any weakness lately?
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: We have Brian Dreyer in the room and I'll ask him to speak to it for a minute, but I would say, generally there is a good flow, I'm laughing because week-to-week, the loan committee activity we do discuss and we've had some very busy ones and some are less so, but feeling pretty good all in all.
Brian F. Dreyer - SEVP, Commercial Banking: Sure. The amount of lending is being pretty brisk, but the utilization rates are lower, until the economy really gets going again we get those utilization rates up, you are not going to really see the earning assets, but we are putting on significant new customers. Commercial real estate finance, there have been lots of opportunities, and if you look at the ending balance, you'll see some – rather than the average balance, you'll see some pretty good growth there. There are really high quality deals with household names (indiscernible). So a kind of business that in the past we wouldn't necessarily see, we are seeing it now and we are booking it. Equipment finance starting to get some uptick in PCLC, had some good closing months, couple of good closing months in a row. We are feeling little better about it. Trucking is better. Transportation is better than it was in particular. Financial Federal has not had a robust growth, very difficult finding loans in their markets and they are concentrating on construction as you probably know. And though there just isn't that much equipment being purchased right now. So you can't force growth at the expense of the credit quality.
David Hochstim - Buckingham Research Group: And looking at that, I guess what you are describing seems to be an increase in demand, but would that be I think the economy is showing some signs of improving or are we seeing – I guess you have changes in the activity week to week? You are seeing a deterioration in the last few weeks or July looks worse than June?
Paul D. Burner - SEVP and CFO: Well, it's tough to say that one month is better than another month, but what I would say is that big business and big names are doing pretty well. Small business, micro business and even smaller middle market business there, these people are still very worried, very concerned about where the economy is going and where politics are going and where taxes are going. Until they feel more secure, I don't think you are going to see demand really pick up in the main street as they say. Big business, yes, small business, not so much.
David Hochstim - Buckingham Research Group: Then, just back to The Deal Pipeline question. I wonder, when you described some companies those kind of thinking or are being more interested in potentially talking to you because of the economic environment, the regulatory environment. Is that to say that the pipeline of deals in the Northeast has increased recently?
Paul D. Burner - SEVP and CFO: Particularly for commercial real estate, office buildings with really solid tenants, we've seen a good increase all of this year. It's been remarkable.
David Hochstim - Buckingham Research Group: Then, another, sort of, unrelated question separately on. Could you give us some estimate of do you think the Durban amendment would have effect of a couple of pennies a share and none, debit interchange gets reduced?
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: We're looking at that. We are not ready to say exactly what we think the impact will be until we understand exactly how the Fed develops the approach. We do expect it'll have some impact in and of itself. The question is what will we do to counteract it.
Operator: Christopher Nolan, Maxim Group.
Christopher Nolan - Maxim Group: The guidance for accretions from the acquisitions, does that include improvements in the deposit costs for Smithtown and for RiverBank?
Paul D. Burner - SEVP and CFO: It does include some improvement, but not a lot in the first year because one can't do a whole lot. We really want to get things converted and have them enjoy our customer experience before we make any dramatic changes.
Christopher Nolan - Maxim Group: So there maybe some upside to the accretion in the years beyond 2011, possibly?
Paul D. Burner - SEVP and CFO: Possibly.
Christopher Nolan - Maxim Group: Paul, any outlook on the margin for the second half of the year?
Paul D. Burner - SEVP and CFO: I think the big pop came as a result of the Financial Federal. I think we do have some room for improvement by little more actively addressing the – investing the excess capital is sort of one category I mentioned. And we saw our deposit cost drop a few basis points second quarter versus first quarter. We're getting good yields on the loans, the loan demand that Brian was talking about. So, I think we've got an opportunity for some marginal improvements, particularly as we continue to grow our loan portfolio.
Christopher Nolan - Maxim Group: The pickup is in net charge-offs for commercial is that related FIF or something else?
Paul D. Burner - SEVP and CFO: What I mentioned was, the area that popped was the commercial and equipment financing and went from 15 to 92 basis points. I highlighted for both C&I there was one $6 million charge-off and for equipment financing there was a $2.4 million charge-off. If you look at those two business segments they normally don't have charges-offs of that magnitude and I personally consider that is an anomaly. And because our absolute level of charge-offs have been so low historically that occasionally when we do take a charge or two it can blip things a bit. So, I think it's not that we've resetted to new level, it's just we took a couple larger than normal ones in those two business lines.
Christopher Nolan - Maxim Group: Then a final question. In terms of the progress for systems conversion, can we start seeing improvements in the operating expense base and/or the efficiency ratio?
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: I think we've addressed that in the past and continue to have the same view. We made some progress on that front in the first phase. This is completion on the final phase 2 and we'll start to see progress in the second half of the year and then into next year as we move through the transition to operating in one system and the new metrics around that pricing and settling the conversion and our efficiencies related to that.
Operator: (Sachin Shah), Capstone Global Markets.
Sachin Shah - Capstone Global Markets: Just wanted to find out as far as some of the regulatory approvals, what approvals are needed apart from the shareholder vote to get the deal completed? When you say the fourth quarter are you expected to complete -- the deal to be completed, any kind of timeframe for that?
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: The primary approvals are from the OTS on the regulatory front and Smithtown and LSB shareholders do need to approve. We would expect and hope that those events happen, October, November towards the – in the fourth quarter, and then we would move to close in that timeframe. That's the expectation.
Sachin Shah - Capstone Global Markets: Couple of questions I have about valuation, because for Smithtown, you're paying $60 million, which is lower than LSB. On a price intangible book it is lower than LSB. Although Smithtown is generating slightly better cost savings, at $2 trillion in loans, its $0.09 accretive in 2011. I'm just trying to understand the rationale, why you're paying lower than LSB? Is there something I'm missing here?
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: Well, there's a significant loan mark on Smithtown that relates to challenges that have existed in the portfolio, primarily around construction development lending that was hit hard in the downturn, and that has impacted that value.
Sachin Shah - Capstone Global Markets: So, it's still accretive. The loan mark is still there, but it's still going to be a lot more accretive than LSB and that's the reason why the lower valuation?
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: That's correct.
Sachin Shah - Capstone Global Markets: Just one final question about the background. I think you mentioned before about some of these companies coming to you, and you talked about the acquisition strategy going forward. Can you maybe talk about how this transaction came to beat both of these transactions? Did they approach you because of some of the challenges that they are seeing?
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: Well, I don't want to provide too much color. We'd say we're brought together with the management folks and investment bankers and things progressed.
Operator: Damon DelMonte, KBW.
Damon DelMonte - KBW: I was wondering if you could tell us with regards to the Smithtown acquisition, is there any protection in the event that credit quality deteriorates between now and when the time of the deal closes?
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: No, there isn't.
Damon DelMonte - KBW: Could you maybe walk us through of your due diligence process on that loan portfolio, just given the significant amount of stress that is under right now?
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: Could you just clarify that, I apologize?
Damon DelMonte - KBW: Yes. In your due diligence process to make a bid to acquire Smithtown, could you just kind of walk us through some of the exercises you all undertook in order to become comfortable with the loan portfolio?
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: Sure. I think as we indicated in the file, we did full due diligence, including extensive file review. We actually looked at a very high percentage of the dollars outstanding. We had a pretty large team to do that. Very familiar with the market, and we spend time in the market. We, basically, portfolio by portfolio broke down and built our mark that you see on the overall loan portfolio; varies by loan type as you'd imagine. We're very comfortable with where we landed.
Damon DelMonte - KBW: Also, you had indicated you intend to repurchase the shares that you'll issue in this transaction. Is that something that you would do in the open market? Or do you try to something in a form of a block trade?
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: Very likely to be open market.
Damon DelMonte - KBW: Are you eligible to begin repurchasing stock on Monday?
Paul D. Burner - SEVP and CFO: Our attorneys are reviewing that given our using some stock with Smithtown transaction. So, I haven't heard back on that. Our blackout for officers would normally be looked at on Monday.
Damon DelMonte - KBW: Then I guess, with regards to Reg E, which will take effect in mid-August, could you provide us with an update as to any expectation of lost fees?
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: Are you talking about the overdraft impact?
Damon DelMonte - KBW: Yes.
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: We've been in approximately the $10 million to $15 million range. It depends a lot on the response we're getting back in the opt-in issue and we're still moving through that. The response has been pretty good to date.
Damon DelMonte - KBW: I guess just lastly, Paul, could you give us a little perspective on the provision going forward, given that it was higher this quarter than last quarter?
Paul D. Burner - SEVP and CFO: I think, it feels as though our – we have hit or we are at or close to the high watermark, as it relates to NPAs. I think quarter-to-quarter, as I mentioned, we've eliminated at this time with sort of two particular names. We may have that one quarter or not another quarter type of thing. I'd say, overall, I feel very confident in our reserving level, where we are with regard to the economic cycle. I'd be surprised at this stage if we need to do any building. I might just add, I mean the credits we took we actually had specific reserves against the credits. It's just in this economic environment. It doesn't seem like the right thing to do, would be to pull down reserves by taking charges against the specific reserves.
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: Still got plenty of concern about the economic environment and we are, like everyone else, hopeful that we get into a growth environment and be it slow, but that said, we're very cautious about the outlook, but we will maintain our historic approach to that.
Operator: Mike Shafir, Sterne Agee.
Mike Shafir - Sterne Agee: I was just wondering specifically on the Smithtown transaction, it looks like the 10.4% mark, would it play to around $206 million on that loan portfolio, and with them reporting about $91.2 million in the most recent quarter of tangible common equity, as we think about kind of the math on that what kind of goodwill number is going to be created from this transaction?
Paul D. Burner - SEVP and CFO: It's going to be about $136 million.
Mike Shafir - Sterne Agee: Obviously, with the due diligence that you guys went through you feel like that adequately marked portfolio even though you are essentially wiping out all the equity at Smithtown or you are wiping out all the equity?
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: Correct. We said we are confident in the mark.
Operator: Collyn Gilbert, Stifel Nicolaus.
Collyn Gilbert - Stifel Nicolaus: Just to follow-up on reserve question, Paul. Could you just give a little bit of color as to what your outlook is for the equipment finance portfolio and the increase that we saw this quarter, and then maybe some color as to the specific reserves allocated to that portfolio?
Paul D. Burner - SEVP and CFO: We have just in terms of our own metrics, as it relates to equipment leasing, we obviously look at things very closely and we see sort of leading indicators in terms of the NPLs based upon our internal loan ranking. There was an increase. I mean that's really the category that increased a coupled with the resis. They accounted for about 50-50. I personally think we would expect – actually, let me step back, Brian, are you comfortable making any sort of comments on that or --
Brian F. Dreyer - SEVP, Commercial Banking: Not really. I don't want to predict future (process).
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: Collyn, we are watching it very closely. As we have done. I guess actually I am a little uncomfortable making forward-looking statements. I think we'll see where it ends up.
Collyn Gilbert - Stifel Nicolaus: Let me take it backwards then. Maybe I missed it. I didn't know if there was an indication last quarter, and maybe it didn't come up in the line of questioning that there was deterioration or you guys were expecting deterioration in equipment finance portfolio. This was a big jump on a linked-quarter basis and I am just trying to reconcile if that was kind of a one-off or if that's an industry trend?
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: No, no. I think it was more of a one-off. This is not problematic for People's United. I mean, this is just within sort of our loan mix. This is the one of the one's that's a little bit more elevated. In terms of the quarter, what was sort of unusual was to take a $2.4 million charge, which I mentioned, and that really caused a bit of a bump, not just in our equipment financing charge-off ratio, but it actually had an impact in terms of People's United's charge-off ratio. I am remarking on the $2.4 million. I think our lost content – we do a very good job of underwriting. I think our lost content on the non-performers continues to be low and our reserves against that portfolio are very, very strong.
Brian F. Dreyer - SEVP, Commercial Banking: The other thing you are seeing is, don't forget most of the year end statements come in, in that quarter. They are getting analyzed and things gets downgraded when those statements don't look very good. Sometimes they end up on non-performing.
Collyn Gilbert - Stifel Nicolaus: So Paul, when you kind of gave your more general views of credit, within that though would be clearly reflecting an outlook in equipment finance?
Paul D. Burner - SEVP and CFO: No, absolutely. I feel good with regard to credit overall. This is just one category that's a little more elevated, right.
Collyn Gilbert - Stifel Nicolaus: Then Jack, not to beat a dead horse on the Smithtown, but can you just give a couple of things? One is in terms of maybe when discussions were started with this bank, can you offer any color as to that?
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: Well, during the quarter, it moved along pretty fast, and can't exactly remember, but during the second quarter.
Collyn Gilbert - Stifel Nicolaus: And I'm not familiar with these guys too much, but just looking at the loans and obviously, you said the challenges that they ran into was on the construction, development side. Was it the structure of the loans with a specific geography, because the ratios relative to other banks in this market, we're not seeing them to be anywhere close to that, even on the construction and development side. So, just trying to understand what Smithtown was doing that led to this kind of deterioration.
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: Well, the portfolio that we're talking about is in Long Island, if you will. It is not out of territory or anything. It's a mix of land development, residential and commercial development loans that were impacted by the general economic environment in a variety of ways, right. I mean each loan is different. I would say the market itself, the real estate market in the development is Long Island. So, I am sure if they were similar developments in the market, they would have impacted by the cycle.
Collyn Gilbert - Stifel Nicolaus: Then just finally, in terms of the repurchases that you made this quarter the 3.7 million, were you needing to be out of the market for good portion of the quarter because of the negotiation with these two transactions, did that affect your ability to repurchase?
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: Well, it absolutely did, both in terms of the transactions and our windows.
Operator: (David Darst), Guggenheim Securities.
David Darst - Guggenheim Securities: Could you give us any other incremental changes that you plan within the current loan portfolio or FAGI, anything similar what you did with the extending the securities portfolio this quarter?
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: In terms of what we might do in the loan portfolio?
David Darst - Guggenheim Securities: Correct, are there any portfolios you'd like to focus on and maybe that are incremental changes today versus what you would have done last year?
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: Well, I think probably one area of focus that we are working on is the small business portfolio. We've had a long history of being very successful there. We've got some emphasis in new programs going on there. As Brian indicated earlier that is challenging in this economic environment, but we've such a strong customer base in that area that we want to leverage that. We're doing – we continue to do some club deals, and as Brian mentioned, the activity is encouraging as of late with high quality opportunities, but really all of those things we have done in the past and we are I would say always trying to advance our success and the efforts that we put into being successful, and that's ongoing.
David Darst - Guggenheim Securities: Could you give us any guidance on what the net interest margin assumptions are that you use for the earnings accretion?
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: I'm sorry.
David Darst - Guggenheim Securities: What were the net interest margin assumptions that you've used for the combined acquisitions for next year?
Paul D. Burner - SEVP and CFO: I actually don't have that in front of me. I mean we are expecting the kind of the net interest margin to widen, but I just don't have the details.
David Darst - Guggenheim Securities: Then from a repurchase perspective, are you implying that you will be consistently active in the market at some level rather than considering a large repurchase?
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: I think as we've said in the past, we're continually evaluating our approach to the repurchases and that's an ongoing thing. So, we're not putting or sticking to ground on any approach or any amount right now.
Operator: Mac Hodgson, SunTrust Robinson-Humphrey.
Mac Hodgson - SunTrust Robinson-Humphrey: One was on the two acquisitions, when I look at loan portfolios, both have pretty high concentrations in commercial real estate. I was wondering if you could just give any quick snapshot of what the mix is within CRE types of properties and things like that?
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: Do you want to address that?
Chantal Simon - EVP and CRO: Sure. For Smithtown, there was a mix of office buildings, mix use some retail condo, so kind of a general mix I would say. It is kind of (indiscernible) Long Island and New York City area. So you'd typically see there and so that's their kind of mix. They were the biggest commercial real estate portfolio that we bought.
Mac Hodgson - SunTrust Robinson-Humphrey: How much of the CRE was investor owned versus owner occupied?
Chantal Simon - EVP and CRO: I'm not sure I have that breakdown in front of me.
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: We don't have that detail brought into the room. That was Chantal Simon just elaborating, just to let you know who is answering. I think in both cases, our strong feeling was there are well-diversified mix of properties in markets that we know well. And we were very comfortable with the type of lending that was going on and the structure and the properties being lent again.
Mac Hodgson - SunTrust Robinson-Humphrey: Just one other question, given where the pro forma tangible common equity ratio is going down to 15% and just in light of the buyback and the decision of maybe add some stuff to the investment portfolio and things like that, how much excess capital do you feel the Company has on a pro forma basis that they can deploy?
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: Well, we were at our general range of talking about $2.5 billion and so we just committed to about 150. So it's in that area of 2.3.
Paul D. Burner - SEVP and CFO: We don't feel there is any absolute level that we can't deploy. I mean we are looking, considering a lot of things. We're also considering the merits of repurchases. If we were to repurchase more and want to do an acquisition that would necessitate a little more capital, we can just go ahead and raise it. That's the advantage of being a goodwill managed profitable bank. So it's not at all or nothing rationing type of exercise.
Operator: Rick Weiss, Janney.
Richard Weiss - Janney: I was wondering if there is anything that you saw in the Dodd-Frank bill that either presents kind of very onerous conditions for you to operate in or any kind of opportunities that you may see.
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: So the question was regarding the…
Richard Weiss - Janney: The Dodd-Frank bill.
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: The expected impact from the Dodd-Frank bill, we are most concerned about the impact and the interchange income that we enjoy from the debit card activity. On other fronts, we are concerned about how the consumer protection agency develops and what that might mean to our expense and our ability to deal with new regulation. For now, so much of it needs to be defined and the rules developed by the regulators that it's very hard to anticipate beyond that. There are certain things that don't impact us in anyway. So, those are the two key areas that we've been focused on.
Richard Weiss - Janney: Let me ask you this. I hope it's not too awkward, but I was wondering what the timing would be regarding the CEO in like a permanent position?
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: Well, the board has been working through that process as we had indicated, and so we've been looking at July, August as the conclusion to that. In my sense from the board recently is that things are moving along, so we'd expect something reasonably soon.
Operator: Ken Bruce, Bank of America Merrill Lynch.
Kenneth Bruce - Bank of America Merrill Lynch: It's interesting you go from almost a state of paralysis one quarter into a company that looks like it's in a hurry. You announced two acquisitions, share buyback, dividend increase, beefing up the securities portfolio, all actions which are obviously helping to deploy the excess capital. I guess, what I'm interested in is from your perspective what should investors expect in terms of a horizon for how long it will take to deploy the remaining $2.3 billion in excess capital? Is this going to be something where you're looking at a couple acquisitions a year and this could take some time or what your sense is as to the timing?
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: I think we are looking to be opportunistic and as we look over the horizon, couple of things kind of strike me in that question and the thought process. We, first of all, don't want to do a deal that doesn't make sense for us, and so we don't want to feel pushed or pressured to deploy the capital in a specific timeline. Second, we do believe that the type of deals that we're talking about today are attractive and move us along making progress towards the type of company and the level of performance that we hope to achieve. If something larger comes along that is a nice opportunity and is a good strategic fit for us, we'd be glad to look at it and we're working at it and we'd plan to keep doing that, but if it takes a little longer for all the right reasons, then that will be the timeline.
Kenneth Bruce - Bank of America Merrill Lynch: Just in terms of how you are looking at the share buybacks as an alternative against that acquisition backdrop, I mean how are you going to think through where you are willing to reinvest into the Company versus acquire?
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: Well, as we have demonstrated I guess this quarter, when the stock value gets to a point where we believe that it's the right investment then we're going to make it, and I think the Company has demonstrated that now, will be measured always in looking at that along with our other alternatives, and I think as Paul indicated, we're not concerned with not having excess capital, if you will, in the sense that we believe given our condition that we could raise capital if we need to. So it's all going to depend on how we progress through time.
Kenneth Bruce - Bank of America Merrill Lynch: Maybe lastly, of the $0.10 in accretion, you're expecting of these two deals, how much of that will be discount accretion?
Paul D. Burner - SEVP and CFO: Very little.
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: So I guess we can follow up with you with the details, but we don't think it's significant.
Kenneth Bruce - Bank of America Merrill Lynch: So of that mark, most of that is just expected loss in the portfolio?
John P. (Jack) Barnes - SEVP, CAO and Interim CEO: Right.
Peter Goulding - VP of IR: So thank you, again, for joining us today. We appreciate your interest in and support of People's United. If you should have additional questions, please feel free to contact me at 203-338-6799. Thank you all. I appreciate it.
Operator: Ladies and gentlemen, thank you for your participation in today's conference. This concludes our presentation. You may now disconnect and have a good day.