July 21, 2011

July 21, 2011

PEOPLE'S UNITED FINANCIAL REPORTS SECOND QUARTER NET INCOME OF $51 MILLION OR $0.15 PER SHARE; OPERATING EARNINGS OF $0.17 PER SHARE

Click here to see the second quarter Financial Schedule.

BRIDGEPORT, CT. – People's United Financial, Inc. (NASDAQ: PBCT) today announced net income of $51.2 million, or $0.15 per share, for the second quarter of 2011, compared to $16.0 million, or $0.04 per share, for the second quarter of 2010, and $51.7 million, or $0.15 per share, for the first quarter of 2011. Operating earnings totaled $57.3 million for the second quarter of 2011, compared to $31.8 million for the second quarter of 2010 and $53.8 million for this year's first quarter. As previously reported, People's United Financial completed its acquisition of Danvers Bancorp, Inc. on June 30, 2011, effective July 1, 2011. Accordingly, People's United Financial's second quarter and six month results do not include the results of Danvers.

The Company's Board of Directors declared a $0.1575 per share quarterly dividend, payable August 15, 2011 to shareholders of record on August 1, 2011. Based on the closing stock price on July 20, 2011, the dividend yield on People's United Financial common stock is 4.7 percent.

"Our performance this quarter continues to build on the momentum generated in the first quarter of 2011, reflecting another solid quarter of operating results, organic loan and deposit growth throughout our franchise, and encouraging overall trends in asset quality," stated Jack Barnes, President and Chief Executive Officer. "In fact, on an annualized basis, both loans and deposits increased 4 percent this quarter; our net interest margin remains above 4 percent; and our efficiency ratio continues to improve."

Barnes added, "In the second quarter, our originated commercial and retail loan portfolios increased $239 million, or 9 percent annualized, and $213 million, or 19 percent annualized, respectively. We also had another quarter of meaningful deposit growth in our legacy and de novo branch network. In addition, we successfully completed the Bank of Smithtown core system conversion and our efforts with respect to the Danversbank conversion, scheduled for early in the fourth quarter, are already well under way."

Barnes concluded, "We continue to evaluate opportunities to reduce our level of non-interest expenses and lower our efficiency ratio. As such, earlier this month we implemented several cost-saving initiatives, which included changes in certain retirement benefit programs and the elimination of selected positions, primarily within corporate functions, non-core lending businesses and the former Bank of Smithtown. We expect to realize annual cost savings of approximately $23 million beginning in 2012."

"On an operating basis, earnings were $57 million or 17 cents per share this quarter," said Kirk W. Walters, Senior Executive Vice President and Chief Financial Officer. "The Company's performance this quarter reflects an improvement in net interest income, continued positive results in our fee businesses and tighter expense control."

Walters continued, "The net interest margin increased 44 basis points in the second quarter of 2011 compared to last year's second quarter and, as expected, declined a modest 3 basis points from the first quarter of 2011. The decline in the net interest margin from the first quarter reflects repricing pressure within the loan portfolios, partially offset by an increase in investment income and a reduction in our cost of deposits."

Walters added, "Non-interest income this quarter continues to reflect improvement in most of our fee-based businesses as well as additional gains on sales of acquired loans, partially offset by weakness in insurance revenue and lower gains on sales of residential mortgages. The level of quarterly operating non-interest expense continues to remain below $200 million, despite the addition of the acquisitions completed in the fourth quarter of 2010, and our efficiency ratio improved to 65.7 percent."

Walters concluded, "While the overall level of non-performing loans is reflective of a period of prolonged economic weakness, we are pleased with the improvements noted over the past few quarters. The increase in originated non-performing loans this quarter is attributable to a single commercial real estate loan (with a remaining balance of $23 million) that was placed on non-accrual status this quarter. The decrease in the allowance for loan losses this quarter reflects a $6.0 million charge-off on this loan against a previously established specific reserve, partially offset by steps taken to increase the allowance for loan losses in light of continued strong growth in the commercial and residential mortgage loan portfolios. In addition, the decline of $74.0 million in acquired non-performing loans this quarter reflects our efforts to proactively reduce this portfolio through a variety of resolution efforts."

Loans acquired in connection with acquisitions have been recorded at fair value, including a reduction for estimated credit losses, and without carryover of the respective portfolio's historical allowance for loan losses. As such, selected asset quality metrics have been highlighted to distinguish between the 'originated' portfolio and the 'acquired' portfolio.

At June 30, 2011, the allowance for loan losses as a percentage of originated loans was 1.15 percent and as a percentage of originated non-performing loans was 68 percent, compared to 1.19 percent and 74 percent, respectively, at March 31, 2011.

For the originated portfolio, representing all loans other than those acquired, non-performing loans totaled $258.8 million at June 30, 2011, or 1.69 percent of originated loans, compared to $240.5 million and 1.62 percent, respectively, at March 31, 2011, and $219.7 million and 1.57 percent, respectively, at June 30, 2010. Excluding the $23 million non-performing commercial real estate loan discussed above, originated non-performing loans were 1.54 percent of originated loans at June 30, 2011.

Non-performing loans in the acquired portfolio, which represent the contractual balances of loans acquired that meet our definition of non-performing but for which the risk of loss has already been considered by virtue of our estimate of acquisition-date fair value and/or the existence of an FDIC loss-share agreement, totaled $250.4 million at June 30, 2011 compared to $324.4 million at March 31, 2011 and $359.8 million at December 31, 2010. During the second quarter, loans with a contractual balance of approximately $56 million (carrying amount of approximately $41 million) were sold at a gain of approximately $7 million. In addition, loans with a contractual balance of approximately $64 million were reduced by virtue of full or partial payoffs.

Non-performing assets (excluding acquired non-performing loans) totaled $315.4 million at June 30, 2011, up from $292.1 million at March 31, 2011 and $284.5 million at June 30, 2010. Non-performing assets equaled 2.05 percent of originated loans, REO and repossessed assets at June 30, 2011 compared to 1.96 percent at March 31, 2011 and 2.02 percent at June 30, 2010.

Second quarter net loan charge-offs totaled $15.5 million compared to $9.6 million in the first quarter of 2011. The previously mentioned commercial real estate loan, which carried a specific reserve, accounted for $6.0 million, or 39 percent, of this quarter's total loan charge-offs. Net loan charge-offs as a percent of average loans on an annualized basis were 0.35 percent in the second quarter of 2011 (0.22 percent excluding the aforementioned $6.0 million loan charge-off) compared to 0.22 percent in this year's first quarter. The provision for loan losses in the second quarter of 2011 reflects a $4.5 million increase in the allowance for loan losses related to the growth in the commercial and residential mortgage loan portfolios.

For the second quarter of 2011, the return on average assets was 0.82 percent and the return on average tangible stockholders' equity was 6.3 percent, compared to 0.84 percent and 6.4 percent, respectively, for the first quarter of 2011 and 0.29 percent and 1.7 percent, respectively, for the second quarter of 2010. Operating return on average assets was 0.92 percent for the second quarter of 2011, compared to 0.87 percent for the first quarter of 2011 and 0.58 percent for the second quarter of 2010. Operating return on average tangible equity was 7.1 percent for the second quarter of 2011, compared to 6.7 percent for the first quarter of 2011 and 3.4 percent for the second quarter of 2010. At June 30, 2011, People's United Financial's tangible equity ratio stood at 13.9 percent.

People's United Financial, a diversified financial services company with $28 billion in assets (pro forma with Danvers), provides commercial banking, retail and business banking, and wealth management services through a network of approximately 375 branches in Connecticut, Massachusetts, Vermont, New York, New Hampshire and Maine. Through its subsidiaries, People's United Financial provides equipment financing, brokerage and financial advisory services, and insurance services.

Conference Call

On July 21, 2011, at 5 p.m., Eastern Time, People's United Financial will host a conference call to discuss this earnings announcement. The call may be heard through www.peoples.com by selecting "Investor Relations" in the "About Us" section on the home page, and then selecting "Conference Calls" in the "News and Events" section. Additional materials relating to the call may also be accessed at People's United Bank's web site. The call will be archived on the web site and available for approximately 90 days.

2Q 2011 Financial Highlights

Summary

  •  Net income totaled $51.2 million, or $0.15 per share.

    • Operating earnings were $57.3 million, or $0.17 per share.

  • Net interest income totaled $221.2 million.

    • Net interest margin decreased 3 basis points from 1Q11 to 4.13%.

    •  Investment income increased $2.2 million from 1Q11.

    • The interest cost on deposits declined 1 basis point from 1Q11 to 58 basis points.

  • Provision for loan losses totaled $14.0 million.

    • Net loan charge-offs totaled $15.5 million or 0.35% of average loans.

  • Non-interest income totaled $76.6 million in 2Q11 compared to $74.6 million in 1Q11.

    • Bank service charges increased $1.9 million in 2Q11 to $32.9 million.

    •  2Q11 and 1Q11 include $7.2 million and $5.5 million, respectively, of net gains on sales of acquired loans.

    • Net gains on sales of residential mortgages declined $2.0 million from 1Q11.

  • Non-interest expense totaled $207.0 million in 2Q11 compared to $202.8 million in 1Q11.

    • Operating non-interest expense totaled $197.8 million in 2Q11 compared to $199.7 million in 1Q11.

    • 2Q11 and 1Q11 include a total of $9.2 million and $3.1 million, respectively, of merger-related expenses and one-time charges

  • Effective income tax rate was 33.3% in both 2Q11 and 1Q11.

People's United Financial, Inc. Reports 2Q Earnings

Commercial Banking

  • Excluding acquired loans, commercial banking loans increased $239 million, or 9% annualized, from March 31, 2011.

    • Average commercial banking loans totaled $12.7 billion, an increase of $227 million, or 7% annualized, from 1Q11.

  • Non-performing commercial banking assets, excluding acquired non-performing loans, totaled $220.7 million at June 30, 2011, up from $192.2 million at March 31, 2011.

    • A single commercial real estate loan accounted for $23.3 million of the increase.

  • The ratio of originated non-performing commercial banking loans to originated commercial banking loans was 1.71% at June 30, 2011 compared to 1.54% at March 31, 2011.

  • Net loan charge-offs totaled $13.2 million, or 0.42% annualized, of average commercial banking loans in 2Q11, compared to $6.8 million, or 0.22% annualized, in 1Q11.

    • 2Q11 net loan charge-offs include $6.0 million related to a single commercial real estate loan.

  • For the originated commercial banking portfolio, the allowance for loan losses as a percentage of loans was 1.55% at June 30, 2011 compared to 1.61% at March 31, 2011.

  • The commercial banking allowance for loan losses represented 91% of originated non-performing commercial banking loans at June 30, 2011 compared to 104% at March 31, 2011.

Retail and Business Banking

  •  Excluding acquired loans, residential mortgage loans increased $187 million, or 30% annualized, from March 31, 2011.

    • Average residential mortgage loans totaled $2.9 billion, an increase of $151 million, or 22% annualized, from 1Q11.

    • The ratio of originated non-performing residential mortgage loans to originated residential mortgage loans was 2.47% at June 30, 2011 compared to 2.84% at March 31, 2011.

    • Net loan charge-offs totaled $1.2 million, or 0.16% annualized, of average residential mortgage loans in 2Q11, compared to $1.6 million, or 0.23% annualized, in 1Q11.

  • Excluding acquired loans, home equity loans increased $23 million, or 5% annualized, from

  • March 31, 2011.

    • Average home equity loans totaled $1.9 billion in 2Q11, unchanged from 1Q11.

    • Net loan charge-offs totaled $0.8 million, or 0.17% annualized, of average home equity loans in 2Q11, compared to $0.8 million, or 0.16% annualized, in 1Q11.

Wealth Management

  •  Investment management fees and brokerage commissions both increased slightly from 1Q11.

  • Insurance revenue decreased $1.3 million from 1Q11, primarily reflecting the seasonal nature of insurance renewals and the continued soft insurance market, and increased $0.3 million from 2Q10. 

  • Assets under administration and those under full discretionary management, neither of which are reported as assets of People's United Financial, totaled $12.8 billion and $4.3 billion, respectively, at June 30, 2011.

Certain statements contained in this release are forward-looking in nature. These include all statements about People's United Financial's plans, objectives, expectations and other statements that are not historical facts, and usually use words such as "expect," "anticipate," "believe" and similar expressions. Such statements represent management's current beliefs, based upon information available at the time the statements are made, with regard to the matters addressed. All forward-looking statements are subject to risks and uncertainties that could cause People's United Financial's actual results or financial condition to differ materially from those expressed in or implied by such statements. Factors of particular importance to People’s United Financial include, but are not limited to: (1) changes in general, national or regional economic conditions; (2) changes in interest rates; (3) changes in loan default and charge-off rates; (4) changes in deposit levels; (5) changes in levels of income and expense in non-interest income and expense related activities; (6) residential mortgage and secondary market activity; (7) changes in accounting and regulatory guidance applicable to banks; (8) price levels and conditions in the public securities markets generally; (9) competition and its effect on pricing, spending, third-party relationships and revenues; (10) the successful integration of acquired companies; and (11) possible changes in regulation resulting from or relating to recently enacted financial reform legislation. People's United Financial does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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