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People's United Financial (NASDAQ:PBCT)

Q4 2010 Earnings Call

January 21, 2011 11:00 am ET

Executives

Peter Goulding - VP, IR

Paul Burner - Chief Financial Officer, Senior Executive Vice President, Chief Financial Officer of People's United Bank and Senior Executive Vice President of People's United Bank

John Barnes - Chief Executive Officer, President, Director, Member of Executive Committee, Member of Treasury & Finance 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

Analysts

David Rochester - Crédit Suisse AG

Matthew Kelley - Sterne Agee & Leach Inc.

Collyn Gilbert - Stifel, Nicolaus & Co., Inc.

Mac Hodgson - SunTrust Robinson Humphrey Capital Markets

Christopher Nolan - CRT Capital Group LLC

Thomas Alonso - Macquarie Research

David Hochstim - Buckingham Research Group, Inc.

Bob Ramsey - FBR Capital Markets & Co.

Damon DelMonte - Keefe, Bruyette, & Woods, Inc.

Steven Alexopoulos - JP Morgan Chase & Co

Ken Zerbe

Operator

Good day, ladies and gentlemen, and welcome to the People's United Financial Inc. Fourth Quarter Earnings Conference Call. My name is Tuwanda, and I will be your coordinator for today. [Operator Instructions] I would now like to turn the presentation over to Mr. Peter Goulding, Vice President of Investor Relations for People's United Financial Inc. Please proceed, sir.

Peter Goulding

Good morning, and thank you for joining us for today's call. Jack Barnes, 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 1 of our presentation, which is posted on our website, www.peoples.com, under Investor Relations. With that, I'll turn the call over to Jack.

John Barnes

Thank you, Peter, and good morning, everyone. Thank you for joining us today. Before we go through the slides that we provided, I'd like to remind you that our objectives have been, and continue to be straightforward and twofold: To optimize existing business and to efficiently deploy the excess capital. I'm glad to be able to provide a number of details today regarding our progress against those two objectives.

Regarding our agenda today. First, we'll discuss our fourth quarter 2010 results and the primary revenue initiatives we have underway. Second, we'll have an update on the integration of our four acquisitions closed in 2010 and our de novo branches in downtown Boston. Finally, I look forward to speaking with you on about our Danvers Bancorp acquisition, and then we'll take questions.

Regarding growth, we're well-positioned versus the industry, in that we have a number of products and services that we can deliver to new markets to represent real organic growth opportunities for us. Now, we have to continue just to execute on that plan. In addition to those growth opportunities, we also remain significantly over capitalized, and intend to continue to look for well-priced acquisitions to better leverage our brand. Finally, we constantly evaluate the returns available to us via share repurchases.

On Slide 3, we've provided an overview of our fourth quarter results. Operating net income for the quarter was $36.7 million, or $0.10 per share, excluding $4.7 million, or $0.01 per share for one-time cost, primarily related to mergers.

Our net interest margin expanded by 12 basis points in the fourth quarter to 3.85% from 3.73% in the third quarter. Importantly, asset quality improved with net charge-offs declining 228 basis points from 57 basis points in the prior quarter. Our NPAs decreased in the fourth quarter to 2.07% from 2.18% in the third quarter. Our net loans grew by $221 million compared to the previous quarter.

On Slide 4, we reviewed key recent initiatives. Our acquisitions of the Bank of Smithtown and RiverBank, both closed November 30, and we are off to a great start. As expected, we opened both our Boston branches at the Prudential Center and at Milk Street by the middle of last month, and these branches are doing very, very well.

As of January 1, Jeff Tengel, who had joined us in the first quarter of last year, took over as Head of Commercial Banking business area as planned, following Brian Dreyer's retirement. Jeff has over 25 years of commercial banking experience. Most recently, he was at PNC, following PNC's acquisition of National City. At National City, Jeff was Executive Vice President of Corporate Banking and was a member of the executive management team. As you get to know Jeff, you're going to learn that he's an excellent relationship-based commercial banker with a strong understanding of all of our business lines.

During the fourth quarter, we repurchased $114 million of our common stock equal to 8.7 million shares through open market purchases at an average price of $13.08. Because these repurchases leave us with only 2.9 million shares remaining under the initial share repurchase authorization, our Board has also authorized an additional repurchase program for another 5% of our outstanding shares.

With that, I'll turn it back to Paul to provide you with details on the quarter beginning on Page 5. Paul?

Paul Burner

Thank you, Jack, and good morning to you, all. As Jack mentioned, our overall net interest margin expanded to 3.85%, up 12 basis points from the third quarter. The primary drivers were both an increase in asset yields, as well as a decrease in interest expense. We are pleased to have our deposit costs drop by another six basis points in the quarter to 64 basis points. I would expect the net interest margin to remain at the 3.85% level in 2011.

Moving on to Slide 6, the ratio of net charge-offs to average loans decreased in the fourth quarter to 28 basis points from 57 basis points in the third quarter. For the full year, charge-offs were 39 basis points compared to the 29 basis points in 2009. So for the fourth quarter, we are back to the lower 2009 levels.

On Slide 7, we're encouraged to have non-performers falling. You can see there are NPAs decreased by 11 basis points to 2.07% of originated loans and our REO.

Slide 8 shows an inflection point with respect to organic loan growth overall. Commercial loans grew $174 million from September to December, and residential mortgages grew $99 million.

Our core C&I and commercial real estate loans grew steadily throughout the year, but you'll recall we've been challenged by the continued residential mortgage runoff, which we began reversing in the second quarter of 2010. Our portfolio, overall, grew $221 million, and remains well-diversified. We continue to see strong portfolio growth within existing loan products, as well as opportunities to introduce new products.

Now, I'll hand it back to Jack to provide you with an update on acquisition integration activities, as well as details about our Danvers Bancorp acquisition announced yesterday.

John Barnes

Thank you, Paul. We're pleased with how our integration efforts are going, and I just want to give you some color.

On Slide 10, outlines are focused on driving revenue growth through the introduction of best practices throughout the franchise. We're rolling out the New Customer Experience on-boarding and retention-focused programs that have served us so well in building our industry-leading loyalty among retail customers in our Connecticut and Westchester County, New York markets.

We are also investing in our Retail Banking business with securities and life insurance licensing, as well as products and sales training, and the People's Securities brokerage model. Our near-term objective is to increase cross-sell levels by approximately 30% in the northern markets to match current levels in the southern markets.

Likewise, in Connecticut and New York, we are building our business banking and small business lending and deposit products and services, increasing our marketing of business services such as payroll processing, merchant services, and putting a strong emphasis on the Wealth Management business, especially in terms of Private Banking.

Slide 11 focuses on our integration of Financial Federal, which we've renamed People's United Equipment Finance, we call this transaction close last February. While portfolio loan balances are down, this business is not losing market share, rather, the market they sell into are depressed. These markets are primarily construction and to the lesser extent, transportation.

Recall that most of their business is repeat business. They're cautiously optimistic that we'll see an uptick during the second half of the year, as construction projects are let to spring and activity picks up. You'll recall that at the time of the announcement, we had expected no cost savings. In fact, we've been able to reduce operating expenses by 13%.

In Slide 12, provides an update on the integration of Butler Bank and RiverBank acquisitions in Massachusetts, as well as the progress at our de novo downtown Boston branches. We're pleased to see a 93% deposit retention rate since April 2010, closing of the Butler Bank transaction.

Conversion is scheduled for the first week in February, concurrent with the conversion of the RiverBank. Recall that these two franchises are adjacent to one another in the Merrimack Valley. Additionally, at RiverBank, we had announced the targeted cost savings of 30%, which we are on track to achieve. A meaningful portion of those cost savings will begin post-conversion in February.

We're also very pleased at our deposit gathering and lending referral activities at the Boston branches. These offices have been opened approximately one month, and deposits totaled $14 million, more than double our early expectations. The people that we've put in place in the Boston offices and our focus on service, as well as our local New England-based leadership positons, have led us off to a great start in those two offices.

Slide 13 illustrates our progress in the integration of the Bank of Smithtown. Our brand of banking focused on the customer experience is well-received in the Long Island for both the customer and the employee perspective.

We are building a de novo C&I business on Long Island, as senior C&I lender, with over 20 years of experience at People's United, has relocated to the market. We've also hired a seasoned banker from Long Island market.

With respect to the CREF business, our primary focus is on managing the existing portfolio. Our Long Island CREF team is led by another senior People's United banker , who already lived in Long Island. We've also hired four bankers from within the market to actively manage and grow that portfolio.

Finally, we've hired the head of workout for the Long Island, and are supplementing the in-market employees with experienced People's United workout professionals from the Bridgeport area. We're also reducing problem assets through loan sales where appropriate, very encouraged about the prospect of good pace of reaction on the problem loan side. Our Long Island systems conversion is scheduled for June. By the way, we'll finish our re-branding in Long Island in the months of February and March.

On Slide 14, we'd like to walk you through the details of the Danvers transaction.

Slide 15 outlines the strategic rationale of the transaction. Danvers provides People's United, New England's largest independent bank, with a significant presence in Boston, the region's economic hub. As you know, this has been a key strategic priority for us. People's United is pro forma of this transaction, the seventh largest bank in both Massachusetts and the Boston MSA. The 28-branched Danversbank footprint complements our contiguous footprint, from Worchester and Central Massachusetts, in through Boston and North to New Hampshire. The acquisition provides an excellent platform for commercial growth, as Danvers is a commercially-focused franchise, with 49% of its loan portfolio in C&I loans.

More over, Danvers has an excellent reputation in these markets, which is why we're excited to have Kevin Bottomley, the Chairman and CEO of Danversbank, join the People's United Financial Board of Directors. Kevin will provide strategic leadership for our Boston growth efforts.

The transaction exceeds our stated financial hurdles with an IRR greater than 15%, significant earnings accretion, and a tangible book value dilution earn back period of approximately 57 years.

Slide 16 illustrates our expanded and strengthened footprint in Eastern Massachusetts as a result of the acquisition, and highlights the area's strong demographic profile. As you can see, the median household income in the Danversbank footprint is very similar to the median household income within the legacy of People's United footprint.

As you can see on Slide 17, the transaction significantly enhances our market share position in Essex County, the Boston MSA and the state of Massachusetts.

Danvers Bancorp is, as Slide 18, illustrates a strong and healthy bank. Over 150 years old, it has more than $2.6 billion in assets, net loans of $1.7 billion, and deposits of over $2 billion. It also has a healthy net interest margin at 3.49% and very strong asset quality in the last 12 months charge-offs to average loans of just 16 basis points.

Slide 19 details the diversified loan portfolio funded by core deposits.

Slide 20 highlights the strong asset quality I mentioned earlier. As you can see, net charge-offs and NPAs for both Danvers and People's United are significantly lower than those of the top 50 banks.

Turning to Slide 21, you can see we are paying $23 per share in consideration of 55% stock and 45% cash. The consideration mix is a result of the deal negotiations. Danvers, as you'd expect, wanted to take a significant portion of deal consideration and stock, given their belief in the upside in the combined company. Like Danvers, we see upside in our stock too, and do not wish to issue a lot of stock at these levels. So this mix represents a compromise.

Targeted cost saves are 38%. If we exclude the 8% related to ESOP, SERP and restricted stock, which were higher than normal due to the fact that Danvers is a recently converted mutual holding company, the targeted cost saves becomes 30%, which is in line with the targeted cost saves at RiverBank. As I stated earlier, we are on track to achieve those cost saves.

Our 1.5% loan mark is a testimony to the high quality of the loan portfolio. Remember that trailing 12-month charge-offs are just 16 basis points. Danvers Bancorp shareholder approval and regulatory approval is needed. I would note that People's United Financial shareholder approval is not needed in this transaction. We expect the transaction to close in this year's second quarter.

On Slide 22, you can see the pro forma impact of the transaction. Transaction increases our assets by $2.6 billion and deposits by $2 billion, and adds 28 branches to our network. We also expect earnings accretion of approximately $0.08 per share, and as stated earlier, we expect to earn the tangible book value dilution back in seven years. We anticipate return on invested capital will be greater than 10%.

In summary, on Slide 23, we're excited about the growth and confident in our position. We operate from a position of competitive strength based on our premium brand, our strong credit culture and strong pool of talent in our employee base. We also benefit from the opportunities to deliver new products and services into new markets.

We have demonstrated our ability to efficiently deploy capital through acquisitions, and maintain a strong dividend policy and the willingness, ability to execute on the share repurchase programs.

Further, given the impact on competitors, the extended low interest rate environment, the multi-year deleveraging process and the increased regulatory pressures, we believe that other financial institutions will have interest in increasing pace in partnership discussions with us. We're very encouraged about the environment.

This concludes our presentation, and now we'll be happy to answer any questions that you have.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Steven Alexopoulos with JPMorgan.

Steven Alexopoulos - JP Morgan Chase & Co

If we look at the core deposit premium for the Danvers deal, are there [ph] many more open to you at that 14% or so deposit premium? When you look at what's open, or could they be higher, or lower than that? We will start there.

John Barnes

I would -- I'd say every deal is different, and if you're asking me if I expect deals to be definitely right in that area, I would say that we continue to be very focused on each deal and what kind of internal rate of return we're expecting from the opportunity. And we're very focused much more on returns and return on invested capital than deposit premium.

Steven Alexopoulos - JP Morgan Chase & Co

Jack, given what seems to be increase in regulatory pressure, on what I might call the traditional thrift model, looking at those capital liquidity, we might start to see more sellers there. I know what you bought so far have looked, even though they have had a thrift charter, more like a commercial bank, would you be interested if one of the these came up and it would look like a more traditional thrift?

John Barnes

Yes. I think we've said before, and we remain interested in some of the traditional thrifts. There are certainly many in our stated market area that would offer us very attractive increases in deposit franchise and footprint, and we would basically build off of that type of opportunity, expanding the various business lines that we have. I think we've said in the past, we can compare that to the history of People's United, and the fact that we did that here.

Steven Alexopoulos - JP Morgan Chase & Co

Final question, you said you're active with the conversations, are you seeing any change in the opportunities available to you from a size perspective?

John Barnes

I guess I would respond to that this way, if there's is a change since the last time we've talked, it would be that I've certainly had the opportunity to build more relationships and deepen relationships with those larger, potential partners, and I'm very encouraged by that.

Operator

Your next question comes from the line of Collyn Gilbert with Stifel, Nicolaus.

Collyn Gilbert - Stifel, Nicolaus & Co., Inc.

Jack, just kind of a follow-up on the some of the M&A questions. As you look kind of at your level of desirability, the potential returns, the potential supply of sellers, is the Boston MSA -- does that offer you, do you think kind of the best opportunity at this point from a geographic perspective?

John Barnes

No, I don't believe that's the case. It still offers us a very attractive opportunity, very much so. But again, I kind of go back to what we've talked about before, if you -- Long Island was a great opportunity, contiguous to our franchise, and there are opportunity, there are more opportunities in Long Island. And then we look at where we are in Westchester County and you start working your way west to Northern New Jersey and around the New York Metropolitan area, and we find all of those markets very attractive for us. So while we're very, very positive on Boston and very focused on realizing on the opportunities that we've created for ourselves there, we also are very optimistic about Long Island and the New York area.

Collyn Gilbert - Stifel, Nicolaus & Co., Inc.

And then just along those lines, too, the seven yearn back period on the tangible book dilution, how do you reconcile that? That just seems so long, and is that because just given the way the environment is today, I mean, realistically, is it really going to take you seven years to earn that back?

Paul Burner

We would like to think that it's going to be quite a bit sooner, Collyn, but it's about our discipline. We really haven't added revenue synergies into our model, and we believe there are revenue synergies to be had, which will significantly shorten the period. But again, from a model perspective, we chose not to do that.

Collyn Gilbert - Stifel, Nicolaus & Co., Inc.

So that's 7% is assuming no revenue synergies, whatsoever?

Paul Burner

Seven years, right.

Collyn Gilbert - Stifel, Nicolaus & Co., Inc.

And then just finally, kind of another question that relates to regulatory changes. Do you anticipate any push back at all from the change in regulators on your dividend payout ratio?

John Barnes

Well, I would say a couple of things. One, this deal obviously, now brings us to a spot where we believe we will have a high dividend payout ratio as it would stand, but we'll be earning our dividend and we continue to make progress in that direction. Our focus almost really, I would say, not almost but from every perspective, deploying capital and improving performance through acquisitions but also, everyday, we're working to improve earnings across the company with organic growth and initiatives in the business lines. So we're very focused on improving earnings, and we believe we can maintain the dividend payout at the level it's been, and grow earnings, so that the dividend payout ratio, over time, more, I'll say, normalizes.

Operator

Your next question comes from the line of Matthew Kelley with Sterne Agee.

Matthew Kelley - Sterne Agee & Leach Inc.

A question on the first half of the year before Danvers is integrated, what should we be looking out for expenses? So operating expenses in Q1 in Q2, kind of on a standalone basis with Smithtown and RiverBank baked in?

John Barnes

Well, as you know, there's a lot going on there. We've been laying out not only the acquisition activity and the staging in, if you will, of closings, but also the initiatives and the staffing up Smithtown with the lending team I described. I think we had announced taking on a warehouse lending team. So there is a lot of things going on that are impacting the expense levels, kind of through the year. And I don't know, Paul, if you would want to amplify that comment. But that's really the dynamics there. Right now, we do see a range that will probably settle down in the $2.10 to $2.20 range, at least for that first half of the year.

Matthew Kelley - Sterne Agee & Leach Inc.

And tax rate, is that going to change with these transactions getting baked in, or still 33?

Paul Burner

Yes. That works for our base businesses. It currently exists. It will probably come down a little bit for Danvers. But of course, Danvers will be in the second half of the year.

Matthew Kelley - Sterne Agee & Leach Inc.

And then on the Smithtown loans that you acquired when you announced the deal, they had $1.9 billion in loans, and you're booking $1.5 billion. I think credit mark was 10%, so what's happened kind of in the interim, if you can walk us through some of the dynamics, since you announced the transaction, what you've sold, imbalances and non-performers? Where that book of businesses moved since acquisition?

John Barnes

The outstandings, I think, are probably down a little bit. I don't know if you got a figure there. But it hasn't changed dramatically, just thinking of normal amortization. But this is the way I would describe that, on the -- kind of the performing book of business, I mentioned the lending team that's been established there to work with the folks in Long Island to maintain the business and begin to grow it. The performance on the original performing book has been very good. We have gotten to know the customers, the properties, most of them were CREF-related and the market, much, much better, and we're working to become closer to those relationships in the last, really, I'll say, six months, but certainly, since closing in the last month. And that's all gone very well. We're very encouraged by it. On the problem side, I mentioned a sale. We haven't done anything, or even -- we've begun to think about a bulk sale, but we haven't done certainly any bulk transactions. We have had a lot of interest in individual deals and properties from within the market. The New York market, in our view, is warming up nicely, and we're getting a lot of calls with interest that are encouraging for us. We've done a sale of one large problem loan that went very favorably for us and we have four or five that are actively in discussions. So at this point, because we're doing what we believe we're going to do well, we're pausing on a bulk sale because we think we'll get better results kind of one at a time, but we're actively looking at both approaches.

Collyn Gilbert - Stifel, Nicolaus & Co., Inc.

What's the dollar amount of the bulk sale, or potentially be, what's the largest you can think of...

John Barnes

On the bulk sale basis?

Matthew Kelley - Sterne Agee & Leach Inc.

Yes.

John Barnes

I really wouldn't wager a guess right now. I just think it would be misleading. We're not there, but I would say, we've got deals that are $2 million to $5 million. And if we do enough of those, we'll put a significant dent in the problem portfolio.

Matthew Kelley - Sterne Agee & Leach Inc.

And question for Paul, what was the final credit mark and rate marks on the Smithtown deal?

Paul Burner

The credit mark was right almost exactly what we said, 10.5% versus 10.4%. So it was almost exactly there, and the interest rate marks came in right on target. I might add after -- per your last question the $1.6 billion of Smithtown that we show on Slide 8, is right in line with our projections. In fact, with one month of operations, the earnings are coming in right on target there so, we do expect the portfolio to go down. As Jack talked about, our primary focus on commercial real estate is workout at the moment. There is no C&I, and that's going to go down before it increases, but that's how we've budgeted for this year.

Matthew Kelley - Sterne Agee & Leach Inc.

Do you have the dollar amounts of the credit and rate mark?

John Barnes

I just don't have that in the room at this time.

Paul Burner

You can follow-up with Peter, and we'll get it for you.

John Barnes

I would make just one other comment there, especially with our C&I team and commercial team. Commercial real estate teams in Long Island, working hard, we've got some commitments out already within the 30 days, and there is a tremendous amount of focus and opportunity on the ground, with the teams we have there. So we do expect while we'll get run off on the legacy CREF portfolio, we'll turn the corner. I don't think it will take us too long.

Operator

Your next question comes from the line of Damon DelMonte with KBW.

Damon DelMonte - Keefe, Bruyette, & Woods, Inc.

Paul, with regards to the EPS accretion expectation for the Danvers deal, does that assume any share repurchase from the 20 million shares or so, that will be issued?

Paul Burner

No, it does not.

Damon DelMonte - Keefe, Bruyette, & Woods, Inc.

And you had mentioned that the NIM range for the upcoming year, you'd expect it to kind of hold steady in the 3.80% to 3.85% range?

Paul Burner

Yes, we do.

Damon DelMonte - Keefe, Bruyette, & Woods, Inc.

And could you kind of talk us through the 12-basis point increase that we saw this quarter?

Paul Burner

Yes. It was really a combination of just what I said, increase in the asset yield, we did a little more investing and increased the duration of our investment portfolio just very slightly, a little heavier or a little bit of yield increase on the commercial portfolio, reflecting the changing mix in the portfolio, deposit rates, Bob D'Amore's retail team continues to be successful in lowering the cost of funds and keeping the positive inflows. We also, in the fourth quarter, unfortunately, we had $65 million of subordinated debt mature with a rate of 9 and 7/8%. So we're delighted to see that go. So really, just a combination of the two. And of course, as we work on getting our capital deployed, that'll be very helpful rather than earning 25 basis points on a portion we much rather earn the 10% ROIC that we get with an acquisition.

Damon DelMonte - Keefe, Bruyette, & Woods, Inc.

And then just lastly with regards to the IRR calculation you're projecting for Danvers, does that take into account any revenue synergies?

Paul Burner

It does not.

Operator

Your next question comes from the line of Bob Ramsey with FBR Capital Markets. Please proceed.

Bob Ramsey - FBR Capital Markets & Co.

I guess first of all is just sort of a follow-up on Damon's question about margin this quarter. I think the release also mentioned that there have been some benefit from the two acquisitions that closed. Could you kind of separate out of that 12 bps, what was legacy People's and what was related to the acquisitions? And then, with the acquisitions, is it the accretable yield, because I know both Smithtown LSBX had margins that were actually narrower than People's?

Paul Burner

I can answer broadly. As we disclosed, when we disclosed the acquisitions, there were interest rate marks. And interest rate marks do serve to widen the net interest margin of the acquired portfolios. So the margins are more normal to ours as a result of the marks, as compared to your observation that they've previously been skinnier. But in terms of the net interest margin, really don't have a breakout dissecting the two, and I prefer not to go there.

Bob Ramsey - FBR Capital Markets & Co.

And then, as you say, going forward, there's not any sort of full quarter benefit of those adjustments in the first quarter. You expect to a pretty stable margin, looking forward?

Paul Burner

I think it's going to be pretty stable, I mean, sort of the dynamic with the margin is, things are becoming a bit more competitive on the lending front. I think spreads are sort of holding up, but one advantage we had previously was we're able to get better floors up until, say, the last two or three months getting harder to get deals done with floors of 4% or 5%, whereas that was easier a few months ago. So that sort of really helped our portfolios, as repricing all the deals coming out of the floors. Nonetheless, with the overall mix from a budgeting perspective, we think the NIM for at least the next four quarters will hold in pretty steady where it is.

Bob Ramsey - FBR Capital Markets & Co.

And then, in terms of repurchases, I know you said that the EPS accretion number does not assume any repurchases. Is it your plan to repurchase the shares that are being issued for Danvers?

John Barnes

It's not a specific plan right now. Obviously, the board authorized the new program recognition that we wanted it available. We're back to looking at where the stock is trading and our other opportunities to deploy capital, and discontinuing to regularly talk about it, and determine whether or not it's a good course of action and transaction for us, and we're still on that track.

Bob Ramsey - FBR Capital Markets & Co.

And how does the black out period work ahead of Danvers, assuming -- could all buy back stock next week? Can you buy back in the second quarter? Or kind of when does the window close?

John Barnes

Well, we'll be allowed to buyback stock within the limitations of the rules, and then we'll be blacked out from the time that we issued the proxy until the shareholders vote.

Paul Burner

And because we have an acquisition announced, using stock, as part of the consideration, the rules will normally apply to stock repurchases, which is roughly 25% of the average monthly trading volume, but become a little more restrictive. And it's also limited to what we did the prior quarter. We did repurchase a good bit of the prior quarters, so those are the limitations.

Bob Ramsey - FBR Capital Markets & Co.

And then maybe one last question, I know you all are very asset sensitive and you do provide that disclosure in the slide deck, but the slides say the data is as of June 30, obviously, there have been a couple of acquisitions closed and Danvers announced since then. Could you provide us, sort of, with what the interest rate sensitivity of People's looks like today, pro forma for Danvers?

Paul Burner

We believe, we actually haven't done that. But as I look that their asset sensitivity, they're pretty well-balanced, and so I would not expect a significant change. I think it will stay pretty close to where we are.

Bob Ramsey - FBR Capital Markets & Co.

And that includes all, I mean, the two acquisitions you have done as well Danvers, all three, it should be similar to this number as of June 30?

Paul Burner

Correct. Let me just -- the June 30 number is $4 billion asset sensitive.

Bob Ramsey - FBR Capital Markets & Co.

What I'm looking at, I guess, is in percent. So 6% benefit with 100 basis points move, or 13% with 200.

Paul Burner

Yes.

Operator

Your next question comes from the line of Dave Rochester with Credit Suisse.

David Rochester - Crédit Suisse AG

Can you just talk about your willingness to sign more deals before the close of this transaction and perhaps, just building on Bob's question, maybe give some color as to how aggressive you want to be with buybacks? I mean, should we expect a large component of this plan to be completed by year-end?

John Barnes

So regards in willingness to engage in additional deals, you're asking before we closed Danvers?

David Rochester - Crédit Suisse AG

That's right.

John Barnes

Yes. Well, I think the answer is we certainly are. I think you have to look at our plan for integration and re-branding and system conversion. We'll have moved through the conversion of Butler and River in a couple of weeks. And we're really, very well along there on every other aspects of integration, really, just need to get the systems converted to finish that up. And then regarding Smithtown, we are actively engaged in all the other aspects of integration there in terms of the training of the folks, the re-branding of the branches. We've just talked in some length about the lending teams et cetera. So that June conversion of that will come quickly and it's already, obviously, received a lot of attention and we're basically, at this point, all green on that event. And so as we work through the next few months and continue our conversations with folks, I don't see any reason why we would hesitate at all.

David Rochester - Crédit Suisse AG

And just the second part of that, how aggressive should we expect you'll be with a buyback plan? And should we not be surprised to see most of that done by the end of the year?

John Barnes

No. I mean, I go back to the response I gave a short time ago. I think you've seen from the last few quarters that we're willing to use the authorization to buyback shares when we believe the stock is trading at a level that makes it logical. What kind of a pace we would use the program is very dependent on all the different dynamics.

Operator

Your next question comes from the line of Ken Zerbe with Morgan Stanley.

Ken Zerbe

Just a follow-up sort of on the earlier statements you guys made about the fact that you did not build in revenue synergies, which I understand. I mean, I don't think any of us built in revenues synergies either. But the comment was more about the fact that you expect the revenue synergies to materially shorten the earn back period on tangible book below the seven years. And I guess to me, that would imply that they would -- what you expect is quite material revenue synergies. I just want to be clear on that.

John Barnes

Well, I'll answer that. So I think when Paul was making the point that the opportunity is there to shorten the anticipated earn back period. So to be clear, in our model, we have given all of the assumptions that's the tangible book value, earn back period that we have put out there. We do see a tremendous amount of opportunity for revenue synergy in this deal, and we're very optimistic about it. But that said, we've got to execute and move through to closing and work with the management teams, and the people at Danvers and our own teams to realize on that. So it's not in the model, as appropriate, we're very optimistic.

Ken Zerbe

And is there something special about Danvers in terms of the size, or the amount of the revenue synergies, maybe you could give us an idea of sort of what areas you might be able to get these revenue synergies in?

John Barnes

Sure. If you look at Danvers in its commercially-oriented balance sheet and activity, they have several lending groups that are very active with customers that offer opportunities for larger exposures and a talented group in asset-based lending, where we believe we could do a lot more activity. And our scale and capital provides the opportunity to grow that business faster than it's been grown in the past. And we go back to the view of the Boston MSA and the Essex County, and the fact that the household income comparison to the Connecticut base and Fairfield County is very similar and we do very well in those environments. And we think that we can leverage our brand and approach to the customer on both the consumer and commercial side and do well.

Operator

And your next question comes from the line of Christopher Nolan with CRT Capital.

Christopher Nolan - CRT Capital Group LLC

Were there any shared national credits incorporated in the commercial real estate loan portfolio this quarter?

John Barnes

Sorry, I want to make sure we heard you, were there any shared national credits in what?

Christopher Nolan - CRT Capital Group LLC

Did you purchase any shared national credits this quarter?

John Barnes

No. Not if we close-- I believe the answer is no. We could make sure for you, if you like. But we certainly haven't had any -- looking at the lending guys, the answer is no.

Christopher Nolan - CRT Capital Group LLC

And I know $0.08 accretive to 2012 EPS. Any idea in terms of what the accretion or dilution is for 2011?

Paul Burner

We do expect accretion -- it's maybe a couple of cents, would sort of be my guess.

Operator

Your next question comes from the line of David Hochstim with Buckingham Research Group.

David Hochstim - Buckingham Research Group, Inc.

I wonder, could you give us a little color on what was driving the organic growth in commercial real estate and commercial business loans? Is there any sort of geographies that was looking better? Or any particular trends to customers? Any big credits?

John Barnes

Really, across the board in our core banking franchises and the core business groups, we just had some very nice steady progress, including additional business with existing customers along with acquiring some market share and new business. So there was nothing, certainly, in any strong way, that would say it was particularly in this geography, or in this business area. We had a strong pipeline in the third quarter as we had indicated, and we realized on a lot of it and close it.

David Hochstim - Buckingham Research Group, Inc.

And has that continued into January?

John Barnes

We do, yes. We're really pleased with our pipeline and where it stands now.

David Hochstim - Buckingham Research Group, Inc.

And then, could you tell us what should we expect in terms of the incremental merger, and I guess some branch-related one-time charges in the first half before Danvers? And when would the $44 million be recognized? Would it be the same $5 million, $7 million a quarter for these?

John Barnes

With regard to the $44 million, I mean, a good portion of that, I mean, there's a combination of -- those are transaction costs, but a portion is goodwill and a portion is to the P&L. We really didn't do an apportionment there, but a significant portion will be attributable to goodwill as compared to the non-operating. The non-operating in the first half preceding will continue.

Paul Burner

I'm actually -- just a shorter version of it.

John Barnes

Yes, I mean, there'll be some conversion expenses and maybe just a little residual eliminated[ph] that probably won't be material. I think maybe the better way, sort of answering it is, sort of sitting where we are. We're pretty comfortable with the estimates or the average of estimates that we see for next year.

David Hochstim - Buckingham Research Group, Inc.

And then can you just talk about how you think about investments in new branches and hiring new lending officers versus making an acquisition? If you wanted to grow in the particular market, how would you sort of compare, or evaluate those two options in terms...

John Barnes

Yes. We did that comparison in Boston. And as we -- we made a determination that given our franchise and our position in New England, and the fact that we were not represented in the Boston MSA, we wanted to go there. And we had been working on hoping to realize on acquisitions and the Butler, the River and now Danvers acquisitions have brought us a long way to achieving our goals there, and we hope for more. And we obviously, decided to do the two de novo branches in Boston to begin to establish the downtown Boston and a presence in the Boston MSA pending realizing any -- an acquisition opportunity. So in the process of doing that, we did announce this sort of what kind of pace we could realize in revenue and in earnings improvement from taking both the tasks. And clearly, the acquisition route is much more favorable to us. And I'm sure anyone, given the length of time it takes to establish scale in de novo branches.

David Hochstim - Buckingham Research Group, Inc.

So we shouldn't expect that you would go into another market -- if you're going to open branches it really be the same kind of thing, just the few, we wouldn't ever really think about opening 10 or 15 branches in the market trying to grow?

John Barnes

Well, I would say this, it's not -- it's nothing. It's not an initiative we're talking to you about. And it's nothing in our sights right now, but never say never.

Operator

Your next question comes from the line of Mac Hodgson with SunTrust.

Mac Hodgson - SunTrust Robinson Humphrey Capital Markets

I'm not entirely familiar with the Danvers story. Can you provide any color on their motivation to sell?

John Barnes

Well, I think that Danvers decided, in my conversations with the company, that very similar to the kind of general landscape that we've been talking about, though they had interest at a level that they felt was a good value for their shareholders and they look at challenging environment and they made a decision that the timing was right for them.

Mac Hodgson - SunTrust Robinson Humphrey Capital Markets

And on the tangible book value dilution earn back period of seven years, as you continue to look at opportunities for future deals in the future, what's kind of a maximum number of years you would take to earn back that dilution?

John Barnes

Well, we've been saying 10 years in our view is max, and we continue to feel that way.

Mac Hodgson - SunTrust Robinson Humphrey Capital Markets

And on the potential share buybacks, you mentioned you'll be blocked out from issuing the proxy to the shareholder vote. Could you help us out a little bit with potential dates for those two events? I know the closest was to be the second quarter.

John Barnes

We don't have them now, so we really can't help you out.

Operator

Your next question comes from the line of Tom Alonso with Macquarie.

Thomas Alonso - Macquarie Research

Just real quick, I guess, kind of following up on your prior commentary about the Boston market. Is it fair to assume that this kind of -- that the Danvers deal is -- it supersedes any other kind of plans that you would have for the Boston market? Or is this just additive to what you would have done there anyway?

John Barnes

Well, I guess, I'm not quite sure of the angle that you're taking in the question.

Thomas Alonso - Macquarie Research

So if -- you've stated that you needed to be in Boston, does this get you to where you need to be in that market? Or is there more that you need to do?

John Barnes

I think there is -- we're very much interested in doing more. This gives us the scale to really, operate off of this platform, along with our de novo branches and clearly, if you continue to look at our presence...

Operator

Ladies and gentlemen, this will conclude the time we have for questions. I'd now like to turn the call back to Mr. Goulding for closing remarks.

Peter Goulding

Thank you, again, for joining us today. We appreciate your interest and support of People's United. If you have any additional questions, certainly, feel free to contact me at 203-338-6799.

Operator

Thank you for joining today's conference. That concludes the presentation. You may now disconnect. Good day.

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