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People’s United Financial Inc. (NASDAQ:PBCT)

Q2 2008 Earnings Call

July 18, 2008 11 am ET

Executives

Philip Sherringham – Chief Executive Officer, President and Interim Chief Financial Officer

Analysts

Damon DelMonte - KBW

James Abbott - FBR Capital Markets

Collyn Gilbert - Stifel Nicolaus

Richard Weiss - Janney Montgomery Scott

Alexander Twerdahl – Sandler O’Neill

Ken Zerbe - Morgan Stanley

Operator

Good day, ladies and gentlemen, and welcome to the People’s Bank second quarter earnings conference call. My name is Michelle and I will be your coordinator for today.

At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions) As a reminder this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today’s call, Mr. Philip Sherringham, President, CEO and Chief Financial Officer of People’s Bank.

Philip Sherringham

Yes, good morning everyone. Old habits die hard; it’s not “People’s Bank” of course. So welcome to the second quarter 2008 earnings conference call of People’s United Financial.

I am Philip Sherringham, President and CEO and also the company’s Chief Financial Officer; but thankfully, not the latter for too much longer. I’m sure you’ve all seen our announcement about naming Paul Burner our Chief Financial Officer and I am very pleased that he is joining us.

Paul is a talented and seasoned executive who was most recently Chief Financial Officer of Citibank North America. I strongly believe that he will contribute his tremendous energy and drive to our leadership team.

With that I’m now pleased to discuss our second-quarter results. Before I begin I’d ask you as usual to please be sure to read the important disclosure statements on slide 2 at your convenience, as you know by now, we are going to make some forward-looking statements.

Let’s move on to the highlights for the second quarter on slide 3. Net income in the quarter was $43 million or $0.13 a share. Return on tangible assets was 91 basis points compared to 41 basis points for the second quarter of 2007.

Margin compression slowed significantly in the second quarter with the net interest margin at 3.56%, a decrease of 11 basis points or 3% from the first quarter of this year. That compares to a decrease of 34 basis points or 8.5% between the first quarter of this year and the fourth quarter of 2007.

The continued compression is, as I discussed last quarter, largely a function of the highly asset sensitive $2.5 billion in excess capital invested short term. I will address this in greater detail later in the presentation.

A 12% annualized sequential decline in non-interest expense from the first quarter excluding one-time items reflects the partial benefit of the cost reduction initiatives we announced in March.

I’d now like to take a moment to provide some perspective on the quarter. Two themes characterize the second quarter at People’s United in sharp contrast to the current situation in the broader financial services sector. First, continued solid asset quality and second our strong capital position.

As to asset quality, net loan charge-offs for the quarter remained exceptionally low at 7 basis points of average loans on an annualized basis, compared to 8 basis points in the first quarter.

There was an increase in non-performing assets in the second quarter; more than two-thirds of this came specifically from Community Bank & Trust of Wolfeboro, New Hampshire, which the former Chittenden Corporation acquired just prior to us acquiring them.

This was also the case with increase in non-performing assets in the first quarter. At this point, 25% of our total non-performing assets come from that one franchise. Other than that, we continue to see a solid portfolio overall with no cracks in the foundation.

As for our capital position, we have consistently stated that one of our top priorities is judicious management of our $2.5 billion excess capital. Our short-term positioning of this capital provides substantial liquidity and flexibility as we continue to explore opportunities for appropriate acquisitions. It is, however, extraordinarily asset-sensitive as I just mentioned.

As you’ll recall, we approved a share repurchase program during the quarter. I have not bought back any shares at this time. We continue to assess the extreme volatility of the equity markets, the changing outlook for the economy and the prospects for making opportunistic acquisitions, especially as the first two factors continue to shape the marketplace.

We constantly weigh our options to determine the most attractive use of capital to deliver long-term shareholder value, and at the moment, we do not feel it is appropriate to repurchase shares.

On slide 4, let’s look at some detail in our average earning assets. While total earning assets decreased $458 million to $17.8 billion from the first quarter of the year, we continued to grow our commercial loans by $148 million or 7% on an annualized basis.

Total earning assets increased $5.3 billion from the second quarter of 2007, the net result of the Chittenden Corporation acquisition.

Slide 5 highlights the dramatic increase of the commercial portfolio as a percentage of total earning assets in the second quarter of 2008 compared to the year-ago quarter.

Home equity and other loans grew from 10 to 11% as a whole, while residential mortgages declined 8% as a result of our intentional run-up of these loans and the lower proportion of mortgages in the former Chittenden portfolio.

Short-term investments for the quarter also decreased to 19% from 27% in the second quarter of last year as we liquidated $1 billion to fund the Chittenden Corporation purchase.

Slide 6 provides a detailed breakout of our commercial portfolio and its commercial real estate components. We delivered annualized sequential quarterly growth of 12% in C&I and 18% in our People’s Capital and Leasing Corp. equipment financing portfolio during the second quarter. Year-over-year growth of $4.6 billion or 108% reflects again the impact of the Chittenden acquisition.

As expected, our Shared National Credit portfolio balances began to decline during the quarter, reflecting our decision to unwind this portfolio over the next two to three years. Again I’d like to emphasize that our Shared National Credits portfolio has performed and continues to perform exceptionally well.

The Commercial Real Estate portfolio, which comprises just over half of the commercial total, is well diversified, as you can see. Residential developments, comprised primarily of construction loans, represent only 18% of commercial real estate, or just over 9% of the total commercial portfolio.

Now to slide 7 which breaks down our construction portfolio. At $944 million, it represents less than 7% of our total portfolio. Nearly half of the construction portfolio is in non-residential loans. Within the Shared National Credits portfolio, the three states with the largest concentration are Washington, New York and Florida. Florida at this point represents only 5% of this portfolio.

As you can see on slide 8, asset quality trends in our commercial loan portfolio continue to be very stable. Net charge-offs remain low this quarter at 6 basis points, and while we saw some increases in non-performing assets, this was, as I said earlier, largely limited to three commercial relationships in northern New England.

Slide 9 provides detail on our $5.5 billion consumer portfolio, which as you can see, remains very strong with weighted average LTVs only slightly over 50% and high FICO scores.

Asset quality measures remain correspondingly strong for the quarter. Notably, charge-offs were negligible in the residential and home equity portfolios. Non-accruals were likewise quite low at 52 basis points and 16 basis points for the residential and home equity portfolios, respectively.

As you can see on slide 10, this isn’t a one-time event; we’ve had outstanding asset quality levels for quite some time now.

Now on slide 11, we move to the liability side of the balance sheet with a look at the average funding mix. As I have noted in previous quarters, our loans are fully funded by deposits and stockholders equity.

This provides us with low cost fundings as you can see here. In fact, our total deposit costs of 1.8% this quarter represented a decline of 44 basis points from the first quarter of the year.

We intentionally decreased our money market deposits by $234 million or 4% moving these funds from trust money market accounts in northern New England to an outside investment manager.

This decision enables us to remove certain assets and liabilities from our balance sheet, as we’re generating only marginal spread thereby resulting in improved ROA while adding fee income.

Turning to the income statement on slide 12, you can see that net interest income was $157 million for the second quarter, down 5.6% from the first quarter, as the Fed’s further rate reduction of 25 basis points in April continued to negatively affect our short-term investments.

The provision for loan losses this quarter declined $5.9 million from last quarter. As you may recall, the first quarter included a $4.5 million additional provision to align reserve methodologies across the combined organization.

Slide 13 breaks out the impact of our excess capital position on the margin in the first and second quarters of this year. The less asset sensitive core bank margin increased 5 basis points in the second quarter to 3.80%, which is due to the fact the deposit repricing caught up with faster repricing assets.

As you can see, however, the extraordinary asset sensitivity of the excess capital has a significant impact on the blended margin which declined 11 basis point in the second quarter to 3.56%. As I mentioned earlier, the rate of margin compression has slowed substantially.

On slide 14 we see that non-interest income in the second quarter decreased $8.9 million from the first quarter. This is mainly due to the fact that the first quarter included $8.5 million in security gains.

You’ll recall that we recognized a $6.9 million gain from the VISA IPO in the first quarter. Trust fees increased 8%, while insurance revenues decreased about 11% from first quarter levels due to a soft insurance market.

As you can see on slide 15, non-interest expense excluding one-time items declined $5 million from the first quarter. The reduction is due in part to lower compensation and benefits expense as a result of cost saving initiatives announced earlier this year.

To reduce complexity and risk while at the same time lowering costs, we are consolidating the charters of the six northern New England banks that are currently subsidiaries of People’s United Bank.

The consolidation, which will result in incremental cost savings that are in the process of being determined, will become effective on January 1, 2009, and at that point, the banks will continue to operate as divisions of People’s United Bank.

Slide 16 illustrates our monthly progress toward expense reduction in the second quarter. The benefit of the cost savings initiatives will continue as we close branches throughout the remainder of this year.

Additionally, as I just mentioned, the charter consolation and eventually the systems integration will reduce expenses in 2009. So expenses are moving in the right direction and we remain confident that we’ll attain the $57 million annualized savings we announced in March.

The efficiency ratio increased to 66.3% for the second quarter compared to 65% for the prior quarter. The increase in efficiency ratio remains revenue driven and reflects the impact of lower rates on our short-term investments.

The net impact of the Fed’s rate reduction reduced net interest income by $8.3 million in the second quarter compared to the first, which increased the efficiency ratio by approximately 230 basis points.

To conclude, I’d like to re-emphasize my points from the beginning of this presentation. Our solid capital position and strong asset quality clearly set us apart at this point from the rest of the sector.

Again, as I stated previously, our areas of focus are very clear: the successful integration of Chittenden, continued emphasis on improving financial performance, and effective management of capital.

By maintaining this focus, we believe we will be well positioned to deliver the level of shareholder returns that we believe our franchise performance warrants. In fact, our balance sheet remains stronger than most. We’ve raised our dividend in the second quarter for the 16th year in a row and we have more strategic options than most.

This concludes my review of this quarter’s results and now I’d be happy to answer any questions you may have.

Question-and-Answer Session

Operator

Your first question comes from the line of Ken Zerbe - Morgan Stanley.

Ken Zerbe - Morgan Stanley

Thanks. First of all, did you mention how much excess capital that you currently have?

Philip Sherringham

Yes. It’s approximately $2.5 billion. And that number, of course, is a function of your target capital ratio at the end of the day. So it can vary a little bit depending on what your assumptions is there; but it’s between $2.5 and $2.7 billion.

Ken Zerbe - Morgan Stanley

Okay, great. In terms of an acquisition, first of all, could you just remind us how large of an acquisition would you consider, and related to that, would you try to use, call it most of your excess cash, or would you consider doing a cash and either an equity or debt issuance as well?

Philip Sherringham

That’s very much a function of the specific situation. What I’ve said in the past, Ken, is that when it comes to acquisitions, larger in my mind tends to be better because it’s more efficient.

Now how large obviously is a function of excess capital. So you can do your own math on that. I’m not necessarily looking for one super-large acquisition that would leave us with 10 years’ capital levels.

In fact that’s probably not necessarily what I want to do anyway. But again, we could do a fairly large one, we could do a number of smaller ones. One has to be opportunistic when it comes to that.

Ken Zerbe - Morgan Stanley

Okay, great. Just a quick one on expenses. Were there any severance restructuring charges in your expense line this quarter to get to the 163 or is that a good quarter run-rate aside from the expense reduction issues?

Philip Sherringham

Most of the severance expenses we took in the first quarter, there may be even some negligible levels of that in the second quarter. But keep in mind that we announced the cost saves through the end of the first quarter, and full month of April essentially. The level of expenses was not affected at all by the cost saves. All employees that were terminated got at least 30 days of severance.

The way to think about is that the second quarter only reflects about two-thirds practically speaking of the expense cuts we announced, and even then it does not reflect the further savings that will come from closing branches. As you know, closing branches takes more time. That’ll happen throughout the year.

Ken Zerbe - Morgan Stanley

Okay. Great, thank you very much.

Operator

Your next question comes from the line of Mark Fitzgibbon - Sandler O’Neill.

Alexander Twerdahl – Sandler O’Neill

Actually this is Alex Twerdahl from Sandler O’Neill. My first question is, you went over it kind of quickly; you said that two-thirds of the growth of non-performing assets came from Community Bank & Trust, or is it two-thirds of total non-performing assets?

Philip Sherringham

It’s two-thirds of the growth in the second quarter from first quarter levels, and at this point what I said was as a result of this, 25% of the total non-performers come from Community Bank & Trust.

Alexander Twerdahl – Sandler O’Neill

Okay. Is there any systemic issue up there that we should be worried about, or is there anything being done to curb this trend?

Philip Sherringham

Obviously we’ve been combing this portfolio with a fine-toothed comb. By the way I want to remind you, this portfolio totals only about $350 million and we got about $21 million of non-performers out of $350 million, so you can see it’s not exactly what I’d call great.

At this point we feel that whatever needed to be non-performing is in non-performing status in this portfolio. By the way if I may say one thing about this, this is, at this point, the exception.

Alexander Twerdahl – Sandler O’Neill

Okay.

Philip Sherringham

Keep in mind this was the last bank that Chittenden acquired prior to us acquiring them.

Alexander Twerdahl – Sandler O’Neill

And there are no other cracks in the Chittenden mortar?

Philip Sherringham

No; nothing significant.

Alexander Twerdahl – Sandler O’Neill

Then, with respect to expenses. How much of the cost synergies did you recognize in the second quarter from Chittenden; if you could give a dollar amount to that?

Philip Sherringham

The cost synergies for Chittenden are going to be spread out over a fairly long time. The $57 million savings program we announced earlier in the year was basically across the entire franchise, not particularly specific to Chittenden.

The Chittenden-specific saves will come primarily going forward from the systems integration, and that will happen only sometime in 2009. At this point the reduction you saw was a blended number across the franchise, and again the point I made earlier is important is that we only saw the beginning of that in the second quarter; the month of April was not affected at all.

Alexander Twerdahl – Sandler O’Neill

Great, thank you.

Operator

Your next question comes from the line of Rick Weiss - Janney Montgomery Scott.

Richard Weiss - Janney Montgomery Scott

I was wondering if I could follow up on the M&A question and what are your thoughts? Do you believe as a result of the challenges facing the banking world, will there be more opportunities? Are you seeing or hearing of anything right now?

Philip Sherringham

Obviously I can’t be specific, but the only thing I’d say at this point, it seems to me that the market has to adjust to lower valuations. Seller expectations are not necessarily in line with those, which may make things actually more difficult to complete in the short run.

Richard Weiss - Janney Montgomery Scott

Okay. Second, if you could talk about how the lending environment is in your market areas? Are people still wanting to borrow money? And pricing competition for loans?

Philip Sherringham

It’s a two-speed story, if you will. If you look at our franchise, let’s start with the New York and Connecticut piece, if you will, things here are actually pretty good. Particularly on the commercial lending side, we’re seeing very good volume, very good activity, very good deal flow.

What’s happened there – and you may have heard this from some others – is that for those of us who are still in the game in a position and willing to lend, we’re seeing increased activity, and the spreads are improving. So it’s really a positive picture in that sense. When it comes to northern New England, I would say things are a little bit slower there.

Richard Weiss - Janney Montgomery Scott

Okay. Thank you.

Operator

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

Collyn Gilbert - Stifel Nicolaus

Good, thanks. Can you just talk about opportunities you’re seeing from the perspective of organic growth, like through new branches, new lenders or just simply market share gains?

Philip Sherringham

As you know, we’re opening a few branches, most of which are tied to our association with Stop & Shop including a new one that’s opening in Maine I think next week. We’re still opening another branch or so in Westchester County, just opened another one recently. We’ve now got three of them open.

I would say that, globally speaking, when it comes to deposit growth, organic growth is going to be there but I wouldn’t count on it as a pillar going forward necessarily.

My sense is the U.S. banking market is generally overbanked, as we know, which is why the industry is consolidating. As you think about capital deployment in particular, as I’ve said many times, from my perspective, it’s going to come from acquisitions than from organic growth. Any organic growth or changes that we can grab, we’ll take, obviously.

For instance, give you an update on Westchester County; we’re very pleased with what’s happening there. Our deposit growth has been fairly astounding. There are opportunities, but again when it comes to capital deployment, I would say acquisitions probably remains the primary avenue for deployment.

Collyn Gilbert - Stifel Nicolaus

Okay. What about on the loan side? Are you able to take away any good lenders or seeing a pullback from some of the larger banks on the competitive side? I know you said spreads are improving.

Philip Sherringham

We’re definitely seeing a pullback from other banks, larger banks, and from conduits in particular when it comes to commercial real estate for instance. We’re seeing more deals with quality borrowers and the spreads are improving; it’s a very positive environment for us right now.

Collyn Gilbert - Stifel Nicolaus

Okay, just a follow-up to that. You talked about your margin perhaps bottoming, and I get why it would be bottoming from the same point of the excess capital position assuming that the Fed’s done lowering rates. But on your core bank’s margin are you still seeing opportunity to lower deposit rates?

Philip Sherringham

There’s going to be some incremental opportunities to do this primarily from the repricing of the time deposit portfolio. That’s been the driver in the second quarter of lowering our cost of funds, if you will, and I think that’s ongoing.

Our margin, in terms of outlook, if the Fed left rates essentially unchanged for a while, we’ve looked at it; we think our margin will probably stay where it is right now, around 3.56% give or take a couple basis points.

Collyn Gilbert - Stifel Nicolaus

Okay. Then my last question is on buybacks, and I hear you and your message is very clear that it’s not a priority. This is a market obviously that’s very volatile. Would you be opportunistic if you start to see your stock trade again below that $14 level?

Philip Sherringham

I think we need to be opportunistic in everything we do. That’s no different. So, the answer is yes. We’ll see.

Collyn Gilbert - Stifel Nicolaus

Okay. Thanks very much.

Operator

Your next question comes from the line of James Abbott - FBR Capital Markets.

James Abbott - FBR Capital Markets

Good morning. Just a quick question on your deposit pricing. Where do you usually set your deposit pricing as you’re sitting in meetings and discussing where to price? How are you setting that and maybe take us through that methodology?

Philip Sherringham

First of all of course, deposit pricing isn’t set centrally. It depends very much on the market. Vermont isn’t Connecticut, et cetera. So it’s set locally at the local bank level at this point, for one thing.

Second, the overall consideration is from a balance sheet perspective, do we actually need deposit growth? I think the answer as you know has been for a while no and still is no, practically speaking.

So what we’re trying to do is balance out the need to protect the franchise, make sure we maintain market share and grow it when we can, while at the same time not paying up for deposits because we frankly don’t need to, unlike by the way others in our markets apparently.

We’ve been able to do this. Right now, if anything arguably, we’re seeing deposit inflows from other banks given the turmoil in the markets. We’re clearly perceived as we should be as extremely stable and well capitalized which is a benefit that the public is beginning to focus on. I think we’re under no pressure to be aggressive when it comes to pricing.

James Abbott - FBR Capital Markets

Okay. I understand that you don’t really need deposits, but in this environment they are pretty valuable.

Philip Sherringham

They’re very valuable. Look at our cost of deposits; it’s astoundingly low. You’re talking about $15 billion at 1.8%, try to find that elsewhere.

James Abbott - FBR Capital Markets

Yes.

Philip Sherringham

So we’re very much aware of this and again, we’re in a very fortunate position because of the environment and I think the perceived quality differential between companies. I think at this point the only point I’ll make is we don’t need to be super-aggressive when it comes to pricing for deposits.

James Abbott - FBR Capital Markets

Are you concerned though that the deposits declined? That’s what I’m getting at. That concerned me and I was wondering whether that concerns you?

Philip Sherringham

I did mention in my comments earlier that we deliberately let $234 million of deposits leave the bank to an outside investment manager; those were wealth management type deposits in northern New England. So you’ve got to take that out of the picture.

At this point no, I’m not particularly concerned; again deposits have been slow. Our DDAs have remained pretty stable. I think overall we’re in good shape there.

James Abbott - FBR Capital Markets

Yes, I’d read in the file. Were those annuity sales, when you say that they went to an investment manager?

Philip Sherringham

No, they’re not really annuities. They were money market type accounts.

James Abbott - FBR Capital Markets

And you get a referral fee for doing that? I don’t understand why you would do that?

Philip Sherringham

Very simple. Basically they were zero ROA assets; we were basically paying them about fed funds and investing on the margin, of course, as you know in fed funds. It made no sense for us to keep them. You understand? That’s very simple.

James Abbott - FBR Capital Markets

If you put it in those terms, then that does make sense.

Philip Sherringham

Yes.

James Abbott

I wanted to ask couple of other quick questions. One is on the nature of the C&I loans that went bad, or maybe if you can give us some background on what happened there. Is it a loan officer that wasn’t supervised well?

Philip Sherringham

No. First of all, you’re talking about the northern New England…?

James Abbott - FBR Capital Markets

Yes, the $13 million.

Philip Sherringham

I can’t be too specific on the situation, as you understand, I’m sure. But basically those were commercial real estate loans that were acquired by Chittenden in the context of their acquisition of Community Bank & Trust as I mentioned. Community Bank & Trust is a bank that had serious asset quality problems obviously and we inherited those if you will.

James Abbott - FBR Capital Markets

Were they high loan to values at origination and they failed? Was it vacancy rates that drove the failure? Or is it an industry type, maybe that these were retail strip malls or something like that?

Philip Sherringham

No, they’re not retail strip malls. They’re basically residential projects.

James Abbott - FBR Capital Markets

Construction?

Philip Sherringham

Yes.

James Abbott - FBR Capital Markets

Okay.

Philip Sherringham

Again we’re actually hopeful that some of those will resolve themselves, but we’ll see.

James Abbott - FBR Capital Markets

Okay. Thank you for that clarification. Then demand for PCLC. Given the weaker economy, unemployment rising slightly here; what’s your outlook there? Do you expect that to slow and do you have a sense of your market share for PCLC as a percentage of the total market?

Philip Sherringham

The total market is absolutely huge. If you look at the tables for that industry, I think our market share has been growing. I couldn’t tell you off-hand exactly how large it is. I also indicated we’ve had a very good growth obviously; 18% annualized in the quarter.

This company as you know operates nationwide and focuses on printing, packaging and transportation industry. The transportation industry, as you might imagine with high fuel costs, is under pressure but candidly due to the quality underwriting we have, and the demonstrated ability of PCLC to get hold of collateral and dispose of it quickly, they’ve been able to manage the situation very well.

At this point, I am hopeful that the growth will actually continue and the asset quality has remained excellent in that portfolio.

James Abbott - FBR Capital Markets

Okay. But you haven’t seen a decline or heard from the field officers that they are seeing a decline in applications or anything?

Philip Sherringham

Not particularly, no.

James Abbott - FBR Capital Markets

Okay. Thank you. Appreciate your time.

Operator

The next question comes from the line of Damon DelMonte - KBW.

Damon DelMonte - KBW

Just with respect to net charge-offs, you’ve had a very low rate for the first half of the year. Do you foresee that continuing in the back half?

Philip Sherringham

I am cautiously optimistic, is all I can say. Our charge-offs are so low, all it takes is one such large loan to be charged off and you could see a bump. Now that would be meaningful, candidly.

Damon DelMonte - KBW

Right.

Philip Sherringham

When you’re talking about those levels of charge-offs compared to the industry; you look at other companies, you know the numbers. The contrast is still stark, so I can’t necessarily commit to 7 basis points forever, and in fact, I’d like to remind all of you that I’ve denounced historically what the normalized level of charge-offs for us would be.

In our commercial portfolio we said about 35 basis points would be normalized. So we’re still at 7 and 8. Obviously it could go higher and that would still not be unusual particularly in this environment.

At this point again, back to my earlier comments, we were very pleased with our asset quality, we don’t see cracks in the foundation; we’re dealing with this former Community Bank & Trust portfolio in New Hampshire. But in general, certainly on a relative basis and even on an absolute level, I’m very pleased with where we are.

Damon DelMonte - KBW

Great. And then with respect to the reserve level. As you continue to move your asset mix more towards commercial assets, do you feel you need to have a higher reserve than where you’re at currently?

Philip Sherringham

When it comes to reserving, let me remind you that as I said many times also historically, we have a methodology for assessing the adequacy of reserves. That methodology is well established and well tested. It’s a function of the actual grading of all the individual loans in the portfolio.

We’ve got this 1 to 9 grading scale which is typical of the industry, and of course these are specific percentages allocated to all of them. So any growth in the portfolio automatically triggers the need for additional reserves.

Of course commercial loans, based on their grading get a certain reserve requirement associated with that. The methodology is in place and it’s working.

I’ll remind you also that in the first quarter, of course, we increased our reserve by about $4.5 million on account of what we described at the time as harmonizing, or synching up if you will, the reserving methodologies between the former Chittenden and ourselves.

We basically were telling you at that time we expected some increase in non-performers that would require more reserves and that in fact happened pretty much as we expected.

Damon DelMonte - KBW

Great, thank you very much.

Operator

As there are no further questions, I will now turn it back to Mr. Sherringham for closing remarks.

Philip Sherringham

Thank you. It was fun again speaking with all of you. I look forward to the rest of the year. Thank you very much.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a great day.

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