People's United Financial, Inc.

Thank you, good morning everyone and welcome to People's United Financial’s fourth quarter conference call. I am Philip Sherringham, Acting President and Chief Executive Officer and the company’s Chief Financial Officer.

I am pleased to be here to discuss our fourth quarter results. Before I begin I’d ask you to please be sure to read the important disclosure statement at your convenience since we’re going to make forward-looking statements as you all know very well by now.

Please refer to slides two and three for specifics on our disclosures. Now before we move to slide four I’d like to start by briefly reviewing some of the more significant events that took place during the past year.

We successfully completed our second step conversion in April and in the process raised $3.44 billion in gross proceeds. We rebranded the bank in late spring and in June announced our agreement to acquire the Chittenden Corporation.

As you know, this transaction was completed on January 1st. With the addition of the six former Chittenden Banks, we now have more than 300 branches over 400 ATNs and seven banks across six states.

I think we’d all agree that 2007 was a transformational year. We are now the premier New England based regional banking company.

As most of you also know I have assembled a management team to support this new regional banking company that is comprised of the best talent with the management teams of the former Chittenden Corporation and Peoples United Bank. Let me reiterate your new management team’s priorities.

They are: ensuring the seamless integration of Chittenden, maintaining our focus on financial performance, and judiciously managing our significant excess capital position Speaking of financial performance I am happy to report the company’s fourth quarter financial performance buttressed by asset quality that continues to stand in stark contrast to industry trends continues to be rock solid. And with that said, let’s move on to slide four.

Net income in the fourth quarter of 2007 was $46 million or $0.16 a share. This is a 17% increase from $39 million in the fourth quarter for the prior year.

I’d like to remind you that since we completed the Chittenden acquisition on January 1st, 2008 our fourth quarter and full year 2007 results do not include the results of Chittenden Corporation. Return on assets was 1.37% compared to 1.49% in the fourth quarter of 2006.

Average earning assets increased $2.9 billion reflecting an increase in average short-term investments while average loans and average securities declined. Our net interest margin held steady this quarter compared to the fourth quarter of last year at 4.01% and was down 27 basis points from the third quarter.

As I indicated in our third quarter conference call we expected some margin compression this quarter given the Federal Reserves current posture. I’ll provide more information on the margin a bit later.

On the asset quality front non-performing assets increased only $3.4 million from December, 2006 levels and by the way, declined slightly from third quarter 2007 levels. Net charge-offs to average loans equaled 17 basis points, up from 6 basis points in the same quarter last year.

Our efficiency ratio improved to 57.4% in the fourth quarter 2007 compared to 59.7% in the year ago period. As you can see on slide five, we saw good steady growth again in our commercial banking portfolio which increased $321 million or 8% from the fourth quarter of 2006.

In contract and by design, our residential mortgage portfolio decreased $630 million or 16% reflecting our decision in the fourth quarter of 2006 to sell all newly originated residential mortgage loans. Following a nation-wide pattern during 2007 home equity loans decreased slightly to $1.2 billion.

The increase in short-term investments is a direct result of the investment of the proceeds from the second step conversion. Slide six illustrates changes in the mix of our earning assets.

Average securities and short-term investments increased to 29% of total earning assets compared to 4% a year ago. The increase in short-term investments resulting from the deployment of the proceeds from the second step conversion had the affect of decreasing the relative percentages of the other asset categories.

As a result, loans now represent 71% or earning assets compared to 96% a year ago. And at 35% of earning assets, commercial banking loans still represent the largest component as was the case last year.

Slide seven provides more detail about our commercial banking business. Overall growth of 8% compared to the fourth quarter of 2006 was driven by increases of $168 million or 22% in Peoples capital and leasing, PCLC as you know, our equipment finance subsidiary, $148 million or 25% in national credits and $28 million or 3% in C&I lending.

This growth was partially offset by $23 million or 1% reduction in commercial real estate but we continue to see some portfolio run off. This remains a reflection of our conservative end writing philosophy in contrast with what we continue to feel are overly aggressive practices on the part of some competitors.

In light of the recent geographic expansion of the company’s franchise and the resulting increased diversification of its commercial banking loan portfolio our need to maintain a shared national credit portfolio has significantly diminished. As a result we’ve made the decision to unwind this portfolio in an orderly manner over the next two to three years.

I know this decision comes as a huge relief to some of you however, I want to point out that our shared national credit portfolio which was built up from a very low base with current balance of $738 million has performed and continues to perform exceptionally well. Now let’s move on to the liability side of the balance sheet on the next slide.

As you can see core deposits in aggregates are down slightly year over year. As a result of having raised $3.3 billion in net proceeds from our second step conversion and given our recent strategy of funding loan growth as a run off of our securities portfolio we have not had a need for significant growth in core deposits.

Slide nine compares our average funding mix between the fourth quarters of 2007 and 2006. During the fourth quarter of 2007 we again were on average essentially 100% funded by core deposits and stockholders’ equity.

As you will note the increase in stockholders’ equity with the proceeds from the second step conversion affected the relative percentage mix. Slide ten illustrates the components of the bank’s core deposits.

DDAs were 24% of core deposits in the fourth quarter of 2007, unchanged from the fourth quarter of 2006. Consumer DDAs were flat year over year while commercial term deposits decreased 6%.

This is a reflection of the remarkable stability of our deposit base. Given the increase in rates over the two years, term deposits have increased $105 million or 3% year over year and now represent 42% of core deposits up from 40% a year ago.

Most of the growth in term deposits is coming from our savings and money market accounts which declined $221 million or 7%. Now let’s take a look at the income statement on slide 11.

Net interest income is up 30% and the net interest margin 4.01% was flat as compared to the year-ago quarter as the benefits or $3.3 billion in net proceeds from the second-step conversion and short-term investments as well as the benefits from the balance sheet restructuring activities completed during 2006 were offset by declining interest rates. The margin decreased 27 basis points from the third quarter of 2007 given again the asset [sensitive] position of our balance sheet.

The provision for loan losses in the fourth quarter 2007 reflects net loan charge-offs of $3.7 million which included a $2.3 million charge-off related to one Connecticut commercial banking loan. Net loan charge-offs totaled $1.4 million in last year’s fourth quarter.

The total loan loss allowance now stands at $72.7 million. Net interest income for the quarter increased $800,000 or 2% from fourth quarter 2006 levels.

Non-interest expense was $14.4 million higher than in the fourth quarter 2006 primarily reflecting an increase in compensation and benefits expense resulting from amortization expense related to the new stock incentive plans in our employee stock ownership plan. I’ll provide more detail regarding non-interest income and expense shortly.

The bar chart on slide 12 shows the trend in our margin. As I just mentioned year over year the benefits from the investment of the proceeds from our second-step conversion and the sale of securities was offset by declining interest rates.

The 27 basis points decline from the third quarter of ’07 is also a function of declining interest rates. Slide 13 addresses non-interest income.

Fee based revenues were essentially flat on a year over year basis as increases in brokerage commissions and other fee based revenue were partially offset by lower insurance revenue. The 13% improvement in brokerage commissions primarily reflects increases in mutual funds and annuity commissions.

The decline in insurance revenue primarily reflects the seasonal nature of renewals. Gain on sales of residential mortgages were up $100,000 or 20% due to improved spread on old sales.

We continue to sell essentially all of our newly-originated mortgages whether fixed or adjustable [inaudible] to the spreads on such loans remaining unattractive in today’s interest rate environments. This quarter also included $3.1 million in income earned on bank-owned life insurance which is equivalent to approximately $4.7 million on a fully taxable basis and up 11% from the year-ago quarter reflecting a slight improvement in net investment yields.

Slide 14 shows non-interest expense highlights. Non-interest expenses are up $14.4 million or 17% from the year-ago quarter and $4.5 million or 5% from last quarter.

The $6.9 million increase in compensation and benefits from a year ago, reflects amortization expense of $2 million related to our ESOP and $2.6 million related to recently approved stock incentive plans as well as higher compensation expense, a function of normal merit increases of approximately $1.4 million partially offset by lower pension expenses. Let me point out that the costs associated with our ESOP and the new stock incentive plans as well as higher levels of technology related expenses will be ongoing expenses in 2008 but will rapidly decline within a three to five year period.

The increases in advertising and promotion from the fourth quarter 2006 primarily relate to costs surrounding the rebranding of the bank. The increase in other non-interest expense primarily reflects higher insurance costs and increased amortization of equipment leased to commercial customers.

Slide 15 illustrates the trend in our efficiency ratio over the past few quarters. As a result of the increase in non-interest expense the efficiency ratio increased from third quarter 2007 to 57.4%.

Our asset quality as seen on slide 16 continues to be very strong. Non-performing assets are up only $3.4 million from last year, and that’s million with an “m” as opposed to billion with a “b” as you might have been used to hearing recently, and in fact, they are down $100,000 from the third quarter levels.

Net loan charge-offs totaled $3.7 million for the quarter compared to $1.4 million in the year-ago quarter and $1.5 million in the third quarter 2007. Net charge-offs for average loans were 17 basis points in the fourth quarter of 2007 compared to six basis points in the fourth quarter 2006.

The provision expenses increased $1.5 million or in compared to last year’s fourth quarter. Now I’d like to point out that full year 2007 net loan charge-offs up only $9.3 million or ten basis points of average loans included $5.9 million in charge-offs related to a single Connecticut commercial banking loan.

At the risk of sounding like a broken record, let me restate that we have no sub-prime Alt-A or SIV exposure and that at present we see no cracks in the foundation in terms of our asset quality across all of our loan portfolios. As I mentioned at the beginning of the presentation we closed the Chittenden transaction on January 1st, at 12:01 am.

Following extensive integration planning we have started the actual integration work. In this context we will be undertaking a comprehensive review of operations across the company with a view to maximizing achievable cost savings.

As a result at this point I am not yet ready to provide a significant forward-looking discussion of the company’s 2008 financial outlook. I do expect to be in a position to do this in our first quarter conference call in April.

At that time, I also expect to outline our thoughts on the company’s earnings goal three to four years from now which I currently believe will be significantly in excess of our 2007 results. To get you started however, the next few slides provide a brief overview of Chittenden’s highlights of the fourth quarter of the year 2007.

Slide 17 compares financial highlights for Peoples United and the former Chittenden Corporation for the fourth quarter 2007. I need to state that while the Chittenden numbers have been signed off by their former management team and auditors, they have not been compiled by the company.

On this slide I will simply point out that the non-interest expense number for Chittenden includes $4.6 million in merger expenses related to their recently completed Community Bank & Trust acquisition as well as a $1.9 million charge to establish a reserve for a contingent obligation to VISA related to certain litigation. On slide 18 you can see certain key balance sheet items as of the end of 2007 at both People’s United and the former Chittenden Corporation.

And slide 19 shows asset quality highlights at the end of the year for People’s United and the former Chittenden Corporation. We have begun a detailed analysis of the former Chittenden’s asset quality risk rating and classification policies and therefore certain adjustments or reclassifications may be made when we report combined asset quality results at the end of the first quarter of 2008.

As I mentioned earlier we cannot provide specific financial parameters for 2008 right now, I’d like to spend a moment outlining some challenges we foresee in the year ahead. Asset quality obviously is more and more topic number one for everyone.

Again, as of today we are extremely pleased with asset quality and have not observed any trends that we find disturbing across our portfolios. Now should the economy start deteriorating significantly, it will be naïve to assume that we will remain unaffected.

However, at that point, just keep in mind our capital position. On the revenue front the major challenge probably will continue to be what appears a weakening economy.

At the same time we need to continue to drive expense control. One clear challenge of the integration is right-sizing the new entity to meet and hopefully exceed the efficiency expectations we set when we announced the transaction last June.

Given in particular our still significant $3.5 billion short-term investment portfolio, our balance sheet continues to be asset-sensitive. The current outlook for short-term interest rates would suggest a negative impact on our net interest margin in 2008.

On a pro forma run rate basis should interest rates decline 100 basis points from today’s levels we would expect net interest income to drop by approximately 6% from today’s combined annualized number of approximately $785 million. While there are obviously steps we could take to leverage our capital position and take higher risk to enhance yields, this is not something we find palatable so we’re simply not going to do it.

And I suspect that the issue of a stock buy back is still on all of your minds, let me assure you that a buy back program is one of our options in effectively deploying capital. At this point we continue to await OTS approval and anticipate putting a buy back program in place as soon as we are in a position to do so.

Our aggressiveness in pursuing this option will be dictated by market conditions and other opportunities that may present themselves. So in summary and as I stated at the beginning of this presentation our areas of focus are very clear, the successful integration of Chittenden, continued strong financial performance and effective management of capital.

We believe that by maintaining our focus we will be well positioned especially of course when the banking sector market pendulum begins to reverse to deliver the level of shareholder returns that our franchisers’ performance clearly warrants. This concludes my review of this quarter’s results and now I’ll be happy to answer any questions you may have.

Good morning and thank you for taking my question Philip, my first question was about credit at Chittenden but I just got the slide presentation, I guess you have some details so I’ll skip that. Philip one of our competitors has been out in the marketplace telling investors that the OTS has put a moratorium on buy back waivers prior to one year conversion anniversaries, which doesn’t make a lot of sense to us, but I’m wondering are you aware of any such rule?

No this is a rumor as far as I’m concerned.

Okay great. Secondly I wondered if you could maybe with us some of the things that, I know you’re not going to go out and leverage off the balance sheet with wholesale…

No I’m not.

…but could you talk about other things that you might be able to do to mitigate some of the pressure from the FED rate cuts if they do occur?

Well as I did point out, I think the FED rate cuts depending on how extensive they are, will have an impact. I think what we’re going to do is as I suggested is focus on expense control and fee revenue growth to the extent we can.

As we’ve pointed out earlier there’s some fee revenues income stream that Chittenden has that we don’t have and we hope to roll those out to our customers in Connecticut.

Okay and then the last question, Philip at what point do you feel like People’s would be in a position to be able to do another acquisition, is that once the Chittenden deal is integrated in ’09 or is it sooner or what are your thoughts on that?

Well obviously as we said many times, our focus right now is not on other acquisitions but it’s on integrating Chittenden successfully. At the same time, I think we all know that given the environment today, attractive opportunity may in fact present themselves sooner than we thought and when it comes to this, we have to be somewhat opportunistic.

However, our immediate focus is clearly on integrating Chittenden successfully.

Thank you.

Good morning, just a couple of questions for you. The first is as you look out over the next few years and unwind that shared national credit portfolio, where do you plan on putting the proceeds from that and sort of relates to my second question is with PCLC.

Do you have a target on how big that will get?

When it comes to unwinding the shared national credit portfolio as I think I suggested in my comments, this is not a prior sale by any means. The unwinding will be progressive, it will be orderly, it will slow.

To give you a feeling, in 2008 I’d be surprised if the portfolio declines by much more than say $200 million. So in terms of any potential revenue hit, our plan is to make it up in-franchise loans.

We have the privilege of working with extremely qualified loan personnel in this area and we intend to really employ them in our C&I and commercial real estate departments if you will and they’ll basically continue to originate new loans while monitoring and managing us out of this particular portfolio. So I think it will be progressive and I fully expect we will be able to make up the shortfall through in-franchise originated loans.

Okay great and then in terms of PCLC, is there a target for that?

The PCLC no, there’s not a clear limit as to how large that could get. That company just crossed the billion dollar mark in outstandings at the end of the year.

You know, it’s very much a function of course of the economy. Again our underwriting remains conservative so we’ll see.

It may well slow down somewhat in 2008.

And then on the BOLI income, quarter over quarter has increased pretty significantly on a percentage basis, was that as a result of increased purchases there or is that just poor performance?

Well that’s increased yields on the one hand but also unfortunately we had a death of one of the participants.

Okay, and then finally on the expense side, can you give a little update on the technology initiative and what portion I guess what you’re expecting on the expenses in 2008 or if not an actual dollar amount, maybe trends or duration?

I think, no I won’t comment on dollars, the technology initiative is going to be part of the overall review of our operations were conducting right now so I won’t comment any further on that either. I think though the point I’m making here is that clearly expense is going to be a big issue for us 2008 and we plan to aggressively look at every area of the company and come up with a plan to address each issue.

Great thanks and nice quarter.

Good morning Philip, it’s nice to see a very good asset quality number early in earning season but I’m not expecting to see any more companies in that camp at this point so, won and done. One of the questions that I had was on the syndicated credit or shared credit portfolio run off and you addressed it by saying about $200 million, did you mention whether there would be any, whether you anticipated any sales of those or is it just natural run off that you anticipate?

No, I mean this portfolio had two components essentially. One component is a construction loan component, a commercial real estate primarily construction loans and you know; as the units are sold they’ll pay off naturally.

The other one is basically C&I credits and that will vary, it will depend. Occasionally we could be taken out by the agent, they want to increase the commitment and we don’t participate.

There’s a natural process to this.

It’s more natural run off then it is a sale of these.

No I mean clearly if we had the opportunity to make some sales at attractive prices we would but I don’t anticipate that.

Okay and have you disclosed or could you give us a sense if you haven’t disclosed what the commercial construction is and geographically where that is?

You mean in the shared national credit?

Yes, I assume it’s nationally but are there any concentrations in…

Yes, the largest concentration is Florida and as of the end of the year it was around $90 million. Keep in mind of course that you know historically we’ve had this 15% limit to the shared national credit portfolio as a percentage of our commercial banking totals.

Of course now, including Chittenden we’ve got a much larger commercial portfolio so the percentage drops automatically a lot lower.

Right, can you..let’s see if I can drill down a little bit more here, are the losses shared losses or are they tranched in some sort of fashion where you’re second or third tier in the loss?

I think you’re in a bit too deep here. Most of the time, if there were any losses, and the point I made I’ll make it again.

This portfolio has performed superbly and continues to perform superbly. It has not experienced a single delinquency much less a charge-off or loss in its entire history.

That’s remarkable.

No and I understand that, but I guess just to play devil’s advocate, I heard that from several other banks that are now running at 5% non-performing asset levels. I’m just trying to get a sense as to, if it’s a shared loss position in some of these things or if it’s a…

I can’t really comment on that because it varies depending on the credits.

Okay. And then regarding the buy back, assuming you get an early approval here, as we think about conceptually with the company’s outlook here, would it be an aggressive program?

Would you buy back 30% of the stock in a given year, or would you be inclined to go a little bit slower and more measured?

Well as I stated in my comments and I want to stick to that at this point, our aggressiveness in pursuing a buy back is a functional market conditions, and other alternatives. Other alternatives look rather good to me right now.

They may prove more compelling than a buy back. We’ll see, but again, that would be a function of what we can do at the time.

I’ll remind you also that basically we’re mid-January and in fact later than that, and past April 16th, we don’t have any constraints on us anymore anyway. If we get an okay from the OTS it’s a very small window there.

Understood. I do have other questions but I’ll drop out for now and let others ask.

Thank you Philip.

Hey Philip good morning. I wonder if you could talk a little bit about the deposit competition up in your market area, is it easing at all or do you expect it to ease going forward or will the cost of funds be coming down in your opinion?

Well I think the cost of funds is likely to come down some in 2008 as rates come down in general. I think the [bank] industry is trying to aggressively lower rates which is understandable given of course the compression of yields on the asset side.

So you can sort of expect that a little bit. Look, I mean competition remains where it’s always been, tough, aggressive.

Having said this, I mean we’ve, I think we’ve done remarkably well there. We’re hanging on to our market share.

Should we at some point have a need for deposit growth I think we’ll be in a position to do that? At this point, we frankly don’t.

We focused on managing our cost of funds and you can see the results.

Okay and I was wondering too if you could give us your pro forma tangible book value including Chittenden.

Yes, I can do that. I’ll give you two numbers actually and I’ll point out those numbers are preliminary at this point.

We haven’t completed all of the accounting entries yet obviously, since the purchase accounting I mean, so at this point an indication for all of you, our book value is going to be $15.69 a share and our tangible book value is going to be $10.57 a share.

Okay, thank you very much.

Just to clarify the margin guidance and net interest income guidance that you provided earlier, that was if rates were down 100 basis points from where we stand today? With the 10-year at 3 6, two-year at 2 3?

Yes we’re focusing our [FED] funds on where they are today, that’s right.

Any ability to provide a number on the static type of environment if rates don’t change much from today with the margin or net interest income sensitivity would look like relative to that 6%?

I don’t want to go too deep into this because I’m not quite ready for it but again we indicated a pro forma number of $785 million if rates don’t move. That’s a combined number for the two companies.

And that’s from today?

That’s from today.

Okay. And then on the share national credit portfolio what is the yield on that in terms of figuring out the income that is going away with that as that winds down versus the reinvestment yields in new opportunities and securities?

I don’t think I have this number handy. The yields are pretty close to our commercial banking portfolio average actually, it’s not that far.

Okay. And then could you just give some commentary on the appropriate numbers to be using on ESOP, stock awards options now that everything is granted, full quarters here starting to be expensed just to make sure we’re all on the same page.

I think if you go back to my comments I’ve indicated that the expense for the ESOP in the fourth quarter was $2 million and for the other incentive plans about $2.6 million. So some of this is affected by sub-price levels so you could say somewhere between $4 million and $5 million of extra expense a quarter.

Okay, that’s all for now, thank you.

Thanks, good morning Philip. Just a follow-up to some of the things you had said, you had said other alternatives in terms of capital deployment are looking more compelling right now?

What would be some examples of those other alternatives?

Well the only choices, we’ve got three choices to deploy capital, organic growth, acquisitions or buy backs right? And all I was trying to say was that given what’s happened to bank stock prices I think at this point acquisitions don’t look unattractive to us necessarily.

They look more attractive than they did six months ago that’s for sure.

Okay and then also too you had indicated earlier in the call talking about with Chittenden and that the expenses were going to be a focus in right-sizing, and you had said efficiency expectations which you had laid out previously, could you just remind us what those are again?

Right, if you recall in June when we announced the transaction, we said things that we’d be targeting $38 million cut in Chittenden’s expenses on a fully phased in basis. That’s their GAAP expenses as reported.

So we’re going to try to do better than that obviously.

And then just finally on the credit front, when you said you’re not seeing any disturbing trends right now, is that also as you comb through Chittenden’s portfolio?

Well we’re combing as we speak here Collyn.

Comb faster Philip.

It’s got to be done right though. The answer at this point is that we haven’t found anything that’s disturbing but we’re combing.

I’ve got to put a caveat in there. However, look at the numbers, look at the historical numbers, look at the numbers that I put on the slides for you for 2007.

They’re pretty impressive. That nature of the portfolio is a bit different, it’s more commercial real estate, so we’ll see how that goes.

Right, okay that was it. Thank you.

Just a follow-up question on the home equity portfolio, we [inaudible] its mostly in Connecticut and correct me if I’m wrong on that, but assuming that’s the case, could you give us a little bit more detail on that on combined loan to value, stratification, do you have anything that…

Let me comment on that a little bit, I’m happy to. First of all, yes, the portfolio is 99% in Connecticut so there’s nothing in Nevada here.

Second in terms of the combined loan to value issue on the average portfolio at origination, it stands at 59%. That’s combined including the first and the home equity loan or line.

Now also in our case the portfolio is 90% lines of credit. The combined loan to value ratio reflects the line being fully drawn down.

That’s never the case. On average those lines are 50% give or take 5% drawn down and also the portfolio is probably about three years old on average.

So I really think taking all of this into account we’re extremely comfortable with our position in this portfolio. And also we basically never did anything with and LTV greater than 80%.

I don’t have a total stratification for you but average combined LTV 59% at originatation probably much lower now, and we didn’t go above 80% in any case in general.

Okay super, wow that alleviates any concern that I had on that. Thank you very much.

Well thank you all very much. This promises to be a challenging and exciting year for us and the rest of the industry and we look forward to it.

We’ll see you again in April. Thank you much.

Bye for now.