Higher earnings at People's United Financial could not prevent analysts from heavily questioning management on the company's lower net interest margin during a conference call late Thursday.

The Bridgeport, Conn., company had reported that its second quarter earnings had increased 10% from the first quarter and 27% from a year earlier, to $64.8 million. But the margin shrank four basis points from a quarter earlier, to 3.97%, which was more than what most analysts had expected. Their concerns were apparent throughout the company's quarterly earnings conference call.

It's a "pretty big drop," Ken Zerbe, a Morgan Stanley analyst, said during the call. "When you look forward over the rest of the year, any reason to assume that might not fall as much as it did?"

Management said that most of the decline was due to an atypical occurrence of repricing loans and amortization of deposits from acquired institutions. Most recently, the $28 billion-asset company bought 57 branches in the New York area from Citizens Bank. But management said they, too, were surprised at the degree of margin contraction.

"The drop this quarter was a little bigger than what we would expect to see in the third and fourth quarters," Kirk Walters, the company's chief financial officer, said during the call. "As we have given guidance throughout the quarter, we do expect third and fourth quarter to continue to trickle down."

The margin pressure, paired with expected lower loan volumes, caused management to caution about its ability to improve the proving efficiency ratio. The company's 61.5% efficiency ratio was an improvement from 63.3% in the first quarter and 65% a year earlier.

"The reduction in the absolute level of interest rates from the end of last year was unexpected, and if interest rates remain at their current record low levels, we may see the timing of achieving our 55% efficiency ratio goal slipping into 2014," Walters said.

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