People's United (PBCT) Q2 Earnings in Line, Revenues Up

Zacks

Regional bank People's United Financial Inc.’s (PBCT) second-quarter 2014 operating earnings per share of 20 cents came in line with the Zacks Consensus Estimate as well as the prior-year quarter earnings.

Results were mainly aided by improving top line and lower provision for loan losses, slightly tainted by ineffective expense management. While credit quality showed improvement, capital ratios declined.

Operating income was reported at $59.9 million, down 4% year over year. Including certain non-recurring items, net income came in at $72.3 million or 24 cents per share compared to $62.1 million or 20 cents per share in the year-ago quarter.

Performance in Detail

Total revenue, net of expense (fully taxable equivalent) amounted to $332.9 million, up 6.2% year over year, surpassing the Zacks Consensus Estimate of $315.0 million.

Fully taxable equivalent total revenue, net of expense, amounted to $332.9 million, up 6.2% year over year. The number also surpassed the Zacks Consensus Estimate of $315.0 million.

Further, non-interest income came in at $100.1 million, up 13.5% year over year. The rise was mainly attributable to a net gain on the merchant services joint venture.

Adjusted non-interest expenses ascended marginally to $206.7 million. The increase in expenses was primarily attributable to higher compensation and benefits costs as well as operating lease expense partially offset by lower other expenses.

Credit Metrics

Overall, People’s United’s credit quality continued to show improvement. As of Jun 30, 2014, the company's originated non-performing loans totaled $199.1 million, down 19.5% from the prior-year quarter. Moreover, the ratio of non-performing loans to total originated loans declined 36 bps to 0.82% year over year.

Non-performing assets summed to $232.7 million, down 17.0% from the year-ago quarter. Moreover, non-performing assets (excluding acquired non-performing loans) decreased 37 bps to 0.96% of total related assets year over year.

Moreover, net loan charge-offs fell 45.5% year over year to $5.5 million. Net loan charge-offs, as a percentage of average loans on an annualized basis, diminished 9 bps year over year to 0.10%. Also, provision for loan losses was recorded at $8.0 million, down 20.8% from the prior-year quarter.

Capital Position

People’s United’s capital position demonstrated mixed results. As of Jun 30, 2014, total loans stood at $25.5 billion, up 11.3% year over year. Moreover, total deposits rose 9.6% on a year-over-year basis to $24.1 billion.

Operating return on average tangible stockholders' equity grew 30 bps from the prior-year quarter to 9.6%. However, operating return on average assets was 0.72%, down 9 bps year over year.

As of Jun 30, 2014, People's United’s tangible equity ratio descended to 7.9% from the prior-year quarter’s ratio of 8.7%. Further, total risk-based capital ratio declined to 12.5% compared with 12.8% in the year-ago quarter.

Joint Venture Announcement

People's United declared a joint venture with Vantiv, Inc. (VNTV), a leading purveyor of electronic integrated payment processing services in the U.S. This joint venture, represented by People's United Merchant Services, will present customers with a wide-range of payment solutions. Through this endeavor, People's United is looking forward to benefiting from Vantiv’s superior technology.

Our Viewpoint

People's United’s efforts to triumph over the slow economic environment were reflected in its improving organic growth. Also, considerable upturn in loans and deposits along with an effective decline in nonperforming assets assisted the company in achieving enhanced financial results.

However, the company’s failure to curb its expenses and persisting low interest rate environment remain major areas of concern.

People's United currently carries a Zacks Rank #3 (Hold).

Earnings of other Sector Participants

Washington Federal Inc. (WAFD) reported its fiscal third-quarter 2014 earnings (ended Jun 30) of 37 cents per share beating the Zacks Consensus Estimate by a penny. It also compared favorably with the prior-year quarter figure of 36 cents.

Results were aided by higher revenues, a benefit from provision and improving credit quality. However, a fall in net interest margin and increased operating expenses were on the downside.

Among other companies, First Defiance Financial Corp. (FDEF)  is scheduled to report earnings on Jul 21.
 

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