People's United Reports Earnings as Expected

Regional bank People's United Financial Inc. (NASD:PBCT) reported fourth-quarter 2013 operating earnings per share of 20 cents, in line with the Zacks Consensus Estimate. However, earnings compared favorably with 19 cents per share reported in the prior-year quarter.

Improved credit quality, aided by lower provision for loan losses was a tailwind for the quarter. Further, increased loans and deposits reflect organic growth for the company. However, reduced top line and increased expenses remain concerns.

Operating income was reported at $60.0 million compared with $63.2 million in the prior-year quarter. Including certain non-recurring items, net income came in at $59.3 million or 20 cents per share in the quarter under review.

For full-year 2013, operating income was 77 cents per share, up from 75 cents reported in the prior year and inching past the Zacks Consensus Estimate by a penny. Including certain one-time adjustments of 3 cents per share, net income summed to 74 cents.

Performance in Detail

Total revenue, net of expense reported was $305.1 million in the quarter, down 1.4% year over year, due to reduced net interest as well as non-interest income. Moreover, results lagged the Zacks Consensus Estimate of $312.0 million.

For full-year 2013, revenues were $1,221.8 million, down 1.7% from $1,242.5 million in 2012. Moreover, this compares unfavorably with the Zacks Consensus Estimate of $1,246.0 million.

Net interest income was $224.9 million in the reported quarter, down slightly on a year-over-year basis. Moreover, in the persistent low interest rate environment along with an asset sensitive balance sheet, operating net interest margin decreased 39 basis points year over year to 3.24%.

Further, non-interest income was $80.2 million, down 4.9% year over year. The fall was mainly attributed to lower gains on sales of residential mortgage loans and reduced other non-interest income.

Non-interest expenses ascended slightly on a year-over-year basis to $208.7 million. The increase in expenses was primarily attributable to higher compensation and benefits costs.

Credit Metrics

Overall, People’s United’s credit quality significantly improved during the quarter under review. As of Dec 31, 2013, People's United's originated non-performing loans totaled $216.6 million, down 14.3% year over year. Moreover, the ratio of non-performing loans to total originated loans declined to 0.95% from 1.30% as of Dec 31, 2012.

Non-performing assets totaled $247.8 million, down 14.4% year over year. Moreover, non-performing assets (excluding acquired non-performing loans) were 1.08% of total related assets, down from 1.48% in the prior-year quarter.

Moreover, net loan charge-offs totaled $10.1 million, almost in line with the prior-year quarter. Net loan charge-offs, as a percentage of average loans on an annualized basis, were 0.18%, down 1 basis point year over year. Provision for loan losses was recorded at $10.0 million, down 16.7% year over year.

Capital Position

People’s United exhibited a strong capital position. Total net loans stood at $24.2 billion, up 12.6% year over year. Moreover, total deposits rose 3.7% on a year-over-year basis to $22.6 billion.

Operating return on average assets was 0.75%, down from 0.87% in the prior-year quarter. Moreover, operating return on average tangible stockholders' equity was 9.8%, increasing from 8.6% in the prior-year quarter.

As of Dec 31, 2013, People's United’s tangible equity ratio fell to 7.8% from 10.2% in the prior-year quarter. Further, tier 1 common and total risk-based capital ratios were 10.2% and 11.3% compared with 11.4% and 12.6%, respectively, in the prior quarter.

Share Repurchase Update

During 2013, People’s United repurchased 33.4 million shares of common stock at an average price of $13.74 per share. Notably, during the fourth quarter, the company repurchased 8.9 million shares at an average price of $14.72 per share and completed the current share repurchase authorization.

Our Viewpoint

Overall, People's United is trying to overcome the slow economic recovery through opportunistic acquisitions. Going forward, growth in loans and deposits is expected to improve the company’s financial results. In addition, the company’s capital deployment activity will definitely boost investors’ confidence.

Yet, the recent regulatory issues, increase in expenses and a low interest rate environment remain major areas of concern. People's United currently carries a Zacks Rank #4 (Sell).

Among other companies in the same sector, Mutualfirst Financial Inc. (NASD:MFSF), Northfield Bancorp, Inc. (Staten Island, NY) (NASD:NFBK) and Investors Bancorp Inc. (NASD:ISBC) are expected to report fourth-quarter 2013 earnings on Jan 21, Jan 23 and Jan 30, respectively.

Read the Full Research Report on PBCT
Read the Full Research Report on MFSF
Read the Full Research Report on ISBC
Read the Full Research Report on NFBK


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