People's United Stays Neutral - Analyst Blog
June 23 2011 - 8:15AM
Zacks
We are reiterating our Neutral
recommendation on People's United Financial Inc.
(PBCT) backed by the company’s better-than-expected first-quarter
2011 earnings.
In April, People's United reported
first-quarter 2011 operating earnings per share of 15 cents,
surpassing the Zacks Consensus Estimate by 3 cents. Moreover,
earnings compared favorably with 10 cents per share reported in the
prior quarter and 8 cents in the prior-year quarter. The modest
improvement in results was attributable to higher net interest
margin (NIM) and enhanced revenue, partly offset by higher
non-interest expenses and increased provision for loan losses.
Despite an asset sensitive balance
sheet, People’s United continues to pose a modest capital position
with capital ratios exceeding each of the regulatory requirements.
Its tangible equity ratio and total risk-based capital ratio were
13.9% and 14.8%, respectively, as of March 31, 2011.
In 2010, People’s United completed
the acquisitions of Smithtown Bancorp Inc. and LSB Corporation.
These acquisitions, which would extend the company’s presence in
New England and New York State, will be accretive to 2011 earnings.
Further, People’s United’s announcement of the acquisition of
Danvers Bancorp Inc. in the quarter marks a platform for the
company’s growth, and is expected to close in the second quarter of
2011.
Along with inorganic growth,
People’s United remains committed to its organic growth through its
business franchise. Despite the ongoing economic turmoil, the
company performed well with continued growth in its core loan
portfolios, as well as deposits in the first quarter of 2011. The
company’s core C&I and commercial real estate loans, which
soared progressively throughout 2010 and continued in the reported
quarter, were attributable to in-footprint multifamily loan growth.
Further, deposits posed a healthy annualized growth of 3.9%. We
also expect strong portfolio growth within the existing loan
products and deposits, as well as opportunities to introduce new
products. Going ahead, the company’s deposits and loan portfolio
will likely experience higher growth once the markets rebound and
provide interest rate stability.
Margins benefited from the
completion of the acquisitions, coupled with a reduction in the
cost of deposits, partially offset by the low interest rate
environment and the company’s asset sensitive balance sheet. Given
the sluggish market recovery, the significant disruption and
volatility caused in the financial markets might challenge margins
in the foreseeable future.
People’s United’s banking business
is heavily regulated by the federal and state governments. Bank
regulations and changes in state and federal tax laws could anytime
hurt the business further. In July, the Dodd-Frank Act implemented
significant changes in the financial regulatory backdrop, which
would impact all financial institutions including People’s United.
People’s United expects the Act’s interchange fee provisions to
reduce interchange fee revenue, beginning in the third quarter of
2011.
Overall, People's United is trying
to overcome the challenging economic environment through
opportunistic acquisitions and improving NIM. The announcement of
the recent acquisitions coupled with positive earnings reflects
strength in capital and liquidity of the company. Though in the
quarter, credit metrics remained volatile, loan portfolio and
deposits growth acted as positives.
People's United currently retains
its Zacks #3 Rank, which translates to a short-term ‘Hold’ rating.
However, People’s United’s closest competitor - Hudson City
Bancorp Inc. (HCBK) retains a Zacks #5 Rank (a short-term
“Strong Sell” rating).
HUDSON CITY BCP (HCBK): Free Stock Analysis Report
PEOPLES UTD FIN (PBCT): Free Stock Analysis Report
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