Regional bank People's United Financial Inc.
(PBCT) announced its third-quarter 2011 operating earnings per
share of 19 cents, outpacing the Zacks Consensus Estimate by 2
cents. Moreover, earnings compared favorably with 17 cents per
share in the prior quarter and 8 cents per share in the prior-year
quarter.
The modest improvement in results was attributed to lower
nonperforming assets and loans, higher net interest income and
enhanced revenue, partly offset by higher non-interest
expenses.
Operating income reported was $67.3 million compared with $57.3
million in the prior quarter and $27.7 million in the prior-year
quarter. Including after-tax merger-related expenses and
severance-related costs of $14.4 million, net income came in at
$52.9 million or 15 cents per share in the third quarter of
2011.
People's United completed its acquisition of Danvers Bancorp
Inc. (DNBK) on June 30, 2011, effective July 1, 2011. Therefore,
Danvers' results of operations are included, though prior period
results have not been restated to include Danvers.
Performance in Detail
Despite historically low interest rate environment and the
company's asset sensitive balance sheet, net interest income
reported was $240.0 million, up 36.5% year over year due to higher
net interest margin (NIM). Moreover, net interest income also
inched up 8.5% sequentially.
Net interest margin increased 37 basis points year over year to
4.11% attributable to the expense management of the company.
However, margin inched down 2 basis points sequentially.
Non-interest income was $84.7 million, up 10.6% sequentially and
24.6% year over year. Increased income reflects improvement in
fee-based businesses coupled with addition of Danvers. Net losses
on sales of loans were the negatives.
Total revenue reported was $324.7 million in the quarter, up
from $297.8 million in the prior quarter and $243.8 million in the
prior-year quarter. Moreover, revenue results were modestly above
the Zacks Consensus Estimate of $323.0 million.
Non-interest expense increased 12.0% sequentially and 24.5% year
over year to $231.9 million. The increase in expenses was
attributable to higher compensation and benefits expenses,
professional and outside service fees and augmented occupancy and
equipment expenses and increased merger-related expenses.
Credit Metrics
People’ United witnessed a mixed credit quality during the
reported quarter. The company reported $14.4 million of provision
for loan losses, up from $14.0 million in the prior quarter and
down from $21.8 million in the prior-year quarter.
However, net loan charge-offs totaled $13.4 million, down from
$15.5 million in the prior quarter. Net loan charge-offs as a
percentage of average loans on an annualized basis were 0.27%, up 8
basis points sequentially.
As of September 30, 2011, People's United's nonperforming loans
totaled $241.6 million and the ratio of nonperforming loans to
total loans was 1.60% compared with $250.4 million and 1.69%,
respectively, as of June 30, 2011. This was also lower than $359.8
million and 1.77%, respectively, as of September 30, 2010.
Nonperforming assets (excluding acquired non-performing loans)
totaled $305.2 million as of September 30, 2011, down from $315.4
million in the prior quarter and $312.0 million in the prior-year
quarter. Nonperforming assets were 1.88% of total loans, REO and
repossessed assets compared with 2.05% in the previous quarter and
2.19% in the year-ago quarter.
Capital Ratios
In the third quarter of 2011, return on average assets was 0.98%
and return on average tangible stockholders' equity was 6.3%, up
from 0.50% and 2.7%, respectively, in the prior-year quarter.
As of September 30, 2011, People's United’s tangible equity ratio
decreased to 12.5% from 17.8% in the prior-year quarter.
Capital Deployment Update
During the quarter, with the share repurchase of 15.8 million
shares of common stock at an average price of $11.81 per share,
People's United completed the stock repurchase authorization
announced in January 2011. Moreover, the company approved an
additional share repurchase authorization, under which up to 5% of
the company's common stock outstanding, or 18 million shares, can
be repurchased.
Concurrent with the press release, the board of People's United
declared a quarterly dividend of 15.75 cents per share, payable on
November 15, 2011 to shareholders of record as of November 1, 2011.
Based on the closing stock price on October 19, the dividend yield
came in at 5.2%.
Our Take
Within People’s United’s peer group, Hudson City Bancorp
Inc.’s (HCBK) will report its third-quarter 2011 earnings
on October 26, 2011.
With People's United’s existing presence in Massachusetts, the
completion of acquisition of Danvers Bancorp makes it New England’s
largest independent bank and the seventh largest bank, both in
Massachusetts and Boston MSA. Danvers Bancorp, a high-quality
commercial institution, offers an excellent platform for growth and
balances the company’s continuous footprint from Worcester, in
central Massachusetts, through Boston and New Hampshire. People's
United expects the transaction, which marks a platform of growth
for the company, to be accretive to operating earnings with an
Internal Rate of Return (IRR) greater than 15%.
People's United is trying to overcome the challenging economic
environment through opportunistic acquisitions. Recent acquisitions
coupled with reported positive earnings reflect its strength in
capital and liquidity of the company. Though credit metrics
remained volatile, loan portfolio and deposits growth acted as
positives during third-quarter 2011. Moreover, we believe People's
United’s earnings will improve based on synergy gains resulting
from the completed acquisitions.
People's United currently retains its Zacks #2 Rank, which
translates into a short-term ‘Buy’ rating. However, considering the
fundamentals, we are maintaining our ‘Neutral’ recommendation on
the stock.
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