People's United Financial Inc.’s (PBCT) third-quarter 2014 operating earnings of 21 cents per share came in line with the Zacks Consensus Estimate. However, the bottom line came in higher than the prior-year quarter figure by a penny.
Results were mainly aided by a fall in expenses, although offset by a decline in revenues and rise in provision for loan losses. Both credit quality and profitability ratios were mixed bags during the quarter.
Operating income was reported at $63.0 million, up 3.6% year over year. Net income came in at $61.6 million compared to $58.5 million in the year-ago quarter.
Performance in Detail
Total revenue (net of interest expense) amounted to $312.5 million, up 0.9% year over year. However, it missed the Zacks Consensus Estimate of $318.0 million.
Net interest income was $228.5 million, up 2.3% from the year-ago quarter. This was attributable to a rise in total interest and dividend income which was, however, partially offset by a rise in total interest expenses.
Non-interest income came in at $84.0 million, down 2.4% year over year. The fall was mainly attributable to a decline in insurance revenue, commercial banking lending fees, brokerage commissions, net customer interest swap income and fall in net gains on sales of residential mortgage loans. These were, nonetheless, partly offset by a rise in investment management fees, operating lease income and other non-interest income.
Non-interest expenses inched down 1.7% year over year to $208.8 million. The decrease in expenses was attributable to a fall in occupancy & equipment costs, professional & outside service fees, regulatory assessments, amortization of other acquisition-related intangible assets and other non-interest expenses. These were partly offset by a rise in compensation & benefits costs and operating lease expenses.
As of Sep 30, 2014, total loans stood at $26.0 billion, up 11.7% year over year. Moreover, total deposits rose 13.8% on a year-over-year basis to $25.3 billion.
Credit Metrics
Overall, People’s United’s credit quality represented a mixed bag during the quarter. As of Sep 30, 2014, the company’s originated non-performing loans totaled $196.6 million, down 17.1% from the prior-year quarter. Moreover, the ratio of non-performing loans to total originated loans declined 31 basis points (bps) to 0.79% year over year.
Non-performing assets totaled to $228.7 million, down 15.7% from the year-ago quarter. Moreover, non-performing assets, as a percentage of originated loans, REO and repossessed assets decreased 34 bps to 0.92% year over year.
Moreover, net loan charge-offs fell 16.8% year over year to $7.9 million. Net loan charge-offs, as a percentage of average loans on an annualized basis, diminished 4 bps year over year to 0.13%. However, provision for loan losses was recorded at $10.4 million, up 9.5 % from the prior-year quarter.
Profitability Ratios
People’s United’s profitability ratios demonstrated mixed results. Operating return on average tangible stockholders’ equity grew 10 bps from the prior-year quarter to 9.9%. However, operating return on average assets was 0.74%, down 94 bps year over year.
As of Sep 30, 2014, People’s United’s tangible equity ratio descended to 7.8% from the prior-year quarter ratio of 8.5%. Further, total risk-based capital ratio declined to 12.3% from 12.6% in the year-ago quarter.
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, a persistent low interest rate environment and sluggish economic recovery remain the major areas of concern.
People’s United currently carries a Zacks Rank #3 (Hold).
Other Stocks to Consider
Among other financial savings and loan institutions, Northfield Bancorp, Inc. (NFBK), Laporte Bancorp, Inc. (LPSB) and Meridian Bancorp, Inc. (EBSB) are slated to report results on Oct 22, Oct 23 and Oct 28, respectively.
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