People's United Financial Inc.’s (PBCT) fourth-quarter 2014 operating earnings of 22 cents per share slivered past the Zacks Consensus Estimate by a penny. Moreover, the bottom line came in 10% higher than the prior-year quarter figure.
For 2014, operating earnings per share stood at 82 cents, up 6.5% year over year. However, this lagged the Zacks Consensus Estimate by a penny. Operating earnings for the year excluded a net after-tax gain as well as an after-tax non-operating cost.
Modest revenue generation along with appreciable growth in loans and deposits contributed to the better performance. Expenses declined slightly and credit quality, with the exception of provisions, showed improvement. Provisions acted as headwinds for the quarter.
Operating income was reported at $65.1 million, up 8.5% year over year. Net income grew 9.1% year over year to $64.7 million.
For 2014, operating income rose 1.4% year over year to $244.5 million. Net income for the full year climbed 8.3% year over year to $251.7 million.
Performance in Detail
Net revenue amounted to $314.9 million, up 2.4% year over year. However, it missed the Zacks Consensus Estimate of $317.0 million.
For 2014, net revenue increased 2.6% year over year to $1.26 billion. However, it came in line with the Zacks Consensus Estimate.
Net interest income summed $228.1 million, up 1.4% year over year. This was owing to an increase in total interest and dividend income, partly mitigated by a rise in total interest expenses.
Non-interest income escalated 5.2% year over year to $86.8 million. The rise in income was primarily driven by higher investment management fees, operating lease income as well as other non-interest income. However, this was partially offset by a reduction in commercial banking lending fees, brokerage commissions as well as net customer interest swap income.
Non-interest expenses inched down marginally year over year to $207.7 million. The decline was on account of a fall in professional & outside service fees, amortization of other acquisition-related intangible assets and other non-interest expenses. These were mostly offset by higher compensation & benefits costs, regulatory assessments as well as operating lease expenses.
As of Dec 31, 2014, total loans grew 9.0% year over year to $26.6 billion. Moreover, total deposits rose 15.9% on a year-over-year basis to $26.1 billion.
Credit Metrics
Overall, People’s United’s credit quality metrics were favorable. As of Dec 31, 2014, the company’s originated non-performing loans totaled $197.0 million, down 9.0% from the prior-year quarter. Moreover, the ratio of non-performing loans to total originated loans declined 18 basis points (bps) year over year to 0.77%.
Non-performing assets came in at $224.1 million, down 9.6% year over year. Moreover, non-performing assets, as a percentage of originated loans, REO and repossessed assets decreased 20 bps year over year to 0.88%.
Moreover, net loan charge-offs fell 18.3% year over year to $8.5 million. Net loan charge-offs, as a percentage of average loans on an annualized basis, diminished 5 bps year over year to 0.13%. However, provision for loan losses was recorded at $11.6 million, up 14.9% from the year-ago quarter.
Profitability Ratios
People’s United’s profitability ratios exhibited mixed results. Operating return on average tangible stockholders’ equity stood at 10.1%, up from the prior-year quarter return of 9.8%. Operating return on average assets came at par with the year-ago quarter return of 0.75%.
As of Dec 31, 2014, total risk-based capital ratio climbed to 12.2% from 11.3% in the year-ago quarter. However, tangible equity ratio descended to 7.5% from the year-ago quarter ratio of 7.9%.
Our Viewpoint
People’s United seems well positioned to capitalize on the opportunistic acquisitions to pave the way for future growth. While the company is making efforts to overcome the impact of a sluggish economic recovery on its financials, the remarkable improvement on the loan originations front will prove to be beneficial.
However, the recent regulatory issues, higher provisions and a challenging economic environment keep us apprehensive.
People’s United currently carries a Zacks Rank #3 (Hold).
Among other financial savings and loan institutions, Laporte Bancorp, Inc. (LPSB) and Meridian Bancorp, Inc. (EBSB) are slated to report fourth-quarter and 2014 earnings results on Jan 27, while Northfield Bancorp, Inc. (NFBK) is scheduled to report on Feb 4.
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