People's United Financial Inc.
) reported its third-quarter 2012 operating earnings per share of
19 cents, in line with the Zacks Consensus Estimate. Earnings
compared unfavorably with 20 cents per share, reported in the
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Higher non-interest expenses and elevated provision for loan
losses were the dampeners for the quarter. However, higher
revenue aided by improved non-interest income acted as a
Operating income was reported at $64.4 million compared with
$67.2 million in the prior quarter. Including after-tax one-time
charges of $2.2 million, net income came in at $62.2 million or
18 cents per share in the third quarter of 2012.
Performance in Detail
Total revenue, net of expense reported was $316.2 million in the
quarter, up 1.6% sequentially, due to higher non-interest income.
Moreover, results surpassed the Zacks Consensus Estimate of
Net interest income reported by the company was $234.8 million,
slightly down on a sequential basis. Moreover, in the ongoing
historically low interest rate environment and with an asset
sensitive balance sheet, operating net interest margin decreased
6 basis points sequentially to 3.82%. Reduction in loan yields
was partly offset by lower funding costs.
Non-interest income was $81.4 million, up 7.5% sequentially,
mainly attributed to a rise in bank service charges and higher
other non-interest income. These increases were, however,
partially offset by lower brokerage commissions.
Non-interest expenses augmented 1.6% sequentially to $208.9
million. The increase in expenses was attributable to escalation
in compensation and benefits expenses and elevated occupancy and
Overall, People's United's credit quality reported a mixed bag
during the quarter. Provision for loan losses was recorded at
$15.1 million, up 42.5% from $10.6 million in the prior quarter.
As of September 30, 2012, People's United's nonperforming loans
totaled $202.0 million, down 14.6% from $236.6 million in the
last quarter. Moreover, the ratio of nonperforming loans to total
loans declined to 1.45% from 1.52% as of June 30, 2012.
Nonperforming assets (excluding acquired non-performing loans)
totaled $294.0 million as of September 30, 2012, approximately in
line with the prior quarter. However, nonperforming assets were
1.59% of total loans, REO and repossessed assets, down from 1.67%
in the previous quarter.
Moreover, net loan charge-offs totaled $9.4 million, down 30.4%
from $13.5 million in the prior quarter. Net loan charge-offs as
a percentage of average loans on an annualized basis were 0.18%,
down 8 basis points sequentially.
Operating return on average assets was 0.91% and return on
average tangible stockholders' equity was 8.6%, descending from
0.97% and 8.9%, respectively, in the prior quarter.
Moreover, as of September 30, 2012, People's United's tangible
equity ratio plummeted to 11.2% from 11.5% in the prior quarter.
Capital Deployment Update
Concurrent with the press release, the board of People's United
declared quarterly dividend of 16 cents per share. The dividend
will be paid on November 15, 2012 to shareholders of record as of
November 1, 2012. Considering the closing stock price on October
17, the dividend yield came in at 5.3%.
During the quarter, People's United repurchased 4.5 million
shares of common stock valued at $54 million. Under the
current share repurchase authorization, 4.5 million shares remain
available for buyback.
Overall, People's United is trying to overcome the slow economic
recovery through opportunistic acquisitions. Going forward,
growth in deposits is expected to boost the company's financial
results. In addition, capital deployment activity will definitely
boost investors' confidence. Yet, the recent regulatory issues
remain the major area of concern.
People's United currently retains a Zacks #3 Rank, which
translates into a short-term Hold rating. Considering the
fundamentals, we also maintain our 'Neutral' recommendation on
One of People's United's peers,
Hudson City Bancorp Inc.
) will report its third-quarter 2012 earnings on October 24,