People's United Financial Inc.
) reported its fourth-quarter 2012 operating earnings per share
of 19 cents, in line with the Zacks Consensus Estimate. Earnings
compared favorably with 17 cents per share, reported in the
prior-year quarter and were in line with the prior quarter.
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Lower non-interest expenses and reduced provision for loan losses
were the tailwinds for the quarter. However, lower revenues aided
by fall in net interest income acted as a dampener.
Operating income was reported at $63.2 million compared with
$57.1 million in the prior-year quarter and $64.4 million in the
prior quarter. Including after-tax severance-related costs of
$2.0 million, net income came in at $61.2 million or 18 cents per
share in the fourth quarter of 2012.
For full-year 2012, operating income was 75 cents per share, up
from 66 cents reported in the prior year and outpacing the Zacks
Consensus Estimate by 2 cents. Including after-tax merger-related
expenses and other adjustments of 3 cents per share, net income
summed to 72 cents.
Performance in Detail
Total revenues, net of expense reported was $309.4 million in the
quarter, down 0.6% year over year and 2.2% sequentially, due to
lower net interest income, partially offset by higher
non-interest income. Moreover, results lagged the Zacks Consensus
Estimate of $314.0 million.
For full year, revenues were $1,242.5 million, up 1.8% from
$1,221.0 million in 2011. However, this compares unfavorably with
the Zacks Consensus Estimate of $1,258.0 million.
Net interest income was $225.1 million in the reported quarter,
down 6.1% year over year and 4.1% sequentially. Moreover, in the
ongoing historically low interest rate environment and with an
asset sensitive balance sheet, operating net interest margin
decreased 19 basis points sequentially to 3.63%.
Primarily, new loan volume at lower rates and lower interest
income on acquired loans led to the reduction in margin. These
were partly offset by lower funding costs and improved mix.
Further, margin was down 40 basis points year over year.
Yet, non-interest income was $84.3 million, up 17.6% year over
year and 3.6% sequentially. The upsurge was mainly attributed to
a rise in investment management fees, operating lease income and
higher other non-interest income along with net gains on sales of
residential mortgage loans. These increases were, however,
partially offset by lower insurance revenue.
Non-interest expenses descended 9.9% year over year and 0.7%
sequentially to $207.4 million. The decrease in expenses was
primarily attributable to fall in compensation and benefits
expenses, partially offset by elevated occupancy and equipment
Overall, People's United's credit quality reported a mixed bag
during the quarter. Provision for loan losses was recorded at
$12.0 million, down 42% year over year and 21% sequentially.
As of Dec 31, 2012, People's United's nonperforming loans totaled
$181.6 million, down 27% from $249 million in the last-year
quarter and 10% from $202 million in the prior quarter. Moreover,
the ratio of nonperforming loans to total loans declined to 1.30%
from 1.45% as of Sep 30, 2012 and 1.75% as of Dec 31, 2011.
Nonperforming assets totaled $289.6 million as of Dec 31, 2012,
down 14% year over year and 1.5% sequentially. Moreover,
nonperforming assets (excluding acquired non-performing loans)
were 1.48% of total related assets, down from 2.00% in the
previous-year quarter and 1.59% in the prior quarter.
However, net loan charge-offs totaled $10.0 million, down 32.4%
from $14.8 million in the prior-year quarter but up slightly from
$9.4 million reported in the prior quarter. Net loan charge-offs
as a percentage of average loans on an annualized basis were
0.19%, down 10 basis points year over year but up 1 basis point
Operating return on average assets was 0.87% and return on
average tangible stockholders' equity was 8.6%, increasing from
0.84% and 7.2%, respectively, in the prior quarter.
Moreover, as of Dec 31, 2012, People's United's tangible equity
ratio plummeted to 10.2% from 11.2% in the prior quarter and
12.0% in the prior-year quarter. Further, tier 1 common and total
risk-based capital ratios were 12.7% and 14.7%, respectively.
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 Feb 15, 2013 to shareholders of record as of Feb
1, 2013. Considering the closing stock price on Jan 16, the
dividend yield came in at 5.1%.
During 2012, People's United repurchased 18.2 million shares of
common stock valued at $220 million. Notably, during the fourth
quarter, the company repurchased 4.7 million shares of common
stock at a total cost of $56 million. Under the new share
repurchase authorization announced in November 2012, 33.4 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 loans and 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 Rank #3 (Hold).
One of People's United's peers,
Hudson City Bancorp Inc.
) will report its fourth-quarter 2012 earnings on Jan 30.