July 17, 2014
People's United Financial Reports Second Quarter Net Income of $0.24 Per Share And Operating Earnings Of $0.20 Per Share
Click here to see the second quarter Financial Schedule.
BRIDGEPORT, CT – People's United Financial, Inc. (NASDAQ: PBCT) today reported net income of $72.3 million, or $0.24 per share, for the second quarter of 2014, compared to $62.1 million, or $0.20 per share, for the second quarter of 2013, and $53.1 million, or $0.18 per share, for the first quarter of 2014. Included in this quarter's results is a net after-tax gain of $13.4 million ($0.04 per share) resulting from the formation of a merchant services joint venture discussed below. Operating earnings were $59.9 million, or $0.20 per share, for the second quarter of 2014, compared to $62.4 million, or $0.20 per share, for the second quarter of 2013, and $56.5 million, or $0.19 per share, for the first quarter of 2014.
The Company's Board of Directors declared a $0.165 per share quarterly dividend, payable August 15, 2014 to shareholders of record on August 1, 2014. Based on the closing stock price on July 16, 2014, the dividend yield on People's United Financial common stock is 4.4 percent.
"Our results this quarter demonstrate continued momentum in growing our businesses, fueled by ongoing strategic investments in people, products and services," said Jack Barnes, President and Chief Executive Officer. "This quarter we experienced annualized deposit growth of seven percent and loan growth of 13 percent, reflecting our strong commitment to fostering customer relationships. At the same time we continue to maintain superior asset quality metrics. The increase in net interest income over the past several quarters primarily reflects growth in the loan portfolio despite a challenging rate environment and less income on acquired loans."
Barnes continued, "We are pleased to announce today the formation of People's United Merchant Services, a joint venture between People's United Bank and Vantiv, Inc. The new company will offer customers a comprehensive suite of payment solutions by combining People’s United’s strong reputation and broad access to commercial merchants with Vantiv’s deep payments expertise, innovative products, security tools, technology and processing scale. This new partnership with Vantiv reflects our ongoing commitment to strengthen our products and services and should provide long-term growth for both companies."
Barnes concluded, "Our strong business fundamentals, ongoing ability to leverage our brand in attractive markets, and prospects for growth continue to be the foundations of our operating strength relative to others in the industry."
"The net interest margin reflects the impact of strong loan originations and the benefit of one more calendar day in this quarter," stated Kirk W. Walters, Senior Executive Vice President and Chief Financial Officer. "We certainly are pleased with our ability to maintain operating expenses at a relatively flat level over the past several quarters. This is quite an achievement, considering the number of strategic investments we continue to make in people and services, along with the increasing cost of regulatory compliance, and reflects our ongoing commitment to cost control."
Walters concluded, "Our results this quarter include a $21 million pre-tax gain resulting from the formation of the merchant services joint venture in which we have retained a 49 percent minority interest. The gain represents the fair value of our entire portfolio of merchant contracts which was contributed to the joint venture and had a zero book basis under GAAP. Also in the second quarter, People's United Bank issued $400 million of fixed-rate subordinated notes that were converted to a floating interest rate using an interest rate swap. The notes qualify as Tier 2 capital for regulatory purposes, which will serve to bolster total risk-based capital ratios."
Net loan charge-offs as a percentage of average total loans on an annualized basis were 0.10 percent in the second quarter of 2014, compared to 0.12 percent in the first quarter of 2014 and 0.19 percent in the second quarter of 2013. For the originated loan portfolio, non-performing loans equaled 0.82 percent of loans at June 30, 2014, compared to 0.84 percent at March 31, 2014 and 1.18 percent at June 30, 2013. Of note, both the loan charge-off and non-performing loans to originated loans ratios this quarter were the lowest each has been in six years.
Operating return on average assets was 0.72 percent for the second quarter of 2014, compared to 0.69 percent for the first quarter of 2014 and 0.81 percent for the second quarter of 2013. Operating return on average tangible stockholders' equity was 9.6 percent for the second quarter of 2014, compared to 9.3 percent for the first quarter of 2014 and 9.3 percent for the second quarter of 2013.
At June 30, 2014, People's United Financial's tier 1 common and total risk-based capital ratios were 10.0 percent and 12.5 percent, respectively, and the tangible equity ratio stood at 7.9 percent. People's United Bank's tier 1 and total risk-based capital ratios were 10.8 percent and 13.5 percent, respectively, at June 30, 2014.
People's United Financial, a diversified financial services company with $34 billion in assets, provides commercial and retail banking, as well as wealth management services through a network of 407 branches in Connecticut, New York, Massachusetts, Vermont, New Hampshire and Maine. Through its subsidiaries, People's United Financial provides equipment financing, brokerage and insurance services. Assets managed and administered, which are not reported as assets of People's United Financial, totaled $16.2 billion at June 30, 2014 compared to $15.9 billion at March 31, 2014.
2Q 2014 Financial Highlights
Net income was $72.3 million, or $0.24 per share.
- Operating earnings were $59.9 million, or $0.20 per share.
Net interest income on a fully taxable equivalent basis increased $1.0 million from 1Q14 and totaled $232.8
million in 2Q14.
- Interest income on acquired loans decreased $1.6 million from 1Q14 to $21.7 million.
Net interest margin decreased four basis points from 1Q14 to 3.13%.
- The effect of one more calendar day in 2Q14 benefitted the margin by three basis points.
- The effect of new loan volume at lower rates reduced the margin by seven basis points.
Provision for loan losses totaled $8.8 million.
- Net loan charge-offs totaled $6.5 million, of which $5.2 million related to loans with previously-established specific reserves. Net loan charge-off ratio of 0.10% in 2Q14.
- Reflects a $6.7 million increase in the originated allowance for loan losses due to loan growth.
- Includes a provision for loan losses on acquired loans of $0.8 million.
Non-interest income was $100.1 million in 2Q14 compared to $79.9 million in 1Q14.
- Gain on formation of merchant services joint venture, net of related expenses totaled $20.6 million in 2Q14.
- Bank service charges increased $2.3 million from 1Q14, in part due to the seasonal nature of certain transaction-related fee categories.
- Operating lease income decreased $1.4 million from 1Q14.
- Insurance revenue decreased $0.9 million from 1Q14, primarily reflecting the seasonal nature of insurance renewals.
- Investment management fees increased $0.8 million from 1Q14.
- Assets under administration and those under full discretionary management, neither of which are reported as assets of People's United Financial, totaled $10.7 billion and $5.5 billion, respectively, at June 30, 2014, compared to $10.8 billion and $5.1 billion, respectively, at March 31, 2014.
Non-interest expense totaled $208.3 million in 2Q14 compared to $216.7 million in 1Q14.
- Operating non-interest expense was $206.7 million in 2Q14 compared to $211.5 million in 1Q14.
- Compensation and benefits expense decreased $1.1 million from 1Q14, primarily reflecting lower payroll and benefit-related costs in 2Q14.
- Compared to 1Q14, operating lease expense decreased $2.4 million and occupancy and equipment expense decreased $1.4 million.
- The efficiency ratio in 2Q14 decreased to 61.8% from 63.9% in 1Q14, reflecting both the increase in adjusted total revenues and the decrease in adjusted total expenses.
- Non-operating expenses totaled $1.6 million in 2Q14 compared to $5.2 million in 1Q14.
- The effective income tax rate was 35.0% for 2Q14 and 33.1% for the full-year of 2013.
- Commercial banking loans increased $762 million, or 17% annualized, from March 31, 2014.
- Average commercial banking loans totaled $18.2 billion in 2Q14, an increase of $552 million, or 13% annualized, from 1Q14.
The ratio of originated non-performing commercial banking loans to originated commercial banking loans was
0.77% at June 30, 2014 compared to 0.73% at March 31, 2014.
- Non-performing commercial banking assets, excluding acquired non-performing loans, totaled $154.9 million at June 30, 2014 compared to $144.0 million at March 31, 2014.
- Net loan charge-offs totaled $4.9 million, or 0.11% annualized, of average commercial banking loans in 2Q14, compared to $4.0 million, or 0.09% annualized, in 1Q14.
- For the originated commercial banking portfolio, the allowance for loan losses as a percentage of loans was 0.92% at June 30, 2014 compared to 0.95% at March 31, 2014.
The commercial banking originated allowance for loan losses represented 120% of originated non-performing
commercial banking loans at June 30, 2014, compared to 129% at
March 31, 2014.
- Commercial deposits totaled $6.6 billion at both June 30, 2014 and March 31, 2014.
Residential mortgage loans increased $47 million, or 4% annualized, from March 31, 2014.
- Average residential mortgage loans totaled $4.5 billion in 2Q14, an increase of $54 million, or 5% annualized, from 1Q14.
- The ratio of originated non-performing residential mortgage loans to originated residential mortgage loans was 1.04% at June 30, 2014 compared to 1.21% at March 31, 2014.
- Net loan charge-offs totaled $0.5 million, or 0.05% annualized, of average residential mortgage loans in 2Q14, compared to $1.0 million, or 0.08% annualized, in 1Q14.
Home equity loans increased $18 million, or 3% annualized, from March 31, 2014.
- Average home equity loans totaled $2.1 billion in 2Q14, unchanged from 1Q14.
- The ratio of originated non-performing home equity loans to originated home equity loans was 0.88% at June 30, 2014 compared to 0.94% at March 31, 2014.
- Net loan charge-offs totaled $0.8 million, or 0.14% annualized, of average home equity loans in 2Q14, compared to $1.7 million, or 0.33% annualized, in 1Q14.
- Retail deposits (excluding brokered deposits) totaled $16.2 billion at June 30, 2014 compared to $16.4 billion at March 31, 2014.
On July 17, 2014, at 5 p.m., Eastern Time, People's United Financial will host a conference call to discuss this earnings announcement. The call may be heard through www.peoples.com by selecting "Investor Relations" in the "About Us" section on the home page, and then selecting "Conference Calls" in the "News and Events" section. Additional materials relating to the call may also be accessed at People's United Bank's web site. The call will be archived on the web site and available for approximately 90 days.
Certain statements contained in this release are forward-looking in nature. These include all statements about
People's United Financial's plans, objectives, expectations and other statements that are not historical facts,
and usually use words such as "expect," "anticipate," "believe," "should" and similar expressions. Such
statements represent management's current beliefs, based upon information available at the time the statements
are made, with regard to the matters addressed. All forward-looking statements are subject to risks and
uncertainties that could cause People's United Financial's actual results or financial condition to differ
materially from those expressed in or implied by such statements. Factors of particular importance to People’s
United Financial include, but are not limited to: (1) changes in general, national or regional economic
conditions; (2) changes in interest rates; (3) changes in loan default and charge-off rates; (4) changes in
deposit levels; (5) changes in levels of income and expense in non-interest income and expense related
activities; (6) residential mortgage and secondary market activity; (7) changes in accounting and regulatory
guidance applicable to banks; (8) price levels and conditions in the public securities markets generally; (9)
competition and its effect on pricing, spending, third-party relationships and revenues; (10) the successful
integration of acquisitions; and (11) changes in regulation resulting from or relating to financial reform
legislation. People's United Financial does not undertake any obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
Access Information About People's United Financial at www.peoples.com.