People’s United Financial, Inc.’s (PBCT) fourth quarter operating earnings per share of 8 cents were flat with the Zacks Consensus Estimate and third quarter earnings. However, earnings declined from 10 cents in the prior-year quarter due to continued market pressure, which further drove non-interest expenses higher and interest income lower for the quarter.
Results included $4.5 million in system conversion and merger-related expenses. After taxes, these expenses reduced the net income of $28.0 million by $3.1 million or 1 cent per share in the reported quarter. Net margin was sequentially flat at 3.1% although it declined from 3.55% in the prior-year quarter.
Non-interest expense increased 4.3% sequentially and 2.4% year-over-year to $172.2 million. Total interest income declined 2.3% sequentially and 11.7% year-over-year to $187.5 million due to decrease in wealth management, commercial, residential mortgage and consumer loan interests.
For full year 2009, People’s United’s net income totaled $101.2 million or 30 cents per share as compared to $137.8 million or 42 cents per share for 2008. Core commercial and home equity lending portfolios increased 5% and deposits grew 8% year-over-year. Net margin declined to 3.19% from 3.62% in 2008 due to higher non-interest expenses and loan loss provisions.
Credit Metrics
During the reported quarter, net loan charge-offs totaled $13.6 million, increasing drastically by 138.6% year-over-year although declining 15% sequentially. Net loan charge-offs as a percentage of average loans on an annualized basis were 0.38% compared to 0.44% in third quarter of 2009.
At Dec 31, 2009, People’s United’s non-performing loans totaled $168.8 million and the ratio of non-performing loans to total loans was 1.19%, compared to $175.7 million and 1.23%, respectively, at Sep 30, 2009, reflecting marginal stability. However, this was significantly higher compared to non-performing loans of $84.3 million and the respective ratio of 0.58% as on Dec 31, 2008.
Non-performing assets totaled $205.6 million at Dec 31, 2009, up $12.9 million from Sep 30, 2009. Non-performing assets were 1.44% of total loans, REO and repossessed assets at Dec 31, 2009 as compared to 1.35% at Sep 30, 2009, primarily reflecting a decline in the market value of fixed-income assets due to an increase in interest rates.
At Dec 31, 2009, the allowance for loan losses as a percentage of total loans was 1.21%, while as a percentage of non-performing loans was 102%, compared to 1.21% and 98%, respectively, at Sep 30, 2009.
Profitability Metrics
For the fourth quarter of 2009, return on average tangible assets was 0.51% and return on average tangible stockholders’ equity was 2.8%, compared to 0.55% and 3.0%, respectively, for the third quarter of 2009. At Dec 31, 2009, People’s United’s tangible equity ratio stood at 18.2% while tangible book value per share decreased to $10.68 from $10.86 at the end of 2008.
Dividend Update
The Board of People’s United Financial declared a $0.1525 per share quarterly dividend, payable on Feb 15, 2010 to shareholders as on Feb 1, 2010. Based on the closing stock price on Jan 20, 2010, the dividend yield on People’s United Financial common stock came in at 3.7%.
People’s United also expects to complete the pending acquisition of Financial Federal by mid-Feb, 2010.
Overall, People’s United is desperately trying to overcome the challenging economic environment through opportunistic acquisitions, stable net interest margin, modest loan growth and lower net loan charge-offs.
However, the company’s operating leverage and balance sheet remains sensitive to weak credit quality, increasing loan loss provisions, non-interest expenses against decreasing interest income. We believe the historically low interest rate environment is expected to have a negative impact on People’s United for some more time before it rebounds with the slowly recovering economy.
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