January 19, 2012
People's United Finncial Reports Fourth Quarter Operating Earnings of $0.17 Per Share And Net Income Of $0.12 Per Share
Click here to see the fourth quarter Financial Schedule.
BRIDGEPORT, CT. – People's United Financial, Inc. (NASDAQ: PBCT) today announced net income of $43.0 million, or $0.12 per share, for the fourth quarter of 2011, compared to $32.0 million, or $0.09 per share, for the fourth quarter of 2010, and $52.9 million, or $0.15 per share, for the third quarter of 2011. Operating earnings were $58.7 million, or $0.17 per share, for the fourth quarter of 2011, compared to $36.7 million, or $0.10 per share, for the fourth quarter of 2010 and $67.3 million, or $0.19 per share, for this year's third quarter. Included in the quarterly results are merger-related expenses and one-time charges (after-tax) totaling $15.7 million in the fourth quarter of 2011, $4.7 million in the fourth quarter of 2010 and $14.4 million in the third quarter of 2011.
For the year ended December 31, 2011, net income totaled $198.8 million, or $0.57 per share, compared to $85.7 million, or $0.24 per share, for 2010. Operating earnings were $237.1 million, or $0.68 per share, for 2011, compared to $125.4 million, or $0.35 per share, for 2010. Included in both the 2011 and 2010 results are $38.3 million and $39.7 million (after-tax), respectively, of merger-related expenses, core system conversion costs and one-time charges.
The Board of Directors of People's United Financial declared a $0.1575 per share quarterly dividend, payable February 15, 2012 to shareholders of record on February 1, 2012. Based on the closing stock price on January 18, 2012, the dividend yield on People's United Financial common stock is 4.7 percent.
"Our performance throughout 2011 reflects the significant progress we have made in carrying out our two primary objectives - optimizing existing businesses and efficiently deploying capital," stated Jack Barnes, President and Chief Executive Officer. "Our focus on organic loan and deposit growth throughout the franchise, including new market opportunities within the Boston and New York City MSAs, has resulted in improved operating leverage, which is evident in our 2011 financial results."
Barnes added, "Integration of acquisitions has become a core competency for this organization. We have now integrated five acquisitions since early 2010 and exceeded our estimated cost benefits announced at the time of each transaction. Our momentum is based on a 170-year track record with continued outstanding customer service throughout the financial crisis. Offering the full breadth of products and services that our customers need, providing relationship-based solutions, and effectively cross-selling our products across all lines of business are key contributors to our continued growth and strong operating performance."
Barnes concluded, "We remain focused on delivering shareholder value by leveraging opportunities within our existing markets. Further, we have demonstrated our ability to prudently and effectively deploy capital through organic loan and deposit growth, adherence to a strong dividend policy, share repurchases and a thoughtful acquisition strategy."
"On an operating basis, earnings were $59 million, or 17 cents per share, this quarter," said Kirk W. Walters, Senior Executive Vice President and Chief Financial Officer. "The Company's performance this quarter reflects an improvement in net interest income, higher provision expense, an expected decline in fee income, and tighter expense control."
Walters continued, "The net interest margin increased 29 basis points in the fourth quarter of 2011 compared to last year's fourth quarter and 5 basis points compared to the third quarter of 2011. The operating net interest margin was 4.07 percent in the fourth quarter of 2011 compared to 4.11 percent in the third quarter. Included in this quarter's net interest margin is $5 million of cost recovery income from the acquired loan portfolio, which added nine basis points to the margin. As expected, non-interest income declined $13 million from the prior quarter, which was driven by a decrease in bank service charges of approximately $5 million due to changes brought about by the Dodd-Frank Act and lower net security gains of $8.6 million. The decrease in the level of operating non-interest expense this quarter reflects the continued benefit from cost-savings initiatives announced earlier in 2011."
Walters concluded, "While the overall level of non-performing loans is reflective of a period of prolonged economic weakness, we are pleased with the credit trends noted over the past few quarters. In fact, throughout 2011, our net loan charge-off ratio represented less than one-third that of our peers', which is a reflection of the Company's historically strong underwriting standards, the strength of the footprint in which we operate and the resilience of our customers who have successfully managed through the economic crisis."
At December 31, 2011, People's United Financial's tier 1 common and total risk-based capital ratios were 14.3 percent and 16.2 percent, respectively, and the tangible equity ratio stood at 12.0 percent. People's United Bank's tier 1 and total risk-based capital ratios were 13.1 percent and 14.0 percent, respectively, at December 31, 2011.
Operating return on average assets was 0.86 percent for the fourth quarter of 2011, compared to 0.98 percent for the third quarter of 2011 and 0.64 percent for the fourth quarter of 2010. Operating return on average tangible stockholders' equity was 7.4 percent for the fourth quarter of 2011, compared to 8.0 percent for the third quarter of 2011 and 4.2 percent for the fourth quarter of 2010.
Loans acquired in connection with acquisitions have been recorded at fair value based on an initial estimate of expected cash flows, including a reduction for estimated credit losses, and without carryover of the respective portfolio's historical allowance for loan losses. A decrease in expected cash flows in subsequent periods may indicate that a loan is impaired, which would require the establishment of an allowance for loan losses. As such, selected asset quality metrics have been highlighted to distinguish between the 'originated' portfolio and the 'acquired' portfolio.
At December 31, 2011, the allowance for loan losses for originated loans as a percentage of originated loans, which represents all loans other than those acquired, was 1.04 percent and as a percentage of originated non-performing loans was 60 percent, compared to 1.09 percent and 69 percent, respectively, at September 30, 2011. For the originated commercial banking portfolio, the allowance for loan losses ratio was 1.39 percent at December 31, 2011 and represented 77 percent of non-performing commercial banking loans at that date.
For the originated loan portfolio, non-performing loans equaled 1.75 percent of originated loans at December 31, 2011, compared to 1.60 percent at September 30, 2011 and 1.70 percent at December 31, 2010. Non-performing assets (excluding acquired non-performing loans) equaled 2.00 percent of originated loans, REO and repossessed assets at December 31, 2011 compared to 1.88 percent at September 30, 2011 and 2.09 percent at December 31, 2010.
Non-performing loans in the acquired portfolio, which represent the contractual balances of loans acquired that meet our definition of non-performing but for which the risk of loss has already been considered by virtue of our estimate of acquisition-date fair value and/or the existence of an FDIC loss-share agreement, totaled $249.0 million at December 31, 2011 compared to $241.6 million at September 30, 2011 and $359.8 million at December 31, 2010.
Fourth quarter net loan charge-offs totaled $14.8 million compared to $13.4 million in the third quarter of 2011. Net loan charge-offs as a percent of average loans on an annualized basis were 0.29 percent in the fourth quarter of 2011 compared to 0.27 percent in this year's third quarter. The provision for loan losses in the fourth quarter of 2011 reflects a $7.4 million increase in the allowance for loan losses on originated loans related to the growth in the commercial and residential mortgage loan portfolios and a $7.4 million increase due to impairment on acquired loans, partially offset by charge-offs of $8.9 million against previously established specific reserves.
People's United Financial, a diversified financial services company with $28 billion in assets, provides commercial and retail banking, as well as wealth management services through a network of 372 branches in Connecticut, Massachusetts, Vermont, New York, New Hampshire and Maine. Through its subsidiaries, People's United Financial provides equipment financing, brokerage and insurance services.
On January 19, 2012, 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.
4Q 2011 Financial Highlights
Net income was $43.0 million, or $0.12 per share.
- Operating earnings were $58.7 million, or $0.17 per share.
Net interest income totaled $242.1 million.
- Net interest margin increased 5 basis points from 3Q11 to 4.16%.
- Cost recovery income on acquired loans, representing cash receipts in excess of carrying amount, totaled $5 million in 4Q11 and contributed 9 basis points.
- The normalized yield on loans in 4Q11, which excludes cost recovery income, reduced the net interest margin by 10 basis points.
- Lower funding costs in 4Q11 benefited the net interest margin by 6 basis points.
Provision for loan losses totaled $20.7 million.
- Net loan charge-offs totaled $14.8 million, of which $8.9 million related to loans with specific reserves established in prior periods.
- Allowance for loan losses on originated loans in 4Q11 reflects a $7.4 million increase in response to loan growth.
- Includes a provision for loan losses on acquired loans of $7.4 million.
Non-interest income was $71.7 million in 4Q11 compared to $84.7 million in 3Q11.
- Bank service charges decreased $4.2 million in 4Q11 to $31.6 million, primarily as a result of certain provisions of the Dodd-Frank Act, which became effective in October 2011.
- Insurance revenue decreased $1.8 million from 3Q11, primarily reflecting the seasonal nature of insurance renewals.
- 4Q11 and 3Q11 include losses of $0.4 million and $4.8 million, respectively, on sales of acquired loans.
- Loan prepayment fees declined $2.7 million from 3Q11.
- 3Q11 includes net security gains of $8.6 million (none in 4Q11).
Non-interest expense totaled $230.2 million in 4Q11 compared to $231.9 million in 3Q11.
- Operating non-interest expense was $207.2 million in 4Q11 compared to $210.4 million in 3Q11, reflecting declines in compensation and benefits, occupancy and equipment, and other non-interest expense.
- 4Q11 and 3Q11 include $23.0 million and $21.5 million, respectively, of merger-related expenses and one-time charges.
- 4Q11 includes a $1.4 million charge relating to Visa Inc.'s funding of its litigation escrow account.
- Effective income tax rate was 31.6% for 4Q11 and 32.7% for 2011.
- Excluding acquired loans, commercial banking loans increased $470 million, or 17% annualized, from September 30, 2011.
- Average commercial banking loans totaled $14.4 billion, an increase of $156 million, or 4% annualized, from 3Q11.
- Non-performing commercial banking assets, excluding acquired non-performing loans, totaled $240.8 million at December 31, 2011, up from $213.1 million at September 30, 2011.
- The ratio of originated non-performing commercial banking loans to originated commercial banking loans was 1.81% at December 31, 2011 compared to 1.61% at September 30, 2011.
- Net loan charge-offs totaled $11.8 million, or 0.33% annualized, of average commercial banking loans in 4Q11, compared to $9.8 million, or 0.28% annualized, in 3Q11.
- For the originated commercial banking portfolio, the allowance for loan losses as a percentage of loans was 1.39% at December 31, 2011 compared to 1.48% at September 30, 2011.
- The commercial banking allowance for loan losses represented 77% of originated non-performing commercial banking loans at December 31, 2011 compared to 92% at September 30, 2011.
- Commercial deposits totaled $5.2 billion at December 31, 2011 compared to $5.0 billion at September 30, 2011.
Excluding acquired loans, residential mortgage loans increased $168 million, or 23% annualized, from September
- The ratio of originated non-performing residential mortgage loans to originated residential mortgage loans was 2.19% at December 31, 2011, unchanged from September 30, 2011.
Average residential mortgage loans totaled $3.6 billion, an increase of $215 million, or 26% annualized, from
- Net loan charge-offs totaled $1.6 million, or 0.18% annualized, of average residential mortgage loans in 4Q11, compared to $2.1 million, or 0.25% annualized, in 3Q11.
Excluding acquired loans, home equity loans remained unchanged from September 30, 2011.
- The ratio of originated non-performing home equity loans to originated home equity loans was 0.82% at December 31, 2011 compared to 0.74% at September 30, 2011.
Average home equity loans totaled $2.1 billion in 4Q11, unchanged from 3Q11.
- Net loan charge-offs totaled $0.7 million, or 0.15% annualized, of average home equity loans in 4Q11, compared to $1.1 million, or 0.21% annualized, in 3Q11.
- Retail deposits totaled $15.6 billion at December 31, 2011 compared to $15.5 billion at September 30, 2011.
Wealth Management and Insurance
- Insurance revenue decreased $1.8 million from 3Q11, primarily reflecting the seasonal nature of insurance renewals, and increased $0.3 million from 4Q10.
- Brokerage commissions declined $0.2 million from 3Q11 and $0.3 million from 4Q10, primarily reflecting lower commissions on mutual funds and fixed income products due to the uncertainty in the equity markets and the low interest rate environment.
- Investment management fees decreased $0.1 million from 3Q11 and increased $0.4 million from 4Q10.
- Assets under administration and those under full discretionary management, neither of which are reported as assets of People's United Financial, totaled $12.5 billion and $4.3 billion, respectively, at December 31, 2011.
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" 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 acquired companies; 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.