DBRS: People’s United Financial’s 1Q14 Has Solid Loan & Deposit Growth, but Lower QoQ Earnings

Summary:
• 1Q14 net income of $53.1 million was down quarter-over-quarter driven by higher expenses.
• The Company reported its 14th consecutive quarter of loan growth, while deposits (excluding brokered deposits), grew a very solid 10% on an annualized basis.
• DBRS rates People’s United Financial, Inc. Issuer & Senior Debt at A (low) with a Stable trend.

DBRS, Inc. (DBRS) views People’s United Financial, Inc.’s (People’s or the Company) 1Q14 results as sound, but relatively stable revenues were offset by higher expenses resulting in the third consecutive quarter of negative operating leverage, a trend that DBRS expects People’s to reverse shortly. Indeed, investments made in the Company’s businesses are gaining traction and the loan pipeline remains strong, which should further bolster net interest income.

The Company would have reported operating revenue growth absent the two fewer days in the month, as loan growth continues to contribute to higher net interest income. While 1Q14 loan growth came in lower than previous quarters, management indicated they were still very comfortable with their 2014 guidance of loan growth in the high-single digits to mid-teens range given the strength of their pipelines, as well as some new hires. People’s has been more focused on deposit gathering and was able to deliver very solid deposit growth, excluding brokered deposits. Nonetheless, DBRS views continued success in growing deposits as a key challenge for the Company, as the loan portfolio is not entirely funded by core deposits.

The Company announced that David Rosato is replacing Kirk Walters as CFO of the Bank immediately and he is also expected to assume the holding company responsibilities in January 2015. DBRS views the incoming CFO as having the necessary skills and institutional knowledge to be a successful CFO. Moreover, Kirk Walters will remain at the Company following the transition as a member of the Management Committee.

The net interest margin remained pressured declining 7 bps to 3.17% and the Company expects the FY14 margin to be in the 3.10% to 3.20% range, indicating that the margin is close to stabilizing.

Asset quality remains strong and continues to support the rating. Indeed, both the net charge-off and non-performing loans to originated loans ratios were at their lowest levels in six years.

After completing its accelerated share repurchase last quarter, the Company’s tangible common equity ratio has stabilized growing modestly during the quarter to 8.0% and management anticipates growth in tangible equity in the coming quarters.

DBRS rates People’s United Financial, Inc. Issuer & Senior Debt at A (low) with a Stable trend.

Notes:
All figures are in U.S. dollars unless otherwise noted.

[Amended on December 23th, 2014 to remove unnecessary disclosures.]