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PBCT > SEC Filings for PBCT > Form 10-Q on 11-Aug-2014All Recent SEC Filings

Show all filings for PEOPLE'S UNITED FINANCIAL, INC.

Form 10-Q for PEOPLE'S UNITED FINANCIAL, INC.


11-Aug-2014

Quarterly Report


Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Periodic and other filings made by People's United Financial, Inc. ("People's United Financial" or the "Company") with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934 (the "Exchange Act") may, from time to time, contain information and statements that are forward-looking in nature. Such filings include the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and may include other forms such as proxy statements. Other written or oral statements made by People's United Financial or its representatives from time to time may also contain forward-looking statements.

In general, forward-looking statements usually use words such as "expect," "anticipate," "believe," "should," and similar expressions, and include all statements about People's United Financial's operating results or financial position for future periods. Forward-looking statements represent management's beliefs, based upon information available at the time the statements are made, with regard to the matters addressed; they are not guarantees of future performance.

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, international, 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.

All forward-looking statements can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Consequently, no forward-looking statement can be guaranteed. 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.


Table of Contents

Selected Consolidated Financial Information





                                                                     Three Months Ended                        Six Months Ended
                                                         June 30,         March 31,        June 30,        June 30,        June 30,
(dollars in millions, except per share data)               2014             2014             2013            2014            2013
Earnings Data:
Net interest income (fully taxable equivalent)          $    232.8       $     231.8       $   225.2       $   464.6       $   448.5
Net interest income                                          228.2             227.1           220.9           455.3           440.2
Provision for loan losses                                      8.8               9.5             9.2            18.3            21.6
Non-interest income (1)                                      100.1              79.9            88.2           180.0           173.1
Non-interest expense                                         208.3             216.7           205.8           425.0           417.8
Operating non-interest expense (2)                           206.7             211.5           205.4           418.2           409.4
Income before income tax expense (1)                         111.2              80.8            94.1           192.0           173.9
Net income                                                    72.3              53.1            62.1           125.4           114.6
Operating earnings (2)                                        59.9              56.5            62.4           116.4           120.3

Selected Statistical Data:
Net interest margin (3)                                       3.13 %            3.17 %          3.33 %          3.15 %          3.35 %
Return on average assets (3)                                  0.87              0.65            0.81            0.76            0.75
Operating return on average assets (2), (3)                   0.72              0.69            0.81            0.71            0.79
Return on average tangible assets (3)                         0.93              0.69            0.87            0.81            0.81
Return on average stockholders' equity (3)                     6.3               4.7             5.2             5.5             4.7
Return on average tangible stockholders' equity (3)           11.6               8.7             9.3            10.2             8.3
Operating return on average tangible stockholders'
equity (2), (3)                                                9.6               9.3             9.3             9.4             8.7
Efficiency ratio (2)                                          61.8              63.9            61.4            62.8            62.0

Common Share Data:
Basic and diluted earnings per share                    $     0.24       $      0.18       $    0.20       $    0.42       $    0.36
Operating earnings per share (2)                              0.20              0.19            0.20            0.39            0.38
Dividends paid per share                                     0.165            0.1625          0.1625          0.3275          0.3225
Dividend payout ratio                                         68.4 %            91.5 %          83.6 %          78.1 %          91.3 %
Operating dividend payout ratio (2)                           82.5              86.0            83.2            84.2            87.0
Book value per share (end of period)                    $    15.46       $     15.35       $   15.11       $   15.46       $   15.11
Tangible book value per share (end of period) (2)             8.41              8.26            8.20            8.41            8.20
Stock price:
High                                                         15.23             15.70           15.00           15.70           15.00
Low                                                          14.00             13.73           12.62           13.73           12.22
Close (end of period)                                        15.17             14.87           14.90           15.17           14.90

(1) Previously reported amounts for the three and six months ended June 30, 2013 have been restated to reflect the change in accounting for investments in qualified affordable housing projects. See Notes 1 and 13 to the Consolidated Financial Statements.

(2) See Non-GAAP Financial Measures and Reconciliation to GAAP.

(3) Annualized.


Table of Contents
                                                          As of and for the Three Months Ended
                                        June 30,        March 31,       Dec. 31,        Sept. 30,       June 30,
(dollars in millions)                     2014            2014            2013            2013            2013
Financial Condition Data:
Total assets                            $  33,921      $    33,112      $  33,214      $    31,511      $  31,345
Loans                                      25,455           24,629         24,390           23,227         22,866
Securities                                  4,580            4,690          5,033            4,379          4,618
Short-term investments                         99               73            124              148            120
Allowance for loan losses                     193              190            188              188            186
Goodwill and other
acquisition-related intangible assets       2,115            2,121          2,127            2,134          2,140
Deposits                                   24,089           23,666         22,557           22,190         21,982
Borrowings                                  3,773            3,887          5,057            3,621          3,626
Notes and debentures                        1,040              639            639              639            639
Stockholders' equity                        4,636            4,596          4,568            4,638          4,678
Total risk-weighted assets (1)             26,591           25,749         25,386           23,731         23,506
Non-performing assets (2)                     233              231            248              271            281
Net loan charge-offs                          6.5              7.0           10.4              9.6           10.8

Average Balances:
Loans                                   $  24,856      $    24,248      $  23,598      $    22,916      $  22,369
Securities (3)                              4,674            4,908          4,550            4,529          4,557
Short-term investments                        206              121            146              179            153
Total earning assets                       29,736           29,277         28,294           27,624         27,079
Total assets                               33,273           32,799         31,822           31,216         30,799
Deposits                                   23,851           22,863         22,379           22,066         21,835
Total funding liabilities                  28,305           27,850         26,817           26,168         25,548
Stockholders' equity                        4,609            4,564          4,574            4,622          4,825

Ratios:
Net loan charge-offs to average total
loans (annualized)                           0.10 %           0.12 %         0.18 %           0.17 %         0.19 %
Non-performing assets to originated
loans, real estate owned and
repossessed assets (2)                       0.96             1.00           1.08             1.26           1.33
Originated allowance for loan losses
to:
Originated loans (2)                         0.75             0.78           0.78             0.82           0.85
Originated non-performing loans (2)          91.7             92.7           81.9             74.8           71.8
Average stockholders' equity to
average total assets                         13.9             13.9           14.4             14.8           15.7
Stockholders' equity to total assets         13.7             13.9           13.8             14.7           14.9
Tangible stockholders' equity to
tangible assets (4)                           7.9              8.0            7.9              8.5            8.7
Total risk-based capital (1)                 12.5             11.2           12.4             12.6           12.8

(1) Consolidated. See Regulatory Capital Requirements.

(2) Excludes acquired loans.

(3) Average balances for securities are based on amortized cost.

(4) See Non-GAAP Financial Measures and Reconciliation to GAAP.


Table of Contents

Non-GAAP Financial Measures and Reconciliation to GAAP

In addition to evaluating People's United Financial's results of operations in accordance with U.S. generally accepted accounting principles ("GAAP"), management routinely supplements their evaluation with an analysis of certain non-GAAP financial measures, such as the efficiency and tangible equity ratios, tangible book value per share and operating earnings metrics. Management believes these non-GAAP financial measures provide information useful to investors in understanding People's United Financial's underlying operating performance and trends, and facilitates comparisons with the performance of other banks and thrifts. Further, the efficiency ratio and operating earnings metrics are used by management in its assessment of financial performance, including non-interest expense control, while the tangible equity ratio and tangible book value per share are used to analyze the relative strength of People's United Financial's capital position.

The efficiency ratio, which represents an approximate measure of the cost required by People's United Financial to generate a dollar of revenue, is the ratio of (i) total non-interest expense (excluding goodwill impairment charges, amortization of other acquisition-related intangible assets, losses on real estate assets and non-recurring expenses) (the numerator) to (ii) net interest income on a fully taxable equivalent ("FTE") basis plus total non-interest income (including the FTE adjustment on bank-owned life insurance ("BOLI") income, and excluding gains and losses on sales of assets other than residential mortgage loans and acquired loans, and non-recurring income) (the denominator). In addition, operating lease expense is excluded from total non-interest expense and netted against operating lease income within non-interest income to conform with the reporting approach applied to our other fee-based businesses that are already presented on a net basis. People's United Financial generally considers an item of income or expense to be non-recurring if it is not similar to an item of income or expense of a type incurred within the last two years and is not similar to an item of income or expense of a type reasonably expected to be incurred within the following two years.

Operating earnings exclude from net income those items that management considers to be of such a non-recurring or infrequent nature that, by excluding such items (net of income taxes), People's United Financial's results can be measured and assessed on a more consistent basis from period to period. Items excluded from operating earnings, which include, but are not limited to: (i) non-recurring gains/losses; (ii) merger-related expenses, including acquisition integration and other costs; (iii) charges related to executive-level management separation costs; (iv) severance-related costs; and (v) writedowns of banking house assets, are generally also excluded when calculating the efficiency ratio. Operating earnings per share is derived by determining the per share impact of the respective adjustments to arrive at operating earnings and adding (subtracting) such amounts to (from) GAAP earnings per share. Operating return on average assets is calculated by dividing operating earnings (annualized) by average total assets. Operating return on average tangible stockholders' equity is calculated by dividing operating earnings (annualized) by average tangible stockholders' equity. The operating dividend payout ratio is calculated by dividing dividends paid by operating earnings for the respective period.

The tangible equity ratio is the ratio of (i) tangible stockholders' equity (total stockholders' equity less goodwill and other acquisition-related intangible assets) (the numerator) to (ii) tangible assets (total assets less goodwill and other acquisition-related intangible assets) (the denominator). Tangible book value per share is calculated by dividing tangible stockholders' equity by common shares (total common shares issued, less common shares classified as treasury shares and unallocated Employee Stock Ownership Plan ("ESOP") common shares).

In light of diversity in presentation among financial institutions, the methodologies used by People's United Financial for determining the non-GAAP financial measures discussed above may differ from those used by other financial institutions.


Table of Contents

The following table summarizes People's United Financial's operating non-interest expense and efficiency ratio, as derived from amounts reported in the Consolidated Statements of Income:

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