DBRS Comments on People’s United Financial, Inc.’s Q4 2009 Earnings – Senior at A (low)

DBRS has today commented on the Q4 2009 earnings of People’s United Financial, Inc. (People’s or the Company). DBRS rates the Company’s Issuer & Senior Debt at A (low) with a Stable trend. People’s reported net income of $24.9 million for the quarter, down from $26.8 million in the previous quarter and from $33.7 million in Q4 2008. On a sequential quarter basis, lower non-interest revenue and higher expenses that included a non-core $4.5 million charge from system conversion and merger-related expenses more than offset an incremental decrease in the provision for loan losses of $7.9 million, improved net interest income and a $2 million tax benefit. DBRS notes that excluding non-core items (securities gains/losses and the previously mentioned $4.5 million in expenses) pre-tax income would have increased $3.8 million. DBRS views the quarterly results as solid and expects People’s to continue generating operating results and maintaining credit fundamentals expected of banks in its rating range.

Other highlights of the quarter include a stable net interest margin (NIM), strong deposit growth and the announced acquisition of Financial Federal, an equipment financing company. The acquisition, which is expected to close in February 2010, is immediately accretive to earnings and bolsters the Company’s already robust tangible capital ratio to 18.6% from 18.2% on a pro-forma basis. (For more information regarding the acquisition, please see DBRS’s rating confirmation press release dated November 23, 2009). People’s continues to pursue other acquisition opportunities in order to deploy its excess capital. DBRS notes that the Company has already bid on two FDIC-assisted transactions, but has been unsuccessful to date.

Asset quality remains better than most peers. Furthermore, management believes that the majority of bad news is mostly behind, which points to improving asset quality and lower provisioning needs. Nonperforming assets (NPAs) increased $12.9 million to $205.6 million, or 1.44% of loans, REO and repossessed assets compared to 1.35% in the third quarter. REO and repossessed assets showed the largest increase as one commercial real estate (CRE) loan migrated to REO. The CRE portfolio as a whole continues to perform well and is not a ratings concern. Positively, net charge-offs (NCOs) decreased $2.4 million during the quarter to 0.38% of average loans (annualized) from 0.44% in the third quarter. Provisions equaled charge-offs, which maintained the allowance for loan losses at a sufficient 1.21%. Prudent risk management and conservative underwriting continue to serve the Company well.

The Company’s NIM was stable at 3.19% as improvement in the net interest spread was offset by deposit growth. Indeed, average deposits increased by an annualized 6% during the quarter. More importantly, the deposit mix improved with both non-interest and interest bearing deposits seeing strong growth, while time deposits declined. Management indicated that the Financial Federal acquisition should add approximately 45 basis points (bps) to the margin in 2010 and that for every 100 bps increase in fed funds, net interest income should increase by $50 million on an annualized basis.

Excluding securities gains or losses, non-interest revenues came in 5% lower than Q3 levels with most fee categories showing a decline. On an absolute basis, gains on residential mortgage sales, wealth management revenues and bank service charges declined the most. In 2010, the Company expects growth in wealth management revenues of 6%, but this will be somewhat offset by the new overdraft fee legislation.

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

The applicable methodologies are Rating Banks and Bank Holding Companies Operating in the United States, and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments which can be found on our website under Methodologies.

This is a Corporate (Financial Institutions) rating.