second quarter 2020 results - seeking alpha
TRANSCRIPT
Second Quarter 2020 Results
July 23, 2020
1
Forward-Looking Statement
Certain statements contained in this presentation are forward-looking in nature. These include all statements about People's United
Financial, Inc. (“People’s United”) plans, objectives, expectations and other statements that are not historical facts, and usually use
words such as "expect," "anticipate," "believe," "should" 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’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 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) changes in accounting and regulatory guidance applicable to banks; (7) price
levels and conditions in the public securities markets generally; (8) competition and its effect on pricing, spending, third-party
relationships and revenues; (9) the successful integration of acquisitions; (10) changes in regulation resulting from or relating to
financial reform legislation; and (11) the COVID-19 pandemic and its effect on the economic and business environments in which
we operate. People's United does not undertake any obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
21 Net interest income on a fully taxable equivalent basis was $413.0 million, an increase of $9.3 million or 2%.
Second Quarter 2020 Overview
Net income of $89.9 million, or $0.21 per Common Share
Operating Earnings of $0.24 per Common Share
• Net interest margin: 3.05%, a decrease of 7 basis points
• Net interest income1: $405.6 million, an increase of $9.6 million or 2%
• Non-interest income: $89.6 million, a decrease of $34.2 million or 28%
• Non-interest expense (operating): $285.5 million, a decrease of $16.7 million or 6%
• Pre-provision net revenue (operating): $209.7 million, a decrease of $7.9 million or 4% - (an increase of $27.2 million or 15% from 2Q 2019)
• Efficiency ratio: 53.5%, an improvement of 50 basis points - (an improvement of 230 basis points from 2Q 2019)
• Average loans: $45.2 billion, an increase of $1.7 billion or 4% - (ex. PPP loans, a decrease of $66 million or <1%)
• Period-end loans: $45.5 billion, an increase of $1.2 billion or 3% - (ex. PPP loans, a decrease of $1.3 billion or 3%)
– Runoff of the transactional portion of New York multifamily portfolio and certain acquired portfolios collectively lowered balances by $151 million
– Planned reduction of residential mortgages lowered balances by $458 million
• Average deposits: $48.4 billion, an increase of $4.3 billion or 10%
• Period-end deposits: $49.9 billion, an increase of $5.2 billion or 12%
• Net loan charge-offs to average total loans: 0.08%, a decrease of 2 basis points
• Provision: $80.8 million, an increase of $47.3 million primarily reflecting the impact of COVID-19
• Allowance for credit losses to total loans: 0.91%, increase of 14 basis points - (ex. PPP loans: 0.96%, an increase of 19 basis points)
(Comparisons versus first quarter 2020, unless noted otherwise)
c
3
Loans: Sectors Significantly Impacted by COVID-19(Data as of June 30, 2020, end of period balances)
CRE - Retail: $3.6 billion
• No material exposure to enclosed retail malls
• Essential tenants comprise approximately half of the CRE-retail portfolio
― Includes grocery anchored, pharmacy, and big box home improvement locations
• Rent collection rates for retail tenants have meaningfully improved since May
• 2nd round deferral requests expected to be less than initial round due to portfolio’s concentration of essential tenants
• Total CRE- retail portfolio: Deferrals: 243 loans, $1.5 billion --- PPP: 14 loans, $1 million --- NPLs: 5 loans, $7 million
Hospitality: $1.1 billion
• 90% of the portfolio managed in Commercial Real Estate
• Majority of the portfolio is flagged by major hotel brands and comprised of economy-upper midscale properties, which across the industry have fared better than upscale-luxury properties in terms of occupancy levels
• Most of the properties in the hotel portfolio are managed/owned by operators in this space as their primary business
• Top 10 clients account for over 70% of hotel exposure. Each cycle-tested and have extensive hotel experience
• Occupancy has steadily improved since beginning of pandemic. However, expect most hotel customers to apply for second deferral
• Total hospitality portfolio: Deferrals: 316 loans, $876 million --- PPP: 176 loans, $38 million --- NPLs: 17 loans, $20 million
Restaurants: $513 million
• 85% of the portfolio managed in C&I. Includes both traditional C&I and franchise finance specialized industry vertical in C&I
• Equipment Finance manages 15% of the portfolio
• Nearly half of total restaurant exposure is quick service restaurants, which have experienced a lesser degree of disruption
• For customers coming to the end of their first deferral, only a few have requested a second round. These include some casual sit-down brands as well as quick service franchises in NYC or other metro city locations that do not have drive-thru capabilities
• Total restaurant portfolio: Deferrals: 1,242 loans, $290 million --- PPP: 1,242 loans, $110 million --- NPLs: 107 loans, $1 million
4
Allowance for Credit Losses (ACL)
• Key drivers underlying the 2Q 2020 ACL:
― Quantitative modeling reflects both a baseline economic forecast as of late June and a more adverse scenario, which each weakened compared to the end of the first quarter given higher unemployment, sharper GDP contraction and longer expected recovery timeline into the first half of 2021
― Reasonable & supportable forecast period: 2 years
― 1-year straight-line reversion to historical losses
1 Excluding PPP loans, 2Q 2020 C&I ACL/Loans = 0.89% and Total ACL/Loans = 0.96%2 MW / ABL = Mortgage Warehouse / Asset Based Lending
At June 30, 2020 At March 30, 2020
Loan Portfolio Segment Balance % ACL ACL/Loans NPLs ACL/NPLs ACL/Loans ACL/NPLs
CRE 14,000$ 31% 94.7$ 0.68% 73.6$ 129% 0.59% 162%
C&I 1 11,310 25% 79.7 0.70% 87.8 91% 0.81% 135%
Equipment Finance 4,880 11% 97.9 2.01% 48.6 201% 0.98% 115%
MW / ABL 2 3,284 7% 5.1 0.16% 1.0 510% 0.08% 218%
Total Commercial 33,474$ 74% 277.4$ 0.83% 211.0$ 131% 0.67% 140%
Residential Mortgage 9,624$ 21% 83.8$ 0.87% 62.6$ 134% 0.83% 126%
Home Equity 2,228 5% 47.5 2.13% 22.5 211% 1.75% 186%
Other Consumer 126 0% 5.3 4.21% 0.1 5300% 3.59% 5100%
Total Retail 11,978$ 26% 136.6$ 1.14% 85.2$ 160% 1.03% 146%
Total 1 45,452$ 100% 414.0$ 0.91% 296.2$ 140% 0.77% 142%
($ in millions)
1Q 2020 Deposits Borrowings Loans Investments 2Q 2020
5
Net Interest Income1
($ in millions)
$396.0 $405.6
1 Net interest income on a fully taxable equivalent basis for 1Q 2020 and 2Q 2020 was $403.7 million and $413.0 million, respectively.
+$9.6 or 2%
Linked-Quarter Change
($38.3) ($3.2)
$37.2$13.9
6
Net Interest Margin
1Q 2020 Deposits Borrowings Loans Investments 2Q 2020
3.12% 3.05%
(7) bps
Linked-Quarter Change
29 bps11 bps
(40 bps)(7 bps)
Loans: Average Balances
7
$14,715 $14,095
$10,867 $13,896
$4,916$4,934
$10,236$9,821
$2,726$2,407
1Q 2020 Commercial& Industrial
EquipmentFinance
CommercialReal Estate
ResidentialMortgage
Home Equity& Other Consumer
2Q 2020
Commercial Real Estate Commercial & Industrial Equipment Finance Residential Mortgage Home Equity & Other Consumer
$45,153
($ in millions)
$43,460
Linked-Quarter Change
Linked-quarter change+$1.693 billion or 4%
Ex. PPP Loans: a decrease of $66 million or <1%
$3,029 $18
($319)($415)($620)
1 1
1 In connection with the United Bank core system conversion in early April 2020, approximately $400 million of loans secured by owner occupied commercial properties were prospectively reclassified from commercial real estate to commercial & industrial.
8
Funding & Liquidity
$19,943 $21,935
$10,077 $12,853
$9,145
$8,192 $4,998
$5,467
1Q 2020 Non-InterestBearing
Interest-BearingChecking &
Money Market
Savings Time 2Q 2020
Interest-Bearing Checking & Money Market Non-Interest-Bearing Time Savings
($ in millions)
$48,447$44,163
Linked-quarter change+$4.284 billion or 10%
Average DepositsLinked-Quarter Change
Strong funding and liquidity profile (at June 30, 2020)
Secured borrowing capacity
Federal Home Loan Bank: $6,830
Unpledged Securities: $3,176
FRB Pledged Loans: $3,275
Total Capacity: $13,281
($953)$2,776
$1,992 $469
9
Non-Interest Income($ in millions)
1Q 2020 Other:Net Gains on
Sales of Loans
BankServiceCharges
CustomerInterest RateSwap Income
Insurance CommercialBanking
Lending Fees
OperatingLease
Income
AdditionalOther
2Q 2020
$123.8
$89.6
($34.2) or (28%)
Linked-Quarter Change
1 1Q 2020 included a $16.9 million gain related to the sale of $492 million of loans held-for-sale previously acquired in the United Bank transaction.
1
($15.1)($7.7)
($6.1) ($1.9) ($1.5) ($0.8) ($1.1)
10
Non-Interest Expense($ in millions)
1Q 2020 Merger-RelatedCosts
Compensation& Benefits
Occupancy &Equipment
Other:Travel &Meetings
Other:Advertising &
Promotion
Professional &Outside Services
Operating LeaseExpense
Additional Other
2Q 2020
$304.0
$320.1
Ex. Non-Operating Expenses: ($16.7) or (6%)
Linked-Quarter Change
1 Non-operating expenses include merger-related costs in 1Q 2020 and 2Q 2020 of $17.9 million and $18.5 million, respectively.
$0.6
($6.7) ($2.7) ($2.4) ($1.6) ($1.3) ($1.0) ($1.0)
1
11
Efficiency Ratio
55.8%
56.8%
53.7%54.0%
53.5%
2Q 2019 3Q 2019 4Q 2019 1Q 2020 2Q 2020
Quarterly Trend
12
Asset Quality
1 PBCT ratios for periods prior to January 1, 2020 have been restated to reflect the total loan portfolio (originated & acquired)
Notes: Source: SNL FinancialTop 50 Banks represents the largest 50 banks by total assets in each respective quarter.
0.55 0.520.57 0.59
0.69
0.830.78 0.80
0.91
0.760.78
0.75
0.86
0.0
0.5
1.0
1.5
2Q 2019 3Q 2019 4Q 2019 1Q 2020 2Q 2020
0.050.06 0.06
0.100.08
0.16
0.19
0.160.13
0.230.26
0.18
0.26
0.0
0.1
0.2
0.3
0.4
2Q 2019 3Q 2019 4Q 2019 1Q 2020 2Q 2020
PBCT Peer Group (Median) Top 50 Banks (Median)
PBCT Peer Group (Median) Top 50 Banks (Median)
Non-Performing Assets / Loans & REO (%)1
Net Charge-offs / Average Loans
13
Returns
1.04%1.05%
0.98% 0.89%
0.58%
2Q 2019 3Q 2019 4Q 2019 1Q 2020 2Q 2020
14.1% 14.0%12.8% 11.8%
8.1%
2Q 2019 3Q 2019 4Q 2019 1Q 2020 2Q 2020
Return on Average Assets Return on Average Tangible Common Equity
Returns calculated on an operating basis
14.6%1.06%14.4%
1.13%15.2%
13.2%0.96%
9.5%0.65%
14
Capital Ratios
Jun. 30, 2019 Sep. 30, 2019 Dec. 31, 2019 Mar. 31, 2020 Jun. 30, 2020
People’s United Financial, Inc.
Tang. Com. Equity/Tang. Assets 7.7% 7.8% 8.0% 7.4% 7.3% (2)
Tier 1 Leverage 8.7% 8.7% 9.1% (1) 8.4% 8.0% (2)
Common Equity Tier 1 10.1% 10.1% 10.2% 9.5% 9.7%
Tier 1 Risk-Based 10.7% 10.7% 10.7% 10.0% 10.2%
Total Risk-Based 12.0% 12.0% 12.0% 11.3% 11.8%
People’s United Bank, N.A.
Tier 1 Leverage 8.9% 8.8% 9.3% (1) 8.9% 8.5% (2)
Common Equity Tier 1 11.0% 10.8% 10.9% 10.7% 10.8%
Tier 1 Risk-Based 11.0% 10.8% 10.9% 10.7% 10.8%
Total Risk-Based 12.4% 12.2% 12.1% 12.0% 12.2%
1 Adjusting for a full quarter of United assets, the pro forma Tier 1 Leverage Ratio at December 31, 2019 is 8.9%.2 Adjusting for the Paycheck Protection Program (PPP) loans, at June 30, 2020, the pro forma TCE/TA ratio is 7.6%
and the pro forma Tier 1 Leverage Ratio is 8.3% for the Holding Company and 8.7% for the Bank.
15
Appendix
16
Supporting Customers: Loan Forbearance(Balances at June 30, 2020; $ in millions)
Loan ForbearanceBy Business Segment
Loan ForbearanceBy Commercial Property Type / Industry
Number of Loans $ - Outstanding
Commercial Real Estate 1,133 3,808$
Commercial & Industrial 1,478 1,233
Equipment Finance 8,854 1,120
Total Commercial 11,465 6,161$
Residential Mortgage 2,008 906$
Home Equity 795 101
Other Consumer 154 2
Total Retail 2,957 1,009$
Total 14,422 7,170$
Number of Loans $ - Outstanding
By Property Type
Retail 310 1,502$
Hospitality/Entertainment 135 855
Residential 397 691
Office Building 167 504
Industrial/Manufacturing 53 128
Healthcare 8 73
Other 63 55
Subtotal 1,133 3,808$
By Industry
Transportation & Utilities 1,907 546$
Services 3,016 512
Real Estate, Rental & Leasing 767 394
Manufacturing 701 168
Construction 734 128
Health Care & Social Assistance 782 112
Retail Trade 448 97
Arts, Entertainment & Recreation 354 94
Wholesale Trade 501 85
Printing 143 51
Other 979 166
Subtotal 10,332 2,353$
Total Commercial 11,465 6,161$
Note: Commercial real estate retail balances include Business Banking loans
17
Loan Risk Profile($ in millions)
1 MW / ABL = Mortgage Warehouse / Asset Based Lending2 Includes loans 30-89 days past due and non-performing loans
At June 30, 2020
Balance Total Delinquency2 Non-Accruals YTD Net-Charge-Offs Deferrals
Loan Portfolio Segment Balance (% of Portfolio) (% of Loans) (% of Loans) (Annual % of Average Loans) (% of Loans)
CRE 14,000$ 31% 0.64% 0.53% 0.07% 27%
C&I 11,310 25% 0.93% 0.78% 0.03% 11%
Equipment Finance 4,880 11% 2.26% 1.00% 0.37% 23%
MW / ABL 1 3,284 7% 0.03% 0.03% - -
Total Commercial 33,474$ 74% 0.92% 0.63% 0.10% 18%
Residential Mortgage 9,624$ 21% 1.00% 0.65% 0.02% 9%
Home Equity 2,228 5% 1.36% 1.01% 0.07% 5%
Other Consumer 126 0% 0.76% 0.08% 3.40% 2%
Total Retail 11,978$ 26% 1.06% 0.71% 0.06% 8%
Total 45,452$ 100% 0.96% 0.65% 0.09% 16%
18
Interest Rate Risk Profile
1Yield curve twist pivot point is 18 month point on yield curve. Short End defined as overnight to 18 months.
Long End defined as terms greater than 18 months.
-0.7%
3.5%6.8%
9.8%
-0.4%
2.1%3.9%
5.2%
Down 25 Up 100 Up 200 Up 300
-0.4%
2.1%
-0.3%
1.6%
-0.1%
0.1%
-0.3%
2.1%
Short End -25 Short End +100 Long End -25 Long End +100
Immediate Parallel ShockEst. Change in NII
Yield Curve Twist1
Est. Change in NII
Jun. 30, 2020 Mar. 31, 2020
Net Interest Income (NII) Sensitivity
19
Loans By State
$7,205 $7,546 $7,779 $7,781 $9,222 $10,910 $11,422
$4,728 $4,954 $5,363 $5,616$6,212
$9,622 $9,647$5,146 $5,578 $5,762
$7,378$7,168
$7,788 $7,980
$4,123$4,164
$4,167$4,163
$4,160
$4,228$4,571
$904$1,155
$1,503$1,649
$1,921
$2,187$2,127
$4,486 $5,014
$5,171
$5,988
$6,558
$8,861 $9,705
Dec. 31, 2014 Dec. 31, 2015 Dec. 31, 2016 Dec. 31, 2017 Dec. 31, 2018 Dec. 31, 2019 Jun. 30, 2020
Connecticut Massachusetts New York Northern New England New Jersey Other
$26,592
$29,745
$32,575
$28,411
($ in millions, end of period balances)
Breakdown
$35,241
$43,596$45,452
20
Deposits By State
$14,768 $16,093 $17,072 $17,640 $20,230
$26,268 $27,424
$3,067$3,299
$3,357$4,013
$4,451
$5,936
$8,919
$3,205$3,456
$3,527$5,195
$5,371
$5,493
$6,178
$5,098$5,569
$5,905
$6,208
$6,107
$5,893
$7,413
Dec. 31, 2014 Dec. 31, 2015 Dec. 31, 2016 Dec. 31, 2017 Dec. 31, 2018 Dec. 31, 2019 Jun. 30, 2020
Connecticut Massachusetts New York Northern New England
$26,138
$29,861
$33,056
$28,417
($ in millions, end of period balances)
Breakdown
$36,159
$43,590
$49,934
21
Peer Group
Firm Ticker City State
1 Associated Banc-Corp ASB Green Bay WI
2 BankUnited Inc. BKU Miami Lakes FL
3 Citizens Financial Group, Inc. CFG Providence RI
4 Comerica Inc. CMA Dallas TX
5 First Horizon National Corp. FHN Memphis TN
6 F.N.B. Corp. FNB Pittsburgh PA
7 Huntington Bancshares, Inc. HBAN Columbus OH
8 KeyCorp KEY Cleveland OH
9 M&T Bank Corp. MTB Buffalo NY
10 New York Community Bancorp NYCB Westbury NY
11 Signature Bank SBNY New York NY
12 Sterling Bancorp STL Montebello NY
13 Valley National Bancorp VLY Wayne NJ
14 Webster Financial Corp. WBS Waterbury CT
15 Zions Bancorp. ZION Salt Lake City UT
