People’s United’s 2Q profits fall as bank builds loan-loss cushion

HBJ Photo | Matt Pilon People’s United Bank CEO Jack Barnes. People's third-quarter 2020 profits beat last year's.

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By Matt Pilon

People’s United Bank said its second-quarter profits fell 33% as COVID-19 economic recovery expectations dampened, spurring the Bridgeport-based lender to set aside more money to cover potential future loan losses.

People’s United on Thursday reported $86.4 million in profit, or 21 cents per diluted share, for the three months ended June 30, down from $129.7 million, or 33 cents, in the same period of 2019.

The results were on par with consensus analyst estimates compiled by Zacks Investment Research.

The bank, which is the largest headquartered in Connecticut by total deposits, set aside a loan-loss provision of $80.8 million during the quarter. That was more than double its $33.5 million set-aside during the previous quarter, reflecting a weaker economic outlook, with higher unemployment, sharper GDP contraction and a longer expected recovery timeline into the first half of 2021.

Results were also impacted by $13.7 million in merger expenses and a drop in fees and other non-interest income, as customer transactions declined.

CEO Jack Barnes said People’s United’s second-quarter performance reflects the bank’s “strength and resilience.”

“Clearly, the duration of the pandemic is unpredictable and its total impact on the economy is unknown,” Barnes said in a statement. “However, we remain confident that our long-held conservative underwriting philosophy and diversified loan portfolio comprised of high-quality, cycle-tested borrowers will once again differentiate our franchise throughout the uncertain times ahead.”

Half of pandemic-impacted borrowers have received loan deferrals

Like many banks, People’s United has been closely monitoring industry sectors in its loan portfolio that have been hit harder by COVID-19’s effects.

For People’s United, which has a total loan portfolio of more than $45 billion, those sectors include retail commercial real estate, hotels and restaurants, which combined total $5.2 billion, or about 11% of total loans, but approximately half of that amount has been deferred during the pandemic, People’s United disclosed on Thursday.

That includes $1.5 billion of the bank’s $3.6 billion in retail commercial real estate loans, $876 million of its $1.1 billion in hotel loans, and $290 million of its $513 million in restaurant loans.

In the retail commercial realty portfolio, the bank said rent collection rates from tenants have “meaningfully improved” since May, and a coming second round of deferral requests from those borrowers should be smaller than the first.

Only a few restaurant borrowers have requested a second deferral so far, the bank said, and though hotel occupancy rates have steadily improved, the bank expects most of those borrowers to apply for a second deferral.