People’s United (PBCT) Down 2.2% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for People’s United (PBCT). Shares have lost about 2.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is People’s United due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

People’s United Q4 Earnings Beat, Revenues Up Y/Y

People’s United reported fourth-quarter 2019 operating earnings of 37 cents per share, which surpassed the Zacks Consensus Estimate of 33 cents. Also, the bottom line increased 2.8% year over year.

Fourth-quarter results reflect improvement in loan and deposit balances, and revenues. Also, a strong capital position and decline in provisions supported the company’s results. However, elevated expenses and margin contraction were major drags.

Net income available to common shareholders was $134 million compared with $129.4 million reported in the prior-year quarter.

In 2019, operating earnings was $1.39 per share compared with the prior year’s figure of $1.31. The bottom line outpaced the consensus estimate of $1.35. Net income grew 11.5% to $506.3 million.

Revenue Growth Offsets Higher Expenses

Revenues were up 20.3% year over year to $506.9 million in the fourth quarter. Also, the top line beat the Zacks Consensus Estimate of $487.8 million.

In 2019, net revenues were $1.8 billion, up 15%. Also, it matched the consensus estimate.

Net interest income, on a fully-taxable basis, totaled $390.3 million, up 15% year over year. Nevertheless, net interest margin contracted 3 basis points (bps) to 3.14%.

Non-interest income surged 40% year over year to $124.2 million. Rise in almost all components of income led to this upside.

Non-interest expenses jumped 24% on a year-over-year basis to $325.7 million. Increase in all components except regulatory assessments and operating lease expense led to higher expenses.

Efficiency ratio was 53.7% compared with 55.1% in the prior-year quarter. A decline in the ratio indicates improved profitability.

As of Dec 31, 2019, total loans were $43.6 billion, up 12.4% from the prior quarter. Also, total deposits grew 13% sequentially to $43.6 billion.

Credit Quality Improves

As of Dec 31, 2019, non-performing assets were $180.4 million, down 2.9% year over year. Ratio of non-performing assets to total originated loans contracted 6 bps to 0.55%.

Also, net loan charge-offs declined 10.7% year over year to $6.7 million. Net loan charge-offs as a percentage of average total loans were 0.06% on an annualized basis, down 3 bps. Provision for loan losses was $7.3 million, down 26.3%.

Capital Position and Profitability Ratios

As of Dec 31, 2019, total risk-based capital ratio decreased to 12.0% from 12.5% recorded a year ago. Tangible equity ratio was 8.0%, up from 7.6%.

Return on average tangible stockholders’ equity was 12.8%, down from the prior-year quarter’s 14.9%. Return on average assets of 0.98% declined from 1.11%.

2020 Outlook

Loan portfolio in the range of 2% to 4% on period-end basis is anticipated. The company assumes that residential mortgage balances will remain stable year over year as it continues to remix the balance sheet to focus on higher yielding portfolios. This goal excludes the transactional portion of New York multifamily portfolio, which is in runoff mode. Management expects the runoff in the transactional New York multifamily portfolio to be $300-$400 million. Also, runoff in the acquired United Financial’s portfolio is anticipated to be in the range of $300-$400 million for full-year 2020.

Deposits are projected to grow 2-4% on period-end basis. The company continues to focus on gathering core customer deposits while managing to reduce higher cost portfolios.

Net interest income is projected to grow in the range of 9-11%. This is based on the expectation of NIM in the range of 3-3.1%, on assumption of no change in fed funds rate during the year. Further, the company expects non-interest income to rise 2-4%.

Management expects expenses (excluding merger-related expenses) to be in the range of $1.19-$1.22 billion.

The company expects to maintain excellent credit quality with provisions in the range of $20-$22 million.

Effective tax rate is expected to be 20-22%.

The company expects Common equity tier 1 capital ratio to be between 10% and 10.5%.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

Currently, People’s United has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren’t focused on one strategy, this score is the one you should be interested in.


People’s United has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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