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Will Soft Lending Hurt People's United's (PBCT) Q2 Earnings?

Zacks Equity Research

People's United Financial, Inc. PBCT is scheduled to report second-quarter 2019 results on Jul 18. Both revenues and earnings are anticipated to reflect year-over-year improvement.

Before we discuss the factors that could influence the results, let’s take a look at how the company performed in the last reported quarter.

People's United posted in-line earnings in first-quarter 2019. Improvement in loans and deposit balances, along with rising rates and higher fee income was offset by elevated expenses and provisions.

Notably, People's United surpassed estimates on one occasion and posted in-line results in two of the trailing four quarters, the average beat being 0.74%.

People's United Financial, Inc. Price and EPS Surprise

People's United Financial, Inc. Price and EPS Surprise

People's United Financial, Inc. price-eps-surprise | People's United Financial, Inc. Quote

Shares of the company recorded slight growth for the three-month period ended Jun 30, 2019. Will the upcoming earnings release give a boost to People's United stock? That depends largely on whether the firm is able to impress market with its second-quarter results

Factors to Influence Q2 Results

Soft Loan Growth: A slowdown in lending — mainly in the areas of commercial and industrial, and commercial real estate — is expected to hurt the bank’s interest income.

Growth in loan portfolio is expected in the range of 10% to 12% for 2019, the impact of which will likely be reflected in the April-June quarter as well. This goal excludes the transactional portion of the New York multifamily portfolio, which is in runoff mode. Management expects the runoff in the transactional New York multifamily portfolio to be $400-$500 million. Deposits are projected to be up 10-12%.

Muted Net Interest Income (NII): A soft lending scenario during the second quarter is predicted to hurt NII to an extent. Moreover, the company’s net interest margin is expected to be affected due to the yield-curve flattening and steadily rising deposit betas.

Management’s projections of 2019 NII growth in the range of 13-15% might show a little impact in the quarter to be reported. This is based on the expectation of net interest margin of 3.1-3.2%, on assumption of no hikes in fed funds during the year.

Fee Income to Rise: On strong retail banking, fee income might escalate for the bank. Additionally, the company projects non-interest income to be up 2-4% in 2019, the impact of which will likely be reflected in the second quarter.

Increase in Expenses: Despite undertaking a number of expense-saving initiatives, People’s United’s operating expenses have witnessed a rise. Though the company is focused on optimizing its branch network and has initiated installation of technology to improve efficiencies and reduce costs, escalating expense levels are likely to curb bottom-line expansion.

Earnings Whispers

Our proven model doesn’t conclusively show that People’s United will be able to beat the Zacks Consensus Estimate this time around, as it does not have the right combination of two key ingredients. Note that a stock with the combination of a positive Earnings ESP and a Zacks Rank #3 (Hold) or better has significantly higher chances of beating estimates.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter. 

Earnings ESP: The Earnings ESP for People’s United is -2.94%.

Zacks Rank: People’s United currently has a Zacks Rank #3.

Notably, the Zacks Consensus Estimate for earnings for the to-be-reported quarter is 34 cents, which suggests improvement of 6.3% from the year-ago reported number. Further, the consensus estimate for sales of $450.4 million indicates 13.7% growth.

Stocks That Warrant a Look

Comerica Incorporated CMA is scheduled to release results on Jul 17. It has an Earnings ESP of +0.52% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

M&T Bank Corporation MTB is scheduled to release results on Jul 18. The company, which carries a Zacks Rank of 3, has an Earnings ESP of +0.20%.

The Earnings ESP for PNC Financial PNC is +0.88%, and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Jul 17.

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