A month has gone by since the last earnings report for People's United (PBCT). Shares have added about 12.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is People's United due for a pullback? 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 catalysts.
People's United Q3 Earnings Beat, Revenue Escalates
People's United delivered third-quarter 2020 operating earnings of 34 cents per share, beating the Zacks Consensus Estimate of 28 cents. The reported figure is in line with the prior-year quarter figure.
Rise in revenues, aided by high net interest income, drove the results. Also, decent loan and deposit balances reflect organic growth, with its capital position remaining strong. However, elevated expenses and provisions were major drags. Moreover, lower fee income was an undermining factor.
Net income available to common shareholders came in at $141.1 million compared with the $131.6 million reported in the prior-year quarter.
Revenue Growth Offsets Higher Expenses
Net revenues, on a fully-taxable basis, were up 8.2% year over year to $499.8 million in the third quarter.
Net interest income, on a fully-taxable basis, totaled $398.7 million, up 12% year over year. This upsurge resulted from lower interest expenses. However, net interest margin contracted 15 basis points (bps) year over year to 2.97%.
Non-interest income declined 4.6% year over year to $101.1 million. Lower bank service charges, investment management fees and net customer interest rate swap income resulted in this downside. These were partially offset by rise in commercial banking lending fees, cash management fees and other non-interest income.
Non-interest expenses flared up 4.6% on a year-over-year basis to $289 million. Rise in mostly all components escalated expenses.
Efficiency ratio was 53.8% compared with the 56.8% recorded in the prior-year period. A decrease in the ratio indicates improved profitability.
As of Sep 30, 2020, total loans were $45.2 billion, slightly down from the prior quarter. Furthermore, total deposits edged down marginally sequentially to $49.6 billion.
Credit Quality: A Concern?
Credit metrics deteriorated during the July-September quarter. As of Sep 30, 2020, non-performing assets were $321.4 million, considerably up 64.8% year over year. Ratio of non-performing loans to total loans expanded 23 basis points (bps) from the year-earlier quarter to 0.68%.
Also, net loan charge-offs climbed significantly year over year to $17.3 million. Net loan charge-offs as a percentage of average total loans were 0.15% on an annualized basis, up 9 bps year over year. Provision for loan losses more than doubled to $27.1 million on a year-over-year basis.
Strong Capital Position and Profitability Ratios
Capital ratios of People’s United remained strong. As of Sep 30, 2020, total risk-based capital ratio decreased to 11.9% from 12% recorded in the comparable quarter last year. Tangible equity ratio was 7.5%, down from 7.8% reported in the year-ago quarter. Tier 1 leverage ratio was 8.2% compared with the 8.7% witnessed in the comparable period last year.
The company’s profitability ratios also remain strong. Return on average tangible stockholders’ equity was 13.1%, down from the prior-year quarter’s 14%. Return on average assets of 0.94% edged down from the 1.05% reported in the year-earlier quarter.
Run-off in the acquired United Financial’s portfolio is projected at $200-$300 million for 2020.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 16.82% due to these changes.
At this time, People's United has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, 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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