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Why Is People's United (PBCT) Up 8.4% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for People's United (PBCT). Shares have added about 8.4% 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 Q4 Earnings Beat, Expenses Escalate

People's United reported fourth-quarter 2018 operating earnings of 36 cents per share, surpassing the Zacks Consensus Estimate of 34 cents. Also, the reported figure improved 16% year over year.

Improvement in loans and deposit balances reflected organic growth, with its capital position remaining strong. Also, rising rates and higher fee income supported the results. However, elevated expenses and provisions were major drags.

Net income available to common shareholders came in at $129.4 million compared with $102.7 million reported in the prior-year quarter.

For full-year 2018, earnings per share were $1.29, in line with the Zacks Consensus Estimate. Further, the figure compares favorably with 97 cents earned in the prior year.

Revenue Growth Offsets Higher Expenses

For full-year 2018, the company reported revenues of $1.6 billion, up around 10.3% year over year. Moreover, the revenue figure came in line with the Zacks Consensus Estimate.

Total revenues, on a fully-taxable basis, were up 11% year over year to $421.3 million in the quarter. However, the figure lagged the Zacks Consensus Estimate of $427.9 million.

Net interest income, on a fully-taxable basis, totaled $339.5 million, up 11.6% year over year. Further, net interest margin expanded 10 basis points (bps) to 3.17%.

Non-interest income climbed 1.6% year over year to $88.7 million. The rise in almost all components of income drove the results. These were partially offset by lower investment management fees.

Non-interest expenses flared up 9.6% on a year-over-year basis to $262.7 million. Rise in almost all components led to higher expenses.

Efficiency ratio was 55.1% compared with 56.1% recorded a year ago. A decrease in the ratio indicates improved profitability.

As of Dec 31, 2018, total loans were $35.2 billion, up 8.9% from the previous quarter. Furthermore, total deposits increased approximately 9% to $36.2 billion, sequentially.

Credit Quality: A Mixed Bag

As of Dec 31, 2018, non-performing assets were $186 million, down slightly year over year. Ratio of non-performing loans to total originated loans contracted 1 bp from the year-earlier quarter to 0.55%.

However, net loan charge-offs climbed 15.4% year over year to $7.5 million. Net loan charge-offs as a percentage of average total loans were 0.09% on an annualized basis, up 1 bp. Provision for loan losses came in at $9.9 million, up 32%.

Capital Position and Profitability Ratios Improve

Capital ratios of People’s United remained strong. As of Dec 31, 2018, total risk-based capital ratio increased to 12.6% from 12.2% recorded in the last-year quarter. Tangible equity ratio was 7.6%, up from 7.2%.

The company’s profitability ratios improved. Return on average tangible stockholders’ equity was 14.9%, up from 13.8% in the prior-year quarter. Return on average assets of 1.11% inched up from 0.96%.

2019 Outlook (includes full year of Farmington and Vend Lease acquisition and excludes BSB Bancorp acquisition)

Loan portfolio in the range of 3% to 5% on both period-end and average balances basis is anticipated. 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 $400-$500 million.

Deposits are projected to grow 3-5% on both period-end and average balance basis.

Net interest income is projected to grow in the range of 10-12%. This is based on the expectation of NIM in the range of 3.15-3.25%, on assumption of no increases in fed funds 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 $1.04-$1.06 billion. Notably, the range includes full year results from Vend Lease, Farmington and VAR Technology. Further, it assumes an increase of around $12 million in expenses as a result of adopting the new lease accounting standard on Jan 1, 2019, which limits the type of lease origination costs eligible for deferral in the company’s equipment financing businesses.

The company expects to maintain excellent credit quality with provisions in the range of $35-$45 million.

Effective tax rate is expected to remain in the range of 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?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, People's United has a subpar Growth Score of D, a grade with the same score on the momentum front. 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.


Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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