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Why Is People's United (PBCT) Down 12% 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 lost about 12% 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 Q2 Earnings In Line, Costs Up

People's United reported second-quarter 2019 operating earnings of 34 cents per share, in line with the Zacks Consensus Estimate. The bottom line improved 6.3% year over year.

Elevated expenses and provisions were major drags. However, margin expansion and higher fee income supported the company’s results. Improvement in loan and deposit balances reflected organic growth, with its capital position remaining strong.

Net income available to common shareholders came in at $129.7 million compared with $106.7 million reported in the prior-year quarter.

Revenue Growth Offsets Higher Expenses

Revenues were up 14.7% year over year to $454.4 million in the second quarter. Moreover, the top line surpassed the Zacks Consensus Estimate of $448.8 million.

Net interest income, on a fully-taxable basis, totaled $355.4 million, up 15.5% year over year. Further, net interest margin expanded 2 basis points (bps) to 3.12%.

Non-interest income climbed 12% year over year to $106.3 million. Rise in almost all components of income led to this upside. This was partially offset by lower investment management fees and brokerage commissions.

Non-interest expenses jumped 12% on a year-over-year basis to $278.4 million. Rise in mostly all components led to higher expenses.

Efficiency ratio was 55.8% compared with 58.4% recorded in the prior-year quarter. A decrease in the ratio indicates improved profitability.

As of Jun 30, 2019, total loans were $38.6 billion, up 8.6% from the prior quarter. Furthermore, total deposits inched up approximately 7% sequentially to $39.5 billion.

Credit Quality: A Mixed Bag

As of Jun 30, 2019, non-performing assets were $179 million, down 4.3% year over year. Ratio of non-performing loans to total originated loans contracted 4 bps to 0.56%.

However, net loan charge-offs climbed 10% year over year to $4.5 million. Net loan charge-offs as a percentage of average total loans were 0.05% on an annualized basis, down 1 bps. Provision for loan losses came was $7.6 million, up 16.9%.

Strong Capital Position and Profitability Ratios

Capital ratios of People’s United remained strong. As of Jun 30, 2019, total risk-based capital ratio decreased to 12% from 12.5% recorded a year ago. Tangible equity ratio was 7.7%, up from 7.3%.

The company’s profitability ratios were strong as well. Return on average tangible stockholders’ equity was 14.1%, up from the prior-year quarter’s 13.9%. Return on average assets of 1.04% edged up from 1%.

2019 Outlook (excludes United Financial Bancorp acquisition)

Loan portfolio in the range of 10% to 12% on period-end 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 $200-$300 million.

Deposits are projected to grow 10-12% on period-end basis.

Net interest income is projected to grow in the range of 11-13%. This is based on the expectation of NIM in the range of 3.05%-3.15%, on assumption of 25 bps decreases 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 $1.06-$1.08 billion. Deposits costs are expected to escalate for 2 to 4 quarters further, following the end of the Fed tightening.

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?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

Currently, People's United has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. 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.


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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