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People's United (PBCT) Q3 Earnings Beat, Revenues Increase

Zacks Equity Research

People's United Financial Inc. PBCT reported third-quarter 2019 operating earnings of 34 cents per share, which surpassed the Zacks Consensus Estimate by a penny. Also, the bottom line increased 3% year over year.

Third-quarter results reflected improvement in loans balance and a strong capital position. Also, higher fee income 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 $131.6 million compared with $113.5 million reported in the prior-year quarter.

Revenue Growth Offsets Higher Expenses

Revenues were up 14% year over year to $454.7 million in the third quarter. However, the top line lagged the Zacks Consensus Estimate of $455.5 million.

Net interest income, on a fully-taxable basis, totaled $348.7 million, up 13.8% year over year. Nevertheless, net interest margin contracted 3 basis points (bps) to 3.12%.

Non-interest income climbed 14.8% year over year to $106 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 16.6% on a year-over-year basis to $281.4 million. Rise in mostly all components led to higher expenses.

Efficiency ratio was 56.8% compared with 56.7% in the prior-year quarter. An increase in the ratio indicates decline in profitability.

As of Sep 30, 2019, total loans were $38.8 billion, up slightly from the prior quarter. However, total deposits dipped approximately 2% sequentially to $38.6 billion.

Credit Quality: A Mixed Bag

As of Sep 30, 2019, non-performing assets were $182 million, up 5.2% year over year. Ratio of non-performing loans to total originated loans contracted 1 bp to 0.56%.

However, net loan charge-offs declined 17.1% year over year to $4.5 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 $7.8 million, down 4.9%.

Capital Position and Profitability Ratios

As of Sep 30, 2019, total risk-based capital ratio decreased to 12% from 12.8% recorded a year ago. Tangible equity ratio was 7.8%, up from 7.6%.

The company’s profitability ratios were strong as well. Return on average tangible stockholders’ equity was 14%, down from the prior-year quarter’s 14.5%. Return on average assets of 1.05% edged down from 1.06%.

Our Viewpoint

People’s United displayed decent performance in the third quarter. Rise in loans and lower provisions supported the results. Also, strong capital position remained a tailwind.

Though escalating non-interest expenses are expected to restrict bottom-line expansion in the upcoming quarters, the company is steadily growing via acquisitions. This inorganic growth trend is likely to continue in the near future as well, supported by its strong balance-sheet position.

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

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

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

Currently, People’s United carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other banks

Texas Capital Bancshares Inc. TCBI reported earnings per share of $1.70 in third-quarter 2019, outpacing the Zacks Consensus Estimate of $1.49. Results compared favorably with the prior-year quarter’s $1.65.

M&T Bank Corporation MTB reported a negative earnings surprise of 3.9% in third-quarter 2019, on account of higher expenses and provisions. Net earnings of $3.47 per share lagged the Zacks Consensus Estimate of $3.61. The bottom line also declined 2% year over year

First Horizon National Corporation FHN reported third-quarter 2019 adjusted earnings per share of 43 cents, which surpassed the Zacks Consensus Estimate by a penny. Further, the bottom line was 19% higher than the year-ago figure.

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