It has been about a month since the last earnings report for People's United . Shares have lost about 0.3% in that time frame, outperforming 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 Q3 Earnings Disappoint on High Costs
People's United delivered a negative earnings surprise of 2.9% in third-quarter 2018. Net earnings of 33 cents per share lagged the Zacks Consensus Estimate by a penny. However, the reported figure improved 26.9% year over year.
Elevated expenses and provisions remained major drags. However, rising rates and higher fee income supported its results. Improvement in deposit balances reflected organic growth, with its capital position remaining strong.
Net income available to common shareholders came in at $113.5 million compared with $87.3 million reported in the prior-year quarter.
Revenue Growth Offsets Higher Expenses
Net revenues, on a fully-taxable basis, were up 5.2% year over year to $405.3 million in the quarter.
Net interest income, on a fully-taxable basis, totaled $313 million, up 5.8% year over year. Further, net interest margin expanded 11 basis points (bps) year over year to 3.15%.
Non-interest income climbed 3.4% year over year to $92.3 million. The rise in almost all components of income drove the results. These were partially offset by lower bank service charges.
Non-interest expenses flared up 2.9% on a year-over-year basis to $240.8 million. Rise in all components, except professional and outside services expenses as well as amortization of other acquisition-related intangible assets, led to higher expenses.
Efficiency ratio was 56.7% compared with 57.3% recorded in the prior-year period. A decrease in the ratio indicates improved profitability.
As of Sep 30, 2018, total loans were $32.2 billion, slightly down from the prior-year quarter. Furthermore, total deposits increased approximately 2.2% to $33.2 billion from the year-ago quarter.
Credit Quality: A Mixed Bag
As of Sep 30, 2018, non-performing assets were $173.2 million, down 9.4% year over year. Ratio of non-performing loans to total originated loans contracted 6 bps from the year-earlier quarter to 0.53%.
However, net loan charge-offs climbed 34.6% year over year to $7 million. Net loan charge-offs as a percentage of average total loans were 0.09% on an annualized basis, up 3 bps year over year. Provision for loan losses came in at $8.2 million, up 17.1% year over year.
Capital Position and Profitability Ratios Improve
Capital ratios of People’s United remained strong. As of Sep 30, 2018, total risk-based capital ratio increased to 12.8% from 12% recorded in the comparable quarter last year. Tangible equity ratio was 7.6%, up from 7.1% in the year-ago quarter.
The company’s profitability ratios improved. Return on average tangible stockholders’ equity was 14.5%, up from 11.8% in the prior-year quarter. Return on average assets of 1.06% inched up from 0.84% reported in the year-earlier quarter.
2018 Outlook (includes Vend Lease acquisition and excludes First Connecticut Bancorp)
Due to heightened competition, driven by both bank and non-bank lenders, lower demands and above average payoffs, loan growth has remained below expectations. Therefore, given the impact of these headwinds, mainly in commercial real estate portfolio as well as the industry wide slowdown in the home equity market, management expects not to reach 2018 loan growth goal of 3% to 5% at this year end.
Notably, the fourth quarter historically has been the bank’s strongest quarter in terms of loan originations. Pipelines at the end of the third quarter were strong and management expects continuation of positive results across the businesses that have performed well this year, including equipment financing and middle market C&I. Therefore, runoff in transactional New York multi-family portfolio for the full year is likely to be higher than the upper end of previous expectation of 350-400 million.
Deposits are projected to grow 2-4%.
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 3.05-3.15%, on assumption of two 25 bps rate hikes during the year. Further, the company expects non-interest income to rise 3-5%.
Management expects expenses (including merger-related expenses) to be in the range of $975-$985 million.
The company expects to maintain excellent credit quality with provisions in the range of $25-$35 million.
Effective tax rate is expected to remain in the range of 21-23%.
The company expects Common equity tier 1 ratio to be between 9.5% and 10%.
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 poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Following the exact same course, 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.
Outlook
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.
Image: Bigstock
People's United (PBCT) Down 0.3% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for People's United . Shares have lost about 0.3% in that time frame, outperforming 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 Q3 Earnings Disappoint on High Costs
People's United delivered a negative earnings surprise of 2.9% in third-quarter 2018. Net earnings of 33 cents per share lagged the Zacks Consensus Estimate by a penny. However, the reported figure improved 26.9% year over year.
Elevated expenses and provisions remained major drags. However, rising rates and higher fee income supported its results. Improvement in deposit balances reflected organic growth, with its capital position remaining strong.
Net income available to common shareholders came in at $113.5 million compared with $87.3 million reported in the prior-year quarter.
Revenue Growth Offsets Higher Expenses
Net revenues, on a fully-taxable basis, were up 5.2% year over year to $405.3 million in the quarter.
Net interest income, on a fully-taxable basis, totaled $313 million, up 5.8% year over year. Further, net interest margin expanded 11 basis points (bps) year over year to 3.15%.
Non-interest income climbed 3.4% year over year to $92.3 million. The rise in almost all components of income drove the results. These were partially offset by lower bank service charges.
Non-interest expenses flared up 2.9% on a year-over-year basis to $240.8 million. Rise in all components, except professional and outside services expenses as well as amortization of other acquisition-related intangible assets, led to higher expenses.
Efficiency ratio was 56.7% compared with 57.3% recorded in the prior-year period. A decrease in the ratio indicates improved profitability.
As of Sep 30, 2018, total loans were $32.2 billion, slightly down from the prior-year quarter. Furthermore, total deposits increased approximately 2.2% to $33.2 billion from the year-ago quarter.
Credit Quality: A Mixed Bag
As of Sep 30, 2018, non-performing assets were $173.2 million, down 9.4% year over year. Ratio of non-performing loans to total originated loans contracted 6 bps from the year-earlier quarter to 0.53%.
However, net loan charge-offs climbed 34.6% year over year to $7 million. Net loan charge-offs as a percentage of average total loans were 0.09% on an annualized basis, up 3 bps year over year. Provision for loan losses came in at $8.2 million, up 17.1% year over year.
Capital Position and Profitability Ratios Improve
Capital ratios of People’s United remained strong. As of Sep 30, 2018, total risk-based capital ratio increased to 12.8% from 12% recorded in the comparable quarter last year. Tangible equity ratio was 7.6%, up from 7.1% in the year-ago quarter.
The company’s profitability ratios improved. Return on average tangible stockholders’ equity was 14.5%, up from 11.8% in the prior-year quarter. Return on average assets of 1.06% inched up from 0.84% reported in the year-earlier quarter.
2018 Outlook (includes Vend Lease acquisition and excludes First Connecticut Bancorp)
Due to heightened competition, driven by both bank and non-bank lenders, lower demands and above average payoffs, loan growth has remained below expectations. Therefore, given the impact of these headwinds, mainly in commercial real estate portfolio as well as the industry wide slowdown in the home equity market, management expects not to reach 2018 loan growth goal of 3% to 5% at this year end.
Notably, the fourth quarter historically has been the bank’s strongest quarter in terms of loan originations. Pipelines at the end of the third quarter were strong and management expects continuation of positive results across the businesses that have performed well this year, including equipment financing and middle market C&I. Therefore, runoff in transactional New York multi-family portfolio for the full year is likely to be higher than the upper end of previous expectation of 350-400 million.
Deposits are projected to grow 2-4%.
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 3.05-3.15%, on assumption of two 25 bps rate hikes during the year. Further, the company expects non-interest income to rise 3-5%.
Management expects expenses (including merger-related expenses) to be in the range of $975-$985 million.
The company expects to maintain excellent credit quality with provisions in the range of $25-$35 million.
Effective tax rate is expected to remain in the range of 21-23%.
The company expects Common equity tier 1 ratio to be between 9.5% and 10%.
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 poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Following the exact same course, 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.
Outlook
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.