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People's United (PBCT) Q2 Earnings Meet Estimates, Costs Rise

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People's United Financial Inc. (PBCT - Free Report) reported second-quarter 2020 operating earnings of 24 cents per share, in line with the Zacks Consensus Estimate. However, the bottom line was below the year-ago quarter’s 34 cents.

Second-quarter results reflected improvement in loan and deposit balances, and revenues. Also, a strong capital position supported the company’s results. However, elevated expenses and margin contraction were headwinds. Further, a drastic increase in provision for credit losses due to the impacts of coronavirus was a major offsetting factor.

After considering certain non-recurring items, net income available to common shareholders was $86.4 million compared with $129.7 million reported in the prior-year quarter.

Revenue Growth Offsets Higher Expenses

Revenues were up 9% year over year to $495.2 million in the second quarter. The top line lagged the Zacks Consensus Estimate of $495.9 million by a slight margin.

Net interest income, on a fully taxable basis, totaled $413 million, up 16.2% year over year. The rise was mainly due to a considerable fall in interest expenses. Nevertheless, net interest margin contracted 7 basis points (bps) to 3.05%.

Non-interest income declined 15.7% year over year to $89.6 million. Lower bank service charges, customer interest rate swap and other income led to the downside.

Non-interest expenses jumped 9.2% on a year-over-year basis to $304 million. Increase in all components, except for operating lease expenses, led to the rise.

Efficiency ratio was 53.5% compared with 55.8% in the prior-year quarter. A decline in the ratio indicates improved profitability.

As of Jun 30, 2020, total loans were $45.5 billion, up 2.6% from the prior quarter. Also, total deposits grew 11.6% sequentially to $49.9 billion.

Credit Quality Deteriorates

As of Jun 30, 2020, non-performing assets were $314.6 million, up 48.2% year over year. Ratio of non-performing assets to total loans was 0.69% compared with 0.55% in the year-ago quarter.

Also, net loan charge-offs more than doubled year over year to $8.5 million. Net loan charge-offs as a percentage of average total loans were 0.08% on an annualized basis, up 3 bps year over year. Provision for loan losses was $80.8 million compared with $7.6 million in the year-ago quarter.

Capital Position and Profitability Ratios

As of Jun 30, 2020, total risk-based capital ratio decreased to 11.8% from 12% recorded a year ago. Also, the ratio of tangible equity to assets was 7.3%, down year over year from 7.7%.

Return on average tangible stockholders’ equity was 8.1%, down from the prior-year quarter’s 14.1%. Return on average assets of 0.58% declined from 1.04% as of Jun 30, 2020.

Our Viewpoint

People’s United remains well-positioned for revenue improvement through continued loan growth. Further, its robust balance sheet position is expected to support inorganic expansion, going forward. However, escalating non-interest expenses are expected to restrict bottom-line expansion. Also, lower interest rates and the coronavirus-induced economic slowdown remain major near-term concerns.

Peoples United Financial, Inc. Price, Consensus and EPS Surprise

 

Peoples United Financial, Inc. Price, Consensus and EPS Surprise

Peoples United Financial, Inc. price-consensus-eps-surprise-chart | Peoples 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

Washington Federal’s (WAFD - Free Report) third-quarter fiscal 2020 (ended Jun 30) earnings were 46 cents per share, missing the Zacks Consensus Estimate by a penny. The figure also declined 31.3% year over year.

Fifth Third Bancorp (FITB - Free Report) reported second-quarter 2020 adjusted earnings of 30 cents per share, surpassing the Zacks Consensus Estimate of 26 cents. However, results compared unfavorably with the prior-year quarter’s earnings of 71 cents per share.

Texas Capital Bancshares Inc. (TCBI - Free Report) reported adjusted earnings per share of 26 cents in second-quarter 2020, beating the Zacks Consensus Estimate of 16 cents. The reported figure excluded certain noteworthy items, such as the impacts of the MSR impairment charges, severance accruals, non-recurring software and merger-related expenses.

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