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People's United (PBCT) Q4 Earnings Beat on Revenue Strength

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People's United Financial (PBCT - Free Report) delivered fourth-quarter 2020 operating earnings of 35 cents per share, beating the Zacks Consensus Estimate of 32 cents. The reported figure, however, comes in below the prior-year quarter figure of 37 cents.

Rise in revenues, aided by high fee income, drove the results. Lower expenses reflect prudent expense management. Also, decent loan and deposit balances reflect organic growth, with its capital position remaining strong. However, elevated provisions were an undermining factor. Margin pressure also prevailed.

Net income available to common shareholders came in at $204.2 million or 49 cents per share compared with the $134 million or 31 cents reported in the prior-year quarter.

For full-year 2020, earnings per share came in at $1.27, outpacing the Zacks Consensus Estimate of $1.21. The figure, however, compares unfavorably with the $1.39 earned in the prior year.

Revenues Jump, Expenses Decline

For full-year 2020, the company reported net revenues of $2.1 billion, up 10.5% year on year.

Net revenues, on a fully-taxable basis, were up 10.5% year over year to $568.4 million in the fourth quarter.

Net interest income, on a fully-taxable basis, totaled $390.2 million, flat year over year. Lower interest expenses were offset by reduced interest and dividend income. Net interest margin contracted 30 basis points (bps) year on year to 2.84%.

Non-interest income jumped 43.5% year over year to $178.2 million. Gain on sale of business was recorded during the fourth quarter. Rise in commercial banking lending fees and cash management fees led to this upsurge. Lower bank service charges, investment management fees, insurance revenues, net customer interest rate swap income and other non-interest income were on the downside.

Non-interest expenses decreased 9.9% on a year-over-year basis to $293.4 million. Fall in almost all components of expenses resulted in this decline.

Efficiency ratio was 55.5% compared with the 53.7% recorded in the prior-year period. An increase in the ratio indicates lower profitability.

As of Dec 31, 2020, total loans were $43.9 billion, down 2.9% from the prior quarter. Yet, total deposits jumped 5% sequentially to $52.1 billion.

Credit Quality: A Concern?

Credit metrics deteriorated during the October-December period. As of Dec 31, 2020, non-performing assets were $341.6 million, considerably up 42.2% year on year. Ratio of non-performing loans to total loans expanded 24 basis points (bps) from the year-earlier quarter to 0.75%.

Also, net loan charge-offs doubled year on year to $13.4 million. Net loan charge-offs as a percentage of average total loans were 0.12% on an annualized basis, up 6 bps year over year. Provision for loan losses more than doubled to $14.7 million on a year-over-year basis.

Robust Capital Position and Profitability Ratios

Capital ratios of People’s United remained strong. As of Dec 31, 2020, total risk-based capital ratio increased to 12.4% from the 12% recorded in the comparable quarter last year. Tangible equity ratio was 7.5%, down from the 8% reported in the year-ago quarter. Tier 1 leverage ratio was 8.4% compared with the 9.1% witnessed in the comparable period last year.

The company’s profitability ratios were also solid. Return on average tangible common’ equity was 18.4%, up from the prior-year quarter’s 12.8%. Return on average assets of 1.33% edged up from the 0.98% reported in the year-earlier quarter.

Our Viewpoint

People’s United’s organic growth continued on a steady rise in revenues, mainly aided by high loan and deposit balances. Though escalating provisions might restrict bottom-line expansion in the upcoming quarters, the company is steadily growing via acquisitions. This is likely to continue in the near future as well, supported by its robust balance-sheet position and controlled expenses.
 

People’s United currently 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

Bank of New York Mellon Corporation’s (BK - Free Report) fourth-quarter 2020 adjusted earnings per share of 96 cents were 5% lower than the prior-year quarter’s level. The Zacks Consensus Estimate for earnings was 93 cents. Results for the reported quarter highlighted growth in asset balances. Furthermore, lower expenses supported results to some extent. However, a decline in revenues was an undermining factor.

First Republic Bank (FRC - Free Report) delivered an earnings surprise of 5.3% in the October-December period on solid top-line strength. Earnings per share of $1.60 surpassed the Zacks Consensus Estimate of $1.52. Additionally, the bottom line climbed 15.1% from the year-ago quarter. Results were supported by an increase in net interest income and fee income. Apart from this, the company’s balance-sheet position was healthy during the quarter. Nonetheless, higher expenses and elevated provisions were offsetting factors.

State Street’s (STT - Free Report) fourth-quarter adjusted earnings of $1.69 per share outpaced the Zacks Consensus Estimate of $1.57. However, the figure came in 14.6% lower than the prior-year level. Results for the reported quarter reflected new investment servicing wins of $205 billion, improvement in fee income and lower expenses. Nevertheless, a decline in net interest income mainly due to lower rates was a major headwind.

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