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Why Is People's United (PBCT) Down 5.5% Since Last Earnings Report?

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A month has gone by since the last earnings report for People's United (PBCT - Free Report) . Shares have lost about 5.5% 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 the most recent earnings report in order to get a better handle on the important drivers.

People's United Q1 Earnings In Line, Costs Up

People's United delivered first-quarter 2019 operating earnings of 33 cents per share, in line with the Zacks Consensus Estimate. The reported figure improved 10%, year over year.

Elevated expenses and provisions remained major drags. However, rising rates 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 $111.1 million compared with $104.4 million reported in the prior-year quarter.

Revenue Growth Offsets Higher Expenses

Net revenues, on a fully-taxable basis, were up 10.7% year over year to $434.6 million in the first quarter.

Net interest income, on a fully-taxable basis, totaled $340 million, up 12.5% year over year. Further, net interest margin expanded 15 basis points (bps) year over year to 3.20%.

Non-interest income climbed 4.6% year over year to $94.6 million. Rise in almost all components of income led to this upside. These were partially offset by lower investment management fees, commercial banking lending fees and brokerage commissions.

Non-interest expenses flared up 7.7% on a year-over-year basis to $262.2 million. Rise in mostly all components escalated expenses.

Efficiency ratio was 57.3% compared with 59.4% recorded in the prior-year period. A decrease in the ratio indicates improved profitability.

As of Mar 31, 2019, total loans were $35.5 billion, slightly up from the prior quarter. Furthermore, total deposits inched up approximately 1.9% sequentially to $36.9 billion.

Credit Quality: A Mixed Bag

As of Mar 31, 2019, non-performing assets were $167 million, down 4% year over year. Ratio of non-performing loans to total originated loans contracted 3 bps from the year-earlier quarter to 0.49%.

However, net loan charge-offs climbed 13.3% year over year to $5.1 million. Net loan charge-offs as a percentage of average total loans were 0.06% on an annualized basis, stable year over year. Provision for loan losses came in at $5.6 million, up 3.7% year over year.

Strong Capital Position and Profitability Ratios

Capital ratios of People’s United remained strong. As of Mar 31, 2019, total risk-based capital ratio decreased to 12.4% from 12.6% recorded in the comparable quarter last year. Tangible equity ratio was 7.7%, up from 7.3% reported in the year-ago quarter.

The company’s profitability ratios remain strong. Return on average tangible stockholders’ equity was 13%, down from the prior-year quarter’s 13.8%. Return on average assets of 0.96% edged down from 0.98% reported in the year-earlier quarter.

2019 Outlook (includes BSB 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 $400-$500 million.

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

Net interest income is projected to grow in the range of 13-15%. This is based on the expectation of NIM in the range of 3.10-3.20%, on assumption of no increases 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. Belmont's annual noninterest expense base is around $33 million. Notably, 50% cost savings is likely to occur with half of the savings in year 1 and a 100% base thereafter. Given the transaction closed on April 1 and the core systems conversion will occur in the third quarter, management expects to realize around $5 million of cost savings in 2019.

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 flatlined during the past month.

VGM Scores

At this time, People's United has a nice Growth Score of B, a grade with the same score on the momentum front. 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.


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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