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People's United Financial (PBCT) Up 2.1% Since Earnings Report: Can It Continue?

More than a month has gone by since the last earnings report for People's United Financial, Inc. PBCT. Shares have added about 2.1% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to its next earnings release, or is PBCT due for a pullback? 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 Tops Q4 Earnings & Revenue Estimates

People's United delivered a positive earnings surprise of 11.1% in fourth-quarter 2017. The company reported net earnings of 30 cents per share, beating the Zacks Consensus Estimate of 27 cents. The reported figure was up 25% year over year.

Higher revenues and lower provisions were the positive factors. Growth in loan and deposit balances reflected organic growth. However, elevated expenses remained the major drag.

Net income came in at $106.2 million compared with $75.9 million reported in the prior-year quarter. Operating income was $104.5 million or 31 cents per share compared with $75.1 million or 24 cents recorded in the prior-year period.

For 2017, net income came in at $337.2 million or 97 cents per share compared with $281 million or 92 cents in 2016. Operating earnings were $345.8 million or $1.04 per share compared with $282.3 million or 93 cents in 2016. The figure surpassed the Zacks Consensus Estimate of 94 cents.

Revenue Growth Offsets Higher Expenses

For 2017, net revenues were up 11.1% year over year to $1.5 billion. The top line also outpaced the Zacks Consensus Estimate of $1.49 billion.

Net revenues, on a fully taxable basis, were up 15.3% year over year to $391.4 million in the quarter. However, the figure lagged the Zacks Consensus Estimate of $392.7 million.

Net interest income, on a fully taxable basis, totaled $304.1 million, up 19.2% year over year. Further, net interest margin expanded 29 basis points (bps) year over year to 3.07%.

Non-interest income climbed 3.7% year over year to $87.3 million. The rise in investment management fees, cash management fees, operating lease income and net customer interest rate swap income primarily drove the results. These were partially offset by net security losses and reduced net gains on sales of residential mortgage loans.

Non-interest expenses flared up 10.4% on a year-over-year basis to $239.7 million. Rise in all components, except other non-interest expenses, led to higher expenses.

Efficiency ratio was 56.1% compared with 59.3% reported in the prior-year period. A fall in efficiency ratio indicates rise in profitability.

As of Dec 31, 2017, total loans were $32.6 billion, up 10% from the prior-year quarter. Furthermore, total deposits increased approximately 11% to $33.1 billion from the year-ago quarter.

Credit Quality: A Mixed Bag

As of Dec 31, 2017, non-performing assets were $168 million, marginally up year over year. Additionally, net loan charge-offs climbed 38.3% year over year to $6.5 million. Net loan charge-offs as a percentage of average total loans on an annualized basis were 0.08%, up 2 bps year over year.

However, provision for loan losses were $7.5 million, down 2.6% year over year. Ratio of non-performing loans to total originated loans contracted 2 bps from the year-earlier quarter to 0.49%.

Stable Capital Position, Profitability Ratios Improve

Capital ratios of People’s United displayed mixed results. As of Dec 31, 2017, total risk-based capital ratio dropped to 12.2% from 12.5% recorded in the comparable quarter last year. However, tangible equity ratio was 7.2%, in line with the year-ago quarter.

The company’s profitability ratios improved. Return on average tangible stockholders’ equity was 13.8%, up from 10.7% in the prior-year quarter. Return on average assets of 0.96% inched up from 0.75% in the year-earlier quarter.

2018 Outlook

Management expects loan portfolio to grow in the range of 4-6%. Deposits are projected to grow 3-5%.

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 25 bps rate hike 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-$995 million.

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 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. There has been one revision lower for the current quarter. While looking back an additional 30 days, we can see even more upward momentum.

VGM Scores

At this time, PBCT has an average Growth Score of C, however its Momentum is doing a bit better with a B. Charting a somewhat similar path, the stock was also 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for momentum investors than those looking for value and growth.


Estimates have been broadly trending downward for the stock but the magnitude of this revision remains unchanged. Notably, PBCT has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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