People's United (PBCT) Q3 Earnings Beat on Revenue Strength

People's United Financial PBCT delivered third-quarter 2020 operating earnings of 34 cents per share, beating the Zacks Consensus Estimate of 28 cents. The reported figure is in line with the prior-year quarter figure.

Rise in revenues, aided by high net interest income, drove the results. Also, decent loan and deposit balances reflect organic growth, with its capital position remaining strong. However, elevated expenses and provisions were major drags. Moreover, lower fee income was an undermining factor.

Net income available to common shareholders came in at $141.1 million compared with the $131.6 million reported in the prior-year quarter.

Revenue Growth Offsets Higher Expenses

Net revenues, on a fully-taxable basis, were up 8.2% year over year to $499.8 million in the third quarter. Moreover, the figure surpassed the Zacks Consensus Estimate of $498.6 million.

Net interest income, on a fully-taxable basis, totaled $398.7 million, up 12% year over year. This upsurge resulted from lower interest expenses. However, net interest margin contracted 15 basis points (bps) year over year to 2.97%.

Non-interest income declined 4.6% year over year to $101.1 million. Lower bank service charges, investment management fees and net customer interest rate swap income resulted in this downside. These were partially offset by rise in commercial banking lending fees, cash management fees and other non-interest income.

Non-interest expenses flared up 4.6% on a year-over-year basis to $289 million. Rise in mostly all components escalated expenses.

Efficiency ratio was 53.8% compared with the 56.8% recorded in the prior-year period. A decrease in the ratio indicates improved profitability.

As of Sep 30, 2020, total loans were $45.2 billion, slightly down from the prior quarter. Furthermore, total deposits edged down marginally sequentially to $49.6 billion.

Credit Quality: A Concern?

Credit metrics deteriorated during the July-September quarter. As of Sep 30, 2020, non-performing assets were $321.4 million, considerably up 64.8% year over year. Ratio of non-performing loans to total loans expanded 23 basis points (bps) from the year-earlier quarter to 0.68%.

Also, net loan charge-offs climbed significantly year over year to $17.3 million. Net loan charge-offs as a percentage of average total loans were 0.15% on an annualized basis, up 9 bps year over year. Provision for loan losses more than doubled to $27.1 million on a year-over-year basis.

Strong Capital Position and Profitability Ratios

Capital ratios of People’s United remained strong. As of Sep 30, 2020, total risk-based capital ratio decreased to 11.9% from 12% recorded in the comparable quarter last year. Tangible equity ratio was 7.5%, down from 7.8% reported in the year-ago quarter. Tier 1 leverage ratio was 8.2% compared with the 8.7% witnessed in the comparable period last year.

The company’s profitability ratios also remain strong. Return on average tangible stockholders’ equity was 13.1%, down from the prior-year quarter’s 14%. Return on average assets of 0.94% edged down from the 1.05% 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 non-interest expenses and provisions are expected to 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.

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

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

First Republic Bank FRC delivered an earnings surprise of 16.7% in the third quarter on solid top-line strength. Earnings per share of $1.61 outpaced the Zacks Consensus Estimate of $1.38. Additionally, the bottom line climbed 22.9% from the year-ago quarter. Results were supported by an increase in NII and fee income. Yet, higher expenses and elevated provisions were offsetting factors.

Regions Financial RF reported third-quarter 2020 adjusted earnings of 49 cents per share, surpassing the Zacks Consensus Estimate of 34 cents. Also, results compared favorably with the prior-year period earnings of 39 cents. Results were driven by higher revenues on increases in both NII and fee income. Furthermore, rise in deposit balances provided some respite. Notably, mortgage income and capital markets income were on an upswing. Nevertheless, higher provisions for credit losses and rise in expenses were undermining factors.

M&T Bank Corporation MTB came up with an earnings surprise of 5.3% on prudent cost management in the September-end quarter. Net operating earnings per share of $2.77 beat the Zacks Consensus Estimate of $2.63. The bottom line, however, compared unfavorably with the $3.50 per share reported in the year-ago quarter. The company’s results were driven by prudent expense management. Moreover, rise in loan and deposit balances highlighted a strong capital position. Nevertheless, revenues disappointed on lower rates and decline in fee income. Further, rise in provisions was an undermining factor.

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