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People’s United (PBCT) Q1 Earnings in Line, Dividend Up

Zacks

People's United Financial Inc.’s PBCT first-quarter 2017 operating earnings of 22 cents per share were in line with the Zacks Consensus Estimate. The reported figure was up 4.8% year over year from 21 cents.

Higher revenues and elevated expenses were recorded in the quarter. Growth in loans and deposit balances were the positives. Moreover, credit quality marked a significant improvement.

Net income came in at $70.8 million or 22 cents per share compared with $62.9 million or 21 cents per share in the prior-year quarter.

Revenues Escalate, Expenses Flare Up

Net revenue on a fully taxable basis was up 4% year over year to $342.8 million in the quarter, but was almost in line with the Zacks Consensus Estimate.

Net interest income on a fully taxable basis totaled $258.1 million, up 4.3% year over year. However, net interest margin contracted 1 basis point (bps) year over year to 2.82%.

Non-interest income climbed 2.9% year over year to $84.7 million. Higher investment management fees, cash management fees and other non-interest income were the primary reasons for the upsurge.

Non-interest expenses increased 4.0% on a year-over-year basis to $226.1 million. Rise in compensation and benefits, occupancy and equipment expenses and regulatory assessments were partially offset by a fall in professional and outside services, along with lower operating lease expense and other non-interest expenses.

As of Mar 31, 2017, total loans were $29.7 billion, up 4.2% from the prior-year quarter. Further, total deposits increased approximately 4.8% to $30.5 billion from the prior-year quarter end.

Credit Quality Improved

Overall, credit quality metrics at People’s United improved.

As of Mar 31, 2017, non-performing assets were $182.9 million, down 3.4% year over year. Ratio of non-performing loans to total originated loans contracted 6 bps year over year to 0.55%. Also, net loan charge-offs decreased 57.9% year over year to $2.4 million.

Further, provision for loan losses was $4.4 million, down 57.7% year over year.

Stable Capital Position &Profitability Ratios

Capital ratios of People’s United displayed a strong financial position. As of Mar 31, 2017, total risk-based capital ratio climbed to 12.6% from 11.5% in the year-ago quarter. Further, tangible equity ratio was 7.4%, up from 7.3% in the year-ago quarter.

The company’s profitability ratios remained solid. Return on average tangible stockholders’ equity came in at 9.6%, up from 9.4% in the prior-year quarter. Return on average assets of 0.70% was up from 0.65% in the year-ago quarter.

Dividend Update

Concurrent with the earnings release, the Board of Directors of People’s United announced 1.5% hike in the company’s quarterly common stock dividend to 17.25 cents per share. The new dividend will be paid on May 15 to common shareholders of record as of May 1, 2017.

Our Viewpoint

People’s United reported a decent quarter with healthy organic growth. Furthermore, considerable improvement in the credit quality proved beneficial for the company. Also, we remain encouraged by the company’s steady capital deployment measures.

However, margin pressure and rising non-interest expenses are expected to restrict bottom-line expansion in the upcoming quarters.

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

Citigroup Inc. C delivered a positive earnings surprise of 8.9% in first-quarter 2017, riding on higher revenues. The company’s earnings per share of $1.35 for the quarter outpaced the Zacks Consensus Estimate of $1.24. Also, earnings compared favorably with the year-ago figure of $1.10 per share. Notably, results reflect one-time adjustments of 1 cent.

Driven by net interest income, Wells Fargo & Company’s WFC first-quarter 2017 earnings recorded a positive surprise of about 3.1%. Earnings of $1.00 per share outpaced the Zacks Consensus Estimate by 3 cents. Moreover, the figure compared favorably with the prior-year quarter’s earnings of 99 cents per share.

M&T Bank Corporation MTB recorded a positive earnings surprise of 10.8% in first-quarter 2017. The company reported net operating earnings of $2.15 per share which surpassed the Zacks Consensus Estimate of $1.94. Also, the bottom line improved 15% year over year.

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