People's United (PBCT) Beats On Q2 Earnings, Revenues Rise

People's United Financial Inc (NASDAQ:PBCT).’s (NYSE:C) second-quarter 2017 operating earnings of 24 cents per share beat the Zacks Consensus Estimate by a cent. The reported figure was up 4% year over year.

Higher revenues and lower provisions primarily led to the earnings growth. Growth in loans and deposit further supported the results. However, the rise in expenses and decline in profitability ratios were the undermining factors.

Net income came in at $69.3 million or 19 cents per share compared with $68.5 million or 23 cents per share in the prior-year quarter.

Revenues Rise but So Do Expenses

Net revenue, on a fully taxable basis, was up 13% year over year to $376.8 million in the quarter.

Net interest income, on a fully taxable basis, totaled $285.2 million, up 15.1% year over year. Further, net interest margin improved 9 basis points (bps) year over year to 2.90%.

Non-interest income climbed 7.3% year over year to $91.6 million. The rise was primarily attributable to higher investment management fees, commercial banking lending fees, operating lease income and insurance revenue.

Non-interest expenses increased 21% on a year-over-year basis to $257.3 million. Rise in compensation and benefits, professional and outside services, regulatory assessments and other non-interest expenses were the main factors responsible for the significant increase in expenses.

As of Jun 30, 2017, total loans were $31.6 billion, up 6.4% from the prior quarter. Further, total deposits increased approximately 4.3% to $31.8 billion from the prior quarter.

Credit Quality: A Mixed Bag

As of Jun 30, 2017, non-performing assets were $198.1 million, up 8.8% year over year. Ratio of non-performing loans to total originated loans increased 4 bps from the prior year quarter to 0.60%.

However, net loan charge-offs decreased 4% year over year to $4.9 million and provision for loan losses was $7.8 million, down 25.7% year over year.

Capital Position Strengthens, Profitability Ratios Decline

Capital ratios of People’s United displayed improvement. As of Jun 30, 2017, total risk-based capital ratio climbed to 12.6% from 11.5% in the year-ago quarter. Further, tangible equity ratio was 7.5%, up from 7.2% in the year-ago quarter.

The company’s profitability ratios deteriorated. Return on average tangible stockholders’ equity was 8.7%, down from 10.1% in the prior-year quarter. Return on average assets of 0.65% was down from 0.70% in the year-ago quarter.

Our Viewpoint

People’s United reported a decent quarter with healthy organic growth. Furthermore, the company is steadily growing through acquisitions, which is likely to continue in the near future, given its strong balance sheet position. Also, a likely ease of regulatory restrictions might bring down costs on this front.

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. (NYSE:C) delivered a positive earnings surprise of 5% in the second-quarter, riding on higher revenues. The company’s income from continuing operations per share of $1.27 for the quarter outpaced the Zacks Consensus Estimate of $1.21. Also, its earnings compared favorably with the year-ago figure of $1.25 per share.

Driven by net interest income, Wells Fargo & Company’s (NYSE:WFC) delivered a positive earnings surprise of 4.9% in the second quarter. Earnings of $1.07 per share outpaced the Zacks Consensus Estimate by 5 cents. Moreover, the figure compared favorably with the prior-year quarter’s earnings of $1.01 per share.

M&T Bank Corporation (NYSE:MTB) pulled off a positive earnings surprise of 4.4% in second quarter. The company reported net operating earnings of $2.38 per share, which surpassed the Zacks Consensus Estimate of $1.94. Also, it increased 15% on a year-over-year basis.

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