People's United (PBCT) Q4 Earnings Beat Estimates, Costs Up

People's United Financial Inc. (NASDAQ:PBCT) reported fourth-quarter 2018 operating earnings of 36 cents per share, surpassing the Zacks Consensus Estimate of 34 cents. Also, the reported figure improved 16% year over year.

Improvement in loans and deposit balances reflected organic growth, with its capital position remaining strong. Also, rising rates and higher fee income supported the results. However, elevated expenses and provisions were major drags.

Net income available to common shareholders came in at $129.4 million compared with $102.7 million reported in the prior-year quarter.

For full-year 2018, earnings per share were $1.29, in line with the Zacks Consensus Estimate. Further, the figure compares favorably with 97 cents earned in the prior year.

Revenue Growth Offsets Higher Expenses

For full-year 2018, the company reported revenues of $1.6 billion, up around 10.3% year over year. Moreover, the revenue figure came in line with the Zacks Consensus Estimate.

Total revenues, on a fully-taxable basis, were up 11% year over year to $421.3 million in the quarter. However, the figure lagged the Zacks Consensus Estimate of $427.9 million.

Net interest income, on a fully-taxable basis, totaled $339.5 million, up 11.6% year over year. Further, net interest margin expanded 10 basis points (bps) to 3.17%.

Non-interest income climbed 1.6% year over year to $88.7 million. The rise in almost all components of income drove the results. These were partially offset by lower investment management fees.

Non-interest expenses flared up 9.6% on a year-over-year basis to $262.7 million. Rise in almost all components led to higher expenses.

Efficiency ratio was 55.1% compared with 56.1% recorded a year ago. A decrease in the ratio indicates improved profitability.

As of Dec 31, 2018, total loans were $35.2 billion, up 8.9% from the previous quarter. Furthermore, total deposits increased approximately 9% to $36.2 billion, sequentially.

Credit Quality: A Mixed Bag

As of Dec 31, 2018, non-performing assets were $186 million, down slightly year over year. Ratio of non-performing loans to total originated loans contracted 1 bp from the year-earlier quarter to 0.55%.

However, net loan charge-offs climbed 15.4% year over year to $7.5 million. Net loan charge-offs as a percentage of average total loans were 0.09% on an annualized basis, up 1 bp. Provision for loan losses came in at $9.9 million, up 32%.

Capital Position and Profitability Ratios Improve

Capital ratios of People’s United remained strong. As of Dec 31, 2018, total risk-based capital ratio increased to 12.6% from 12.2% recorded in the last-year quarter. Tangible equity ratio was 7.6%, up from 7.2%.

The company’s profitability ratios improved. Return on average tangible stockholders’ equity was 14.9%, up from 13.8% in the prior-year quarter. Return on average assets of 1.11% inched up from 0.96%.

Our Viewpoint

People’s United’s organic growth continued on the back of a steady rise in revenues, mainly aided by high deposit balances. Though escalating non-interest expenses are expected to restrict bottom-line expansion, the company is steadily growing via acquisitions, which are likely to continue in the near future as well, given its strong balance-sheet position.

People's United Financial, Inc. Price, Consensus and EPS Surprise

Currently, People’s United carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other banks

Signature Bank (NASDAQ:SBNY) reported fourth-quarter 2018 earnings per share of $2.94 which surpassed the Zacks Consensus Estimate of $2.79. Further, the bottom line compares favorably with $2.11 earned in the prior-year quarter.

Reflecting the highest net revenues since 2010, Goldman Sachs’ (NYSE:GS) fourth-quarter 2018 results recorded a positive earnings surprise of 23.8%. The company reported earnings per share of $6.04, comfortably beating the Zacks Consensus Estimate of $4.88. The bottom line also compares favorably with adjusted earnings of $5.68 per share recorded in the year-earlier quarter.

Comerica’s (NYSE:CMA) fourth-quarter 2018 earnings per share of $1.88 surpassed the Zacks Consensus Estimate of $1.86. Also, the results compared favorably with year-ago adjusted figure of $1.24.

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