People’s United Financial Inc. PBCT recorded 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. Results 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. Results 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, results 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% as compared with 59.3% reported in the prior-year period. A fall in 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.

Our Viewpoint

People’s United reported an impressive quarter. Organic growth was experienced with rising loans and deposits balances. Though escalating non-interest expenses are expected to restrict bottom-line expansion in the upcoming quarters, the company is steadily growing through acquisitions, which is likely to continue in the near future, given its strong balance-sheet position.

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

People’s United Financial, Inc. Price, Consensus and EPS Surprise | People’s United Financial, Inc. Quote

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

Riding on higher revenues, PNC Financial PNC reported a positive earnings surprise of 4.1% in fourth-quarter 2017. Adjusted earnings per share of $2.29 beat the Zacks Consensus Estimate of $2.20. Moreover, the bottom line reflected a 16.2% increase from the prior-year quarter.

Continued easing of pressure on net interest margin supported the company’s higher net interest income during the quarter. Also, non-interest income witnessed year-over-year growth. However, higher expenses hurt results to some extent. Further, deterioration in credit quality was a headwind.

First Republic Bank’s FRC fourth-quarter 2017 results registered a negative earnings surprise of 4.3%, reflecting elevated expenses. Earnings per share came in at $1.10, missing the Zacks Consensus Estimate of $1.15. However, the figure improved 6.8% from the year-ago tally.

Despite rising rates, net interest margin disappointed on high deposit costs. Moreover, higher provisions and expenses were a major drag. However, revenues improved from the prior-year quarter. In addition, a considerable rise in loans and deposit balances were recorded. Non-performing assets also declined.

Comerica Inc. CMA pulled off a positive earnings surprise of 5.8% in the fourth quarter. Adjusted earnings per share of $1.28 surpassed the Zacks Consensus Estimate of $1.21. Also, the bottom line compares favorably with the prior-year quarter figure of 99 cents.

Results highlighted an increase in revenues supported by easing margin pressure and higher fee income. Strong capital position and improving credit quality were the positives. However, escalating expenses and a fall in loan balance remained major headwinds.

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