As I’ve previously noted (see here and here), financial intermediaries are odd companies. Instead of selling a good or service, they take small amounts of money in the form of premium payments or deposits, pool them, and then distribute them in larger amounts through loans to the broader economy. This diagram provides the necessary context:

These companies also use different accounting and financial statement methodologies, making them that much more difficult to understand.

Despite their economic and financial differences, they can be very profitable, as shown in this chart from the FRED website using information from the BEA:The blue line (left scale) shows total financial services sector output has increased from $1.9 trillion in 2012 to $2.55 trillion in the 2Q17, the last quarter for which this data is available on the BEA website. The red line (right scale) places this number into a Y/Y context. Total output has grown between 6%-9% for the last few years. This following chart from the FDIC’s quarterly banking profile shows that net income for the banking industry has increased since 1Q13:

The financial sector has done well during the post-recession rally:

The XLF fell to an absolute low of $4 right after the recession. It rebounded to trade between the low 7s and upper 12s until early 2012 when it began a multi-year rally.

People’s United Financial Corporation (PBCT) is a Northeastern bank. This region of the country is growing at a modest pace:

New York has the lowest rate of growth at 1.2% while New Hampshire has the highest at 2.9%. Although other regions of the country are growing faster, modest growth still means increasing demand for financial services.

PBCT is moderately expensive, with a current PE of 21.42 and a forward PE of 16.44. But they have a dividend of 3.54% with a payout ratio of 74%. They have a history of consistent dividend increases.

The weekly chart is bullish:

They are at the top-end of their recent performance. The MACD shows there is plenty of upside room.

The following table from Morningstar.com shows the last five years of balance sheet history:

Observe two key details: the total number of loans has increased at a consistent pace and deposit acquisitions have grown modestly as well. Overall, the company is growing at a slow and consistent rate.

Next, let’s look at income statement from the company’s latest 10-K:

Both net income and total asset growth have grown consistently. The loan charge-offs and non-performing loans percentages have decreased sharply since 2012. This is partly a function of economics, as the economy has grown, the number of problem loans has decreased. But the pace of the decline indicates the company also is prudently managing risk.

In mid 2016, PBCT purchased Bancroft Suffolk Bancorp, which had $2.2 billion in assets along with $1.9 billion in deposits. Most importantly, this acquisition increased PBCT’s NE presence: Bancroft owns 27 Long Island branches.

The latest 10-Q, which contains information through September 2017, shows more of the same: Solid income growth along with low loan-loss ratios.

People’s United Financial is a conservative Northeastern bank. They have a solid history of modest growth. They have consistently lowered their loan loss ratio over the last five years, showing they are effectively managing risk. Their recent acquisition of Bancroft Suffolk adds to PBCT’s NEs presence. The weekly chart indicates they are ready to rally higher. Best of all, they have a nice fat 3.5% dividend that they have a long history of increasing.

This is a great bank that you should consider.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.





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