Saturday, July 27, 2019

Always-Reliable People's United Financial Executing To Plan

People’s United Financial (PBCT) is an exceptionally reliable, consistent bank – quarterly earnings rarely deviate more than a couple of pennies from expectations and PBCT management has been uncannily accurate in projecting its asset sensitivity over time.

What’s also reliable and consistent is the lack of value-added growth – although the company’s 15-year tangible book value per share growth record isn’t bad (8% annualized growth), the 10-year record is poor (down 1.5%), and the bank basically never earns my estimate of its cost of equity (the highest reported return on equity in the last 15 years is 10.1%). With that, it’s not so surprising that the bank’s performance over the last 5 and 10 years is lackluster, trailing the regional bank average by about 3.5%/year over the last five years and more than 8%/year over the last 10 years.

I like the company’s decision to remix its loan book and focus on growing its higher-yielding leasing business, and I don’t have any particular objection to the United Financial Bancorp (UBNK) acquisition, though I have to wonder about so many bank management teams I respect noting sub-optimal returns from serial M&A, particularly in the context of the less-than-stellar performance record from People’s United. The shares do look a little undervalued and pay a decent dividend, but history shows a pretty good tie between tangible book value growth and shareholder value growth (total returns), and I’d like to see TBVPS growth become a bigger priority here.

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Always-Reliable People's United Financial Executing To Plan

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