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People's united financial (PBCT pbcpersonals united financial inc.18. 42-0. 38% created with highstock 4. 2. 6 ) is the holding company of people's united bank, a regional bank headquartered in bridgeport, connecticut. Here is an overview of people's united's core business activities and its recent financial performance, which you can use to determine whether the stock is a smart investment.
People's united is a traditional bank that provides banking services such as extending consumer loans and mortgages, and receiving deposits from individual and institutional customers. These services are provided through 412 branch offices, primarily in new england, with a focus on the company's native connecticut. At the end of 2014, about 61% of the company's total loans were to customers in new england.
The bank also offers services such as investment management, life insurance and lease financing through its subsidiaries. These services are less geographically concentrated than the company's core banking operations. For example, the company estimates that about 97% of its lease financing transactions come from customers outside new england.
People's united's business is based on the difference – or "spread" – between the interest it pays on customers' deposits and the interest it receives from customers' loans. This basic source of profit is called the net interest margin of the company.
The change in net interest margin was a major reason for the financial performance of people's united. From the end of 2014 through july, the company's net interest margin declined from 3.9% to 2.8% on an annualized basis.
This decline was largely due to people's united's traditional banking operations, which the company conducts in its retail banking segment. Between 2013 and 2014, net income from personal lines declined by $23. 3 million, or 49. 2%. The decline was driven by a 34 million drop in net repercussions. USD (7.4%) and 3 USD caused. 1 million (20. 1%) increase in the company's loan provision and $12. 9 million (7.1%) decrease in non-interest income. Similar declines occurred between 2012 and 2013, when the net income of retail banks fell by 33 mio. USD (41%) fell, driven by 44 USD. 6 million (8.9%) decrease in interest surplus.
The declining net interest margin is primarily the result of extraordinarily low interest rates in recent years.With a prime rate of just under 0% since december 2008, people's united – along with the banking industry as a whole – has exerted a corresponding downward pressure on the zreplacerage from its credit portfolio. In theory, banks could compensate for this decline in interest income by lowering interest rates on their deposits. In practice, however, this strategy is easier said than done: lowering rates too quickly risks alienating customers, while doing so too slowly leads to further erosion of profits. Like many other lenders, people's united is also caught in this dilemma.
Despite these challenges, people's united financial was able to significantly increase its market capitalization. Since the beginning of 2013, the company's stock has traded at around 12 U.S. Dollars. Since then, the stock has risen to over $15, which is equivalent to a market capitalization of about $4. 79 billion, or about 19 times this year's estimated income. The rise in the share price indicates the expectation that the company will benefit from a future increase in interest rates.