1Q earnings fall for People's United Bank, but dividend jumps

People's United Bank, based in Bridgeport, Conn., Thursday announced net income of $13.6million - or 4 cents per share - for the first quarter of 2010, compared to $24.2 million - or 7 cents per share - for the first quarter of 2009.

The bank's parent company is People's United Financial Inc. and trades under the symbol PBCT on the Nasdaq.

Net interest income totaled $159.6 million.

Included in the results for the quarter are $23.4 million in merger-related and computer system conversion expenses. Senior Vice President of Investor Relations Jared Shaw said computer system upgrades will continue throughout the year but are considered non-operational expenses or non-recurring expenses.

People's completed its acquisition of Financial Federal Corp. - a company that provides financing for equipment purchases - in February. "As anticipated, the transaction was immediately accretive to earnings, though our results will not reflect a full quarter's benefit until the second quarter," said Philip R. Sherringham, president and chief executive officer.

The bank's board of directors voted to increase the annual common stock dividend by 1 penny per share for a quarterly dividend of 15 cents per share payable May 15 to shareholders of record on May 1.

Shaw said People's has capital to deploy and continues to look for additional acquisition opportunities.

Average commercial banking loans increased by $66 million to $8.8 billion since the fourth quarter of 2009, while average residential mortgage loans totaled $2.5 billion, a $103 million decrease during the same period.

People's reported $22 billion in total assets Thursday and its stock closed at $16.65 per share, up 9 cents on the Nasdaq.

Mortgage Industry Re-do

The Obama administration Wednesday beckoned the public's input on how it should reform the nation's housing finance system.

The Treasury department and the U.S. Department of Housing and Urban Development (HUD) took the lead in presenting 7 questions to a variety of audiences including housing market professionals, industry groups, academic experts and consumer and community organizations.

The mortgage industry was dealt a severe blow with the near-collapse in 2008 of quasi-public mortgage finance companies Fannie Mae and Freddie Mac. The government-backed entities got into trouble by buying mortgages originated by lenders and then packaging them into bonds that were sold in the bond market.

National investment banks took severe losses as well by bundling mortgages and selling them in a secondary market. In both scenarios many loans were toxic, meaning they were approved for borrowers who did not truthfully represent their ability to pay or were misled about the terms of mortgages they really could not afford. Some loans had interest rates that spiked up after a certain number of months, making the payments unaffordable for those borrowers.

The questions posed by the Obama administration seek public comment on the future of the
housing finance system, including Fannie Mae and Freddie Mac, and the overall role of the federal government in housing policy.

"A well-functioning housing finance system is critical to the long term stability of the housing market," Treasury Secretary Timothy Geithner said in a statement. "Hearing from a wide variety of perspectives as we embark on this process is an important part of establishing a more stable and sound housing finance system for the American people."

Input will be sought both by written responses submitted online in the Federal Register at www.regulations.gov and through a series of public forums around the country.

"This open process will help shape the future of our housing finance system," HUD Secretary Shaun Donovan said. "The Obama administration is committed to engaging the public as we consider proposals for reforming the housing finance system in the context of our broader housing policy goals, and the best steps to get from where we are today to a stronger housing finance system."

Here are the 7 questions:

1. How should federal housing finance objectives be prioritized in the context of the broader objectives of housing policy?

2. What role should the federal government play in supporting a stable, well-functioning housing finance system and what risks, if any, should the federal government bear in meeting its housing finance objectives?

3. Should the government approach differ across different segments of the market, and if so, how?

4. How should the current organization of the housing finance system be improved?

5. How should the housing finance system support sound market practices?

6. What is the best way for the housing finance system to help ensure consumers are protected from unfair, abusive or deceptive practices?

7. Do housing finance systems in other countries offer insights that can help inform US reform choices?


Tell me what you think of this approach and whether you will participate?

Let's Hear From YOU!

(Editor's Note: Paul Schatz, President of Heritage Capital, LLC, in Woodbridge, will be contributing to Fi$callyFit every Friday. Read his biography here)

I am going to do something a bit different this week. Rather than a regular contribution, I am asking you for a favor. In my Street$marts newsletter, I often poll my readers on a variety of hot topics and discuss the results in an upcoming issue. I’d like to do the same with you, using the same survey I did from my newsletter and share and compare the results either next week or the week after.

The survey is online and will take all of 1-2 minutes. Just click on the link below to begin. Thank you for participating!

Very Short Survey


Please feel free to email me with any questions or comments at Paul@investfortomorrow.com.

Until next time…

Paul Schatz

Heritage Capital LLC
http://www.investfortomorrow.com/

SBA Recovery Act Lending Extended

President Barack Obama Friday signed legislation extending through April the U.S. Small Business Administration’s ability to provide enhancements in its two largest small business loan programs.



The enhancements, first made available under the American Recovery and Reinvestment Act (enacted Feb. 17, 2009) , include a higher guarantee on some SBA-backed loans and fee relief.


The SBA estimates the $40 million extension will support about $1.4 billion in small business lending.


"Thousands of small businesses across the country have taken advantage of these Recovery loan enhancements to get the capital they need during these tough economic times," SBA Administrator Karen Mills said in a statement. "The increased guarantee and reduced fees on SBA loans helped put more than $23 billion into the hands of small business owners and brought more than 1,100 lenders back to SBA loan programs. As a result, average weekly loan approvals by SBA have climbed by 86% compared to the weekly average before passage of the Recovery Act. These programs have been successful in helping jump-start our economy, which is why we will continue to work with Congress on a longer extension of the increased guarantee and reduced fees. "


As part of the Recovery Act, SBA received $730 million to help small businesses, including $375 million to increase the SBA guarantee on 7(a) loans to 90 percent and to waive borrower fees on most 7(a) and 504 loans.



The funds for these programs were exhausted on Nov. 23, 2009, and an additional $125 million was provided in December. Those funds were exhausted in late February, 2010, and an additional $60 million was provided subsequently. That funding was exhausted late Friday.
Under the new extension SBA may continue to waive loan fees and provide higher guarantee levels on 7(a) loans through April, 30, 2010, or until the funds provided under the bill are exhausted.


This extension does not affect other SBA Recovery Act programs, including the America’s Recovery Capital (ARC) loan program or the agency’s microloans. Recovery Act funding still remains available for both of those programs.

Economy Approaching Fork in the Road

(Editor's Note: Paul Schatz, President of Heritage Capital, LLC, in Woodbridge, will be contributing to Fi$callyFit every Friday. Read his biography here)

It's been no secret that I have been a huge skeptic of the so-called economic recovery. To me, the world has been and is being held together with duct tape (may all time favorite product) and band-aids. Without the tsunami of cheap and easy money along with all the other government rescues and bailouts, there would be no "recovery".

The long-term problem is not that the government has intervened like no time before in our history, although I do not totally agree with all of it. The issues are that:

• The only real employment growth is in government.


• The economy cannot live without the massive stimulus.


• Private capital is not lining up to replace the government.


• Entrepreneurship is just about dead.


• Taxes are set to go up, up, up at precisely the wrong time.


• Washington is broken.
  

There are two ways to look at those comments. It's often darkest before dawn and the almost always resilient U.S. economy is about to surge higher. OR, we've been given an 18 month reprieve and trouble lies ahead. Until proven otherwise, and maybe the stock market is telling me I am a dummy, I have to stay on the troubled side.

The recession was not your run-of-the-mill variety with inventory correction and inflationary pressures that's easily recovered from. It was credit contraction (deflation) based and the only two modern day precedents, Japan 1989-present and the U.S. in the 1930s, didn't work out so well!

It took us until the end of WWII, some 10 years later before the economy turned for good. And Japan STILL hasn't figured out how to divorce itself from the death grip of deflation with all of their demographic issues. But opening their borders would be a start!

I came across the following piece from John Mauldin, who quoted former Merrill Lynch Chief Economist David Rosenberg (currently at Gluskin, Sheff), that I wanted to share regarding issues with the nascent recovery.

More than five million homeowners are behind on their mortgages.There are over six million Americans who have been unemployed for at least six months, a record 40% of the ranks of the jobless.
The private capital stock is growing at its slowest rate in nearly two decades.
Roughly 30% of manufacturing capacity is sitting idle.
Nearly 19 million residential housing units, or about 15% of the stock, is vacant.
One in six Americans is either unemployed or underemployed.
Commercial real estate values are down 30% over the past year.
The average American worker has seen his/her level of wealth plunge $100,000 over the last two years, even with the recovery in equity markets this past year.
Bank credit is contracting at an unprecedented 15% annual rate so far this year as lenders sit on a record $1.3 trillion of cash.
Unit labor costs are down an unprecedented 4.7% over the past year, and what has replenished household coffers has been the federal government, as transfer payments from Uncle Sam now make up a record 18% of personal income (and the Senate just passed yet another jobless benefit extension bill!)."

All things considered, I find it hard to fathom that any type of “real” historical economic recovery is close at hand. The best case continues to be a slow plodding through that lasts several years and allows our problems to heal over time with good policy, assuming we begin to control our budget deficits.

Please feel free to email me with any questions or comments at Paul@investfortomorrow.com.

Until next time…

Paul Schatz

Heritage Capital LLC
http://www.investfortomorrow.com/

Health Care Bill Not So Healthy

(Editor's Note: Paul Schatz, President of Heritage Capital, LLC, in Woodbridge, will be contributing to Fi$callyFit every Friday. Read his biography here)

Although the political wrangling continues over the legality of the health care bill, for all intents and purposes, it's law, like it or not. On the one hand, it's a positive that we've gotten at least something done on this issue. But, this bill is FAR from being great in my humble opinion.

This morning, I had a conversation with a client whom I routinely disagree with. We always have very spirited political, social and economic discussions. Sometimes he makes a good point that causes me to reassess my position, like today, and other times I do. And sometimes, we agree to disagree.

From my seat, that is good and healthy debate; always respectful, never personal. Two individuals from different sides of the political spectrum and from different generations. The question is... why can't our elected officials in Washington behave like this?!?!

Getting back to health care, one of the problems with reform is that we're not dealing a straight social or free market issue. Think of yourself as the CEO of a health insurer whose top priority is to deliver results to the shareholders. That's your fiduciary responsibility. The more times your company says "no", the more profits in the corporate coffers.

As a customer of that insurance company, you pay significant premiums to cover you in case of health issues. You expect a "yes" when the time comes. You expect life to be preserved. The problem is that health insurance companies are a hybrid and cannot be a straight capitalist/free market model. There must be regulation to "insure" life and protect the insured as another client (physician) offered at lunch today.

I am NOT in favor of government run health care, but I think we all know that without the proper oversight, the insurance companies become the sector of "no" to maximize profits. It's a social and free market issue that doesn't seem to have a good compromise. The health care bill does have some pluses, such as added coverage for meds, subsidies for lower income families to buy insurance and hopefully a small business tax credit.

Socially, I am 100% in favor of fixing the preexisting condition problem. But I do know that shareholders are hurt by that. I am not in favor of requiring everyone to buy health insurance. I don't know our forefathers personally, but I have a hard time believing that they would be in favor of this. I also don't think they would have too much respect for Nancy Pelosi who believes that "pursuit of happiness" means forcing citizens to buy a product.

If you don't want to buy auto insurance, you don't have to drive. If you don't want to buy homeowner's insurance, don't buy a home or buy one without a mortgage. Since smoking and obesity are huge burdens on the healthcare system, is Congress going to mandate our weight or outlaw smoking to protect the system? Will they pass a bill forcing us indoors during peak sun hours because of skin cancer danger?

I've seen the Congressional Budget Office (CBO) estimates on what the bill is going to do over the next 10 years in deficit reduction. Wonderful. It's primarily through tax increases and this insane idea that the government can find hundreds of billions in savings from Medicare waste and fraud. If it was so easy, why hasn't anyone done it before???

And while the CBO is an independent group, who ever said they were correct or even good? Show me ANY of their previous long range forecasts that have come true. You can count me as a skeptic here. I don't buy it.

And the tax increases are the crowning point of not only this bill, but additional increases coming online in 2011. Have we not learned ANYTHING from FDR's great mistake in 1937 when he raised taxes and removed fiscal stimulus, causing Great Depression Part Deux?

The folks at Casey Research recently penned a piece entitled, "Help! I've Been Taxed and I Can't Get up!" The general premise of the article is HOW we are going to pay for all this spending. If you don't know, by doing nothing, taxes are going up in 2011 to the pre-Bush cut levels. That's a huge increase during a very fragile recovery.

Forget about income tax levels for a minute where the top rate is going from 35% to 39.60%, dividends and interest are going from 15% to ordinary income levels. To rub salt in the wounds, the new health care bill adds the Medicare tax of 3.80% to capital gains, interest and dividends beginning in 2013.

Add another 0.90% tax on all income earners above $250,000 and you have the recipe for slow economic growth at best, another recession or two at worst. It's not a pretty picture. The Casey folks also point out that it's possible for the 3.80% Medicare tax to hit you when selling real estate for a gain, even the lower income brackets. Additional tax increases are seen in raising the deductible medical expense threshold from 7.50% to 10%.

There are other less widespread taxes starting in 2013 that are almost certain to raise various medical costs, but I think you get the picture. I feel like a politician saying this, but I am for lower taxes and smaller, less interventionalist government. Boy, do I feel like the odd man out!

Please feel free to email me with any questions or comments at Paul@investfortomorrow.com.

Until next time…

Paul Schatz

Energy Star Fraud

The Government Accountability Office (GAO), or the investigative arm of Congress, was asked to conduct testing to see if it could obtain Energy Star partnership status for bogus companies and if it could submit fictitious products for Energy Star certification.

A report released Friday says 15 phony products won the Energy Star label. GAO investigators tried to pass off 20 fake products as energy efficient and only two were examined by an independent party.

The Energy Star program began in 1992 and is overseen by the U.S. Department of Energy and the Environmental Protection Agency. It aims to identify products that decrease greenhouse gas emissions and lower energy costs. Additionally, federal and state governments offer tax credits and other incentives to encourage the use of products that brandish the Energy Star label.

Federal officials agreed after the investigation that the rating program is vulnerable to fraud and abuse in large part because manufacturers conduct self-certifications and often their claims are not verified by an independent party.

Is your state offering incentives for buying "green" appliances? Do you still trust the Energy Star label? Let me know what you think...