3. Peoples United Financial


Shares of Peoples United Financial ( PBCT) of Bridgeport, Conn., closed at $11.94, down 2% year-to-date, after declining 4% last year.

Based on a quarterly payout of 16 cents, the shares have a dividend yield of 5.36%.

The shares trade for 1.4 times tangible book value, and for 15 times the consensus 2013 EPS estimate of 82 cents.

Peoples United had $28.6 billion in total assets as of Sept. 30. The company reported third-quarter net income of $62.2 million, or 18 cents a share, declining from $64.6 million, or 19 cents a share, in the second quarter, but increasing from $51.5 million, or 14 cents a share, in the third quarter of 2011. The sequential earnings decline reflected an increase in the provision for loan loss reserves to $15.1 million from $10.6 million, as the company made a special $5.7 million provision for losses on acquired loans, after acquiring 57 branches from Royal Bank of Scotland Group PLC ( RBS) subsidiary RBS Citizens NA.

Peoples United saw its net interest income decline to $234.8 million in the third quarter, from $235.6 million the previous quarter, and $237.7 million a year earlier, as the net interest margin narrowed to 3.89% from 3.96% in the second quarter, and 4.07% in the third quarter of 2011.

Third-quarter noninterest income totaled $81.4 million, increasing from $75.7 million the previous quarter, but declining from $84.7 million a year earlier, when the company booked $8.6 million in securities gains. The sequential increase in noninterest income reflected increases in brokerage fees and in gains on the sale of residential mortgage loans.

Average loans grew by 1% sequentially and 4% year-over-year, to $20.7 billion in the third quarter.

The company's third-quarter operating ROA was 0.88%, declining from 0.93% the previous quarter, but increasing from 0.77% a year earlier. First United reported that the third-quarter return on average tangible equity was 8.3%, declining from 8.5% in the second quarter, but increasing from 6.1% in the third quarter of 2011.

Peoples United repurchased 13.5 million common shares for $164 million during the first three quarters, and had 4.5 million shares authorized for buybacks under its repurchase plan.

Sandler O'Neill analyst Mark Fitzgibbon rates Peoples United a "Hold," with a price target of $12.50, and said on Oct. 18 that third-quarter "operating results were generally in line with our expectations," and that "we have a difficult time seeing the company get to a double digit return on capital anytime soon."

Fitzgibbon also said that "as a result of the balance sheet growth, stock buybacks and dividends, the tangible common equity ratio fell from 11.5% to 11.2%, still a comparatively high ratio." The analyst also pointed out that the dividend on common shares "represents a core dividend payout ratio of 86%," and said that "while we recognize that PBCT is overcapitalized, we continue to think that there is a risk that at some point the regulators could push the company to lower the payout ratio."

It will be of great interest to investors to see if Peoples United's board of directors decides to curtail the buybacks in order to reduce the possibility of a dividend cut down the line.

PBCT Chart PBCT data by YCharts

Interested in more on Peoples United Bancorp? See TheStreet Ratings' report card for this stock.

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