4. Trustco Bank

Shares of Trustco Bank ( TRST) of Glenville, N.Y., closed at $5.20 Thursday, declining slightly this year, following a 1% decline during 2012. The shares trade for 1.4 times tangible book value and for 11.8 times the consensus 2014 EPS estimate of $0.44. The consensus 2013 EPS estimate is $0.41.

Based on a quarterly payout of $0.065625 (or $0.2625 on an annual basis), the shares have a dividend yield of 5.05%.

Trustco Bank is rated a B-minus (Good) by TheStreet Ratings.

The company had $4.3 billion in total assets as of Dec. 31 and reported 2012 net income of $37.5 million, or $0.40 a share, increasing from $33.1 million, or $0.39 a share, in 2011. The 2012 ROA was 0.86%, improving from 0.81% the previous year.

The main factor in the earnings improvement was a decline in provisions for loan losses to $12 million in 2012 from $18.8 million the previous year. Noninterest income increased 12% year-over-year to $21.0 million during 2012, with increased customer service fees and trust department income.

Following KBW's acquisition by Stifel Nicolaus, KBW on Feb. 15 initiated coverage of Trustco Bank, with a "market perform" rating and a price target of $5.50. KBW analyst Travis Lan estimates Trustco will earn $0.39 a share this year, and also in 2014.

Lan said in a report that historically, Trustco's "management has been successful in navigating through various economic and interest rate environments. However, as a mono-line residential lender, the current challenges associated with TrustCo's long-term, fixed-rate lending model continue to outweigh the opportunities in our view."

"While levers exist to offset most margin compression in 2013, we anticipate that those should be worn out by 2014 leaving the bank susceptible to significant pressure at that point," Lan wrote. The analyst added that "with negligible price upside given our operating outlook, return in TRST shares remains dependent on the 5.0% dividend yield." But Lan also said he expected Trustco's dividend payout ratio to remain in its "historical range" of less than 70% over the next two years.

"Dividend sustainability is a key part of the story, though future capital accretion may become additionally important as growth accelerates, which may at some point require meaningful earnings leverage, or a more rational payout," Lan wrote.

Interested in more on Trustco Bank? See TheStreet Ratings' report card for this stock.

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