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People's United digs in on the dividend

The timing of People's United Financial Inc.'s move above $50 billion in assets could come down to its dividend, according to comments made by management during the bank's fourth-quarter 2016 and full-year 2016 earnings call Jan. 19.

People's United ended 2016 with $40.61 billion in assets, but management reiterated their commitment to incrementally building in costs associated with crossing $50 billion in assets. The program, entitled 'B50B,' is intended to help the bank avoid sudden expenses. Crossing $50 billion in assets would incur the moniker of 'systemically important financial institution' and bring additional regulatory requirements like participation in the Comprehensive Capital Analysis and Review and living wills.

At the same time, management said they are safeguarding the dividend payout ratio and would approach the threshold with caution, especially through an acquisition, because of its "significant" impact on share valuations. In response to an analyst's question, executives unequivocally said they would not announce an acquisition that would take People's above $50 billion in assets unless they were given assurances by regulators that they could keep the current dividend. However, that does not mean they would refuse to cross $50 billion organically. Management said they expect the dividend payout ratio to fall as the bank grows bigger.

"Growing organically to $50 billion is going to take a number of years and what we are expecting is that we will continue to improve our profitability and bring our dividend payout ratio down. We see in the environment that the regulators are allowing banks to carry cash dividend levels that are now up to [40%]. We are now [60%] equivalent in the quarter, so we are going to continue to navigate towards $50 billion, maintaining our dividend with the intent that we would not pass $50 billion without that support," said President and CEO John Barnes.

Management also did not rule out future bank acquisitions that might put the company near $50 billion in assets. Barnes said that if a compelling reason to accelerate its approach to the SIFI threshold manifested, he was confident the bank would be able to "react" and "manage" its way. However, he said he saw little change in the M&A landscape since the presidential election, noting that the currencies of prospective buyers and sellers moved together.

The comments around the dividend and $50 billion threshold were overshadowed by the failure of New York Community Bancorp Inc. to close its deal with Astoria Financial Corp. New York Community had communicated a lowered payout ratio as part of the Astoria acquisition, which would have rocketed the pro-forma company over the SIFI threshold. But the companies were unable to close the deal and ultimately called it off. In response to a question that mentioned New York Community's situation, management said they were focused on their operations and relationship with regulators. Barnes said the bank maintains "very frequent and good relationships and communications" with its regulators as part of management's expectation to seek assurances around the dividend payout ratio.

The bank reported fourth-quarter 2016 net income available to common shareholders of $74.1 million, or 24 cents per share, compared to $70.8 million, or 23 cents per share, in the year-ago period. For the full year 2016, the company reported net income available to common shareholders of $279.2 million, or 92 cents per share. In 2015, the company earned $260.1 million, or 86 cents per share.