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People's United Financial Inc. Message Board

  • dglowny dglowny Dec 31, 2001 4:21 PM Flag


    As the net income falls, it is inevitable that dividends will be reduced. The dividends cannot be made to exceed earnings, because that is prohibited by banking regulations. Connecticut-chartered banks may only pay dividends from net profits, which includes the current year plus a 2-year look-back for retained (undistributed) profits.

    Here is a sampling of the historical dividend payout ratios for PBCT:

    1996 17.1%
    1997 18.9%
    1998 25.7%
    1999 24.4%
    2000 28.4%

    For all of 1999 and 2000, the quarterly total dividend payout ratio consistently fell in between 20 and 30 percent. The general upwards trend in the payout ratio is concerning, particularly with net income dropping off significantly.

    Ultimately I believe we're heading towards a dividend cutback here.

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    • If there is excess capital, and the bank's stock seems undervalued, it might be worthwhile to consider a stock repurchase plan. Since it essentially increases the ownership stakes of the existing stockholders who do not choose to sell their shares, it can benefit both the MHC and the minority shareholders. There are restrictions on stock repurchase plans where there is an MHC involved, but this only applies in the year immediately following the conversion. It used to be a 3 year restriction, but that was changed in by new regulations in 2000. In any event, none of that is a concern for PBCT anymore since we converted so long ago.

      Although one must always consider the general impact of the board's fiduciary obligations (particularly in establishing the level of any buyback "premium" above current market prices), I am not aware of any specific regulation that limits the lookback period to find those retained earnings. To the extent that allocations are made against retained earnings in the last two years, and to the extent that a portion of such allocations are thereby drawn from the "retained net income" as defined in 12CFR208.5(c), there may be an effective reduction in the undistributed net income available for use in the payment of subsequent dividends.

    • I know how it's accounted for, but for FDIC purposes does it reduce the amount of retained net profits available for dividends?

    • As described in the PBCT Annual Report for the year 2000, under items 11 and 13 in the "notes" section, PBCT has previously used a stock repurchase program, and as a result of tax laws it was required to treat this as a recapture of its pre-1988 tax bad debt reserves. See also items 9 and 11 in the "notes" from the 1999 Annual Report. The program extended from 4Q1998 to 2Q1999, and resulted in the repurchase and cancellation of approximately 3.2 million shares at a cost of $93.9 million.

      Quite often a stock repurchase program will coincide with a period where there is a belief that the stock is undervalued. Looking back at the chart you can certainly see why the precipitous drop in the middle of 1998 may have fostered such a mindset.

      If you do the math on the repurchased shares, it seems to work out to roughly $29.34 per share. Be careful in comparing this to Yahoo's charts such as else ye jump to the wrong conclusion that somehow this was a screwy deal. Somehow the 5-yr chart on Yahoo shows this period (4Q1998 to 2Q1999) as wavering around $25 per share. Their charting tool is buggy. The raw data will reveal the truth if you look at it in tabular form. Or use someone else's web site like Big Charts which shows at
      that prices actually wavered around $30 per share through that period.

      Going back to the 2000 Annual Report, on page 55, it states generally that "The cost of common stock purchased and canceled is charged to stockholders' equity. Retained earnings is charged to the extent that the cost exceeds the common stock balance applicable to those shares." I believe this provides the answer to your question.

    • Dglowny, it's obvious you are very familiar with the regs; I certainly bow to your superior knowledge. So I have a question. I'm not saying that PBCT should, but could it use the waived dividends to buy back shares? Or does any buyback come out of retained net profits?

    • Judging from the sections you've quoted, you appear to be 100% correct. I bow to your superior expertise.

    • I guess we should change the motto, now -- "Erogatio non sunt multiplicanda praeter necessitatem". Like the interest rates we were discussing back in Aug 2000, we don't want these dividend payouts to be unnecesarily multiplied either. Ok, Ok, but remember ... you requested the Latin.

      Now as to this "pump and dump" label being applied to the PBCT situtation, that seems to be a misplaced accusation.

      Due to the smaller number of shares in the hands of the public investment community, some banks using an MHC structure have been known to experience siginifcant volatility and periods of erratic trading. Between the shares that are effectively locked down by the MHC and those held institutionally, there may not be enough remaining to act as a "shock absorber" to deal with temporary imbalances in supply and demand. See also

      The PBCT roller coaster ride mustn't be too extreme, though, because the numbers are showing BETA = 0.78 which means we bounce less than the marketplace as a whole! So it certainly seems to be a stretch to categorize this as a "pump and dump" scheme. Moreover, compare PBCT to NASDAQ over the last 12 years and you will find a generally upwards march across the chart to the tune of +500% without even factoring in the dividends. Check it at

      P.S. Did you ever get "the results you wanted" from the FBI, FDIC, US Atty (see post #406) or the DOJ (see post #362) ... because I must have missed the outcome if you posted about it.

    • divideds, mhc, pe's give me a break THIS IS THE PREMIER P U M P & D U M P of the century...insiders laughing all the way to the pimp bank....dg you are the consumate insider,,, 21/28/21/28/21/28 etc...all you morons time to jump in with both feet, snit I, might even get some this time!!!..TELL ME M O R E ABOUT THE dividends I, need a good laugh, hahahahahahahahahahahaha. this is better than any book in the top ten, dividends unfarginbelieveable and you get these complete fargin morons too fall for it dg your worth way more than these pimp bank maggots are paying you. Then again you almost had Me going for that latin ( gee i was almost a preist garbage) evil is as evil does, boy Im going to miss steve spurrier,and you. you are good......

    • It certainly seems that the folks who drafted 12CFR208.5 understood the difference between DECLARED and PAID. You will note they chose to use both words in 12CFR208.5(c)(1) but only the word "declared" is used in 12CFR208.5(c)(2). There is a good reason why 12CFR208.5(c)(2) explicitly states that "retained net profits" are the prior net income "less any dividends declared during such year". Moreover, if they had meant otherwise, they would have written it otherwise (e.g. "less any dividends paid during such year"). Those dividends that were declared, but waived by the MHC, are not included in the retained net profits of the bank. They must remain earmarked for the benefit of the mutual owners, and not diverted to the benefit of the minority shareholders.

      Here is an excerpt from some FDIC instructions on the restrictive conditions that apply in just such a situation: "... any dividends waived by MHC must be retained by Stock Bank and segregated, earmarked, or otherwise identified on its books and records; such amounts must be taken into account in any valuation of Stock Bank and MHC and factored into the calculation used in establishing a fair and reasonable basis for exchanging bank shares for holding company shares in any subsequent conversion of MHC to stock form; such amounts shall not be available for payment to or the value thereof transferred to minority shareholders of the bank by any means, including through dividend payments or at liquidation."


      The stockholders deserve their fair share of profits, but not more than their fair share at the expense of others. And if the business is entering a period of reduced net income, it is only fair to expect the stockholders to carry a proportional share of that burden in the form of reduced dividends.

      If you do inquire and get an answer from PBCT, please post your findings. Keep in mind though that the arbiters of how to properly interpret these rules are the FRB and FDIC, not PBCT itself.

    • In almost every reasonably foreseeable circumstance during the ordinary operations of the bank, it would seem to be in the best interest of the MHC to waive the dividend. It is apparently a very commonplace activity for banking instututions that use an MHC ownership structure. Most likely the only potential hiccup would be in the unlikely situation where, for some legal reason, there is a problem whereby the act of waiving the dividends would run contrary to sound banking principles or the fiduciary obligation to the mutual members in the MHC. But as long as amount of the dividend complies with the requirements of regulatory oversight (e.g. preserves an adequate reserve fund, and does not unduly enrich minority stockholders at the expense of the mutual ownership) there should be no problem with continuing the regular practice of dividend waivers.

    • I read the cited section and I think you are reading it too narrowly. I believe that you have to look at the purpose of the section, which is to assure that the bank does not, over time, pay out more in dividends than it earns. It is my belief, although I'm not 100% certain, that any dividends waived would not be considered "declared" for purposes of this section, since they did not reduce the amount of income actually retained by the bank. I'm not an expert on Regulation H, so let's ask PBCT how the section is interpreted.

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