Beneficial Mutual Bancorp Inc. in Philadelphia has had an inauspicious first week as a publicly traded company, but its new president and chief executive, Gerard P. Cuddy, says he is confident it will win over investors.
Fresh from completing an acquisition that increased its assets by more than half, Beneficial now has a significantly larger lending limit that Mr. Cuddy said would enable it to compete for large commercial loans in its Pennsylvania and New Jersey markets. Related Links
"We're banking on growth here," Mr. Cuddy said.
But in trying to become more bank-like, the thrift company is likely to face a struggle in a market crowded with others chasing growth in commercial lending and wealth management, said Richard D. Weiss, an analyst at Janney Montgomery Scott.
"I think it's going to be hard," Mr. Weiss said. "The operating environment is not easy, and the competition is fierce in this area."
The 154-year-old Beneficial completed the first step of a mutual-to-stock conversion July 16.
It issued 44% of its stock, or about 36.5 million shares, and its mutual holding company retained the rest. The $236 million that it raised helped to finance its stock-and-cash deal for the $1.2 billion-asset FMS.
Beneficial's shares fell 8% on that first day of trading and continue to trade below the initial $10 price. They closed at $9.24 Tuesday.
Theodore P. Kovaleff, an analyst at Sky Capital LLC in New York who follows thrift conversions closely and owns stock in Beneficial, attributed the drop to sentiment about the industry in general. He said he is "guardedly optimistic" about the company's prospects.
"Every bank is trying to increase commercial loans and, to a lesser extent, asset management," Mr. Kovaleff said. "But one of the things you have to look at is Beneficial's footprint. It is in a desirable area."
Damon DelMonte, an analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc., said the stock of converting mutuals — long known for first-day pops — has not done so well lately.
Eight mutual thrifts, including Beneficial, have done a first-step stock offering this year, in which they sold a minority stake to the public, Mr. DelMonte said. Those that made their debut earlier in the year had a better first day than those that came later, and the median first-day performance for the group was a 0% change in the stock price, he said.
Beneficial is the most recent to debut and is the only one whose stock price fell on the first day.
Mr. DelMonte said investors have become reluctant to hang on to stock that is unlikely to pay off for years.
Mr. Cuddy is out to change such perceptions. He said Beneficial's cultural shift — with a bigger emphasis on improving profitability — is well under way.
A signal of how the company is evolving is the rechristening of its Beneficial Mutual Savings Bank subsidiary as Beneficial Bank. "The notion that we're a bank tells more about what it is that we do," Mr. Cuddy said.
Mr. Cuddy, 48, joined the company as president-elect in November and became president and CEO in January, when George Nise retired. He had been at Commerce Bancorp Inc. of Cherry Hill, N.J., for 18 months immediately before the move to Beneficial. He was Commerce's senior commercial loan officer for Pennsylvania and head of the private banking group for the state.
About half of Beneficial's 72 branches are in southern New Jersey now that the company has bought FMS, the parent of Farmers and Mechanics Bank.
Mr. Cuddy said that Beneficial is on the lookout for other acquisitions — not just banks, but insurance and asset management companies — that could accelerate its growth.
It is aggressively pursuing organic growth as well.
Mr. Cuddy said two of its dozen commercial lenders are recent hires, and he might add a few more.
He expects to start making loans in the $12 million range, double the previous size.
The company also has been actively buying participations in other banks' loans over the past three to six months, and Mr. Cuddy said it hopes to start selling some participations in its own loans soon.
To help Beneficial expand its asset management and brokerage business — and generate more fee income — Mr. Cuddy hired James P. Quinlan about a month ago as the executive vice president of Beneficial Investment Center LLC.
He gave Mr. Quinlan the task of hiring a few more people like himself who can bring customers with them. Mr. Quinlan had been a partner at Smart Business Advisory and Consulting LLC and the president of Smart Financial Advisors LLC, a financial planning firm.
Mr. Cuddy acknowledged the heavy competition in the Philadelphia area for asset management business, both in hiring and in attracting customers.
But he said Beneficial, which already had three brokers, is not starting from scratch. "I think it's very difficult to just say, 'We're in the business.' But we've been in the business. We have lots of happy customers."
Two other recent additions to the company's community banking division are meant to help it gather more deposits and adapt to a sales culture. Denise Kassekert, senior vice president and director of retail sales, came from Sun Bancorp of Vineland, N.J., and had been at Commerce before that, and Sharon M. Hammel, vice president and New Jersey regional director of retail sales, came directly from Commerce. Both have 20 years of banking experience.
"I think you're going to see us being more aggressive in terms of using our local branches to grow our deposit base," Mr. Cuddy said.
One aspect of the strategy will be to have branch managers call on potential business customers and ask existing ones to do more business with Beneficial, he said. "I think the big key for us there is to be out more than in, to have our branch managers aggressively out in the marketplace."
He said the commercial lenders also should help to bring in more deposits from their customers.
Cassandra Toroian, the president and chief investment officer of Blue Rockefeller LLC in Paoli, Pa., said she expects Beneficial to do well, especially since it has capital to invest in growth and to attract talent.
"They have a strong brand presence here," said Ms. Toroian, whose firm acquired Beneficial stock through the FMS deal. "It's a name a lot of people know."
Beneficial has yet to report second-quarter results. Its first-quarter net income fell 43% from a year earlier, to $1.57 million, mostly because of higher expenses. Its efficiency ratio was a whopping 89%, up from 80% a year earlier.
Mr. Kovaleff said extracting savings from the FMS acquisition would help Beneficial improve its efficiency ratio within a few quarters.
Like Beneficial, FMS' net income fell in the first quarter, but not by as much. It dropped about 4.5% from a year earlier, to $4.99 million, as its net interest margin contracted 24 basis points, to 3.07%.
Both Beneficial and FMS had first-quarter returns on assets that were well under the 1% mark that investors like to see — Beneficial's is 0.28% and FMS' is 0.43%.
But Mr. Cuddy said he expects his strategy to pay off. "Independent of whatever the yield curve does, just us having more earning assets and having more scale should all impact positively on profitability."
