A $91 million merger in New England underscores top risk facing acquisitive banks: annoying investors by paying with stock.

Shares of United Financial Bancorp (UBNK) of West Springfield, Mass., fell more than 7% on Thursday after announcing that it would acquire New England Bancshares (NEBS) of Enfield, Conn.

Single-day selloffs greeted four other public banks that have unveiled deals worth more than $50 million this year. Only one other acquirer saw its shares plunge more than United. Shares of Park Sterling (PSTB) in Charlotte, N.C. fell more than 8% on May 14 after it announced its $77 million purchase of Citizens South Banking (CSBC) in Gastonia, N.C.

Industry observers call such selloffs a buyers curse. Taken together, all five transactions indicate that dilution outweighs the strategic benefits of a deal. United Financial estimates that its deal will dilute its tangible book value by 9%. Park Sterling's deal will dilute its tangible book by 12%.

Post-merger tangible book values will decline at two other banks whose shares fell when they unveiled deals: Old National Bancorp (ONB) and Tompkins Financial (TMP).

United's plunging share price was striking because its deal appears to be a safer bet than those other deals by several measures. It is also the type of deal that a lot of bankers — not to mention regulators — favor: a reasonably priced, exclusively negotiated pairing of two fairly small but healthy players in a well-to-do market.

United will have $2.4 billion in assets and 39 branches after the deal closes. That should occur in the fourth quarter.

"It seems to make sense," Alexander Twerdahl, an analyst at Sandler O'Neill & Partners, said in a conference call that United Financial held to discuss the transaction Thursday.

New England Bancshares has 15 branches and $727 million in assets. Its return on average assets is 0.65%, which means it has good, but not exceptional, profitability. The deal values the seller at 163% of its tangible book, which falls within the market price of 150%-200% tangible book that banks in the Northeast have fetched in the last year.

The deal's cost savings should be good. United expects to cut 33% of the seller's noninterest expenses, with most of those savings realized by next year. The deal involves a low credit mark of 2%, or $11 million, on a $1.7 billion loan book, heavily tilted toward one-to-four family loans and business property mortgages.

Richard Collins, United's president and chief executive, said during Thursday's conference call that the deal is a "prudent deployment of excess" capital with "reasonable" dilution. It should better position the company to boost revenue by attracting more clients and broadening its reach for more acquisitions.

"We have done an acquisition before. We know how to do it," Collins said. "Our management team is ready to take on this challenge and do the best possible job we can."

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