After plenty of buildup, People's United Financial Inc. in Bridgeport, Conn., has finally stepped up to the acquisition plate.
While the company's purchase of the failed $237-million asset Butler Bank in Lowell, Mass., Friday wasn't the home run analysts had been anticipating, they expect more winning bids from the capital-rich People's as the Federal Deposit Insurance Corp. seeks institutions with experience in failed-bank deals.
"I think the FDIC will be more comfortable with People's going forward," said Rick Weiss, an analyst with Janney Capital Markets. "What you always forget is this is still very much a people business. It is going to be easier when People's talks to the FDIC, and they say 'We have dealt with them before and they do what they say.' "
Indeed, executives of the $22 billion-asset People's say this represents the first of what they expect could be many purchases — both for open banks and via FDIC-assisted deals.
"This isn't going to be the last deal we do," Jared Shaw, the senior vice president of mergers and acquisitions and investor relations for People's, said in an interview. "In the meantime, we continue to do due diligence."
Yet while failed-bank buyers are often rewarded with a jump in their stock price, People's shares instead declined slightly following the acquisition. Analysts said investors may have been disappointed that the transaction was not bigger given People's oft-repeated message that it plans to double or triple its size through acquisitions.
People's shares closed at $16.40 Friday. The shares fell to a low of $15.84 Monday before closing at $16. The stock rebounded somewhat to close Tuesday at $16.29.
People's executives have been talking up a deal for a long time. In a conference call with analysts Friday, just hours before the Butler takeover, Phillip Sherringham, People's president and chief executive, included his latest promise — that it was looking for deals and expected an announcement soon.
"We remain convinced that the best deployment of our excess capital is in FDIC-assisted and whole-bank acquisitions in attractive markets with high population density," he said, minutes into the call. "While it's difficult to predict with certainty, we are pursuing a number of opportunities and feel confident that we will have an announcement in the near future."
Executives have been repeating that message for the past several years as they prepared for acquisitions. In 2007, the company completed a second-step conversion, raising $3.44 billion in capital. The plan was to use that capital for purchases but People's has had limited success finding targets, considering it hopes to add $40 billion of assets with the capital.
In 2008, People's acquired the $3.8 billion-asset Chittenden Corp. in Burlington, Vt. In February, it closed the acquisition of Financial Federal Corp., an equipment financing company with $1.5 billion of assets. People's just passed the third anniversary of its full conversion. It is now eligible to sell itself, though management said the company is committed to being an acquirer, not an acquisition target.
Analysts say People's is in a solid position to be an acquirer. Its loan portfolio remains relatively clean — the ratio of nonperforming loans to loans stood at 1.36% at March 31 — and capital levels are high. Its tangible common equity ratio was 18.6%.
People's remains profitable. Last week, it announced first-quarter earnings of $13.6 million. Though that represents a 43% decrease from a year earlier, it was largely related to purchases and to system-conversion expenses.
The company's sweet spot for deal hunting is along the Northeast corridor, from Maine to Washington, but it is also considering acquisitions in Florida, Texas and California. Analysts said the recent acquisitions are more important for People's than their size might indicate.
"From a financial sense, it is a nonevent," Weiss said of the Butler acquisition Friday. "But from a strategic point, I think it is significant in that it gives People's more practical, hands-on experience in doing an FDIC deal."
Several industry watchers said the purchase could result in other positive effects for People's.
"It does take a little pressure off of the management team," said Mark Fitzgibbon, the head of research at Sandler O'Neill & Partners LP. "The company was under a lot of pressure by investors to get into the mix and do some FDIC transactions."