Maine's largest independent bank is venturing west of New England for the first time, reaching into western New York state to buy servicing rights to $250 million of home mortgages.
Portland-based People's Heritage Financial Group will buy the servicing rights from $6.7 billion-asset Onbancorp, Syracuse, N.Y. The Maine company declined to reveal the purchase price.
The deal will increase the servicing portfolio at People's to about $2.75 billion. Most of the 3,000 mortgages are in the greater Syracuse area, with an average interest rate of 7.75%, spokesman Brian Arsenault said.
The acquisition by People's is "a smart move on their part," since the company is trying to develop a profitable mortgage banking business, said Gerard Cassidy, a banking analyst at Tucker Anthony's Hancock Institutional Equity Services.
He explained that the servicing is relatively risk-free and should provide a "more than adequate" return. He added that he expects People's to try similar purchases in the future.
"I'm not as worried about a bank buying mortgage servicing outside its market as an analyst would be about a bank making construction loans outside its market," Mr. Cassidy said. "It's not something terribly worrisome or disturbing."
People's, the $2.4 billion-asset holding company for People's Heritage Bank and First Coastal Banks of Portsmouth, N.H., has traditionally focused on eastern New England, especially Maine, New Hampshire, and Massachusetts.
The deal with Onbanc is the company's first move into New York.
But People's officials minimized the expansion, noting that the director of the company's mortgage division had worked for Citicorp in Rochester, N.Y.
"It doesn't seem that far afield for us because it is the Northeast," Mr. Arsenault said. "It's not something we're uncomfortable with."
People's will likely stay in the Northeast, he said, but officials won't rule out moves into the rest of New England or other parts of New York.
"I think we're still regional, but we're defining the region a little larger than we might have at one point," Mr. Arsenault said. "I don't think you'll see us going to Ohio, but I don't think Connecticut is even out of our reach."
The bank is currently looking for such opportunities, Mr. Arsenault said, but no announcements are pending.
Also last week, the People's board authorized a stock buyback of 750,000 shares in the next three months, beginning immediately.
That's about 4.5% of the company's outstanding shares.
Officials are concerned that the company's current stock price is lower than warranted by its long-term business and earnings prospects, Mr. Arsenault said.
The stock is currently selling at about $12 per share, below its book value of $13.61.