In terminating its deal to buy Peoples Community Bancorp Inc. of West Chester, Ohio, Integra Bank Corp. in Evansville, Ind., might have gotten itself back into the good graces of its investors.
Though Integra would have picked up 19 branches in the attractive Cincinnati market at a good price, investors appeared to have trouble getting past Peoples' loan problems and the prospect of a costly cleanup, said Jeff K. Davis, an analyst at First Horizon National Corp.'s FTN Midwest Research Securities Corp.
The $3.4 billion-asset Integra and the $902 million-asset Peoples announced late Thursday that they had called off the $85.6 million deal, which was announced in September. In an interview, Mike Vea, Integra's chairman, president, and chief executive, declined to specify why the deal was called off, but he acknowledged that institutional investors generally disapproved of it.
"They spoke pretty loudly," he said. "Our stock has been materially off from our peers."
Integra's shares rose 3.37% Friday, to $15.35. Peoples' shares fell 27.6%, to $11.
Mr. Davis pointed out that Integra's stock price had fallen about 18% since the deal was announced, even though the company has outperformed many of its peers in recent quarters.
By comparison, FTN's small-cap bank index was down about 11% in that time — a difference Mr. Davis attributed to growing investor dissatisfaction with the deal.
Mr. Davis said he thought the deal was killed because "nonperforming loans have likely piled up further, and Peoples had probably just sunk too far." And Integra probably realized the situation at Peoples "was going to become insurmountable," he said.
Integra said when it announced the deal that the price worked out to 0.99 times the seller's book value and a 4.5% premium to core deposits.
It is unusual for a banking or thrift company to sell itself for below book value, but Peoples has had troubles of late.
Peoples, which has yet to report its fourth-quarter results, lost $1.9 million in the first three quarters and lost $4.1 million in 2006 because of credit quality problems. An agreement signed in March with the Office of Thrift Supervision required its Peoples Community Bank to clean up its loan portfolio and reduce classified assets.
In the third quarter the bank had chargeoffs of $3 million, or 1.65% of its loans, according to data from the Federal Deposit Insurance Corp. That is roughly the same amount of loans it charged off in the third quarter of 2006.
On Sept. 30 the bank's noncurrent loans were $20.2 million, or 2.84% of loans, down from $31 million, or 3.56% of loans, a year earlier.
As for growing in Cincinnati, Mr. Vea said Integra plans to look at adding branches by acquiring another bank, and he did not rule making another run at Peoples.
Peoples' treasurer, Thomas Noe, agreed that Peoples and Integra might be able to reach a new agreement down the road. For now, he said, his company is focused on developing a new business plan while exploring other "strategic alternatives" that could include a merger, raising more capital, or selling branches.
"We are trying to see what is the best way to drive shareholder value," he said.
