In an enviable position with lots of cash and a relatively stable loan portfolio, People”™s United Financial Inc. may have missed an opportunity to expand as bank stocks hit rock bottom last spring.
More than 19 months after the Bridgeport-based bank spent $1.9 billion to add the Chittenden Corp. family of banks in northern New England, People”™s United at deadline had yet to find a follow-on acquisition it has promised since raising $3.4 billion in a 2007 stock offering.
In a conference call with analysts in late July, CEO Philip Sherringham fielded repeated inquiries about People”™s United”™s plans, including whether it would scout out opportunities in Georgia or California where several banks have collapsed or are teetering on the brink of failure, offering a bonanza of existing branches to bargain hunters.
People”™s United continues to fare well compared with peers both in Connecticut and the Northeast. Non-performing commercial loans increased by half between the first and second quarter due to a single, problem loan on a condo development in Florida it helped finance, but People”™s United still earned $27 million during the quarter, a slight increase from the first quarter though down from $43 million a year ago.
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While People”™s United has seen deposit market share erode the past few years on its home turf of Fairfield County, where it is among the region”™s largest employers, it is counting on other geographical markets for future growth in deposits and the money-making loans those accounts enable.
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Sherringham said People”™s United is considering Northeast acquisition opportunities valued between $200 million and $400 million; to expand into a new market would take a much larger deal, he added, even in an area such as Georgia where multiple banks are available at fire-sale prices.
People”™s United passed on the opportunity to acquire more than 80 branches in Pennsylvania snapped up last week for nearly $240 million by Buffalo-based First Niagara Financial Group Inc.
“Making acquisitions is easy; making acquisitions that make economic sense and make our shareholders happy is a different matter,” Sherringham said. “As we all know, bank valuations had dropped back in March to probably all time lows ”“ if not all time lows, lows we haven”™t seen in a very, very long time. Of course, ideally it would have been a great time to make an acquisition then. But frankly, that”™s probably difficult at any rate since many of the banks involved obviously are not enthusiastic about selling at those levels as you might imagine, even at significant premiums above those levels.”
Ken Zerbe, an analyst with Morgan Stanley, said the risk remains that bank valuations could bounce back farther before People”™s United can pull off a deal. Even as the KBW Bank Index has gained in value since March, the price of People”™s United shares has dropped.
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“You have to put things in perspective. Yes, stock prices have basically, let”™s say, doubled since March for many of those banks, but they”™re still at very, very low levels compared to their recent highs of two or three years ago,” Sherringham said. “So, we certainly don”™t think we”™re out of opportunities or somehow that we missed the boat.”
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Sherringham said he expects some of those opportunities to come from the Federal Deposit Insurance Corp., which is helping oversee the disposition of troubled banks.
Further complicating the picture last week was Bank of America Corp.”™s announcement that it would trim its national branch network by 10 percent over the next few years, providing an opportunity for banks that might plan on cherry-picking Bank of America branches in desired markets.
“We”™ve been looking at a few deals, we haven”™t really bid on any of them yet,” Sherringham said. “There haven”™t been many deals in our preferred geography ”“ which remains of course the Northeast corridor ”“ which might lead us then to look at deals outside of that corridor ”¦Â If we”™re talking about deals outside of our favored geography, (they) have to meet certain size criteria. They can”™t be too small. We”™re not interested in a beachhead in a remote market or something like that obviously.”
