People’s buys Mass. bank

Commercial loan demand remains weak in the markets where People”™s United Financial Inc. does business, as the Bridgeport-based company acquired a failed bank to pave its entry to the Boston market.

“In terms of commercial loan demand ”¦ it remains weak, much weaker than we”™d like it to be frankly,” said Philip Sherringham, CEO of People”™s United, in a conference call with investment analysts in mid-April. “That”™s true across the franchise, across all business lines on the commercial side. Things have picked up a little bit, maybe, but frankly it”™s still disappointing ”¦ Now, the year is still young, and there are signs that the economy overall may be reaching a turning point. But at this point in terms of increased loan demand coming from middle market companies, it”™s simply not happening.”

In mid-April, People”™s United announced the acquisition of Lowell, Mass.-based Butler Bank, which has four branches north and west of Boston, and which includes an affiliate called Marlborough Co-Operative. The Federal Deposit Insurance Corp. had seized the bank after it reported inadequate capital levels, making it the first Massachusetts bank to fail as a result of the credit crisis and recession. People”™s United assumes assets of $237 million and liabilities totaling $243 million.

Sherringham said the bank had bid on two FDIC deals, and reiterated that any deal outside the Northeast would have to involve an institution with at least $3 billion in assets.

“The opportunities over the next year to two years are probably going to get better,” Sherringham said. “If you go back a year ago when bank stock prices were really extremely depressed, transactions were in fact impossible because ”¦ most banks simply weren”™t willing to sell. I think the recovery that we”™ve seen recently in this sector is actually going to be helpful as we consider acquisitions, because … some banks are going to have to ask themselves a question: where does the next leg come from in terms of earnings? How are they going to grow earnings as they move forward? Wouldn”™t it make more sense to associate with a larger, stronger company such as ourselves? Hopefully the answer is going to be yes in a number of cases.”

In the first quarter, People”™s United earned just $13.6 million, down from $24 million a year ago due to expenses related to its $750 million acquisition this year of New York City-based Financial Federal Corp. and the cost of converting to new computer systems, an upgrade it expects to save it $20 million annually.

Net loan charge-offs totaled $9.5 million in the first quarter, compared with $13.6 million in the fourth quarter of 2009. Paul Burner, chief financial officer of People”™s United, said the bank classified a $10 million commercial loan as nonperforming during the quarter, but declined to provide specifics.

“When it comes to commercial charge-offs, they are typically very choppy,” Sherringham said. “You could see up and down from one quarter to the next ”“ it doesn”™t necessarily mean there”™s a significant trend there.”

Steven Alexopolous, an analyst with JPMorgan Securities, suggested that People”™s United could realistically find a buyer at this point if it wanted to, three years after fully converting to public ownership, a notion Sherringham rejected.

“We”™re very focused on acquiring other banks at this point as opposed to anything else,” Sherringham said.