People’s power earns results

People”™s United Financial Inc. could triple in size the next few years, according to CEO Philip Sherringham, now that the company has an acquisition SWAT team of sorts in place to integrate new purchases.

People”™s United cut the size of its work force by 220 jobs last year, finishing 2009 with just under 3,900 full-time employees and about 635 part-timers. The company is based in Bridgeport and has more than 60 branches in Fairfield County, of some 300 throughout the Northeast.

Last month, People”™s United completed its $738 million acquisition of Financial Federal Corp., which provides lease loans for heavy equipment. People”™s United has yet to state any impact from the merger on some 200 jobs at New York City-based Financial Federal, or in its own leasing unit, except that the companies expect minimal disruption to their workers.

It was the company”™s second major acquisition the past few years after its buy of Chittenden Corp., which expanded its presence into Massachusetts and northern New England.

Speaking at a Keefe, Bruyette & Woods banking conference in Boston late last month, Sherringham said People”™s United expects good growth in its commercial real estate lending portfolio, in part to do grabbing opportunities from competitors in Connecticut, Massachusetts and southern New Hampshire.

But with consumer lending growth constrained, Sherringham also said the company must count on additional acquisitions to accelerate its growth, which has also included new branches in Westchester County, N.Y.

“(That) highlights our dilemma, if you will,” Sherringham said. “Because of the fact we are not growing our mortgage portfolio or home equity, the portfolio is going to be flat; and commercial is a mixed picture ”¦ (Growth) really has to come through acquisitions, so we”™re very focused on that obviously.

 

“The Financial Federal acquisition does not distract us from our preference to complete full-bank transactions either in our preferred geographies from Maine to Washington, D.C., or in other areas characterized by wealth and high-density population,” Sherringham added. “We are actively participating in the FDIC (bank auction) process, and hope to be the winning bidder one of these days.”

 

People”™s United is in the process of completing the installation of software, which among other benefits will make acquisitions easier by making it easier to marry up another bank”™s data and systems with its own. With systems and personnel in place, Sherringham said investors should expect the company to be an active bidder for traditional banks, as well, possibly far afield in locales like California, Texas or Florida.

“We”™re ready from a management perspective here at People”™s United to handle an out-of-franchise, out-of-market acquisition on a moment”™s notice,” Sherringham said. “We”™ve been working very hard on increasing our states of residence, if you will; we”™ve got the team ”¦ ready to go at a moment”™s notice to wherever, and we”™ve been (adding to) our upper-echelon management team to make sure we have the depth of management that we need to handle a much larger bank.

“That, of course, has an implication on our cost structure, which is not positive, as you might imagine,” Sherringham continued. “But I think it”™s something we need to do because basically our premise here is over the next, you know, two to three years ”¦ to double or even triple, maybe even more, the size of the bank. So we need the infrastructure in place to basically manage a $60 billion company, and basically at this point we have it.”

Even as it has built up its systems and in-house expertise, People”™s United may have missed a few opportunities along the way, whether by choice or competition from rivals in the Northeast. Lockport, N.Y.-based First Niagara Financial Group Inc. jumped at the chance to acquire two branch portfolios in Pennsylvania, even as it repaid money it had borrowed under the federal TARP bailout program for banks.

“Last fall there was a massive wave of recapitalization going on,” said Damon DelMonte, a Hartford-based banking analyst with Keefe, Bruyette & Woods. “Basically any bank that needed capital was able to go to the market and get that money, and that may have limited the opportunities out there.”?At the same time, the Federal Deposit Insurance Corp. has been holding ongoing auctions of failed banks nationally. Asked People”™s United”™s appetite for an FDIC deal, Sherringham gave a measured response.

“It is more likely than not that the next acquisition will be a non-FDIC deal,” he said. “FDIC deals are random, right? We don”™t control the process; in fact arguably even the FDIC doesn”™t control the process, because the bank has to be shut down by their respective regulator, the OTC, the OTS and so on and so forth, and the FDIC, believe it or not, has limited control over that whole process. It happens when it happens ”¦ Having the process of a discussion with ”˜open”™ banks is one that is somewhat more predictable and controllable because ”¦ it”™s a one-on-one negotiation process, as opposed to one that is an auction-type situation.”

Sherringham said the bank has also modified its previous stance of seriously considering deals valued at $1.5 billion or above.
“That”™s still our preference, but frankly while we expect the FDIC to be very busy over the next 18 months, we may have to consider doing a string of smaller deals,” Sherringham said.