Bank Mergers of Equals Gaining Popularity Across U.S.

Richard Collins, the chairman and chief executive of United Financial Bancorp (UBNK), has always kept tabs on converted mutual thrifts as potential acquisition targets. Now he is pairing up with one.

The $2.5 billion-asset company in West Springfield, Mass., announced Friday that it is merging with Rockville Financial (RCKB), a $2.2 billion-asset company that completed its second-step, mutual-to-stock conversion in March 2011.

United had been looking to bulk up and Collins has said that acquiring a recently converted mutual would make sense because such institutions often have so much capital after their conversion that they cannot adequately deploy it.

In Rockville, though, it found a similarly sized partner that would give the combined company the heft it needs to better compete against the big banks and regionals that dominate the Southern New England marketplace. Billed as merger of equals, the deal would create a $5 billion-asset company with more than 50 branches in Massachusetts and Connecticut.

The deal is the latest in a trend of similarly sized banks finding safety in numbers. Though mergers of equals remain the exception, rather than the rule, in bank mergers and acquisitions, their numbers are on the rise as smaller banks try to stay relevant.

Other examples of deals between similarly sized companies so far this year include the pairing of SCBT Financial (SCBT) and First Financial Holdings in South Carolina; Home BancShares (HOMB) and Liberty Bancshares in Arkansas; Heritage Financial (HFWA) and Washington Banking (WBCO) in Washington state; and Provident New York Bancorp (PBNY) and Sterling Bancorp (STL) in New York.

J. Jeffrey Sullivan, United's chief operating officer, says banks today have a "dual mandate" of investing in their businesses so that they can offer the latest products and services while at the same time keeping expenses in check to better weather the low interest rate environment. As the board and management thought about the best way to meet its growth and cost-saving targets, a merger of equals began to look more and more appealing, he says.

"When we started to talk more seriously we heard similar echoes, and it became clear that if we did this together we could get there a lot faster," says Sullivan, who will become president of the combined organization.

Kip Weissman, a partner at Luse Gorman, agrees that "the time has come" for banks to look seriously at mergers of equals.

"Because of the competitive, economic and regulatory pressures on banks today, there is the need for scale," he says. "The two banks combined are much better to compete than the banks individually. It something we have all been predicting."

The companies had long known each other, Collins says, and had flirted with the possibility of a merger throughout the years. Rockville's status as a mutual initially put the kibosh on that. The arrival of William H. W. Crawford 4th at the helm of Rockville in early 2011 reignited the possibility. The company converted to a stock organization in March of that year, but doing a transformational deal was always on his radar, Crawford says. "This type of strategic merger of equals was No. 1 on my list of things to do, but they are difficult to put together," Crawford says.

The metrics of such deals are often undeniable on paper. In this deal, for example, the combined company, which will adopt the United Financial Bancorp name and its trading symbol, is predicting a 35% boost to earnings in 2015 and combined cost savings of 15%.

The challenge, however, is often with the social issues.

"MOEs have the highest potential for shareholder return, but carry the highest risk," says John Carusone, president of Bank Analysis Center, an advisory in Hartford, Conn. "From what I know of the two management teams, it seems auspicious for a larger, more complex bank, but of course, the proof will be in the pudding."

Carusone also notes that by combining, the companies fill a gap in the metropolitan market that includes Hartford and Springfield, Mass. United and Rockville were the seventh- and eighth-largest deposit holders in that metro market, and together will be catapulted to fourth, nestled between Webster Financial and People's United Financial.

"This creates a scalable franchise with a competitive advantage among the small to midsized banks," says Damon Delmonte, an analyst at Keefe, Bruyette & Woods. "There is a real lack of $5 billion-asset banks in southern New England."

Collins, 70, is set to retire at closing but will remain a consultant for a year. Crawford will be CEO of the combined organization.

Jackie Stewart contributed to this story.

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