People’s United has no intention of stopping at $50 billion

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People’s United Financial in Bridgeport, Conn., is eager to buy more banks.

The $48 billion-asset bank, which said Monday it has agreed to acquire United Financial Bancorp in Hartford, Conn., for $759 million, has averaged more than two deals a year since the financial crisis.

Jack Barnes, the chairman and CEO of People's United, told analysts during a conference call to discuss the deal that he could actually accelerate that pace.

“The environment is challenging in many ways to many" banks, he said. "Their desire to look at strategic alternatives and think about how they make their way forward is changing.”

After a slow start, bank M&A is showing signs of life heading into the second half of 2019. Three of the year's biggest deals — including Prosperity Bancshares' agreement to buy LegacyTexas Financial Group and Valley National Bancorp's agreement to buy Oritani Financial — have been announced in the past month. The United deal is the fifth-biggest bank merger announced this year.

M&A is a core competency for Peoples, Barnes said. While the deal for the $7.3 billion-asset United is a little bigger than its other recent acquisitions, it is fundamentally the same as its prior purchases, he said.

"Our mindset is very much the same," he said. "In-market first ... and we'll look at adjacent markets as we grow and move ourselves forward — if we think it's appropriate."

United is bigger than the last two banks People's bought combined. People's acquired the $3 billion-asset BSB Bancorp in Belmont, Mass., in April and the $3.1 billion-asset First Connecticut Bancorp in Farmington last fall.

People's last week agreed to sell eight branches in Maine to Bar Harbor Bankshares.

There is considerable overlap in People's latest deal. Nearly two-thirds of United's branches are within two miles of a People’s location. As a result, People's plans to cut more than half of United's annual operating expenses.

Acquiring United "will help to elevate People's market share position in central Connecticut and western Massachusetts, which ultimately should provide the ... company with better pricing power and deeper customer penetration," Collyn Gilbert, an analyst at Keefe, Bruyette & Woods, wrote in a note to clients.

"The transaction should have low execution risk given the common markets," Christopher Marinac, an analyst at Janney Montgomery Scott, wrote in his investor note.

People's has been able to take advantage of recent legislation that increased the threshold for becoming a systemically important financial institution from $50 billion in assets to $250 billion. Otherwise, it might have been challenging to make the financials to buy a bank like United work, said Austin Nicholas, an analyst at Stephens.

Removing the headache of becoming a SIFI could empower Barnes to pursue more in-market deals.

Still, People's shares were down about 2% in midafternoon trading.

The slight sell-off could reflect some concern over the company's earnings model, which project lower accretion over time as People's restructures United's balance sheet, Nicholas said. People's plans to let $1.8 billion of United's loans — largely out-of-market commercial real estate and shared-national credits — run off, while planning to sell another $556 million in investment securities.

“I think there’s a view that it’s a little bit of work to get a small amount of earnings accretion,” Nicholas said, adding that the pace of acquisitions might also be more than what investors had been expecting.

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