In an attempt to expand its presence in greater Boston market, on Friday, People’s United Financial Inc. (PBCT) announced the purchase of the deposits and banking operations of the Massachusetts-based Butler Bank from Federal Deposit Insurance Corporation (FDIC). 

According to the terms of the deal, People’s United has acquired assets of the Butler Bank and its Marlborough Co-Operative division worth approximately $237 million. Alongside, the company has also taken up liabilities of Butler bank worth approximately $243 million, of which $229 million are deposits. With regard to this, People’s United has also entered into an agreement with the FDIC to share losses incurred by all acquired loans and foreclosed real estate of Butler Bank. 

While post-merger functions have already become effective, depositors can access their money by writing checks, using ATMs or debit cards of Butler Bank as before. Moreover, the checks drawn on Butler Bank will continue to be processed as usual. 

Earnings Recap 

People’s United’s first quarter 2010 operating earnings per share of 8 cents matched both the Zacks Consensus Estimate and fourth quarter 2009 earnings. Earnings were a penny higher from 7 cents in the prior-year quarter due to improvement in the net interest margin (NIM), lower interest expenses, modest loan growth and lower net loan charge-offs for the second consecutive quarter. 

However, continued market pressure drove non-interest expenses higher and non-interest income lower for the quarter. People’s United completed its acquisition of Financial Federal Corporation on Feb 19, 2010. The company has also successfully completed the first phase of core systems conversion and is now focusing on the final phase, which is slated for July 2010. 

People’s United is desperately trying to overcome the challenging economic environment through opportunistic acquisitions, stable net interest margin, modest loan growth and lower net loan charge-offs. However, the company’s operating leverage and balance sheet remains sensitive to weak credit quality, increasing loan loss provisions and non-interest expenses against decreasing non-interest income. We believe the historically low interest rate environment is expected to have a negative impact on People’s United for some more time before it rebounds with the slowly recovering economy. 

People’s United continues to benefit from a healthy business portfolio that has grown inorganically over time. While the company’s R.C. Knox and Chittenden acquisitions continue to generate income flow, the recent addition, Financial Federal is a leader in equipment financing and provides a valuable complement to People’s United’s existing business lines, particularly to PCLC, its equipment financing subsidiary. 

An addition of Butler Bank in the company’s portfolio is expected to further enhance People’s United’s banking operations, thereby providing scope for exploring and tapping Boston’s vast market share. Going ahead, this transaction is expected to generate meaningful earnings accretion without diluting the capital ratios, which will provide tremendous strategic flexibility to the company in the current volatile markets.
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