Major Moves in MA M&A

Why People’s United Paid Only $327M for Belmont Savings Bank

Cost Savings Made Farmington Deal More Lucrative



The parent company of People’s United Bank completed its acquisition of the parent company of Farmington Bank in an all-stock transaction valued at $544 million nearly two months ago. Last week, People’s United announced it will buy the parent company of Belmont Savings Bank in an all-stock transaction valued at $327 million. 

Given that both banks hold about $3 billion in assets, what made the Farmington deal so much more lucrative than the Belmont deal? 

The price People’s United paid for Belmont Savings Bank can mainly be attributed to timing and the higher cost savings in the Farmington deal, said Arthur Loomis, president of Loomis & Co., a New York-based investment bank that works extensively with community banks in the Northeast on M&A and capital financings.  

“With the Farmington deal, they could consolidate approximately 15 branches and retain a substantial market presence. In fact, I don’t know [if] there are any branch consolidation opportunities in Belmont,” he told Banker & Tradesman. “The other factor, which affected the pricing, is bank stocks are down between 7 and 10 percent for the year. They used to be up 6 to 7 percent, so they have swung 15 and some cases 20 percent, and that hurts nominal pricing, provided the exchange ratio isn’t increased.” 

Belmont Savings Bank has six branches, compared to Farmington’s almost 30 branches. Following the Farmington acquisition announcement, People’s United said they would close 15 of its branches, most of which were previously Farmington branches.  

Consolidation was inevitable; 71 percent of Farmington Bank’s branches were within 2 miles of People’s United Bank branches, and 100 percent of Farmington branches were within 5 miles of a People’s United Bank branch. 

Before the acquisition was complete, Farmington also laid off 95 employees, or roughly 27 percent of its workforce. 

Right after the Farmington deal was announced in June, one investor on an earnings call called the purchase, valued at 180 times Farmington’s tangible book value, a “full price.” 

But People’s United President and CEO Jack Barnes said the company loved the deal because of costs savings on branches and in other lines of business.  

“Farmington Bank’s strong customer base provides potential for revenue synergies as we will have the opportunity to market to them our more extensive suite of products and services in areas such as insurance, wealth management, international trade finance and foreign exchange,” he said. “We will also be able to leverage the size and strength of our balance sheet to provide more comprehensive financial solutions to Farmington Bank’s larger customers.” 

Bram BerkowitzThere will also be cost savings in the Belmont Savings deal. 

A recent investor presentation shows that People’s United will save 50 percent of Belmont’s noninterest expenses, or $16 million. While the bank will save the same percentage of Farmington’s noninterest expenses in that deal, the dollar figure is much higher, at $33 million. 

However, Belmont also said in a recent filing that it has no current plans to close any of its branches. 

Those plans could change down the line, given that People’s United has branches in some of the same communities as Belmont Savings, namely Waltham and Cambridge.

Bram Berkowitz

 Could Belmont Have Gotten a Better Deal? 

It is hard to say whether Belmont Savings could have gotten a better price than the 160 percent tangible book value that People’s United paid for the bank. 

In some ways the bank outperformed Farmington. Its return on assets was .6 at the end of last year, a little bit higher than Farmington’s. Halfway through 2018, Belmont’s ROA was .87, again, slightly higher than Farmington’s. 

Belmont’s return on equity also beat Farmington’s at the end of 2017 and halfway through this year it reached roughly 13.5 percent, compared to Farmington’s 10.8 percent. Belmont Savings twice received national recognition for its growth and performance in 2017.  

But even though the Bridgeport-based People’s United called the Belmont deal in-market, given its Boston presence, it is a lot farther away than Farmington, which is likely one reason there are fewer cost savings. 

“To me, it’s a reasonable price for Belmont to accept,” Loomis said. “It’s not a fire sale price by any stretch.” 

Belmont Savings said in a statement that the move was made due to the challenging environment for smaller banks. 

“Factors such as intensifying competition for loans, higher deposit funding costs and an increasing regulatory burden are among the many reasons why a merger with a larger, regional bank is a beneficial move for both employees of the bank and our customers,” Belmont Savings Spokesperson Andy Hoglund said. “This merger will enable the bank to expand its product and service offerings to customers, improve access to capital, mobile and digital capabilities and enable us to continue to serve communities through an expanded branch network.“ 

Loomis said the bank might have gotten a better deal a year or two ago when bank stocks were higher, but that he considers this to be a reasonable exit strategy. 

“Some people have visions of grandeur of two times book value,” he said. “But as we systematically move to fewer and larger banks, I am not sure banks will realize those multiples.” 



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Why People’s United Paid Only $327M for Belmont Savings Bank

by Bram Berkowitz time to read: 3 min
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