Another Deal for Banknorth — This Time in Connecticut

Banknorth Group Inc., on a quest to have assets of $30 billion by 2005, announced Thursday that it had agreed to buy a Connecticut thrift in the Maine company’s fourth deal since mid-2001.

The $157 million cash deal for $663 million-asset Bancorp Connecticut Inc. of Southington is the second announced this year by the Portland company. It would more than double Banknorth’s assets in Connecticut, to $1 billion, and vault it from 34th to 15th in deposit share in New England’s second-most-populous state. Banknorth is raising $1 billion of capital that it will use to fund as many as 10 acquisitions over the next three years. Massachusetts is still its main target — it recently completed two deals there and has one pending — but it has also identified Connecticut and upstate New York as areas where it wants to grow.

“This is an opportunity-driven market,” and Connecticut “is where the first opportunity cropped up,” said Banknorth spokesman Brian Arsenault.

Bancorp Connecticut is the parent of 142-year-old Southington Savings Bank. The deal with Banknorth is expected to close in the third quarter, at which time all seven Southington branches in central and southern Connecticut are to be converted to Banknorth offices.

William J. Ryan, the chairman of $21 billion-asset Banknorth, said, “This is a natural extension of our Connecticut presence and it adds some great communities to our banking network.”

Banknorth operates six branches in central Connecticut. The combined company would have 13, including nine in Hartford County, where it would be eighth in deposit share.

Salvatore DiMartino, an analyst at Advest Inc. in New York, said Banknorth needed to bulk up in Connecticut to reach its growth targets.

“It’s a fast-growing state and it was underrepresented there,” he said.

Robert D. Morton, Bancorp Connecticut’s chairman, president, and chief executive officer, said the company decided to sell because it could grow no more.

“We tried everything,” he said, including attempts to purchase branches and smaller community banks. “We didn’t have enough critical mass, so we were somewhat stymied.”

The company reported 2001 net earnings of $9 million, up just 2%.

Mr. Morton said Bancorp Connecticut has spent the past five years trying to build its commercial and consumer lending portfolios, and that merging with Banknorth would accelerate that process.

“As the industry continues to consolidate, it makes sense for us to team up with a company that shares the same philosophy and focus that we do,” he said.

Bancorp Connecticut investors would receive $28 in cash for each of their shares. The purchase price is 2.55 times Bancorp Connecticut’s Dec. 31 book value, well above the average price-to-book ratio for thrift deals this year.

According to SNL Financial, of Charlottesville, Va., the average price for the 10 mergers involving thrifts through April 8 was 1.63 times book. But Jack Micenko, senior research analyst at Lehman Brothers Inc. in New York, said thrift institutions in New England generally bring higher multiples.

He noted that what Banknorth paid for Bancorp Connecticut was in line with its offers for other New England thrifts. In the pending Massachusetts deal, announced in January, Banknorth agreed to pay $41.1 million, or 2.6 times book, for $321 million-asset Ipswich Bancshares Inc.

“Banknorth is saying this deal” — with Bancorp Connecticut — “will be accretive in the first year, and that tells me they are not overpaying,” Mr. Micenko said.

Mr. Arsenault said it would add 1 cent to Banknorth’s earnings-per-share in 2002 and 2 cents in 2003.

The news sent Bancorp Connecticut’s stock price to its highest level in years. In late trading Thursday it had risen 22%, to $27.87. Banknorth shares were down less than 1%, to $26.81.

Mr. Morton said the board of directors had considered Banknorth’s bid carefully and that it had decided the deal was in the best interests of his company’s shareholders, employees, and customers.

He said he not sure he would stay on after the merger.

“I’m mulling over my future,” he said. “I’m 62 years old, and I’ve spent 39 years in this business. It’s still a great business, but it used to be a lot more fun than it is now.”