Banknorth Group Inc. is hunting for more acquisitions to diversify its business outside of Vermont.

"We are always looking," said William H. Chadwick, president and chief executive of the $1.8-billion-asset banking company. "The Vermont economy is very comfortable growing at the current pace, but we don't see a dramatic growth spurt ahead of it."

The banking company took a step toward diversifying this month by signing an agreement to acquire North American Bank Corp. and its subsidiary, Farmington National Bank, Farmington, N.H., for $20.6 million in cash, or about 1.50% times book value. The deal marks Banknorth's first out-of-state bank acquisition.

Banknorth is looking for institutions in small towns that have good earnings potential and serve small to medium-size businesses.

With its $162 million in assets, Farmington National fit the bill. It is a solid performer that came out of New England's recession in good shape. As of yearend 1993, it earned $1.2 million and returned 0.77% on assets and 10.95% on equity.

Besides New Hampshire, Banknorth is looking for acquisitions in upstate New York and western Massachusetts, Mr. Chadwick said.

"There should be more acquisitions in the future," said Thomas J. Pruitt, Banknorth's chief financial officer. "We have a growth strategy that includes all of New England."

One problem Banknorth could encounter in its acquisition program is that its stock is trading around book value, so it can't offer targets a premium. As of Wednesday, Banknorth's stock was trading around the $19.25 range.

"We have to find people who want to be part of us," Mr. Chadwick said. "We think we can justify returns over time."

Mr. Chadwick said he can attract banks to the fold by retaining management and the board of directors of the acquired institution. He said many community banks are afraid that if they sell to a superregional, management and the bank's identity would be lost for good.

"We believe that many of them [community bankers] are scared to death that [the big banks] would subsume their identity," Mr. Chadwick said. "We want to preserve what has made them good."

Although Banknorth is expanding, it is also recovering from New England's real estate downturn, which began around 1990. For the first three months of the year, Banknorth earned $2.4 million, compared with an $831,000 loss the same time a year ago. For the quarter, assets grew 14% to $1.8 billion, and loans were up 6.1% to $1.1 billion. Meantime, nonperforming assets have declined 41% to $28 million.

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