Conn. Thrifts In $100M Merger Pact

Connecticut Bancshares of Manchester has agreed to buy First Federal Savings and Loan Association of East Hartford for $110 million in cash.

Combined, the thrift company would have $2.5 billion of assets and 35 branches in three central Connecticut counties and would rank as the third-largest bank or thrift headquartered in the state. Connecticut Bancshares, the $1.4 billion-asset parent of the Savings Bank of Manchester, would almost double in size but still lag the state’s largest banks, $11.6 billion-asset People’s Bank of Bridgeport and $11.2 billion-asset Webster Financial of Waterbury.

“It will allow us to do some of the things that a large bank can do but let us focus on the community,” said Richard P. Meduski, president and chief executive officer of Connecticut Bancshares.

First Federal has 12 branches in Hartford and Tolland counties, where Connecticut Bancshares has most of its 23 branches. Connecticut Bancshares plans to consolidate some branches but does not yet know how many it would close, Mr. Meduski said.

The deal, which is scheduled to close in the third quarter, would pay First Federal shareholders $37.50 a share in cash, about 1.2 times book.

“They got them so cheap,” said Laurie H. Hunsicker, an analyst at Friedman, Billings, Ramsey & Co. in Arlington, Va., who said the average price for such deals in the past two years was closer to 1.7 times book.

Connecticut Bancshares also agreed to pay a 3% premium for deposits, far below the average 9%, she said. The deal would put to good use some of the excess capital Connecticut Bancshares has had since it converted from a mutual to a stock company in last March, she said.

The pricing may have something to do with First Federal having a small loan portfolio — it makes up only 25% of the company’s assets, Ms. Hunsicker said. Loans tend to make up at least 60% of a company’s assets, making Connecticut Bancshares’ “biggest challenge taking the funding and finding loans,” she said.

But that should not be a problem, Mr. Meduski said, arguing that Connecticut Bancshares is not a typical thrift. “We’re pretty much a commercial bank — and have been — with a savings bank name, so we’re able to lend out into the community with commercial lenders.”