New England community banks have picked up all the branches divested by Fleet Financial Group and Shawmut National Corp. in anticipation of their megamerger.
Contrary to speculation that another regional bank would sweep up the whole bunch, seven community banks and a Rhode Island investor group won the 64 branches in four northeastern states, with about $2.9 billion in deposits and $1.7 billion in loans. The two regionals agreed to shed the branches to satisfy Justice Department concerns that the combined entity would be anticompetitive in small-business and middle-market lending.
Many observers had expected the companies to sell the branches to one or two large institutions, even an out-of-region acquirer, to simplify their costs and satisfy Justice Department desires to create a significant rival for the new Fleet, particularly in the competitive Hartford, Conn., market.
"I think Fleet was not interested in selling to any of its big competitors, and that gave community banks a leg up," said one industry observer. "They don't view the community banks as significant competitors, not in the same way they would view a BayBanks or Bank of Boston."
Fleet spokesman James Mahoney said the company based its decision not just on the financial terms of the bids themselves, but also on the buyers' commitment to their communities, especially small and midsize businesses, and the likely impact on the branch employees.
"Fleet did select the most competitive bids at the conclusion of what was a highly competitive bidding process with numerous financial institutions participating," Mr. Mahoney said. "We think that the outcome was one that was optimal for the communities and our customers and also for employees, who have been assured that they will be offered continued employment by all the purchasers," he said.
"I think that says that they were sensitive to the community and employees that they had in those communities," said William H. Chadwick, president and chief executive of Burlington, Vt.-based Banknorth Group Inc. Banknorth bought 13 branches.
Connecticut Attorney General Richard Blumenthal, who had also voiced concerns about the merger, said the divestitures were "great news for Connecticut."
In Connecticut, where Shawmut's divestitures were the largest, Waterbury-based Webster Financial Corp. agreed to buy 20 branches in the Hartford area, with about $1 billion in deposits and $700 million in loans. After the transaction, Webster will have $4 billion in assets and a 6% deposit share statewide, making it the second-largest bank in the state.
The company, which is paying a 6.25% premium, expects to conduct an underwritten public stock offering to raise about $27 million in added capital.
Eagle Financial Corp., Torrington, Conn., plans to buy five Hartford- area branches for its subsidiary, $1.2 billion-asset Eagle Federal Savings Bank. Two more facilities are slated to go to $1.8 billion-asset New Haven Savings Bank, while $127 million-asset Jewett City Savings Bank plans to pick up the only other branch for sale in Connecticut.
The five Shawmut branches, with $172 million in deposits, up for sale in New Hampshire are being purchased by Portland, Maine-based Peoples Heritage Financial Group.
Peoples Heritage, with $3 billion in assets, already covers the coastal and White Mountain areas of New Hampshire, but the purchase would extend its franchise to Manchester.
In Massachusetts, Shawmut intends to sell $634.3 million in deposits in the central and western part of the state to Banknorth. Another five branches in southeastern Massachusetts is slated to go to $243 million- asset People's Savings Bank of Brockton.
Banknorth agreed to pay a deposit premium of 5.23%, or about $33.2 million, for a package that will also include about $400 million in loans. The company plans to raise about $25 million in capital to finance the deal.
The $1.9 billion-asset Banknorth, which already operates six subsidiaries in Vermont and New Hampshire, will create a Worcester-based community bank for the Massachusetts purchase, First Massachusetts Bank.
Finally, in Rhode Island, an investor group called EFC Corp. is buying 13 branches with $483 million in deposits. The company plans to establish a state-chartered bank that is yet to be named.
The transactions, which are expected to close early next year, are still subject to regulatory approvals.