A merger could be in the works for a New Hampshire thrift holding company, which announced late last week that it had entered talks with an undisclosed institution.

Nashua-based NFS Financial Corp. chose to pursue the talks after receiving preliminary interest from the other bank, said James H. Adams, president and chief executive of NFS. But he added that the bank has not made a general decision to put out the "for sale" sign.

"No agreement has been reached, and there can be no assurance that NFS will determine to merge or that it will enter into any agreement," the $614 million-asset company said in a statement.

NFS has refused to identify its negotiating partner, but one likely candidate is People's Heritage Financial Group of Portland, Maine, said Michael Cerato, bank analyst at First Albany Corp. in Nashua.

"Many banks have done a terrific job with managing their assets, and to grow any further they need a larger partner," Mr. Cerato said. "The management of NFS has stressed that they want to continue to be a community lender, and to be a community lender they need a partner that will let them do that. And People's Heritage has a history of doing that with banks they've acquired or merged with." Also, People's Heritage "has made it very, very clear that they will continue their expansion in Maine and New Hampshire," he said.

Cleveland-based Keycorp and Boston- and Hartford-based Shawmut National Corp. have also been mentioned as possible suitors.

But Mr. Cerato said NFS is too small to pique Key's interest, while Shawmut "has enough on its plate" with prior transactions. Shawmut could run into a problem in Nashua with market share concentration if it were interested in NFS, he added.

On the other hand, the $2.4 billion-asset People's Heritage would be a perfect fit to absorb NFS, Mr. Cerato said, noting that the Maine corporation already has a foothold in New Hampshire with First Coastal Banks Inc. in Portsmouth. NFS's young management would also be attracted by People's style of allowing existing management to remain in place, he said.

Mr. Cerato predicted a stock swap agreement could be reached for as much as the equivalent of $30 per share, possibly before the end of the year. NFS's stock has been trading around $25.

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