In its first foray into New England, Summit Bancorp has agreed to acquire NSS Bancorp of Norwalk, Conn., for $139.6 million of stock.
The acquisition, announced Thursday, would bring New Jersey's Summit into Connecticut's affluent Fairfield County, where NSS Bancorp has eight branches, $460 million of deposits, and $669 million of assets.
Senior executives at $30.6 billion-asset Summit said the deal is part of an ongoing strategy for growth and that additional acquisitions in eastern Pennsylvania, Connecticut, southern New York, or even as far away as Maryland are in store.
NSS is "a natural extension of our market base," said Robert G. Cox, president of Summit. "What we are buying is not just a foothold but access to great growth potential."
"We need to continue to expand," Mr. Cox added.
Summit, based in Princeton, is New Jersey's largest indigenous bank, with a 16.2% share of deposits, according to Sheshunoff Information Services. The bank has 430 branches throughout New Jersey and in eastern Pennsylvania and has made 10 acquisitions of smaller New Jersey banks since 1993.
But analysts said the bank was facing slower growth prospects in the state and increasing competition from First Union Corp., Fleet Financial Group, and PNC Bank Corp.
Though the deal for NSS is tiny, analysts said Summit would pay a hefty price-2.6 times book value and 27 times NSS Bancorp's estimated 1998 earnings-as the number of banks and thrifts in Connecticut has dwindled in recent years.
"They got Macy's merchandise for Neiman Marcus prices," said Gerard Cassidy, an analyst at Tucker Anthony Inc.
Analysts also said picking off a tiny bank rather than making a big splash into a new market called into question Summit's ongoing growth strategy and could make Summit more vulnerable to takeover.
"The deal does not work by itself," said Michael Mayo. "It creates more acquisition risk for Summit and it reflects a direction that isn't perfectly clear."
NSS, a thrift, specializes in residential mortgage lending but has been attempting to diversify into commercial lending, trust, and credit cards since first offering shares to the public in 1994, said Robert T. Judson, president and chief executive officer.
Mr. Judson said he put NSS Bancorp up for bidding in recent weeks and received a number of proposals before selecting Summit. "They have more sophisticated systems, more products, and less expensive delivery," he said.
Mr. Judson said he had not decided what role, if any, he would play in the new institution. Mr. Cox said they had not determined the number of staff cuts that would result from the acquisition but said they are likely to be minimal.
For months, Basswood Partners, a dissident shareholder group, has been putting pressure on NSS board members to find a merger partner, said market observers. The group, which owns 9.9% of NSS stock, had a shareholder proposal on the bank's proxy that attempted to elect three of its members to the NSS board.
Though analysts said Basswood Partners was largely responsible for bringing NSS and Summit to the negotiating table, Mr. Judson said NSS Bancorp has "continuously looked at different options."
