North American Bank, whose headquarters are located at 132 Grand St. in Waterbury (above), is being acquired by Webster Bank.

Webster Bank is taking over a smaller competitor in its headquarter city – its first major acquisition in three years.

Webster unveiled its agreement for the acquisition of North American Bank last Friday. Both banks are based in Waterbury, but North American is by far the smaller of the two.

Webster Financial Corp., the holding company for Webster Bank, reached the agreement to acquire North American’s holding company, North American Bank and Trust Co., in a combination cash and stock transaction valued at approximately $30 million, or $11.25 per common share of North American stock.

As part of the acquisition, North American Bank shareholders will receive 0.15 shares of Webster common stock and $5.60 in cash for each share of North American common stock. To the extent available, North American stockholders also will be able to elect to receive solely shares of Webster common stock or cash in the transaction.

“Webster’s partnership with North American Bank advances our highly compatible strategies and creates intrinsic value for our collective shareholders,” said Webster Chairman and Chief Executive Officer James C. Smith. “We’ll make the transition for North American’s customers convenient and seamless, and we will strive to meet their financial needs with our established commitment to exceptional service and products.”

North American Bank is a state-chartered commercial bank with $195 million in assets and eight offices in the Greater Waterbury region. North American’s offices are located in Bristol, Monroe, Stratford, Waterbury, Wolcott and Wethersfield.

A ‘Natural Fit’

John Carusone, president of the Bank Analysis Center in Hartford – who is also currently an investment banker for North American – said the acquisition is a positive move for Webster.

Some observers had pointed to the fact that because both banks are based in Waterbury and have branches in the same towns, unless Webster deletes all of North American’s branches there’s no real benefit.

Carusone responded to such criticism by saying, “It’s an in-market merger, so there are obviously duplicative expenses that can be reduced.”

He added, “The acquisition preempts a large competitor from making inroads into Webster’s hometown. It is the last competitor to be acquired, so there was a scarcity factor as well.”

Referring to the acquisition as “modest” in proportion to Webster’s size, Carusone noted that with North American out of the way, Webster won’t have to contend with any major competition in its headquarter city.

“The pricing was attractive for North American shareholders, and I believe Webster accomplished a number of objectives,” said Carusone. “They will have a good return on their investment through reducing expenses and preempting competition.

“North American is a small bank – only a $200 million institution – and certainly not a threat to Webster. But there is no sense in allowing them to have a toehold if it could be prevented.”

“This acquisition certainly fits into our strategic plan for growth,” said Clark Finley, spokesman for Webster Bank. “This plan was attractive because it was going to be good for earnings. North American had a good loan/deposit mix, and also they’re in two towns where we haven’t had a presence to date: Monroe and Wolcott, feeding us further toward Fairfield County.”

Finley explained that Webster has launched a de novo branch campaign into Fairfield County, specifically the lower, eastern end bordering New York’s Westchester County.

“We made the announcement in September of 2001 that we were gong to launch de novo branch expansion into southeastern Connecticut, through New London County, the [Interstate 91] corridor, and Lower Fairfield County,” said Finley. “We have opened a few branches to this point and just last month we opened two in Westchester [County]. These were our first two branches in New York.”

Finley noted that competition in Fairfield and Westchester counties is stiff, but explained that two new branches in Stamford and Derry have exceeded deposit goals.

“It is a competitive area? Yes. Can we compete? Yes,” said Finley. “We’re not going to shrink from opportunity.”

The North American acquisition is the first major bank deal involving Webster in quite some time. Having spent the last few years bulking up their insurance offerings, Webster hasn’t acquired a bank since Mechanic Savings Bank in Hartford, a deal that took place in June 2000.

“We have been actively speculating, but this was the first move we’ve made in a few years,” said Finley.

Carusone didn’t necessarily see the strong connection between the acquisition of North American and the de novo branch campaign, but offered that the two weren’t entirely unrelated.

“Fairfield and Westchester [counties] are certainly not New Haven County where Waterbury is located, but certainly the two plans don’t contradict one another,” said Carusone. “This was a small, focused acquisition to preempt potential competitors as well realizing the synergies from reducing duplication. This is good for Webster’s shareholders and North American’s shareholders.”

The purchase price is approximately 1.9 times North American’s tangible book value and represents a 9.6 percent deposit premium. The acquisition is expected to contribute positively to Webster’s earnings per share in the first year.

“Considering our shared commitment to providing exceptional service to our customers, Webster is our natural partner,” said North American Bank President and Chief Executive Officer Fielding Moore. “The merger enables North American to align with a partner who will enhance the services available to our customers without sacrificing the personal attention and dedication that North American has always offered. Our board of directors believes that this partnership benefits the interests of our customers, shareholders and the communities we serve.”

The definitive agreement, which was unanimously approved by North American’s board of directors, is subject to approval by regulatory authorities and North American’s shareholders. Webster expects the transaction to close in the fourth quarter of this year.

“When two institutions of the same industry merge to form a stronger single company, a duplication of jobs and overlapping of tasks inevitably occurs,” said Webster President and Chief Operating Officer William T. Bromage. “Webster has committed to offer positions to all of North American’s branch employees and to seek to fill Webster’s open positions with other North American employees. Webster’s history demonstrates a pattern of successfully placing most employees affected by mergers.”

“One of the things that’s positive in particular for employees is that both banks share the same philosophy of commitment to services and commitment to employees. This is a very natural fit,” said Finley. “The hard reality is that with an acquisition does often come duplication of jobs or overlapping, and we have worked very hard in trying to place employees as a result of our mergers.”

With the acquisition closing at the end of 2003, Webster is working to ease into the transition slowly.

“We are working with North American Bank’s leadership in notifying employees and customers both through written notification and holding events for employees in order to help smooth the transition,” said Finley.