John Carusone – ‘Sign of the times’

New Haven Savings Bank announced Wednesday that it has signed definitive agreements to acquire all the outstanding shares of Connecticut Bancshares and Alliance Bancorp of New England, as well as convert itself to a publicly traded company.

New Haven Savings is a state-chartered savings bank serving the Greater New Haven area with 36 branches and $2.4 billion in assets. Connecticut Bancshares is the holding company for Savings Bank of Manchester, a state-chartered savings bank based in Manchester with 28 branches and $2.6 billion in assets. Alliance Bancorp of New England is the holding company for Tolland Bank, also a state-chartered savings bank, which is based in Tolland and has nine branches and $420.8 million in assets.

When the banks are all combined, New Haven Savings Bank will be the second-largest savings bank and the fifth largest bank in Connecticut with 73 branches, $5.3 billion in assets, $3.8 billion in deposits and equity of approximately $460 million before calculating the impact of the stock offering.

“It’s a sign of the times,” said John Carusone, president of the Bank Analysis Center in Hartford. “Conversions from mutual to stock are en vogue these days.”

The merger, Carusone added, “represents an unusual triangular combination, and results in a formidable, financially well-muscled institution. The big issue is going to be the ability for management to execute a strategy to leverage that capital properly. Ten years ago there were a variety of institutions that converted, some of whom succeeded and some of whom did not.”

Carusone noted that both Tolland Bank and the Savings Bank of Manchester had been rumored to be of interest to financial institutions for quite some time, and that this latest merger should come as no surprise. However, the unusual nature of the merger combined with a conversion is something of a surprise, he said.

“In this situation the buyer has an abundance of capital, and will have even an greater abundance afterward. I’m assuming that they have aspirations to be a statewide institution, and in order to do so needs to be in central Connecticut,” said Carusone. Therefore, the merger makes sense from a geographic point of view, he said.

“A triangular merger like this is the financial equivalent of threading the eye of a needle. It is also a financial equivalent of a high-wire trapeze act to get it all to work,” he said.

“[New Haven Savings] is going to be cut and ripped from a standpoint of bank capital post conversion,” said Carusone. “They’ll be a highly well-muscled institution and will have no choice but to deploy that capital. How they’re going to do that is beyond me.”

‘An Ideal Fit’

New Haven Savings will pay $52 per share in cash for each outstanding share of Connecticut Bancshares’ common stock. It is expected that the aggregate purchase price of the transaction will be approximately $605 million.

“We are very pleased that we will become part of New Haven Savings Bank with its long and rich history of community banking, customer service and innovative products. We are especially pleased that the futures of all three distinguished companies are coming together and we believe that the alliance of all three should increase shareholder value and will be very positive for our customers and employees,” said Joseph Rossi, president and chief executive officer of Alliance. “We have been committed to continual improvement of our position in our marketplace and believe this new path will enhance the variety of products and services we can offer our customers. It will also increase our capacity for lending and advance our technology capabilities to a new level.”

Under the terms of the merger agreement with Alliance, shareholders of Alliance will be entitled to receive $25 per share in common stock of the to-be formed holding company of New Haven Savings Bank, or cash, or a combination thereof, subject to election and allocation procedures that are intended to ensure that, in the aggregate, at least 75 percent of Alliance’s shares will be exchanged for stock of the new holding company and no more than 25 percent will be exchanged for cash. The purchase price represented 246 percent of book value and 19.4 times trailing earnings at March 31, 2003. It is expected that the aggregate purchase price of the transaction will be approximately $72 million.

In order to facilitate its growth strategy, New Haven Savings also has adopted a “Plan of Conversion” to convert from the mutual form of ownership to the public form of ownership. The conversion is expected to occur simultaneously with the acquisitions of Connecticut Bancshares and Alliance. New Haven Savings will form a new bank holding company, whose common stock will be publicly traded.

Peyton R. Patterson, current chairman, president and chief executive officer of New Haven Savings, will maintain those titles at the new holding company and bank.

New Haven Savings and Connecticut Bancshares already operate significant community foundations that support nonprofit organizations in their respective communities. Both foundations will remain fully funded and intact. Moreover, as a result of the conversion offering, New Haven Savings Bank intends to fund its foundation with $30 million in conversion stock, bringing its total assets up to $39 million.

“We are very excited about expanding our market presence across Connecticut,” said Patterson. “The acquisition of Connecticut Bancshares and Alliance and the ability to finance the transactions through converting to a public company represent a once-in-a-corporate-lifetime opportunity. Connecticut Bancshares and Alliance are a great complement to our existing franchise, and are an ideal fit with our culture and core beliefs as a community and service-driven bank. We believe that these transactions are in the best interests of our employees, customers and the communities we serve.”

She added, “As part of our conversion offering, we will be significantly enhancing our foundation with $30 million of conversion stock, bringing its total assets up to $39 million, and immediately making it one of the largest private foundations in the Greater New Haven area. While our headquarters will remain in New Haven, we look forward to being a significant new banking partner in Hartford, Tolland and Windham counties.”

The conversion from mutual to public ownership, the stock offering, and New Haven Savings Bank’s acquisitions of Connecticut Bancshares and Alliance are expected to be completed in the first quarter of 2004 and to be consummated simultaneously.

As a result of the acquisitions, Savings Bank of Manchester and Tolland Bank will be merged into New Haven Savings Bank. Two directors from Connecticut Bancshares’ board of directors will join the board of directors at New Haven Savings. Alliance President and Chief Executive Officer Joseph H. Rossi also will join the New Haven Savings board.

For employees of all three banks, an employee stock ownership plan will be created that will allow all full-time employees of the new combined organization to participate in the growth of New Haven Savings.

The acquisitions improve New Haven Savings Bank’s Connecticut market position from eighth to fifth, increasing its deposit market share from 2.8 percent to 5.9 percent. The acquisitions also move the bank into Hartford, Tolland and Windham counties. The bank will enter Tolland County with a commanding No. 1 share, with over 37 percent of the deposits. New Haven Savings also moves into fifth position in Hartford County, with nearly 7 percent share of deposits; and 10th position in Windham County, with 2.7 percent of the market.

When reached for further comment on Wednesday, New Haven Savings Bank Senior Vice President Paul McCraven explained that because negotiations are still pending, bank officials are unable to speak on the issue.