Banks announce merger

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Soon after getting its financial house in order, Naugatuck Valley Financial Corp., parent of Naugatuck Valley Savings and Loan, is set to be acquired by Middletown-based Liberty Bank.

The banks announced in a news release Thursday they had reached a definitive agreement to merge, in a deal estimated at $78 million.

Under terms of the agreement, each Naugatuck Valley Financial shareholder would receive $11 per share in cash, an 18.8 percent premium over Wednesday’s close of $9.26.

There are, however, four separate actions by shareholders investigating Naugatuck Valley Financial’s board for potential breaches of fiduciary duties related to the $11 per share offer. Its shares, which trade on the Nasdaq Stock Market as NVSL, gained $1.42 Thursday to close at $10.68.

The deal has been unanimously approved by both banks’ boards. The transaction, expected to close in the fourth quarter, still must be approved by Naugatuck Valley Financial’s shareholders, the state Department of Banking and the Federal Deposit Insurance Corp.

William Calderara, Naugatuck Valley Financial’s president and CEO, said the bank’s board of directors reached out to Liberty Bank in late February to discuss a possible merger after forming a strategic committee and hiring FinPro Financial Services in early 2015 to “consider possible strategic decisions.” The process included considering forming a partnership with another institution or strengthening its balance sheet through organic growth, Calderara said.

Naugatuck Valley Financial, which has about 120 employees, also reached out to several banks, including Liberty Bank, to determine its market value, he said. The bank’s board chose Liberty Bank because of the two banks’ shared vision, cultural similarities, and understanding of community banking, he said.

“This opportunity presented itself and made the most sense,” Calderara said, adding that merging with Liberty Bank seems to be the best option for customers, employees and shareholders. “From our directors’ perspective, we had to meet our fiduciary duties to our shareholders.”

It could not be confirmed Thursday whether Liberty Bank will rebrand Naugatuck Valley Savings and Loan’s branches as Liberty Bank branches. Neither Chandler Howard, Liberty Bank’s president and CEO, nor Thomas Pastorello, its chief financial officer, returned calls seeking comment.

In the joint press release, Howard called the merger “a strong fit for the customers, communities and the staff of both organizations.”

“We are excited to work with the team at Naugatuck Valley Savings and Loan in creating an even stronger community bank franchise,” he said in the release.

A month ago, the U.S. Treasury Department’s Office of the Comptroller of the Currency notified Naugatuck Valley Financial it had ended a formal agreement signed in January 2012 requiring the bank to improve its practices related to asset quality, management and credit risk. The OCC also lifted a requirement imposed in January 2013 that it maintain strict minimal capital levels.

In great part due to developing a bad loan portfolio, the bank recorded net losses of $15.3 million, or $2.31 per diluted share, for 2012 and $8.8 million, or $1.33 per diluted share, for 2013.

Two months ago, the bank reported net income of $1 million, or 10 cents per diluted share, for 2014, after selling off $20 million in bad loans in 2013 and $11 million in 2014. It also posted net income of $660,000, or 10 cents per diluted share, for the year’s fourth quarter, up from a net loss of $2.4 million, or 36 cents per diluted share, a year earlier.

Calderara, of Newtown, was hired in September 2012 to turn around the struggling community bank. In the spring of 2013, he brought on James Cotter as chief operating officer, Mark Foley as chief credit policy officer, and James Hastings as chief financial officer to help with the turnaround.

Calderara said removing the OCC requirements has helped the bank’s appearance, but that fixing the bank’s risk profile was more important.

“It was the right thing to do no matter what our strategic direction was,” he said.

Naugatuck Valley Savings and Loan, founded in 1922, is a federal stock savings bank with assets of about $500 million. Based in Naugatuck, it has nine branches in eight towns — two in Naugatuck, and single branches in Beacon Falls, Cheshire, Derby, Seymour Shelton, Southbury and Waterbury.

Liberty Bank, founded in 1825 and the state’s oldest chartered bank, is a mutual bank with $4 billion in assets and $600 million in capital. The bank has 50 branches in Connecticut, including in Bristol, Cheshire and Southington.