Four years ago, Webster Financial Corp. tried breaking into the Rhode Island banking market when it bid for branches spun off from the 1999 merger of Fleet and BankBoston.
The Waterbury, Conn.-based parent of Webster Bank picked up four branches in its home state sold by FleetBoston Financial Corp., but it lost out in Rhode Island to Sovereign Bancorp.
The ever-expanding Webster, however, kept its eye on Rhode Island, waiting for the right opportunity. This week, that opportunity finally arrived when Webster announced it had reached an agreement to buy FirstFed America Bancorp of Swansea, Mass., for $465 million in stock and cash.
"The combination with FirstFed creates a powerful regional franchise," said James C. Smith, the Webster chief executive officer who now has negotiated 21 acquisitions since 1991.
The FirstFed deal -- Webster's first outside Connecticut -- will give Webster 19 branches in Massachusetts and 7 in Rhode Island: in Cranston, East Greenwich, East Providence, Middletown, Pawtucket, Providence and Warwick.
With two new Westchester County, N.Y., branches Webster is planning to open, it soon will have a four-state banking franchise stretching from the affluent New York suburbs, up the length of the southern New England coast into Southeastern Massachusetts.
The FirstFed purchase also includes its trust, insurance and mortgage subsidiaries.
The combined institution will be the 46th-largest bank in the United States with $16 billion in assets and 141 branches.
Initially, Webster's Rhode Island presence will be small compared with established competitors. In terms of deposits, FirstFed ranks ninth in the state, but Rhode Island has been where the former Fall River savings and loan has focused its growth in recent years.
With deeper pockets, Webster should be able to accelerate that growth as it tries to take customers from other banks and possibly open more Rhode Island branches.
"The potential for attracting a significant number of new customers is quite high," Smith said.
The greater Providence and Southeastern Massachusetts markets are quite similar to those where Webster operates now in Connecticut, Smith said, and that leads him to believe it can do well with the FirstFed acquisition.
"We have a shared vision of being a strong regional commercial services provider," he said.
Like FirstFed, Webster is a former community savings and loan that in recent years has been transforming itself from primarily a home lender into a commercial bank with a larger mix of business loans.
The bank converted to stock ownership and formed a publicly traded holding company in 1986. A year later, Smith took over as just the second CEO in the bank's history from his father, Harold Webster Smith, who founded First Federal Savings of Waterbury in 1935 as a 24-year-old.
The bank was renamed in honor of its founder in 1995.
The flurry of acquisitions since 1991 has allowed Webster to grow into the fourth-largest bank based in New England behind Fleet, Citizens and Banknorth, of Portland, Maine.
Last month, Webster filed an application to convert from a federal savings bank to a commercial bank with a national bank charter.
Some of its newest Rhode Island competitors indicate they are unworried about Webster's entry into the local market.
"From a banking perspective in Rhode Island, today we have the same number of branches of competitors as we did yesterday," said John C. Warren, chairman and CEO of Washington Trust Bancorp, of Westerly.
He called the FirstFed-Webster deal "just one more transaction in the consolidation that's taken place in the banking industry and more so in the New England area."
Merrill Sherman, CEO of Bank Rhode Island's holding company, Bancorp Rhode Island of Providence, offered a similar view about Webster.
"From Bank Rhode Island's standpoint, we've competed very well against the larger regionals such as Fleet and Citizens, so I don't see it as having any major business impact on us," Sherman said.
Sherman, who helped found Bank Rhode Island in 1996, said Webster's planned acquisition of FirstFed confirms that "Rhode Island is an attractive marketplace."
Several stock analysts who follow Webster said they like the FirstFed acquisition.
"Strategically, we view the transaction positively, as it expands the Webster footprint outside of the Connecticut market and creates a strong southern New England franchise," Moors & Cabot Capital Markets senior analyst Matthew B. Kelley wrote in a report issued Wednesday, the day after the deal was announced.
Kelley did cite financial concerns, saying the acquisition will reduce Webster's capital and restrict the bank's ability to buy back shares from investors during the first half of 2004. But he maintained his top rating for Webster shares.
McConnell, Budd & Romanon analyst William McCrystal also maintained his top rating of "outperform" on Webster's stock.
With assets of $16 billion upon completion of the FirstFed purchase, McCrystal wrote, "Webster will be a more formidable force to reckon with in the competitive New England market."
David McPherson covers banking and finance. He may be contacted at dmcpherson@projo.com.
