In a second major deal in Connecticut’s banking sector in two months, Waterbury-based Webster Financial announced Monday that it will merge with New York’s similarly-sized Sterling Bancorp in an all-stock transaction that will result in the combined company locating its headquarters in Stamford.
The deal between the publicly-traded parents of Webster Bank and Sterling National Bank would create a business with $63.9 billion in total assets, $52 billion in deposits and more than 200 branch locations in the Northeast.
Webster would retain its name and a multi-campus presence in Waterbury, the location of its longtime headquarters.
Webster is slightly larger than Sterling, which is why the ownership split of the combined business would be 50.4% Webster and 49.6% Sterling, with Webster getting eight board seats and Sterling getting seven.
Despite the similarities, the banks said they have “highly differentiated businesses in commercial banking, health savings and consumer and digital banking” that will complement each other, increasing profitability and growth.
Webster Chairman, President and CEO John R. Ciulla,will be president and CEO of the combined company, and add chairman to those titles two years after the deal closes.
“We are bringing together two high-performing organizations with strong cultural and business model alignment to create a powerhouse Northeast bank,” Ciulla said in a statement.
Jack L. Kopnisky, president and CEO of Sterling, will be executive chairman for the first two years before shifting to a consulting capacity after that.
“Webster and Sterling have much in common: distinguished client service, diversity of revenue, funding sources and assets, and disciplined capital allocation,” Kopnisky said. “The increased capabilities and scale of our two organizations are attractive propositions for our clients, communities, shareholders and colleagues.”
The merger follows New York-based M&T Bank’s February announcement that it would acquire Bridgeport’s People’s United Financial for $7.6 billion. The scale of that deal is much larger, joining banks with $200 billion in combined assets.
Webster and Sterling expect their combination to produce $120 million in cost savings from facilities optimization, and eliminating redundant technology and overlapping service platforms, among other initiatives. Ciulla told analysts on a call Monday that branch overlap between the two banks is low, and there are “no immediate plans for significant branch consolidation.”
The projected cost savings are on top of a previously announced cost-cutting plan at Webster, which includes closure of 27 branches in southern New England. Sterling has also recently trimmed its branch count.
The combination is estimated to produce $440 million in excess capital each year, amounting to $2.50 per share annually before dividends, and earnings-per-share accretion of over 20% for Webster and over 10% for Sterling.
“In a word, it’s exceptional,” Ciulla said of the projected output. ”We’ll invest aggressively in our business to support loan growth while still having significant capital to return to our shareholders.”
Both banks also released their first-quarter earnings results on Monday, with each beating analyst consensus estimates compiled by Zacks Investment Research.
Webster reported a profit of $105.5 million for the quarter ended March 30, up from $36 million in the first quarter of 2020. One major difference maker was that improving economic forecasts and favorable credit trends allowed Webster to book a nearly $26 million benefit in its loan-loss provision for the quarter, compared to incurring a $76 million charge for the provision, in anticipation of future loan losses, in the first quarter of 2020.
