It wasn’t surprising that Bank-north would eventually make a more substantive move into the Massachusetts market. The Bay State was one of the few remaining, logical places for the company to expand, and chief executive officer William J. Ryan hinted as much in a March meeting.

However, the question remains, with so many recent mergers – the bank has made eight acquisitions since 1995 – so quickly, does Banknorth need to start looking over its shoulder because it, too, may be an acquisition target? Or is that the whole idea?

Last week, Banknorth made the unusual announcement of a double acquisition of Andover Savings and Metro-West banks. Once the deal is completed, which should be by October, Banknorth will have 43 percent of its assets invested in Massachusetts.

“They are two banks in Massachusetts that we’ve been really following for quite a period of time,” said Ryan. “We know their boards and senior officers and they know us. They also have high asset quality and core deposits and, in fact, their asset quality numbers are a little bit better than ours, which we think are very, very strong.”

Portland, Maine-based Banknorth will purchase the $1.8 billion-asset Andover Bancorp for $333 million in stock. MetroWest Bank, which has assets of $914 million, will be acquired for $166 million in cash.

Banknorth plans to leave the retail banking operations at MetroWest and Andover in place, but will consolidate back-office operations into its existing structure.

“The integration will be very straightforward as we’ve always done it. We have completed 16 acquisitions over the past several years. We will do what we normally do -look for cost savings in the 20 to 25 percent range – keep their branch and commercial loan people in place, move the operational area to Portland and Lewiston and other areas that we consolidate the operations pieces into. This will be a very, very straightforward transaction from our standpoint,” said Ryan.

One-time charges are estimated to be about $28 million and made up of about $6.1 million in professional fees, $8.1 million in severance and related fees and $13 million in integration and other costs, said Peter J. Verrill, chief operating officer and chief financial officer of Banknorth.

Gerald T. Mulligan, president of Andover, and John J. McArdle III, CEO of MetroWest, will both be leaving their respective companies. Andover and MetroWest which will come under the direction of Christopher Bramley, who is the president and CEO of Banknorth’s First Massachusetts Bank in Worcester. All three entities will operate under the First Massachusetts name. The resulting bank will have $9 billion in assets and 114 branches. Banknorth has total assets of $18 billion, a figure that is expected to increase to $21 billion after the sale is complete.

“We’re extremely excited about the market. Our market footprint is quite heavy in the Northeastern part of Massachusetts. But this brings us into new towns and communities that we have not had branches in,” said Verrill.

The acquisition significantly increases Banknorth’s rank within the desirable wealthy markets in Massachusetts. Overall, the bank’s position will change from sixth to fifth largest bank in the state. In Essex County, however, Banknorth’s rank moves from seventh to second. In Middlesex County, the bank’s rank moves from 19 to seven.

Deeper Pockets
The mid-tier bank’s soon-to-be formidable presence in these counties presents more competition to community banks and other mid-market banks such as Citizens Bank and Sovereign Bank New England. Eastern Bank has a sizable presence in Essex County. Last year its assets increased to $3.5 billion.

“We knew Banknorth was coming. The industry knew, too. It had bought everything worthwhile in Vermont, New Hampshire and Maine and had recently brought its Bay State branches under one name … Even with the Andover and MetroWest acquisitions, Banknorth doesn’t have a major presence in and around [the] Route 128 [beltway] and it doesn’t really overlap with our retail footprint,” said Joseph J. Bartolotta, Eastern’s spokesman.

Banknorth executives said no acquisitions are planned for the rest of this year.

“I think once we get in there early next year, you could see us potentially doing other bank acquisitions,” said Brian Arsenault, senior vice president of corporate communications for Banknorth. There is also a possibility it will acquire a Massachusetts insurance agency before the year is up. But on the banking side, “you probably won’t see us. But early next year, if there’s an opportunity, we could be back.”

Massachusetts remains a prime location for expansion for Banknorth, however, and the Route 128 beltway could be the site of future acquisitions, he said.

“It certainly is going to create ongoing challenges for some other banks,” said James Ackor, vice president of equity research at Tucker Anthony Sutro Capital Markets in Portland, Maine. Banknorth is a very competitive bank that provides a great number of products and services to its customers. “They have deeper pockets when it comes to developing systems capabilities, when it comes to developing product capabilities and marketing capabilities. At the end of the day, a good, solid service-oriented bank such as a Banknorth will certainly present increasing challenges for some of their smaller competitors.”

The nature of its operations has positioned it for success as well, according to Daniel J. Forte, president of the Massachusetts Bankers Association.

“What Banknorth has done, effectively, has kept independent, local control under the holding companies,” Forte said. “There’s a separate Massachusetts bank that’s going to be left here. It’s not a branch system of Banknorth from Maine. So, they do keep that community bank footprint, obviously on a larger scale than either MetroWest or Andover independently. But they are a pretty sizable competitor in a community bank format.”

The addition of MetroWest, with a very strong commercial loan portfolio representing 59 percent of its loan total, and Andover, with a strong residential real estate loan portfolio at 60 percent of total, will have little effect on the make-up of Banknorth’s overall loan portfolio, which will continue to be well diversified.

“It increases the residential real estate from about 20 percent to 24 percent and the others change by one or two percent at the most. Same way with our deposit mix. We’ll continue to have a very complimentary deposit mix with a large proportion in core deposits including demand deposits, NOW and money markets with a total 50 percent of our total deposit base,” said Verrill.

Their acquisition strategy is two-fold, explained Ackor. “First and foremost, they want to buy attractive banking entities in what they view as high-growth, affluent banking markets. The acquisitions of Andover and MetroWest certainly fit that bill very nicely,” he said. These types of acquisitions have helped them generate 15 percent average earnings per share growth and improved their return on equity over the last five years.

“But you can also make a case, in my opinion, for suggesting that these acquisitions are also at least partially designed to open a window of the franchise that’s going to be attractive in the eyes of a would-be acquirer … It’s not their primary objective when they make acquisitions but it certainly has to be at least in the background in terms of the thought process that senior management uses when they buy other banks and thrifts,” said Ackor.

Arsenault didn’t disagree with the idea the bank may be a target. “We’ve always taken the view that we’ll try to run the best company we can. We’ll try to make good acquisitions that add to our earnings. If we get to run it, that’s great. If someone comes along and wants to acquire us at a rate that’s beneficial to our shareholders, that’s great too.”