Naugatuck Valley Financial Corporation and Southern Connecticut Bancorp Tweak Deal

The holding company for Naugatuck Valley Savings and Loan is tweaking a deal as it looks to acquire another Connecticut bank in a merger thats expected to be finalized next year.

Naugatuck Valley Financial Corporation, holding company for Naugatuck Valley Savings and Loan, and Southern Connecticut Bancorp, the holding company for Bank of Southern Connecticut, recently amended some terms to their agreement. Naugatuck Valley announced plans last February to buy out this southern Connecticut bank.

Now, since stock prices are lower than they were earlier in the year, an amended deal has been reached to better reflect the lower value of stock.

Completion of the deal is expected after the "second step conversion" of NVFC's mutual holding company parent (Naugatuck Valley Mutual Holding Company) from a mutual holding company to a stock holding company. Mutual holding companies are a dying breed as new regulations take place under recent financial reform called the Dodd-Frank Wall Street Reform and Consumer Protection Act.

By transferring from a mutual holding company to a stock holding company, banks face tougher regulations and may face new restrictions on dividend payouts.

Under the amended agreement, SCBI shareholders will be entitled to receive $6.75 per share of SCBI common stock owned as opposed to the $10 per share originally agreed upon.

SCBI shareholders will be able to elect to receive cash, shares of common stock of Naugatuck Valley Financial Corporation, a newly chartered Maryland corporation, or a combination of cash and common stock of New NVFC, as long as 60 percent of SCBI's outstanding shares are exchanged for New NVFC common stock and the remainder are exchanged for cash. Cash will be paid in lieu of fractional shares. SCBI stockholders who elect to receive stock are not expected to be subject to federal income tax on their receipt of New NVFC common stock.

In a nutshell, the change is a direct result of changed circumstances, particularly weakened stock market conditions, since the date of the original agreement.

NVFC and SCBI are committed to completing the acquisition transaction, and believe that the amended pricing terms will benefit both parties.

The amended agreement also says that Elmer F. Laydon, SCBI's Chairman of the Board, and Alphonse F. Spadaro, Jr., SCBI's Vice Chairman of the Board, will be invited to join the boards of directors of New NVFC and NVSL at closing for a three-year term.

The amended agreement also extends the deadline for closing the transaction until March 30, 2011, and amends the conditions under which NVFC would be obligated to pay a termination fee to SCBI.

In addition to the completion of the second step conversion, the acquisition is contingent on the receipt of regulatory approval, the approval of NVFC's and SCBI's respective stockholders and other customary conditions, according to SCBI. The acquisition is expected to be completed in the fourth calendar quarter of 2010 or in early 2011.

Naugatuck Valley Savings and Loan operates nine branch offices in Southwestern Connecticut. At June 30, 2010, NVFC had total assets of approximately $565.2 million.

Southern Connecticut Bancorp operates two banking offices in New Haven and one each in Branford and North Haven, Connecticut. At June 30, 2010, SSE had total assets of approximately $160.1 million.