It’s been just over a year since Rockville Financial completed a $171 million stock offering and the Vernon lender hasn’t been shy about putting its new capital to use.
As the community bank shifts from a savings institution to a commercial lender, Rockville’s management has made significant investments in branches, technology and personnel, including the addition of many senior managers raided from nearby competitors.
Rockville Financials’ commercial banking leadership team, for example, was recruited from First Niagara Bank, as were five of the six senior managers running the company’s risk management division.
“The biggest thing we did since the stock offering is recruit a lot of people because what you have to do to shift from a savings bank to a high performing commercial bank is make a significant investment in infrastructure,” said Rockville Bank president and CEO William H. W. Crawford IV, who is also a relative newcomer to the bank. “That is the key to being able to manage the risk that comes along with the growth.”
Rockville Financial isn’t the only Connecticut community bank putting recently raised capital to use. A year ago, four Connecticut banks either did initial public offerings or raised significant cash with the hope of expanding their footprint and growing market share.
Many of those lenders, which include Rockville Financial, Farmington Bank, SI Financial Group, and Naugatuck Valley Financial Corp., say they see this as a rare opportunity to steal customers from much larger big banks, which are still getting over the black eye they received from the 2008 financial crisis.
And many of the banks have taken a similar strategy in deploying their new funds, including beefing up staffing levels, adding new products, and opening new branches.
Rockville Financial
Rockville Financial became a fully public company in March 2011 after raising $171 million in a second step conversion. The move, Crawford said, was made to provide a capital cushion as the bank continues to grow its footprint, particularly in commercial and residential lending.
Besides recruiting a new risk management and commercial lending team, Crawford, who previously worked at Wells Fargo, brought in two former colleagues to be his top lieutenants — Marino Santarelli and Scott Bechtle, who are Rockville’s chief operating and risk officers, respectively. Crawford worked with Santarelli at Wells Fargo bank, while Bechtle and Crawford worked together at Florida’s SouthTrust Bank from 2002 to 2005.
Besides experience, many of the new recruits bring with them blocks of business that is helping the company grow its loan portfolio, Crawford said. The new commercial lending team, for example, were the top commercial bankers at First Niagara Bank, so their addition is helping to build Rockville’s market share in New Haven County. It’s also putting pressure on a chief competitor.
As a result, Rockville Bank has seen its three-year compound annual growth rate for commercial real estate and business loans jump to 17.8 percent. Meanwhile, the bank posted record first-quarter profits of $3.9 million, and also has boosted its dividend 38 percent and completed a 10 percent stock buyback.
“The goal is organic growth by adding revenue and stealing market share from big banks,” Crawford said.
As the bank expands, it is also outgrowing its office space. Rockville Bank added 22,000 square feet of office space in Glastonbury that will serve as a second administrative location for the company, which has added 45 employees over the past year, to bring its total workforce to 280 people. In terms of branch expansion, Rockville opened a New Haven County commercial banking office in Hamden and is working on a new West Hartford location on LaSalle Road.
Farmington Bank
Across the Connecticut River from Rockville Financial, Farmington Bank has been employing a very similar strategy: organic growth led by a more than doubling of its workforce, new branch build-out and aggressive loan growth.
Farmington Bank did a $172 million initial public offering in June 2011. John Patrick, the bank’s CEO and president, said the bank made a strategic decision about four years ago to significantly grow and diversify the company, whose products and balance sheet were becoming too Farmington centric.
But management quickly realized they needed more cash to do it.
The goal of converting from a savings institution to a public commercial lender, Patrick said, has been to allow the bank to invest in people, technology, and the franchise.
And they’ve done that.
Since 2008, Farmington Bank’s workforce has more than doubled from about 132 employees to 350 today. That has forced the bank to move into a much larger corporate office on Farm Glen Boulevard in Farmington.
The game plan, Patrick said, is to add up three new branches annually for the foreseeable future. So far, they’ve added seven new branches in the past four years.
Patrick said Farmington Bank is focused on growing its lending capacity and has invested heavily in its retail mortgage lending business and doubled its commercial loan portfolio in the last three years. The bank also has added government banking and cash management services.
At the end of March, the bank had $1.67 billion in assets, up from $1.45 billion a year earlier.
To keep shareholders happy, Patrick said the bank is eyeing a share buyback program and has been paying a 3-cent dividend for three quarters in a row.
On the technology side, the bank has revamped its online banking capabilities, including adding remote deposit.
“We understand the need to prudently deploy capital,” Patrick said.
Bank analyst Damon DelMonte, of Keefe Bruyette & Woods in Hartford, said Rockville and Farmington Bank have performed well since their capital raises, with both company’s stock prices outperforming most of their competitors.
Rockville’s stock price has increased 14 percent since going fully public a year ago to $11.36, while Farmington’s stock price has increased 30 percent to $12.97.
DelMonte said both banks still face challenges, including economic uncertainty, a competitive landscape and low interest rate environment. He said the biggest thing both banks will need to do to continue to grow is to establish deeper relationships with customers.
He also agrees that the environment remains fertile for stealing market share from big banks.
“It has to be more about creating relationships than just writing a loan,” DelMonte said. “You have to cross-sell and make sure you get their deposits and operational accounts.”
SI Financial
Willimantic lender SI Financial raised about $53 million in a second step conversion in January 2011, a move driven by the need to finance continued growth and regulatory reform, the bank’s CEO Rheo Brouillard said.
Brouillard said the bank hasn’t changed the strategy it’s been employing for the past 10 to 15 years, which is to grow organically and continue to be active in residential and commercial lending.
Since the conversion, Brouillard said, the bank has added commercial bankers and expanded the commercial loan portfolio, but there have been no major changes.
Mergers and acquisitions aren’t in any immediate plans, Brouillard said.
The bank’s stock price has performed well since the second step conversion, increasing 42 percent to $11.36.
Naugatuck Valley
Since raising $33 million through a second step conversion last year Naugatuck Valley Financial Corp. hasn’t concentrated as much on growth as it has on strengthening its financial position and buffering against the low interest rate environment.
John C. Roman, the bank’s president & CEO, said they have used much of their capital to pay off higher interest borrowings in order to lower their interest rate risk and cost of funds.
Between the end of June 2011 to March 2012, Roman said, the company has paid off $21 million in borrowed funds, including a sizable portion of loans from the Federal Home Loan Bank of Boston.
That’s helping to offset lower interest rates the bank is earning on loans.
Roman said the bank has no immediate plans for new branches and is still being selective on commercial lending.
He said much of their concentration has been on helping existing borrowers get through the tough economic environment.