🔒Incoming CEO Kettles aims to maintain Windsor Federal’s independence, grow commercial loan business

When Luke Kettles was hired by Windsor Federal as chief lending officer in 2016, the community bank was undergoing a major strategy shift, led by CEO George Hermann.

Just over a decade ago, about 70% of the mutual bank’s loan portfolio was tied up in residential and consumer loans, while 30% were commercial loans. Windsor Federal was trying to flip that ratio to transition into more of a commercial lender as part of an overall growth strategy.

Having spent most of his career as a commercial lender, Kettles was a key part of leading that transition. It required hiring new bankers, investing in technology and adopting new risk mitigation strategies, among other changes.

Today, Kettles said, Windsor Federal has successfully made that shift, a move that has helped the bank remain independent at a time when many small community lenders with under $1 billion in assets have been gobbled up by larger competitors.

Since Kettles joined the bank, Windsor Federal’s balance sheet has grown about 70%, from $440 million in assets to $755 million today.

“It was a conscious decision to move to that commercial model,” Kettles said in a recent interview. “It’s almost a necessity in today’s day and age with the growing costs of technology and compliance. A lot of the residential and consumer products have really become commoditized. On the commercial side, you can build relationships over the long term, and that’s really where we’ve been successful and look to continue to grow.”

Windsor Federal recently announced that Kettles, who was promoted to president on Jan. 1, will take over as the bank’s new CEO on July 19. He’ll have big shoes to fill, as he replaces Hermann, a well-respected and veteran banker who is stepping down as chief executive after 11 years.

Hermann will remain involved with Windsor Federal as executive chairman.

Kettles has been a banker for more than three decades, having spent time at both small and large banks. Before joining Windsor Federal in 2016, he was chief lending officer at Massachusetts-based Hampden Bank, and a commercial regional executive at Berkshire Bank.

Kettles said he prefers working at community banks, and was attracted to Windsor Federal because it’s a mutual lending institution, which means it’s owned by depositors rather than shareholders. That allows management to plan longer term, rather than having to make rash decisions to meet quarterly shareholder targets.

Like most community banks, Kettles said Windsor Federal has been able to avoid the negative aftershocks caused by the high-profile U.S. bank failures that occurred earlier this year. Strong communication with depositors, Kettles said, put Windsor Federal customers at ease, while the bank remains well-capitalized with “asset quality numbers that are probably the best in the history of the bank.”

The 53-year-old Suffield resident is married with three kids — including two 14-year-old twin boys and a 13-year-old daughter — who keep him active outside the corner office. They are involved in baseball, softball and soccer, and Kettles has helped coach their teams.

He enjoys outdoor activities including golf, hiking and fishing in warmer months, and skiing during the winter.

As new CEO, Kettles said he isn’t planning any major strategic shifts, other than continuing to grow the bank’s commercial loan portfolio, while still offering “competitive residential loan products.”

“We’re an independent, community-focused organization and plan to remain that way,” he said.

Here’s what else Kettles had to say. The Q&A was edited for length and clarity.

What do you see as the biggest opportunity for Windsor Federal?

A. We’re in north central Connecticut. We have competition, but we are the hometown bank. We are the only bank headquartered in Hartford County, and we take advantage of that.

All of our people live, work and play here. We know a lot of the different people and businesses in the community.

What are the biggest challenges?

A. I think there are a lot of challenges and headwinds that all banks are facing. The significant increase in interest rates is driving up funding costs and deposit pricing, but we are fortunate to have a very strong customer base.

We try to give them the best return and, in turn, they’re loyal to us, so I think we’re well-positioned for the current conditions.

(Windsor Federal reported a $1.2 million profit during the first quarter of 2023, up 41% from a year earlier, according to Federal Deposit Insurance Corp. data.)

And then there are the continued conversations around what potentially could happen in the economy, like a recession. But again, we are well-positioned there — our asset quality numbers are strong and we’ve always had prudent, conservative underwriting practices.

Where do you see the economy and interest rates going?

A. That’s a good question. We don’t try to guess rates, we try to make sure that we are positioned so if rates go up or down, we can do well and not face catastrophic results.

We follow what the Fed says every day, and they put a recent pause on rates, but I think most people in the industry feel that there might be another rate hike or two this year.

Bankers have told me that to remain independent, it’s important for any lender to reach $1 billion in assets, given the rising costs of technology, regulation and other things. Is that a goal for Windsor Federal, to hit that $1 billion-in-asset mark?

A. Yeah, we are looking at a billion dollars at some point, but we’re not going to grow just to grow. I think the point that’s very important to make is that we are a mutual, we don’t need to grow other than to keep up with those costs.

We don’t have to satisfy shareholders on a quarterly basis, we can take more of a long-term strategy and approach.

Would most of that growth be organic, or would mergers and acquisitions be part of the equation?

A. It will be 100% organic growth, all through relationships. We are not built on transactional lending, we really look to build relationships.

I think we are in a good position to grow based on the fact that we are a mutual, and many of our competitors — like Farmington Bank, United Bank, Simsbury Bank, People’s United — are no longer around, they are now part of much larger banks.

Does the bank want to maintain that 70/30 commercial-to-residential/consumer loan ratio?

A. We’re going to continue to examine that, and a lot of that depends on the economy and other factors.

If you look at residential lending, for instance, volume has shrunk dramatically. There’s just not a significant inventory of homes on the market to lend to people, and there’s not the refinance volume because of the higher interest rates.

We plan to continue to be in the residential consumer lending space, but the real opportunity for us is going to be on the commercial side.

What’s your sweet spot in terms of commercial loan size, and who’s your typical business customer?

A. We’re diversified among many different industries — a lot of aerospace manufacturing, self storage, warehouse, hospitality.

In terms of loan size, our sweet spot is the $1 million to $7 million relationships. Our legal lending limit is $12 million, but we have several relationships above $20 million that we work with other banking partners to service.

What’s Windsor Federal’s brick-and-mortar branch strategy?

A. We have eight full-service branches and a couple of branches in high schools.

We’re not going to look to grow aggressively, but where there’s opportunity, we’ll take advantage of it.

It really comes down to people and making sure we can hire the right bankers. It’s a tight employment market, and trying to find the right people and right teams to grow prudently can be a challenge.

What about digital banking and technology investment? What’s Windsor Federal doing there?

A. Technology is probably one of the most significantly increasing pieces of our budget.

We have an Interactive Teller Machine (ITM) strategy and implementation plan. We’ll be using more ITMs in our existing branches, and possibly as opportunities to grow outside of that.

ITMs give us the ability to expand our full-service banking hours, but in a different format.

We also continually look to partner with the right fintechs and establish and expand those types of relationships.