When large to midsize banks around the country got greedy by making subprime loans and risky investments, Bridgeport-based People’s United Bank stuck to what it knew best: a conservative credit culture and relationship building.
While its style may not have been flashy, the bank’s strategy to stay away from risk has proved effective. As many of its peers suffer major losses and investment downgrades, People’s United has maintained healthy earnings and has become an admired bank among analysts who cover the sector.
In 2008 People’s reported a net income of $139.5 million, down only a few percentage points from the $150.7 million it earned in 2007. It also expanded its depositor base and grew its assets under management to $ 20.2 billion, making it the 27th largest bank in the country.
“We’ve had success largely because we stayed close to our knitting,” said Mike Casparino, president of People’s United Bank, North. “We have a very conservative credit culture and we didn’t think it was prudent to get into the risky lending.”
Casparino said People’s Bank, whose core businesses include commercial, retail and small business lending and wealth management, avoided subprime loans because it never saw value in them. He said the bank’s main goal has always been to establish a relationship with customers who they know will be able to make good on their loans.
“To be successful you need to know the market,” Casparino said. “Local decision making, with a small town touch is crucial.”
Maintaining a conservative investment portfolio has also been important. Casparino said the bank avoided high-risk investments like collateralized debt obligations which has eroded the balance sheets of many banks around the country. Instead, People’s used its billion-dollar investment portfolio solely as a temporary store of excess capital, investing most of the assets in short-term notes.
“We have $2.5 billion in excess capital and we don’t want to jeopardize it,” Casparino said. “We decided not to take risks, but instead concentrate on loan growth in the market.”
That capital cushion puts People’s Bank in a unique position to expand its footprint, an option not open to most banks in the U.S. simply because they don’t have money.
Last January, People’s completed its acquisition of Chittenden Corporation, a multi-bank holding company headquartered in Burlington, Vermont, which had total assets of $7.4 billion and 140 branches.
“We can absorb the expenses associated with an acquisition when a lot of other banks can’t,” Casparino said. Analysts who cover the bank agree.
“People’s Bank continues to be in the enviable position of having strong capital levels and a relatively benign loan book, which, in our view, should lead to stronger relative performance compared to peers,” Damon DelMonte, an analyst for Keefe, Bruyette & Woods in Hartford, wrote in a recent note to investors.
While sticking to a conservative, responsible banking philosophy may not seem like rocket science, the bank has had its share of innovative ideas. Its exclusive partnership with Stop & Shop is chief among them.
The bank currently has exclusive branching rights in Stop & Shop supermarkets in Connecticut, which has led to the creation of 79 full-service branches. The partnership allows the bank to provide extended hours and convenience while limiting cost and attracting new depositors and business from the tens of thousands of people who grocery shop each week.
Stop & Shop branches now account for about 14 percent of the $14 billion in deposits owned by the bank.
Additionally, 54 percent of new retail checking and savings accounts, 40 percent of business checking sales and 25 percent of home equity loan originations occurred in Stop & Shop branches in 2008.
“It’s been wildly successful,” Casparino said.
But while things look bright for the banks future, the bank’s executives are still being cautious. They know that a deepening recession will make for a challenging environment, as layoffs will likely mean more people will have trouble paying back their loans.
“We weren’t part of the problem, but we are looking to be part of the solution,” Casparino said.
Greg Bordonaro is a Hartford Business Journal staff writer.
