While many competitors are ditching the mutual savings bank model for a chance to raise significant capital for expansion, Liberty Bank CEO Chandler Howard said that’s not a move in his bank’s plans.
But that doesn’t mean the third largest Connecticut-based bank isn’t eyeing growth.
In fact, Howard said the Middletown-based lender plans to nearly double its asset base over the next five years from $3.4 billion to $6 billion, while maintaining its independence as one of the few remaining mutual savings institutions in the state.
The company’s strategy includes further expansion into Greater Hartford, with the hopes of opening a branch in the Capital City. The bank has already been looking into real estate options in Hartford, but hasn’t found the right price to pull the trigger on a deal, Howard said.
The bank also plans a $50 million down payment on new technology upgrades, including the adoption of mobile banking this year.
“We are committed to staying a mutual savings bank,” Howard said in a recent interview. “I think that provides us the best opportunity to grow.”
Liberty Bank has weathered a turbulent last few years with $545 million in additional assets and a capital base three times the size of what is considered safe and sound by regulators, Howard said. So access to capital isn’t a problem for the bank, giving it the opportunity to maintain its mutual status, he said.
Over the past year, a handful of community lenders in Connecticut have ditched the mutual model by going public and gaining access to capital for future growth plans. That includes Willimantic-based SI Financial Group Inc. which raised $52 million in a public stock offering.
Rockville Financial recently became a fully public institution raising $170 million in a stock offering, while Farmington Bank will try to raise $132 million in new capital as it plans to convert to a public company this year.
Howard said those moves will increase competitive pressures on his bank, which is now the largest remaining mutual bank in Connecticut.
Waterbury-based Webster Bank and Bridgeport-based People’s United Bank are the only other Connecticut-based institutions with more assets than Liberty Bank.
NewAlliance Bank, which was recently gobbled up by Buffalo, N.Y.-based First Niagara Financial, is no longer based in Connecticut.
As a mutual, Liberty Bank doesn’t face pressure from shareholders. Howard said the status allows the bank to take a longer term view of the market.
“It gives us a great deal of flexibility,” he said. “We don’t have the quarter-to-quarter demands that stock institutions have.”
One example of that flexibility was demonstrated when the bank decided to upgrade its core operating system technology about a year-and-a-half ago. The 18-month project, which required more than a $15 million investment, may not have pleased shareholders during a time of great economic uncertainty, Howard said. “We moved forward with project because we know in the long run it was best for the health of the bank,” he said.
In terms of expansion, Howard said the bank wants to broaden its footprint in Hartford and New Haven counties. It already has branches in several surrounding towns including Berlin, Wethersfield, Glastonbury, West Hartford and Plainville. It also acquired the ailing Wethersfield-based Connecticut River Community Bank last year, which helped it add three new branches and $160 million in assets. Other small bank acquisitions remain a possibility, he said.
Howard said the bank does business with 100,000 households in the state and he expects to double that in the next five years. Part of the strategy to gain market share will be opening branches in areas where the bank doesn’t have a presence. But he envisions smaller facilities — approximately 1,500 square feet — than the bank has built in the past. The days of 4,000 square foot branches are over, Howard said.
Technology will also be a focal point, and presents probably one of the strongest growth areas for the bank, Howard said. The $50 million investment over the next five years will go to beef up the bank’s online banking capabilities. Liberty Bank expects to unveil mobile banking this year as well as ATM machines that can scan and copy checks for customers, allowing the machines to take on a role similar to a bank teller.
Of course, the bank doesn’t lack challenges. It still has to navigate an increasingly difficult economic environment. Howard said the bank outperformed the market in 2008 and 2009, but saw problem loans increase in 2010. That forced the bank to set aside more money to cover bad loans, which cut into the company’s earnings.
According to Federal Deposit Insurance Corp. data, the bank’s 2010 net income totaled $16.7 million, compared to $31.4 million a year earlier. The bank’s ratio of noncurrent loans to total loans increased to 4.12 percent in 2010 compared to 0.75 percent at the end of 2009.
Regulatory reform is also a concern. Howard was among a handful of Connecticut bankers who testified at the state Capitol last month, warning that the Dodd-Frank financial reform law could hamper the viability of community lenders.
In addition to added compliance burdens, new federal restrictions on overdraft fees and a new proposed cap on “swipe fees” will put further pressure on their bottom lines, Howard said.
“The current legislation is forcing banks away from fee income to more management of net interest margin,” Howard said. “But net interest margin is already thin with the low interest rate environment.”