Expanding the Footprint — Again

Latest Acquisition Would Take United Bank into Connecticut Market

Richard Collins calls it “growing into our capital.”
That’s one of the many ways he chose to describe United Bank’s recent announcement that it would acquire Enfield-based New England Bancshares.
Elaborating, Collins, the bank’s president since 2001, said United, like many financial institutions in this region, has large amounts of capital at its disposal, and one of its challenges is to find methods to put it to work in ways that will position the bank for future organic growth, strategic acquisitions, and what he called “continued capital-deployment strategies.”
And he believes this acquisition, the bank’s second major expansion in four years — it merged with Worcester-based Commonwealth National Bank in 2009 — accomplishes all that and more.
For starters, it takes the bank’s footprint into Northern and Central Conn., and, more specifically, into areas with attractive growth potential (more on that later).
“This combination presents a tremendous opportunity to expand our presence in Connecticut, where United Bank currently does not have any branches,” said Collins. “Connecticut is a growing banking market, one we’ve had our eye on for some time.”
Meanwhile, the merger, subject to regulatory and shareholder approval, would also bring the institution to $2.4 billion in total assets, making it the 10th-largest bank headquartered in New England and the largest based in Greater Springfield.
And with that additional size comes strength, flexibility, greater efficiencies, a capacity to do larger commercial loans, and better ability to absorb the higher costs of doing business in an age of greater government regulation, he told BusinessWest.
“The burden of government regulation is becoming greater every year,” he explained. “And a small bank has a lot of trouble staying on top of all the things they have to do to satisfy government regulations; we can take our compliance efforts and spread them over a broader base.”
For this issue and its focus on banking and financial services, BusinessWest looks at United’s latest expansion initiative and what it means for this instiution and its long-term strategic plan.

Branching Out
Collins said informal talks between United and New England Bancshares started a few years ago.
He told BusinessWest that, again, like most banks in the region with capital at their disposal and strategic plans in place, United, which converted from a mutual bank to stock ownership over two stages in 2005 and 2007, has been looking at a number of opportunities for expansion.
“Our board saw opportunities to grow our franchise and expand our brand of banking into other markets,” said Collins, noting quickly that there has been organic growth over the past several years as well. “In going public, we raised a lot of capital, and the idea of having all that capital as a bank is that you grow into it over time.
“And, in essence, that’s what we’ve been doing — growing into our capital,” he continued. “The Worcester acquisition helped us in that regard, and it’s worked out very well for us, but we still have a lot of capital — 17% tangible common-equity ratio, which is a lot more than you need, really — and so we’ve been looking for opportunities.”
And, like the acquisition of Commonwealth National, the New England Bancshares gambit, a $91 million transaction in cash and stock, makes sense on a number of levels, Collins continued, adding that it was consummated after considerable due diligence that determined that United was receiving value for what it was offering, but was not overpaying.
“What I do in these situations is put myself in the shoes of our shareholders — “if I’ve got $91 million to spend, how much should I be earning on that $91 million?” he explained, adding that a detailed assessment concluded that the bank could certainly earn enough to justify that cost.
When asked to quantify why this deal makes sense for United, Collins said a quick look at a map would be a good place to start. It would show that the best opportunities for widening the footprint lay to the east and the south, with the latter being the most attractive.
“We have a branch in Northboro, and if you go north of that, it gets rural very quickly. If you look at Southern Vermont, there’s not much there in terms of real opportunity to grow,” he said. “And we’re probably not going to expand to our west; first, you have to cross the mountains, and then you get to the Pittsfield area, which is pretty heavily banked.
“So looking south made a lot of sense to us,” he continued. “If you look at the demographics of the Greater Hartford area, you see a lot of people there, and many of the communities are growing and fairly wealthy; there are probably four times as many deposits in the Greater Hartford area as there are in the Greater Springfield market. You have people, demographics, and favorable bank deposits — it looks like a place where our kind of banking can take root and flourish.”
Elaborating, he said New England Bancshares offered access to Connecticut markets with more-promising growth potential, meaning areas where large regional institutions, which have taken the brunt of public criticism over excessive fees, hold a good deal of market share.
Specifically, the institution has 15 branches — assembled through some previous mergers and organic growth —that are positioned mostly north and east of Hartford or west and south of the capital city. There are six branches in what Collins calls the southern tier, which stretches into New Haven County, and eight more in the northern tier, which progresses almost to the Massachusetts line and east to Tolland County. The resulting gap is similar to the one United has between Springfield and Worcester.
Beyond geography and specific branch locations, though, New England Bancshares made sense as an acquisition target on several other levels, said Collins, adding that the two banks are similar in many ways, from operating philosophy to loan-portfolio mix.
“They’re a smaller version of us,” he explained. “When it comes to deposits and loan percentages, the two banks are a lot a alike and take the same approach to doing business.”
These similarities should help facilitate the assimilation process, said Collins, who noted that, while there is some degree of apprehension associated with most bank mergers (especially for customers of the acquired institution), this absorption process should go smoothly.
“It’s a matter of making the right introduction,” he explained, adding that the bank will borrow many lessons from its experience in Worcester. “That’s marketing; that’s letters to the customers introducing ourselves and explaining how we do business.”
This communication process will begin several months before the closing and continue right up to that date of conversion and beyond, he continued, adding that the banks share a common data system, which should facilitate the process.
Looking ahead, Collins said that, after the merger has been completed, United will still have “comfortable levels” of capital with which to possibly add branch locations across its now-broader coverage region, perhaps closing those gaps, or pursue other possible acquisitions.
“We should be able to find branch-location opportunities in parts of that territory that are not saturated,” he explained, adding that New England Bancshares has not penetrated Hartford itself or many surrounding communities. “And, conceivably, there could be another acquisition — but right now, we’re focused on New England Bancshares and making this work.”

Interest Bearing
If the planned merger goes through as expected, United will have some impressive numbers to put behind its name.
These include those $2.4 billion in combined assets, $1.7 billion in combined loans, $1.8 billion in combined deposits, and 37 branches in seven counties across Massachusetts and Connecticut.
More important than the numbers, though, will be the capacity they provide for continued growth and a better ability to serve existing customers.
In short, this acquisition provides even more opportunity for the bank to grow into its capital.

George O’Brien can be reached at [email protected]