Castle + Naugatuck: Big-time resources, small-town presence
By Mary Ellen Godin, Record-Journal Business Editor

MERIDEN � Independent community banks operating under a parent holding company are the future of community banking, several local bankers said.

Robert Messier, president and chief financial officer of Valley Bank in Bristol and a loan processing officer in Southington, said the recent deal that allowed Nutmeg Financial Mutual Holding Company Inc. to purchase stock in Castle Bank and in Naugatuck Savings Bank better serves the bank and the community. The holding company paid $8 million for Castle Bank�s 615,051 shares.

�Initially, they�ll be able to be more flexible in their ability to lend more money,� Messier said. �People want to do business locally. That model allows them to keep local names and cater to local banking. Multibank holding companies is the model of the future.�

Messier added that operating and regulating costs could also be absorbed by the holding company, thus freeing the bank to offer more services.

The arrangement came at a time when both banks were suffering growing pains. Naugatuck Savings Bank had the resources to expand and needed an opportunity, but not another branch. Castle Bank was stymied because some commercial and individual customers saw it as too small and too young, said Castle Bank President and Chief Executive Officer Lawrence McGoldrick.

Nutmeg Financial was created when Naugatuck Savings Bank President and Chief Executive Officer Mark Yanarella and the bank�s board of directors studied the proliferation and success of community banks joining mutually owned holding companies in the Midwest and West.

The directors of the bank � which is 126 years old and has 13 branches stretching from Ansonia, through the Naugatuck Valley, into the Greater Waterbury Area and east to Cheshire � wanted the bank�s next endeavor to continue on a contiguous path. It could have opened a Naugatuck Savings Bank branch in Meriden, but though the bank has a solid reputation closer to home, Meriden residents might not embrace an out-of-town bank, Yanarella said. And changing the name was too difficult.

Additionally, Naugatuck Savings Bank�s board had reached a point where it wanted more than to just acquire a bank. It wanted to partner with a community bank and help it grow.

�Watching what I was watching and seeing it in the Midwest and West, I began realizing that basic format could be done here,� Yanarella said.

He, as well as other commercial bankers, were also carefully watching the eight-year-old Castle Bank and McGoldrick.

�I was very impressed with Larry and he seemed to have a lot of the same values I had,� Yanarella said.

McGoldrick and Yanarella shared a commitment to the local community both in the private and public sector and in economic development, Yanarella said.

The two bankers began talking in the spring, but the talks didn�t grow serious until the Castle Bank board of directors appointed a Transaction Review Committee to research a possible deal and make a recommendation to the board.

�A lot of it was getting the board comfortable with what we were trying to do,� Yanarella said.

To committee member William Pappas, comfort meant, among other things, that Castle Bank would remain intact.

�As a small bank, we can�t be all things to all people,� Pappas said.

That hometown feel

But with the added resources, Castle Bank can ask the holding company for more capital and offer technological support for things like Internet banking, while keeping the hometown feel.

�It was very important for me personally that it�s good for the banks and good for the growth of the bank,� he said of the deal.

Pappas was impressed with the culture of Naugatuck Savings Bank and its contributions to the communities surrounding its branches. The bank�s community foundation, started under Yanarella, has awarded about $1.2 million in grants and awards to various community projects. And the bank prospered through the borough�s booming rubber industry era and later when the rubber sneakers and tires left.

Having been with the bank for 35 years, Yanarella has seen a great deal of it. The shared philosophies were a good fit for Meriden, Pappas said.

McGoldrick agreed and said Castle Bank had always wanted to mirror the same community support. He and Yanarella believed the best way to accomplish that is through a mutual model: owned by depositors and governed by community members.

James Heckman, director of government relations and communications for the state Banking Commission, said the state has registered four banks that have 100 percent of their stock in a mutual holding company: Litchfield Bancorp, People�s Bank, Rockville Bank and Northwest Community Bank.

Heckman said it�s possible the model could be popular in other parts of the country, but he has not seen a clamoring for more.

�But it�s something we�re keeping an eye on in the future,� Heckman said.

Yanarella and McGoldrick said it�s not the holding company model that�s rare; it�s the mutual model as opposed to a stock model. Most charter changes come from a mutual bank going to a stock bank, not vice versa.

Back to the future

But mutual banks have been a part of the city�s heritage that McGoldrick and others want to see return. They believed the commercial stock banks that have replaced the old mutual banks don�t have the same community focus or presence.

McGoldrick explained that joining the mutual trust increases the bank�s resources and gets the most for shareholders. Those 442 shareholders must now vote on the deal. If approved, Castle Bank�s stock, which sold for $10 in 1996, will net $13 per share, a 30 percent increase.

�From Day 1, we were always trying to create the best balance that was fair to our shareholders and satisfy the reason they invested in the bank � that was financial return and community bank presence,� McGoldrick said.

McGoldrick points to examples of banks that were founded on the community model, which were acquired by a commercial bank and dismantled soon afterward.

�It�s not just that the name is gone,� McGoldrick said. �It�s a matter of the role they played in the community. The focus of the bank is gone.�

In his role as president of the Meriden Economic Development Corp., McGoldrick is in a prime position to act quickly on plans and ideas. He sees it as a natural fit. MEDCO is a quasi-public agency made up of members of the public and private sectors to identify and pursue citywide economic development projects.

�One of the responsibilities of a community bank is to be an engine for economic development in the community,� McGoldrick said. �Part of that is financial and part of that is leadership. MEDCO is one of those ways. By supporting MEDCO in a leadership capacity, and financially, it�s bringing together the private and public economic sector.�

MEDCO is coordinating a downtown renovation called the City Center Initiative, a $140 million proposal aimed at bringing commerce and the arts back to the downtown area. The initiative focuses on, among other things, helping the city solve its flooding problems, demolishing blighted buildings and improving traffic patterns.

Lucille Janatka, president and chief executive officer of MidState Medical Center, sits with McGoldrick on the MEDCO board, and has been a corporator of Naugatuck Savings Bank for two years.

Although MEDCO hasn�t targeted any project for financing just yet, Janatka would like to see Castle Bank develop into a stronger community partner.

�Naugatuck Savings Bank is a strong, well-run bank,� Janatka said. �The culture of that bank fits Castle Bank. Larry will provide great leadership; he already has. We�ll have more capital. This will make Castle Bank stronger.�

Sunday, October 16, 2005

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