When a lion kills and eats a gazelle, the apex predator sustains itself and grows stronger, but so too can clever hyenas and other hunter-scavengers down the food chain who hover nearby waiting for their opening to grab a piece.
It turns out the natural pecking order of the Serengeti applies to Connecticut banking, too.
Over the past year or so, as Bridgeport-based regional lender People’s United Bank gobbled up Farmington Bank, smaller community lenders have circled, looking to take advantage of a long-dominant local brand suddenly disappearing from the market.
Since the Farmington Bank deal closed in Oct. 2018, three lenders — Ion Bank, Thomaston Savings Bank and Collinsville Bank — have moved to establish their first-ever Farmington outposts, making the town one of the most active in the state for new branch activity.
The move has already paid off for Ion Bank, which has attracted $42 million in deposits at its new Farmington branch, and poached more than a dozen Farmington Bank commercial lenders and other employees who are expected to amass a nine-figure loan portfolio this year, said Ion CEO David Rotatori.
“There’s a lot of disruption when customers have to move accounts to a new bank,” Rotatori said. “I think that’s why people are looking at the Farmington area as a very good place to get a foothold into right now.”
It’s not unusual to see such a wave of activity, said R. Michael Goman, principal of East Hartford-based Goman+York and president of Accubranch, which helps banks analyze potential branch locations.
The acquisition of a longtime local bank by a larger player can be a driving factor for new branch openings, as lenders outside the market perceive a somewhat rare chance to expand into new turf without having to rely solely on winning a head-to-head dogfight for market share, Goman said.
A branch can cost a few million dollars to open, and $1 million or so to operate annually, so banks will consider anything that can increase the chances their investment will pay off.
“You don’t want to open one and do poorly,” Goman said.
Bank branches in Farmington hold more than $1 billion in deposits, and the 167-year-old Farmington Bank owned about half of the market when People’s United purchased it, according to federal data. So, if community banks seeking a growth opportunity think they can siphon off 10 to 15 percent of those deposits from Farmington Bank’s reflagged, converted branches, they’ll try.
“If I’m a community bank, maybe I’ll look at it and say ‘there’s my opportunity,’ ” Goman said.
Banking experts interviewed by HBJ said some customers may switch banks, even though it’s a hassle, simply because they value doing business with smaller institutions, which tend to have more direct community involvement in their territories than a large bank. But if that’s not enough, changes to account terms and fees after an acquisition could motivate a switch.
Research by Deloitte and J.D. Power concluded that mergers and acquisitions increase the chances of customers moving their accounts.
Come and get it
While larger banks often assume some amount of deposit shedding when they are weighing the merits of an acquisition, People’s United CEO Jack Barnes said his bank isn’t going to give up customers easily.
The bank, which has honed its playbook through numerous acquisitions, works to limit deposit losses through steady communication with retail and commercial customers about changes and new offerings, as well as a focus on getting the technology transfer right, Barnes said.
That strategy, he said, has helped the bank retain 90 percent or more of acquired accounts in recent years as its gobbled up a number of lenders in and outside the state.
“Competitors do get excited and they want to try to take advantage of disruption and change,” Barnes said. “We do really well there and it’s something we’re proud of.”
Ion Bank was the first newcomer to challenge People’s United’s new Farmington stronghold, and it’s paid off so far, Rotatori said.
The Naugatuck-based mutual opened its 4 Main St. branch in January, a few months after the Farmington Bank acquisition closed, giving it a first-mover advantage, Rotatori said.
In its first six months, Ion’s new branch built up $42 million in deposits, far exceeding initial expectations of $25 million in year one.
Ion’s decision to poach former Farmington Bank talent, who are expected to build up $100 million in loan volume this year, provided a further boost.
“It’s been incredibly successful by every measure,” Rotatori said of Ion’s Farmington push.
Similarly, Ion also hired away more than a dozen employees from Hartford-based United Bank, which People’s United acquired in early November. Those new hires are based in Ion’s newly established Manchester loan office.
The successes so far could catapult Ion more deeply into the Greater Hartford market, where it is a newcomer. The bank is already planning a second Farmington branch in the town’s Unionville section, where it hopes to break ground in 2020, and may soon be weighing a third branch, Rotatori said.
Ion had been sniffing around Southington prior to learning that Farmington Bank had a buyer. It immediately shifted course.
The same was more or less true for Thomaston Savings, which had no near-term plans to enter Farmington until news of the Farmington Bank deal broke.
Now, its 155 Scott Swamp road branch, its second in Hartford County and 14th overall, is set to open this month.
CEO Stephen Lewis said his Litchfield County-based bank, which is also a mutual and of similar size to Ion, is entering a local market where two big banks — People’s United and Bank of America — jointly hold 75 percent of the deposit market share.
People’s United is a “very good bank,” Lewis said, but he thinks it can’t focus on each specific market in which it does business the same way that smaller banks with fewer branches can.
“I don’t want to say it’s easy pickings, but we see a chance to take some of that market share away for those customers who are still looking for a community bank presence,” Lewis said.
With more banks following his lead in Farmington, Rotatori said it’ll be tough to sustain his new branch’s initial growth rate, but he’s pleased with the strong start.
“We’re definitely in a better position because we got the people first and we got there first,” he said. “But [more branches opening] will make a difference in overall long-term profitability.”
Lewis, whose bank has also poached away some Farmington Bank and United Bank employees, said he isn’t worried about being late to the party.
“It’s a successful play and I think there’s plenty of room for both Ion and us to be in there,” he said.
Thomaston Savings has been in a similar position previously. Lewis said his Bristol branches saw a healthy bump in deposits in 2012 after United Bank acquired New England Bancshares, the holding company of former Enfield Federal Savings and Loan.
New England Bancshares had acquired Bristol-based Valley Bank in 2007.
“We became kind of closer to a hometown bank there than anybody else,” Lewis said.