TWST: What is Naugatuck Valley Financial Corporation?
Mr. Roman: Naugatuck Valley Financial Corporation is the holding company for Naugatuck Valley Savings and Loan. In 2004 we reorganized Naugatuck Valley Savings and Loan, which was established in 1922 as a Mutual Savings and Loan Association, into a stock savings bank with a mutual holding company structure and formed Naugatuck Valley Financial Corporation as the mid-tier holding company for Naugatuck Valley Savings and Loan. We sold a minority of Naugatuck Valley Financial Corporation common stock to our depositors and others in a subscription offering. The consolidated assets of Naugatuck Valley Financial Corporation as of June 30, 2007, was $425 million, up from $250 million at the time of our reorganization in 2004. We operate nine offices in the Naugatuck River Valley in Connecticut situated between Waterbury and Bridgeport. Our main office and one of our branches is in Naugatuck. We also operate a branch in Beacon Falls, Connecticut, which we opened in 1996, In 2001, we initiated a branch expansion strategy. We opened branches in Shelton, Connecticut, in 2001, Derby in 2003 and Seymour in 2004. In 2006, we opened three branches, in Southbury, Waterbury and Cheshire. Our roots are as a mutual savings bank, primarily catering to the needs of individuals and families in our market area, focusing on retail deposit and residential mortgage loan products. Over the past 10 years, we have made significant progress in the diversification of our assets and liabilities to include commercial loans and deposits. Going back seven or eight years, 80% of our assets were residential mortgages. Right now, they are about 54% of our assets. We have become a full-service bank.
TWST: What does that market area look like as far as how it's performed as an economic basin? How do it and its attributes perform as a banking community? What's your outlook?
Mr. Roman: Primarily the towns we are in are old mill towns that have transitioned to become commuter towns. Naugatuck, which is our primary market, is an old mill town just south of Waterbury. US Rubber was the primary employer here for many years until the mid-1980s. Since then, Naugatuck has become a commuter town for Waterbury and Bridgeport, as well as for Hartford and New York City. The southern portion of our market area lies on the border of Fairfield and New Haven Counties. This is a fast growing area. This area includes the Town of Oxford, which was recently identified as the fastest growing town in Connecticut as a result of the migration of residents from lower Fairfield County and New York, the attraction being lower housing costs and quality of life. With this migration we are seeing an increase in service businesses, many of which are banking with us. We have also been providing financing to a number of established developers in that market area. There is also a significant mixed use development, known as Renaissance Place, proposed for Naugatuck which will convert the old mill area of Naugatuck into retail, office and housing space over the next 15 years. We are excited about the potential positive effects on business activity of this development, which will be located right next door to our main office. Our growth over the past 10 years has come from the acquisition market share from other financial institutions. We have grown deposits and loans at a pace much faster than our peers over the past three years. Deposit growth has been focused on CDs and business and municipal accounts while, on the loan side, the growth has been in commercial mortgages. In the face of disruptions in the credit markets, we have seen our non-performers remain stable at a low level. We have always been a conservative lender and I believe that will serve us well in the prevailing market environment. As expected we've seen some slowdown in the pace of new requests from residential real estate developers. We deal with strong, experienced developers and we limit them to one or two spec homes. To date, although we've seen some slowdown in the pace of their sales, we haven't seen delinquency rates rise materially nor have we seen any requests for modifications or extensions of loan terms.
TWST: What's the growth strategy for Naugatuck? How do you accomplish all of that? Is growth a mandate?
Mr. Roman: I believe growth is a mandate for us. When we completed the minority stock issuance in 2004, one of the things we understood is that we would need to grow into our new capital. We've reduced our capital ratio primarily through growth. Our growth formula has been to open branches in contiguous markets and by growing our established branches. We believe that we have done both successfully. We are getting the word out about our brand of personalized customer service and how we can deliver that better and more efficiently for our customers. We work to reach out to our customers in a variety of ways; bricks and mortar branches is big for us. We also have a successful Internet banking product. We view this as another way for our customers to interact with us. We see the Internet banking pieces being almost like another branch. It's not the end-all; it's not our primary strategy, but it is another way to serve a group of customers, especially the younger customers, who may not want to come into the bank, so they like the convenience of Internet banking.
TWST: What today compels investors to include Naugatuck as part of their current portfolios and part of their longer-term investment strategies?
Mr. Roman: I believe we are a community bank that's well positioned as an alternative to some of the larger banks in our area. We have potential to grow our market share either through acquisitions of other banks and acquisitions of branches, but we have no plans for either at this time. Looking at the TD Banknorth, Webster, New Alliance, and People's in our area, we believe that some consolidation there is probable and we are well positioned to take advantage of the disruption that comes with consolidation. As we grow in the future, we know we have the potential of a second step conversion. We have no plans for a second step right now, but it is an option to raise more capital and continue growth.