Last year's slumping mortgage refinance market painted a gloomy portrait for Simsbury Bank & Trust's top revenue line, but Chief Executive Martin J. Geitz and his finance right hand see nothing but opportunity in the home lending market.
Connecticut bank regulators recent approval for parent SBT Bancorp to open a Middlebury office from which to underwrite hundreds, if not thousands, of residential and commercial mortgages is just the opening for which Geitz says Simsbury Bank has been waiting. More offices are planned for Connecticut, perhaps even Springfield, officials say.
It also illustrates the agility community banks must employ to stay relevant and profitable in an era dominated by mobile and online access to a diverse network of financial and other services.
If this latest attempt to play on the bank's strengths delivers, Geitz and Chief Financial Officer Richard J. Sudol say the Farmington Valley lender could ratchet up big time its brand and reputation to compete with local realty-lending rivals Farmington Bank, Webster Bank and United Bank (formerly Rockville Bank) as a significant mortgage issuer throughout Connecticut and southern New England.
"This was one that we thought worked best for us at this time,'' Geitz said, "because it was people focused and didn't require a lot of capital.''
SBT's earlier mortgage-banking buildup was largely stalled during last year's refinancing slump following a spike in interest rates. SBT was forced to regroup, including laying off a handful of mortgage staffers.
"The market change occurred before we completed the buildout of our residential mortgage origination platform,'' Geitz said in a recent interview at SBT's newest headquarters at 86 Hopmeadow St. "We had established ourselves reasonably well in western Hartford County, but did not yet have enough mortgage advisors in place to find the purchase-mortgage volume necessary to replace the dramatic contraction of demand for refinancing mortgages.''
But SBT held fast, he said, maintaining its residential mortgage underwriting, processing and servicing capacity through the latter part of 2013, with expectations that heavy volume would return this first quarter.
It proved a costly move in the short term, as SBT's first-quarter profits plummeted due to the overhead of sustaining that excess underwriting capacity until its mortgage-origination strategy takes root. SBT's assets were $405 million as of March 31.
Sudol, a former Webster banker who is back in Connecticut for a second stint after about a dozen years as a Florida lender, says SBT's existing back-office team and technology also provides the ability to expand, or "scale up,'' its mortgage-underwriting model.
SBT, Geitz says, is pursuing certification from the Federal Housing Administration, a leading guarantor of single- and multi-family mortgages, so it can directly underwrite as many of the FHA-offered mortgages as possible — a time- and money-saving measure.
SBT's model is not unlike other mortgage lenders': Underwrite as many loans as possible, sell off most to other investors via the secondary market as a way of managing its risk profile.
The fixed-rate loans SBT sells off, but ones with a variable, or floating rate, it keeps. That strategy provides small community banks like theirs a risk hedge against fluctuating interest rates, Geitz and Sudol say.
But, to play it safe, SBT has one more risk shield up its sleeve in retaining the servicing rights to all mortgages it underwrites. Not only is the monthly collection of principal and interest payments another source of continuing fees for as long as the mortgages exist, Sudol said, but it provides SBT a safety net against the bottom again falling out of the mortgage market.
Geitz says the roughly $30,000 SBT generates monthly from mortgage underwriting and related fees will climb exponentially once its Middlebury and other offices are running full bore.
"We think it can be a significant revenue generator going forward,'' he said, declining to give a number.
To get the Middlebury office up and running by mid-summer, SBT recruited a long-time Litchfield and Fairfield County mortgage broker, Herman W. Gibson. It's Gibson's task to promote its construction and commercial realty lending and secondary-market products and services. Gibson also brings a catalog of lending clients dating back decades.
"I've been around for so long,'' he said, "I'm doing mortgages for their kids. The bank is on track trying to build relationships … The market will always have a need for financing — always.''
SBT is searching for more mortgage advisors like Gibson who can staff other loan-production offices in Connecticut and southern Massachusetts, Geitz said.
Meanwhile, its competitors aren't standing still. Farmington Bank recently unfurled a mortgage-lending program to render it the lender of choice to first-time buyers and to current, former and retired military.
United Bank, fresh off the merger of predecessors Rockville Bank in Glastonbury and United Bank of West Springfield, Mass., continues the expansion of its lending operations following opening earlier this year of its first New Haven County branch, in Hamden.
With a single-loan lending limit of $5 million tied to its capital base, Simsbury Bank has been comfortable partnering with other lenders on credits of as much as $10 million, Geitz said. In 2013, the bank's commercial-loan portfolio grew 36 percent from a year earlier, almost on goal.
One of the few remaining out of a group of "de novo'' banks launched in the 1990s that hasn't shut doors or merged out of existence, SBT also has eyes on other revenue- and asset-building opportunities. It soon will hire a staffer to pursue equity-real estate relationships, he said. It also plans to beef up its cash-management services, which generally are a good source of stable deposits.
Its pace with those expansions will be deliberate, Geitz said, partly to keep up with an economic recovery that by Connecticut standards still remains fragile.
"We're seeing a continued slow growth and recovery,'' he said.
Yet, Geitz points to intangible signs the state and regional economies are on the right track. The state's and United Technologies Corp.'s recent $400 million commitment to retain and expand Pratt & Whitney's aero-engines operation in central Connecticut was a big win for Pratt, its suppliers and their combined workforces, some of whom are SBT customers, he said.
"I feel the same way about Jackson Lab,'' Geitz said of the Maine genomic medicine research nonprofit that got state money to build and staff a Farmington facility.
"I think we're going to wake up in five years and see that Jackson Lab generated a lot of business activity that wouldn't be without it,'' he said.