October 17, 2017

Thirty years later, Smith-led Webster Bank a regional force

Outgoing Webster Financial CEO James C. Smith credits values instilled in him by his mother and father, Harold Webster Smith, whose portrait is overhead, for his 30-year guidance of his family's financial legacy.

As he prepares to cede day-to-day operations of the Waterbury bank his father launched 85 years ago, Jim Smith reflected recently about that day 30 years ago when he officially took the CEO reins from his father, Harold Webster Smith.

"What was going through my mind was whether I was worthy,'' Smith said of New Year's Eve in 1987, his first day as CEO of the predecessors to Webster Bank and its then newly formed holding company. "I had a heightened sense of responsibility to the organization.''

On that day, James C. Smith became the second generation banker to lead the savings bank his father launched to collect deposits and redistribute them into thousands of Waterbury-area home mortgages amid the Great Depression.

Now, Smith, 68, has formally set New Year's Eve, 2017, as the day he will step aside as CEO and into his role as the regional lender's non-executive board chairman.

Smith, who occasionally has been outspoken about the state's fiscal and economic policies, was mum about his next chapter in life, including whether he's considering a run for elected office.

"I'll step back and consider all the possibilities,'' he said.

Smith's successor on Jan. 1, 2018, Webster Financial President John R. Ciulla, 52, will be the first person outside the Smith family to run the financial enterprise.

But both share in their banking DNA, Smith said, a respect and appreciation for the core values that propelled Webster from a stock-market capitalization of $30 million when Jim Smith took over to just under $5 billion today.

Profitable, Webster Financial's assets, too, have mushroomed during Smith's tenure from $592 million in 1987 to $26 billion as of June 30. Webster is the state's second largest banks by deposits, only behind Bank of America.

By Smith's count, since Webster's regulator-orchestrated buyout of New Haven's then failing First Constitution Bank in 1987, one in four Connecticut banks around at that time were acquired by Webster.

Indeed, Smith credits his parents as the biggest influencers on his life and banking career that began at Webster in 1975, "because of what they instilled in me … and that they had that level of confidence in me … to be a reliable steward of the values that my father had laid down from the beginning.''

Those include, he said, knowing their customers and being responsive to their needs. He expects Ciulla to uphold that standard.

"That's what John and I have in common,'' Smith said. "John demonstrates those values every day. That's what matters most."

From community to regional lender

Even though Webster's mission has evolved, Smith said in an interview inside Webster's boardroom atop its downtown Waterbury headquarters at 145 Bank St., "from helping folks buy homes and being the best bank on the block to a regional lender … ,'' its guiding values are unchanged.

On Smith's watch, bank analysts said, Webster, through acquisitions and prescient tweaks to its business model, moved beyond traditional residential-commercial real estate lending and commercial banking into capital-equipment financing and wealth management. Smith also oversaw Webster's 2015 purchase of one of the world's largest health-savings account fiduciaries, Wisconsin-based HSA Bank, with $6 billion in assets.

"That's a business that's growing 20 percent a year" in deposits, said Mark T. Fitzgibbon, principal and research director for New York bank-industry analysts Sandler O'Neill + Partners.

HSA Bank's greater value, Fitzgibbon said, is that it provides a steady stream of low-cost funds that Webster uses to make home and commercial loans in its core Northeast market.

Despite previous calls from some Webster investors and bank analysts that it consider spinning off HSA Bank, to unlock more value to Webster stockholders, Smith and Ciulla both made it clear Webster sees greater value with HSA in its portfolio.

They also said Webster, whose stock lately has ranged from $36.96 to $57.50 a share in the past 52 weeks, is not for sale.

Smith and Ciulla unabashedly note that much of Webster's asset growth and profitability of late has come "organically,'' or without acquisitions. Webster also can boast, they and Fitzgibbon said, that its upward trek, as of the second quarter, to 13 percent return on equity — a key measure of profitability — outpaces its peers.

Smith, too, deserves credit, Fitzgibbon said, for the one move he never made: Relocating Webster's headquarters out of Waterbury.

"Most banks, once they get to a certain size,'' the analyst said, "want to relocate to a bigger headquarters in a larger city. That's rare for a $26 billion bank to be headquartered in a small, sort of out-of-the-way city.''

William Pizzuto, chair of the Waterbury Regional Chamber, said Webster Bank has only deepened its ties to the Naugatuck Valley region under Smith's leadership.

"Jim's been outstanding for the community with his outreach and engagement,'' said Pizzuto, who heads UConn's Waterbury campus.

Tough calls

Smith is respected among his Connecticut banking peers for engaging with Webster's customers and employees and nonprofit and community groups in the Greater Waterbury community "with passion and with resolve,'' said John Patrick Jr., chairman and CEO of First Connecticut Bancorp and its flagship Farmington Bank.

"He's a fair competitor,'' Patrick said.

Smith, too, is prized, Patrick said, for voicing his and Connecticut Inc.'s concerns about high taxes, over-regulation and the state's inability to tighten its belt when many businesses are being forced to.

"Some people are afraid to speak up,'' Patrick said.

Smith has made key decisions over the years. In 2009, amid the Great Recession, Webster entered Massachusetts, planting its flag in the lucrative Boston market. Later, it opened an office to serve the wealthy enclaves of Fairfield County and Westchester County, N.Y. In 2002, Webster opened an office in New York City's bustling Manhattan borough.

The recessionary period, however, wasn't all roses for Webster and Smith. Like much of the financial industry, Webster suffered significant losses from bad loans and investments, including a bundle of Florida loans that soured, analysts said. Its stock price plummeted, raising doubts about its independence.

Then, in Nov. 2008, Webster raised eyebrows when it agreed to $400 million in federal assistance through the U.S. Treasury Department's former Capital Purchase Program that was an adjunct of the agency's controversial Troubled Asset Relief Program (TARP). Although created to provide liquidity to banks and insurers in the aftermath of the near-global financial meltdown, Webster's acceptance of TARP funds may have been misunderstood, Smith said.

"We didn't take it right away,'' he said. "We hemmed and hawed because we weren't sure we wanted a direct investment by the government. We were healthy and were urged by the regulators to take it. We practiced what my father liked to call 'the belt-and-suspenders approach.' "

"We said, 'this is the right thing to do. We'll pay it back as soon as possible,' which is what we did," he added.

By Dec. 2010, Webster had repaid every TARP penny, Smith said, plus $57.6 million in dividends and stock warrants — essentially the government's return on its short-term investment. But would Smith and Webster Bank accept TARP money again?

"Yes, I would,'' he said. "You want to know why? It was the right thing to do. Even though we weren't even close to needing it, it was the right thing to do to ensure no matter how bad the downturn, we'd remain strong for our bankers and our customers.''

'Mr. Fix It'

It was during the slump that Smith said he and his aides recognized shortcomings in the bank's risk-assessment protocols, from weighing the creditworthiness of borrowers, to assessing specific industry sectors and the overall economy.

That's where Ciulla, a New Haven native and a veteran lending executive at banks in and outside Connecticut, who was hired by Webster in 2007, stepped in with his risk-assessment and strategic-planning skills.

Ciulla is known as a "Mr. Fix It'' in and outside Webster, Fitzgibbon said.

"If there was an area that needed fixing,'' he said, "they threw John at it and it would end up excelling. He's really smart. He thinks a lot like Jim. They're like-minded in how to run a large organization.''

Serving as Webster's chief credit risk officer "was an inflection point in my career," Ciulla said. "That was a three-year crash course about effectively understanding risk management and effectively running a bank."

Ciulla established a permanent risk-assessment apparatus that will benefit Webster Bank long term, including insulating it from the Northeast's economic headwinds, Smith said.

Indeed, Smith said that once Ciulla got his arms around the bank's risk-assessment shortcomings, the outgoing CEO realized Webster had his successor aboard. In 2015, Ciulla was promoted to president of Webster Bank and its holding company parent.

"Our succession-planning process has been a model,'' Smith said of the bank's focus on identifying and grooming leaders from within. "It's been something companies aspire to. We're making this choice at a time of strength for the company.''

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