Branching Out

by Tom Gresham

A small, 136-year-old bank from a little Vermont town is well on the way to its goal to build five branches in Chittenden County within a 30-month period

Northfield Savings Bank, established in 1867, meets the federal qualification of "well-capitalized" by a two-to-one margin, says Thomas Pelletier, its president and CEO. That secure position allowed the institution to act aggressively when it decided to expand.

When Thomas Pelletier started work as president and CEO of Northfield Savings Bank, he lived in a motel in Bristol while he searched for a home for his family.

Pelletier wanted to exercise in the mornings, so he joined a nearby gym soon after arriving. During one of his 6 a.m. workouts, Pelletier struck up a conversation with a young man manning the check-in desk.

The man asked Pelletier what he did for a living, and Pelletier told him he was the new president at Northfield.

"Man, I wouldn't want that job. That's a lot of pressure," the man said. "You don't want to screw that bank up, because everybody here would be mad at you. It's a real community asset."

Pelletier tells the story for a laugh, but also to illustrate a point. Northfield Savings Bank, which was founded in 1867, boasts very deep roots in central Vermont, where it has been based its entire lifetime. It has managed to avoid the intimidating air some banks carry, instead offering the welcoming vibe of a neighbor. Many of the bank's longtime customers claim a sense of ownership in Northfield, which makes sense. Northfield is a mutual bank owned not by stockholders, but by its depositors.

Those deep roots, however, made Northfield's decision last year to expand beyond the borders of central Vermont into Chittenden County more than a mere business move. It marked a sharp departure from the previous 136 years of operation.

Pelletier, a strong advocate for the move, says the expansion simply made sense.

"We faced the classic business challenge of needing to find additional asset growth and revenue growth," Pelletier says, "and the room for growth in central Vermont was pretty limited."

Northfield studied its options thoroughly and, not surprisingly, decided Chittenden County, the most populous county in the state, was the suitable target for expansion. Not only did it offer the most opportunities for growth, but the move would also not extend the bank beyond its reach. Northfield already had a branch as far west as Waterbury and, after all, says Pelletier, "There's not exactly a gulf between central Vermont and Chittenden County."

Northfield's management decided to enter the Chittenden Couny market with a splash. The bank targeted five heavily traveled locations Essex Junction, Shelburne Road in South Burlington, downtown Burlington, Taft Corners in Williston and the stretch of Williston Road that runs from Burlington to Williston and pushed to build a branch at each within a 30-month period.

Northfield has completed sites and is in operation in Essex Junction, South Burlington and Williston. Pelletier believes locations will be constructed on Williston Road and in downtown Burlington within the next year and a half.

Pelletier expects the bank's expansion into Chittenden County to help Northfield better serve many of its central Vermont customers, especially since the county serves as the working home for droves of Washington County residents. Kathy LaCross is manager of the Williston branch; Roger Pinan is a mortgage originator.

Pelletier says the conventional approach would have been to build a single branch in Chittenden County, allow its client base to grow for a couple of years, and then to build another branch. However, years of conservative management at Northfield had put the bank in the financial position to act aggressively. Northfield meets the federal qualification of "well-capitalized" by a two-to-one margin, according to Pelletier.

"We decided that building faster would give us a more meaningful presence right away," Pelletier says. "The initial expense would obviously be higher, the costs would be more up front, but the payback for us would also come much quicker."

Pelletier says Northfield, the sixth largest bank in Vermont, did not enter Chittenden County with concerns about the host of banks already entrenched in the market.

"We've competed successfully against several of these banks in central Vermont, so we know that we can do it here, too," Pelletier says. "You are not going to see a lot of differences between the checking accounts and home equity lines at the different banks. What does make a difference is the quality of the people. And I'll put our people up against anybody's."

Pelletier now spends between 11/2 and two days working in Chittenden County. He says nearly all of the bank's senior managers spend at least a portion of their time in the bank's new market.

Nothing, however, has changed for the bank's Washington County customers, he says. The bank's headquarters remain in Northfield, and they will stay there.

"We're still a community bank and central Vermont is still a priority," Pelletier says. "That was a steadfast requirement the board of directors made for the expansion from the beginning. We wanted to be sure we didn't allow this to become Washington versus Chittenden, central Vermont versus northwest Vermont, old versus new. We wanted to keep our operations identical no matter the location."

Rather, says Pelletier, the expansion into Chittenden County should help Northfield better serve many of its central Vermont customers. Chittenden County, which is often referred to as the economic engine of Vermont, serves as the working home for droves of Washington County residents. On the flip side, a number of Chittenden County residents commute to jobs in Washington County.

"In our view, there's a great deal of traffic that lives in one county and works in the other," Pelletier says. "Washington and Chittenden counties have pretty much evolved into a single market."

Northfield was determined to introduce itself to its new communities with something other than free toasters, according to Pat Sears, Northfield's director of marketing.

They wanted to create promotions that reflected the bank's high level of community involvement.

For instance, in Williston, new customers received a walking map of Williston and a pedometer. Customers were encouraged to walk while wearing the pedometer for a couple of weeks. Based on the number of miles each new customer walked, Northfield ultimately contributed approximately $3,000 to Williston-area charities.

Corporate philanthropy is central to the Northfield way. The bank has a formal policy, adopted in 2003, to devote a minimum of 10 percent of profits to charitable endeavors.

Pelletier says Northfield's mutual status prompts the large charitable giving. Because the bank does not pay a dividend to stockholders, it can pay "a community dividend," Pelletier says.

Pelletier says the bank had been quietly sending a large percentage of profits to charity for years as an informal practice. He says he has pushed the bank to publicize the effort more in recent years.

"The bank has never made a lot of noise about its philanthropy before," Pelletier says, "But the reality is that in the business world you do need to attract attention to yourself, and, in a tasteful way, tell people that you're special. And not many in the business world give 10 percent back."

One way Northfield has been involved in community-building is through its investments with Housing Vermont, an organization that helps develop affordable housing. Kenn Sassorossi, vice president of program development for Housing Vermont, says Northfield has invested over $3 million in its projects. The scale of Northfield's investment, which brings it a 10-year stream of federal income tax credits, is unusually high for a bank of its size.

Northfield was determined to introduce itself to its new communities with something other than free toasters. It has chosen a nonprofit to help in each place. Suzanne Grenier works in commercial business development; Bruce Bernier is a commercial loan officer.

"They've really stepped up to participate in this," says Sassorossi. "Without their help, some of these projects wouldn't be getting done."

Because of the expenses associated with the Chittenden County move, Northfield's profits are bound to be lower this year. However, to guard against the move's adversely affecting the many charities that benefit from Northfield's largesse, the bank's board decided to continue to give at least $350,000 to charity this year the same total doled out last year.

Sears says Pelletier has been a driving force behind Northfield's aggressive expansion. Pelletier arrived at Northfield in 1998. He previously served as the chief operating officer of Atlantic Bancorp, a regional bank located in Portland, Maine. He also worked at Fleet Bank for 15 years, ultimately climbing to the title of executive vice president.

Pelletier, who attended the University of Maine, was attracted to the position at Northfield because it would allow him to remain in the region of the country he calls home and because he could lead a bank in an attractive situation.

"I had a desire to remain in northern New England," says Pelletier. "This is a wonderful environment and, obviously, it's an easy transition from Maine to Vermont. Most of all, though, I saw Northfield as a great bank with a proud history and a promising future. All the dynamics were favorable to the move."

Pelletier says he revels in the personal contact that serving as president/CEO of Northfield not only allows, but requires.

"At Northfield, I can know all of the employees on a first-name basis," he says. "I have met 95 percent of our commercial customers, and I've seen at least half of them in their place of business. The personal contact and the relationships you are able to develop are a great part of working at a bank like Northfield."

Pelletier says he and his wife, Heidi, and sons, James and Sam, have thrived in their adopted home of Montpelier, enjoying the vibrant local arts scene in central Vermont and the endless outdoors opportunities. The Pelletiers are particularly avid skiers. James, a Bates College student, graduated from the Carrabassett Valley Ski Academy in Maine, and Sam is now a student there.

Pelletier serves on several boards in the central Vermont area and is president of the Green Mountain United Way and vice president of the Central Vermont Economic Development Corp.

"From the board of directors' perspective, being heavily involved is an important part of the CEO's job," Pelletier says. "It reflects well on the bank and it allows me to be out in the community. And being out in the community is exactly what people expect from us."

Originally published in September 2004 Business People-Vermont