Interview with: John C. Roman, President and CEO - featuring: their 9 banking offices in the Naugatuck River Valley in Southwestern Connecticut between Waterbury and Bridgeport, serving the financial needs of consumers and businesses within its market area.

Naugatuck Valley Financial Corp. (NVSL-NASDAQ)

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Originally Established In 1922, Since Its Reorganization Into A Mutual Holding Company Structure In 2004, Naugatuck Valley Financial Has Grown To $461 Million In Assets

Savings & Loans

Naugatuck Valley Financial Corp.

333 Church Street
Naugatuck, CT 06770
Phone: 203-702-5000

John C. Roman
President and CEO

Interview conducted by:
Lynn Fosse, Senior Editor
Published - February 22, 2008

John C. Roman, President and CEO of Naugatuck Valley Financial Corporation, joined Naugatuck Valley Savings and Loan in 1998 as Senior Vice President and Chief Lending Officer. He was elected President and CEO of Naugatuck Valley Savings and Loan in September 1999 and has been President and CEO of Naugatuck Valley Financial Corporation since it was established in September 2004. Prior to NVSL Mr. Roman was employed in various lending capacities by Eagle Bank, MidConn Bank, Dime Savings Bank of Wallingford and American National Bank. He is a 1990 graduate of the National School of Banking and earned his MBA degree from the University of Connecticut in 1982. He earned his undergraduate degree in Economics cum laude from Central Connecticut State University in 1975.

Company Profile:
Naugatuck Valley Financial Corporation was established in 2004 as the holding company for Naugatuck Valley Savings and Loan a federally chartered savings and loan established in 1922. Naugatuck Valley Savings and Loan (“NVSL”) operates 9 banking offices in the Naugatuck River Valley in Southwestern Connecticut between Waterbury and Bridgeport. The Bank is a community oriented financial institution dedicated to serving the financial needs of consumers and businesses within its market area. 

Naugatuck Valley financial Corporation pursues a strategy that is focused on long-term growth by providing superior customer service and the profitable delivery of products our customers want. The successful pursuit of this strategy involves growth of deposits and loans, increases in non-interest income, maintenance of credit quality, branch improvement and expansion of our market area.

Mr. Roman:, Naugatuck Valley Financial has been around for a long time; how has the company changed under your leadership?
Mr. Roman:
“I became CEO almost 10 years ago in 1999. At the time, I joined the bank we were a mutual savings and loan operating three branches. We had assets at that time of about $150 million. Between 2000 and 2004, we started a branch expansion strategy and we opened branches in Shelton Connecticut in 2001, Derby in 2003, and Seymour in 2004. In 2004, we reorganized Naugatuck Valley Savings and Loan, which was originally established in 1922 as a mutual savings and loan association into a stock bank with a mutual holding company structure then we formed Naugatuck Valley Financial Corporation as the mid-tier holding company. In 2006, we opened de novo branches in Southbury, Waterbury and Cheshire, Connecticut. We have grown now to $461 million in assets as of the end of 2007, and have become a more formidable competitor in our marketplace.” 

CEOCFO: Will you describe the economy in the area you serve?
Mr. Roman: “We are in a comparatively stable market. The Naugatuck River Valley is comprised of old mill towns that have transitioned to become commuter towns. Naugatuck, which is our hometown, is an old mill town just south of Waterbury. US Rubber was a primary employer for a long time until the mid-1980’s, since then Naugatuck has become a commuter town for Waterbury, Bridgeport and Hartford and New York. The southern part of our market area lies on the boarder of Fairfield and New Haven County primarily with our Shelton Branch which is an area, which is growing, compared to the rest of the state and compared to the economy in general, faster than average. The town of Oxford is the fastest growing town in Connecticut. That is primarily the result of migration of residents from lower Fairfield County and New York City, lower housing cost and better quality of life being the attraction there. Our market area never saw rapid up-tic in house prices; we are still in an affordable area, so we don’t see even with the economic downturn and drastic reductions in house values. We have always been a conservative lender, so we I think we will weather the storm. On the residential side the area is stable.” 

CEOCFO: Why are customers coming to you?
Mr. Roman: “There has been some in-migration so we see new customers that way. It is the same old story; we are competing with primarily larger banks. We offer more personalized service. Our employees have been with us for a long time. People come into our offices and get to talk to somebody that is either making the decision or very close to the decision maker. We make quick decisions, and we can be flexible because of our size. We are also seeing along with the in-migration, more service businesses popping up to serve the increased population.” 

CEOCFO: How much of your business is in the commercial area and is that a growing area?
Mr. Roman: “We have been growing our commercial loan portfolio over the past few years to the point where we expect by the end of 2008 that our commercial loans will be about 45% of our total loans. The other 55% being primarily residential mortgages with some consumer lending in that mix also.” 

CEOCFO: Are you able to get your commercial customers to use your personal services as well?
Mr. Roman: “Yes we are. We encourage that. Our primary way of attracting commercial deposits is through commercial loans. We do get small business owners to use our retail services. We have nine offices in a compact market area and always have a branch that is convenient. We have been successful at bringing in personal accounts.” 

CEOCFO: Do you do much advertising?
Mr. Roman: “We got an advertising budget of about $400,000 a year. We do primarily print ad, some billboards. Our advertising primarily has been some image ads but primarily rte ads for loans and deposits.” 

CEOCFO: Speaking of rates, how are you weathering the current situation?
Mr. Roman: “We are weathering it very well; we are slightly liability sensitive so as rates fall, our net interest income will improve. We went through a couple of years with a flat yield curve, which made earnings difficult. At the same time, we opened up three new branches in 2006, which were a drag on earnings as we went through 2007. However, we actually ended up 2007 with earnings on an even keel to what they were in 2006. We are looking for a more favorable yield curve for us going forward. The interest rate environment I would actually say is positive for us now.”

CEOCFO: You had a growth strategy of expense control and increasing non-interest income; how is that working?
Mr. Roman: “Very well. Growth in 2007 resulted in an increase in net interest income from $11.4 million in 2006 to $11.9 million in 2007 in spite of declining margins. Non interest income went from $1.9 million in 2006 to $2.4 million in 2007. The expense side has been challenging due primarily to the costs of our branch expansion. Non interest expense increased to $12.4 million in 2007 versus $11.5 million in 2006. The result was a bottom line of $1.42 million in 2007 as compared to $1.45 million in 2006. The positive results of our strategies are seen more clearly if you look at Q4 2007 versus Q4 2006. We earned $479,000 in Q4 2007 as compared to $150,000 in Q4 2006 due to increased net interest income, increased non interest income combined with only a minor increase in expenses.” 

CEOCFO: Are there products or services that you would like to add?
Mr. Roman: “The biggest piece that we are adding is on the internet banking side. We have had internet banking on the retail and small business side since 2002. One of our initiatives for 2008 is to enhance our internet banking product adding the ability to open deposit accounts on line and also to apply for loans online. We are just starting now with a few customers on our remote capture product and we believe that is going to be an important product going forward. We have been expanding and increasing our income from our investment advisory services also that we run in conjunction with Infinex.” 

CEOCFO: Is that a reflection of the ageing population?
Mr. Roman: “There are a lot of little things that work for us in our business, the increase in the investment advisory services is as least partially related to the fact that we have had the same advisor onboard for about four years now. We opened up our books to him a bit more than we had in the past. When we think we are losing a CD deposit to an investment house we make sure that we run a referral over to him. The demographics of our market area really have not changed drastically. We are seeing our savings account customers get older over time and as new people move into our area we are getting the younger first-time homebuyers.” 

CEOCFO: Is there much competition with other local banks?
Mr. Roman: “Yes, we do compete with a very competitive area. TD Bank North has come into our area through acquisitions, so they are an aggressive competitor. Webster Bank has always been a strong competitor of ours, operating in our market. Peoples of Bridgeport, with their new stock issuance have a lot of capital that they are looking to utilize. Naugatuck Savings Bank, a mutual thrift that is headquartered right down the street from us has been a bank we have been competing with for many years. We are positioned geographically in the middle of those. Our strategy is to offer better services and to acquire market share.” 

CEOCFO: Please give us an example of service that would be outside of the norm.
Mr. Roman: "Especially with our commercial lenders; we really take the loan requests from the first contact all the way through closing ad servicing. Our commercial loan officers will make the initial contact, go out make the visit, do the write-up, do the negotiation, take the loan through the loan committee system, and be very involved in the closing on the loan and the servicing of the loan. That is different from other places where the customer might tend to get passed off from person to person or department to department. We make sure that the customer sees the same face and we have the same person following through with them. It has been successful for us because we see a lot of second and third requests from the same borrowers.” 

CEOCFO: Why should investors pick Naugatuck Valley out of the crowd?
Mr. Roman: “Our contacts with investors started in 2004 when we converted to the mutual holding company structure and if you look back since 2004 you can look at how we have acted as an MHC. Some MHCs have acquired the capital and haven’t done much with it. However, we have grown between 10% and 20% a year since 2004 and we understand what it means to be an MHC and what we need to do to be successful as an MHC; grow loans, deposits, increase non-interest income, and work on expense control at the same time. We have been branching out so we are improving our delivery systems for our customers and increasing our number and penetration with customers. We have also been in the buyback market and we have been paying a consistent dividend since early on in our life as an MHC. We understand what we need to do and our focus is to grow organically. If we could find an acquisition that makes sense to us, we always have our eyes open, but at this point due to our size and due to what some of the banks looking to be acquired might be asking for, we haven’t seen one that made sense. Our strategy and what the investors should be interested in is the fact that we have been growing. Our plan is to continue to utilize the capital that we raised. We understand that we have the option to go a second step, but we have no plans or timetable for that right now. However, looking at the future, when the time comes either through organic growth when our capital ratio gets to the point where it gets a bit tighter or if we see a transaction by way of acquisition that makes sense, we have the ability to look to the option of a second step.”

CEOCFO: You are well prepared for the future!
Mr. Roman: “I believe we are. We know how to grow; we need to continue to grow. We invest where we need to in technology, and that is a big piece for us. We take very seriously regulatory issues and compliance issues. We invested quite a bit last year in making sure that we got the process down to be fully compliant with Sarbanes-Oxley requirements through the end of 2007, and then into 2008. We actually have a full testing processing place for our Sarbanes-Oxley process. At the end of 2007 my CFO and I will not only be able to sign off saying that ther4e are controls in place that are sure that our financials are in place, but also be able to show documentation that we have done that. We have been a smaller filer, we have acted as if that at the end of 2008 we are going to need our external auditors to step in and attest to the fact that we have the proper controls in place. On the Sarbanes-Oxley side that is again in question for the end of 2008 at this point, but if it doesn’t get changed we are prepared in that area.”


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“In 2004, we reorganized Naugatuck Valley Savings and Loan, which was originally established in 1922 as a mutual savings and loan association into a stock bank with a mutual holding company structure then we formed Naugatuck Valley Financial Corporation as the mid-tier holding company. In 2006, we opened de novo branches in Southbury, Waterbury and Cheshire, Connecticut. We have grown now to $461 million in assets as of the end of 2007, and have become a more formidable competitor in our marketplace.” - John C. Roman does not purchase or make
recommendation on stocks based on the interviews published.