Despite intense competition in the Connecticut market, Webster Financial Corp. has more than quadrupled in size over the last five years– fueling that growth by closely observing customer needs.

The $9-billion-asset thrift’s expansion, up from $2.1 billion five years ago, has also stemmed from an aggressive acquisition strategy that has benefited, at times, from mergers between Webster’s big regional competitors. It picked up divested branches from Fleet Financial Corp.’s merger with Shawmut National Corp. in 1996, and it is a likely contender to benefit from Fleet’s merger with BankBoston Corp, announced last week.

John Brennan, Webster’s chief financial officer, said last week it was too early to consider assets that the proposed Fleet Boston Corp. will almost certainly have to divest. However, Webster gobbled up 20 branches and $850 million in assets and deposits directly from the Shawmut merger, and wound up with the remaining branches divested in Connecticut when it bought Eagle Financial in 1997.

Although Webster sees the importance in the new fee-income businesses that banks are getting into, its growth largely occurred on the back of thrifts’ traditional mortgage lending business. Fee-based income jumped just over 5% last year to 18.5% of total income–most of which stems from servicing loans–and is expected to climb to 25% in the next three to five years.

"If you think about our overall strategy, we already were a strong residential mortgage lender, a strong home equity lender, a strong deposit taker," Brennan said. "But we’ve been trying to broaden our product line over the last several years and we’ve been getting into other fee income lines, trust and investment management services and insurance."

The bank has two main strategies to gain even more market share. One is understanding the customer as thoroughly as possible with the help of market focus research groups and other marketing tools. The other is having better customer information to retain those customers driving the bank’s profitability, and offer them the best products and services for their needs through direct marketing, Brennan said.

John Menke, the bank’s database manager, said what sets Webster apart is that its database includes a lot of information most bank databases don’t have, such as data on specific transaction behavior of customers–not just what channel was used, but the specific location. And it makes better use of the information. "This information allows us to understand what we can do to effect a change in those behaviors, to increase the value of that product for both the customer and the bank." He said because the information is organized in a single data mart, the bank can view the true value and depth of a relationship.

Additionally, because models are getting better and better, the bank is better able to predict what services the customer will need. This week the bank is getting software delivered that will predict the most likely product a customer will purchase. "It’s just guidance, but in many instances, that’s all that is needed to get the customer to sign up for the additional service," Menke said.

Looking carefully at customer needs has kept Webster’s traditional banking business competitive, but Brennan said the bank–which anticipates keeping its flexible thrift charter–is looking into new areas to increase fee income and provide customers with a broader range of products.

One such effort was its purchase in June 1998 of Damman Insurance, which has clients all over the country. The insurance company is stationed under the holding company, whereas the bank’s other business lines are under the banking subsidiary.

He said the company’s purchase earlier this year of Access National Mortgage, an Internet mortgage company with $350 million in origination volume in 1998, fits into the strategy by increasing fee income. "And that’s one of the big differences as we evolve into a financial services provider; products that generate fee income rather than spread income," Brennan said. Access originates loans in 47 states.

The bank’s 105 branches across Connecticut have what Brennan calls "pretty strong" market share, ranking third in deposits in the state. It ranks either first or second in the Hartford, New Haven and Litchfield County markets, with at least 30% of the households in those areas banking with Webster.

The bank also originates loans in surrounding states, but it is not in a hurry to cross borders, Brennan said. "We would probably consider branching into other states if we could make it work economically. One of the problems with branching today is always somebody in that state that has greater cost savings because they’re there."

Brennan said part of the bank’s ongoing facelift involves diversifying the products and asset mixes. Currently, the bank has about 75% of its loans in residential mortgages. The goal over the next three-to-five years is to lower that number to 55%, while increasing the percentage of consumer and business loans to 25% from about 12% now. On the deposit side, the story is similar: management wants to boost checking accounts to 22%-23% from 19% now, while deflating CDs to 50% from the current 55% of deposits. The remainder, savings accounts and money market deposit accounts, is slated to drop to around 28%.

Striving for fewer and lower-cost deposits fits into Webster’s overall modernization strategy: "By increasing our commercial/industrial lending, small business lending and consumer lending–instead of residential mortgages–we will be selling more of those loans and retaining servicing, (thus giving) customer value," Brennan said.