By bits and pieces, often collecting marked-down goods, Household Bank F.S.B. quietly has built one of Maryland's largest thrifts -- and an evolving model for the financial services supermarket of the future.
Its latest deal, the purchase of $220 million in deposits from Pikesville-based Custom Savings Bank, was finalized yesterday. It brings the California-based Household Bank to more than $1.2 billion in deposits in 24 Maryland branches, the third-biggest franchise among state savings and loans, behind Chevy Chase Savings Bank and Loyola Federal Savings Bank.
As Household Bank has grown -- in Maryland and across the nation -- it has become one of the most progressive savings institutions in the nation, borrowing marketing and product ideas from the other subsidiaries of its parent, the financial services conglomerate Household International Inc. in Prospect Heights, Ill.
Household Bank inherited a strong merchandising culture from its parent. "We primarily look at ourselves as retailers and secondarily as bankers," says John G. Moran, a former Loyola College professor and administrator who heads Household's Eastern Division.
Aside from Household Bank, the parent company operates Household Finance Corp., the nation's oldest and largest consumer finance company. It also owns credit-card, mortgage, life insurance, business lending and stock brokerage subsidiaries in the United States, Canada, the United Kingdom and Australia.
Many banks have established nonbank subsidiaries in recent years to regain business they have been losing to competitors. For example, NationsBank Corp. recently established a joint venture with brokerage firm Dean Witter Reynolds; Provident Bank last week created a consumer finance subsidiary.
But Household Bank's roots go deeper in that regard: It was created to complement its nonbank corporate sisters, and bears little physical appearance to pinstriped competitors in banking.
Household Bank's newest branches, for example, were designed an architect who specializes in department stores and other retail outlets, Mr. Moran says. And Household Bank's hours -- 10 to 7 Mondays through Fridays, 9 to 3 on Saturdays -- are longer than those of most other banks.
The familiar retail ambience "gives the customer that sort of warm feeling and the willingness and ability to buy all in one place," Mr. Moran says.
Like any good retailer, the company's consumer emphasis includes cross-marketing. Household International sells its Alexander Hamilton insurance products through Household Bank branches. And the bank has been direct marketing home equity and checking account products to customers of the credit card subsidiary, whether or not they live near a branch office.
The bank, meanwhile, processes customer checks for Household Finance, and uses Household Finance's computer system to process consumer loan applications. Some bank branches also feature products sold by Hamilton Investments, the full-service brokerage that has independent offices in the Midwest.
That vision of customer service attracted Mr. Moran to Household Bank. He marvels at the company's emphasis on training and "horizon-broadening," even for top executives.
Mr. Moran, 47, left Loyola to join Baltimore Federal Financial F.S.A. in 1979 and moved to Household Bank seven years later, becoming eastern region president in 1987. Today, he heads a region that accounts for almost a third of the savings bank's total business and includes Baltimore and Northern Virginia.
Despite the cross-selling, the unbanklike hours and the modern look of its branches, at the core of Household Bank beats the heart of an old-fashioned savings and loan: a heavy emphasis on residential mortgages, few business loans and only a modest level of profitability.
Household Bank, which has $8.5 billion in assets in seven states, was born 36 years ago in Newport Beach, Calif., as Keystone Savings and Loan. Household International acquired Keystone in the name was changed to Household Bank in 1981, and three years later it started an expansion drive fueled largely by acquiring failed savings and loans from the government.
It moved into Maryland in the mid-1980s by buying Baltimore's Fidelity Federal Savings and Loan, which was under government control. Its big splash came with two large government-assisted deals in 1990: $830 million in deposits from the failed Baltimore Federal, and $278 million from Yorkridge-Calvert.
But government deals are not the only kind Household Bank likes. It acquired two healthy thrifts in the Baltimore area -- Sharon Savings Bank F.S.B. in 1989, and tiny Municipal Savings Bank F.S.B. in 1990. Those deals amounted to about $270 million deposits.
And Custom is far from damaged goods. It has consistently scored the highest safety ranking, and it earned a 1.13 percent return on its assets in the fourth quarter of last year, according to Veribanc Inc., a financial research firm in Wakefield, Mass. The average bank return on assets is 1.0 percent, and savings and loans tend to earn about 0.7 percent.
"Custom has performed well, but it's become increasingly more difficult to deliver the wide range of services that our competitors can," President Michael Renbaum said last week. "We've realized that the future of the financial industry is going to require a large range of services that's going to require a much higher operating threshold."
That's exactly what Household Bank has in mind, says Mr. Moran. Its eastern region alone includes 39 branches and $1.7 billion in deposits. The entire company earned $65.9 million last year, a solid but unremarkable 0.74 percent return on assets.
Household Bank has beefed up the reserves it set aside to cover possible loan losses. And that reflects the company's new emphasis on building its higher-yielding but riskier credit-card portfolio. Much of that new business was picked up last fall when Household Bank and General Motors Corp. launched the GM credit-card/automobile rebate program.
Like most thrifts, interest-bearing products are where most of Household Bank's money comes from. Of the nearly $900 million in revenues last year, only $122.7 million was noninterest income, and most of that was in residential mortgages. That's up substantially from prior years, but still represents only 13.7 percent of total income. In Maryland, Household Bank made $4 million in business loans, less than 0.5 percent of all loans in 1992.
But with the growing credit-card and mortgage servicing businesses, Household Bank not only is boosting noninterest income, but also is realizing some operating savings, says Gregg Novek of the New York research firm Thomson BankWatch Inc. "They can take advantage of the economies of scale of a large operation to produce efficiencies."
Household Bank may be growing, but it won't include the three Custom branches in the Pikesville area. The purchase only covers Custom's deposits, not its branches.
Custom won't be the last deal in this area for Household Bank; it continues to look for acquisitions in the Baltimore-Washington region.
And don't be misled by the Custom purchase, Mr. Moran says. The company is happy to dig for bargains in the Resolution Trust Corp.'s grab bag of failed thrifts. "Obviously the federal government has found some money now," he says, referring to the "extra" $3 billion the RTC found in its balance sheet this spring.
HOUSEHOLD BANK F.S.B. IN MARYLAND
Deposits: $1.2 billion
Recent Maryland purchases and acquired deposits:
Sharon Savings Bank, $223 million (1989)
Baltimore Federal Financial, $830 million (1990)
Yorkridge-Calvert, $278 million (1990)
Municipal Savings Bank, $51 million (1990)
Custom Savings Bank, $220 million (1993)