After grabbing a major share of deposits in Rhode Island and New Hampshire, Providence-based Citizens Financial Group Inc. is looking to Massachusetts and Connecticut.

"We plan to grow further," Lawrence K. Fish, chairman and chief executive, said in a recent interview. "We don't plan to be the biggest in every state, but we do plan to be the biggest where we are."

Since joining Citizens late in 1992, Mr. Fish has transformed it company from a local thrift company with about $4 billion of assets to a $15 billion-asset regional powerhouse. And he has every reason to keep up the momentum.

During the past several years, almost every midsize bank in New England has disappeared, swallowed up by either Fleet Financial Group Inc. or Bank of Boston Corp. As smaller banks continue to disappear, the lean, 52-year- old banker is very much in a race against time to build a franchise that can hold its own against those two banking giants and a host of nonbank competitors.

"Consolidation and rationalization of the banking industry in New England is further along than in any other region of the country except for California," he said.

During the next two to three years, the banking company jointly owned by Royal Bank of Scotland and Bank of Ireland will grow to about $20 billion of assets, Mr. Fish said. Part of the increase will come through acquisitions of community-based banks that will help Citizens extend its geographic reach. The rest will come from what he called "organic," or internal, growth.

"Massachusetts accounts for around 50% of the New England economy," he explained. "If you want to compete in New England, you have to compete in eastern Massachusetts."

Eastern Connecticut, he added, is very much an extension of Citizens' home market in Rhode Island.

"We'll never be in Fairfield County," he said of the southwestern Connecticut home of many New York City commuters. "But there are whole parts of Connecticut, such as Hartford east, that are economically integrated with Rhode Island."

According to Gerard Cassidy, a banking analyst at Tucker Anthony Inc., Citizens needed "to get to a size where economies of scale are available to deliver a low-cost product with a community front to it."

Citizens certainly is achieving a measure of heft.

Sheshunoff Information Services Inc. ranked the company last month as the largest bank in New Hampshire, with an 18.6% deposit share; second- largest in Rhode Island, with more than 33%; and fifth-biggest in Massachusetts, with 3.9%. Citizens was also ranked ninth in Connecticut, with 2% of bank deposits.

Although it doesn't rank among the top three in Massachusetts or Connecticut, Citizens likes to point out that its market share is greater in areas within those states where it has chosen to concentrate, like eastern Massachusetts and Connecticut's New London and Middlesex counties.

Having completed 10 acquisitions in the four years since he joined the bank, Mr. Fish is unlikely to halt his shopping spree, most observers say.

Mr. Fish cited several motivations for the push to become a top-ranking player in New England: lower operating costs, better pricing, better returns on advertising, and a higher profile in local communities.

Equally important: Citizens needs a wide and strong network to compete not only with Fleet and Bank of Boston but also with a raft of nonbanks that also supply financial services.

"We think of competition in the broadest possible sense," Mr. Fish emphasized. "We don't spend a lot of time on our banking competition, but we do spend a lot of time on the competition from other financial service companies." For example, insurance companies, brokerage houses, and other institutions have been steadily cutting into banks' traditional deposit taking and lending businesses, he said.

Bank of Ireland's decision late last year to turn over First NH Bank, its Manchester, N.H., subsidiary, to Citizens in exchange for a 23.5% stake in the Providence company strongly boosted Citizens' expansion. Although some analysts said Bank of Ireland was looking for a graceful way out of an expensive U.S. investment, Mr. Fish said Bank of Ireland is determined to retain a foothold in the United States.

That deal gave Citizens $4 billion of assets and greatly enhanced its presence in New Hampshire and Boston. The November closing of its deal for $540 million-asset Farmers and Mechanics Bank in Middletown, Conn., boosted Citizens' assets to more than $15 billion. The same month, the bank announced an agreement to acquire $770 million-asset Grove Bank, which has branches in Boston's Newton and Brookline neighborhoods.

Behind the fast growth lies a fairly precise recipe for building what Mr. Fish calls a "super community bank."

The rules are as follows: Never buy a bank based more than 100 miles away; keep job cuts and changes to a minimum; forget about derivatives, trading desks, PC banking, capital markets, and out-of-region lending; stick to basic banking; and strike strategic alliances with groups like fund managers for the extra services you want to offer.

"It's sort of like the Home Depot strategy versus the local hardware store," said Mr. Cassidy, the analyst. The local hardware store "may not have the selection, but they give better service, and they're open longer."

The challenge, he added, is that to "deliver that kind of service becomes costly when they have to be more price-sensitive."

Only time will tell whether Mr. Fish's gamble will succeed, Mr. Cassidy said.

Mr. Fish acknowledged the inherent conflict in his strategy but insisted that Citizens does not intend to pursue a slash-and-burn policy just to get costs down.

"We don't annihilate the cost structure from one day to the next," Mr. Fish said. "We're much less surgical, we take a longer-term view, and we focus on growing revenues."

One big exception was the bank's $8.8 billion, third-party mortgage servicing portfolio. Citizens sold $5 billion of it last month to Dovenmuehle Mortgage and is looking to unload the rest. Executives said the main reason was insufficient volume in what they termed a labor-intensive, low-fee business.

Having a parent with deep pockets has certainly helped Citizens take the long-term view. Like several British and Irish banks that have made similar moves, Royal Bank of Scotland acquired Citizens in 1988 as part of a plan to diversify out of its home market and reduce the risk of any downturn in the British economy. Since then, the Edinburgh-based company has pumped in around $500 million of extra capital to support Citizens' expansion.

Unlike those of several other British banks, which lost hundreds of millions of dollars in the United States, the investment has survived and prospered.

"Every other U.K. bank except Royal has lost money in the U.S., and most have fled," Mr. Fish observed. "We never lost a penny."

Citizens has also far exceeded Royal's hopes that its U.S. unit would contribute around 10% of total profits. At Sept. 30 - the end of its fiscal year - Citizens reported a 61% rise in annual net income, to $128.2 million, or more than 30% of Royal's consolidated net income.

Analysts noted that the Scottish banking company is one of only three European institutions, with Allied Irish Banks PLC and Holland's ABN Amro, that have succeeded in establishing a profitable retail banking presence in the United States.

"They've done well and have no problems with return on equity," remarked Matthew Czepliewicz, a banking analyst at Salomon Brothers Inc. in London.

Although Royal is unlikely to sell its U.S. unit, Mr. Fish emphasized that there is nothing to stop the European parents from changing their minds.

"As long as we continue to produce returns and growth, we will continue to enjoy the benefits of the existing relationships," Mr. Fish said.

Sometimes, even Mr. Fish himself appears surprised at the fast growth. "If anyone had said to me four years ago that we would soon quadruple in size and become the third-biggest bank in New England, I wouldn't have believed him," he said.

Citizens' rapid growth also seems to have satisfied Mr. Fish's personal ambition after 18 years at Bank of Boston and short-term mandates to convert Beverly Hills-based Columbia Savings and Loan Association into a bank and to turn around the former Bank of New England.

"I've had four jobs in banking in my lifetime," he said as he looked out a window at downtown Providence's brick and granite buildings. "This one's been the best."

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