Fleet Financial Group's 1995 merger with Shawmut National Corp did not just create one of the nation's top banking companies.

It also spawned Bank Rhode Island.

In a weekend, Bank Rhode Island went from a concept to the second- largest start-up in U.S. banking history, with $475 million of assets. Local investors launched the bank after winning the bidding for 13 Shawmut branches Fleet divested to gain approval for the $3.7 billion acquisition.

"It was a pretty extraordinary time," said Merrill W. Sherman, Bank Rhode Island's president and chief executive officer.

Now, as Fleet prepares to merge with another New England heavyweight, BankBoston Corp., much attention is focused on what will become of the $12.5 billion of deposits and 292 branches that must be sold. Would-be acquirers of all sizes-Bank Rhode Island included-are waiting anxiously for an opportunity to bid.

The winners in the Fleet sweepstakes might want to consult Ms. Sherman and Bank Rhode Island chairman Malcolm G. "Kim" Chace for advice.

In three years, Ms. Sherman and Mr. Chace have increased Bank Rhode Island's deposits 20% and its commercial loan portfolio 58%. Today, Bank Rhode Island is the state's second-largest independent bank, with $603 million of assets.

"They have worked hard, and made a lot of inroads in the community," said Daniel P. Meyer, a Hartford, Conn.-based analyst with Keefe Bruyette & Woods Inc. "We like what they have been doing, especially in commercial lending."

When it won the divestitures in October 1995, Bank Rhode Island consisted of Ms. Sherman, Mr. Chace-both unpaid-and one assistant. They raised $43 million for the purchase, hired a staff, and developed an operating platform in just six months.

"We sat there for a day or two saying, 'This is cool!'" explained Ms. Sherman, 50, a Providence attorney who was president and chief executive of Woonsocket, R.I.-based Eastland Bank until Fleet bought it in 1992. "But the amount of work we had to do sunk in pretty quickly."

On Friday, March 22, 1996, a team from Bank Rhode Island went branch to branch, tearing down Shawmut signs and replacing them with their own. They worked all weekend, doing everything from gutting the computer systems to replacing deposit slips. On Monday, March 25, Bank Rhode Island opened for business.

Of course, there were problems. Some ledgers did not balance and some customers did not get their new checks. The organizers also underestimated the number of phone lines the bank would need to field customer calls.

"If I had to do it over again, we would have 20 times more phone lines than we did," Ms. Sherman said. "I would get home at night, and friends would tell me that they tried to call the bank and couldn't get through."

Still, bank officials claim they lost less than 2% of the deposits in the first six months, and the base has steadily increased since then.

Ms. Sherman and Mr. Chace, 64, said they feared that employees inherited from Shawmut would become frustrated during the transition. So the pair made frequent visits to the branches before the deal closed and held receptions so everyone could get to know each other.

"These people had felt like orphans for a long time," said Mr. Chace, who is also chairman of Mossberg Industries, a wire manufacturer, and a director of Berkshire Hathaway Inc. "Most of the branches we were buying had changed hands a couple of times. I think when they found out they were going to have some attention paid to them, they liked the idea."

"If the employees are comfortable, they are going to make the customer feel comfortable," Ms. Sherman added.

The bank let branch managers decide how to distribute roughly 20% of its charitable funds. "That has gone a long way toward making them feel like they are in control, which is important," Mr. Chace said.

On the commercial side, the focus has been mainly on small businesses, a market segment that Ms. Sherman said was underserved before Bank Rhode Island arrived. Fleet, BankBoston and Citizens Bank of Rhode Island dominated the market, and were not focusing on small-business needs.

"From day one, we have had a pretty clearly defined niche," she said. "There is not a lot of competition in what we do."

The bank focuses on lending to companies with fewer than 50 employees- about 90% of the businesses in the state. Bank Rhode Island has intentionally overstaffed its commercial lending division to allow "hand- holding," she said. That sort of attention is something these businesses will not get at larger banks, where the focus is on larger and more lucrative customers, Ms. Sherman said.

"The big banks define small business as anything under $2 million in revenues," she said. "We define it as anything under $250,000."

Now that New England is again abuzz with talk of divestiture, Bank Rhode Island says it is interested in seeing what Fleet will sell. But even if it does not win the bidding, Ms. Sherman insists her company is large enough to compete with whoever does.

"There has been speculation that the whole package will go to a large, out-of-state acquirer," she said. "I think we will be able to compete with them just as we have done against Fleet."

This summer, Bank Rhode Island will move its headquarters to downtown Providence's financial district, taking over the top floor of a renovated, 86-year-old building.

The goal is to increase the bank's visibility as it pursues its goal of building assets to more than $1 billion.

"I said in the beginning that I thought we could grow to $1 billion to $1.5 billion of assets in five to seven years," Ms. Sherman said. "I haven't changed my opinion."

Among community banks, Bank Rhode Island leads in market share in the northern portion of the state while two others split the south: $550 million-asset Bank of Newport in the east and $936 million-asset Washington Trust Co. in the west.

If Bank Rhode Island meets its growth targets, Mr. Chace said he would consider a merger. Industry observers say any pairings among the three would create a stronger Ocean State franchise.

"Our primary job right now is to grow the bank, and see where it takes us," Mr. Chace said. "It has been a lot of fun so far."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.