The Bank of Southeastern Connecticut, a planned de novo bank whose headquarters were to be located at 15 Masonic St. in New London (above), will now operate as a division of New Haven-based The Bank of Southern Connecticut.

After years of planning, Southern Connecticut Bancorp last month withdrew its application to open a new bank in New London, but company executives say their plans for expansion from New Haven to the Rhode Island border are still on track.

The company, which operates The Bank of Southern Connecticut in New Haven, planned to open a de novo bank, The Bank of Southeastern Connecticut, in New London. It will still open a branch under a division called the Bank of Southeastern Connecticut, but the bank will be a part of The Bank of Southern Connecticut.

In August of last year, Southern Connecticut Bancorp received formal regulatory approval from the Federal Deposit Insurance Corp. to open the new bank. The state Department of Banking also gave preliminary approval, but the company still needed approval from the Federal Reserve Board of Governors. Since August, the company “has committed substantial resources to obtain the final regulatory approvals,” according to a release from Southern Connecticut Bancorp, but after discussions with the regulators, the Bancorp withdrew its application to the Federal Reserve.

“What became obvious was that the cost associated with this business model did not make sense for our shareholders,” said Michael Ciaburri, president and chief operating officer of the Bancorp.

Much of the cost savings will be due to reduced regulatory oversight. The increased regulatory burden that has been in place since the 9/11 terrorist attacks has made opening and operating small- to medium-sized institutions very difficult, Ciaburri said.

“Banks in general have had to deal with an onerous regulatory burden,” he said. “For a company our size, the business model became cost-prohibitive.”

The Bancorp estimates it could save from $100,000 to $200,000 per year from the reduction in regulatory oversight. Overall, the Bancorp expects to save from $300,000 to $400,000 a year.

“Opening a separately chartered institution in New London has been a challenging process,” said Joseph V. Ciaburri, chairman and chief executive officer of Southern Connecticut Bancorp, in a prepared statement. “Our business plan called for a separate charter in New London, but the current regulatory environment impairs the ability of a small bank holding company to operate multiple charters. The regulatory burden simply makes it too expensive to operate multiple, independently chartered banks.”

‘Ample Signals’

Banking analyst John Carusone expressed surprise that the bank got so far into the approvals process.

“It’s unusual to get that far into the process without being given ample signals that there is concern about getting approval,” said Carusone, president of the Hartford-based Bank Analysis Center.

The strategy for the bank was well conceived, the management team is experienced, there was plenty of capital and the locale of the New London and Norwich area is ideally suited for a new bank, Carusone said.

“I can only conclude that the Fed, out of an abundance of caution, suggested a slower growth trajectory,” Carusone said.

At the end of the day, banks have to listen to their primary regulator, he added, so pulling the application was probably the right thing to do.

But the new division of Southern Connecticut Bancorp will still be able to branch out and achieve most of its objectives in the area, Carusone said. There is also the possibility that bank organizers could apply again at a later time.

The fact that The Bank of Southeastern Connecticut will not be independently chartered in New London will create more of a marketing challenge for Southern Connecticut Bancorp, Carusone said. Other banks located in the area will likely take the opportunity to point out that the bank’s headquarters are located in New Haven, not New London. Competitors will try to differentiate themselves and say, “We’re not the carpetbagger bank,” Carusone said.

But executives of the bank are experienced and will probably come up with a creative marketing strategy, he noted.

“Initially, it’s going to be a bit more difficult for them,” Carusone said.

Still, The Bank of Southeastern Connecticut will be the only small commercial bank that will be operating in New London County, according to a release from the bank. It will focus on providing service to small and medium-sized businesses and individuals.

“Our objective in New London was and is to provide quality banking services to the local business community,” Joseph Ciaburri said in a prepared statement. “While management sees value in operating an independent entity for New London, we believe the company will be equally well positioned to serve New London and the surrounding communities as a division of The Bank of Southern Connecticut. Southern Connecticut Bancorp continues to pursue its objective of establishing the premier commercial banking franchise along the Connecticut Shoreline from New Haven to Rhode Island.”

Although the Bancorp previously hoped to open the bank late last year, other plans have not changed, Michael Ciaburri said. Establishing The Bank of Southeastern Connecticut in New London as a division of The Bank of Southern Connecticut will require prior approval from the FDIC and the state Department of Banking. The bank anticipates receiving regulatory approvals during the first quarter of 2006.

The state Department of Banking received the bank’s application to open a new branch in late December, and is reviewing the application.

Carmelo L. Foti, who was slated to serve as president of the new bank, will serve as president of the new division.

“During the past six months I have been living and working here in New London,” Foti said in a prepared statement. “New London and the surrounding markets are dynamic, and a strong market opportunity exists for The Bank of Southeastern Connecticut as a leading provider of financial services for local businesses.”

The Bank of Southern Connecticut has been in operation since late 2001.