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Country Bank Creates Strategies to Build Its Brand, Enter New Markets

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Banking and Financial Services Special Coverage

Signs of Progress

Country Bank’s display at Polar Park in Worcester has given many businesses what Paul Scully calls “sign envy.”

Paul Scully didn’t want to say how much Country Bank has invested in that 60-foot-long sign that sits atop what is known as the Worcester Wall at Polar Park (that facility’s version of Fenway’s Green Monster), easily the most visible manifestation of the bank’s partnership with the WooSox.

Instead, he offered a gracious “you can ask…”

But he certainly did want to say that he considers the overall investment in this sponsorship, and especially that sign, well worth it.

Indeed, it is certainly an attention getter, at all times but especially at night — it’s one of the few illuminated signs at the home of the WooSox and the second-largest after the one for the beverage company that bought naming rights.

Scully told BusinessWest that he has talked with a number of business owners in Worcester, Springfield, and in between who are suffering from what he called “sign envy.” Meanwhile, upon introducing himself at various occasions, he said he’s been greeted with the response “that’s the bank with the big sign at Polar Park.”

So the display is doing what is was designed to do, although fully leveraging it and other aspects of the partnership with the WooSox is an ongoing learning experience in a different kind of branding exercise (more on that later). And it’s merely one of many signs of progress, growth, and expansion — figuratively but also quite literally — at the Ware-based institution.

Another would be the bank’s business center on the 17th floor of Tower Square in downtown Springfield, opened in 2022. There’s only a small sign at the office, but the facility gives the bank a much larger presence at this end of Hampden County. Meanwhile, Country is adding some new products, including a WooSox debit card, and it recently completed a comprehensive digital upgrade on both its consumer and business banking platforms.

Still another sign, this one not of the visible variety, is the bank’s resiliency during what has been a challenging year for all financial institutions amid skyrocketing interest rates and a sagging housing market, due in large part to those soaring interest rates, but other factors as well.

Overall, Scully said Country Bank remains in a growth mode and, like other institutions, understands the value of size to continued success. The bank is looking at where to bring its brand next, he said, adding that there are many opportunities within its current footprint between Springfield and Worcester and perhaps beyond.

And there are, obviously, many factors to consider when it comes to where to go, when, and in what fashion.

Indeed, the 3,000-square-foot branch with a few drive-up lanes is largely a thing of the past, he said, adding quickly that while customers, and especially the younger generations, have fewer reasons than ever to visit a branch, they still serve a purpose. Actually, several of them.

“What we continue to look at are smaller footprints that will provide several things; getting your name on a building or a storefront is a form of marketing and the ability to get our name and our brand out there,” he said, adding that the bank’s broad strategy will be to maximize both brick-and-mortar facilities and digital banking platforms — often at the same address.

The team at Country Bank’s business office

The team at Country Bank’s business office at Tower Square in Springfield, another sign of the bank’s continued growth and expansion.

As to what additional addresses might become reality in the future, he said that’s one of many questions to be answered in the years to come.

For this issue and its focus on banking and financial services, BusinessWest engaged in a wide-ranging discussion with Scully, who addressed everything from broad strokes in the bank’s business plan to the outlook for the year ahead when it comes to the economy, interest rates, and other factors; from the bank’s adjustments to a changing workforce to that big green sign in downtown Worcester.

 

Home Field Advantage

Like the famous Citgo sign outside Fenway, the Country Bank sign at Polar Park is always on, Scully said, adding that he can see it outside the apartment he has in the city.

“They do great things at the park and with the city to keep it going year-round,” he explained, noting that the bank’s visibility certainly doesn’t end when the games stop in September. “Whether it’s a Holy Cross football game or the charity walks that are constantly going on … every time the park is being used, or whether you’re in the DCU Club, a beautiful function venue at the park, that Country Bank sign is right in your face.”

And having his bank’s name in lights — big lights — is just one component of the bank’s partnership with the Red Sox’ Triple-A affiliate, Scully said, noting that it will soon be introducing a WooSox debit card — ‘the official debit card of the Worcester Red Sox.’ Meanwhile, the organizations collaborate on a ‘teacher of the month’ program, a ‘community heroes’ initiative, and other endeavors, he noted, adding that the investment in the team and its ballpark continues to pay dividends.

And the key to a successful partnership in such cases is effective leveraging of the signage and other elements of the collaboration, he said, adding that, in many respects, this remains a learning experience for the bank. And he used the DCU Center, the indoor arena in Worcester, to get his point across.

“I was with someone a few years ago, and I said something about DCU, noting that this was Digital Credit Union,” he recalled. “And she looked at me and said, ‘that’s what that stands for?’ So you need to make sure that, if you’re going to do something like this, you have to figure out what it’s going to get you.

“And you have to really work at leveraging it,” he went on. “Whenever you take a new approach to how you market your brand, you have to do the research, and you have to know when to shift gears. Clearly, it’s not just about turning on a sign; it’s about how you leverage that to be an expansion and an awareness of your brand.”

He said the bank’s marketing team spends a lot of time with the marketing personnel at the WooSox to develop strategies for how to fully leverage the partnership between the organizations.

Elaborating, he said the bank does this in various ways — through visibility from the sign, obviously, but also with the debit card, ticket giveaways, work with the WooSox Foundation, and being on the field for promotional events, such as the police-fire charity baseball game staged at the park in September.

“We were there, and we were a big sponsor of that event,” he went on, “and that allows you to reach out into various mediums of people and get your brand out there, so they get to understand what the brand is and what it stands for.”

 

Covering His Bases

Overall, the brand stands for many things, Scully said, noting that Country is a community bank that is large enough to provide the services required by its commercial clients and consumers, but small enough to deliver a personalized brand of service, qualities that have served the bank well during what has been a year of challenge for most all financial-services institutions.

Indeed, Country has enjoyed what Scully called a “decent year,” not on par with those that immediately preceded the pandemic, but solid from an earnings perspective and in most areas, including the mortgage side of the ledger and home-equity loans.

“We’re one of the most highly capitalized banks in the Commonwealth — our capital ratio is over 15%, and we’re quite profitable,” he said, adding that such stability bodes well at a time when not all banks can make such claims.

As for the mortgage business, Scully said it was definitely more vibrant than he would have expected over the past year, adding quickly that there are challenges within certain sectors of the market, especially the first-time homebuyers.

“They got the double whammy — the pricing of housing went up, and now interest rates have gone up,” he said. “There’s that segment of the population that’s looking to buy a home, but they can’t find it within their price range because their price range has been altered by the increase in interest rates.

“But we’re seeing people who have sold a home and are buying another one and trading up who don’t seem fazed by interest rates,” he went on. “Part of it is because a large percentage of the mortgages we are doing are adjustable-rate; they’re at a lower rate than a fixed rate, and I think the thought process is, ‘I’ll get an adjustable, and then, when rates come down, whether that’s in 12, 24, or 36 months, I’ll just refinance.’”

Overall, consumers continue to spend, despite the higher interest rates and historically high inflation.

“We see a younger segment seemingly unfazed by interest rates,” he told BusinessWest. “If the debit card works … they have a good time for themselves; that’s what’s happening.”

Things are slower, overall, on the commercial side of the ledger, Scully noted, adding that many business owners are fazed by higher interest rates. Meanwhile, with commercial real estate, many potential investors are waiting and seeing what’s happening with the office market, he said, adding that that the shift to remote work and hybrid schedules, seemingly permanent in the eyes of many, have brought a hesitancy to many investors.

Country Bank is one of those companies that has embraced a hybrid approach — and Scully is one of those who works remotely at least a few days a week on average.

He said these strategies have better enabled the bank to recruit and retain talent and, overall, become what he called “an employer of choice.”

“It’s really understanding evolution — an evolution of the workplace and an evolution of the economy,” he said, “and being able to adapt to it.”

 

Knowing the Score

Scully was quick to note that his office is not equipped with a crystal ball, but he said there are many signs, especially on the employment side, that the economy is still chugging along. Companies are hiring, he noted, and this trend generally yields sufficient levels of optimism among consumers.

And with interest rates, he projects they will stay pretty much where they are — a level that is considerably higher than what has been seen over the past decade, but, from a historical perspective, acceptable in most respects.

“We need some stabilization to get a sense of what real is these days,” he said. “The rates were so low for so long, but were those rates real? That’s the big question. If we step back 10 or 15 years ago, if you were getting a mortgage at 6%, that was pretty darn good.”

The other lingering question about 2024 concerns what will happen on the business and commercial real-estate sides of the ledger, he said, noting that there is a great deal of uncertainly when it comes to the future of retail — and the office.

“We’re hybrid, and we have a lot of office space,” he said. “We don’t have plans to condense it, but I’m sure there are companies that are looking at that. What will that do to the prices of things? That’s what we’ll start to see in 2024.”

As he talked about possible opportunities for expansion and bringing the Country Bank name (and green sign) to different communities, Scully acknowledged that the bank already has a rather large footprint, one that includes the state’s second- and third-largest cities and the territory between them.

There is the banking center in downtown Springfield and full-service branches in Belchertown, Brimfield, Charlton, Leicester, Ludlow, Palmer, Paxton, Ware, West Brookfield, Wilbraham, and two in Worcester, including a recently opened facility in Tatnuck Square. That footprint covers three counties — Hampden, Hampshire, and Worcester — and communities large and small.

The bank has been steadily growing its presence in Worcester, he went on, adding that it has always had a strong commercial-lending book of business, and has gradually increased its visibility and its overall presence with branch locations.

“We’re looking for opportunities throughout the Central Mass. and Western Mass. area,” he said, acknowledging that this certainly covers a considerable amount of real estate.

With the exception of that business office in Tower Square, the bank does not have a physical location west of Ludlow, he noted, adding that Country is certainly looking at opportunities to change that equation.

But the opportunity has to be right, he added quickly, noting that the bank isn’t interested in expansion for expansion’s sake.

“We continue to look at both markets, Worcester and Springfield, and say, ‘what opportunities are there in towns that are not already overbanked?’” he said. “We don’t want to be the 10th bank in the town.”

Getting back to those businesses he mentioned with ‘sign envy,’ Scully said they’re going to have to live with that condition for the foreseeable future.

“That’s their problem because we’re going to be there for a long time,” he said, using that phrase to refer to the sign, but also the bank’s presence across an ever-wider stretch of the state. This is an institution that is hitting it out of the park — in all kinds of ways.

Cooley Dickinson Receives $100,000 from Greenfield Co-op

By Contributor
Banking and Financial Services

Kicking Off a Campaign

 

Cooley Dickinson Hospital announced last week that it has received a $100,000 gift from Greenfield Cooperative Bank to support the expansion and renovation of its 50-year-old Emergency Department. The bank’s donation also serves as the kickoff gift for a $1,000,000 challenge opportunity.

“This incredibly generous gift in support of the Emergency Department is an investment in our shared commitment to a healthy Pioneer Valley,” said Dr. Lynnette Watkins, president and chief operating officer of Cooley Dickinson Health Care. “We are honored and grateful to Greenfield Cooperative Bank for this gift of support, which will benefit their customers, our patients, and our collective communities by providing access to the region’s top providers and leading healthcare services in a newly renovated and expanded Emergency Department.”

The gift will support the $26 million expansion, reconfiguration, and renovation effort to allow Cooley Dickinson to meet the ever-evolving emergency-medicine needs of the community it serves. To accomplish this goal, the hospital has embarked on an ambitious and comprehensive fundraising campaign, with nearly $7.2 million has been raised to date.

“Cooley Dickinson Hospital is a vital part of the health of our neighbors in the Valley,” said Tony Worden, president and CEO of Greenfield Cooperative Bank. “This donation is a way for us to show our support for the hospital and the people it serves. Many of our staff, family, and friends have needed to receive care at the Emergency Department. We are grateful for the work that the hospital does, and we are thrilled to help them continue their mission.”

Worden added that “Greenfield Cooperative Bank is committed to giving back to the community, and we believe that supporting our local hospital is one of the best ways to do that. We are proud to be a part of this community, and we want to do our part to make it a healthier place.”

Diane Dukette, Cooley Dickinson’s chief Development officer, noted that the generosity of Greenfield Cooperative Bank will have a transformational impact as the kickoff gift for the $1 million Harold Grinspoon Foundation Challenge, which launched on Sept. 1.

Through Aug. 31, 2024, she noted, every new cash donation to Transforming Emergency Care: The Campaign for the Cooley Dickinson Emergency Department will be matched 50%, up to $1 million, by the Harold Grinspoon Charitable Foundation. “When successful, that means that we will raise up to an additional $2 million for this campaign.”

Cooley Dickinson is expected to serve 40,000 Emergency Department patients this year. That care will be provided in a 1970s-era building that was designed for 17,000 patients annually and is currently 40% undersized. A shortage of space means some patients are treated in hallways. The Emergency Department also needs to expand its services to care for an aging population (triple what it was just 10 years ago). In addition, the expansion will provide additional beds for people experiencing mental-health emergencies.

The two-year project calls for adding 6,600 square feet of space, including nine new patient rooms; eight behavioral-health beds, which can ‘flex’ as patient needs arise; and a family waiting area. In addition, a computerized tomography (CT) scanning machine, which provides timely access to diagnostic imaging, will be added to the Emergency Department.

“This campaign is critical to the health of our community,” Dukette said. “In the newly renovated Emergency Department, patients will see a nurse when they arrive, they will be treated in single patient rooms that allow for privacy, and a central nurses’ station means our clinicians can respond better to patient needs. Overall, this is about making the Emergency Department as efficient and up-to-date as possible to enable our talented providers to take the best possible care of their patients. We are so truly grateful for Greenfield Cooperative Bank for stepping forward and supporting Cooley Dickinson Hospital so generously.”

As It Marks 175 Years, MountainOne Strives to Be the Berkshires’ ‘Go-to Bank’

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Banking and Financial Services Special Coverage

Peaking Their Interest

Bob Fraser (left) and Matt Lauro

Bob Fraser (left) and Matt Lauro

 

Bob Fraser acknowledged there’s a good deal of real estate between the Berkshires and the Bay State’s South Shore. He knows because he traverses that distance regularly.

But for the somewhat unique financial-services institution known as MountainOne, which can trace its roots back to 1848, having bank branches and other facilities on opposite ends of the state, with nothing in between, really … works.

“It has worked out well for us,” said Fraser, MountainOne’s president and CEO. “In the Berkshires, we have tended to be more of a traditional retail, community-based bank, and on the South Shore, we are much more commercially oriented. We do a lot of construction lending in and around the Greater Boston markets, and we also do commercial lending; we have a pretty strong group of commercial lenders.

“In the Berkshires, we see ourselves being able to fill a void, with a high level of expertise in commercial lending within Berkshire County and surrounding areas,” he went on, adding that this void has been created through large regionals either moving their headquarters from the Berkshires (as Berkshire Bank did) or expanding in other areas — leaving what Fraser considers opportunity for his bank in their wake.

Actually, there are many things that work for MountainOne, besides these differing focal points on either end of the state, including that aforementioned strong focus on commercial lending; the diversity of the business (there is an insurance division and an investment arm); its size — large enough to handle the needs of most businesses but small enough to provide a brand of personalized service — a strong focus on technology and how to use it to better serve customers, including a new digital platform for commercial customers to go live this month; and even the name, which doesn’t tie it to one community or one region and now has strong brand recognition in the Western Mass. region, with a mascot — actually, a ‘spokesgoat’ — named Mo.

“Being headquartered in the Berkshires, we want to be seen as the go-to bank for commercial accounts and borrowers throughout Berkshire County and the surrounding areas in Western Mass.”

MountainOne, now with roughly $1 billion in assets, will continue to maximize these various strengths and qualities and work to attain greater market share in both regions it serves, especially in the Berkshires, said Matt Lauro, senior vice president of Commercial Lending, noting that, like the rest of Western Mass. — and the state, for that matter — the region is overbanked.

But it is also, in his view, underserved to some degree.

“There aren’t enough banks that are servicing large commercial clients, or commercial clients as a whole, that are really focused in Western Massachusetts,” he said. “You do have players that are primarily focused here, but there is a void resulting from the larger regionals that have tended to pull back on lending capabilities in Western Mass., and it has left C&I clients, and larger commercial-development clients, with less service than they’ve had historically.”

Added Fraser, “being headquartered in the Berkshires, we want to be seen as the go-to bank for commercial accounts and borrowers throughout Berkshire County and the surrounding areas in Western Mass.”

Both Fraser and Lauro noted that the bank’s strong roots, diversity of services, and strong track record in the Berkshires will serve it well during what can only be described as a time of challenge and uncertainty — when it comes to the economy, banks, and the foreseeable future.

Bob Fraser

Bob Fraser says MountainOne can grow as effectively through online banking as it can through geographic expansion.

“This environment we’re in … I’ve never experienced so much uncertainty as to where we’re headed,” Fraser said. “And an environment of uncertainty makes decision making so difficult, whether it’s running a bank or running your company; it’s incredibly challenging to feel confident about what the next few years are going to look like.”

For this issue and its focus on banking and financial services, BusinessWest talked with Fraser and Lauro about MountainOne and what can and should come next for this bank as its marks an important milestone.

 

Scaling the Heights

Team members at this institution are known as colloquially as ‘mountaineers.’

And on Sept. 19, all of the MountainOne offices will close at 1 p.m. so that the mountaineers can attend a celebration for all employees marking the bank’s 175th anniversary.

There will be much to celebrate, said Fraser, listing a rich past, and a potential-laden future, for the reasons cited earlier.

The institution can trace its roots to 1848 in North Adams, when it was known as Hoosac Bank. Fast-forwarding considerably, Fraser noted that, in 2000, Hoosac Bank and Williamstown Savings Bank came together to create the holding company to be called MountainOne Financial, which became the mutual holding company for those two banks.

“If you’re a sophisticated business owner, you understand that you don’t need a branch at the end of your street; you need a relationship manager, a loan officer who is going to be at your business when you need him, to speak with him, to work with him.”

And in 2007, South Coastal Bank, headquartered on the South Shore, merged its holding company into MountainOne’s holding company, creating what Fraser, formerly president and CEO of South Coastal, believes is the first three-bank mutual holding company.

“We’ve seen a lot more of that now, but MountainOne was the first to actually do it,” he said, adding that, over time, the three banks have been merged into one entity under the Hoosac charter and rebranded as MountainOne. Additionally, Hoosac Bank had owned two insurance agencies, which were merged under the name MountainOne Insurance Agency, while the investment division was rebranded MountainOne Investments in 2013.

Today, MountainOne has some combination of bank branches, ATMs, insurance offices, and investment offices in six communities, three on each end of the state: Quincy, Rockland, and Scituate on or near the South Shore, and North Adams, Pittsfield, and Williamstown in the Berkshires.

When asked if there was future expansion under consideration in the Berkshires region — and, if so, where — Fraser said it’s possible, but what is more likely is continued commitment to advancing internet banking capabilities that allow banks to serve customers more efficiently, with less reliance on brick-and-mortar facilities.

“The world is changing,” he explained. “You don’t need as much of a physical presence in a specific geography as you did before to manage and serve a business customer’s banking needs.”

Lauro agreed.

“If the client is in the surrounding area, we are wherever the client is,” he explained. “Wherever the client is, we are happy to be there, to work with them; that has been our opportunity, and it’s a big thing for us. If you’re a sophisticated business owner, you understand that you don’t need a branch at the end of your street; you need a relationship manager, a loan officer who is going to be at your business when you need him, to speak with him, to work with him.”

Matt Lauro

Matt Lauro says the considers the Berkshires to be overbanked but its commercial customers underserved, leaving opportunity for MountainOne.
Staff Photo

And this is what MountainOne brings to the table, Fraser said, noting that, despite the ability to serve clients through the use of technology, commercial banking is a “personal relationship-oriented service,” said Fraser, noting that MountainOne boasts lending professionals like Lauro and Richard Kelly, also a senior vice president of Commercial Lending based in Pittsfield, who are focused on the region and its economic health and well-being.

“Our vision, at the end of the day, is to help ensure the economic vibrancy of the community,” he said. “And by doing that — by supporting local businesses and entrepreneurs — we’re helping to fulfill that mission.”

 

Economies of Scale

As he talked physical expansion — new branches — in other communities within the Berkshires, Fraser told BusinessWest that it would be “challenging to invest in a branch location in a market that has a declining population base and is already overbanked,” and that the bank’s strategy is, as he said, geared more toward technology.

But he noted quickly that the Berkshires has seen an uptick in population in the wake of the pandemic, with some choosing more rural areas over larger cities, as well as some demographic shifts, with more young people moving to the area, and a surge in entrepreneurship, in part because of COVID and how it prompted many to pursue long-held dreams of working for themselves.

And all of these trends are certainly positive signs for the Berkshire County market and its business community.

Indeed, as they talked about the next chapters in MountainOne’s history, Fraser and Lauro noted that, independent of what is happening with the economy, interest rates, and other factors, there are many reasons for optimism when it comes to broadening the book of business and gaining additional market share.

Some of this has to do with COVID-related population surges, demographic shifts, and that aforementioned surge in entrepreneurship, the size and scope of which are still to be determined. But much of it comes down to what the bank can bring to the table beyond what all banks can provide — money.

“Hospitality is the number-one industry, and we’ve been involved in a number of projects involving hospitality-related businesses, but we also have a number of commercial accounts that involve meaningful employers and well-known companies in the Berkshires,” Fraser said. “And I think there’s a greater opportunity for us over time to continue to expand in that market as we see younger entrepreneurs establishing roots in the Berkshires. Businesses may be looking for an entity that is based in the Berkshires, is local, and obviously has a commitment to the region; we’ve been here since 1848.

“Being a mutual organization, we can look a little bit longer-term strategically than if we were a stock-owned company,” he went on. “It’s just a different business; we can be patient and look beyond the next quarter or two quarters — we have that luxury.”

Elaborating, he said MountainOne has experienced lenders who understand business and what it takes to succeed and can step into the role of adviser as well as banker.

“We’re not just a vendor that is providing you a product, which is the loan,” he told BusinessWest. “We’re also a resource. It’s a relationship, and it’s probably the most unique relationship a business will have. Anyone can sell you something — we’re the only relationship where we have to get what we sold you back.

“Another aspect of it is that we really enjoy this part of the business — it’s in our DNA,” he went on. “We love being with our customers, and we love understanding their businesses. We love talking about what we know, what we’re thinking about, and sharing those ideas.”

 

Mo-mentum

As for Mo the mountain goat, he’s the perfect spokesperson for the bank, as detailed in a bio on its website. “Goats are tough,” it reads. “They turn challenges into opportunities every day, and even in the most demanding, unforgiving environments, goats know how to adapt and thrive.”

MountainOne has done a lot of that over the past 175 years, and that collective work has put it in a position where it can turn challenge into opportunity and scale new heights — in all kinds of ways.

Corporate Transparency Act Generates New Requirements

By Contributor
Banking and Financial Services

Roadmap for Reporting

By Jennifer Sharrow, Esq.

 

Businesses, get ready. The federal government is implementing new reporting requirements that will bring even the smallest businesses under the purview of the U.S. Department of Treasury. All entities registered with a secretary of state are now required to make mandatory reports which require specific and detailed information, and a failure to file these reports can result in serious penalties.

Jennifer Sharrow

Jennifer Sharrow

This new reporting system is like nothing that has ever been required for the majority of businesses, either locally or elsewhere in the country, but the passing of the Corporate Transparency Act (CTA) represents a fundamental change to the information that must be provided to the federal government by small businesses and single-purpose limited liability companies and corporations.

The Corporate Transparency Act was passed in 2021 as part of a suite of efforts from the federal government to crack down on money laundering across various parts of the economy. The CTA specifically targets efforts to hide monies under the guise of complicated corporate entity structuring. Whereas these entities previously enjoyed a significant amount of privacy regarding matters of ownership, under the CTA, these entities will now be required to disclose detailed, personal information about their beneficial ownership.

Every small-business owner, and every business that assists in the formation and annual reporting requirements of the business, needs to know about this new reporting requirement, as non-compliance can result in substantial penalties of $500 a day up to $10,000, and up to two years in jail.

 

Who Needs to File?

While certain exemptions are available within the statute, in general, any corporation, limited-liability company, or any similar entity formed by a filing with the secretary of state needs to file reports with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). This requirement applies to most small businesses, fund-manager entities, and real-estate holding companies.

Additionally, FinCEN is gathering information on what is described in the CTA as the ‘company applicant’ — the person or organization who actually files the paperwork on behalf of the entity. For law firms, where formation documents are generally filed by a paralegal, FinCEN will require information on both the paralegal and their supervising attorney. For other service companies, this will be information on the specific person filing the organizational paperwork.

“This new reporting system is like nothing that has ever been required for the majority of businesses, either locally or elsewhere in the country.”

There are 23 exemptions from the CTA reporting requirements. Most exemptions are for entities that are already subject to considerable federal or state regulation. Examples of exempt entities include publicly traded companies and other entities that file reports with the SEC, tax-exempt entities, banks, credit unions, money-services businesses, insurance companies, securities brokers and dealers, state-licensed insurance producers, public utilities, and accounting firms.

There is also an exemption for what’s called a ‘large operating company,’ which is an entity that employs more than 20 full-time employees in the U.S., has an operating presence at a physical office within the U.S., and has filed a federal income-tax or information return in the U.S. for the previous year with more than $5 million in gross receipts or sales.

 

What Is Being Reported?

• Entity information. This includes full legal name, ‘doing business as’ name, principal office address, jurisdiction of formation, and IRS employer identification number.

• Beneficial owner information. A ‘beneficial owner’ is anyone who owns more than 25% of the entity and anyone who exercises ‘substantial control’ over the entity’ such as directors, LLC managers, and certain trustees. The entity will need to provide, for each beneficial owner, their full legal name, date of birth, current residential address, governmental identification information from a passport or driver’s license, and a copy of that identification document.

• Company applicant information. For new entities formed after Jan. 1, 2024, the entity will need to provide essentially the same information on the appropriate company applicant individuals as they provide for the beneficial owners.

 

When Are the Reports Due?

There are two timelines, one for existing businesses formed prior to Jan. 1, 2024, and one for those new businesses formed after the start of the new year. The existing businesses have until Jan. 1, 2025 to submit their initial reports. New businesses will have to file their initial reports to FinCEN within 30 calendar days of their initial formation. Additionally, whenever there is a change in beneficial ownership or a change to the information of a beneficial owner, the entity will have 30 days from that change to file an updated report.

 

Where Is This Information Being Kept?

The disclosures will be made to a centralized federal database under FinCEN. These reports will not be accessible to the general public, but will solely be used by law-enforcement agencies, government regulators of financial institutions, the Treasury Department, and certain foreign authorities requesting information through federal agencies.

 

How Should You Prepare Now?

Entities should first consult with an attorney to understand whether they qualify for an exemption or whether the CTA will require them to submit reports to FinCEN. Then, the owners and managers should decide when they want to file their initial disclosure and begin the process of gathering the required reporting information.

Finally, it is highly recommended that they implement a system to keep the reporting information accurate and up to date, so they know when updated reports need to be filed. The reporting companies should communicate with their clients to assist in filing these new reports and to have their own information ready and available to disclose to FinCEN.

 

Jennifer Sharrow is an associate at Bacon Wilson and a member of the firm’s business and corporate department, specializing in business matters, financing, and commercial real-estate transactions.

Banks Fight Upstream from Domino Effect of Higher Interest Rates

By
Banking and Financial Services Community Spotlight Special Coverage

An Uphill Climb

Dan Moriarty was among the participants in the recent IRONMAN competition that wound its way through many Western Mass. communities.

The president and CEO of Monson Savings bank, Moriarty is also an avid biker, and decided to take things up a notch — or two, or three — with the IRONMAN, which featured a mile swim, downstream, in the Connecticut River; a 56-mile bike trek; and a half-marathon (13 miles and change).

Moriarty said his time — and he doesn’t like to talk about time — was roughly seven hours, and joked that that he believes he met what was his primary goal: “I wanted to come in first among all the local bank presidents.”

As things are turning out, the IRONMAN isn’t the only test of endurance he will face this year and next (yes, he’s already scheduled to take part again in 2024). He and all other banking leaders are facing another stern challenge, and where they finish on this one … well, there are several factors that will ultimately determine that, as we’ll see.

Indeed, the past year or so has been a long, mostly uphill, upstream stretch for banks, which are being severely tested by unprecedented interest rates hikes implemented by the Fed, which have a domino effect on banks — and their customers. For banks, these moves are squeezing margins that were already tight, with some margins off 50 basis points or more from last year. And for public banks, their stocks have, for the most part, been hammered.

This domino effect involves everything from the huge increase in interest paid to customers on their deposits to the manner in which those interest-rate hikes have brought the home-mortgage business to a virtual standstill.

To quantify that increase in interest paid to consumers, Tom Senecal, president and CEO of PeoplesBank, recalled a quote he read from the president of a large national bank that put things in their proper perspective.

“I won’t even call this a short-term problem anymore when it comes to profitability. It’s a medium-term problem that we’re all having to adjust to.”

“He said, ‘my raw-material costs have increased 600%,’” Senecal noted. “His raw materials are the funding for deposits for his wholesale assets, which have literally gone up 600%. If you look at any business and their profit margins — our raw materials have gone up 600%, so that squeezes our margins.”

Meanwhile, with interest rates more than double what they were a year or so ago, the refi market has obviously disappeared, said Kevin O’Connor, executive vice president of Westfield Bank, adding that, with home sales, those who might be thinking about trading up wouldn’t want to trade a 2% or 3% mortgage for one closer to 7% mortgage, so they’re taking what could be called a pause.

As is the Fed, which is taking a close look at the impact of its interest-rate hikes before deciding what to do next, although most experts expect at least one more rate hike this year.

And that will keep banks on this current treadmill, said Jeff Sullivan, president and CEO of Springfield-based New Valley Bank, adding that, while there has been talk that rates might start coming down this year, that likely won’t happen until at least early next year.

By then, the country may well be in recession, adding new levels of intrigue, said Moriarty, noting that the yield curve is currently inverted, a historically accurate predictor of recession.

“We’re going to eventually get into a recession in the third or fourth quarter of this year,” he said. “We were anticipating it might happen a little earlier with hopes that the Fed would have cut rates before of 2023, but now, we’re guessing that interest rates are going to be elevated another year out until they start cutting.”

Tom Senecal

Tom Senecal says unprecedented interest-rate hikes have put a great deal of pressure on banks large and small.

Overall, banks’ fortunes are tied, ironically enough, to how well the economy is doing, and they are in the unusual position of hoping that things cool off a little, said O’Connor, adding that, like the Fed itself, banks don’t want to see efforts to curb inflation throw the economy into reverse.

The biggest question, among many others, concerns when the pendulum might start swinging in the other direction and things will improve for banks. There is no consensus there — not with the economy still doing well, a presidential election looming in 2024, and other factors.

But the general feeling is that the uphill portion of this trek won’t be over soon.

“I won’t even call this a short-term problem anymore when it comes to profitability,” Sullivan said. “It’s a medium-term problem that we’re all having to adjust to.”

Moriarty agreed, noting that, while the first two quarters of 2023 has been a difficult year for most banks, the rest of this year and 2024 might be an even more of an uphill climb.

 

Points of Interest

Senecal told BusinessWest that, as he was heading home for the first weekend in March, he planned to take a break from his phone and spend a few days unplugged.

And he did … until news broke that Silicon Valley Bank (SVB) in California had failed after a bank run on its deposits.

So he started looking at his phone again. And he kept looking at it.

“The weekend that SVB failed, the four largest banks in the country took in roughly $140 billion in new deposits, and community banks, in general, lost $130 million in deposits. There was a huge move to larger institutions out of fear.”

Indeed, there were many discussions with other leaders of the bank about how to communicate with customers and convince them that their deposits were safe.

“That whole weekend, myself and our commercial team and our retail people were on the phone explaining what was going on, answering their questions, and putting their minds at ease,” he recalled. “And I talked to a number of my competitors, and they were doing the same thing.”

Such discussions were necessary, he said, because even though those deposits were becoming far more burdensome, cost-wise, as he noted earlier, all banks need them to have the money to grow their loans, and consumers were getting skittish.

Jeff Sullivan

Despite the interest-rate hikes, the economy is still humming in many respects, Jeff Sullivan says, meaning the Fed may still have some work to do to slow it down.

“The weekend that SVB failed, the four largest banks in the country took in roughly $140 billion in new deposits, and community banks, in general, lost $130 million in deposits,” he said, citing a combination of concern fueled by social media and the ease with which consumers can now move money electronically as the dominant causes. “There was a huge move to larger institutions out of fear.”

Overall, there was less fallout in this region, said O’Connor, another of those banking leaders who was the phone to customers assuring them that their assets were safe, adding that the failure of SVB and a few other banks this spring, and the resulting fallout from depositors, were just one of the many speedbumps encountered by banks in 2023.

Indeed, this was a year the industry knew would be challenging — or more challenging — going in, especially with regard to rising interest rates. Just not this challenging.

“Just a year ago, rates were quite low, and everyone thought rates were going up a point and a half, maybe 2%, something in that ballpark — that was the consensus prior to August of last year, when Chairman [Jerome] Powell said, ‘no, we’re really going to stomp on the brakes,’” Sullivan said. “Up to that point, we thought that rates would go up slightly, and we were modeling our projections on that; I don’t think there’s anyone who projected that rates would go up 5% in seven months — that’s unprecedented territory, and that’s what is causing the squeeze.”

O’Connor agreed. A year or so, banks were paying maybe a half-percent interest on deposits, he recalled, adding that most new CD products being advertised are featuring rates in the 4.5% to 4.9% range on the higher end, while rates on money-market accounts are coming up as well, numbers that reflect both the need to garner new deposits and growing competion for those assets.

“You have competition from other banks, internet-only banks, the security brokers — everyone is clamoring for those deposits,” O’Connor said. “And that certainly puts pressure on all banks, including community banks.”

Institutions are adjusting to this landscape, said those we spoke with, but it’s going to take some time to fully adjust because the rate hikes came so quickly and profoundly.

And such adjustments take several forms, they said, including efforts to trade fixed-rate assets for variable-rate assets, initiatives that take time and come with their own set of risks — indeed, rates could, that’s could, go down quickly.

Dan Moriarty

Dan Moriarty says many ominous signs point toward a recession, which could bring more challenges for banks and their customers.

On the mortgage side of the equation, there aren’t many options. Senecal said PeoplesBank has been working to acquire mortgages written in areas that are still relatively hot, such as Cape Cod. Meanwhile, O’Connor said Westfield Bank and institutions like it are pushing home-equity loans, and there is a good market for them as homeowners look to take that equity and put it back into their homes or make other large purchases.

“It certainly doesn’t make up for what we’re losing in mortgages and refis, but it does help,” O’Connor said. “We’re seeing a lot of interest in home-equity loans.”

 

No Margin for Error

While banks cope with the present, there is just as much discussion, if not more, concerning what will happen next and when conditions will improve for this sector.

And most of that discussion obviously involves the Fed and what will happen with interest rates, because it’s these rates that determine what happens with all those dominoes.

There is some general uncertainty about what the Fed will do, said those we spoke with, because the jury is still out, in some respects and at least in some quarters, on whether it has accomplished its mission when it comes to slowing down the economy and curbing inflation. This uncertainty led to intense discussion at the most recent Fed board meeting, Senecal said.

“There are two schools of thought on this. One is, ‘let’s wait and see what our rate increases are doing to the economy, because it’s like steering a battleship — it doesn’t happen right away,’” he told BusinessWest. “So the Fed took this pause trying to gauge what happened, and what happened? Inflation came down little bit; it was up to 6 or 7%, and now it’s 3.5% or 4%. But their goal is to get it to 2%. So do they continue to raise rates and wait to pause, or do they raise and do a long pause to see if inflation comes down to their target level of 2%?”

“I don’t think there’s anyone who projected that rates would go up 5% in seven months — that’s unprecedented territory, and that’s what is causing the squeeze.”

While inflation slowed in June — the consumer price index rose 0.2% last month and was up 3% from a year ago, the lowest level since March 2021 — core inflation is still running well above the Fed’s 2% target. And Moriarty is among those saying there is ample evidence that the Fed still has work to do to slow the economy and further decrease inflation.

“Employment numbers are surging, and that’s an indication the economy is still moving fast and hot,” he said. “My uneducated crystal ball is telling me we might see a few more interest-rate moves, which means it’s going to be more difficult for the economy to continue on this path.”

Many are saying that the probable course will be another rate increase and then that pause, he went on, adding that there is more conjecture about what will then happen. Will rates stay where they are, or will they start to come down and perhaps reverse the trends seen over the past year or so?

Kevin O’Connor

Kevin O’Connor says rising interest rates have slowed the mortgage business — and destroyed the refi business.

“The consensus is that the economy is starting to slow down — not quickly, but it’s starting to slow down — and that rate cuts will probably start to happen in 2024 because inflation and economic growth both show signs of slowing down,” Sullivan said. “When that happens, we can start to price the deposit costs down.

“We’re probably not going back to where we were before,” he went on, meaning rates near zero. “We’re going back to normal, or what could be a new normal — deposit rates in the 3% range. They’re not going to be zero, and they’re not going to be 5%; they’re probably going to be somewhere in the middle once all this settles out.”

When things will settle down is another question that is difficult to answer because the economy is still chugging along, and, with the notable exception of the mortgage market, consumers are still borrowing money.

“Borrowers have gotten used to paying loan rates in the 6s and 7s — they’re not happy about it, but it doesn’t seem to be stopping anyone’s appetite for acquiring assets and borrowing money,” Sullivan said. “There’s still plenty of business out there, and that would support what Powell has been saying — that they haven’t really slowed the economy yet; in fact, it’s pretty darned good. We’re taking applications every day, and we’re writing loans every day; we’re running our business as usual.”

 

Taking Account

Well … not quite usual at most institutions, especially with regard to mortgages and refis, a huge part of the success formula for the region’s community banks and credit unions.

In this environment, O’Connor said, Westfield Bank and institutions like it are putting even more emphasis on customer service, attracting new customers and retaining existing customers.

“We have to make sure that we’re the bank of choice and remain that,” he said. “We work hard at the commercial relationships, the consumer relationships … our branch teams, our cash-management teams, our lenders, everyone is out there being very available to our customers and working hard to attract new customers from other banks.”

Banks are always working hard on attracting and retaining customers, he said in conclusion, but this year, and in this climate, there is even more emphasis on such initiatives.

It’s all part of a broad response to something that is a little more than your typical economic cycle. It’s somewhat unprecedented, in fact … and certainly a long, uphill climb for most banks.

 

Despite Deposit, Rate Challenges, Banks Remain on Solid Footing

By Contributor
Banking and Financial Services

Checks and Balances

 

By Mark Morris

About a year into the pandemic, banks found themselves in a strange position.

When the federal government pumped stimulus and Paycheck Protection Program (PPP) money into the economy to help consumers and businesses regain their footing, it created an unprecedented glut of deposits.

In normal times, banks would have celebrated the excess in the form of making more loans — and generating more revenue — but these were different times. Consumers and businesses kept their money in banks to take advantage of FDIC protection while they figured out their next moves.

Despite record-low interest rates, uncertainty from the pandemic also resulted in reduced loan activity. When deposits sit idle, banks don’t generate revenue — or profits. As one executive noted at the time, all these deposits became a burden, a concept that went against everything they were taught about banking.

Another executive said simply, “back then, cash was a four-letter word.”

“There’s a rate battle these days because, with higher interest rates, we have to offer more generous rates on CDs to keep deposits here and attract new funds.”

Mary McGovern

Mary McGovern

Things began to change by the third and fourth quarter of last year as excess deposits began flowing out. Some people withdrew money to pay for increases in daily living expenses, while other depositors sought to move their money into financial products that pay higher rates than banks.

As a result, what was once a problem of too much liquidity became a matter of banks competing for deposits.

“There’s a rate battle these days because, with higher interest rates, we have to offer more generous rates on CDs to keep deposits here and attract new funds,” said Mary McGovern, executive vice president and chief financial and operating officer for Country Bank.

Jeff Sullivan, president and CEO of New Valley Bank, added that, with excess liquidity a thing of the past, his staff is working harder to bring in deposits because demand for loans remains strong for his four-year-old institution.

“If we can raise new deposits, we can keep generating new loans and keep growing our franchise,” he noted.

These forces have been compounded by recent events in the banking world, which was rocked in March when Silicon Valley Bank (SVB) failed and was shut down by the state of California. News like that can create panic in bank customers everywhere. The bankers BusinessWest spoke with all said they communicated with their respective customers early and often to allay any fears.

“When I saw the news about Silicon Valley Bank, I sent emails and text blasts to our members to let them know everything was safe, secure, and that we are well-capitalized,” said Michael Ostrowski, president and CEO of Arrha Credit Union. He also credited the Massachusetts Division of Banks for calling every institution to make sure there were no problems.

Sullivan agreed the industry did a good job preventing a bigger problem.

“We certainly made phone calls with our customers and communicated as much as we could,” he said. “As a result, we did not see any outflows caused by people worried about the system.”

Dan Moriarty, president and CEO of Monson Savings Bank, said the deposit spend-down, along with higher interest rates for loans, particularly mortgages, have caused a paradigm shift.

“If we can raise new deposits, we can keep generating new loans and keep growing our franchise.”

Jeff Sullivan

Jeff Sullivan

“Most banks have seen a drop in their residential mortgage business due to higher interest rates, low inventory of available houses, and the high cost of houses,” he explained. “So we are seeing a couple different forces at play, and that’s a dramatic change compared even to last year.”

For this issue and its focus on banking and financial services, BusinessWest looks at these colliding forces and how they are impacting local banks — or not, as the case may be.

 

Points of Interest

The foundation of the banking system has long been the Federal Deposit Insurance Corporation (FDIC), which insures accounts up to $250,000, an amount that provides sufficient protection for most people. McGovern noted that, in today’s banking world, people with higher assets don’t usually keep their money in one place.

There are situations, however, when FDIC coverage isn’t enough for an account. For example, a small business that keeps its payroll in a savings bank or a consumer who has sold a house or other large transaction can exceed the FDIC limit.

To address those needs, Country Bank and Monson Savings Bank are two of 78 savings banks in Massachusetts that take part in the Depositors Insurance Fund. The DIF is supplemental insurance to protect deposited amounts that exceed $250,000. McGovern and Moriarty said having the extra protection of the DIF gives everyone peace of mind.

“We made sure to educate our customers that all the deposits in Country Bank, even the ones over $250,000, are safe and insured,” McGovern said.

“Because Monson Savings has both FDIC and DIF, it calmed a lot of nerves during the weekend when Silicon Valley Bank failed,” Moriarty added. “We had conversations with some of our customers, but their concerns quickly subsided.”

Having conversations with clients and explaining acronyms like FDIC and DIF has become a somewhat unexpected addition to the workload for area banks, which have been placed in a situation of explaining what has happened at SVB and other institutions, and why the fallout has not extended to the smaller community banks populating this market.

Indeed, those we spoke with pointed out that Silicon Valley Bank’s troubles stemmed from mismanagement and went against the norms of good banking practices. “By contrast, the bankers in our area do things the right way, and the regulators do a good job, too,” Ostrowski said.

Silicon Valley Bank also had a handful of customers with billions of dollars in deposits. Money movements by these few contributed to destabilizing the bank. When Silicon Valley failed, it provided an opportunity for McGovern to reassure Country Bank customers.

“We explained that we have $1.3 billion in deposits, and we are in sound financial condition,” she said. “We have a diversified depository clientele, so there was no risk of large outflows of the kind Silicon Valley experienced.”

“We are seeing a couple different forces at play, and that’s a dramatic change compared even to last year.”

Dan Moriarty

Dan Moriarty

While local bankers remain mostly unscathed by these highly publicized events, they are keeping their focus on raising deposits and managing the fallout from increases in interest rates.

Ostrowski noted that first-time homebuyers face perhaps the sternest challenge because housing prices are at an all-time high and interest rates are higher than they’ve been in recent years.

“Young people buying their first home have never experienced anything but very low interest rates,” he said, adding that today’s mortgage rates of 6% to 7% aren’t exceedingly high, but when combined with high housing prices, they can keep buyers on the sidelines.

Still, while loan volume might be down, mortgage activity continues.

“People are still moving and buying houses,” McGovern said. “Many are taking out adjustable mortgages thinking that rates may adjust down.”

In recent years, many homeowners refinanced their mortgages to take advantage of the low interest rates. Sullivan pointed out there’s no incentive for people to pursue refinancing today. “The folks who refinanced at 3% a few years ago are obviously not looking to do it again at today’s rates.”

 

By All Accounts

Even with the challenges they face, the bankers we spoke with remain optimistic. Interest rates have begun to stabilize and, in some cases, go down.

“We may find that the crisis at Silicon Valley and the other banks may have caused a credit pullback and stabilized the market without the federal government having to raise interest rates,” McGovern said.

Sullivan predicted there may be smaller bumps in the road, but nothing of the magnitude of SVB in the near future.

While the remainder of the year looks slow and steady on the retail side at Monson Savings, Moriarty believes there may be better news on the commercial side of his business.

“We’ve been hearing that some areas of manufacturing are still robust,” he said. “There could be opportunities for us if a manufacturer decides to expand or purchase some new machinery.”

Despite all the challenges local bankers have seen, they are moving forward in a strong position.

“The system is working correctly, just as it was designed,” Ostrowski said. “That’s important to hear because people need to have trust in our financial system. The good news is, it’s not going anywhere.”

Is a Recession Inevitable?

By Contributor
Banking and Financial Services

And If There Is One, How Will It Affect You?

By Barbara Trombley, CPA

 

It seems as if we have been waiting for a recession for quite a while now. Economists initially thought 2022 would bring a recession. Certainly, it seemed as if a recession was inevitable as the stock market (S&P 500) dropped more than 19% in 2022.

But, by definition, a recession never occurred. Many people think that two consecutive quarters of negative GDP define a recession. Technically, this is not true. The National Bureau of Economic Research considers a wide range of economic indicators when declaring a recession rather than only negative GDP. It defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts for more than a few months.”

Warning signals often precede a recession. The U.S. economy has slowed from January through March of this year to just a 1.1% annual pace. Business inventories have reduced; companies usually slash inventories when they anticipate a downturn. Employment also declines before a recession. I would argue that we have started to see this decline with the large layoffs in the tech industry by companies such as Meta, Google, Microsoft, and Amazon. Higher interest rates have slowed housing sales, and rents are stabilizing. Compounding these economic signs is the debt-ceiling debate; House Republicans say they will raise the debt limit in exchange for sharp reductions in spending.

“The Fed is walking a tightrope of slowing inflation and trying to prevent further damage to our economy.”

Barbara Trombley

Barbara Trombley

These signs, which we all can see, may just be the tip of the iceberg.

The actions of the Fed in the coming months may dictate the strength of the potential recession that we are facing. As we all now know, the U.S. has been experiencing critical inflation mainly because of the easy money that was distributed during the pandemic and the pent-up demand for consumer goods and travel after COVID.

The only way for the Fed to combat inflation has been to raise interest rates, making it more expensive for businesses and consumers to borrow money, thereby slowing the economy and lowering inflation. Unfortunately, inflation has been stubborn and has not decreased as quickly as the Fed would like. The quick rise in interest rates contributed to the bank failures that we have seen recently. The Fed is walking a tightrope of slowing inflation and trying to prevent further damage to our economy.

The main questions that people need to ask is how a recession may impact them and how to prepare. Unfortunately, many people lose jobs during recessions.

‘Recession-proof industries’ typically are unharmed. The medical field, education, and government jobs may be unaffected by a recession. If you do worry about the future of your job, have you saved emergency money to live on for a while? Can you network in your industry to see what other positions may be available if the worst-case scenario occurs and you lose your job?

How about your bank? Is it possible that it collapses as others have? Most people are aware that the FDIC insures deposits according to the ownership category in which the funds are insured and how the accounts are titled. The standard deposit-insurance coverage limit is $250,000 per depositor, per FDIC-insured bank, per ownership category. If you are still nervous, utilize the services of two or more banks.

“Credit is also reduced during recessions. Banks may be choosier about whom they loan to as unemployment rises. If you need a loan, be prepared to be scrutinized and pay a higher interest rate.”

Credit is also reduced during recessions. Banks may be choosier about whom they loan to as unemployment rises. If you need a loan, be prepared to be scrutinized and pay a higher interest rate. Tight lending leads to consumers putting off larger purchases, compounding the depth of the recession, as spending slows.

Many retirees worry about a recession and the impact of the stock market on their portfolios. A deep recession could mean a drastic drawdown in stock prices. Making knee-jerk reactions to economic situations never bodes well for the long term. It is impossible to time the market. Most retirees know that they need to stay invested to grow their assets to mitigate inflation. Having a conversation with your advisor to make sure that you are properly allocated to your risk tolerance is a good way to start. If you find yourself overly concerned, perhaps a portfolio adjustment is due. A proper allocation to bonds or ‘like’ investments is always a good idea in volatile times.

From political turmoil to world events, it is easy for investors and consumers to feel concerned. Stress and recession go hand in hand. Know that you can only control your own personal situation. Reassess your budget, evaluate your employment, and review your investments.

Historically, there have been many terrible things the world has endured. People still have money and plan for the future. The markets still function. Recessions are an unavoidable part of life, but are a precursor to an eventual healthy economy.

 

Barbara Trombley is a financial planner with Wilbraham-based Trombley Associates Investment and Retirement Planning. Securities offered through LPL Financial. Member FINRA/SIPC. Advisory services offered through Trombley Associates, a registered investment advisor and separate entity from LPL Financial. This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal, or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

Meyers Brothers Kalicka Celebrates 75 Years of Change — and What Hasn’t Changed

By
The five partners at Meyers Brothers Kalicka
Banking and Financial Services Special Coverage

Marking a Milestone

The five partners at Meyers Brothers Kalicka

The five partners at Meyers Brothers Kalicka: from left, Jim Krupienski, Kristi Reale, Howard Cheney, Rudy D’Agostino, and Kristina Drzal Houghton.

It’s called the ‘Founders Room.’

This is a small conference room at Holyoke-based Meyers Brothers Kalicka featuring a table that can comfortably seat six or seven people, which makes it a popular spot for smaller meetings and an attractive alternative to the cavernous main conference room, which can host more than 40.

There are a few other gathering spots at this accounting firm, but this one is unique because it pays homage to those who were there at the beginning — and in the decades that followed — for both Meyers Brothers and Joseph Kalicka and Co., two accounting firms that started the same year, 1948, and came together in a consequential merger in 2004 that created the firm known to most by the letters MBK.

The Founders Room takes on a little more importance this year as the firm celebrates a milestone — its 75th anniversary. As it does so, it looks back at the important work of the three Meyers brothers who went into business together — Ben, Raymond, and Maurice (there’s a photo of them on the wall in the Founders Room) — and Joseph Kalicka, founder of the firm that took his name (there’s a photo of him with former Massachusetts Gov. Michael Dukakis).

But the present and the future are the dominant topics of conversation on this occasion, and there was much to discuss as we gathered thoughts from the five partners now setting a course for the firm — Howard Cheney, Rudy D’Agostino, Kristina Drzal Houghton, James Krupienski, and Kristi Reale — as well as David Kalicka, partner emeritus.

Collectively, they said the tenets put in place by the founders of both firms in 1948 — everything from a laser focus on customer service to a tradition of innovation and an emphasis on anticipating what the future might bring (and being ready for it) — are still serving MBK well as it copes with an onslaught of change coming from every direction.

“I’ve always felt that the strength of our firm is the people here. It’s a collaborative effort. People work really well together; we’ve got a lot of smart people who work hard. From the top down and the bottom up, everybody works as a team.”

This change involves everything from technology and how it is used to better serve both the company and its clients to creating a workplace that recognizes emerging needs and enables several generations of employees to work effectively — work that was in some ways impacted by, and accelerated by, the pandemic and the many ways in which it impacted the workplace.

For this issue and its focus on banking and financial services, BusinessWest talked with MBK’s partners about the past 75 years, but mostly about what will come next — for both the firm and the industry.

 

Addition by … Addition

It was in early 2003 that talks began about merging Meyers Brothers and Joseph Kalicka and Co., two firms that were in ‘friendly competition’ — a phrase heard early and often — for more than a half-century and had a lot of things in common.

Looking back on those days, Drzal Houghton, who joined Meyers Brothers in 1995, said that, while the firms were operating in many of the same spaces, or sectors of the business community, they had different niches. Also, Meyers Brothers had a benefits-consulting business as well as a wealth-management business. So a merger made sense on many levels.

“Both firms had a lot of clients in the medical field, but Meyers Brothers had a lot of clients in the nonprofit industry, so there was a lot of summer work,” she explained. “Whereas, Joseph Kalicka and Co. didn’t have as much summer work, so that was a good fit. Meanwhile, Joseph Kalicka and Co. had a lot of work in the construction and real-estate industries, so it was just clear that we would be stronger together.”

Kalicka agreed. “We decided that it had been 50 years since we’ve been competing against each other and we’d both do better if we merged,” he explained. “It’s worked great; it’s helped us to survive different challenges. We’ve been around for a long time and have been approached by several bigger firms to merge and have turned them down.”

D’Agostino, who joined the Kalicka firm in 1995, noted that there were several young partners with that firm at the time, a core of leadership that appealed to those at Meyers Brothers and made a merger even more attractive.

“The opportunity to make the firm stronger, work on some bigger accounts, and have a good nucleus of young partners — those were all driving forces in the merger,” he noted. “And the culture was very similar.”

The firm that emerged from that merger is now the largest accounting firm based in Western Mass., with more than 60 employees. And that size brings with it several advantages, said the partners, including the ability to attract young talent, a challenge that has only grown in size and scope in recent years as competition for talent grows and the need for young leaders to replace retiring Baby Boomers increases.

MBK serves individuals, privately held businesses, family and independent businesses, and not-for-profit organizations in Western Mass. and well beyond. Services include taxation, accounting, auditing, and business-advisory work. The client list is deep and diverse, and it reflects the many business sectors served and the niches the company has developed. That client list includes Peter Pan Bus Lines, the Springfield Thunderbirds, the construction firm Fontaine Bros., the nonprofit agencies Square One and Mental Health Assoc., and small to mid-sized businesses such as New England Dermatology and Tyler Equipment Corp.

Partners Kristi Reale and Jim Krupienski

Partners Kristi Reale and Jim Krupienski, seen here in MBK’s Founders Room, say the firm has priorities for the future, but especially the need to develop the next generation of leadership.

As they talked about what makes MBK different, and successful, the partners used different words and phrases, but essentially said it comes to down to people — those at all levels of the organization.

“I’ve always felt that the strength of our firm is the people here,” Cheney said. “It’s a collaborative effort. People work really well together; we’ve got a lot of smart people who work hard. From the top down and the bottom up, everybody works as a team.”

Drzal Houghton agreed. “We believe here that it’s family first,” she said. “Our clients think of us as family, and I think it’s just that whole feeling … the clients feel it, the employees feel it. And it really makes us different — we care about every member of our team and every client, like family.”

As they look ahead, the partners again spoke with one voice as they talked about the priorities moving forward and what will be needed for this firm to thrive for another 75 years.

Remaining an independent firm at a time when mergers remain the order of the day and the partners field calls from private-equity firms about acquisition on a regular basis is an important goal — and also a major challenge, said those we spoke with.

“We’d like to remain independent; it’s a tough fight to stay independent, but it’s worth it because it benefits the clients,” D’Agostino said. “We make the decisions here, the philosophy that the client comes first — we can keep that. We all have to follow the same regulations, but we like to make sure we are doing things responsibly and really know our clients.”

Drzal Houghton agreed. “We definitely want to stay independent,” she said. “In the industry, there have been a lot of mergers; a lot of private equity is trying to buy firms, but we have worked very hard to be independent, and we want to give that opportunity to our rising stars.”

 

Crunching the Numbers

MBK’s partners told BusinessWest that, years ago, the firm’s leadership team would conduct an annual two-day retreat to discuss matters and set in place a strategic plan for the future.

Now, they stage four- to five-hour strategy sessions every six to seven weeks. The shorter, more frequent sessions are ultimately more productive — people are tired and less effective at the end of the second day of a retreat, they noted — and follow-up and accountability are more manageable. Meanwhile, change is coming at such a constant and profound rate that more frequent strategy meetings with shorter agendas are certainly necessary.

“We’re maintaining the momentum and holding ourselves more accountable,” said Krupienski, adding that items for discussion include everything from staffing to succession planning; from IT conversions to client services and client development.

Staffing is certainly a common agenda item, and there are layers to this issue, said those we spoke with, adding that these include everything from attracting and retaining talent to creating policies for remote work.

“We definitely want to stay independent. In the industry, there have been a lot of mergers; a lot of private equity is trying to buy firms, but we have worked very hard to be independent, and we want to give that opportunity to our rising stars.”

“A major issue with all businesses, and especially accounting firms, over the past few years has been staffing — staff costs, recruiting staff, and maintaining staff have all been significant concerns within this industry,” said D’Agostino, adding that there are some issues unique to the accounting sector, such as the compression of work during tax season and a reluctance on the part of many younger workers to “want to work the kinds of hours the previous generations have.”

“So we need to adapt to that,” he said, adding quickly that this is one of the many reasons why firms need to embrace technology — especially the technology that can handle some of the more mundane accounting tasks and thus enable professionals in the industry to focus more on consulting and advising clients.

“A lot of the bigger firms are embracing artificial intelligence,” said Reale. “We’re not there yet, but we should look at it and determine if there is anything that AI can help us with.”

Elaborating, she said that, while there is concern in some sectors about AI and its potential for eliminating jobs by doing work that humans can do (see related story on page 32), forward-looking accounting firms need to focus on its potential to create efficiencies and free up professionals to serve clients in different ways.

“AI is not going to be able to have meaningful discussions with a client and help grow its business,” she explained, adding that, increasingly, clients are looking for such consulting services — everything from contracts to mergers and acquisitions — from their accounting firm.

To provide these services effectively, firms need a pipeline of talent, said the partners we spoke with, adding that maintaining such a pipeline has become more difficult in recent years, and for a number of reasons, some of them amplified by the pandemic.

Indeed, Krupienski noted that, years ago, local and regional firms might have had a leg up when it came to the graduates of local colleges and their accounting programs, but now, those same individuals are fielding offers from firms on the other side of the country offering remote work opportunities at wages higher than those traditionally offered in Western Mass.

And that’s one of many challenges this firm and others in the region face as they try to recruit and maintain talent, said D’Agostino, adding that the firm generally likes to hire people with three to five years of experience, but there are simply fewer people with that background available to hire in this market.

Thus, the firm is hiring more individuals out of college, training them, and hoping to hang on to them when they have that three to five years of experience.

 

Then and Now

As they talked about what’s changed in the industry and for this firm, and what hasn’t, the partners we spoke with started with the later.

And Krupienski offered the obligatory “death and taxes.”

That was his way of saying that many of the services — basic and complex — have remained the same over the past 75 years. How they are provided, and sometimes when … well, that’s a different story.

This firm has been essentially paperless for years, said Reale, noting also that the phone has been replaced by email, which has, to a large degree, been replaced by the text, which can come at all hours of the day or night. And, for the most part, it needs to be answered soon after it’s received.

The midnight or 5 a.m. text comprises just one of the many changes that have taken place within the industry, said the partners, adding that many significant changes have also come in the workplace.

Elaborating, they said the younger generations now dominating workplaces like MBK have different needs and priorities than those that preceded them, and firms that want to be successful must acknowledge this and respond accordingly.

And flexible schedules are just part of the equation, said D’Agostino, adding that these generations place a premium on work-life balance and how to achieve that balance.

As an example, he recalled a few younger team members departing at 5:15 p.m. during the height of tax season to go to spinning class, something those in his generation wouldn’t think about doing.

But beyond a need to go to the gym when they need to go the gym, these generations want different things from their work, and they want them more quickly than previous generations, he went on.

“They want diversity in their work situation,” D’Agostino said. “They don’t want to just do a tax return; they want to do consulting work, they want to do something above and beyond that, they want to do things that are interesting to them, and they want challenges.

“In order for this firm to continue to survive, we have to be flexible and accommodate the next generation,” he went on. “That’s what every firm is dealing with; I’m resistant to change, but things have to change, because this is the next generation of leadership here, and this is how they operate.”

Meanwhile, another change that has taken place at MBK is a greater focus on giving back to the community and getting involved with its many nonprofits and causes, said Reale, who couldn’t speak to how things were 75 years ago, but can point to a dramatic change over the 23 years she has been with the firm.

“Twenty years ago, we would do one or two charity days,” she recalled. “And now, every other Friday, there’s a specific dress-down for charity, and some of our team members pick a special organization each month, and we do something for the community each month, whether it’s a service, or stuff the bus, or bringing in toys for the holidays, or providing needed items for the homeless … as a firm, we’re much more involved.”

As an example, she cited work involving an employee who was born in Ukraine and whose family was still in that country when the war with Russia started.

“When that war began, they needed certain things,” she recalled, adding that a local church put out a call for items, and the firm answered that call. Indeed, clothing and other items were donated by employees and clients alike over several days during tax season.

“You couldn’t walk in our lobby; they took three truckloads of items to that church,” she went on. “And that really hit home because it affected one of our team members.”

This heightened involvement in the community is important to the younger team members at MBK, said D’Agostino, and it’s one of the many cultural traits that will aid efforts to recruit and retain talent.

“They want to feel that the firm is behind certain community activities and certain charities because that’s important to them beyond the work environment,” he said. “Usually, it’s one of the staff people that takes the lead on these initiatives, and they really do enjoy it.”

 

Bottom Line

The photos along the walls in the Founders Room generally speak to another time. Indeed, most of those in the pictures have passed away, and the black-and-white images are stark reminders of just how much technology has advanced and the world has changed.

Still, the partners we spoke with said that, when it comes to the business of accounting and auditing, what truly matters most hasn’t changed since 1948, and it won’t change. This would be the matter of working closely with clients to handle their needs and help them set a course for success. And the ability to do this, as stated earlier, comes down to having people who care.

This has always been the main ingredient in the success formula, and as MBK looks forward to the next 75 years, it isn’t about to change that recipe.

Chase Bank Continues Ambitious Growth Plan in Springfield

By
Oumkar Tobaran
Banking and Financial Services

Branching Out

Oumkar Tobaran

Oumkar Tobaran says the human element is critical in banking even amid the rise of online and mobile tools.

At a time when a bank’s customers can conduct business from anywhere with a few clicks, dramatic branch expansion may seem outdated.

But it’s not, Ali Zaidi said, explaining why Chase Bank is looking to double its presence in Massachusetts over the next several years, starting with the opening of a downtown Springfield office on March 7.

“When you think about the important life events that customers go through, whether it be retirement planning, buying a house, or the birth of a child, people still have an appreciation for that face-to-face conversation. That makes an impact,” said Zaidi, Chase’s market director for Western and Central Mass. “And about 75% of our customers that have balances with us still come to the branches. So, clearly, the customers are telling us they would love to have that face-to-face interaction, especially with complex life events.”

Oumkar Tobaran, branch manager for the new location in Harrison Place — which has a long history of housing banks, including Third National Bank and, in recent decades, Bank of Western Massachusetts and People’s United Bank — said the human element is critical.

“With all the technology and innovation we have, think of the amount of things that we can go on our phones to do on a daily basis,” he told BusinessWest. “But the minute something doesn’t go right or the minute you need support or additional advice on something, we want to show that customer service matters, with a physical presence.”

The branch is Chase’s 38th in Massachusetts since opening its first Bay State location in Boston in 2018 — an impressive growth trajectory, and a number the institution is looking to double by 2025, including a location to open this spring in the former Silverscape Designs building on King Street in Northampton.

“This is a central point,” Zaidi said of downtown Springfield, noting that Chase has an office a few miles down I-91 in Enfield, but this is technically the first in Western Mass. “There’s definitely a rich history here on Main Street and its local businesses, as well as larger clienteles with MGM and the Hall of Fame. We’re serving clients of different demographics, and I’m very excited that we were able to secure this spot on Main Street.”

Tobaran said he expects plenty of foot traffic downtown, as well as visits from customers who may have been banking in Enfield or branches to the west, while Chase has been conducting outreach to build a larger base of business in the region.

“About 75% of our customers that have balances with us still come to the branches. So, clearly, the customers are telling us they would love to have that face-to-face interaction, especially with complex life events.”

“We wanted to make sure that we have a convenient place for them to visit because it’s important to be able to interact with the community,” he added. “There’s a lot of development happening in Springfield, and we wanted to be part of that momentum as well.”

Zaidi agreed. “Springfield is a key cog that gives us an entry point into expanding into Western Massachusetts and brings convenience to our customers. Springfield is being revitalized, and I feel we can be an integral part of that.”

He also feels there’s an opportunity to add customers who might already be familiar with Chase through its mortgage products and credit cards. “That’s what people know. So one of our consumer-banking priorities is to be a bank for all and make it easy for people to do business with us. And technology-wise, where customers were able to bank with us remotely, this now gives them a physical location to meet their diverse needs.”

Ali Zaidi

Ali Zaidi says downtown Springfield is the first Chase branch in Western Mass. and the springboard to an eventual doubling of the bank’s branches in Massachusetts.

As he showed off the space at 1391 Main St., from the tellers and ITM machines up front to the various offices further back, Zaidi said the new Springfield branch can do all of that.

“We will help our customers with any needs, and we have more licensed specialist bankers to navigate those complex life events — retirement, financial planning, or just navigating your credit-history trajectory if you’re looking to purchase something down the road. We’re so excited to be providing that face-to-face value, and we’re looking forward to continuing the expansion.”

 

Set Up to Help

This first Western Mass. branch is about 3,000 square feet in size and features a modern, bright design with plenty of natural light, quiet meeting areas, and state-of-the-art banking technology, including those ITMs, which allow a higher withdrawal limit than traditional ATMs, as well as access to Chase professionals.

“For customers who have commercial or small-business banking needs, we have our team of experts, partners who will be working out of here and supporting other branches to connect customers. So it’s a one-stop shop.”

A dedicated Chase Private Client team provides premium banking services, personalized attention, and access to the expertise and investment capabilities of J.P. Morgan to help families reach their goals. Customers may also meet with financial and home-lending advisors and business-banking relationship managers.

“Our retail banking operations are here, and we have our licensed bankers to deal with client management,” Zaidi explained, “and for customers who have commercial or small-business banking needs, we have our team of experts, partners who will be working out of here and supporting other branches to connect customers. So it’s a one-stop shop.”

Tobaran said the open layout will help customers easily navigate what they need. “We will have associates in the lobby greeting clients, interacting with them. And then, depending on the transactions they’ll need to leverage, we can go back here and figure out what we need to help them with,” he explained, gesturing away from the front door toward the offices in back.

“But we equip a lot of our associates with tablets,” he added. “So in addition to helping them back there, however we can help support them face to face, sitting down in the lobby area, we will do that with the resources and tools we have.”

Besides banking business, Chase also wants to connect with Greater Springfield in other ways, Zaidi said, through financial-literacy programs and other types of community outreach.

“The idea is to have our branches be community anchors. So when we think about financial-literacy conversations, be it with young professionals or small-business owners, we want to host workshops and assistance in that space as well,” he explained, noting that Chase is working on several community-development efforts around financial literacy, including a partnership with Western New England University. “So this would serve as an anchor for us where we could do before- or after-hours seminars and events. It makes sense.”

Harrison Place

Harrison Place has been home to several banks in the past, from Third National Bank to the Bank of Western Massachusetts and People’s United Bank.

Tobaran added that the bank’s employees also reflect its region, as the branch hired locally, including people who hail from the Latino and Vietnamese communities, among others.

“We want some familiar faces to be representing Chase, saying, ‘hey, these are the resources we have to help you accomplish your goal.’ It was important for us to get local talent, people who had ties to the community, people who are passionate about giving back and who genuinely want to see Springfield succeed.”

 

Only the Beginning

Zaidi and Tobaran know Chase is making an ambitious surge into a region some have called overbanked, and where community banks have long dominated. But they say Chase is committed to local residents and organizations in much the same way locally headquartered banks are, while also bringing vast financial resources to the table.

“When you think about Chase, we have the resources of a large global corporation,” Zaidi said. “And our vision is, how do we take those resources and localize the solutions for our customers? Our technology and data analysis help us strategize and take a more targeted approach, because all the branches are going to operate differently based on the community-specific needs.”

One example is a partnership with Habitat for Humanity, one of the organizations that will be on hand on March 15 for the branch’s official grand-opening festivities.

“That’s one way Oumkar and his team have been making an impact in the community already,” Zaidi said. “We feel that we can be a valued contributor in that space among all the other banks. The competitive edge that we have is not only through our resources, but with the community aspect that we are trying to drive here.”

New Accounting Standards Impact Business Leases for 2022

By Contributor
Banking and Financial Services

Details, Details

By Matthew Nash, CPA

 

The implementation of the Financial Accounting Standards Board’s (FASB) new lease accounting standard, ASC 842, presents a major challenge for companies that produce financial statements under Generally Accepted Accounting Principles (GAAP).

Matthew Nash

Matthew Nash

After almost seven years since the release of Accounting Standards Update (ASU) 2016-02 in February 2016, these organizations must now work toward implementing ASC 842 for the 2022 fiscal year. This article will provide an overview of the key changes that need to be made in order to ensure compliance with the new lease-accounting standard.

 

What Is ASC 842?

This standard intends to provide visibility on a company’s capital needs and obligations, improve consistency in financial-statement presentation, provide enhanced disclosures to the readers of the financial statements, and improve the comparability of lease practices across entities and industries.

Under the new standard, lessees are required to account operating leases with terms longer than 12 months on the balance sheet, resulting in the recognition of a right-of-use asset and the corresponding liability. Under the previous standard, ASC 840, the only leases that were required to be accounted for on the balance sheet were capital leases, which are now referred to as finance leases under ASC 842. Prior to ASC 842, operating leases required disclosure only in the notes to the financial statements.

Lessor accounting practices remain largely unchanged from ASC 840 to 842.

 

What Qualifies as a Lease Under ASC 842?

To better understand the new lease standard, you must first understand the definition of a lease. A lease is defined as the contract, or part of a contract, that conveys the right to control the use of an identified property, plant, or equipment for a period of time in exchange for consideration.

To simplify this definition, a lease is a physical asset that a company has the right to direct the use of for economic benefit. The most common examples of leases are office space, machinery, vehicles, equipment, and land.

 

What Steps Should Companies Take to Prepare?

To prepare for adoption of this standard, companies first need to account for all their existing leases and thoroughly review the contracts to determine whether they include an operating or a finance lease.

 

Do You Have an Operating Lease or Finance Lease?

If the lease meets any of the following criteria, it will be classified as a finance lease:

• Does the lease transfer ownership at the end of the lease term?

• Does the lease grant the lessee a right-to-purchase option that is lessee is reasonably certain to exercise?

• Is the lease term for the major part of the economic life of the underlying asset?

• Does the present value of the sum of lease payment and any residual value guaranteed by the lessee not reflected in the lease payments equal or exceed substantially all of the underlying asset’s fair value?

• Finally, is the underlying asset of such a specialized nature that it is not expected to have an alternative use to the lessor at the lease term end?

If the answer to all five of those questions is no, then the lease qualifies as an operating lease.

 

Lease Details

After concluding the lease type, it is time to dig into the lease details:

• When does the lease start?

• When does the lease end?

• Are there early termination or renewal options?

• Are there variable expenses related to the lease?

• What is the monthly cost of the lease?

The answer to all these questions is integral to the calculation of the asset and liability to be included in the financial statements. Once the total future lease obligation has been calculated, the obligation will be presently valued using one of three discount rate options. The newly recognized right-of-use asset and liability will then be amortized over the life of the lease, based on the lease type.

For income-statement purposes, operating leases will continue to be classified as lease expense, and finance leases will be split between amortization expense and interest expense.

 

Transition Methods

As part of the initial adoption of the new lease standard, there are certain practical expedients that can be adopted to help make the transition easier. Companies are not required to assess existing lease classifications. Existing operating leases with terms extending beyond 12 months will be included on the balance sheet effective Jan. 1, 2022, the date of required adoption. Existing capital leases will continue to be included with property, plant, and equipment, and will be amortized over the remaining life of the lease.

 

Financial-statement Disclosure Impacts

Aside from the impact on the balance sheet, the standard will also provide enhanced disclosures in the notes to the financial statements. The required disclosure will include qualitative and quantitative disclosures, including descriptions of the existing leases, disclosure of lease expenses as included in the income statement, cash paid for leases during the current year, new right-of-use assets obtained through operating and finance leases, weighted average of discount rate used to present value the lease obligation, and the maturity analysis disclosing the future obligations to be paid.

 

In Conclusion

The new lease standard is expected to have the biggest impact on those companies with a large volume of real-estate leases that have previously been required to be disclosed only in the footnotes to the financial statements. The overall expectation is that most companies with leases will see some impact related to the adoption of the new standard. Because the new standard has a balance-sheet impact, it is recommended that all companies review any financial covenants and proactively work with financial institutions to consider whether amendments to covenants may be required.

There are many intricacies within the new lease standard, and it will be a learning process for all of those involved in preparing their company’s financial statements. The best thing a company can do is take the time to make sure that they fully understand how each lease is written, and to have an open dialogue with their CPA.

 

Matthew Nash, CPA is a senior manager at the Holyoke-based accounting firm Meyers Brothers Kalicka, P.C.; (413) 536-8510.

 

Matt Garrity Focuses on Continued Growth as He Takes Helm at Florence Bank

By
Matt Garrity
Banking and Financial Services Special Coverage

Forward-looking Statements

Matt Garrity

Matt Garrity

 

Matt Garrity says it was a few years ago, when he was established in his role as executive vice president and chief lending officer at Premier Financial Corp. in Ohio, that he determined that the next logical career step would be to preside over his own bank.

As time went on, and the calls from recruiters started multiplying, the major questions to be answered concerning this ambition were … where, and what?

The ‘where’ involved geographic regions, and Garrity had his preferences, especially the Northeast — he grew up in Lee. As for the what … he desired to be at a bank with a long history, a solid track record, a strong growth pattern, and a plan to continue along that path.

Not long after being encouraged to consider succeeding Kevin Day as president and CEO of Florence Bank, he concluded that all of those boxes could be checked — with authority.

“It’s a perfect fit — this is such a great bank, and it’s got a terrific board,” said Garrity, adding that there many things that stood out about the institution. “From a financial standpoint, this is a very strong and well-positioned bank, and what also came across loud and clear in my conversations with the board was what a great culture this organization has; this is a very customer-focused, community-minded culture that we have here, and a very engaged workforce.”

Garrity, who arrived at the bank in January, takes the helm at a very intriguing time in its history. Indeed, the institution will celebrate its 150th anniversary this year — May 6 is the actual anniversary date. It will mark the occasion in a number of ways and over the course of the year, he said, adding that the planning process is well underway, and details will emerge in the coming weeks.

“We’ll look to continue to grow the bank in Western Massachusetts, looking for opportunities to grow not only in Hampden County, where the bank has started to grow in recent years — we’ll look to continue that strategy — but also with our commercial business within the bank.”

Meanwhile, the institution that started as Florence Savings Bank to serve that growing village has moved well beyond its roots, most recently with a push into Hampden County. Where the next steps in that progression will take place have yet to be determined, but they will likely be in that corner of Western Mass., said Garrity, adding that, like most institutions, Florence is eying controlled, orderly growth, not growth for growth’s sake.

“We’ll want to continue that growth pattern in Hampden County,” he said, noting that branches opened the past several years in Springfield, West Springfield, and, most recently, Chicopee. “That’s certainly on the drawing board for us.”

For this issue and its focus on banking and financial services, BusinessWest talked at length with Garrity about his new assignment and his vision — still very much in the formative stages — for the next 150 years for this Western Mass. institution.

 

Points of Interest

Garrity said he’s spent his entire career in financial services, most of it focused on the commercial-banking side of the spectrum. It was at Premier Financial Corp. that he started taking on additional responsibilities and work in areas “other than the one I grew in,” as he put it, which put him on a path to the corner office at Florence Savings.

Among these areas was residential lending, he said, adding that gaining traction in this and other realms created learning experiences on a number of levels, not just adding lines to a résumé.

“That was a real step in my career,” he said. “Being able to work effectively and work with the team and run that business successfully was something that was really important in my career development.

Florence Bank’s branch on Allen Street

Florence Bank’s branch on Allen Street in Springfield is one of three in Hampden County, where additional expansion is expected in the coming years.

“As careers go on their paths like they do, and your responsibilities begin to grow and you get exposed to new businesses that maybe you weren’t the subject-matter expert in, and you begin to show your ability to effectively manage those businesses and work with the people in those businesses, that’s when you start to think that you can do this on a broader level,” he said, adding that it was several years ago that he considered himself both ready and willing to consider those calls from recruiters asking him to consider bank-presidency positions.

And there were many of them in recent years, Garrity noted, adding that he was, in a word, selective about which ones to pursue.

“Not every bank CEO position was in a part of the country that my wife and I would be comfortable going to, or you really wanted to go to, since we had optionality,” he told BusinessWest. “We were somewhat selective about the ‘where,’ the ‘what,’ and the ‘who’ we would be working with.”

As noted earlier, Florence, now with $2 billion in total assets, checked many of the boxes on his list, especially financial strength, corporate culture, and a long history of service to, and involvement in, the community.

In recent years, that word ‘community’ has come to mean much more than Florence, he said, and its definition will continue to broaden in years to come.

As he talked about the bank’s growth strategy and the next steps in that plan, Garrity acknowledged that there is a great deal of competition in the region, and it comes with institutions of all sizes, from smaller community banks — Florence is still in that category — to very large regional and national banks, like Chase, which just opened a branch in downtown Springfield and will soon open another in Northampton (see story on page 18). But he also acknowledged that banks like Florence need to continue growing at a time when size certainly does matter.

Florence Bank’s branch on Allen Street in Springfield is one of three in Hampden County, where additional expansion is expected in the coming years.

“We’ll look to continue to grow the bank in Western Massachusetts, looking for opportunities to grow not only in Hampden County, where the bank has started to grow in recent years — we’ll look to continue that strategy — but also with our commercial business within the bank.”

 

Taking Things into Account

Florence currently has 12 branches, nine in Hampshire County and those three in Hampden County. Future growth will likely be within that footprint, Garrity said, adding that, while several area banks have ventured into Northern Connecticut, Florence has no immediate plans to follow suit.

“As we look to continue to build the franchise, we’ll be strategic about that and determine what makes the most sense for us, and where the Florence Bank story makes the most sense for the community and for the bank.”

Despite advances in technology and the ability of consumers to do much of their banking remotely, he added, there is still a place for brick-and-mortar branches, for reasons that include everything from quality of service to marketing.

“Branches are more than deposit-taking propositions,” Garrity noted. “Not only do they represent the bank out of the market, it’s a place for outbound activity, for a bank to get out in the community and to make its presence felt.

“I think branch banking is really evolving,” he went on. “For us, that doesn’t mean we need a branch in each and every town and on every corner — that wouldn’t be our model — but we’ll need more in Hampden County to get the most out of our network.”

Within this very crowded banking marketplace, Florence has what Garrity describes as some competitive advantages.

“It gets down to people,” he explained. “As we look at what our strategic advantages are as we compete in these markets, we have terrific people, and that’s always a big strength that we’re going to have. We’re also very locally focused; the deposit dollars that we take in from Hampshire County and Hampden County are being redeployed in Hampshire County and Hampden County, and from a philanthropic perspective, this organization is focused on these communities as well.

Florence Bank’s branch in Chicopee

Florence Bank’s branch in Chicopee is the latest addition to the portfolio.

“Over the past five years, this organization has donated to charitable causes in this region close to $3 million,” he went on. “So there’s a significant commitment that we have, and this is part of what helps us continue to be relevant over these past 150 years. One of the founding principles of the bank back in 1873 was ‘neighbors helping neighbors,’ and that’s as important to us today as it was back then.”

People, meaning the team at the bank, are also a key component in the growth strategy for the commercial-lending side of the ledger, said Garrity, adding that there is no shortage of competition in this realm, either.

“It’s the people that help you stand out, people and the ability to bring solutions. The advantage of working with a bank such as Florence Bank, given our size and what I’ll call our flat structure and local decision making, is we can get the right people around a table to make a good, common-sense answer for our client — a custom solution. That is a distinct advantage that we would have over some of our larger competitors that are more decentralized and a little more pigeonholed from a policy perspective.”

He noted that the commercial market was strong in 2022 because many businesses that were on the fence decided to move ahead before interest rates went up. They did rise, considerably, and these increases, coupled with uncertainty concerning the economy and other headwinds, has slowed the commercial market in recent months, he went on, adding that this is a nationwide phenomenon and one that bears watching in the coming months.

The same can be said for the residential market, which has slowed dramatically in recent months — a 28-year low nationwide, in fact — as a result of rising interest rates and low inventory.

 

Bottom Line

Garrity said he’s spent his first few months at Florence engaging with his team at the bank, looking for opportunities to engage in the community, and “learning the bank,” as he put it.

“I’m asking a lot of questions and listening for the answers,” he noted, adding that what he’s heard so far is that this institution is well-positioned to take advantage of the opportunities that will present themselves in the months and years to come.

“We have a great team, and we have a really good bank in a very good position,” he said. “And we’ll plenty of opportunity to continue to do great things here and great things for our customers, so I’m excited; 150 years is a great accomplishment for this organization — and for this community that has supported us. We have more than 50,000 customers that support this bank in the communities we serve, and we want to continue to serve them for another 150 years.”

 

Webber & Grinnell Insurance Maintains Its Local Focus

By
Bill Grinnell
Banking and Financial Services

Policy of Partnership

 

Bill Grinnell

Among other reasons, Bill Grinnell says Webber & Grinnell joined with the Alera Group because of its commitment to the agency’s local focus.

Bill Grinnell says last year’s move by Webber & Grinnell Insurance to become part of the national Alera Group hasn’t changed much about the agency’s business model or its relationships with clients. And that was the idea.

“We’re still managing the agency locally here in Northampton and Holyoke,” said Grinnell, the agency’s longtime partner. “It’s still basically the same crew we had before, outside of some normal turnover.”

So why the move to Alera?

“I turned 60 last year, and we’re looking toward the future of perpetuating the agency and continuing to grow it, so we began looking for partners to help us perpetuate that moving forward,” he said. “We talked to 10 to 12 overall, and Alera, hands down, was the one group that really fit all our needs, and thus we became part of the Alera Group.

Partner Mike Welnicki, who specializes in employee benefits, explained why Alera stood out.

“Our area is a tight-knit business community, and we knew, if we joined a firm that wanted us to rebrand right away, to maybe move our offices or join up with other companies and really change the way that our model worked, we were going to lose that small-business feel in Western Massachusetts,” he said. “What Alera told us was, ‘we’re going to give you all the resources both regionally and nationally, but you’ve been successful for over 100 years; keep running your business the way you run it, and we want to be part of that.’ That’s really what made Alera stick out immediately.”

“What Alera told us was, ‘we’re going to give you all the resources both regionally and nationally, but you’ve been successful for over 100 years; keep running your business the way you run it, and we want to be part of that.”

What has changed, Grinnell said, is the breadth of resources Webber & Grinnell can now access.

“Our business is split three ways: personal lines, commercial lines, and employee benefits. Alera has a group of other property-casualty agencies, other employee-benefit agencies, across the Northeast. And we’re on the phone or in meetings just collaborating with them all the time. For example, we might get an opportunity to work on a risk, but we might not have the expertise or experience to enable us to write that risk, but another Alera agency might specialize in that market niche. So we’re able to tap into their expertise, into their markets. It just brings extra insurance minds and experience to the table in addition to what we had already at Webber & Grinnell.”

Mat Geffin

Mat Geffin says Webber & Grinnell has been consistently growing both organically and geographically.

Jenna Duval, Commercial Lines manager at Webber & Grinnell, said Alera’s values also lined up with the local agency. “That’s where it was an easy sell with my team to get behind Alera; they really do work in a collaborative spirit, and they work with each person to make sure those individual needs are being met, and it’s not just the big corporate feel of one company. We run as an individual branch with that collaborative spirit, and it really does make a huge difference with morale; everybody is on board with it.”

Beyond the new affiliation, Webber & Grinnell has been growing both organically and geographically, said Mat Geffin, another partner. He was on Cape Cod when he spoke with BusinessWest, an example of how the agency’s reach has spread.

“Our roots are in Western Mass., and that’s where the bulk of our business is, but we get pulled into clients all over New England, just because of our approach, the way we work with clients, and the value they get from it. From an organic growth standpoint, year over year, I want to say we’re always consistently growing in that 8% to 10% range, some years bigger, some years smaller, but we’re consistently growing, and most of it is referral-based business. And I think it’s because of the consultative approach we take to this business, which clients really appreciate, and it differentiates us quite a bit.”

 

Threat Assessment

That approach ensures that clients understand all their risks and exposures so they purchase the right policy, but it goes much deeper than that, Geffin said.

“We get really involved in the client’s business. Of course, we have a huge personal-lines operation as well, home and auto, but speaking from the commercial side of the house, it’s about being a part of their business, being on their team — understanding what they do operationally and how that translates to risk management, rather than just looking at it purely from the standpoint of coverage and insurance and quotes.

“Any agency can just quote a bunch of policies; that’s the basic part of the job,” he went on. “But how do you understand their operations, their culture, their level of employee engagement, and how that translates to risk and risk management? That’s the difference. And I think that’s what clients value about what we do.”

Welnicki said Webber & Grinnell wants clients to see the agency as a key employee in their firm.

“You need to evaluate what revenues we’re receiving as your broker and decide, are we worth it, just like any other key employee? If we’re not, then we’re not the right fit,” he explained. “We really want them to view us as an important resource of their business, and that’s why our retention rates have been in that 97%, 98%, 99% range year after year, to help us achieve that 8% to 10% growth.”

“We’re consistently growing, and most of it is referral-based business. And I think it’s because of the consultative approach we take to this business, which clients really appreciate, and it differentiates us quite a bit.”

Risk is always evolving, Grinnell said, most notably in the cyber liability realm. Since major breaches like

Bill: It’s always evolving. The biggest new coverage that emerged in the last five to eight years is cyber liability, and even that started off really as a coverage to protect your data. The TJ Maxx breach in 2007, which compromised the data of 94 million customers, and other breaches that followed have spurred companies to get on board with protecting their data.

“And that’s evolved even more; the bigger exposure now is extortion, where cyber thieves are coming in and shutting down your entire computer system and saying they want to be paid $100,000, $200,000, $500,000, or you’ll never log into your computer system again,” Grinnell said. “Not only is the coverage new, but how you’re selling it and what the exposures are have changed.”

So has the reporting employers have to do now because of the Affordable Care Act and a host of other regulatory entities, Welnicki said.

“You’ve got human-resource folks wearing 19 different hats, and controllers, CFOs, and business managers trying to do the HR functions. Part of our job is help support human resources, make sure they’re in compliance with the DOL and IRS and ACA. So many of our clients really don’t have that classically trained human resources professional, and that’s where our team, not only locally but with Alera nationally, can help them make sure they’re in full compliance.”

On the residential side, customers need to understand what their policies cover as well, Grinnell said, while insurance carriers are insisting on certain levels of protection these days, especially in coastal regions or other areas vulnerable to catastrophic weather, “because the cost of claims has just skyrocketed.”

 

Creating a Culture

Webber & Grinnell’s relationship with clients even extends to conversations about workplace culture, which is key to employee retention, especially at a time when businesses are struggling with that.

“We practice what we preach here at the agency, and we’re really proactive about creating a positive culture, and we’ve learned a lot along the way,” Grinnell said. “As a result, we’re able to have those conversations with our clients. So we get into not only insurance, but also just plain running your business and how to make it better. We try to have those overall business conversations with our clients and not just focus on quoting policies.”

Duval seconded the idea of practicing what they preach. “We’ve continued to build our culture. We have a work-hard, play-hard atmosphere; we’re definitely busy, and we put education into everything we do to better our employees, but we like to have fun, too.”

For example, a social committee plans events for both in-office and remote workers that helps everyone feel part of the organization and its collaborative spirit, she explained. “We want to get to know the team and have team-building moments, so everyone feels supported and has an opportunity to meet and talk and have that collaborative spirit outside of work.”

Geffin noted that culture is so important at Webber & Grinnell that the agency has a ‘culture book’ that’s given to new employees as part of the onboarding.

“It’s a way to emphasize how important culture is to the company, because, again, we try to practice what we preach. We talk about employee engagement with our clients, with our prospective clients, but most importantly with ourselves.”

That culture extends to supporting some 50 to 60 organizations in the community, by sponsoring events, like Safe Passage’s Hot Chocolate Run, and sitting on boards; for example, Grinnell is treasurer of the Food Bank of Western Massachusetts, and Geffin is treasurer of Clinical & Support Options.

“Whenever an employee has an idea on something they want to do from a community standpoint, we’re always figuring out how we can work it in,” Geffin said. “I think that’s just being a part of a business community with our peers and colleagues throughout Western Mass. What makes Western Mass. so great is we all do this. It’s not unique to us. We’re just happy to be a part of that community.”

When the agency acquired Ross Insurance in Holyoke several years ago, that was an important consideration for Ross as well, Grinnell said, which is why Webber & Grinnell has continued to support many Holyoke organizations.

It’s all part of a local focus that Alera has promoted from day one and impacts all parts of the business, he added.

“Alera’s tagline is ‘national scope, local service,’ and I think it’s really important to emphasize that, because we wanted that national scope, that ability to further enhance our colleagues’ careers and help our clients get more resources, yet not lose the local touch and the local leadership,” Geffin said. “When we made that move, that was top of the list.”

Amy Jamrog Takes Financial Advising, Coaching to Wider Audience

By
Banking and Financial Services

Taking Flight

Amy Jamrog

Amy Jamrog says she started Four Wings and wrote her book Confetti Moments to broaden her impact as a coach and consultant.

Amy Jamrog says the past few years have certainly been a rough ride for investors — and anyone looking for financial advice.

Indeed, between the pandemic and its many side effects, wild swings — and serious dips — on the stock market, copious amounts of uncertainty, and non-stop talk about inflation and recession, people have been looking for a calm voice, someone who can help them make sense of all this, someone who can help them cope.

Meanwhile … those doing the financial advising have been looking for all of those same things. And this certainly helps explain the rapid growth and intriguing staying power of a relatively new resource for these financial advisors called Four Wings Consulting. That name, and the accompanying logo, have some real significance.

“The dragonfly is the only insect that can fly forward, backward, up, down, and side to side,” Jamrog, a 25-year veteran of the financial advising sector, told BusinessWest. “And so, my coaching is about helping people figure out which direction they’re currently flying in and getting them moving in a forward direction.”

Elaborating, she said the coaching service was designed to help financial planners come up with relevant content, innovative solutions, and new ideas month after month — and pass on what they learn (often about subjects other than money) to their clients. At the same time, they were getting needed support themselves.

“The dragonfly is the only insect that can fly forward, backward, up, down, and side to side. And so, my coaching is about helping people figure out which direction they’re currently flying in and getting them moving in a forward direction.”

“During the pandemic, I was finding that so many financial advisors were working really hard to help their clients, and not having any support for themselves and feeling really isolated,” she said. “I just put out this idea of creating a community of advisors and coaching them as a group.”

Initially she thought maybe 20 or 25 of her colleagues might be interested in being part of such a group. But to her surprise, 130 signed up for it, and most of them continue to join each week.

 

Light in the Darkness

For Jamrog, Four Wings has become one way to share and spread ideas and inspiration. Another is the book she recently wrote called Confetti Moments: 52 Vignettes to Spark Conversation, Connect Deeply & Celebrate the Ordinary, a title that really says it all.

The book, finished in August and launched in November, is now a Wall Street Journal and USA Today bestseller, popular with CEOs, team managers, and even families.

Confetti Moments is a collection of entries to a blog Jamrog started near the start of the pandemic called Wednesday Wisdom, which was started to bring some light to some very dark times. To explain, she turned back to when the world shut down.

“I wanted to bring something positive to our clients in the wake of such uncertainty and depressing information everywhere,” she explained. “So I started blogging weekly with uplifting stories that I thought would be a nice diversion for my clients.

Amy Jamrog book

“I did it every week for two years during COVID, and I came to find out that thousands and thousands of people were reading it and forwarding it to their entire companies or their departments,” she went on. “I heard from people who said, ‘my boss sends me this every Wednesday, and I love your stories.’ And the feedback from my readers was ‘I wish you could package all these stories into a book — I would read the whole book again.’”

She did, and they are.

The 52 chapters in Confetti Moments take titles that include “Sometimes We Need a Wider Lens,” “You Can’t Take It With You,” “Stay in Your Lane,” “Lower Your Expectations,” “What Our Scars Say,” and “When Eight Oars Are In Sync.” Collectively, they are designed to provoke thought and inspire positive change, said Jamrog, who is doing all this in addition to her day job as a financial consultant with MassMutual.

“There are opportunities to impact one client at a time — that’s a fine career, and many people do really well with that. I got to a point, maybe five or six years ago, where I really wanted to have a bigger impact on my industry.”

As she talked about both Four Wings and Confetti Moments, she said they were both born from a desire to broaden her impact as both a financial consultant and coach.

“There are opportunities to impact one client at a time — that’s a fine career, and many people do really well with that,” she told BusinessWest. “I got to a point, maybe five or six years ago, where I really wanted to have a bigger impact on my industry. I knew that the work my team and I do as financial advisers is very, very good and very different than the average advisor, and I wanted to teach that.”

This was the start of Four Wings, through which she now coaches roughly 100 financial advisors, who take part in monthly Zoom sessions. This consulting work started a few years before the pandemic, she noted, but it really picked up steam during the early months of the pandemic, when, as she noted earlier, advisors were isolated, their clients were looking for answers, and many were just searching for a guiding voice.

“It started with financial advisors feeling isolated, trying to help their clients financially, and being resourceful for them,” she said. “But they were realizing that many of their clients were just stuck; they couldn’t make financial decisions, or they [the advisors] didn’t know how to move them forward in the wake of such uncertainty and panic for most people.”

Three years later, the community of advisors she created, who pay a monthly subscription fee to take part, continue to meet, with participants from across the 413 and also across the country, all of whom are still helping clients cope with a volatile market, uncertainty, and growing fears about recession and what might come next.

“Advisors want to be resourceful and bring a positive message to the clients,” Jamrog said. “But at the same time, they also need an outlet, someone to vent to, someone to present their worries and concerns to and get some great feedback. The biggest challenge in being a financial advisor is that we give advice and guidance all day long, but sometimes it’s nice to actually get some advice and guidance; that’s what I provide, and that’s what these groups provide.”

 

Sparking Change

As for Confetti Moments, she said she’s already sold several thousand copies of the book, which is comprised of what she considers the 52 “best” of her Wednesday Wisdom blog entries.

Each chapter has the blog post, followed by some “Ideas to Spark, Connect & Create This Week,” and a page to write down some notes.

In the chapter titled “Stay in Your Lane,” Jamrog writes: Safety features on cars are designed specifically to keep the drivers safe. Too bad we as humans don’t come equipped with those warnings too. Wouldn’t be great if we came programmed with a little sensor that reminded us periodically to stay in our lane? How often do we take on things that are not our business? Do you find yourself straying into other people’s areas with good intentions — probably even genuinely meaning to help them — but then realize that staying in your own lane is the better, safer place? For everyone?

For those ideas to spark, connect, and create, or ‘prompts,’ as she calls them, she has these:

• Look around at different areas in your life. Where are you drifting out of your lane?

• In an effort to be ‘helpful,’ have you drifted into someone else’s lane? Do you owe them an apology and a promise to stay out of their way in the future?

• What is your lane? Take some time to define this for yourself since it can change over the years. Once you identify the area(s) you excel and thrive, you’ll be happy to spend more time in those lanes.

“The prompts ask you to change something in your life over the next seven days,” she explained. “And then you do it again next week.”

Elaborating, Jamrog said the book is inspiring people to “celebrate the ordinary,” and in the few months since the book came out, readers, many of them business owners and managers, are heeding that advice and encouraging others to do the same.

“I have five appointments this week for corporations who want to book me for corporate speaking engagements because companies want to bring more Confetti Moments to their employees,” she said, adding that this was a typical week.

Summing things up, she said that all aspects of her work, including her day job, are about creating such Confetti Moments. That’s what she meant by broadening her impact.

And if the volume of book sales, as well as the number of advisors attending her weekly Zoom meetings, are any indication, then she is certainly succeeding with that goal.

How to Attract Employees with the Right Retirement Plan

By Contributor
Banking and Financial Services

Saving Grace

By Barbara Trombley, CPA

 

With a labor shortage and looming recession, attracting the right employee is more important than ever. Many small businesses are struggling to find qualified candidates.

Other than wages and healthcare, how can you make your business more attractive to a potential worker? Often, a retirement plan is the answer.

With the absence of traditional pensions today, the onus for retirement is on the employee. Many small-business owners may feel a personal responsibility to enable their employees to fund a retirement. Not having one at all can certainly be a deal breaker for many applicants.

The ability to save, directly from a paycheck, is very attractive. But what plan should you offer, and what are the costs? What are the benefits of the different types of plans?

The most common type of plan is a 401(k). You need only one employee to set up a 401(k). The biggest advantage to this plan is the high level of salary deferrals that it allows. The limit for 2023 is $22,500 with a $7,500 catch-up contribution for those over age 50. Many plans can offer both pre-tax contributions and post-tax (Roth) contributions. There are many investment choices that are possible in a 401(k) plan. Also, many plans are associated with a financial advisor who will offer education to your employees, possibly helping them save more for retirement.

“Other than wages and healthcare, how can you make your business more attractive to a potential worker? Often, a retirement plan is the answer.”

Barbara Trombley

Barbara Trombley

One drawback is that a 401(k) plan can be one of the more expensive types of plans to set up and maintain. The plan needs to be either a safe-harbor plan, where the employer must make a specified matching contribution or automatically deposit 3% of the employee’s salary into the plan (any contributions made by the employer are tax-deductible), or the plan needs to be tested each year to ensure that the plan does not discriminate against highly compensated employees.

In the past, this type of plan had to be offered to all employees over 21 years of age who work at least 1,000 hours. The rules are changing to allow some part-time workers to participate. In my opinion, a 401(k) plan is the most advantageous plan to the employee but may cost the employer more in administration, setup fees, and safe-harbor contributions compared to other plans.

Another popular plan for employers is the SEP plan. Again, this plan can be offered by businesses with more than one employee. The main difference between the SEP plan and a 401(k) is that SEP contributions are made only by the employer; there are no employee contributions. This type of plan is very simple to set up and does not have testing requirements. The maximum annual contribution is 25% of salary, up to a limit of $66,000. The employer has to make the same percentage contribution for each of his or her employees.

The benefit of this plan is that it is very simple to set up; the drawback to the plan is that the business owner needs to make all of the contributions, which may not be economically feasible. As an advisor, I often see a solo business owner having this type of plan.

What if a business owner does not want the complexity and costs of a 401(k) and does not want to fully fund a retirement plan like the SEP? A Simple Plan may be the answer. A Simple Plan can be offered by a business with fewer than 100 employees. There is no annual filing, and you usually use a financial advisor to set it up and choose the investments.

The limit for an employee’s contribution is $15,500 in 2023, or $19,000 if the employee is over age 50. The reductions can come directly from payroll, and the employee can decide how much to contribute. The employer must either contribute 2% of each employee’s compensation or match 100% of employees’ contributions up to 3% of their salary (which can be lowered to 1% in any two of five years). This plan is attractive to many small-business owners as the administration overhead is drastically reduced compared to a 401(k), and there is a relatively small matching contribution that needs to be made.

Lastly, I have helped a few small businesses set up a Payroll Deduction IRA. This is the perfect solution for an owner that would like to enable their employees to save for retirement but may not have the funds for matches or administration. In this type of plan, the employee can contribute up to the Traditional IRA limit ($6,500 if under age 50 and $7,500 if over), with the funds drawn directly from their paycheck. There are no setup fees for the business owner and no employer matches or testing requirements. The employees own their account if they change jobs. Many people are eligible to contribute to a Traditional IRA, but having the deduction made through payroll makes the plan more accessible.

As an additional motivation for a small business to set up a retirement plan, the federal government has been increasing the incentives to the business owner with tax credits. The owner can deduct up to 50% or $500 of plan startup and administration costs for the first three years of the plan. Additional tax credits may become available as our government continues to encourage retirement saving. Consult your financial advisor or an employee-benefits specialist to set up a plan.

 

Barbara Trombley is a financial planner with Wilbraham-based Trombley Associates Investment and Retirement Planning; (413) 596-6992. Securities offered through LPL Financial. Member FINRA/SIPC. Advisory services offered through Trombley Associates, a registered investment advisor and separate entity from LPL Financial. This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal, or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this education material.

Area Banks Navigate Unpredictable Economic Tides

By
Paul Scully
Banking and Financial Services Special Coverage

Cloudy Forecast

Paul Scully

Paul Scully says loan demand was strong in 2022 despite the interest-rate hikes.

A constant flow of interest-rate increases didn’t exactly make borrowers happy in 2022, Paul Scully said, but it didn’t keep them from participating in the economy.

“I think, coming out of the pandemic, there was a pent-up desire to reconnect, within business circles and in communities. We had a terrific year for lending,” said Scully, president and CEO of Country Bank, which opened a new business production office in Tower Square in downtown Springfield last year. “That’s worked out beautifully for us. Our loan production in 2022 was the greatest level ever — we originated over $400 million in loans, almost $170 million in net growth.”

A broadening of the focus made a difference, Scully said. “Country Bank has been known as a commercial real-estate lender; that was our niche. We’ve gotten more deliberately into C&I lending from 2021 going into 2022, and have done some significant C&I deals: $10 million, $20 million, $30 million deals. We have the expertise in house to be able to do that. And based on our capitalization — we’re one of the highest-capitalized banks in the Commonwealth — it gives us the opportunity to be able to grow along with businesses and customers.”

bankESB’s holding company, Hometown Financial Group, continued to grow in 2022 as well, with the acquisition of Randolph Bancorp and its subsidiary, Envision Bank, which was merged into Abingdon Bank, another Hometown holding, more than doubling its presence on the South Shore.

“The most interest-sensitive customers are residential borrowers, and as residential mortgage rates rose throughout 2022, we saw the volume of residential lending, especially refinances, drop dramatically. Commercial lending is definitely impacted as well, though not to the same extent.”

“We’re in a very low-margin industry,” said bankESB and Hometown President and CEO Matt Sosik, explaining why growing geographically to create scale is an important part of the company’s strategy. “Any business person will tell you costs are rising, whether it’s insurance, utilities, fuel oil, you name it — and, of course, wages. It’s the same for us, and if we’re not growing, we’re going backward.”

That said, “we had our best earnings year ever in 2022, and it wasn’t even anywhere near second place,” Sosik noted.

Part of that was the fact that interest rates for borrowers rose so quickly that the lag between those rates and the rates paid to depositors generated income for banks. But heading into 2023, margins are again shrinking as deposit costs rise, and a slowing economy has some people worried about a possible recession, which would further soften the loan market.

“The most interest-sensitive customers are residential borrowers, and as residential mortgage rates rose throughout 2022, we saw the volume of residential lending, especially refinances, drop dramatically,” Sosik said. “Commercial lending is definitely impacted as well, though not to the same extent.”

Tony Worden, president and CEO of Greenfield Cooperative Bank, agreed.

“Obviously, the residential market became soft because of what’s going on with rates as the year progressed,” he told BusinessWest. “And frankly, the commercial lending market became softer because people don’t know what the economy is going to do going forward; they’re keeping their powder dry, as they say. They don’t want to make big decisions if they don’t know how the economy will turn out.

Matt Sosik

Matt Sosik says fundamentals like low inventory have kept housing prices high.

“This year, everyone is holding their breath to see what the outcome will be,” he went on. “Will the Federal Reserve be able to engineer a soft landing? Last year, we thought we were in for a couple of rate increases, but the rates went much higher than everyone thought they would. When you do strategic planning, you make assumptions about what the rate environment will be, and we were all wrong last year.”

This year, economic projections include not only the rate issue, but whether unemployment will rise, what the impact of energy costs will be, and much more. On the topic of energy, Worden said the region has seen a mild winter so far, so that could help people weather the still-high costs.

“I guess if people knew what was going to happen, they could make a lot of money. From a banking standpoint, a lot of loan customers don’t want to make decisions until they know where we’re all situated.”

 

Saving and Spending

Worden lend some recent historical perspective to what banks are seeing when it comes to consumer and business behavior, starting in 2020, at the height of the COVID-19 pandemic.

“For a few months, Americans were saving at a rate that hadn’t been seen in 80, 90 years. They were saving money, they weren’t going anywhere, there was a lot of stimulus, both federal and state, and banks saw their deposits increase tremendously because people were sitting on a lot of cash.”

While that’s generally not a bad thing for banks, he said, cooperative banks not only pay for FDIC insurance, but also pay premiums on the private Depositors Insurance Fund, which covers deposits beyond the $250,000 the FDIC covers. “All the deposits coming in but no loan demand cost us money in a way; we were paying insurance on all the deposits, but couldn’t put the deposits to work.”

In the second year of the pandemic, people were starting to spend again, take vacations, and work on their homes, while most stimulus had ended, so deposit levels crept toward a more typical environment, and loans picked up as well. And while the current interest-rate environment has made some potential borrowers skittish, Worden said it’s important to note that those rates are still historically low — yes, a fixed 30-year mortgage rate is north of 5% right now, but a generation ago, it was 17% or higher.

“I think it’s a mental thing with borrowers,” he went on. “Rates were so low for an extended time, you get used to that mentally, and it’s hard to readjust when they start going up again.”

“Last year, we thought we were in for a couple of rate increases, but the rates went much higher than everyone thought they would. When you do strategic planning, you make assumptions about what the rate environment will be, and we were all wrong last year.”

Still, Sosik said, the housing market remains strong due to the fundamentals of low inventory levels and those still relatively low interest rates. But especially with remote work taking hold, “people who may be inclined to think about moving may not want to give up their 3% mortgage.’

“And there’s not a flow of new inventory, so we have this interesting dynamic where rates are rising, but it’s not impacting home prices materially,” he added — especially for a class of higher-income cash buyers who aren’t interest-sensitive.

“There’s a lot of liquidity in the economy, a lot of it funneled toward the residential market,” he said. “Volume is still good, but inventory is still low. Everything is still working; it’s just more expensive to borrow.”

Scully said Country continues to see significant loan demand early in 2023 — “not at the level of 2022, but we are seeing good pockets of business on the commercial side.” Meanwhile, to help customers purchase homes, the bank kicked off a homebuyers’ program in the fall featuring no money down and no private mortgage insurance in select areas.

“We’re still seeing a decent residential market, not as robust as it had been, but still decent,” he said. “On the commercial side, we’re still looking at some interesting deals. But everyone is holding their breath when it comes to construction lending for large projects.”

That said, investors are seeing positive signs, he added, including a comeback for retail and hospitality. “The restaurant industry is starting to have workers come back.”

Meanwhile, Scully added, “unemployment is still pretty low, and we’re not hearing much of layoffs, so hopefully we’ll see the Fed reach its level, see that interest-rate changes have impacted inflation, and we may be starting to see the other side of this sometime in 2023.”

Tony Worden

Tony Worden says everyone is hoping the Fed helps the economy to a “soft landing” with its rate policy aimed at reversing inflation.

Worden said no one really knows where the economy will turn, though there are hopeful signs. “As we see inflation numbers coming down, we’ll start to get an idea whether what the Fed is doing is starting to work. And maybe they’ll start pulling back on rate increases. If they can pull off that soft landing, we might see people reinvesting in business, buying equipment, buying new properties. But I think everyone is waiting a little bit.

“When you have a good economy, banks do well; people are out investing, buying, selling, doing things,” he added. “When the economy is bad, banks struggle because no one’s out doing anything.”

 

Community Counts

The higher-than-usual heating costs that impact every homeowner affect bank employees as well, Scully said, which is why Country recently gave a $750 stipend to all its employees to mitigate those impacts, and other inflationary pressures.

But Country isn’t taking its focus off the community at large, recently adopting the tagline “made to make a difference,” which applies not only to customers and business clients, but to the community as well, where the bank has focused much philanthropic energy over the years to needs like healthcare and food security. In 2022, the bank donated close to $1.3 million, a year after donating a total of $1 million to two major food banks on top of its other giving.

Scully said the pandemic shed a spotlight on basic human needs, not only for banks, but their employees, who, at least in Country’s case, have been more engaged in recent years.

“We’re still seeing a decent residential market, not as robust as it had been, but still decent. On the commercial side, we’re still looking at some interesting deals. But everyone is holding their breath when it comes to construction lending for large projects.”

“We learned a lot about ourselves and humanity during the pandemic, and we have a lot of staff members who really flourished in the sense of being able to volunteer and give time to the community,” he explained. “This what our brand us all about.”

Worden said Western Mass. is fortunate to be home to numerous locally owned banks that are active in their communities by supporting nonprofits through direct donations and volunteer efforts.

“In other parts of the country, this isn’t a thing,” he said. “But up and down 91 are all these good, local, community banks, and we’re all doing what we can do for the community. Obviously, we want to make money; that’s how we stay in business and give raises to our employees and hire new employees. But when Western Mass. does well, we all do well.”

bankESB recently announced that a fundraising drive raised $35,000 for local food pantries, part of its robust charitable giving program known as the Giving Tree, which reflects the bank’s commitment to making a difference in the neighborhoods it serves.

“We try to give back to all the communities we’re in, and we pointedly give back to those in need, things like food insecurity, for both children and older folks,” Sosik said. “The objective of the Giving Tree campaign is around $1 million a year — giving that back to the communities we serve and trying to make a difference for those who truly need it.

“Food insecurity is a year-round problem,” he went on, “but we turn our focus on it a little more at the end of the year and make that the key part of our campaign.”

Looking out his window, Scully noted a $35 million project the bank financed. “That makes a difference for the property owner, but we want to make a difference for everyone in our community,” he told BusinessWest. “All community banks do a tremendous job with community giving, and we’re not cutting back on our giving. Our earnings may change, but we’re committed to our level of philanthropy.”

New Cap Announced on Retirement-plan Contributions

By Contributor
Banking and Financial Services

Saving Grace

By Barbara Trombley, MBA, CPA

 

The Internal Revenue Service has announced one of the biggest jumps in decades to the cap on 401(k) contributions. Americans will be able to save 10% more in their plans by making pre-tax contributions if they take full advantage of the new cap. The new limit is $22,500, up from $20,500 in 2022, and is applicable to all 401(k), 403(b), and other tax-advantaged savings plans.

Remember, a pre-tax contribution to a plan lowers your taxable income by the same amount in the tax year the contribution is made. The new caps also apply to Roth 401(k) or post-tax contributions (if your plan allows). The tax benefits to Roth 401(k) plans do not occur in the year the contribution is made, but later, when distributions are taken tax-free after the age of 59½.

Barbara Trombley

Barbara Trombley

“Many contributors wonder about the future of Social Security; this future will have to be addressed someday by our government. Currently, according to the Social Security website, the trust fund will run out in 2037.”

If an employee is age 50, they can also make a catch-up contribution. This limit has increased to $7,500 from $6,500 in 2022. This means an employee over the age of 50 can put up to $30,000 in their retirement plan this year with federally approved tax benefits. The IRS seems to be responding to the wave of inflation that has impacted the world and is encouraging Americans to save more for retirement.

Contribution limits to traditional IRAs and Roth IRAs will increase $500 to $6,500. Catch-up contributions to those over age 50 are not subject to annual cost-of-living increases and will remain at $1,000. If the taxpayer is not covered by a retirement plan at their place of employment, traditional IRA contributions are fully deductible. If the employee is eligible for a retirement plan at their place of employment, then the deductibility of a traditional IRA contribution is subject to earnings limits that can be found on the IRS website. The contribution may be fully, partially, or not deductible. Income limits also apply to the eligibility of Roth IRA contributions if the employee is covered by a retirement plan at work.

Building a robust retirement plan takes time but is imperative to supplement Social Security or pensions in retirement. Taking risks at a younger age by investing mostly in equities has historically been the best way to beat inflation and take advantage of compounding.

Compounding occurs when investments in assets generate earnings, and those earnings are reinvested, and they generate earnings. For example, a $10,000 initial investment that generates 10% annually for 25 years would grow to almost $110,000.

Strive to save at least 10% of your paycheck in a workplace retirement plan to build a nest egg to supplement other streams of income in retirement. Diligently saving and investing over a long period of time by making regular, monthly contributions into a retirement plan that includes the appropriate allocation of equities for your age is a great way to save for the future.

Speaking of Social Security, most people have heard of the large cost-of-living increase coming in 2023. The Social Security Administration has announced an 8.7% cost-of-living increase for 2023. All recipients, including future recipients, will benefit from this raise.

It is imperative to understand that Social Security was never intended to be the main source of retirement income for retirees. It was signed into law by President Franklin D. Roosevelt and was designed as a social insurance program to provide a minimum amount of security to workers that have contributed. It has evolved over the years to provide disability, widow’s and children’s benefits for a deceased earner, and other benefits.

Many contributors wonder about the future of Social Security; this future will have to be addressed someday by our government. Currently, according to the Social Security website, the trust fund will run out in 2037. At that time, current payroll tax collections will cover 76% of the benefits that will be paid out. Either benefits will have to be cut, payroll taxes increased, or the age at which a worker becomes eligible increased — perhaps a combination of all three.

Take responsibility for saving for your own retirement and utilize the generous tax benefits that qualified retirement plans provide.

 

Barbara Trombley, MBA, CPA is an owner and financial consultant with Trombley Associates. Securities offered through LPL Financial. Member FINRA/SIPC. Advisory services offered through Trombley Associates, a registered investment advisor and separate entity from LPL Financial. This material was created for educational and informational purposes only and is not intended as ERISA tax, legal, or investment advice.

UMassFive Charts a Course for Continued Growth, Expansion

By
Rich Kump, president and CEO of UMassFive Federal Credit Union.
Banking and Financial Services Special Coverage

Points of Interest

Rich Kump, president and CEO of UMassFive Federal Credit Union.

Rich Kump, president and CEO of UMassFive Federal Credit Union.

Richard Kump says he’s disappointed by — but quite philosophical about — recent statistics showing that credit unions are not faring as well as they have historically when it comes to customer satisfaction.

“For just about our entire existence, credit unions have always outperformed banks, particularly the big banks, but just a few years ago, credit unions dipped in our satisfaction rating compared to particularly the national and multi-regional banks,” he said, adding that there’s an obvious reason why.

“It used to be that satisfaction was coming into the branch, being met with a smiling face that was empathetic and there to help — that in-face, smiling employee,” he explained. “Now, satisfaction is defined a little differently; it’s defined by speed: ‘how quickly can I accomplish this?’ The Bank of Americas, the Wells Fargos … their ease of use has surpassed that of credit unions and small community banks.”

Getting up to speed — figuratively but also quite literally — is one of the broad strategic objectives identified by Kump, president and CEO of UMassFive College Federal Credit Union, and other members of the leadership team at this 55-year-old institution.

Others include everything from territorial expansion — Springfield and Westfield are among the areas at or near the top of a list of potential landing spots — to continued growth of an already dynamic niche in lending for solar-energy installations; from the building of a new and more highly visible branch in Hadley and consolidation of other facilities into the headquarters building in that town to the possible creation of an insurance agency to be operated by the credit union.

“Most of our members have Amazon — with one click, you can purchase something. And that’s what they expect from us, being able to accomplish whatever their need is quickly and without friction.”

In a wide-ranging interview, Kump, a 20-year veteran at UMassFive who took the helm in 2019, touched on these and many other points. Overall, he said the institution, which now boasts more than $625 million in assets, is in what he called a controlled growth mode, anxious to take advantage of opportunities that have arisen in recent years, including ongoing consolidation in the banking industry, advancing digital technology, and changing needs among customers — on both the consumer and commercial sides of the ledger.

Such opportunities enabled UMassFive to essentially triple the projected profits for what was expected to be a lackluster 2022, he explained, and these same forces, in addition to those aforementioned goals for expansion, are providing reasons for optimism as the calendar turns to 2023.

 

Developing a Game Plan

Kump, who grew up in New York, has been a lifelong, and extremely avid, Yankees fan.

The wall across from the desk in his office tells the story.

There, one will find a framed picture of Bucky Dent’s famous (infamous to Red Sox fans) home run in that one-game playoff back in 1978. It’s signed by both Dent and the Red Sox pitcher who threw the pitch, Mike Torrez, and Kump notes with regret that the signatures are fading.

As is the autograph of Don Larsen on a framed photo from his historic perfect game in the 1956 World Series against the Brooklyn Dodgers that sits just below the Dent picture. There’s other Yankee memorabilia on his wall, including a group of perhaps the four greatest players from that franchise — Babe Ruth, Lou Gehrig, Joe DiMaggio, and Mickey Mantle.

While the Yankees have always been a passion for Kump, or a “great failing,” as he called it, credit unions have essentially been his career. Prior to arriving at UMassFive, he worked at St. Mary’s Bank in Manchester, N.H. — founded in 1909, before such institutions were called credit unions — and, later, Cathedral Credit Union in Manchester.

UMassFive has developed a strong niche in the financing of solar-installation projects.

UMassFive has developed a strong niche in the financing of solar-installation projects.

With that background, he’s well-versed in what credit unions have been historically, and what has long differentiated them from banks, especially the larger ones — a high-touch operating philosophy and a strong focus on customer service.

These days, though, Kump is more focused on what credit unions can be — and must be — to continue to thrive and grow in a changing financial-services landscape.

And here, as noted, speed is an important part of the equation.

“While overall satisfaction with any local institution is high, this is a world of digital transformation and how quickly you can get your organization to deliver what the consumer is expecting,” he explained. “Most of our members have Amazon — with one click, you can purchase something. And that’s what they expect from us, being able to accomplish whatever their need is quickly and without friction.

“And that has been our focus on improving the member relationship,” he went on, adding that UMassFive is responding with online appointments, online loan applications that are simpler and what he described as ‘frictionless,’ the ability to join the credit union digitally — “that’s our primary branch; that’s how we serve” — fraud-prevention efforts, and other measures.

“We want to make the processes as simple and easy as they can be because that’s what the consumer is demanding today,” he explained, adding that this mindset will be applied to every aspect of the business, from credit cards to those loan applications.

And while improving its speed and ability to serve customers in the manner they are now demanding, UMassFive is moving forward aggressively on a number of other fronts, said Kump, including territorial expansion, new branches, and better, more effective use of its facilities.

Several of these goals are coming together in the planned move of the flagship branch inside the headquarters building off Route 9 in Hadley to a new building to be constructed just down the road at the border between Hadley and Amherst on the site of an auto-parts store.

The move will give UMassFive much greater visibility, said Kump — the current headquarters building is a few hundred yards from the street and behind other buildings — and it will also enable the credit union to consolidate spaces and ultimately save money.

“Branches are now less a transaction center and more of an advisory center. The things people want to come in for are lending — we do a ton digitally, but for loans, people still like to come in, especially on the commercial side — as well as investments and wealth management. Those are things people like to do in person.”

Elaborating, he noted that the credit union outgrew its headquarters building, which opened in 2001, several years ago, and has been leasing additional space in Hadley for its operations center, an expensive undertaking that ultimately led to the development of plans to build a new and much larger headquarters.

By moving the flagship branch to another location on Route 9, the credit union can now scrap those plans in favor of a far-less-expensive option: a new branch building. He added quickly that this new plan wouldn’t be possible if not the arrival of remote work forced by the pandemic.

“What we learned during COVID is that we don’t need to have everyone on-site,” he explained. “Other than our retail staff, we probably have 80% of employees on some type of telecommuting status, either hybrid or fully remote. With that, coupled with the move of our flagship branch and opening up that space, we’ll be able to bring the employees from our operations center over here and not have to lease space. And we’ll have the staff on site all under one roof and not have to worry about building a new headquarters building.”

 

Branching Out

Beyond Hadley, UMassFive is looking to add some new branches in the coming years and expand its footprint across this region, said Kump, adding that the leadership team has identified several different potential target areas.

At the top of the list is Springfield. UMassFive has one location in the city, in the rehabilitation facility at Mercy Medical Center, a branch that counts both medical-center employees and area residents as members. To attract more members, additional sites are being eyed, he said, adding that the Sixteen Acres neighborhood is a preferred landing spot.

Meanwhile, credit-union leaders are also taking a hard look at Westfield, a large community that boasts a state university and thus resembles, to some extent, the Five College area that UMassFive has long called home.

“Many of the demographics are similar to who we serve best,” he said of the Whip City and the surrounding area. “So that is a logical place for us to go.”

While expansion and additional branches are in the business plan, UMassFive will look for measured, controlled growth, Kump said. “At $625 million in assets, we’re not at a size where we can put up a branch every year. Break-evens on branches seem to be running seven or eight years now, so we need to careful with our expansion.”

Meanwhile, any new branches will be smaller in size than what has been built historically, simply because fewer customers come to such facilities and technology, such as ITMs, has changed how service is provided, and thus they require smaller staffs, said Kump, adding that the nature of the business conducted inside is changing as well.

“Branches are now less a transaction center and more of an advisory center,” he explained. “The things people want to come in for are lending — we do a ton digitally, but for loans, people still like to come in, especially on the commercial side — as well as investments and wealth management. Those are things people like to do in person.”

Another strategic objective at UMassFive is growing the commercial side of the ledger, said Kump, adding that, over the past decade or so, the credit union has built what he called a “commercial infrastructure” of products and services. With that infrastructure now in place, the credit union will work to build its portfolio of clients, he said, adding that there are new products planned as well, as well as a commercial credit card.

“For the first 50 years of our existence, it was consumers only — individuals and their families,” he told BusinessWest. “And what we found is that some of those consumers also own businesses, and in the past, we had to turn that business away. A number of years ago, we committed to the local business community, and we want to grow that side of the business.”

One segment of the commercial market that UMassFive is dominating — basically because few other institutions have considered it worthy — is solar energy.

Indeed, since 2017, the credit union has written more than $100 million in loans for residential solar projects, said Kump, adding that it has partnered with the Clean Energy Center to connect low-income households with solar air-source heat pumps.

“It’s a huge niche, and it’s mostly ignored by other financial institutions — when it comes to the true residential solar loan, I know of just one other institution in Western Mass. that offers it,” Kump explained, adding that the biggest reason why is that such offerings amount to unsecured loans, and few banks and credit unions have an appetite for such lending.

UMassFive has the expertise — its chief commercial officer is certified in commercial solar lending — and a track record of success in this realm that it’s looking to build upon.

“We find that they perform as well as equity loans,” he said, adding that, while the market for such loans has softened recently because the tax credits for such installations have diminished, their eligibility requirements have expanded to include nonprofit institutions such as churches, as well as municipalities.

“We were an early adopter, we understand the industry, we know how it works, we support that industry, and it’s a big piece of who we are,” he said, adding that the clean-energy portfolio extends beyond solar and into energy-efficiency projects, both residential and commercial, such as those administered by Mass Save.

 

Bottom Line

As he surveys the banking and financial-services landscape, Kump sees plenty of challenges ahead — from projections of a further slowing of the economy to rising interest rates in the housing market and growing competition for customers in this sector.

But he also sees opportunities for institutions that have the ability to adapt and respond to changing customer needs in a proactive, forward-thinking manner.

That has been the MO at UMassFive for more than a half-century now, and it is the pattern that will continue into the future.

 

George O’Brien can be reached at [email protected]

Legislation Continues to Impact Strategies for Individuals, Businesses

By Contributor
tax planning 2022
Banking and Financial Services Special Coverage

Year-end Tax Planning

By Kristina Drzal Houghton, CPA, MST

tax planning 2022

As another tumultuous year draws to a close, both individuals and small-business owners are advised to assess their current tax situation, with an eye on maximizing available tax breaks and avoiding potential tax pitfalls. Planning should be based on the latest laws of the land.

Just look at the significant legislation enacted in recent years. Following the massive Tax Cuts and Jobs Act (TCJA) of 2017, the Coronavirus Aid, Relief, and Economic Security (CARES) Act addressed various pandemic-related issues in 2020. In quick succession, the Consolidated Appropriations Act (CAA) extended certain CARES Act provisions and modified others, while the American Rescue Plan Act (ARPA) created even more tax-saving opportunities in 2021.

This series of new laws culminated in the Inflation Reduction Act (the IRA), passed in August 2022. The IRA, which is generally effective next year, includes several provisions that could have a big tax impact on individuals and business entities.

Kristina Drzal Houghton

Kristina Drzal Houghton

“We still might not be done. More proposed legislation has been introduced in Congress. If another new law featuring tax provisions is enacted before 2023, it may require you to revise your year-end tax-planning strategies.”

And we still might not be done. More proposed legislation has been introduced in Congress. If another new law featuring tax provisions is enacted before 2023, it may require you to revise your year-end tax-planning strategies.

 

BUSINESS TAX PLANNING

 

Depreciation-based Deductions

As we head into year-end, a business may benefit from one or more of three depreciation-based tax breaks: the Section 179 deduction; first-year ‘bonus’ depreciation; and regular depreciation. In consideration of this, consider the following:

Place qualified property in service before the end of the year. If your business does not start using the property before 2023, it is not eligible for these tax breaks.

Section 179 deduction: under Section 179 of the tax code, a business may ‘expense’ (i.e., currently deduct) the cost of qualified property placed in service any time during the year. The maximum annual deduction for 2022 is $1.08 million and is phased out on a dollar-for-dollar basis when total additions exceed $2.7 million. Be aware that the Section 179 deduction cannot exceed the taxable income. This could limit your deduction for 2022.

First-year bonus depreciation: the TCJA authorized a 100% first-year bonus depreciation deduction through 2022. This includes used, as well as new, property. Be aware that most states do not allow this special bonus depreciation.

Regular depreciation: if any remaining acquisition cost remains, the balance may be deducted over time under the Modified Accelerated Cost Recovery System (MACRS).

If you buy a heavy-duty SUV or van for business, you may claim a first-year Section 179 deduction of up to $25,000. The ‘luxury car’ limits do not apply to certain heavy-duty vehicles.

The first-year bonus depreciation deduction is scheduled to phase out over five years, beginning in 2023. Take full advantage while you can.

 

Business Meals

Previously, a business could deduct 50% of the cost of its qualified business entertainment expenses. However, the deduction for entertainment costs, including strictly social meals, was eliminated by the TCJA beginning in 2018.

The ARPA doubles the usual 50% deduction for allowable meals to 100% for food and beverages provided by restaurants in 2021 and 2022. This tax break is not expected to be extended.

 

Business Repairs

As more remote workers return to your regular workplace, the business may need to fix up the place. While expenses spent on making repairs are currently deductible, the cost of improvements to business property must be capitalized.

When appropriate, complete minor repairs before the end of the year. The deductions can offset taxable income in 2022.

As a rule of thumb, a repair keeps property in efficient operating condition, while an improvement prolongs the life of the property, enhances its value, or adapts it to a different use. For example, fixing a broken window is a repair, but the addition of a new wing to a business building is treated as an improvement.

 

State Income Taxes

Many states, including Massachusetts, have enacted so-called ‘work-arounds’ whereby flow-through entities such as Subchapter S corporations and partnerships can elect to pay the state tax at the entity level on behalf of the shareholders. The benefit comes from reduced federal taxable income flowing to the shareholder, which serves to circumvent the $10,000 cap for state and local taxes when calculating itemized deduction, which is discussed later. Most states do not give a dollar-for-dollar credit for the tax paid by the entity, but the federal tax benefit is typically larger than the reduced state credit.

The actual benefit will vary for each shareholder or parter and should be reviewed to determine the actual savings. If deemed to be beneficial, don’t miss any deadlines for electing to pay these taxes.

 

Miscellaneous

Stock up on routine supplies (especially if they are in high demand). If you buy the supplies in 2022, they are deductible in 2022 — even if they are not used until 2023.

If you accrue in 2022 but pay year-end bonuses to employees in 2023, the amounts are generally deductible by an accrual-basis company in 2022 and taxable to the employees in 2023. A calendar-year company operating on the accrual basis may be able to deduct bonuses paid as late as March 15, 2023 on its 2022 return.

Keep records of collection efforts (e.g., phone calls, emails, and dunning letters) to prove debts are worthless. This may allow you to claim a bad-debt deduction.

 

INDIVIDUAL TAX PLANNING

Itemized Deductions

Due to several related provisions in the TCJA, generally effective for 2018 through 2025, more individuals are claiming the standard deduction in lieu of itemizing deductions.

Make a quick analysis of your situation. Depending on the results, you may decide to accelerate certain expenses into 2022 or postpone them to 2023.

For instance, you may want to ‘bunch’ charitable donations in a year you expect to itemize deductions. (There is more on charitable deductions below.) Similarly, you might reschedule physician or dentist visits to provide the maximum medical deduction. The deduction for those expenses is limited to the excess above 7.5% of your adjusted gross income (AGI). If you do not have a reasonable shot at deducting medical and dental expenses in 2022, you might as well postpone non-emergency expenses to 2023.

Note that the TCJA made other significant changes to itemized deductions. This includes a $10,000 annual cap on deductions for state and local tax (SALT) payments and suspension of the deduction for casualty and theft losses (except for qualified disaster-area losses). Since a repeal or modification of this cap is unlikely for 2022, wait to pay state estimates or real-estate taxes until January 2023 if they are not due in December.

The standard deduction for 2022 is generally $12,950 for single filers and $25,900 for joint filers.

 

Charitable Donations

If you still expect to itemize deductions in 2022, you may benefit from contributions to qualified charitable organizations made within generous tax-law limits.

Consider stepping up your charitable gift giving at year-end. As long as you make a donation in 2022, it is deductible on your 2022 return, even if you charge the donation by credit card as late as Dec. 31.

Note that the deduction limit for monetary contributions was increased to 100% of AGI for 2021, but the limit reverted to 60% of AGI for 2022. Nevertheless, this still provides plenty of flexibility for most taxpayers. Any excess may be carried over for up to five years.

Furthermore, if you donate appreciated property held longer than one year (i.e., it would qualify for long-term capital-gain treatment if sold), you can generally deduct an amount equal to the property’s fair market value (FMV). But the deduction for short-term capital-gain property is limited to your initial cost. Your annual deduction for property donations generally cannot exceed 30% of your AGI. As with monetary contributions, any excess may be carried over for up to five years.

The CARES Act established a maximum deduction of $300 for charitable donations by non-itemizers in 2020. The special deduction was then extended to 2021 and doubled to $600 for joint filers. As of this writing, this tax break is not available in 2022.

 

Electric Vehicle Credits

The IRA greenlights tax credits for purchasing electric vehicles and plug-in hybrids over the next few years. But certain taxpayers will not qualify. Map out your plans accordingly.

Notably, the IRA includes the following changes:

The credit cannot be claimed by a single filer with a modified adjusted gross income (MAGI) above $150,000 or an MAGI of $300,000 for joint filers.

The credit is not available for most passenger vehicles that cost more than $55,000, or $80,000 for vans, sports utility vehicles, and pickup trucks.

The vehicle must be powered by batteries whose materials are sourced from the U.S. or its free-trade partners and must be assembled in North America.

The current threshold of 200,000 vehicles sold by a manufacturer is eliminated.

In addition, the IRA authorizes a credit of up to $4,000 for used vehicles if you are a single filer with an MAGI of no more than $75,000, or $150,000 for joint filers.

 

Residential Energy Credits

The IRA generally enhances the residential energy credits that are currently available to homeowners. Under the new law, you may benefit from two types of residential energy credits:

1. The 30% ‘residential clean-energy credit’ can generally be claimed for installing solar panels or other equipment to harness renewable energy like wind, geothermal energy, and biomass fuel. This credit, which was scheduled to phase out and end after 2023, is preserved at 30% from 2022 through 2032 before phasing out.

2. The 30% ‘non-business energy property credit’ can generally be claimed for up to $1,200 of the cost of installing energy-efficient exterior windows, skylights, exterior doors, water heaters, and other qualified items through 2032 before phasing out. For 2022, the credit remains at 10% with a maximum of $500.

 

Miscellaneous

Pay a child’s college tuition for the upcoming semester. The amount paid in 2022 may qualify for one of two higher education credits, subject to phaseouts based on your MAGI.

Avoid an estimated tax penalty by qualifying for a safe-harbor exception. Generally, a penalty will not be imposed if you pay 90% of your current year’s tax liability or 100% of your prior year’s tax liability (110% if your AGI exceeded $150,000).

Minimize the kiddie-tax problem by having your child invest in tax-deferred or tax-exempt securities. For 2022, unearned income above $2,300 that is received by a dependent child under age 19 (or under age 24 if a full-time student) is taxed at the top tax rate of the parents.

Empty out flexible spending accounts (FSAs) for healthcare or dependent-care expenses if you will forfeit unused funds under the ‘use-it-or-lose it’ rule. However, your employer’s plan may provide a carryover to 2023 or a two-and-a-half-month grace period.

Make home improvements that qualify for mortgage-interest deductions as acquisition debt. This includes loans made to substantially improve your principal residence or one other home. Note that the TCJA suspended deductions for home-equity debt for 2018 through 2025.

If you own property damaged in a federal disaster area in 2022, you may qualify for quick casualty loss relief by filing an amended 2021 return. The TCJA suspended the deduction for casualty losses for 2018 through 2025, but retained a current deduction for disaster-area losses.

 

FINANCIAL TAX PLANNING

Capital Gains and Losses

Frequently, investors ‘time’ sales of assets like securities at year-end to produce optimal tax results. It is important to understand the basic tax rules.

For starters, capital gains and losses offset each other. If you show an excess loss for the year, it offsets up to $3,000 of ordinary income before being carried over to the next year. Long-term capital gains from sales of securities owned longer than one year are taxed at a maximum rate of 15% or 20% for certain high-income investors. Conversely, short-term capital gains are taxed at ordinary income rates reaching as high as 37% in 2022.

Review your investment portfolio. If it makes sense, you may harvest capital losses to offset gains realized earlier in the year or cherry-pick capital gains that will be partially or wholly absorbed by prior losses.

 

Net Investment Income Tax

Investors should account for the 3.8% tax that applies to the lesser of net investment income (NII) or the amount by which MAGI for the year exceeds $200,000 for single filers or $250,000 for joint filers. The definition of NII includes interest, dividends, capital gains, and income from passive activities, but not Social Security benefits, tax-exempt interest, and distributions from qualified retirement plans and IRAs.

Make an estimate of your potential liability for 2022. Depending on the results, you may be able to reduce the tax on NII or avoid it altogether.

 

Required Minimum Distributions

As a general rule, you must receive required minimum distributions (RMDs) from qualified retirement plans and IRAs after reaching age 72 (recently raised from age 70½). The amount of the distribution is based on IRS life-expectancy tables and your account balance at the end of last year.

Arrange to receive RMDs before Dec. 31. Otherwise, you will have to pay a stiff tax penalty equal to 50% of the required amount (less any amount you have received) in addition to your regular tax liability.

Do not procrastinate if you have not arranged RMDs for 2022 yet. It may take some time for your financial institution to accommodate these transactions.

Conversely, if you are still working and do not own 5% or more of the business employing you, you can postpone RMDs from an employer’s qualified plan until your retirement. This ‘still working exception’ does not apply to RMDs from IRAs or qualified plans of employers for whom you no longer work.

 

Installment Sales

Normally, when you sell real estate at a gain, you must pay tax on the full amount of the capital gain in the year of the sale.

If you sell it under an arrangement qualifying as an installment sale, the taxable portion of each payment is based on the gross profit ratio, which is determined by dividing the gross profit from the real-estate sale by the price.

Not only does the installment sale technique defer some of the tax due on a real estate deal, it will often reduce your overall tax liability if you are a high-income taxpayer. That is because, by spreading out the taxable gain over several years, you may pay tax on a greater portion of the gain at the 15% capital-gain rate as opposed to the 20% rate.

If it suits your purposes (e.g., you have a low tax year), you may ‘elect out’ of installment sale treatment when you file your return.

 

Estate and Gift Taxes

During the last decade, the unified estate- and gift-tax exclusion has gradually increased, while the top estate rate has not budged. For example, the exclusion for 2022 is $12.06 million, the highest it has ever been. (It is scheduled to revert to $5 million, plus inflation indexing, in 2026.)

In addition, you can give gifts to family members that qualify for the annual gift-tax exclusion. For 2022, there is no gift-tax liability on gifts of up to $16,000 per recipient (up from $15,000 in 2021). The limit is $32,000 for a joint gift by a married couple.

You may ‘double up’ by giving gifts in both December and January that qualify for the annual gift-tax exclusion for 2022 and 2023, respectively. The IRS recently announced that the limit for 2023 is $17,000 per recipient.

 

Miscellaneous

Watch out for the ‘wash sale’ rule that disallows losses from a securities sale if you reacquire substantially identical securities within 30 days. Wait at least 31 days to buy them back.

Contribute up to $20,500 to a 401(k) in 2022 ($27,000 if you are age 50 or older). If you clear the 2022 Social Security wage base of $147,000 and promptly allocate the payroll-tax savings to a 401(k), you can increase your deferral without any further reduction in your take-home pay.

Weigh the benefits of a Roth IRA conversion, especially if this will be a low-tax year. Although the conversion is subject to current tax, you generally can receive tax-free distributions in retirement, unlike taxable distributions from a traditional IRA.

Skip this year’s RMD if you recently inherited an IRA and are required to empty out the account within 10 years. Under new IRS guidance, there is no penalty if you fail to take RMDs for 2021 or 2022. The IRS will issue final regulations soon.

If you rent out your vacation home, keep your personal use within the tax-law boundaries. No loss is allowed if personal use exceeds 14 days or 10% of the rental period.

Consider a qualified charitable distribution (QCD). If you are age 70½ or older, you can transfer up to $100,000 of IRA funds directly to a charity. Although the contribution is not deductible, the QCD is exempt from tax. This may improve your overall tax picture.

 

Conclusion

This year-end tax-planning article is based on the prevailing federal tax laws, rules, and regulations. Of course, it is subject to change, especially if additional tax legislation is enacted by Congress before the end of the year.

Finally, remember that these ideas are intended to serve only as a general guideline. Your personal circumstances will likely require careful examination. Consult with your tax adviser.

 

Kristina Drzal Houghton, CPA, MST is a partner at the Holyoke-based accounting firm Meyers Brothers Kalicka, P.C.; (413) 536-8510.

Thomas Meshako Named President, CEO of Greenfield Savings Bank

By Contributor
Thomas Meshako
Banking and Financial Services

Taking the Reins

 

Thomas Meshako

Thomas Meshako

Greenfield Savings Bank (GSB) announced the appointment of Thomas Meshako as president and CEO. He brings to the role more than 40 years of experience in the financial-services industry in New England. He joined GSB in 2016 as treasurer and chief financial officer, and will continue in those roles as well until his replacement is hired.

Meshako was appointed by the board of directors after previous President and CEO John Howland’s resignation was accepted by the board of directors.

“I want to thank John Howland for his more than seven years as the head of the bank,” Meshako said. “John’s leadership and direction throughout the unprecedented time of the pandemic and his dedicated and genuine commitment to the communities we serve solidified the bank’s reputation as a community leader. We are grateful for his contributions to the bank and wish him the best in his future endeavors.”

Howland took over as president and CEO in 2015 from Rebecca Caplice, who had served in that role since 2006. Before joining Greenfield Savings, Howland was president of two banks, most recently the First Bank of Greenwich, based in Greenwich, Conn. He has worked in the financial-services field his entire career and holds a bachelor’s degree from Bowdoin College and a juris doctor degree from the University of Maine School of Law.

Meshako, who earned a bachelor’s degree in accounting from Bentley University in 1982, is a resident of Greenfield, where he lives with his wife, Mary Ann. They have three adult daughters.

Founded in 1869, Greenfield Savings Bank has 180 employees and offices and ATMs throughout Franklin and Hampshire counties. Its branches are located in Greenfield, Amherst, Conway, Hadley, Northampton, Shelburne Falls, South Deerfield, and Turners Falls.

The bank operates the only trust and investment management company headquartered in Franklin County. Total assets under management, including both the bank and the investment management company, exceed $1.4 billion.

Rising Interest Rates Dampen Economic Activity, but That’s the Point

By
Banking and Financial Services

Uncertain Times

 

Another month, another rate increase from the Fed. The moves aren’t unexpected, and are needed to slow inflation, but they are concerning, especially to borrowers.

“We haven’t seen inflation like this since the ’80s. To anyone who remembers the late ’70s and early ’80s, when inflation was running really high, the dangers that represents are self-evident,” said Kevin Day, president and CEO of Florence Bank.

“The Fed responds immediately to a heated economy, and when the economy is overheated, that’s when they raise rates” in an effort to slow inflation, he told BusinessWest. “This time is a little different; inflation already showed up, and now they’re having to calm it down. So it’s a different environment than we’ve seen in the last 40 years, and that has created a great deal of uncertainty. And no one likes uncertainty.

“But they’ve been pretty consistent in that they’re going to raise rates to bring inflation under control, and they’re going to continue to raise them more until they get it under control,” Day added. “How far do they have to go? No one knows that, of course, and that’s what breeds the uncertainty.”

The Federal Reserve’s mission is to keep the U.S. economy humming, but not too hot or too cold. So when the economy booms and distortions like inflation and asset bubbles get out of hand, threatening economic stability, the Fed can step in and raise interest rates, cooling down the economy and keeping growth on track.

Kevin Day

Kevin Day

“It’s a different environment than we’ve seen in the last 40 years, and that has created a great deal of uncertainty. And no one likes uncertainty.”

On Sept. 21, the federal funds rate was raised by 75 basis points, to a range of 3% to 3.25%. The move followed 75-basis-point hikes in June and July, and two smaller rate hikes in March and May. The Federal Open Market Committee will meet twice more in 2022 to decide if further hikes are necessary in the fight against high inflation.

Still, “not everyone thinks higher mortgage rates are a terrible thing,” Forbes notes. “Some real-estate professionals see higher rates as one way to cool an overheated housing market. Others think it’s time to get back to normalcy after two years of artificially low borrowing costs.”

In addition, rising rates are not a bad thing for banks in general. When interest interest rates are higher, banks make more money due to the difference between the interest banks pay to customers and the interest the bank can earn by investing.

Still, banks also worry about recessionary environment when rates spike, an environment that opens the door to financial struggles, bankruptcies for individuals, and business failures, Day said. “Rates rising a bit is usually good for banks, but when it starts going too fast, it creates other problems no one likes to see.”

 

Historical Perspective

While inflation is at 40-year highs, interest rates are nowhere near the 6.5% seen in 2000, not to mention the record high of nearly 20% in 1980. Instead, rates have simply returned to pre-pandemic levels, which are historically on the low side.

“In terms of absolute levels, and in view of history, current interest rates are still at attractive levels,” said Mike Kraft, head of CRE Treasury at JPMorgan Chase. “Generally, I would say this is a great time to do business — before additional rate movements kick in.”

However, while historical trends favor current borrowers, people tend to think in the short term, and any rate increase dampens enthusiasm to borrow — which, after all, is the Fed’s intention: to slow the economy.

“Borrower behavior is always impacted by rising rates,” Day said. “People just tend to borrow less money, unless you’re in the credit-card business, which we’re not. We deal with mortgages and commercial loans, and borrowers are more hesitant as rates rise; they don’t want to commit until they have to. As rates rise, what happens is businesses take less risks — they don’t necessarily build or open that next location. Borrowing definitely declines as rates rise faster.

“In a perfect world, if it’s done at a moderate pace, nobody gets hurt too badly,” he went on. “It might slow a little bit, but businesses still make investments in property and equipment. But if it goes rapidly, it’s kind of an unknown. ‘Will this impact my business? Should I open that location? Will there be no business in six months?’ It makes businesses hesitant.”

On the other hand, people more focused on saving money than borrowing it may find the rate hikes a breath of fresh air, even if savings interest still lags behind interest on loans.

“How quickly you’ll see higher APYs on deposits depends on where you bank,” Forbes notes. “Online banks, smaller banks, and credit unions typically offer more attractive yields than big banks and have generally been increasing rates faster because they have to compete more for deposits.”

Day agreed that competition puts pressure on banks to raise deposit interest rates, while the gains are most prevalent in the CD market. “You can get 4%, where years ago, it was hard to get 25 basis points.

“So rising rates are generally beneficial to consumers who save money,” he added. “Borrowers usually don’t like them, but retirees on a fixed income might have assets in investments, and rising rates should help them have alternative ways to earn more money. So there’s two sides to this.”

 

Stay Tuned

The bottom line is that inflation is the highest it’s been since the early ’80s, and that makes everyone skittish, even if one of the remedies — rising interest rates — isn’t welcomed by everyone.

“We’re in uncharted territory,” said Ginger Chambless, head of Research for Commercial Banking at JPMorgan Chase. “By raising rates through this year, the Fed is trying to get a handle on inflation and slowly pull some of the excess liquidity out of the economy. I think it makes sense for the Fed to take a gradual approach. This way, they can see how the economy holds up along the way, as opposed to a more drastic increase, which might cause undue panic in the markets.”

Panic may be a strong word, but the word Day used — uncertainty — is definitely apt for banks, borrowers, and the financial industry as a whole. And with more decisions yet to be made by the Fed, the volatility may not be over.

 

Joseph Bednar can be reached at [email protected]

What You Need to Know About Bank Covenants

By Contributor
Banking and Financial Services

Growing Concerns

By Ian Coddington

 

You may be a business owner looking to expand into a new market, purchase new equipment, or conduct development on a new product or design, but don’t want to use cash from operations. How do you complete this? One of the most common ways to fund these kinds of ventures is through financing, specifically debt financing. To effectively use debt, you need to understand covenants, which may be included in the loan agreement.

This article will help you understand what are covenants and why are they required, how covenants might affect your business, and managing your covenants.

Ian Coddington

Ian Coddington

“Using debt can be an effective way to expand your business, and by understanding the intricacies of bank covenants, you can make better decisions as a business owner.”

Using debt can be an effective way to expand your business, and by understanding the intricacies of bank covenants, you can make better decisions as a business owner.

 

What Are Covenants, and Why Do You Need Them?

Simply put, a covenant is a restriction. When a bank or financial institution underwrites a loan or issues a line of credit to a business, they take on a certain amount of risk.

How likely is the business going to pay in a timely manner?

Will the business pay back the loan?

How volatile is the company’s industry?

What is the collateral for the potential loan?

These are all questions lenders will ask and need to understand before issuing a loan. To protect their investment, the financing may require financial covenants. First, there are positive covenants; for example, you are required to have up-to-date insurance coverage and meet certain ratios. It might sound odd to call these positive, but these are items the bank wants to ensure you have in place to help protect the business.

Negative covenants act in the opposite way. Often times, the bank does not want the company taking on other debt obligations without the bank’s prior approval or until the most recent debt is paid off. In addition, negative covenants are often structured to look at a company’s solvency and not violating financial metrics. These are built into the financing to protect the bank, but also to protect the company and the business owner.

Some of the most common financial ratios and metrics that banks look at for assessing a loan are:

Leverage ratio: cash flow from operations divided by total debt. This ratio measures the number of years to pay off of a debt obligation, the lower the better.

Debt service coverage: net operating income divided by total debt service. This ratio measures the ability to service the current debt. The higher the ratio, the greater the ability of the borrower to repay.

Quick ratio: cash and equivalents, marketable securities, and accounts receivable divided by current liabilities. This ratio tests the ability of a company to pay its current liabilities when they come due with its most liquid assets. A strong quick ratio indicates the company will be able to pay its long-term obligations without needing to sell long-term assets.

 

How Covenants Might Affect Your Business

So you have met with a lender, gone through the approval process, and have your new loan right in front of you. Are you ready to sign it? Make sure you review any financing agreements or amendments with your attorney and accountant. Depending on the type of loan, it could require a compilation, review, or audit-level financial prepared by a CPA.

Financial preparation ranges in complexity: the more complex, the more intrusive and costly. Going from a review-level financial statement to audited financial statements could double your accounting fees that you already pay. This could come as an unwanted surprise if you are not ready for it.

There are changes on the horizon. As bankers look at new loan agreements or new amendments to current loans, be aware of the adoption of new lease accounting standards by the Financial Accounting Standards Board. Companies are not required to implement the new standard until years beginning after Dec. 15, 2021 (effective for fiscal years ending Dec. 31, 2022). This new standard could impact the definition or calculation of specific covenants.

 

Managing Your Covenants

You don’t want to wait until the end of the year to evaluate and determine the company’s overall position of compliance with negative and positive covenants. If you find yourself in a situation of continuously failing your covenants, your overall relationship with a bank might be impacted. To help alleviate this, a company should conduct tax planning and/or obtain advice during the year.

Debt is a great tool in a business owner’s toolbelt to grow their business. By understanding the restrictions, or covenants that a lender might use, you can make a more informed decision about whether debt financing is right for you. You also might use a professional to plan around your new debt to foster a healthy relationship with the bank. Strong creditors lead to happy lenders, which leads to better business for everyone.

 

Ian Coddington is a senior associate with the Holyoke-based accounting firm Meyers Brothers Kalicka, P.C.

The Benefits of Having a Financial Advisor During Volatile Times

By Contributor
Banking and Financial Services

Investing for the Long Run

By Barbara Trombley, CPA, MBA

 

As I write this article, the S&P 500 index, which tracks the performance of 500 large companies in the U.S., is down almost 22% for the year. Even more remarkable is that the Barclays Aggregate Bond Index is down more than 14% year to date. If the average investor had a 60% equities / 40% bond portfolio that followed these two indexes, they would be down 18.8% for the year! This is without any portfolio or advisor fees.

After many years of positive stock market returns, this is extremely unsettling for the average investor. Usually, investing in bonds or ‘fixed income’ serves as a buffer to the stock market by providing what is usually a more conservative return. This year, because of rampant inflation, the Federal Reserve has rapidly increased interest rates. Bond prices and interest rates move in opposite directions, leading to large drops in bond prices and, therefore, a depressed bond market.

Barbara Trombley

Barbara Trombley

“Sometimes during volatile market periods, an advisor may strive to counsel a client to change their withdrawal strategy from their portfolio or offer advice on large purchases that can be financed another way.”

As a financial advisor, I wear many hats. The obvious one is that I provide investment guidance and strive to help my clients make financial choices. A less obvious role that I play is that of cheerleader. At times, some investors are very tempted to sell out of the market when times are bad. They feel nervous and uncomfortable. But history has shown us that investing is a lifelong event. A financial plan needs to be followed in good markets and bad.

There is a J.P. Morgan asset-management study that shows that seven of the best ten days in the stock market occurred within two weeks of the ten worst days. Since Jan. 1, 2002 through the end of 2021, for example, an investor who was fully invested in the S&P 500 would have returned 9.52% year over year (without fees). If the same investor missed the 10 best days in the market during that same time period, their return may have been 5.33% year over year (without fees) — almost half! An advisor will strive to provide guidance and education to prevent their client from making rash decisions.

Another area where an advisor can assist clients during volatile stock-market periods (and other times as well) is, if appropriate, potential tax-loss harvesting. If an investor has money that is not in a retirement plan, they can sell positions held at a loss in order to offset any gains held in other stocks. The investor can also offset $3,000 in ordinary income each tax year (if he or she has already offset gains) and carry forward unused losses to be used against gains in future years.

The investor would want to be aware of wash sales rules, which prohibit selling an investment for a loss and replacing it with the same or a ‘substantially identical’ investment 30 days before or after the sale. This would void the loss that the investor was deliberately trying to achieve. The investor is allowed to sell a stock at a loss and buy a similar one in the same industry so that he or she can continue to have their money working for them. Tax planning in volatile times could be part of your financial plan as well.

Sometimes during volatile market periods, an advisor may strive to counsel a client to change their withdrawal strategy from their portfolio or offer advice on large purchases that can be financed another way. I have often counselled clients on the options available to them, from where to draw money for their monthly expenses. In a volatile market, for many clients, using cash savings to pay monthly expenses can take the stress off a portfolio that has declined.

The greatest benefit to you from using a financial advisor is having someone to listen to you, someone for you to seek out and reassure you that, based on history, industry knowledge, and their experience in the financial world day after day, you can pursue financial independence.

 

Barbara Trombley, MBA, CPA is an owner and financial consultant with Trombley Associates. Securities offered through LPL Financial. Member FINRA/SIPC. Advisory services offered through Trombley Associates, a registered investment advisor and separate entity from LPL Financial. This material was created for educational and informational purposes only and is not intended as ERISA tax, legal, or investment advice. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

Freedom Credit Union Marks an Important Milestone

By
President and CEO Glenn Welch (center) with some of his team.
Banking and Financial Services Special Coverage

Century Unlimited

 

President and CEO Glenn Welch (center) with some of his team.

President and CEO Glenn Welch (center) with some of his team.

When asked what might come next for Freedom Credit Union, Glenn Welch said simply, “we’re going to continue doing what we’ve been doing for the past 100 years.”

By that he meant … well, a whole lot of things, from continued growth and innovation to embracing new technology; from growing the base of customers to extending the institution’s geographic reach; from finding new ways to serve members to giving back to the community.

There will be more of all of that, said Welch, president and CEO of Freedom, who offered what amounted to a ‘state of the credit union’ report for BusinessWest on the occasion of its 100th birthday.

The milestone (July 22 was the official birthday) has been marked in various ways — from a 100-day summer food drive that raised $4,100 for the Food Bank of Western Massachusetts and collected 930 pounds of food for the Gray House, to a week of ice cream at all the branches in late July for members and employees; from raffles and giveaways for members to specials on loans and CDs.

“It’s a big milestone these days for a financial institution to be around that long,” Welch said. “So we wanted to celebrate with the community.”

Mostly, though, the institution has been quietly continuing those patterns of behavior listed above, he added, noting that he and his team are being both innovative and entrepreneurial as they go about writing the next chapter in a history that began with an institution known as the Western Massachusetts Telephone Workers Credit Union, formed when Warren Harding was patrolling the White House.

“It’s a big milestone these days for a financial institution to be around that long. So we wanted to celebrate with the community.”

Listing examples of both, he said Freedom will soon be introducing its first interactive teller machine (ITM) as well as credit cards and a new debit-card product. Meanwhile, it is continuing and broadening its push into Connecticut with the opening of a loan-production office on Elm Street in Enfield. Also, the credit union, which now boasts roughly $650 million in assets, more than 32,000 members, and 10 branches across Western Mass., has been making some inroads to service companies in the broad and ever-expanding cannabis industry in Western Mass., while continuing to aggressively pursue more business on the commercial-lending side of the ledger.

With the cannabis sector, the credit union recently started providing deposit and cash-management services for businesses in different kinds of businesses, said Welch, adding that this could become a vehicle for growth at Freedom.

“We have several clients that have signed on with us and we have a pretty good backlog of businesses that are looking to come on board with us,” Welch said, noting that the credit union is working with its regulator to make sure it is complying with guidelines for doing business with those in this sector.

It is certainly not the only institution looking to garner cannabis customers, he went on, adding that, as competition mounts, Freedom will work to remain competitive and secure market share in a sector where new businesses open every month, if not every week.

Cannabis was recently made legal for recreational use in the Nutmeg State, he went on, adding that this could be another avenue for growth in that market. “We think we’re in a good position with our expansion into that market.”

Overall, Freedom is still finding its footing in Connecticut, he said, adding that, over the next few years, it will explore opportunities to branch out south of the border, literally and figuratively.

Glenn Welch

Glenn Welch says the basic strategy at Freedom is “to keep doing what we’ve been doing for the past 100 years.”

“We’re going to explore our options in Connecticut as we get a foothold there,” he explained. “There could be a possibility of branching down there; we signed a two-year lease in Enfield, and we want to explore the market with the loan production first; we thought that was a good way to get a good foothold.”

For this issue and its focus on banking and financial services, BusinessWest talked at length with Welch about the first 100 years for Freedom Credit Union, and what is on tap for this Western Mass. institution.

 

Answering the Call

Tracing the history of the credit union, Welch said it started in a small office in the telephone-company building on Worthington Street, serving only employees of that large and fast-growing industry.

In 1978, the institution relocated to a new home on Main Street in Springfield’s North End, which still serves as its headquarters today. In 1987, the Western Massachusetts Telephone Workers Credit Union merged with Monarch Credit Union. As demand for the benefits of a credit union grew, the institution applied for a community charter. In January 2001, membership eligibility was expanded to include anyone who lived or worked in Hampden, Hampshire, Franklin, or Berkshire county, and in early 2020, further expansion of membership eligibility included Hartford and Tolland counties in Connecticut.

In 2004, the institution merged with FHBT Credit Union, and the name of the larger entity became Freedom Credit Union. And with that new name came geographic expansion, with new branches in Chicopee, Northampton, and, later, Turners Falls, Greenfield, Feeding Hills, Easthampton, the Sixteen Acres neighborhood in Springfield, Ludlow, West Springfield (after a merger with West Springfield Credit Union in 2019), and then Connecticut.

Throughout its history, Freedom has consistently sought out new opportunities to expand and bring its products, services, and mission to new zip codes, said Welch, while also looking for new and better ways to serve its members, said Welch, adding that these trends continue today.

Especially with its push into Connecticut, but also with its work to attract residents and businesses in its service area that are looking for options in the wake of a seemingly endless string of bank mergers, the latest being M&T’s absorption of People’s United Bank.

“We’re going to explore our options in Connecticut as we get a foothold there.”

Connecticut has become the next frontier for many banks and credit unions based in Western Mass., and so it is with Freedom, said Welch, adding that the new office in Enfield, which opened earlier this month, will include both a commercial-lending officer and a mortgage originator.

“We had a lot of people in Connecticut who wanted to bank with us, so that’s why we expanded our charter in 2020,” he said, adding that COVID obviously slowed the pace of progress into that state, but with the pandemic easing in most all respects, the credit union is expecting to see growth in the numbers of members from across the border.

Meanwhile, Freedom will continue and escalate what has been an aggressive push into the commercial-lending market on both sides of the border, another initiative that has been slowed somewhat by COVID.

“We’re trying to expand on the commercial side, but obviously not ignoring consumers,” he told BusinessWest. “We did hire a new hire lender for the Connecticut market; we believe there is a lot of opportunity there — on both the commercial and consumer side.”

Overall, the credit union began its push into the commercial market roughly seven years ago, he said, adding that it has been making good inroads since, with two lenders in this market and now the one in Connecticut.

Its legal lending limit is $7 million, with a large sweet spot of $2 million to $5 million, Welch explained, adding that this range leaves plenty of growth potential in a region dominated, on both sides of the border, by small businesses.

“We have a very experienced lending team — we’ve been in the market in a long time,” he said, adding that Freedom will be rolling out some new products in the next few months that will make it easier for companies to obtain small-business loans.

“We’ve partnered with a credit-union service organization with an online app where people can go, and they will make the credit decision for us, based on our guidelines in place,” he explained. “That’s how we hope to help the small businesses in the area.”

Another new service soon to be unveiled by Freedom will enable area retailers to offer financing for purchase of their products through the credit union, an initiative that he believes will help small businesses while also creating potential new members for the credit union on the consumer side.

The credit union’s headquarters have been located on Main Street in Springfield since 1978 — before it was called Freedom.

The credit union’s headquarters have been located on Main Street in Springfield since 1978 — before it was called Freedom.

Overall, growth in membership has been steady, at perhaps 1% a year on average, which is typical of credit unions in this market, he said, adding that Freedom is trying to capitalize on the ongoing consolidation of the banking market and mergers like the one involving M&T and People’s United, which, by most accounts, did not go smoothly.

“I think that’s our biggest opportunity, especially in Connecticut, with M&T and People’s United being such big players in that market,” he said, adding that the credit union is conducting some marketing targeting customers of those institutions.

Meanwhile, as noted earlier, the credit union will soon roll out its own credit card as well as a new debit-card product, its first ITM, and other products and services aimed at making banking easier and more convenient for members.

“We just keep automating things as we try to make it easier for our members to do business with us,” Welch explained. “A lot of things are being done online, and I think we have very competitive products for that; if people want to apply for loans or open accounts, they can do it on their own time, but certainly we have the branch system in place to support them when they need help.”

 

By All Accounts

Looking at the business plan for the next several years, Welch said Freedom is looking at a number of growth opportunities — in Massachusetts, Connecticut, within the cannabis industry, in commercial lending, and with several new consumer products.

It is moving on several different fronts at once, with the goal of expanding its membership base, providing new and better products and services, and taking its mission in new directions.

These initiatives are new in some respects, but overall, they’re simply a continuation of what the institution now known as Freedom has been doing for a century.

 

George O’Brien can be reached at [email protected]

As Mortgage Rates Climb, a Historical View Lends Some Perspective

By
team of mortgage consultants
Banking and Financial Services

Matters of Interest

 

team of mortgage consultants

James Sherbo (third from left), senior vice president of Consumer Lending at PeoplesBank, with his team of mortgage consultants.

 

Mike Ostrowski remembers signing for his first mortgage.

The year was 1982. The 30-year adjustable rate was … wait for it … 16.37%.

“You could put a house on a credit card and beat that rate,” said Ostrowski, president and CEO of Arrha Credit Union. From that historical perspective, he noted, today’s rates, typically between 5% and 6%, don’t seem so onerous.

“We don’t make the market. We would like to see a nice, steady rate that does not fluctuate and move, but the fact of the matter is, even if the rates are hovering around 5% or 6% right now, that’s still a great rate,” he went on. “Did you catch the bottom of the market at 3%? Maybe some people did, and that’s great, but 6% isn’t ridiculous. It needs to be put in perspective. People forget.”

That they do, said Kevin O’Connor, executive vice president of Westfield Bank. “People were really used to rates of 3% for 30 years fixed,” he said, though he was quick to note that doubling that rate does alter the affordability of some houses when shopping in today’s market, and he’s sensitive to that reality. Still, “people are surprised right now, but 15 years ago, 8% to 9% was common, so a lot of us still view 5% as a good rate.”

Mike Ostrowski

Mike Ostrowski

“The whole goal in all of this is to cool down the overheated market, try to slow it down. If the Fed doesn’t take any action, you could be mired in inflation for a long time. And that’s certainly not to anyone’s benefit.”

James Sherbo, senior vice president of Consumer Lending at PeoplesBank, had similar thoughts, noting that, while 5% to 6% mortgage interest rates are historically low, they don’t seem low when people have been accustomed to a long stretch of much lower rates. And he understands why those interest rates, which are not directly tied to the Federal Reserve’s actions but tend to follow that pattern, are rising.

“Overall, it’s to slow inflation down, and part of that formula is the housing market,” Sherbo explained. “The thought is that, as rates increase, it will slow down the activity we’ve seen in the market the past couple of years.”

That activity has included an unprecedented swelling of home prices, driven by the laws of supply and demand — the former dragging way behind the latter in the wake of the pandemic and building-supply shortages.

“The whole goal in all of this is to cool down the overheated market, try to slow it down,” Ostrowski said. “If the Fed doesn’t take any action, you could be mired in inflation for a long time. And that’s certainly not to anyone’s benefit.”

O’Connor noted that the Fed’s recent moves to boost the prime lending rate, which has led to increases in other areas of the rate environment, including mortgages, have required banks to balance that reality with the needs of borrowers.

“In our case, how do we best position that rate for what the bank needs as well as what is good for customers and the community as a whole?” he said. “When rates were rising, we were probably looking at it daily. That’s not typical; we try to set rates as best we can for a week, so customers and Realtors are looking at something they can rely on, so they can plan.”

That daily whiplash has stabilized somewhat, to where the bank may alter the rate an eighth of a point during any given week, he added.

For this issue’s focus on banking and financial services, BusinessWest talked with several area industry leaders about why mortgage interest rates have been so volatile lately, and how they’re addressing the needs and concerns of borrowers.

 

Bottom-line Impact

Craig Boivin, vice president of Marketing at UMassFive College Federal Credit Union, understands the historical picture of mortgage rates, but also sees consumers’ side: that buying a house in 2022 will cost them significantly more on their monthly bill than a house bought for the same price in 2021.

“Compound that with the fact that rents are higher, and it puts people in a position of ‘should I bid on houses when the values haven’t come down yet, or pony up another year of rent, which has increased a couple hundred dollars as well?’

“We’ve had a lot of conversations internally about how to help people get into homes,” Boivin went on. “Home ownership is one way people move into a higher economic class. We also know how homeowners benefit from values going up, as they can tap into home equity. So, how do we help people navigate this crazy environment?”

Craig Boivan

Craig Boivan

“We often tell folks who are getting into the homebuying game, especially people entering this crazy world for the first time, ‘take the workshop. We’ll show you different rate options, who you’ll be working with, finding your agent, all those things. Just talk to us.”

One way is by offering a wide range of products and matching borrowers to the right ones. For instance, UMassFive’s adjustable-rate mortgage product, which offers lower fixed rates over the first several years, followed by variable rates later on, can be a solid option for certain people.

“Those loans got a bad rap in the 2000s leading up to the housing burst because there was a lot less strict criteria around granting mortgages; some financial institutions were giving loans to people who couldn’t afford them,” he explained, which led to financial pain when a loan’s rate shot up.

But some customers are ideal fits for these types of loans, he said, such as first-time homebuyers who are already planning to move to their next home early in the loan, or medical residents who move around often, or professors who don’t have tenure and expect their current job to be transitory.

“One of the main reasons we can offer such a wide range of products is the way we set up our mortgage department,” Boivin said, noting that UMassFive invested in a credit-union service organization, or CUSO, called Member Advantage Mortgage, back around 2008. CUSOs allow a number of credit unions to create scale by pooling their resources on a particular program — in this case mortgages — which allows them to craft unique products for their members while weathering the kind of economic volatility that can upend business.

Lauren Duffy, chief operating officer at UMassFive, is executive chair of the Member Advantage Mortgage board of directors, “so we have direct oversight and a lot of influence,” Boivin noted.

O’Connor said Westfield Bank helps potential borrowers through its pre-qualification program, called ‘lock and shop.’ “They leave here knowing what their level of affordability will be, and their payment, based on current market rates. Then they can go out there and do some shopping.”

The idea is to avoid situations where shoppers think they’ve found the perfect home, only to find it’s unaffordable later, based on current rates, he explained.

Kevin O’Connor

Kevin O’Connor

“We want to take the uncertainty off someone’s head and give them some stability. We try to work with people in that way in these unsettled times.”

“That’s certainly helpful. We want to take the uncertainty off someone’s head and give them some stability. We try to work with people in that way in these unsettled times. Certainly, as a community bank, we feel a strong obligation to the community to find security and peace of mind for customers through this process.”

Boivin said UMassFive likes to “lead with education,” which is the motivator behind its educational programs, like Home Buying 101.

“We often tell folks who are getting into the homebuying game, especially people entering this crazy world for the first time, ‘take the workshop. We’ll show you different rate options, who you’ll be working with, finding your agent, all those things. Just talk to us.’”

 

Dollars and Sense

While mortgage volume hasn’t gone down at most institutions, refinancing has understandably taken a hit.

“We saw lots of refinancing from 5% to 3%; these people are not going to give up their rate now for any reason,” O’Connor said. “But a home-equity line of credit is an alternative, so they can preserve their lower interest rate, and we’re seeing home-equity volumes back up. A line of credit is variable to prime, and people understand that, but for many people, it’s worth doing that rather than give up their fixed-rate mortgage.”

Ostrowski said there will always be some refinancing business “because there’s always a need for money. People always need to send their kids to college, and they always want to make improvements to their homes.”

On the mortgage-origination side, the first-time homebuyer segment is most affected by higher interest rates, Sherbo said, simply because they don’t have a home to sell in this inflated market.

“They have the double whammy of higher rates and higher prices at the same time, and they often don’t have the wherewithal to withstand a bidding war on a property. So we have to do our best and be as competitive as we can on our products and our rates. We historically have low loan fees compared to our competitors, and a strong relationship with the real-estate community here in our footprint. Over time, we’ve developed a very good reputation for getting things done.”

The good news is that higher rates, married with a slight easing of the supply-and-demand conundrum, may push prices down, “but I don’t think we’ve seen that happen quite yet,” Sherbo added. “I think things should at least start settling down a little bit. We’re not seeing the bidding wars as hot and heavy as we have in the past. In some areas, there are some signs things are cooling down a little bit, which will help prices stabilize.”

He emphasized the importance of a community bank’s role in guiding customers to good decisions. “We know the market, and we can make adjustments quickly. We’re very agile when we have to adjust and change our programs a bit. We have to be focused on being competitive on rates, and we want to give buyers options. As soon as you feel you’ll be in the market, come talk to us, get pre-qualified, and we can guide you through what your options are.”

Ostrowski hopes home prices ease as well, but new housing starts nationally remain slow, which is indicative of the still-high cost of building materials, among other factors. But considering the big picture, he doesn’t think current mortgage rates should stop potential buyers from jumping into the pool.

“Realtors care about making a sale as quickly as possible. I don’t blame them; that’s their job. So they’re going to take a more negative view on this,” he told BusinessWest. “I don’t look at it as negative. You have to deal with normal fluctuations in this business. It might be slightly more than normal right now, but I wouldn’t hesitate in buying in the current market.”

 

Joseph Bednar can be reached at [email protected]

Monson Savings Celebrates 150 Years — and its Place in the Community

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Monson Savings Bank’s birthday celebration
Banking and Financial Services Special Coverage

Pedal to the Mettle

Monson Savings Bank’s birthday celebration

Monson Savings Bank’s birthday celebration

Monson Savings Bank has been commemorating its 150th birthday in many different ways, from a time capsule to assembling and donating $15,000 worth of bicycles to several area charities. Through all these efforts, the bank is celebrating its continuity and its commitment to a community that is now much larger then when it took its first deposit back in 1872.

Dan Moriarty called it a ‘trial run.’

That’s how he referred to his 60-mile bike ride, which he also called the ‘Tour de Branches,’ on July 17, during which he visited all seven Monson Savings Bank (MSB) locations — five branches, the headquarters, and a loan center — on a trek that took him from Monson to East Longmeadow, with stops along the way in Ware, Wilbraham, and Hampden.

Moriarty, the bank’s president and CEO, said this was a tuneup for a ride two and a half times that length, a number that is significant because 150 is also the number of years the bank is celebrating this year, and the ride, still very much in the planning stages, has now become a poignant part of the celebration.

Dan Moriarty’s ‘Tour de Branches’

Dan Moriarty’s ‘Tour de Branches’ helped him prep for a 150-mile ride as part of Monson Savings Bank’s birthday celebration

“My goal is to raise money to give to a local charity … I’m thinking I could ask for per-mile pledges from friends, family, customers, and businesses,” Moriarty told BusinessWest, adding that the charity is still to be determined. “I’m guessing no other bank president belonging to a bank older than 100 years has done this.”

He’s probably on very safe ground with that statement. Not many bank presidents pedal such distances, although he’s certainly comfortable doing so having competed in several Ironman triathlons, where participants cycle 120 miles while also swimming 2.4 miles and running a full 26.2-mile marathon. And, more to his point, there simply aren’t many banks that can boast about being around for 100 years, let alone 150.

And that, more than anything else, is what MSB is celebrating this year, said Mike Rouette, executive vice president and chief operating officer, noting that this longevity, this stability — not only the same bank, but the same name since Ulysses S. Grant was patrolling the White House — is rare in this era of ongoing mergers and acquisitions.

bank employees buried a time capsule

As part of the 150th birthday celebration, bank employees buried a time capsule filled with a number of items reflective of 2022.

It is reflected, he said, in a borrowed slogan that the bank has adopted: ‘Never forget who you are and where you came from; it’s an important part of you that you will find strength and peace from.’

“It’s short, and it’s sweet, and it says a lot about us,” Rouette noted, adding that, while the bank has grown and expanded its presence within the region, it remains loyal to the principles on which it was founded in 1872.

Moriarty agreed.

“I think it takes a strong sense of loyalty to the legacy of the organization to hang on for that long,” he said. “As we know, in this area, some long-lasting institutions decided to go a different route and either merge or combine. It starts with the organization and how it feels the future can be laid out for a bank that’s been around a long time; if they feel they’re not going to make it, they look to a different situation or combination. So far, we’re not committed to looking in a different direction.”

Moving forward, he said the bank “has a lot to talk about” at its upcoming annual meeting and strategic planning sessions in September, from where, when, and how to expand geographically to anticipating where technology is going and how to maximize it to better serve customers.

“We had very big ideas, and I’m happy to say that we made most of them happen — and very successfully.”

“It’s all about delivery systems, customer service, where we’re physically going next, which means market analysis and possible branch expansion,” he explained. “We’re going to do it in a controlled and managed method.”

 

To a Higher Gear

While Moriarty is, indeed, a veteran of Ironman triathlons, it had been a while, seven years by his estimation, since he had taken part in one of those competitions. Thus, he admits to being a little sore after that 60-mile trial run.

“It was a reality check when I came off the bike that day,” he explained. “I said, ‘whoa … that was 60 miles; I have to do that twice plus another 30 miles.’ This will be a good challenge for me; there was about 3,500 feet of climbing for one loop — that’s like going up half of Mount Washington.”

Monson Savings Ba

Monson Savings Bank has retained its original name and home city for 150 years, a rarity in the banking world.

He’s presently training with long-time friend and Ironman coach Kevin Moloney, who took the 60-mile ride with him. He’s also mapping out a course, one that will essentially take him on the 60-mile loop twice, with an additional loop, totaling 30 miles, tacked on.

As he said, it’s a work in progress when it comes to planning the ride, choosing a beneficiary, and filling in other details. And this ride will, as noted, will be a capstone — along with a formal gala in September to be attended by employees, board members, and plus-ones (total guest list of … you guessed it, 150) — to what has been a full year of activities marking the bank’s milestone.

Recapping them, Caitlin O’Connor, vice president and Marketing officer, said there has been a wide variety of events and programs, from the burying of a time capsule to the commissioning of a painting of the bank’s first president, Charles Merrick; from a traveling historical display featuring antique currency to monthly $150 cash prizes; from the placing of a marker where the original bank building stood at the corner of Main and State streets in Monson to several build-a-bike initiatives, whereby bank employees have assembled and donated $15,000 worth of bicycles to several nonprofits in the area, including I Found Light Against All Odds, Educare Springfield, and the South End Community Center.

“We had a ‘Cheers to 150 Years’ event starting on March 19 to really kick things off; that’s was an employee event and the starting point,” O’Connor told BusinessWest. “And from then on, it just grew and took on a life of its own. We had very big ideas, and I’m happy to say that we made most of them happen — and very successfully.”

Collectively, these events and programs have punctuated the bank’s place in the community — literally, as with the marker placed at the original bank location, but also figuratively, as a community bank that is very much involved in the cities and towns where it has locations, and the region as a whole, Rouette noted, adding that the 150th anniversary has been a great vehicle for making introductions, forging new relationships, and reinforcing existing ones.

“What a great way to walk into a nonprofit that you’re hoping to bring into the bank or a commercial or residential customer,” he said of the celebration and everything that it conveys about the bank, its history, its stability, and a future that will look very much like the present and the past.

“It’s an opportunity to give them your story — who you are, what you’re about, and your overall legacy,” he went on. “People want to do business with people that have been around, that are part of the community — not just here today and gone tomorrow, but institutions that are truly the cornerstone, the bedrock of the area.”

 

The Ride Stuff

That word ‘area’ has taken on new meaning for MSB since its last major anniversary — its 100th, in 1972 — and especially since 1998.

It was during that year that the bank opened its first location outside of Monson, a branch in Hampden. Five years later, a third branch was opened in Wilbraham, and new locations were added in Ware in 2103 and East Longmeadow in 2020. During that same memorable year, MSB’s Loan and Operations Center moved to a state-of-the-art facility in Wilbraham.

‘Build a Bike,’ where employees assemble bikes and donate them to area charities

The 150th celebration has featured a number of programs and events, including ‘Build a Bike,’ where employees assemble bikes and donate them to area charities, in this case, I Found Light Against All Odds.

With these moves, the bank is now serving a much broader area and becoming more involved in the region’s unofficial capital, Springfield, and serving a broader demographic mix of commercial and residential customers, said Dina Merwin, senior vice president and chief risk and senior compliance officer for the bank.

“We’ve well beyond the towns in which we have branches, and so we recognize that we want to reach all potential customers in our market,” she explained. “We recognize also our desire to include financial inclusion in reaching all potential customers in our market, whether that cuts across lines of income levels, race, ethnicity, and any other basis.

“Many of our recent events were focused in the Springfield area,” she went on, “while we continue to support and celebrate all the communities in which we are committed. We also recognize that there have been some demographic shifts in our market area in age and different types of population, so it’s important for us to recognize that and make sure we’re inclusive in all our efforts.”

While the area being served by the bank has changed, the name over the growing number of doors hasn’t, said Moriarty, noting that his institution, unlike many others, has chosen to keep the name of the community where it began as part of the brand, as well as that word ‘Savings.’

“I think the recession will be short and challenging, but I think Monson Savings and other banks are positioned well to weather, manage, and help customers through this period.”

“We’re going against the grain on that in some respects,” he noted. “Mike and I met with the board of directors during a strategic planning session, and we feel that the reputation that the bank has built the past 150 years does mean something, and we believe it’s recognizable in the community. We want to leverage that from a standpoint of legacy — Monson itself, where it all began — and then ‘Savings’ connoting security and trust, even though we feel we are a commercial player in the market.”

Indeed, while celebrating its 150th anniversary in all those ways mentioned above, MSB has also been carrying on with business, said Moriarty, noting that it has been a solid year in many respects, despite a sagging economy, with continued growth in commercial lending and, overall, a $30 million increase in total assets, bringing the bank near the $650 million mark.

“We’re working to strengthen existing relationships while also fostering new ones across the board, from individuals to businesses,” he said. “We’re trying to help them navigate where this challenging environment is going.”

On the commercial-lending side of the ledger, an already competitive landscape has become even more so as rates start to edge up, said Rouette, adding that many businesses are being more cautious amid general uncertainty about where the economy is headed and, overall, a decline in confidence.

“You’re seeing a bit of a slowdown, especially as people hear of the inflationary environment we’re in,” he went on. “People are pushing back potential projects that they have; maybe they were going to start in the third quarter or fourth quarter of this year, and now they’re saying, ‘let’s pump the brakes a little bit and possibly look at next year and see where we land from a rate standpoint and with the economic environment.’

“We had a great first and second quarter,” he went on. “But when you’re out talking to customers, you can hear the apprehension and cautious tone of voice that business owners are using right now.”

Moriarty concurred, and noted that a recession is now more likely than not, in his opinion, and this will add to the many challenges business owners and managers are currently facing.

“I think the recession will be short and challenging,” he said, “but I think Monson Savings and other banks are positioned well to weather, manage, and help customers through this period. And once the Fed gets control of inflation and the employment market evolves a little bit, we’ll see some improvement.”

Looking ahead, and toward creation of a new strategic three-year plan for the bank, Moriarty said a number of topics will be considered, including the need to be more “customer-centric versus product-centric,” as he put it.

“That means that we have to make sure we’re creating frictionless opportunities and delivery systems that make it easy for customers to manage their banking,” he explained. “That includes digital banking; we know we have cutting-edge products now, but we know things are going to change drastically in the next three to five years, so we have to make sure we’re positioned to give those offerings to our customers.

“Artificial intelligence will come more into play in the next three to five years,” he went on. “The usefulness or the quickness with which we can do data analysis of what our customers have and what they need will be important. Customers want to have things at their fingertips; they want to maximize and analyze their financial situation and be able to look forward and make good decisions.”

As for possible geographic expansion, Moriarty said there are many possibilities, and he’s not ready to talk about any of them.

He did say that the consensus among experts in the industry is that the recent pattern of consolidation within the sector will continue, leaving opportunities for smaller, community banks like Monson Savings.

“We feel that we benefit from other mergers and acquisitions because we’ve been around for so long, and we know that where there’s shakeup, there’s also opportunity,” he said. “We’re going to keep an open mind to that.”

 

Going the Last Mile

Returning to the subject of his planned bike ride, Moriarty joked that now that he’s started to talk about it, he’s pretty much committed to doing it.

He’s training two or three times a week with Moloney and looking at a number of options for which charity or charities (probably the latter) he will be fundraising for.

It’s been a while since he’s taken part in an Ironman competition or even a marathon — he’s run in several of those as well, including Boston a number of times. But he said it’s like … well, riding a bike. Not really, but close.

In any case, like the institution he now leads, he’s proven that he’s in it for the long haul — as in the very long haul: 150 miles for him, 150 years for the bank.

They’ve both put the pedal to the mettle.

 

George O’Brien can be reached at [email protected]

New Valley Bank Grows by Staying True to Its Philosophy

By
Jeff Sullivan
Banking and Financial Services

Making Contact

Jeff Sullivan

Jeff Sullivan says New Valley came into the market wanting to cater to small and medium-sized businesses, and that philosophy has served the bank well.

When BusinessWest spoke to Jeff Sullivan in late 2019, about six months after New Valley Bank & Trust opened in downtown Springfield — the first Springfield-based bank to open in more than a decade — he talked about focusing on smaller commercial loans than larger banks prefer to take on, and quick turnaround times as well.

The driving philosophy, amid a landscape of ever-larger mergers and acquisitions in banking, was to serve small to medium-sized businesses in a high-touch way they don’t necessarily experience at large institutions.

That philosophy is still true today — and it works, to judge by the growth of New Valley in its first three years, with 35 employees, just under $300 million in assets, and a third branch set to open in West Springfield in September (more on that later).

“Some of our bigger competitors, just as a function of their size, have to do larger deals. It’s just a math equation; they’ve got to feed a bigger engine,” Sullivan said during our recent visit, noting that many large banks don’t want to focus on deals under seven figures.

“But all those $100,000 and $500,000 relationships really mean a lot to us,” he went on. “We like hitting singles, and we think we do it well; we think that’s an overlooked part of the market.”

While many large banks have long assumed that non-bank lenders, like LendingClub and Kabbage, would grab significant market share in the small-business community, Sullivan said, people still value local banking relationships.

“They say, ‘I know these people, I trust them, and if I have a really bad year or something bad happens to my business, I know somebody at that bank I can call to help me.’ If you’re dealing with an 800 number of a Wall Street bank or a Silicon Valley fintech firm, you’re probably not going to get that level of service.”

And in granting that kind of quick, personal service, Sullivan said the bank is growing the economy by encouraging the region’s extensive small-business ecosystem.

“We just continue to execute on our plan. We have plenty of liquidity, plenty of capital. We can continue to grow for a couple more years with the framework that we have.”

“We serve the entrepreneurs, people with energy and a lot of enthusiasm and optimism by nature. A lot of really smart, enthusiastic people are living here who have good ideas, and turning those good ideas into real businesses is an incredible challenge,” he said. “So, I think our customer base is inherently a little more optimistic about the future and thinking about growth, and it’s great to work with people like that.”

Just past its three-year anniversary — the time when the startup phase is over and regulators “take some of the handcuffs off,” Sullivan said — New Valley is slightly ahead of the pace of its original business plan. Deposit growth is certainly ahead of schedule, but that’s true of all banks after the federal government poured trillions of stimulus dollars into the economy between mid-2000 and early 2021.

But loan growth is on target at New Valley as well, with about $175 million in outstanding loans, about $25 million of that residential and the rest commercial.

“The pipeline is good,” he said. “We’re in a time now when rates have gone up, there’s a lot of talk about a recession, and you hope it’s not a self-fulfilling prophecy, where if enough people talk about a recession, they’ll kind of speak it into existence. We’re cautious about the end of this year and going into 2023, but our pipeline is as big as it’s been. We’re having really solid production months, with lots of new customers signing up with us every month.”

New Valley’s third branch

New Valley’s third branch, at 333 Elm St. in West Springfield, is expected to open in September.

As a result, he expects that outstanding-loan figure to top $200 million by year’s end, and maybe by the third quarter. “We just continue to execute on our plan. We have plenty of liquidity, plenty of capital. We can continue to grow for a couple more years with the framework that we have.”

 

Over the River

While the last bank launched in Springfield before New Valley, NUVO Bank (since acquired by Community Bank), focused on a mostly digital banking model, New Valley wanted to stress more of a brick-and-mortar foundation. It currently has two branches in Springfield, both downtown and on Wilbraham Road in Sixteen Acres.

A third branch is expected to open in September on a former Holyoke Credit Union site at 333 Elm St. in downtown West Springfield.

“We evaluated it and thought it was a really good opportunity,” Sullivan said. “There’s some old-school thinking that people don’t like crossing the river; they don’t like to be forced to go to downtown Springfield. We had a steady chorus of people saying, ‘could you please open something on the west side of the river?’ So we were pretty sure our next branch would be on the west side of the river, but we weren’t sure exactly where. This opportunity just kind of dropped in our lap.”

One advantage of the new office will be drive-up convenience, which downtown Springfield customers don’t have. But there are other reasons customers value conveniently located branches, even at a time when adoption of mobile and online banking has soared.

“There have been barriers getting to parity. But as those barriers disappear, we’re seeing a swell of Latino and African-American businesses that are starting up — really smart, talented people who are choosing to move to this area because they feel like there are resources here.”

“People say bank branches are going to go away at some point and go fully electronic. But I think there is still a safety blanket when people know there’s a bank branch close to their location, and when they go in for some of the important transactions, like opening accounts or applying for a loan, or when they really need advice, they can show up in person.

“That builds confidence,” he added. “They probably go to our branches very infrequently, unless they’re in some kind of cash business where they have to go all the time. But I think people want to know there’s somebody that they trust within a relatively short drive of where they are, and they can lean on that person if they need to.”

The team at New Valley makes a point of engaging with customers, he added. “If they’ve got any questions, we try to give them advice as best we can. And people are just very appreciative of that. We’re so small that, if I get a call and it happens to be about a customer-service issue, I can run right upstairs and take care of it pretty much on the spot.”

That was especially true during the pandemic, when community-focused banks and credit unions helped customers navigate some truly trying times, with Paycheck Protection Program (PPP) loans and in other ways.

“There’s nothing better than somebody calls a year later and says, ‘I may not have told you at the time, but I was really struggling, and you guys really helped me out.’ That’s always great to hear.”

The pandemic also saw banks expand their digital capabilities as customers embraced those technologies like never before.

“Our industry was behind the curve in terms of adoption of technology in a lot of ways,” Sullivan said. “But since 2020, everybody knows how to use their phone to do their banking transactions. Most people know how to make a deposit with their mobile device. People are more savvy. Banks, as a result of that, are trying to automate more and more their processes.

“With the PPP loans, people could apply online and didn’t have to talk to a human being; they could sign up electronically, and we could get everything done remotely — because we had to do it remotely,” he went on. “Now, we’ve taken those best practices and rolled them into normal post-pandemic business. We want people to be able to go online with a few clicks and apply for a loan, and we can deliver the documents electronically.”

At New Valley — and at most other banks, it seems — there’s certainly a place for both high-tech and in-person services, and neither are fading away.

“It’s not that we don’t want to have those in-person interactions with people,” he added, “but sometimes it’s just a whole lot more convenient to be able to email the documents to somebody, they sign it — whether at 7 at night or 7 in the morning — and it’s back in our inbox the next day, and we take care of it.”

 

Long-term Partners

Sullivan was quick to tout other aspects of the New Valley task and spending our dollars wisely, and that opens up opportunities for us. While we’re small, we’re not inefficient in terms of our overhead compared to the overhead of a bigger bank. So we have the ability to offer more products to people.”

Meanwhile, the bank’s lenders have met what Sullivan called “a steady stream of people” bringing experience and good business plans to the table, in many cases, but needing help getting to the next level.

“A lot of them are walking in the door with so much growth in front of them, and their biggest question is how to manage it. They’re not asking, ‘how do I start from zero?’ They started from zero, but they’ve gotten to a certain point, and now the hockey stick is going straight up, and the question is how to manage it. ‘Do I have the right management team? Do I have enough employees? Do I have the ability to buy materials?’ Those are good problems to have, but they’re still problems; they’re still challenges.”

Sullivan is gratified that many small-business owners dealing with those challenges locally hail from the Latino and African-American communities, which have been historically underserved by entrepreneurship resources — but that’s changing in Greater Springfield.

“There have been barriers getting to parity. But as those barriers disappear, we’re seeing a swell of Latino and African-American businesses that are starting up — really smart, talented people who are choosing to move to this area because they feel like there are resources here.

“That’s a big part of our business for the future as well, just playing whatever small role we can play in wealth creation for those families, helping them to build wealth for future generations,” Sullivan added. “And hopefully we can hit those singles, and they turn into doubles and triples and the occasional home run, and hopefully we’re with those families, building multi-generational relationships, for a long, long time.”

 

Joseph Bednar can be reached at [email protected]

 

Florence Bank President Announces Retirement

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Banking and Financial Services Business of Aging COVID-19 Daily News Employment News

FLORENCE — Florence Bank announced that president and CEO Kevin Day will retire on Nov. 25, and a focused search is underway for a new leader.

Day took over as president in January 2020 and became CEO in May of the same year.

When Day took the helm at age 64, he promised that nothing would change at the bank. Little did he know, he’d be called upon to usher Florence Bank through some of the most tumultuous times in history, including a pandemic and the resulting financial strife. Day led the bank in ensuring that countless homeowners and businesses were able to defer their payments during the pandemic and in helping business customers connect to grants and other available funding.

These measures helped customers navigate the financial turmoil and gave them much-needed time to adjust to new financial situations.

The bank also expanded over these past two years, opening a branch in Chicopee; creating a work-from-home program for employees; and granting hundreds of thousands of dollars to nonprofit organizations in the Valley.

Day takes pride in the bank’s stability but shares the credit with the full banking team.

“Our goal in this transition is to identify an individual to lead the bank into the future while preserving the values and mission of the past that have proven so successful here,” he said. “I am proud to say that Florence Bank is fundamentally sound in every way. We have an experienced executive management team, a solid officer team and a dedicated staff. I am confident that the bank will continue to prosper for many years to come.”

Day joined Florence Bank in 2008 as chief financial officer, responsible for finance, facilities and risk management. His responsibilities expanded to include compliance in 2013, residential lending in 2014 and retail banking in 2016. He was also promoted to executive vice president in 2016.

Country Bank Donates Its Former Headquarters to the Town of Ware

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Banking and Financial Services Special Coverage

Landmark Decision

Country Bank

Country Bank

The property on Main Street

The property on Main Street has always played an important role in the economic vibrancy of the town, and this is expected to continue with its new function as a police station.

Country Bank recently introduced a new marketing slogan — ‘Made to Make a Difference.’ There have been myriad examples of that mindset over the bank’s 172-year history, but perhaps none bigger than the recent announcement that the bank would gift its former headquarters property on Main Street, valued at more than $3 million, to the town, with the intention of it becoming the site of a new police station and perhaps home to other town offices.

 

Paul Scully says that, over the past few years, or since Country Bank started ramping up discussions about what to do with its vacant former headquarters building on Main Street in Ware, there had been talks with various real estate developers about the property.

But they didn’t go very far, said Scully, the bank’s president, noting that those making inquiries were “more speculators than investors,” as he put it.

“And we didn’t want to sell it on a speculative basis and then not have it maintained,” he explained. “Or have someone say ‘we bought this with the intention of having some office move in but it never came to fruition’ and now the property is abandoned.

“Yes, we were approached by some people,” he went on. “But we really weren’t interested. We really were driven by a desire to use this property to make a difference for the town; that was our guiding compass.”

With that, Scully poignantly described the mindset that ultimately led to the announcement on June 1 that the bank was donating the property at 75-79 Main St. to the town with the intention of it becoming the site of its new police station and perhaps other municipal uses.

Elaborating, he said there were multiple objectives in mind as the bank considered what to do with the property that had been its home until it moved its headquarters into renovated mill space on South Street in 2005.

These included a desire to help the police department find larger, better quarters — something it desperately needs — while also “energizing Main Street,” as Scully put it, noting that the town’s central business district has been hit hard by COVID and other factors and needs a spark. He believes that having the police department and perhaps some other town offices in that complex will provide one.

The decision to gift the property to the town comes, coincidentally, as the bank introduced a marketing tagline: ‘Made to Make a Difference.’

This tagline evolved from a series of focus groups with customers, team members, board members, and non-customers who had gathered to discuss their experiences with the bank and their knowledge of its impact on the people and communities it serves, said Scully, adding that the donation of the Main Street building is the latest example of this mindset at work.

“Yes, we were approached by some people. But we really weren’t interested. We really were driven by a desire to use this property to make a difference for the town; that was our guiding compass.”

“It’s what we’ve been doing for 172 years — we’re made to make a difference; make a difference in your loan, make a difference in the community, make a difference in your financial planning,” he said, adding that this mission has been carried out in countless ways over the years, including a recent project in Worcester to build 55 beds for children in conjunction with the Mass. Coalition for the Homeless, at which the new slogan was formally introduced to the bank’s staff.

“That was the first time they’d heard the slogan, and in the previous two hours, they had just made a difference in a child’s life, someone who did have a bed of their own,” he explained, adding that the donation of the Main Street property adds a new and an intriguing chapter to that long-running story of giving back.

 

Building Momentum

As he talked about the decision to gift the property to the community, a donation he described as rare for a private institution, Scully first set the stage in an effort to explain how this came about, why it makes sense for the town, and how it meets the bank’s ongoing commitment to the community embedded in its new marketing slogan.

He started by discussing Main Street and, more specifically, what was largely missing from it — vitality, or energy. Elaborating, he said that many retail businesses had moved over the past several years from Main Street to the new commercial hub on Route 32, near a Wal-mart. And in recent years, several fires, including one at the bank’s Main Street property, prompted more moves by businesses. Meanwhile, COVID and lengthy and very involved reconstruction of Main Street brought additional challenges to that part of downtown.

These forces coincided with Main Street property going quiet, as a result of the pandemic and forces resulting from it.

That property, valued at approximately $3 million, includes the former banking office located on the corner of Main and Bank Street along with the E2E building located at 79 Main St., the rear parking lot and bunker style garage, and rooftop parking situated behind the 65-71 Main Street location that was also donated by Country Bank to the Quaboag Valley Community Development Corporation back in 2016.

Country Bank president Paul Scully

Country Bank president Paul Scully

It has been vacant since the start of the pandemic, when the bank closed its branch there due to staff and customer safety concerns.

“Not maintaining a presence on Main Street was a tough decision that required months of consideration while assessing how this location might be best utilized to support the community,” said Scully. “The effects of the pandemic combined with a significant decrease in customer foot traffic over the years and a shift in banking habits to more customers adopting electronic delivery channels were all a considerable part of the decision. It is a massive building to be sitting empty. The decision to donate the building became evident as we weighed the usage of this location and discussed the opportunities it could provide to the town.”

Elaborating, Scully said that while there have been ongoing discussions about the fate of the building over the years, they took on new urgency with the pandemic and the bank’s decision not to have on presence on Main Street.

However, that urgency coincided with the large-scale construction work undertaken on Main Street, he went on, adding that nothing could really be done while that work was going on.

“Over the past year, and with more earnest, we’ve been saying ‘let’s figure out what we can do with this building a make a difference,” said Scully. “And it somewhat coincided with hearing about the need for a new police station.”

The pricetag for such a facility was pegged at $7 million to $9 million, he said, adding that a new station is clearly needed, with the department having outgrown its current quarters, the town’s former post office.

By gifting the town its former headquarters, the bank can help save the town much of that expense — it will still need to renovate the property for that new use, said Scully — while also helping to bring some new life to a downtown that is poised for a resurgence given the recent roadwork and an easing of the pandemic.

“We knew that now that the roads had been repaved and new sidewalks installed, there was more of an opportunity for a resurgence on Main Street than there had been during that construction process,” said Scully. “And we didn’t want to circumvent that by having someone buy the building who wasn’t going to be able to maintain it or have the financial resources to take care of it.

“We wanted it to be right formula for the town and for the other merchants on Main Street to allow them to get some foot traffic back,” he went on, adding that a police station, and other town offices that might eventually move into that space, will help accomplish many of those goals.

Although there is no specific timeline for the transfer of ownership, which needs approval from the town at a scheduled town meeting, the bank intends to work on a smooth transition with all parties involved and expects the transfer of the location to happen in 2023, said Scully.

 

The Bottom Line

Reflecting on the long history of the Main Street property, Scully said it has housed different banks, including Country, the Ware Trust Company, and Ware Savings, since before World War I.

It has long played a role in the economic vibrancy of the town, he said, adding that even though its function will change, it will continue to do so. This was that guiding compass the bank used as it went about determining a new use for the property.

“We look at this as a great investment in community — this is what community banking is all about,” he said. “We say that we exist for our customers, our community, and our staff, and this really is the community basis of it. We’re really excited that we can help make a difference downtown and help make a difference to the taxpayers.

“We met internally as a board and a senior management team, and our driving focus was to what’s right for the town,” Scully explained. “We’ve been in town since 1850, and we believed we’ve made a difference over all those years and wanted to continue making a difference.

bankESB Parent Continues to Expand Through Acquisition

By
Matt Sosik
Banking and Financial Services

Branching Out — Again

Matt Sosik

Matt Sosik says Hometown Financial Group’s latest acquisition, like those that came before it, is all about creating scale at a time when that quality is critical to growth and even survival.

A “survival tactic.”

That’s one of the phrases Matt Sosik, CEO of Hometown Financial Group Inc., the parent of bankESB, used to describe Hometown’s announced plans to acquire Randolph Bancorp Inc., the latest in a series of moves by Hometown to expand through acquisition.

Elaborating, Sosik said this acquisition will certainly give Hometown, the multi-bank holding company for Abington Bank as well as bankESB, a larger, stronger footprint on the state’s South Shore. Indeed, Randolph Bancorp is the holding company for Envision Bank, which will merge with and into Abington Bank to create a $1.4 billion institution with 11 full-service retail locations across the South Shore, including the towns of Abington, Avon, Braintree, Cohassett, Holbrook, Marion, Randolph, and Stoughton.

But the primary reason for this acquisition, as well as the other five undertaken in just the past seven years, he told BusinessWest, is to achieve something that is becoming ever-more critical in today’s banking climate: scale.

“Banking has become such a low-margin business that scale is absolutely critical,” Sosik explained. “We aren’t running our company to survive three years or five years; we’re running to survive 20 and 30 years. We want to be a relevant player in all our markets, and we want to ensure our long-term survival, and to do that, scale is the name of the game.

“We’re not seeking this growth because it makes us feel better or because it allows us to pump our chest out,” he went on. “This is a survival tactic in this business.”

With this latest acquisition, which is expected to be finalized by the fourth quarter of this year, Hometown will have consolidated assets of approximately $4.4 billion and a branch network of 38 full-service offices across Massachusetts and the northeastern part of Connecticut. The move will make Hometown the 10th-largest mutual banking company in the country.

“We aren’t running our company to survive three years or five years; we’re running to survive 20 and 30 years. We want to be a relevant player in all our markets, and we want to ensure our long-term survival, and to do that, scale is the name of the game.”

“That’s scale — that’s about us being one of the survivors when the dust eventually settles,” said Sosik, reiterating, again, the need for size in a changing, still consolidating banking and financial-services sector, where competition is growing — and evolving.

“I talk about low margins and scale, but there’s a dynamic that’s ever-increasing; we now have competitors that aren’t just credit unions or banks,” he went on, listing players such as SoFi, Chime, and others. “The non-bank competition is out to steal our lunch, and to an extent, they will be successful. But we need to be able to play in their space, and that takes scale, too.”

Hometown’s acquisition of publicly traded Randolph Bancorp will provide more of that scale, said Sosik, noting that talks between the institutions started last fall and quickly intensified.

Under the terms of the merger agreement, which has been unanimously approved by both boards of directors, Randolph shareholders will receive $27 in cash for each share of Randolph common stock. The total transaction value is approximately $146.5 million.

This transaction will be the sixth strategic merger for Hometown in the last seven years. In 2015, Hometown acquired Citizens National Bancorp Inc., based in Putnam, Conn., and then merged with Hometown Community Bancorp. MHC, the holding company for Hometown Bank, in 2016. It then acquired Pilgrim Bancshares Inc. and Abington Bank in 2019, and later that same year merged Millbury Savings Bank with and into bankHometown.

Like those other acquisitions, this one will enable Hometown to achieve needed additional growth quickly and effectively, Sosik said.

“From the Hometown Financial Group perspective, this is a move that allows us to grow with very little additional cost,” he told BusinessWest. “This particular acquisition is going to be extremely efficient for Hometown.”

And, as noted, it will give Hometown a much larger and stronger position in a very competitive banking climate on the South Shore.

“With the addition of Envision Bank, we more than double our full-service locations and assets in Eastern Massachusetts,” he explained. “This dramatically increases the branding power we have on the South Shore, as well as market share.”

One matter still to be determined — and there is time to make this decision — is what name will go on the new entity, said Sosik, adding that both brands (Envision and Abington) have value and cache in that market.

“We’ll try to figure out what’s the best brand in that market for that combined bank,” he said. “We want to be thoughtful about that, and we’ll give it some thought.”

Meanwhile, the search for additional strategic acquisitions and partnerships with like-minded acquisitions will continue, he added, because scale will only become more important in the years and decades to come.

As he said, it’s a survival tactic.

 

— George O’Brien

With Your Return Done, It’s Not Time to Close the Drawer and Forget

By Contributor
Banking and Financial Services

Smart Tax Planning for 2022

By Barbara Trombley

 

Most of you have probably just filed your taxes or an extension. Maybe you are shell-shocked by the taxes owed on unexpected capital gains, unemployment, or additional income picked up in the last year. Maybe you received a large refund, which means you are estimating a larger tax bill than is due.

It is not the time to close the drawer and forget. Smart taxpayers start planning right away for next year so that they are prepared for their 2022 taxes and have done all they can to minimize them.

The first task is to have a detailed discussion with your accountant to comprehend why you owed extra taxes this year or why you received a big refund.

If it’s the latter, you are having too much money withheld. If you expect your income to be the same in 2022, you can adjust your withholdings. If you are still working, call your payroll department and make a change. If you are retired, you are probably having taxes withheld from a few different sources — possibly Social Security, a pension, or investment distributions. Getting a big refund is not a good thing. Make a change to one or all so you aren’t giving the government an interest-free loan with your money. Also, do the same for state taxes.

Barbara Trombley

Barbara Trombley

“It is not the time to close the drawer and forget. Smart taxpayers start planning right away for next year so that they are prepared for their 2022 taxes and have done all they can to minimize them.”

If you owed money, have a clear understanding why. Many dual-income families enter a higher tax bracket when combing two salaries. Unless you fill out a new version of the W4, your payroll department may not be withholding enough. Also, in our new economy, many people have picked up side jobs. Unless you make quarterly estimated tax payments, you will have to pay the taxes owed on the additional income when you file. Talk to your accountant about making quarterly estimated tax payments. It is easier to fund a large tax bill over the course of the year instead of scrambling to find the funds. Also, you will avoid potential interest and penalties by having the correct amount of taxes paid throughout the year instead of in a lump sum in April.

Another common reason to have owed money for 2021 taxes was due to capital-gains distributions in non-retirement investment accounts. The stock market had a great year in 2021, and many mutual-fund companies realized gains on holdings. These are tough for the investor to plan for. If you have investment accounts that are not retirement-specific, you will see a 1099-Div form from the investment company each year. Dividends and interest may be predictable, but gains and losses, not so much. Taxable gains mean you were successful and made money in your investment account, and taxes are due.

Do you want to try to reduce your tax bill? Consider maximizing your retirement-plan contribution. In 2022, investors can contribute $20,500 to their 401(k), 403(b), or 457 with an additional $6,500 of catch-up contribution if over age 50. This is a great way to get a tax break (your contributions are deducted from your income before taxes are figured) and grow your assets. You will need to log in to your plan and adjust your withholdings to account for the increase, as the maximum contribution allowed was $19,500 in 2021. Contribution limits are also increasing for Simple IRAs, from $13,500 in 2021 to $14,000 in 2022, with a $3,000 catch-up contribution.

There are some notable changes in the 2022 tax year that may impact how much you will owe when figuring next year’s taxes. On the plus side, the standard deduction will slightly increase for all filing categories. Income thresholds for deduction phaseouts will also increase for traditional IRAs and Roth IRAs. In addition, the federal lifetime estate-tax and gift-tax exemption for 2022 jumped from $11.7 million to $12.06 million — $24.12 million for couples if portability is elected when filing after the death of the first spouse. This is more than enough for most Americans.

Unfortunately, the Massachusetts estate tax is not nearly as generous. If you die as a Massachusetts resident, your heirs may have to pay an estate tax, which is calculated on the first dollar of estates that are over $1 million. Gov. Charlie Baker has current legislation that would exclude the first $2 million in assets when figuring the estate tax. This change is long overdue.

There are many other changes coming this year for taxpayers, and this article highlights just a few. If it impacts you, look up changes to child tax credits, earned-income tax credits, deductions for teachers’ expenses, and changes to the kiddie tax. Knowledge and planning are the keys to having a successful, uneventful 2022 tax season.

 

Barbara Trombley is a financial advisor and CPA with Wilbraham-based Trombley, CPA; (413) 596-6992. Securities offered through LPL Financial. Member FINRA/SIPC. Advisory services offered through Trombley Associates, a registered investment advisor and separate entity from LPL Financial. This material was created for educational and informational purposes only and is not intended as ERISA tax, legal, or investment advice.

Best Practices to Prepare for Your Nonprofit’s Year-end Audit

By Contributor
Banking and Financial Services

The Art of Being Ready

By Chelsea Russell

 

Each year goes by faster than the last, and before you know it, your nonprofit’s year-end audit is right around the corner.

Collectively, we can all agree that the audit process should be quick and easy, but we often face audits that never seem to end. Have you ever wondered what you can do to make an audit go smoothly and be as efficient as possible so that deadlines can be met? This is a great opportunity for you to learn about how your organization can have a more efficient audit process and how your organization can continue to improve procedures surrounding audit preparation.

As an auditor who is involved in many not-for-profits, I’d like to share some best practices to help you prepare for your year-end audit.

 

Have a Planning Meeting

It’s never too early to start reaching out to your auditor. Having a planning meeting with your auditor a month before your organization’s year end is encouraged. This meeting will serve many purposes, such as reminding everyone of specific due dates, discussing significant activity over the last year, and deciding on a start date for the audit based on your readiness.

 

Establish a Timeline

Once you and your auditor have discussed due dates and a start date for the audit, you should start preparing for the audit early by asking for your auditor’s data-request list. Review the list with your auditors, ask for what items are priority for testing purposes, and establish an internal due date for your team. As you and your team start preparing information for the audit, have regular check-ins with your auditor as you approach each due date and the start of the audit.

Chelsea Russell

“Collectively, we can all agree that the audit process should be quick and easy, but we often face audits that never seem to end.”

Reconcile All Significant Trial Balance Accounts

Prior to starting the audit, all significant trial balance accounts should be reconciled, and you should double-check that the supporting documentation agrees with the trial balance accounts. This is a great opportunity to make sure you have the necessary internal control procedures in place, and may present an opportunity for improvement. To prevent a delay in the audit, the earlier you can start your year-end closing process and reconciliation of accounts, the sooner you can review the audit support for potential errors before handing documents over to the auditors.

 

Compliance Requirements

The level of compliance requirements you have to adhere to depends on the funding your organization receives (state, federal, grants, or donations). A best practice would be to review your funding sources and determine the compliance requirements needed well ahead of the annual audit. Depending on where your funding is coming from can dictate the level of compliance requirements you have to adhere to. For example, if you receive federal funding or federal funding passed through the state, this could require additional audit testing to be performed and additional time incurred by the auditor. It’s best to review all funding sources on a regular basis and communicate any changes with your auditors.

 

Bottom Line

Once you invest your time and try these best practices, you’ll be able to develop your own processes throughout the year, keep the information organized, and be ready for your next audit.

 

Chelsea Russell, CPA is a manager at the Holyoke-based accounting firm Meyers Brothers Kalicka, P.C.

Pace of Evolution Accelerates in Financial-services Industry

By Contributor
Banking and Financial Services

Big Is Getting Even Bigger

By Jeff Liguori

 

Financial advice generally addresses the question ‘where should I put my money?’ It is a simple way of asking ‘what is the optimal investment for my hard-earned dollars?’ The more important meaning may be more literal: with today’s shifting landscape, where do I actually put my money?

The financial-services industry, which employs approximately 6.5 million people and is responsible for more than $123 trillion in assets in the U.S., has been rapidly changing over the past two decades. And the rate of that change is quickening. As with all industries, change may be the only certainty, but when it directly impacts our pocketbooks, it can create anxiety.

At the end of 2020, there were 4,377 FDIC-insured commercial banks in the U.S. That number is down from 6,519 in 2010 and more than 8,000 in 2000. During the same 20-year period, the dollar volume of loans generated by those banks has increased 127%, growing from $1.05 trillion to $2.38 trillion. Consumers seem to have fewer choices in terms of traditional banking.

Despite the number of banks being cut in half since 2000, there are more financial outlets than ever for depositors, borrowers, and investors. Finance has become a complex structure and confusing network of companies, from purely digital firms with a limited product offering, like PayPal, to massive financial supermarkets like Bank of America. Incidentally, in the past five years, the number of total active user accounts with PayPal has risen sharply from 165 million to 380 million, up 130%, with total annual transaction volume approaching $1 trillion.

Jeff Liguori

Jeff Liguori

“Finance has become a complex structure and confusing network of companies, from purely digital firms with a limited product offering, like PayPal, to massive financial supermarkets like Bank of America.”

The adoption of technology in banking is largely a function of age. At the end of 2020, nearly 50% of consumers ages 24 to 39 were making payments with digital or mobile wallets. That percentage decreases slightly up to age 54. But only one-fifth of consumers ages 55 to 73 transact digitally, and only one in 12 consumers age 74 or older are comfortable making digital payments. Focusing on younger demographics, ‘killer app’ technology has become a critical component of growth for companies in financial services. The number of financial-technology startups, or fintech, in North America has grown 90% since 2018.

Beyond technology, financial firms continue to expand their suite of products. For example, the five largest life-insurance companies measured by annual premium revenue are Northwestern Mutual, MetLife, New York Life, Prudential, and MassMutual, in that order. Those firms also have a significant presence in investment management, by way of mutual funds or wealth advisory or both. The same is true for the largest commercial banks, investment banks, and broker-dealers. Financial solutions are ubiquitous across the industry regardless of the type of firm.

Big is getting even bigger. It is an evolution in financial services, and not without precedent. Historically, consumers deposited their paycheck and took out their mortgage from the local bank. They obtained insurance through a local broker and invested with a local advisor. As these independent businesses got bought by larger firms, the relationship to the community slowly eroded. Meanwhile, our bank is connected to our PayPal account, directly pays our mortgage and car payments, and debits our monthly Netflix subscription. The idea of switching banks is enough to cause sleeplessness, even though our relationship manager works at a call center in Tulsa.

As with all trends, opportunities arise. The combination of an intricate financial landscape with rapidly changing technology and a greater access to products and solutions than ever before is exciting. Lost in the consolidation of banking is the local connection. In years past, a bigger institution had greater access, but that is no longer the case.

In It’s a Wonderful Life, George Bailey was the frustrated local banker who single-handedly saved the town from financial ruin. He couldn’t compete with the wealthy industrialist, Henry Potter, who owned half of Bedford Falls. But George had one thing Mr. Potter didn’t, the trust of his neighbors. As financial products and services continue to multiply and digitize at a dizzying pace, it will ultimately be the local trusted banker or advisor who helps confused consumers make the right choices.

 

Jeff Liguori is the co-founder and chief Investment officer of Napatree Capital, an investment boutique with offices in Longmeadow as well as Providence and Westerly, R.I.; (401) 437-4730.

What Do Rising Interest Rates Mean for Banks and Borrowers?

By
Banking and Financial Services Special Coverage

The Fed Makes Its Move

 

 

Last month’s federal funds rate hike by the Federal Reserve — the first of what may be several such increases — was long-awaited and welcome in the banking community, while the Fed hopes it begins to produce its intended effect of cooling the economy and slowing inflation. The impact on loans and credit of all kinds will be meaningful, finance leaders say, but the long-term, historical perspective suggests this is still a very good time to borrow.

It’s a move many in the finance world are calling overdue, and in some ways welcome.

After keeping interest rates low through the first two years of the COVID-19 pandemic, the Federal Reserve hiked the federal funds rate by one-quarter of a percentage point on March 16, while also suggesting it might issue up to six more small increases before year’s end.

“We’ve lived with this low-rate environment for the last few years, which has been extremely difficult for banks on the margins,” said Brian Canina, executive vice president and chief of Finance and Shared Services at PeoplesBank. “So this was definitely something we have been waiting for.

“Last year was very interesting because, despite the inflation we were seeing, there was no movement on interest rates,” he added. “These have been interesting times, and hopefully, as the Fed continues to monitor this and increase the rates in the future, it would be nice to see us get back to a more normalized interest-rate environment that we’re more familiar with.”

Jeffrey Sullivan, president and CEO of New Valley Bank, said the Fed’s move was not only expected, but had been announced and much discussed in the marketplace.

“People are saying it’s overdue, and many are saying the Fed should have done it earlier to cool off the economy and keep inflation down a little bit,” he told BusinessWest. “Some people are worried there could be a lot of increases coming down the pike. But if it’s slow and steady, it’s probably not going to be a huge shock to people borrowing money, whether businesses or consumers.”

According to Forbes, the Federal Reserve’s mission is to keep the U.S. economy humming, but not too hot or too cold. So when the economy booms and distortions like inflation and asset bubbles get out of hand, threatening economic stability, the Fed can step in and raise interest rates, cooling down the economy and keeping growth on track.

“We’ve lived with this low-rate environment for the last few years, which has been extremely difficult for banks on the margins. So this was definitely something we have been waiting for.”

“When the Fed raises the federal funds target rate, the goal is to increase the cost of credit throughout the economy. Higher interest rates make loans more expensive for both businesses and consumers, and everyone ends up spending more on interest payments,” the publication notes.

“Those who can’t or don’t want to afford the higher payments postpone projects that involve financing,” Forbes adds. “It simultaneously encourages people to save money to earn higher interest payments. This reduces the supply of money in circulation, which tends to lower inflation and moderate economic activity — a/k/a cool off the economy.”

Because so many other rates in the economy are tied to the funds rate, any increase by the Fed has a direct effect on the interest consumers pay when they carry a credit card balance or take out a loan, and on yields for savings accounts and certificates of deposit, Nerdwallet notes.

“In general, the Fed reduces rates to try to stimulate the economy and raises rates to try to head off inflation,” the site explains, using a mechanism that causes rates on savings accounts, mortgages, and credit cards to rise. “Interest rates have been low for so long that many consumers — Millennials and Gen Z, particularly — haven’t really known a time when borrowing wasn’t cheap and savings vehicles didn’t pay next to nothing.”

Sullivan agreed. “Obviously, they’re paying a little more than they were paying a year or two ago. But by historical standards, when you look at mortgage rates — which have been 6%, 8%, even 20% — it’s not as unbearable.

“Everyone wanted to lock it in when a 30-year mortgage was 2.75%, which was the low point — kind of like saying they wish they’d bought Apple stock early on; everyone wants to time it perfectly,” he went on. “But in the broader context, these are still really low rates compared to what consumers have seen. It shouldn’t slow down the economy tremendously.”

 

 

Gimme Shelter

Mortgages will certainly become more expensive following the Fed’s move — at least, the interest costs. Forbes noted that a $300,000, 30-year, fixed-rate mortgage would add about $185,000 in interest charges with a 3.5% rate, but would add $247,000 — almost double the amount of the original loan — with a 4.5% rate.

“In response to this increase, the family in this example might delay purchasing a home, or opt for one that requires a smaller mortgage, to minimize the size of their monthly payment,” the publication notes.

But NPR notes that rising rates could stop the “runaway train” of higher home prices, which rose nearly 20% in the U.S. last year, on average. With a historic shortage of homes for sale and very low interest rates, bidding wars regularly broke out and drove prices ever higher. Meanwhile, soaring selling prices pulled in more buyers who didn’t want to miss out, which further overheated the market.

Jeff Sullivan

Jeff Sullivan says many in the banking world feel the Fed’s rate increase is long overdue.

“Higher mortgage rates may be helpful in cooling the housing market,” Selma Hepp, an economist with CoreLogic, told NPR. “That may help bring us back more to some level of normality, and in that case we won’t see so much bidding over the asking price.”

Prices aren’t likely to fall right away, Hepp said, but they might rise much less this year, say 3%, and a few years like that could give contractors time to catch up with demand and build more homes.

Canina notes, however, that low inventory is still the main factor driving home prices in Western Mass. So with interest rates increasing, “that’s kind of a double whammy, for lack of a better term.”

Sullivan agreed. “Lack of inventory keeps prices high, no matter what the rates are.”

Ninety percent of homeowners have fixed-rate mortgages, protecting them against rising rates. But most home-equity lines of credit — funds borrowed against the home — have variable rates, which will now go up. Forbes noted that some banks will let borrowers take the money they owe on their line of credit and lock that into a fixed interest rate.

On the other side of the coin, retail banking customers may expect interest rates on savings to rise now as well, but that may happen more slowly.

“These historically low rates on savings products won’t jump higher overnight, but a higher federal funds rate can stimulate competition among banks and credit unions, and consumers may benefit from that,” Nerdwallet notes. “It may be worth looking for a savings account with better rates if your financial institution is slow to respond to a Fed rate increase.”

“If they continue to increase interest rates six or seven times before the end of this year, it’s going to be interesting to see what kind of impact that has on the markets and consumers particularly.”

Canina explained that, from a consumer standpoint, banks have been living with historically low rates, and their margins have been squeezed at the same time the federal government has been putting out trillions in stimulus into the economy. As a result, bank balance sheets have significantly expanded with deposits.

“Banks have so much liquidity on their balance sheets, and if loans slow down, even with rates rising, banks will probably be reluctant to raise [savings] rates,” he noted. “We’ve managed to maintain deposit rates at a higher level than our competitors, and we’ll continue to monitor it to make sure we stay in terms of where we are relative to our competition, but banks are likely not raising rates any time in the near-term future.”

Brian Canina

Even if the Fed decides on multiple hikes this year, Brian Canina says, consumers should realize that interest rates are still low from a historical perspective.

The expectation from consumers is that, once the Fed raises rates, savings interest rates will follow shortly after, Canina added. “In the current environment, that’s very likely not to be the case this time around.”

 

Uncertain Times

Canina noted that the Fed employed a similar rate policy in the wake of the Great Recession, but “this is a little different situation, so coming out of it, I think it will be a little different in terms of how it plays out.”

Specifically, the key factors in the financial crisis of the late oughts were credit and housing issues. “In this one, you have the supply chain. You also have the Great Resignation, and the labor market was heavily impacted. The supply chain has not corrected itself, and we do have some labor-market matters to deal with. If they continue to increase interest rates six or seven times before the end of this year, it’s going to be interesting to see what kind of impact that has on the markets and consumers particularly.”

Canina added that commercial lending at PeoplesBank slowed slightly in 2020 and 2021, and 2022 is expected to be stronger.

“But the rising interest-rate environment has not impacted the commercial side just yet,” he explained. “Commercial rates are based more on competition than the markets. Mortgage pricing is really designated by the government agencies, Freddie Mac and Fannie Mae. So that’s kind of a set market, and mortgage companies price off that.

“When pricing commercial mortgages,” he continued, “you’re pricing to competition, and they’re usually a little slower to react, so right now, we’re seeing lower rates for commercial than residential mortgages, which is a total anomaly, something we don’t see in a normalized interest-rate environment. In the next six to nine months or so, that should straighten itself out. We’re seeing some unusual trends right now.”

Sullivan said gas prices are a larger factor for people right now than interest rates. “They’re staring at gas prices that average $4 a gallon and could be going to $5 a gallon. That’s more of a psychological factor for the average person.”

It’s certainly not the first economic shock of recent years.

“The pandemic definitely shocked the system, creating disruption in the supply chain,” Sullivan said. “That certainly includes building materials, which is one reason why real-estate prices aren’t coming down. And those material costs, the people I talk to say it’ll be another year or two before that starts to correct itself. So that will keep the inflation rate high.

“The Federal Reserve has some tools, but they’re limited tools,” he added. “We’re in such a unique situation with the supply chain being so screwed up. It’ll take awhile.”

As for the other factor weighing on the economy — a persistent worker shortage — “wages are going up, and pressure on wages is going up. Is that bad or good? That depends on what lens you’re looking through. It’s tougher for employers who have to pay that.”

Taking the big picture on what’s happening in the economy, Nerdwallet said the Fed’s recent move — and those to come — aren’t necessarily a bad thing.

“Reducing debt, especially when you’re paying a variable interest rate, will help you in a rising-rate environment. So will increasing your savings and staying focused on your long-term investing strategy, in spite of day-to-day fluctuations in the stock market,” the site notes. “If you manage your money carefully and the economy stays strong, rising rates could be a good thing for your wallet.”

 

Joseph Bednar can be reached at [email protected]

Customers at Some Banks Have a Say in Grant Decisions

By
Dan Moriarty (left) and Michael Rouette
Banking and Financial Services

The People Have Spoken

Dan Moriarty (left) and Michael Rouette

Dan Moriarty (left) and Michael Rouette say it’s important to give customers a say in which nonprofits Monson Savings Bank supports.

 

The numbers speak for themselves: 3,500 votes, 373 nonprofits, $15,000.

That’s roughly the number of Monson Savings Bank (MSB) customers who cast votes in the bank’s 12th annual Community Giving Initiative, the number of different nonprofits they wanted to receive donations, and the total money being given to the top 10 vote getters.

“Each and every organization is a well-deserving nonprofit, and it is clear why they were chosen by our community members,” said Dan Moriarty, president and CEO of Monson Savings Bank. “Each nonprofit provides tremendously valuable resources to our communities and their residents.”

The 2022 winners of MSB’s Community Giving Initiative, announced two weeks ago, include Academy Hill School Scholarship, Behavioral Health Network, I Found Light Against All Odds, Miracle League of Western Massachusetts, Shriner’s Hospitals for Children, and Women’s Empowerment Scholarship, all based in Springfield; Rick’s Place and Wilbraham United Players, both based in Wilbraham; Link to Libraries Inc. of Hampden; and Monson Free Library in Monson.

“There are so many nonprofits doing great work, but we don’t know them all; we couldn’t ever know them all.”

“It follows our philosophy of giving back to the local communities. Our local communities help us, so we try to find ways to continually give back, and there are various ways to do that,” Moriarty told BusinessWest.

“There are so many nonprofits doing great work, but we don’t know them all; we couldn’t ever know them all,” he added. “So this is a good way to reach out to the community and all the nonprofits out there by having their followers introduce them to us. It’s been great, and very well-received. We’ve received thousands of votes every year for nonprofits people think are doing worthy things. That’s why we started it, and why we continue to do it.”

MSB isn’t the only bank running such a program, however; other banks have involved the community in giving initiatives as well, perhaps none longer than Florence Bank, which launched its annual Customers’ Choice Community Grants Program 20 years ago. Voting runs to the end of each December, and recipients are celebrated in May.

Unlike MSB’s program, which features a set number of recipients and equal funding to all winners, Florence gives grants to all organizations receiving at least 50 votes and distributes the money ($100,500 last year) according to their share of the votes — in last year’s case, more than 7,000 votes in all.

Last May, those funds went to Dakin Humane Society, Cancer Connection, Friends of Forbes Library, and Big Brothers Big Sisters of Hampshire County, $5,000 each; Our Lady of the Hills Parish, $4,837; Belchertown Animal Relief Committee Inc., $4,326; Friends of the Williamsburg Library, $3,815; J.F.K. Middle School, $3,303; Riverside Industries Inc. and Friends of Lilly Library, $3,146 each; It Takes a Village and Goshen Firefighters Assoc., $3,107 each; Edward Hopkins Educational Foundation, $2,989; Pioneer Valley Chinese Immersion Charter School, $2,556; Northampton Neighbors, $2,399; Hitchcock Center for the Environment, Granby Senior Center, and Friends of Northampton Legion Baseball, $2,281 each; Northampton Community Music Center and Community Action, $2,202 each; Friends of M.N. Spear Memorial Library, $2,084; Safe Passage, $2,005; R.K. Finn Ryan Road School, $1,966; and Historic Northampton and Belchertown K-9, $1,966 each. In addition, the Williamsburg Firefighters Assoc. and Whole Children of Hadley were each granted $500 for coming close to receiving 50 votes.

“We do normal corporate giving, but 20 years ago, we started doing these Customers’ Choice grants in an effort to listen to our customers,” bank President Kevin Day told BusinessWest. “How better to support the community than to support the nonprofits that our customers feel are important and doing a great job in the community?

“It’s a great program, and we’ve given close to a million and a half dollars,” he went on. “And our event in May is a wonderful event that really links us to the community and our customers who have directed where some of our money should go.”

Just as the pandemic has shifted the giving priorities of some banks and credit unions based on community need (see story on page 17), Florence Bank saw the same phenomenon occur in the Customers’ Choice program last year.

In the second half of 2019, only 10% of customers cast votes for organizations that ease food insecurity. But as more people became aware of those needs in 2020, twice as many votes were cast for food-security causes, and $21,528 of the total $100,500 awarded last May went to five organizations focused on feeding people: the Food Bank of Western Massachusetts, the Amherst and Northampton Survival Centers, Manna Community Kitchen in Northampton, and Easthampton Community Center.

“How better to support the community than to support the nonprofits that our customers feel are important and doing a great job in the community?”

Moriarty said the recipients in Monson Savings Bank’s program have shifted over the years as well, with more than 100 nonprofits benefiting in all.

“Some are repeat winners, and that speaks to their efforts to reach out to their followers to vote for them,” he said. “But it’s nice to see different nonprofits chosen.”

In any case, he added, “they are so genuinely appreciative of winning. It’s always nice to win a contest, but they are genuinely honored and thrilled to receive those donations. Every year, I talk to a few of them, and they seem so, so thankful. Some of these nonprofits count on the donations they receive from us and other community banks and other community businesses.”

Moriarty noted that the internet has been an important driver of the Community Giving Initiative, as social media was still on the rise when the program launched 12 years ago, offering a new way to connect people with the bank and generate enthusiasm online. “That was a catalyst for us in the initial stages. Social media wasn’t that big yet, but we knew it was coming.”

Clearly, customers are excited to wield some influence on this one element of their hometown bank’s giving priorities.

“We love working directly with the community and giving members a voice to ensure that the nonprofits that make a positive impact in our communities are recognized and supported,” said Michael Rouette, executive vice president and chief operating officer at MSB, when the 2022 recipients were announced. “As a local, community bank, we are committed to doing whatever it takes to support our customers, businesses, and communities. We understand that these charitable organizations have the power to truly make a difference for our neighbors. Thank you for casting your votes.”

 

—Joseph Bednar

Get Ready to File 2021 Taxes

By Contributor
Banking and Financial Services

There Are Few Changes, but Some Could Impact Your Return

By Dan Eger and Shannon Shainwald

 

It’s that time again already: time to file your taxes and close out 2021.

Over the past two years, we have all witnessed rapid changes to how we do business and live our lives. Tax season has been no different and has seen many changes to tax law and deadlines. Unlike the past two years, the 2022 tax season is currently set to complete with the normal deadlines, so be sure to get your taxes in order before the filing deadlines: April 18 for federal returns and April 19 for Massachusetts returns.

 

What’s New on Your 2021 Tax Return?

New changes to tax law for 2021 individual filing are not as hefty as in prior years, but there are still some changes that may make a difference on your return.

Dan Eger

Dan Eger

Shannon Shainwald

Watch out for letters from the IRS. Letter 6419 will reflect the child tax credit advance payments if you receive any in 2021. The child tax credit is also higher and includes 17-year-old children in 2021, so be sure you know which of your dependents qualify and for how much. Letter 6475 will reflect the third stimulus payment if you qualified to receive one. Letter 4869C will share your identity-protection PIN for your 2021 return if you have opted into the program or have dealt with fraudulent returns in the past.

The charitable deduction is once again available for up to $300 to those taking the standard deduction and was expanded to allow up to $600 for those who are married filing jointly in 2021.

For itemized returns, the annual charitable deduction limit for monetary donations is equal to 100% of your adjusted gross income for 2021, which means you can remove all taxable income with your donations.

Cryptocurrency has risen in popularity over the past year. Be aware of the tax implications on your cryptocurrency investments. Speak with a trusted tax preparer to make sure your investments are accounted for properly on your return.

 

Preparing Your Return

Will you be preparing your return yourself, or will you hire someone to file on your behalf? Have a plan in place now, so you know what required information you need to have at hand and what you expect to pay for completion of all needed forms. If you will be using a new tax preparer for 2021, they will ask for a copy of your prior-year return in addition to all relevant documents for your 2021 tax filing.

The IRS also offers a Free File program if your income is below $72,000. Go to irs.gov or see the IRS2Go app to see your options. You may also qualify for local tax assistance through programs like Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE).

 

Use Your Resources

The Interactive Tax Assistant (ITA) is an IRS online tool (irs.gov) to help you get answers to several tax-law items. ITA can help you determine what income is taxable, which deductions are allowed, filing status, who can be claimed as a dependent, and available tax credits. You can also visit www.mbkcpa.com/2021-tax-filing to find more resources for assistance with your 2021 tax filing, including blogs on the latest changes and links to useful IRS and state resources.

 

Be Vigilant

Be especially careful during this time of year to protect yourself against those trying to defraud or scam you. The IRS will never call you directly unless you are already in litigation with them. They will not initiate contact by e-mail, text, or social media. The IRS will contact you by U.S. mail. However, you still need to be wary of items received by mail. Anything requesting your Social Security number or any credit-card information is a dead giveaway for scam identification. Watch out for websites and social-media attempts that request money or personal information. You can check the irs.gov website to research any notice you receive or any concerns you may have. You can also contact your tax practitioner for assistance.

 

What If You Have Been Compromised?

How do you know if someone has filed a return with your information? The most common way is your tax return will get rejected for e-file. These scammers file early. You may also get a letter from the IRS requesting you verify certain information. If this does happen, there are steps to take to get this rectified.

First, contact the IRS Identity Protection Specialized Unit at (800) 908-4490. Then, file Form 14039 Identity Theft Affidavit, and paper file your return.

In addition, we recommend you take further steps with agencies outside the IRS:

• Report incidents of identity theft to the Federal Trade Commission at www.consumer.ftc.gov or the FTC Identity Theft hotline at (877) 438-4338 or TTY (866) 653-4261.

• File a report with the local police.

• Contact the fraud departments of the three major credit bureaus: Equifax: www.equifax.com, (800) 525-6285; Experian: www.experian.com, (888) 397-3742; or TransUnion: www.transunion.com, (800) 680-7289.

• Close any accounts that have been tampered with or opened fraudulently.

 

Identity Protection PIN (IP PIN)

If you are a confirmed identity-theft victim, the IRS will mail you a notice with your IP PIN each year. You need this number to electronically file your tax return.

You may also opt into the IP PIN program. Visit www.irs.gov/identity-theft-fraud-scams/get-an-identity-protection-pin to set up your IP PIN. An IP PIN helps prevent someone else from filing a fraudulent tax return using your Social Security number.

 

Get Your Paperwork in Order

Get your paperwork in order early to ease the stress of tax season. First, make a note of changes to your life. Did you welcome a child to your family this past year? Get married? Will one of your children be claiming themselves for 2021? Or, if you’ve experienced the unfortunate passing of your spouse or dependents, changes to your family will affect your return. Make sure you have all the necessary documentation in order, and you know how it will be handled for your return.

Below is a list the most common required forms and items to gather, as well as few other things for you to consider as you prepare for filing your 2021 tax return. Please note that this list is not exhaustive because everyone’s tax situation is different.

 

 

Documentation of Income

• W-2: Wages, salaries, and tips

• W-2G: Gambling winnings

• 1099-Int & 1099-OID: Interest income statements

• 1099-DIV: Dividend income statements

• 1099-B: Capital gains; sales of stock, land, and other items

• 1099-G: Certain government payments, statement of state tax refunds, unemployment benefits

• 1099-Misc: Miscellaneous income

• 1099-NEC: Independent contractor income

• 1099-S: Sale of real estate (home)

• 1099-R: Retirement income

• 1099-SSA: Social Security income

• K-1: Income from partnerships, trusts, and S-corporations

 

Documentation for Deductions

If you think all your deductions for Schedule A will not add up to more than $12,550 for single, $18,800 for head of household, or $25,100 for married filing jointly, save your time and plan to take the standard deduction.

 

Itemized Deductions

• Medical expenses, out of pocket (limited to 7.5% of adjusted gross income)

– Medical insurance (paid with post-tax dollars)

– Long-term-care insurance

– Prescription medicine and drugs

– Hospital expenses

– Long-term-care expenses (in-home nurse, nursing home, etc.)

– Doctor and dentist payments

– Eyeglasses and contacts

– Miles traveled for medical purposes

• State and local taxes you paid (limited to $10,000)

– State withholding from your W-2

– Real-estate taxes paid

– Estimated state tax payments and amount paid with prior-year return

– Personal property (excise)

• Interest you paid

– 1098-Misc: Mortgage interest statement

– Interest paid to private party for home purchase

– Qualified investment interest

– Points paid on purchase of principal residence

– Points paid to refinance (amortized over life of loan)

– Mortgage insurance premiums

• Gifts to charity

– Cash and check receipts from qualified organization

– Non-cash items need a summary list and responsible gift calculation (IRS tables). If the gift is valued more than $5,000, a written appraisal is required

– Donation and acknowledgement letters (over $250)

– Gifts of stocks; you need the market value on the date of gift

 

Additional Adjustments

• 1098-T: Tuition statement

• Educator expenses (up to $250)

• 1098-E: Student-loan interest deduction

• 5498 HAS: Health savings account contributions

• 1099-SA: Distributions from HSA

• Qualified child and dependent care expenses

• Verify any estimated tax payments (does not include taxes withheld)

Sole proprietors (Schedule C) or owners of rental real estate (Schedule E, Part I) need to compile all income and expenses for the year. You need to retain adequate documentation to substantiate the amounts that are reported.

 

File with Confidence

Make this tax season smooth by getting your paperwork organized early and letting your tax preparer know about any changes to your life or financial situation. The sooner you file, the sooner you can put 2021 in the past and focus on a great outlook for 2022.

 

Dan Eger is a tax supervisor at the Holyoke-based accounting firm Meyers Brothers Kalicka, P.C.; Shannon Shainwald is an administrative assistant at the firm.

 

Estate Tax in Massachusetts

By Contributor
Banking and Financial Services

The $1 Million Exemption Level Is Among the Lowest in the Country

By Barbara Trombley

Did you ever wonder why all of your Massachusetts neighbors move to Florida when they retire? And they make sure they spend six months and a day at their southern address?

Of course, the warm winter weather in sunny Florida is a draw. But another reason many people in Massachusetts change their state residence is to avoid the Massachusetts estate tax, which is levied on estates valued over $1 million. Given the value of real estate and 401(k) plans in Massachusetts, it is not that hard to pass this threshold for many middle-class people.

Surprisingly, the federal estate tax is $12.06 million per person in 2022. Also, it is portable between spouses. With the correct steps, a married couple can protect $24.12 million after the death of both spouses in 2022. Our state estate tax is shockingly different. Of the 18 states with an estate or inheritance tax, Massachusetts and Oregon have the lowest exemption level of $1 million.

Also, the Massachusetts estate tax has a regressive feature where, if you die with an estate valued at $1,000,001 or more, your heirs will pay a graduated tax starting at the first dollar over $40,000 (which is a small exclusion). The bill on a $1 million estate is about $40,000. The tax rate is a graduated one and rises from 0.8% to 16% depending on the size of the estate. The heirs of an estate worth $3 million could find themselves with a tax bill approaching $200,000.

Massachusetts is shockingly out of step with the nation and with the rest of New England. Maine, Connecticut, and Vermont all have exclusions of more than $5 million, and New Hampshire does not have an inheritance tax at all. Until our legislators raise the exemption to keep up with inflation and make the exemption a true one, residents will continue to flee the state or jump through hoops to help their heirs avoid the tax.

Barbara Trombley

Barbara Trombley

“The tax rate is a graduated one and rises from 0.8% to 16% depending on the size of the estate. The heirs of an estate worth $3 million could find themselves with a tax bill approaching $200,000.”

What is included in your estate? Bank accounts, real estate, retirement accounts, life-insurance proceeds, vehicles, etc. Upon the death of the first spouse, no tax is owed. It is upon the death of the last remaining spouse that the dollar amount of assets is counted and an estate tax will need to be filed if the total value exceeds $1 million. The return must be filed, and any tax must be paid nine months after the death. The state may grant an extension of time, but interest will accrue on any unpaid amounts past the due date.

What can be done to mitigate the tax if the laws don’t change? Perhaps you retitle the ownership of your house to a trust or to an adult child to remove it from your estate. Each spouse can also set up a trust to shelter $1 million upon their death. This keeps the funds out of their estate but available to the surviving spouse to use if set up correctly.

Cash and other assets can be gifted to reduce an estate, but be careful about capital gains or tax owed on retirement funds. Charitable contributions can also be made to reduce the size of the estate. Many retirees move to a tax-friendly state, like Florida, and become residents. Working with a qualified financial planner and an estate attorney is imperative to mitigate the estate tax.

 

Barbara Trombley is a financial advisor and CPA with Wilbraham-based Trombley, CPA; (413) 596-6992. Securities offered through LPL Financial. Member FINRA/SIPC. Advisory services offered through Trombley Associates, a registered investment advisor and separate entity from LPL Financial.

Banks, Credit Unions Find Many Ways to Give Back, Especially During Pandemic

By
Kevin Day
Banking and Financial Services Special Coverage

More Than Writing Checks

Kevin Day

Kevin Day says banks — including Florence — responded strongly to rising food-insecurity needs during the pandemic.

Banks and credit unions have long touted their role in supporting local nonprofits through philanthropic efforts, but those efforts took on more urgency over the past two years, especially in areas such as food insecurity and other basic human needs. But even before the pandemic, these institutions were giving back in ways that went well beyond writing checks, from participating in fundraising events in the community to promoting a culture of volunteerism among officers and employees. In other words, the needs remain numerous, but so do the ways to address them.

 

 

When it comes to philanthropy, Kevin Day, says, Florence Bank’s overall goal never changes.

“We just try to be resilient and strengthen our communities and nonprofit sector,” said Day, the bank’s president and CEO. “We don’t necessarily go out year after year and do the same things; we tend to respond to the needs that arise, and needs in the community ebb and flow each year. Certainly, the last two years with COVID, we’ve responded to what the needs are and basically evaluated requests as they come in and tried to find the ones that have the broadest impact.”

The most obvious such need — one that many banks made a point of focus over the last two years — is food insecurity. Since the start of the pandemic, Florence Bank has donated at least $140,000 to organizations addressing that issue.

“We supported many local pantries and survival centers because the pandemic ramped up that need,” Day said. Meanwhile, “other organizations couldn’t run their normal events or even run the services they normally do. The way we managed our donations was responding to needs as they grew, and we were able to respond in a bigger way than normal.”

Craig Boivin, vice president of Marketing at UMassFive College Federal Credit Union, said it’s “in the DNA” of credit unions to invest money back into their local communities, and his institution does so in four main ways: writing checks to nonprofits, running donation drives, encouraging volunteerism among employees to help out community organizations, and financial-education programs that empower members in their financial lives.

“We had new requests coming in that we never had before because of agencies that were feeling an impact from a surge of families and individuals needing support because of the pandemic.”

Some of the events UMassFive typically supports, such as Will Bike 4 Food and Monte’s March, which both support the Food Bank of Western Massachusetts, took on new importance during the pandemic, while the credit union also raised $16,000 last year for the UMass Cancer Walk and Run, bringing its total support of cancer detection and prevention through that event to around $160,000. It has also made a 10-year, $100,000 commitment to CISA to help people access healthy food through farm shares.

Meanwhile, members can use their ‘Buzz Points’ from a debit-card reward program, typically redeemable for gift cards at local establishments, to donate to area nonprofits instead, Boivin said.

“We’ve really tried to play that up over the past couple years because there’s so much need in those local organizations, and not everyone has the means to support them by writing checks, so, just by doing normal shopping, they can donate points earned from the program.”

On what Boivin calls the “roll up your sleeves” side of the bank’s efforts, members and employees provided 350 pounds of personal items to food pantries and the Amherst and Northampton Survival Centers last year, collected hundreds of winter coats for people in need, while continuing to participate in events like the Connecticut River Conservancy’s Source to Sea Cleanup.

“During the pandemic, we were thinking creatively about what else can we do that’s different than what we’ve done in the past to support different folks,” Boivin said. “In some cases, it was really kind of doubling down on our efforts because the needs jumped more than expected.”

Kevin O’Connor, executive vice president and chief banking officer at Westfield Bank, agreed. He said that, during the pandemic, the bank has received requests for help for many new organizations, as well as different kinds of requests from nonprofits it has assisted in the past.

“We had new requests coming in that we never had before because of agencies that were feeling an impact from a surge of families and individuals needing support because of the pandemic,” he noted. “We looked at every agency we didn’t know and looked at how they were doing things to support people. It might have been people we already gave to before, like the Boys and Girls Club of Westfield, that was doing something new and different.”

The bank was able to support many of these new requests through what he called a ‘reallocation’ of resources, especially when it came to events — and there were many of them — that were canceled because of the pandemic.

Moving forward, he said the bank has increased its budget for giving in 2022 to support events and organizations it has backed for years, if not decades, and also support some of those new, pandemic-related requests that won’t be going away any time soon.

 

Expanding Needs

Dan Moriarty, president and CEO of Monson Savings Bank (MSB), said the bank has long supported the basic needs of people in the community, whether that’s food, shelter, clothing, or education, to name a few. “We look at the basic needs first, and then we look at community development and youth. We try to spread money around to as many organizations as we can. And need plays a major role in those decisions.”

The nature of the pandemic, and how it isolated people and disrupted the economic well-being of families and forced them into challenging situations, certainly changed the calculus of those efforts, Moriarty noted. “I think it exacerbated the need to help people with their basic needs, even more than during a normal cycle, outside of a pandemic. Again, with so much need out there, we strive to eliminate it.”

PeoplesBank recently announced a record level of charitable contributions in 2021, with donations reaching $1,315,000 over the past year with a total of close to $11 million donated since 2011. The bank has doubled its donations in the last five years.

“During the pandemic, we were thinking creatively about what else can we do that’s different than what we’ve done in the past to support different folks. In some cases, it was really kind of doubling down on our efforts because the needs jumped more than expected.”

“We do have funding focus areas, as we call them, that are probably similar to other banks,” said Matt Bannister, the bank’s senior vice president of Marketing and Corporate Responsibility, listing among them economic development, food insecurity, housing, social services, sustainability and the environment, and literacy (both early-childhood and financial).

“I would say 90% of our grant requests fit into one of those categories,” he said. “The other category is community, which is anything that doesn’t fit another category. For instance, fireworks or First Night Northampton — things that are good for community spirit.”

The bank has donated meals to frontline responders during the pandemic (as has UMassFive and other institutions) and PPE, actions which are unique to the current environment, but most people negatively impacted by COVID tend to fall into one of PeoplesBank’s traditional philanthropic focus areas, like housing needs, food insecurity, or social services.

“We’ve given to specific COVID causes as they’ve come up over the past couple of years,” Bannister said. “We’ve done that over and above the normal giving we do anyway.”

He noted that, “even giving what we give, we’re still not able to give to everyone who asks; the needs out there are pressing.” To further address those needs, the bank’s employees donate 10,000 volunteer hours per year, and 74 of them have served on 54 different nonprofit boards.

Florence Bank takes pride in similar efforts, Day said. “We encourage all our officers to be part of the nonprofit community in some way. And our employees are involved in roughly 125 organizations in the area, as board members, volunteering at events, and so on.”

Monson Savings Bank recently announced that its employees donated $8,880 to various local nonprofits in 2021 through the bank’s Team Giving Initiative Friday (TGIF) program.

“Western Massachusetts is not only the bank’s home, but home for many of our team members,” Moriarty said. “We work here, live here, and raise our families here. We are invested in the well-being of the local landscape and ensuring that our neighbors’ needs are met.”

Through the TGIF program, bank employees elect to donate $5 out of each of their paychecks to employee-selected nonprofit organizations that support the bank’s local communities. Since the program was launched seven years ago, MSB employees have donated a total of $45,170 to various charitable organizations.

“The TGIF program is just one example of our employees holding up the bank’s value of helping our neighbors in need,” Moriarty went on. “I often refer to us as a team here at Monson Savings. The TGIF program is a true team effort. Participants of this program donate just $5 out of their pay, and each donation comes together to create a large impact.”

 

Mission Driven

O’Connor said Westfield Bank, like other institutions, looked at new and different ways to support the community as a result of COVID, with many of them being public-health-related.

As one example, he cited the bank’s support of vaccination efforts in Springfield in a partnership effort with the Basketball Hall of Fame and other entities.

“We offered some support to help draw some bands and other kinds of entertainment to the Hall of Fame so that people would then hopefully go in and learn about vaccination, and hopefully get vaccinated, if that was their choosing,” he noted, adding that there were other initiatives with the Food Bank of Western Massachusetts and other agencies working to meet growing needs during the pandemic.

Boivin stressed that part of UMassFive’s community support stems from its financial-empowerment workshops, which have traditionally been offered at branches during the evening and sometimes during lunch hours.

“One silver lining of this pandemic is that it really forced us to get into the virtual world, opening those workshops up to a greater pool of people who might not get into our branches,” he said. “We had people from a much wider range of locations because we put content online and they could log in from home and don’t have to trek over to a branch.”

The workshop topics range from budgeting essentials to understanding credit to the basics of homebuying 101 — “quite a range of topics that all directly support our mission,” Boivin added, noting that these efforts and those directly supporting nonprofits all stem from the same philosophy.

“Even by giving out loans to people buying their first car or their first home, all those big life events, we play a role in the community,” he told BusinessWest. “Part of playing a role in the community is keeping more dollars local, investing in local organizations, and at the same time amplifying the mission of the credit union to better the financial lives of the people we serve. It takes many forms.”

Day agreed. “Community banks are in the same boat. Our employees are here, we all live and work in the community, and we all have a vested interest in making sure our community thrives.”

Unlike larger institutions whose management or directors don’t necessarily have a personal stake in the community, “for us, it’s a very important connection,” he added. “The decision makers are all here in the community. We’re not giving to places we don’t know. We see people impacted every single day, so there’s a tight connection between a bank like ours, where all our customers come from the local community, and our local organizations.”

Moriarty said Monson Savings Bank turns 150 this year, and he’s been looking at documents from the institution’s founding, which drove home MSB’s place in the community and why philanthropy is important, whether in a pandemic year or … well, a more normal one.

“Community banks were established to help people. They’ve always followed that mission,” he said. “We’re here to help the community; our mission is to help people save and prosper, but also to help the community wherever there’s a need, and we take that to heart.”

 

Joseph Bednar can be reached at [email protected]

Banks and Credit Unions Steer Back Toward Normalcy

By
Tony Liberopoulos
Banking and Financial Services Special Coverage

Seeking a Return

Paul Scully says customers are feeling more optimistic about the future.

Paul Scully says customers are feeling more optimistic about the future.

While year one of the pandemic taught banks how to constantly pivot — to remote work, new modes of serving customers, and multiple phases of PPP loans — year two has brought more stability, even normalcy, but also new challenges, particularly inflation and supply-chain disruption that has made it more difficult for customers to save, borrow, and invest. That they’re doing all these things, to some degree, lends a healthy sense of optimism to 2022.

 

There’s nothing wrong with normalcy, Paul Scully said.

And if nothing else, the business of banking in 2021 was more stable than in 2020. That doesn’t mean all the economic issues individuals and businesses are dealing with have gone away, just that banks, and businesses in general, had to do less pivoting. Or at least have learned to roll with the punches.

“With vaccination rates increasing — or at least the availability of vaccinations up — we saw business picking up and customers feeling more confident coming into the banking centers,” said Scully, president and CEO of Country Bank. “And with commercial business picking up, people were feeling a little more optimistic with what the future has in store for them — where 2020 was all about trying to figure out what the heck was going on.”

What was going on last year were the early throes of a pandemic with no vaccines available, widespread shutdowns of economic activity, and banks more involved in PPP loans than normal commercial activity. “But we started to see, probably by the second quarter of this year, a normalizing, with customers feeling more confident and feeling more optimistic about the future and for their business.”

“With commercial business picking up, people were feeling a little more optimistic with what the future has in store for them — where 2020 was all about trying to figure out what the heck was going on.”

That’s a positive trend for commercial lending. Glenn Welch, president and CEO of Freedom Credit Union, was on an economic-outlook call with Visa recently, which projected a 7% uptick in 2022 in business investments in fixed assets, which means more borrowing. “That’s pretty healthy growth,” he told BusinessWest. “People are looking to borrow out there. Corporations’ financial statements are looking pretty strong the last couple of years, and a lot of consumers are sitting in pretty good financial shape; we’ll see whether they want to pull the trigger or not.”

On the consumer side, they have, with 2021 being the second straight year of double-digit growth on the mortgage-lending side at Freedom, along with healthy business in auto and home-equity loans. “And last year, deposits were up over 20%; this year, it was 10%. Our balance sheet, like many institutions, has grown pretty significantly since COVID hit.”

Tony Liberopoulos, Liberty Bank’s senior vice president and regional manager for Commercial Banking, said the bank’s new commercial-lending push in Western Mass. — it opened a loan-production office in East Longmeadow in June and has added three more employees since then — has gone well.

“We’ve been very happy. We had a very strong year; we’ve been very busy,” he told BusinessWest, noting that much of that success can be attributed to customers craving normalcy — in this case, face-to-face dealings with a stable team.

“With the amount of market disruption between mergers, community lenders leaving their jobs for other opportunities, and, in many instances, competitors still working from home, we’ve had opportunities to meet prospects and clients to grow our business,” he explained.

Tony Liberopoulos

Tony Liberopoulos says borrowers want access to digital tools, but mainly prefer face-to-face interactions.

“We’re firm believers that, while businesses have been struggling with things like COVID and supply chains, things will bounce back,” he went on. “And we’re seeing a lot of opportunities just by being in front of the clients. They want to see familiar faces; they don’t want to deal with just Webex and phone calls.”

Liberty’s lending numbers have borne that out, with 2021 figures close to what they were pre-COVID, Liberopoulos added. “That’s all we can ask for at this point. We’ve found customers and prospects still want face-to-face meetings; they want a normal relationship with banks.”

With that in mind, “I think the trend is toward more confidence in 2022 than there was in 2021,” he went on. “I think companies have seen their business come back since late May, early June, when a lot of COVID restrictions were lifted. We’re seeing businesses thrive again, and now they’re starting to invest in 2022. That’s what we’re counting on.”

 

Into the Digital Age

While many customers do, indeed, prefer to bank in person, Scully said, one of the big industry stories of the pandemic was how customers who had avoided digital banking options embraced them when they had to — and then stuck with them.

“More and more people developed a comfort level with technology,” he explained. “Many had a fear of the unknown — ‘will my money be safe?’ But the last 20 months allowed people to recalibrate a little bit, and we’re seeing more and more reliance on technology, which is great.”

Country even converted a small branch in the Ware Walmart to an interactive banking office with two interactive teller machines (ITMs). “They can absolutely do anything on the machine. The customer response has been really positive.”

Technology has helped banks in other ways — including combating a workforce shortage that has affected every industry and has not spared banks and credit unions.

“The fact that there aren’t a lot of employable people out there is taking its toll on businesses. Anyone in a customer-service business is looking for people; it doesn’t matter whether if you’re running a bank or a local coffee shop.”

“Honestly, it doesn’t matter what business you’re in these days, the fact that there aren’t a lot of employable people out there is taking its toll on businesses. Anyone in a customer-service business is looking for people; it doesn’t matter whether if you’re running a bank or a local coffee shop.

“But that customer expectation still exists for us, so technology has helped quite a bit,” Scully went on. “Customers during the pandemic became more familiar with doing their banking through technology, and their reduced reliance on coming into the branch reduced some of our traffic.”

At Country, while the banking centers operate five or six days a week with in-person staff, in the back-office areas, employees remain on a hybrid schedule, three days in the office, two remote — with Wednesdays mandatory for everyone to come in. “That’s more of a cultural thing for us, so folks would still be connected to one another.”

And the hybrid model has worked well, he noted. “We recognized early on, as we started to look at the reopening process, there are a lot of benefits to having a hybrid workforce. It’s like 2020 allowed us all to recalibrate, and ask why you’re spending an hour twice a day commuting to the office just to do work you were able to do at home for a year. We decided, ‘let’s rethink this.’”

Staffing has also been a challenge for Freedom, Welch said, which had to close down a branch or revert to drive-up only on occasion to deal with it.

Glenn Welch

Glenn Welch says workforce issues have not only affected staffing for banks and credit unions, but have begun to put pressure on wages.

“We’ve seen other institutions have the same issue. We’re certainly trying to hire people, but it’s been difficult. People leave, and it’s hard to get people interested in coming in and working. I don’t know if it’s because it’s a retail environment — that’s where most of our openings are, in branches — or it’s just people retiring or finding other things they want to do.”

The crunch has started to put pressure on wages, Welch added, which not only affects the banks themselves, but often doesn’t do enough to balance surging inflation for those earning the paychecks.

Liberopoulos said the shift toward digital banking options is a good one, and even though many of his commercial clients have wanted to do business in person, they, too, also want to be able to access the same digital experience — with its speed, flexibility, and personalization — that consumer clients have.

“Innovation is always the key to growth and sustainability. To survive, you need to invest not only in talent, but in products and services,” he said, noting that there’s certainly a need for both online options and a bricks-and-mortar presence.

 

Back to the Street

Communities and nonprofits saw their needs soar during the pandemic, too, and that’s one area community banks and credit unions continued to focus on in 2021. For example, over the summer, Country Bank — which has traditionally focused its giving on basic needs like food insecurity, homelessness, and healthcare — donated a total of $1 million to two regional food banks.

“To be a healthy community, residents in the community need to be in good health. Nutrition should be a right and not a privilege,” Scully said, noting that needs became more dire due to the pandemic, job losses, inflation, and an increase in addiction.

“If you have a heartbeat, you enjoy giving back, and it doesn’t have to be a certain size,” he said, turning the topic around as a challenge to others. “You may be able to donate only a dozen boxes of pasta, but that’s a dozen more boxes of pasta available for someone in need. What we like to do is partner with organizations and get their stories out there, so other people can jump on the bandwagon and be a part of it too.”

That speaks to Liberty’s priorities as well, Liberopoulos said. “We’re very in tune with our community and helping out the non-for-profits; we’ve done a lot of good things so far and continue to do that. That’s very important to us. We live, work, and lend in this area, and we want to support this area as well.”

Welch said Freedom has not only supported nonprofits, but gotten others involved by choosing a charity each month — A Bed for Every Child, the Walk to End Alzheimer’s, and Unify Against Bullying are just three recent examples — and involving members in the giving.

“We have been advertising that on our website and trying to get donations not only from the credit union, but from members who find the causes worthwhile and have the ability to donate,” he explained.

As for member business in the coming year, Welch knows inflation remains a drain on savings and assumes interest rates will rise at some point in an attempt to slow it down. “That could have an impact on people being able to borrow. Student-loan payments are starting up again, too, so people will have $300 or $400 coming out of their pocket for that in addition to increased prices and increased rates.”

These are problems that affect businesses, too, Scully said.

“With inflation and the cost of goods going up, and so many businesses looking at inflated utility expenses, now, with the shortage of qualified, available help, payroll tends to go up as well,” he noted. “Clearly there are a lot of challenges for folks in the business arena — which is why you really want to encourage people to shop local and keep Main Street storefronts occupied.”

Many businesses struggling with higher costs are still looking to borrow and invest, he added. While the PPP loans of 2020 were about keeping the lights on and keeping employees paid, for more traditional loans going forward, borrowers need to show a continuation of revenue streams without the PPP revenue to bolster them.

“For the most part, that’s exactly what happened. Businesses have returned to a good level,” Scully said. “Certainly, some are still taking their hits — hospitality was one of the hardest-hit, whether it’s food services, hotels, or entertainment venues. They had tough restrictions put on them last year. Those restrictions were lifted for the most part, but now they can’t rehire enough workers.”

These are all factors that might cause individuals and businesses to pull back from borrowing, he added.

“What will the impact of inflation be? When will interest rates start to rise a little? The big piece that looms for me is employment: where is the workforce going to be? Will there be enough employable people for all of the jobs? We’ve heard about this Great Resignation. It’s real.”

Still, like other financial leaders we’ve spoken with recently, Scully remains optimistic. “All indications suggest 2022 should be an OK year from a business perspective.”

 

Joseph Bednar can be reached at [email protected]

PeoplesBank Builds a Presence in Commercial and Industrial Lending

By
Banking and Financial Services

Some Moves of Interest

 

For a bank that’s been around for 136 years, PeoplesBank came across commercial lending fairly recently.

“My predecessor, Doug Bowen, started commercial lending at PeoplesBank probably 35 years ago,” Tom Senecal, the bank’s president and CEO, told BusinessWest. “We didn’t do any commercial loans until then, and we started out with just commercial real estate. And we stayed conservative with real estate, and never went into the C&I side because we didn’t have a lot of expertise. Just by virtue of what our comfort zone was, we focused on the real-estate side.”

That’s all changed, as PeoplesBank has made a strong push into the realm of C&I (commercial and industrial) business lending over the past two years.

“A little over two years ago, we started talking about our strengths and weaknesses and who we are are and what we do as the largest mutual institution in Western Mass.,” Senecal explained. “We have a very successful commercial real-estate portfolio. What we didn’t have was the C&I side. So we started talking about how to get into the C&I business.”

The reason the bank hadn’t done so sooner came down to expertise, which it had in spades on the real-estate side but much less so in C&I, where “you’re financing equipment, you’re financing lines of credit, there’s different types of collateral, it requires more monitoring, more analysis … we didn’t have that experience,” Senecal said. “It’s a very complex and very different lending skillset than commercial real estate.”

That’s why Senecal started talking with Frank Crinella, who has decades of experience in lending in the region, about bringing over a group of individuals from a large regional bank to spearhead a push into C&I lending.

“We have a very successful commercial real-estate portfolio. What we didn’t have was the C&I side. So we started talking about how to get into the C&I business.”

“We talked for several months about his group of people coming over, and we brought over five people that have an enormous amount of experience on the C&I side,” Senecal said. “Real estate is much more transactional, and we wanted to develop relationships in our home market much better than we ever had in the past, and C&I, to us, was the way to do it.”

Crinella is now the bank’s senior vice president and senior lender, and will also take the title of senior credit officer when Mike Oleksak, the institution’s longtime senior lender and senior credit officer, retires at the end of the year.

“C&I typically brings over the relationship more than just the real-estate transaction. And now that we have the group of people that we have, I think it’s going to be tremendously successful, not just for the Western Mass. market, but for our growth strategy going down into Connecticut as well,” Senecal said. “Frank and the group of people who came over have been here just over a year and have been enormously successful in that period of time, starting to build relationships here in Western Mass.”

Crinella saw great potential in what PeoplesBank was trying to do.

“What attracted us to Peoples was really the culture,” he said. “And C&I is all about relationship lending, the team approach. We have a very strong credit culture, but we also have a lot of depth on the cash-management side, and our branch network is very strong and plays well to the companies here in Western Mass. and Northern Connecticut.”

The commercial-lending department is now up to 50 people, Crinella noted. “The team complements each other so well. They brought in a lot of credit analysts that have C&I experience, so we’ve got depth now on the underwriting side.”

He was also drawn to a lending model at Peoples that prioritizes the ability of lenders to make quick decisions (more on that later).

“We talk about speed to market around here — we make all our decisions here on Whitney Avenue, so we can turn around a loan request quickly, and kind of outmuscle the big boys in that way … and, with the depth that we brought, outmuscle the local competition as well.”

 

Lending Support

Senecal said he knew PeoplesBank could excel at C&I lending based on its culture and ability to forge relationships through its branches.

“C&I is small business,” he explained. “And the interconnectivity between our branch network and our C&I lending is extremely important. It’s very difficult to develop a relationship on the small-business side without a branch network. So, in a lot of my conversations with Frank, we’re focused on our growth strategy and continuing to have the brick-and-mortar strategy, which complements the C&I side.”

Retail banking, Senecal noted, is moving in the direction of digital modes like mobile banking, online bill pay, and ITMs.

“When you talk C&I lending and small-business lending, you can’t do all that digitally online. You need a relationship. Accounts are very different for small businesses than they are on the retail side, between needing cash-management services, wires, positive pay … there are a lot of different functionalities small businesses utilize, more than the typical retail customer. A lot of services need to be communicated, and you can’t do that necessarily digitally. So the branch network has a huge impact.”

Crinella called it “delivering the bank.”

To explain that concept, he noted that, “when a relationship lender goes out to visit a customer, oftentimes they’ll bring the banking-center manager as well as the cash-management professionals, so the customer gets the entire bank when they’re meeting with the relationship lender. That’s really the difference between C&I and commercial real-estate lending. That’s what we’re trying to capture when we talk about relationship lending.”

The relationships customers already had with the lenders who moved to Peoples have generated some business as well, Senecal said.

“When you transition a group of five people from one institution to another, you create some loyalty from those customers who had relationships with them, and you can tell that the relationship means a lot. We’re getting great, positive feedback as a result of that.”

Crinella agreed. “They become valued advisors to the customer,” he said. “They take the time to understand their business and make informed decisions. Again, I think speed to market has been a huge competitive advantage. We get there quick. We can get a term sheet out in 48 hours, and that’s something, competitively, the big boys have a tough time competing with.”

With Oleksak, and soon with Crinella, it was important that both titles — senior lender and senior credit officer — fall under the same individual, Senecal said.

“From a customer’s perspective, when Frank shows up at the table, he has the decision-making authority for quite a few loans. Certainly, when loans get larger, we have a committee, we meet and talk, but Frank has the ability to sit at the table and make decisions immediately with customers based on what he sees.

“That doesn’t occur at most larger institutions,” Senecal went on, “where the lender goes out and gets the loan, develops the conversation, and then goes back with all the information and says, ‘OK, this is the deal. This is the terms of the deal I’d like to do.’ And they sit around with other people — adjudicators, other credit people, who say, ‘yeah, I don’t like that deal. You need to do this, you need to get that.’ And it becomes a group decision.”

That’s not the best or most efficient experience for the customer, he said.

“When you sit in front of a customer and you make the customer believe we’re going to do the deal, then you go back to the office and all of a sudden five different people have their opinions on what it should look like, it’s really hard to go back to the customer and say, ‘yeah, the deal’s changed.’”

That’s why it’s important to empower people, not committees, to make decisions, Senecal explained. “If the loan is a large loan, yes, it goes up to committee discussion. But in my 25-plus years at the bank, maybe two loans didn’t get through loan committee — because the lenders know what they’re doing.”

 

By All Accounts

When commercial lenders at PeoplesBank were focusing solely on real estate, they excelled at deals for warehouses, multi-family facilities, mixed-use properties, and strip malls. With C&I, they’re talking to manufacturers, healthcare practices, nonprofits, lawyers, accounting firms, and many more entities. And that requires specialized knowledge and, yes, strong relationships.

“You’re not lending on the building, you’re lending on the business,” Senecal said. “In real estate, we lend the money and hope to get paid back. If we don’t, we have the real estate. On the business side, it’s a whole different aspect of trying to understand, ‘how are you going to pay the loan back?’ When you get into all these other industries, it takes a unique skillset to identify whether or not it’s viable and the loan is a good loan or not.”

It’s a skillset the bank plans to further grow as it evolves its lending presence in the region’s C&I landscape.

 

Joseph Bednar can be reached at [email protected]

Polish National Credit Union, Premier Source Credit Union to Merge

By Contributor
Jim Kelly
Banking and Financial Services

‘A True Win-Win’

By Mark Morris

Jim Kelly

Jim Kelly says PNCU and Premier Source offer services and expertise that benefit each other.

Polish National Credit Union started in 1921 with an investment of $325 and has grown to more than $700 million in assets today. But there are always ways to improve and expand its services, said President and CEO Jim Kelly, who describes PNCU’s recently announced merger agreement with Premier Source Credit Union as a joining of two forces.

“No one at Premier Source will be losing their job,” he said. “In fact we are counting on their expertise on offering credits cards to members which is a business we’re not in right now.”

Meanwhile, confronted with rising costs to keep up with technology, compliance, and talent retention, Premier Source had begun looking into a merger as its best way forward. CEO Bonnie Raymond said that, after considering a number of factors, Polish National emerged as the best fit.

“As a larger organization, Polish National offers in-house mortgages and commercial lending, while we bring our credit-card portfolio to expand to their membership,” Raymond said. “Along with the credit-card business, they will benefit from the expertise of our staff, so it’s a true win-win.”

Kelly added that organic growth in Western Mass. is not easy. That’s why he called the merger with Premier Source a “once-in-a-lifetime opportunity.” The current Premier Source headquarters on North Main Street in East Longmeadow will become the ninth branch for Polish National, which is headquartered in Chicopee. That location also addresses one of Kelly’s strategic goals in finding additional space.

“We’re a growing credit union, and there’s not much room left at our headquarters in Chicopee or at our operations center in Wilbraham,” he said. “The Premier Source building is large and beautiful, so it helps us in a huge way.”

What has become known across the U.S. as the Great Resignation has also affected the two credit unions. Between retirements and just leaving the job due to COVID-19 concerns, both organizations felt the impact of people leaving. Raymond noted that the merger will help address staffing issues for both.

“This was another win-win because our staff will stay employed while Polish National will be able to bring on experienced help to fill any openings they might have.”

“This was another win-win because our staff will stay employed while Polish National will be able to bring on experienced help to fill any openings they might have,” she explained.

In recent years, both organizations have grown through mergers with smaller credit unions. On a national level, Kelly told BusinessWest, approximately one credit union per day is involved in a merger.

 

Strategic Partnership

Premier Source began in 1941 as Kelko Credit Union, founded by employees of the Kellogg Envelope Company. Over the years, Premier Source acquired employee credit unions from companies such as Spalding, Hasbro Games, and Western Mass Electric. While membership now exceeds 4,500, Raymond said its growth still doesn’t provide the economies of scale of larger institutions.

“For example, interactive teller machines have become popular, but they are extremely pricey, and just buying one doesn’t recoup the investment,” she said. At $80,000 each, an institution needs to own several ITMs to find any economies of scale.

By agreeing to the merger, Premier Source will not be investing in ITMs, but its members will see a direct benefit. A common practice when a credit union merges involves paying a dividend to its members. Raymond explained that members are the reason Premier Source has a strong capital foundation, so the board will soon vote for a special dividend to compensate members for staying with the credit union.

“It’s a way to reward members for their longevity. Members who have been with us for more than 10 years will receive the largest dividend,” she said, adding that most members have belonged to Premier Source for more than 10 years.

Far from a cold and calculated business deal, Kelly said a credit-union merger is typically a more personal type of transaction, done only with people who have earned one’s trust.

“You don’t merge with someone you’ve only met a few months ago,” he noted. “It usually involves people you’ve known for at least several years because you want to make sure your members and employees are taken care of as a result of the merger.”

Kelly said he and Raymond go way back, having crossed paths many times because they work in the same industry. “I’ve known Bonnie for a long time. She is a high-quality and talented person.”

The next step in the merger process involves regulatory approval from the Massachusetts Division of Banks, the National Credit Union Administration, and the Massachusetts Credit Union Share Insurance Corp., as well as approval from the memberships of both credit unions.

A recent news release suggested the merger could be completed by the spring of 2022. Kelly, a former regulator, said he would not offer a timetable because it’s completely in the hands of the regulators as to when they complete their work on the merger.

 

Healthy Outlook

Polish National ranks 174th among the top 200 healthiest credit unions in the country, according to the Cooperative Credit Union Assoc. Kelly is proud of this accomplishment and noted that it’s positive news considering there are 5,164 credit unions in the U.S.

For now, the numbers Kelly looks forward to involve the 4,500 Premier Source members joining the 25,000-plus members of Polish National. It’s a fitting way to start the next 100 years of the credit union,” he said.

“While our founders were Polish, we have always been a community credit union and will continue that tradition,” he added, noting that the quote credited to the revered TV22 meteorologist John Quill still rings true: “you don’t have to be Polish to be a member.”

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