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Banking and Financial Services

Banking and Financial Services

Forward Progress

President and CEO Mike Ostrowski

Arrha President and CEO Mike Ostrowski says credit unions have in many ways filled the void left by many of the smaller community banks that have disappeared from the landscape. To take full advantage of opportunities that are presenting themselves, an institution must have a blend of size and nimbleness — and a name that resonates. He believes Arrha has all three.

Mike Ostrowski calls it his ‘jungle home.’

Because … that’s what it is. The Osa Peninsula in southwestern Costa Rica is quite remote, and that’s what Ostrowski, president and CEO of Arrha Credit Union, likes about it.

“I have a little hut there — there’s no electricity, there’s no anything,” he explained while grabbing his phone to show photos of the area. “I typically go down there for two weeks; I alternate between living in the jungle and this tiny fishing village where I’ll stay for a few days. That’s my release.”

The upcoming trip, one coinciding with his 60th birthday later this month, will be a shorter stint, only six days, he said, adding that this is a good time of year to go because the fishing is good — he’ll be looking to land blue marlin and black tuna — and it is not rainy season.

“That comes in June,” he said. “And when it rains, it rains. It’s unbelievable how much water comes down. It’s like standing in a shower.”

He’ll return from this trip to a jungle of a different sort — a rapidly changing landscape in banking and financial services. It’s not exactly a hostile environment, but there are plenty of challenges — from razor-thin margins resulting from historically low interest rates to ever-escalating regulation — and competition that comes in all shapes and sizes and from all directions.

To survive and thrive in this environment, he told BusinessWest, an institution needs a solid blend of size and nimbleness and he believes Arrha — that’s the new brand that the former Springfield Teachers Credit Union assumed roughly five years ago — is strategically aligning itself to achieve both.

“We’ve been building that [commercial real-estate] business slowly and methodically for several years now. But it’s accelerating because of that vacuum created when banks like United leave; there’s no question that we’re taking advantage of opportunities like that.”

While size has become increasingly important in this age, that nimble quality is critical as well, he said, especially with all that competition, including the ever-growing roster of fintech companies offering everything from platforms with which the pay bills to risk-management services to payment-protection solutions.

“They’re all nipping at our heels for the dollars that a typical credit union or bank might get,” Ostrowski explained. “We’re fighting the battle on that front, and, fortunately, we have some of the best technology available; we can do anything they can do, and we can probably do it better because we’re local.”

But amid these many challenges there are also opportunities, he said, especially as a pattern of mergers and consolidations within the banking industry continues, such as with the recent acquisition of United Bank by Peoples United Bank.

As banks get larger and more of them become publicly held, he noted, credit unions have in many ways taken the spot once occupied by many of the smaller community banks that have disappeared from the landscape.

“And that’s a healthy thing,” said Ostrowski, who has spent the past 37 years in the financial-services sector and worked for a number of those community banks, including United, where he got his start, and Ludlow Savings. “That’s a normal progression of the industries; we’re looking to fill a void, a vacuum; people want to deal locally. The solid credit unions are taking the place of those local banking institutions that were around.”

To take full advantage of these opportunities and effectively and efficiently fill this void — something many other players are trying to do as well — Ostrowski said Arrha needs to be nimble, take full advantage of technology, stress its personable brand of service, and do what’s needed to attract the younger generations.

All of this, in a nutshell, is the strategic plan moving forward, he said, adding that the bank is looking to introduce ITMs (interactive teller machines) in its two locations, possibly by the middle of the year, and create what he calls the ‘branch of the future,’ something that will become a model for possible future expansion into smaller physical spaces.

This model involves the interactive technology, the ITMs, but also the human touch in the form of banking professionals making sure customers are comfortable using that technology and that all their needs are met.

“We’re not reinventing the wheel,” he said, noting that the technology is already in place in several area institutions. “We just want to be on the cutting edge; this concept will be taking off soon, and I want to be on the forefront of it.”

For this issue and its focus on banking and financial services, BusinessWest talked with Ostrowski about Arrha’s strategic plan moving forward, one that calls for smart growth, taking advantage of the opportunities presenting themselves, and positioning itself for life in this jungle.

Points of Interest

Ostrowski has a small collection of bobbleheads residing atop a bookshelf in his office at Arrha’s Springfield’s facility on Industrial Drive.

When asked about it, he quickly deferred to a different collection, one that has more meaning.

This is an assemblage of coffee cups bearing names of financial institutions he once worked for. A few have been turned upside down, Ostrowski’s way of indicating that the bank in question made some key strategic mistakes, which in some cases led to that brand disappearing from the landscape.

Mike Ostrowski says Arrha will soon be introducing ITMs and creating what he called the ‘branch of the future.’

Opting not to go into specific details about any of these institutions, he hinted strongly that many of these mistakes involved trying to grow too quickly, taking unwarranted risks, and becoming something the bank wasn’t.

And he’s committed to not making these mistakes with Arrha, a credit union that first operated out of a classroom at Commerce High School in Springfield at the dawn of the Great Depression. His plan is for slow, steady growth — in memberships, assets, deposits, commercial loans, and perhaps locations, although he has no immediate plans to broaden the portfolio beyond the current two.

In short, he intends to continue living up to the credit union’s still somewhat new and unusual name — Arrha, an old English word that translates into ‘money in exchange for a contract, a pledge in earnest.’

Ostrowski said the name change was needed because the former name, Springfield Teachers Credit Union, and even the shortened version, STCU, didn’t adequately convey that membership was open to anyone who lives or works in the three counties of the Pioneer Valley.

The new name does — sort of — but often needs to be explained. Ostrowski doesn’t mind; in fact, he looks forward to doing it.

“That’s exactly why we picked the name — it gives us a chance to tell the story,” he told BusinessWest. “So, from a marketing perspective, I think it’s brilliant.”

The story, at present, is of a still relatively small credit union — it’s in the middle of the pack among area institutions of this type with roughly $140 million in assets — working to grow and position itself for success in the long term.

As for growth, Arrha has seen a steady rise in membership, said Ostrowski, noting that, over the past 18 months or so, it has gained more than 1,500 and now boasts more than 11,500.

“If we were Boston, where there’s a lot of inflow of people, I would not be too happy with those numbers, but given where we are and what the statistics show, I’m quite pleased,” he said, noting, as all other bank and credit-union leaders do, that this is, by and large, a no-growth area. Meanwhile, even though Arrha’s expanded criteria for membership — Hampden, Hampden, and Franklin counties in addition to some of Northern Conn. — appears broad, it is still somewhat restrictive, at least when compared to most banks in the region.

In this no-growth environment, the institution must look to do more with existing customers and offer more services, such as commercial lending and commercial checking accounts. Arrha expanded into this realm several years ago, and has built a solid portfolio, most of it involving commercial real estate.

“We’ve been building that business slowly and methodically for several years now,” he explained. “But it’s accelerating because of that vacuum created when banks like United leave; there’s no question that we’re taking advantage of opportunities like that.”

As with all other aspects of the credit union’s operation, the commercial side of the ledger is driven by relationship-building efforts, he said, adding that these relationships are developed far more through trust than interest rates.

By All Accounts

While working to build the membership base and commercial portfolio, Arrha is also taking a number of steps to attract younger audiences, said Ostrowski, noting that these initiatives involve everything from financial-literacy programs involving area high-school students to digital marketing programs, to making sure the credit union remains on the cutting edge of technology — something that’s quite necessary to get and keep the attention of Millennials and those behind them.

“It’s a tough generation to reach,” he acknowledged, adding that digital marketing is fast becoming the most reliable method. “And some of them have never been inside a bank or credit union.”

Still, all members of this generation will eventually need what he called a “warm hug” — the personalized service they’ll need when filling out their first mortgage application or looking to buy a business.

“And we’re here for them when they need that warm hug,” he went on, adding that Arrha is enjoying some success with attracting the younger generations, as evidenced by the fact that the average age of its members has gone down — by two years — while that number has been going up industry-wide.

“That tells me that we’re achieving what we’re intending to do when it comes to reaching out to that generation,” he said, adding that, specifically, this is the 25-to-35 age group.

And if all goes according to plan, when these individuals — and all other customers — enter one of the Arrha locations later this year, they’ll be stepping into that ‘bank of the future’ Ostrowski mentioned.

The credit union is currently in the exploratory stage on the new technology, with plans to implement the changes perhaps six months from now, he noted, adding that the institution will do its homework and due diligence and make sure this important work is undertaken properly.

He expects that the blend of technology and human touch will resonate with not only Millennials, but all generations. And he believes it could also serve as an effective model for smaller, highly efficient branches in the future, facilities that could enable Arrha to expand its physical presence to other communities.

“This will give us the ability to do additional branching at a lower cost structure,” he explained, adding that a facility with a few ITMs and perhaps two or three staff members would need only 1,000 square feet, and perhaps half that, as opposed to a traditional branch several times that size.

Ostrowski said he was inspired by what he saw at an institution in the Washington, D.C. area, which had ITMs and three roving employees qualified to handle everything from car and mortgage loans to wire transfers, and is looking to do something similar here.

“They had the ability to handle every banking need — but they weren’t wasting their time doing transitional deposits or withdrawals,” he said. “It’s a far more efficient way to do things, and it’s still very member-friendly.”

Bottom Line

That branch of the future seems a long way from that hut on the Osa Penninsula — in every way imaginable.

But they’re both in a jungle in some respects.

This jungle in the 413 is a highly competitive environment where, as noted earlier when mentioning banks not around anymore, survival is not assured. It can be secured by being forward-thinking, on the leading edge of technology, and customer-friendly.

In short, it happens by avoiding the kinds of mistakes that would prompt Ostrowski to turn a coffee cup upside down.

And that, in plain, basic terms, is the business plan for Arrha.

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

Banking and Financial Services

A ‘Natural Partnership’

Chris Milne, left, and Mike Matty both say the union of St. Germain and Gage-Wiley is a natural partnership.

Mike Matty says the talks with Chris Milne began roughly two years ago.

And as they often do in such cases, these discussions were somewhat intermittent in nature and came in varying degrees of intensity.

“With those first preliminary talks, you talk, then you stop talking about it for a little while, you revisit it … it’s been percolating for a while,” said Matty. “Half the time, it’s just … you grab dinner or you grab a beer and chat about business more than anything else, primarily because the companies are so similar and dealing with the same issues and you want to see how they’re dealing with these issues. And then, the talk would turn to ‘are we still thinking about this, or are we not thinking about this?’”

‘This’ was a proposed acquisition of Northampton-based Gage-Wiley & Co., which Milne served as president and CEO, by Springfield-based St. Germain Investment Management, which Matty has led for a number of years now. And eventually, the talk led to a deep dive and a decision to go forward.

The combined company has close to $2.4 billion in assets (Gage-Wiley had nearly $800 million), and four offices overall — St. Germain has a second office in Lee, and Gage-Wiley has a second office in Plymouth. This means it has much-needed size at a time of increased — and more complex — regulation, but also a small-enough size to remain nimble. Just as important, it now has nearly two centuries of time in the investment-management business.

Indeed, Matty joked that Gage-Wiley was a little on the young side in comparison to St. Germain, with the former being only 87 years old and the latter 96.

“I realize they’re a fairly new upstart, since they only started in 1933,” said Matty, who then turned serious and called this a “natural partnership.”

Natural because the companies are so similar — they both were started in Springfield, they’ve both remained locally owned and privately held, and they have similar operating philosophies.

Milne agreed. He actually initiated those talks two years ago, not thinking they might eventually lead to this union. Like Matty, he said the early discussion was focused on simply how to do business in a changing environment.

Eventually, though, it became clear that coming together made far more sense than staying apart and competing with each other.

“It’s a case where one plus one equals three,” said Milne. “It seemed like the right thing to do at the right time and for the right reasons; the similarities and compatibility were just too good not to get married.”

The name ‘Gage-Wiley’ will remain over the door of the facility in Northampton, and Milne will serve as managing director, because that brand is well-established, and it made no sense to change it, said Matty.

“I realize they’re a fairly new upstart, since they only started in 1933.”

“There’s a lot of good will built into that name and client relationships built up over time,” he told BusinessWest. “It’s very strong name, and we have no intention of disrupting things and taking all that away from them.”

Thus, in many ways, that office will operate much like October Mountain, St. German’s subsidiary in the Berkshires — a firm with its own name and its own staff, but with a bigger organization behind it.

“Very little, if anything, will change,” said Matty. “From the Gage-Wiley client standpoint, their statements look almost identical to the way they looked before — there just happens to be a new line that says ‘securities offered through St. Germain Securities’ on it. The phone number is the same, they’re talking to the same people … from the client standpoint, it will be almost invisible.”

Beyond the size and wealth of experience the combined firm now boasts, however, it also has what Matty described as a deeper pool of talent and expertise that it can bring to the table to better serve investment clients.

Elaborating, he said the teams at the respective companies bring experience in different areas that will complement each other effectively.

“We bring to the table for them a fixed-income expertise that they didn’t have, and we also bring more resources on compliance, legal matters, and human resources,” he explained. “And that comes with being a bigger company and having to tread these waters for a longer time with more people — we’ve had more experience at it.”

Meanwhile, Gage-Wiley brings different elements to the table, starting with some operational processes and ways of doing things that are in some ways better than those at St. Germain, Matty noted.

Gage-Wiley also brings an expertise in what is known as ESG (environmental, social, and governance) investing, a mindset that is growing in popularity, especially among the younger generations.

“Many people are looking to invest according to their ethics,” said Matty, noting that years ago the acronym for this philosophy was SRI — socially responsible investing.

But there is a difference, he went on, adding that SRI was mostly an exclusionary approach — ‘here’s what we’re not going to buy’ — while ESG is more of an inclusionary approach.

“People will say, ‘here’s a company I want to see a change at — I’m going to buy some of its stock, see if I can be a shareholder activist, and see if we can make some changes from within,’” he explained. “It’s a more comprehensive approach than the old SRI.”

And the team at Gage-Wiley, based in Northampton, has developed an expertise in this realm that St. Germain did not possess.

It does now, though, because of this ‘natural partnership’ that Matty described, one that brings nearly two centuries of local ownership together under the same umbrella — if not the same name and same roof.

As noted, this union gives the combined company more size and the important element of flexibility. But it also provides something else — stability and staying power during an ongoing time of consolidation within this industry.

“We’re going to stay independent,” Milne said. “And we’re now the perfect size — we’re not too big, and we’re not too small, and we’re not going anywhere.”

—George O’Brien

Banking and Financial Services

A Primer on Record Retention

By Emily White

Emily White

Emily White

These days, it’s hard to imagine holding on to paper copies of every paid bill, invoice received, or other financial document. Today’s society has moved from paper copies of documents to digitized, searchable files — all within the click of a mouse or stroke of a keyboard. Many practices even have copies of important documents secured by fingerprints or facial recognition on iPhones or tablets.

However, while the methods of retaining documents have changed, having a record-retention policy is still important and should serve as a guide within a practice, no matter where or how files are kept.

Retention of specific documents should be easily identifiable in a practice’s record-retention policy. A basic record-retention policy should include a listing of recommended retention periods for specific financial items. The length of time certain records should be maintained depends on services offered by the practice, types of files, and any specific regulations that may determine the holding period.

“While the methods of retaining documents have changed, having a record-retention policy is still important and should serve as a guide within a practice, no matter where or how files are kept.”

The retention policy should be reviewed by a practice’s legal counsel to ensure proper compliance with all laws and regulations.

Records retention generally falls into four general time-specific categories: two years, three years, seven years, and permanently. Documentation to be retained for two years includes items such as bank reconciliations and general correspondence. Typical three-year retention-policy items include bank statements, insurance policies, internal reports, and employment applications. Records to be kept for seven years include items such as payroll records, personnel files (for terminated employees), sales records, and subsidiary ledgers. Items to be retained indefinitely include audit reports, active contracts, legal correspondence, meeting minutes of board of directors and stockholders, retirement and pension records, and union agreements.

In addition, specific guidelines provided by the IRS govern retention of income-tax returns and related documents. Generally, income-tax returns are kept indefinitely, along with related depreciation schedules, financial statements (audited or unaudited), and year-end trial balances.

As the world becomes more technologically advanced, it is becoming easier for practices to store files on the ‘cloud.’ Cloud-based storage has become the newest method of storing records and files. Keeping files on the cloud not only frees up physical space, but also significantly reduces the risk of potential for loss of work and crucial documents. Medical practices are recommended to back up their computerized files to the cloud daily, at a minimum.

Record retention on the cloud is a secure and paperless way to keep all required files. Many practices opt to scan in all paper copies of files, support, or related documents and keep these files on the cloud. This method of record retention is a great way to reduce physical paperwork but remain in compliance with applicable laws, regulations, and company policies on record retention. As e-mails have become a significant form of communication, their storage timelines have also become important. E-mails are subject to discovery as evidence in the event of a lawsuit, so ensuring that e-mails are retained for an appropriate amount of time is crucial.

The storage of e-mails should be outlined in a practice’s record-retention policy, dependent upon the nature of the e-mails. Some may need to be kept indefinitely if they include significant legal correspondence or other agreements. Practices should refer to the general guidance for these matters.

Practices should consider the necessary requirements for record retention based on their service offerings and areas of expertise. Practices should also consult with legal counsel to develop an appropriate record-retention plan that follows all appropriate laws and regulations, including specific IRS guidance for tax-related items. In today’s digital world, it is easier than ever to engage in cloud-based storage for the purpose of complying with record retention. Additionally, a record-retention policy should be reviewed annually for possible changes and updates. After all, who knows when paper copies will come back in style?

Emily White is a senior audit associate for the Holyoke-based public accounting firm Meyers Brothers Kalicka, P.C.; (413) 322-3531; [email protected]

Banking and Financial Services

Dollars and Sense

By Steve Siebold

It is now not only the start of a new year, but also the beginning of a new decade. Maybe the last 10 years weren’t exactly your greatest, financially speaking. Maybe you are still dragging around an excess amount of credit-card debt, or you simply haven’t done a good job putting enough money away for retirement.

Whatever the case, the new decade can be different, and it starts with what goes on between your ears.

If you are really serious about taking control of your financial situation in the coming years, start by examining your relationship with money. Here are six changes to make when it comes to how you think about money.

Money Is Your Friend

If you have struggled financially your entire life, chances are you have a bad relationship with money. You may even see it as an evil force that you associate with greed or crooks. The more you see it as a negative, the harder it’s going to be to acquire any of it.

Start by changing your outlook on money, and see it for the positives it really presents, like possibility, opportunity, and freedom. Money isn’t everything, but it does make life easier.

Money Is Infinite

Sadly, most people are stuck with the limited belief that they can only make so much money in a year. They’ve been led down this path by well-meaning but misguided people their entire lives who sold them on the notion that this is the way it has to be.

This is so untrue. In a free-market economy, you can earn as much as your heart desires. The key is solving problems for people. The more problems you solve and the more value you bring to the marketplace, the more money you make.

It Starts with Your Expectations 

The majority of people believe the only way they will ever get wealthy is by guessing the lottery numbers or going to the casino. In the new decade, self-made millionaires expect to make even more money than they made in the previous decade, and there’s no talking them out of it.

“The more problems you solve and the more value you bring to the marketplace, the more money you make.”

You have to expect big things to happen, and this will make you bold, aggressive, and fearless in the pursuit of wealth. Even if you don’t know how it’s going to happen just yet, it starts with a belief that it will.

Separate Logic and Emotion 

Most people use emotion when making financial decisions, and this is one of the worst things you can do. Self-made millionaires, on the other hand, use emotion to motivate them, but stick to pure logic when it comes to money.

Logic means not buying the million-dollar mansion that you can’t afford. Emotion is dangling that big house in front of you like the proverbial carrot in front of the rabbit to make you work harder.

Focus on Your Reason

Behind any defined goal there is always a reason. Why do you want whatever it is you are after? In this case, why do you want more money? Is it for your family? Do you want to take a big trip next summer? Do you finally want to be financially free? When you focus on your ‘why,’ it’s going to push you to take action in achieving those financial goals. Figure out your why and never take your eyes off of it.

Watch Your Dialogue

Begin monitoring everything you say to yourself and others. When you talk about money, is the way you use your language programming you for success or failure? Next, begin listening to the way people around you use their language when it comes to money. Ask yourself the same question about them.

This is an eye-opening experience. What you’ll find is that the masses are always talking about running out of money. The self-made wealthy, on the other hand, are always talking about how to make more of it.  

The Takeaway

As we enter a new decade, make the decision to take control of your finances once and for all. Your thoughts and beliefs about money won’t make you rich on their own, but it all starts here.

If you are rich, keep thinking the way you are thinking. If not, it’s time to change the way you look at money in 2020 and beyond.

 

Steve Siebold is author of the book ‘How Money Works,’ and a self-made millionaire who has interviewed more than 1,300 of the world’s wealthiest people over the last 35 years; www.howmoneyworks.com

Banking and Financial Services

Past Is Prologue

President and CEO John Howland stands by a display commemorating GSB’s first 150 years. I

Greenfield Savings Bank has marked its sesquicentennial in a number of ways this year — from a party with cupcakes in the spring to presenting elm trees to a number of area communities it serves in the summer, to displaying its proud history, something it’s done pretty much all year long. Overall, though, it has celebrated by doing what it has done since it was founded in 1869 — serving as a rock-solid corporate citizen. And a vital partner to its many types of customers.

John Howland jokingly refers to it as his “high-school history project.”

He was referring to the large display of photographs and other materials that trace the 150-year progression of Greenfield Savings Bank. And it’s quite an exhibition.

Indeed, across two walls just off the main lobby and outside the main conference room hang a number of photos, postcards, and framed advertisements and documents that collectively tell the story of an institution that has changed considerably since Ulysses S. Grant roamed the White House — but also hasn’t changed in many ways, as we’ll see.

There are photos of bank lobbies from several different decades, a host of board presidents, groups of employees, Howland himself, who became GSB president in 2015, and many images of the old Mansion House Hotel.

The bank was relocated within the hotel property roughly a decade after its launch — it was one of several ground-floor retail sites — and was still there when the Mansion House was destroyed in a massive fire in January 1959 (there are pictures of that historic moment as well). The bank built its new headquarters roughly where the front lobby of the hotel once stood.

The historic Mansion House Hotel and GSB’s location within that property.

“So we’ve basically operated in the same location since 1880, and that’s very significant to me,” said Howland, adding that this history project is important, for customers and employees alike, because there has been much to commemorate during what has been a year-long celebration, punctuated by a large party in the spring.

Starting with the name over the door. It was Greenfield Savings Bank all those years ago, said Howland, and it still is. This despite the fact that many banks, as they have expanded beyond their original home and added branches in other counties and sometimes another state, have dropped the city or town from their name, opting for something more global and seemingly less defining. Meanwhile, almost every other institution that had ‘Savings’ in its name has dropped that, too, on the theory that it’s anachronistic and doesn’t convey the full line of services.

GSB has done none of that.

“Why would you want to change a name you’ve had for 150 years?” he asked before answering the question himself. “The idea that we’re somehow different because we’ve changed our name and don’t have ‘Savings’ in it anymore is disingenuous to me.”

But the bank is celebrating more than continuity — although that’s certainly important. There has been growth and expansion into other areas, including Northampton, Amherst, and, most recently, the community in between them, Hadley. There has also been a commitment to remain at the forefront of technology, said Denise Coyne, executive vice president and COO (and 41-year employee of the bank), and as evidence, she pointed proudly to the new interactive teller machines, or ITMs, in the drive-through lane, an initiative GSB calls Teller Connect. Customers can speak with a teller based in Turners Falls who can handle a wide range of transactions from that location.

The bank is also celebrating its work within the community, a commitment that manifests itself in a number of ways and on many different levels, including multi-faceted support of Monte’s March, the trek undertaken by radio station WHMP DJ Monte Belmonte to raise money for the Food Bank of Western Massachusetts (Howland himself was to be part of the second leg of the march, from Northampton to Greenfield).

Denise Coyne shows off one of the Teller Connect machines at GSB’s main branch in Greenfield.

But it also includes donating 30 elm trees in communities where the bank has a presence to replace just a few those lost to Dutch elm disease decades ago (these gifts, part of the 150th celebration, are resistant to the disease), and creating a foundation to support an ongoing project whereby students learning each of the trades at Franklin County Technical School collaborate to build a house from scratch (more on those initiatives later).

Mostly, though, the bank is celebrating what Howland called its “infinite horizon.” By that, he meant that this institution isn’t going anywhere, and it can act, and operate, accordingly.

“My job is to hand the keys over to someone else and have the company be better than it was when I got here,” he explained. “At the prior two organizations I worked for, and at many other banks, basically the mission was to figure out how to maximize the value for the shareholders in the shortest period of time and sell the organization; to that extent, our business plan is different than that of most other banks.”

For this issue’s focus on banking and financial services, BusinessWest talked at length with Howland and Coyne about GSB’s first 150 years and what will come next for this venerable institution.

Staying on Track

Hanging on a wall inside the conference room is a framed poster hyping the 20th Century Limited — the historic express passenger train on the New York Central Railroad that traveled between New York and Chicago — and its faster time for completing that run: 16 hours.

This might seem like an odd item to find in a bank headquarters building, but Howland offered an explanation that speaks volumes about how this institution celebrates its past but is by no means stuck in it.

“I put that poster up to remind us that we constantly have to be reinventing ourselves, constantly have to be figuring out how to do it better and faster,” Howland explained. “The poster represents the race between the New York Central Railroad and the Pennsylvania Railroad to attract customers to this high-profile route. When one company dropped their time, the other matched or exceeded it. They conceived idea after idea to improve service, cut down travel time, and maintain schedules. Banking today is just like that — we are all providing the same products. That’s why we continue to provide our customers with exceptional service, the most up-to-date technology, and offer competitive rates.”

And throughout its long history, the bank certainly has operated with that mindset.

Students at Franklin County Technical School work on the framing for a house they constructed in Erving through a program financed by a foundation created by GSB.

Indeed, while the name over the door hasn’t changed and the street address of the main branch has changed by just a few digits, the bank has evolved with the times and advancing technology, all while remaining a hugely important corporate citizen in a region that never had many and has seen those ranks decline over the past several decades.

Coyne, the bank’s longest-serving employee, has certainly seen this blend of change and continuity in her time.

She recalls doing most tasks by hand when she started as a teller at the Turners Falls branch (the only branch at the time) in 1978, and, in fact, she helped lead the institution into the computer age and a succession of improvements, including Teller Connect.

“The technology is so great that we can extend our hours — from 7 a.m. to 7 p.m., Monday through Friday, you can talk with a teller,” she noted, adding that there are extended hours on Saturday as well. “It’s no different than if you go to a drive-up and talk with someone who’s in the building; we can do almost everything you could if you came into the lobby.”

Over the past four decades, Coyne, who has held a number of titles over the years and handled pretty much every assignment other than commercial lending, has seen the bank greatly expand its footprint, first into other communities within Franklin County, then into neighboring Hampshire County.

There are now five branches in Franklin County — in Greenfield, Conway, Shelburne Falls, South Deerfield, and Turners Falls — and the same number in Hampshire County — two in Amherst, two in Northampton, and the latest addition, the branch on Route 9 in Hadley.

That addition to the portfolio wasn’t exactly planned, said Howland, noting that it came about by circumstance — the closing of a credit union — and was viewed as an opportunity to more conveniently serve customers in that area.

Looking ahead, Howland doesn’t see much, if any, additional expansion. But he does see continuous work to improve customer service, take full advantage of ever-improving technology, and, overall, take full advantage of the infinite horizon he mentioned.

“That’s the biggest challenge we face — the non-bank competitors coming in picking off pieces of our business. It’s kind of like Walmart being able to do an MRI for you; it’s large companies picking and choosing where they can make something work.”

And all those qualities will be needed, he said, because, while the pace of consolidation within the banking industry has slowed somewhat, especially in this region, other threats have emerged, especially from what he called “non-bank competition.”

By that, he referred to Apple, Google, Alibaba, PayPal, and a host of other major companies that are chipping away at traditional bank business by creating services of their own in realms ranging from lending to payments to credit cards.

“That’s the biggest challenge we face — the non-bank competitors coming in picking off pieces of our business,” he explained. “It’s kind of like Walmart being able to do an MRI for you; it’s large companies picking and choosing where they can make something work.

“And then we, as an organization, have to provide everything for everyone,” he went on. “And sometimes it can become expensive to provide some products. It’s just capitalism — it’s not a bad thing, necessarily, but it’s a challenge for us as an organization to maintain as much as we maintain and be able to provide an array of services for our customers.”

Saving Graces

To counteract these powerful forces, GSB has to focus on what differentiates it from those non-bank competitors and the larger regional banks so prevalent in this market, said Howland.

These differentiators include both a personalized brand of service and a deep portfolio of services, including a trust department, something most area banks no longer have, he went on.

As just one example, he cited the example of a customer entangled in a fraud situation.

“Unfortunately, the bank on the other side is a huge organization that really doesn’t care — they will not help at all, they won’t talk with us, they won’t do anything,” he noted. “I think the way we differentiate ourselves is the personalized service and the fact that our customers know they can count on us — they know they can call someone who cares and is going to do something about their problem.”

Beyond the brand and scope of services, another differentiator is the bank’s long history of involvement in the community and a commitment to continue that tradition, said Howland.

“As an organization, we’re very proud of our position in the community,” he told BusinessWest. “We’re dedicated to being the best corporate citizen we can be, and we’re involved in our community in many, many different ways.

“Obviously, we’re important in terms of the local economy, but it’s not just the economy that we focus on, it’s just the financial aspect of what we do,” he went on. “It’s striving to improve the conditions in our communities as best we can. We’re one of the larger philanthropic organizations in terms of straight dollar donations, but on top of that, our employees are involved in all kinds of stuff at all kinds of levels.”

And by ‘stuff,’ Howland meant much more than time and energy donated to the boards of dozens of nonprofits — although that’s a big part of it. There’s also volunteerism and the many forms it takes, he said, adding that the bank prides itself on backing up such efforts with dollars and other types of support.

“If an employee comes to me and says, ‘I think this is really important, and I have dedicated myself to volunteering time for it,’ more likely than not, we’ll make a fairly significant financial contribution to that charity on behalf of that employee.”

Overall, the bank is keenly aware of its role and its responsibilities within the largely rural areas it serves, particularly in Franklin County, he went on, adding that it is often asked to step up and, when possible, pitch in. Such was the case with the initiative involving Franklin County Tech and a proposal to have its students build houses.

The bank’s response was to go beyond writing a check and instead do something for the long term.

“I got a phone call from the tech school asking if we would make a donation to this program to build a house,” Howland recalled, adding that the bank eventually created the Franklin Technical School Building Society Inc., a foundation with its own board of directors that essentially finances the home-building project and is replenished when the house is sold.

“They earned a lot of money on the first house, and the second house will hopefully be sold in the spring of 2020, and another house will be started after that,” he went on. “The point of it is to create something that becomes self-sustaining, and ultimately, we hope this grows to the point where it can be a benefactor for other programs at the tech school.”

Long-term thinking was also the motivation for the bank’s decision two years ago to create the Greenfield Savings Bank Foundation. Funded with profits from the bank, it’s an initiative in keeping with GSB’s long-term horizon, said Howland.

“We funded it with $200,000, and our expectation is to continue funding it at some amount per year,” he explained. “My vision, and it will not be in the time that I’m president of the organization, is that, at some point, this foundation will be as large as, if not larger than, the bank, and I think we have the opportunity to do that.

“I’m most proud of where we are as a corporate citizen in our community, and my feelings are a reflection of our board of directors,” he added. “Our board is incredibly committed to making us the best business we can be in Franklin County and Hampshire County.”

Time Passages

There’s some additional 150th memorabilia in the main lobby of GSB’s headquarters.

On one wall, the very first passbook sits in a frame. And a glass display case in the center of the room holds everything from a photocopy of the first mortgage document (a loan issued in 1869 to one Jeremiah Eagan for a building on School Street) to news photos of the Mansion House fire, to a box of fountain pen nibs, a symbol of how things were done more than a half-century ago.

This collection speaks to the two qualities that are really being celebrated with this sesquicentennial — needed change and continuity.

There are plenty of other pieces of evidence outside the bank, from the house built by the technical-school students in Erving to elm trees growing in Look Park in Northampton, Montague center, and a host of other locations, to those branches in Hampshire County.

Together, they speak of a 150-year-old success story — and of many chapters still to come.

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

Banking and Financial Services

Local Approach

Jeff Sullivan says customers use branches in different ways than they used to, but that physical presence is still important.

Every morning, Jeff Sullivan signs new-account letters for the most recent depositors at New Valley Bank. “We like to send a thank-you note to people for opening an account,” he told BusinessWest.

But that task also allows Sullivan, the bank’s president and CEO, to gauge how New Valley is doing, at least by that one metric. “Week by week, the volume goes up. Every morning when I come in, there’s a stack of letters that kind of tells me how the day went yesterday. Sometimes it’s just a couple, sometimes eight or 10.”

The story those piles tell is of a bank — the first new Springfield-based bank to open in 11 years — that is indeed growing, and not just in deposits, but in commercial lending, the niche on which its founders want to focus considerable energy.

“In general, things are going well,” Sullivan said, noting that, at the end of the second quarter, just a month after opening, New Valley reported $34 million in assets. That number rose to $45 million at the end of September, is over $55 million now, and is expected to top $60 million by the end of the year. “So we’re starting to grow.”

While the last bank launched in Springfield, NUVO Bank (since acquired by Community Bank), focused on a mostly digital banking model, New Valley will have slightly more of a brick-and-mortar foundation, Sullivan explained. It currently has two branches — its headquarters on the ninth floor of Monarch Place in downtown Springfield, and a stand-alone branch on Wilbraham Road in Sixteen Acres. A third branch will follow in the second half of 2020, although the location hasn’t been determined.

“We’re a hybrid model, and people use branches in different ways now,” he said. “One of our customers, who opened his accounts here and doesn’t have a lot of need to go to a branch, went into a branch to have them help him figure out the online stuff. He wanted to download the mobile app and get everything enrolled and get bill pay set up, so our staff spent an hour with this gentleman, helping him set it up so he doesn’t have to come to the branch. But he was glad to know it was there so he could go and get some assistance when he needed it.”

On the commercial side, the bank will focus on smaller loans and quick turnaround times, said Sullivan, adding that the merger culture in recent years has created opportunities to serve small to medium-sized businesses in a high-touch way they don’t necessarily experience at large institutions.

“There’s definitely a big learning curve, of trying to educate the broader public about who we are and what we’re trying to do,” he noted. “We do have kind of a captive audience in the 300 shareholders who have invested in us. They know our story. As we convert those shareholders into customers, we want them to have a good experience because they’re very important to us. Then, if we provide good first impressions, they’ll become a sales force for the bank; they’ll tell their friends and business networking groups that we’re doing a good job.”

That’s the challenge for any new bank — to answer the question, ‘why this bank?’ when so many other institutions dot what many have called an overbanked landscape in Western Mass. But Sullivan hopes New Valley’s combination of local, quick-response lending and a retail model built on strong personal service will resonate with people looking for a change.

“We’ve looked at our shareholders and some people we’ve done business with before as our first wave of customers. And they’ve been patient with us because, as a new bank, not everything goes completely smoothly,” he added. “Our branch took a little bit longer than we thought to get open — it opened in September, and it’s doing great.”

New Valley is also in the final stages of testing and rolling out online account opening and other technology by the end of the year, as well as an online lending platform where people can apply for commercial loans up to $250,000 and get an answer quickly. “That’ll be up by the end of the first quarter of next year. We’re working hard on all those things while we’re trying to grow the balance sheet at the same time.”

Successful Connections

The founders of the bank — including Sullivan; Chairman Frank Fitzgerald; Jim Garvey, president of St. James Check Cashing; and Dennis Murphy of Ventry Associates — set several goals early on, first being a high level of engagement with customers, which Sullivan said has been missing at many banks. Second, they hope the bank will build off the recent successes in Springfield and connect the small-business community to that success.

Sullivan, who has spent more than 30 years working in and around the region’s banking community, most recently as chief operating officer for United Bank, told BusinessWest he’s come to understand that, just because there are branches on almost every corner in some cities and towns, that doesn’t mean the region’s population — and especially certain segments of it — are adequately served.

“We’ve got to make sure we make good first impressions with people. Our calling card’s going to be that we’re small, we’re nimble, we’re local, we can turn stuff around quickly. So we just have to live up to that, do a good job of it, and then the word will spread.”

In fact, research continues to show that the volume of business at check-cashing establishments has remained fairly stable — and comparatively high — in this region, despite considerable improvement in the economy over the past decade. Sullivan estimates there are some 20,000 households in Hampden County alone that use a bank sparingly, if at all.

“A lot of people are not well-served on the retail side. They need financial education, low-fee and no-fee accounts, and also a lot of financial-literacy tools,” he said.

“Several companies we’ve talked to say, ‘that profile is my employee base. I’ve got a lot of hourly employees, high-school kids getting their first job with us, people who are coming out of the military, or out of jail,’” he went on. “The employer is saying, ‘if I can cut down on the turnover, if I can make these people more stable, they’re going to be better employees, and that’s better for my business.’ They’re interested in working through their HR departments to make these kinds of accounts and tools available to people. It’s a win-win — lower turnover making for better employees, but they also recognize the challenges people are going through.”

But he also came back repeatedly to the commercial-lending focus New Valley wants to become known for during a time when many banks have been involved in mergers and acquisitions, and longtime community banks have grown significantly and put more emphasis on very large loans.

“As we come to the end of this long expansion cycle we’ve been in for 10 years and we’re seeing a lot of consolidation in the marketplace, banks and credit unions are readjusting their portfolios a little bit. We’re coming to the marketplace and saying, ‘hey, we’re turning stuff around quickly, and it doesn’t take us as long as it takes some of the other banks to go through the process.’ So I think delivering on quick decision making, local decision making, and just rapid service is what defines us at this point.”

One unexpected development has been strong demand for residential mortgages, which was not a big part of the initial business plan, Sullivan said. It’s just one way a new bank has to adjust to market demands — one of many challenges during that first year.

“By making sure all of our systems are in place, working with our regulators to make sure that we’re growing the right way, that our procedures and policies are right for the size of our bank, we’re building a good foundation for the future,” he told BusinessWest. “I’m champing at the bit to scale up and unveil some of these new products and new technologies we’re thinking about.”

To serve the public, he added, “you have to meet them where they want to meet you. Increasingly today, that’s having a good app, having some good social media, being able to reach people through online marketing.”

Spreading the Word

New Valley’s business plan calls opening one more branch in the second half of 2020. Sullivan knows it will be one of many local stories in an industry constantly defined by change.

“A lot of branches are available right now in Greater Springfield and Northern Connecticut. By this time next year, new banks will be coming into the marketplace, and we’ll see some expansion; I think some of the Hampshire County banks will push down, and some banks out of New York are making a lot of noise that they’re coming into Connecticut. So the landscape will continue to change.”

It’s been an exciting first six months, he added, and he and his team intend to keep up the momentum.

“We’ve got to make sure we make good first impressions with people. Our calling card’s going to be that we’re small, we’re nimble, we’re local, we can turn stuff around quickly. So we just have to live up to that, do a good job of it, and then the word will spread.”

Joseph Bednar can be reached at [email protected]

Banking and Financial Services

Going for the Green

One of the more challenging aspects of running a cannabis business is the inability to access banking services because banks are federally regulated, and cannabis is illegal on the federal level. However, change could be coming after the U.S. House of Representatives voted to pass legislation that would legalize cannabis banking. If the Senate agrees, proponents of the effort say, cannabis operations will become easier, less costly, more transparent, and accessible to a wider range of investors.

Want to start a cannabis business? You’d better have a lot of cash on hand.

However, that equation could be changing after the U.S. House of Representatives voted to pass legislation that would allow the cannabis industry to access banking and financial services, even as the substance remains illegal under federal law.

The Secure and Fair Enforcement (SAFE) Banking Act passed the House by a vote of 321 to 103, with nearly half of Republicans joining all Democrats but one in voting in favor of the bill.

Now the bill will move to the U.S. Senate and, eventually, to the president’s desk. Proponents are confident in their chances of passage.

“It would be great for the cannabis industry and great for the banking industry,” said Peter Gallagher, chief financial officer at INSA, a cannabis dispensary in Easthampton. “A lot of banks we’ve talked to are very interested in getting into it, but don’t want the risks associated with it, so they’ve steered clear of it.”

Banks providing services to state-approved cannabis businesses could, in theory, face criminal and civil liability under federal statutes. In fact, only two financial institutions in Massachusetts have taken on the risk, both of them located in the eastern part of the state. So most cannabis companies operate as cash-only businesses.

“The implications of having to handle a lot of cash are pretty profound,” Gallagher told BusinessWest. “A lot of effort goes into counting and transporting it. To the extent that we can move some of this to credit, it would make our operations a lot easier.”

Momentum to legalize cannabis has made the banking issue impossible to ignore at the federal level. Currently, 33 states, the District of Columbia, Guam, and Puerto Rico have all legalized the use of marijuana to some degree. Yet the possession, distribution, or sale of marijuana remains illegal under federal law, which means any contact with money that can be traced back to state marijuana operations could be considered money laundering and expose a bank to significant legal, operational, and regulatory risk, notes the American Banking Assoc. (ABA).

“The rift between federal and state law has left banks trapped between their mission to serve the financial needs of their local communities and the threat of federal enforcement action,” the association wrote recently. “ABA believes the time has come for Congress and the regulatory agencies to provide greater legal clarity to banks operating in states where marijuana has been legalized for medical or adult use. Those banks, including institutions that have no interest in directly banking marijuana-related businesses, face rising legal and regulatory risks as the marijuana industry grows.”

Gallagher said legalizing cannabis banking across the board makes sense on many levels.

“From a business perspective, it would make banking more accessible and less costly, and it would eliminate the risk of enforcement and regulatory action that banks are worried about, which is what’s leading them to abandon the market.”

Most think they would gladly jump in — making the cannabis industry more accessible to a wider range of entrepreneurs, while bringing down costs — if the SAFE Banking Act becomes law. And that’s what the Senate will have to consider as it begins its review.

Dollars and Sense

Scott Foster, a partner with the law firm Bulkley Richardson who helped establish its cannabis practice, said the law, if passed, would open up the ability of cannabis businesses to use local branches of local banks essentially overnight — if the banks decide to get involved, which seems likely, given the ABA’s advocacy on the issue.

“This is driven not by the cannabis industry, but by the banking industry,” Foster said. “We need clarity in this issue, considering all the non-cannabis businesses affected by this.”

“A lot of banks we’ve talked to are very interested in getting into it, but don’t want the risks associated with it, so they’ve steered clear of it.”

Indeed, in addition to growers and retailers, there are plenty of vendors and suppliers, landlords, and employees indirectly tied to the cannabis industry, thus posing legal risks for banks serving those individuals.

Rob Nichols, ABA president, recently wrote about two such examples: a bank in Ohio was forced to turn down a loan to a fencing company hired to build a fence around a marijuana growing facility, and a bank in Washington had to close an account when a law firm took on a marijuana business as a client.

“If either of these banks looked the other way, they risked violating federal law and facing criminal prosecution,” Nichols said, noting that these examples are far from isolated. An ABA survey found that 75% of banks have had to close an account, terminate a client relationship, or turn away a customer because there was some connection to cannabis.

“What we’re seeing is employees of cannabis companies being turned down for mortgages, and checking accounts closed down because they’re being paid by cannabis companies. That’s the biggest impact that’s actually driving the law,” Foster told BusinessWest. “Senators in states where it’s legal are saying, ‘time out.’ This isn’t about cannabis companies, it’s about the people selling stuff to them, landlords, even W.B. Mason delivering supplies. They’re getting caught up because they’re being paid by cannabis companies, and banks are saying they can’t accept the money. It’s an unintended ripple effect that’s causing a shift in thinking in Congress.”

Furthermore, reconciling the legal divide between state and federal laws would bring benefits to the communities banks serve, Nichols argues.

“The estimated $24 billion in cannabis sales by 2025 in states where marijuana has been legalized could be deposited safely with federally regulated financial institutions, enhancing transparency, public safety, and tax revenue,” he said.

And it’s not just banks asking for lawmakers to take action, he noted. A bipartisan group of 19 state attorneys general last year wrote a letter to lawmakers, arguing that bringing cannabis businesses into the banking system would improve accountability and increase public safety.

“This isn’t about cannabis companies, it’s about the people selling stuff to them, landlords, even W.B. Mason delivering supplies. They’re getting caught up because they’re being paid by cannabis companies, and banks are saying they can’t accept the money. It’s an unintended ripple effect that’s causing a shift in thinking in Congress.”

“Without relief from Congress, even banks that have decided not to serve cannabis businesses will find themselves caught in the financial web created by this booming industry,” Nichols said. “The money from cannabis businesses often goes to vendors, landlords, and employees, while the federal criminal association follows that cash.”

Gallagher agreed, and said it shouldn’t be difficult to build consensus around the need to bring clarity to cannabis finances through the well-regulated banking system.

“If, at the end of the day, what we’re worried about is diversion, or being able to track all that money, it’s easier to do that with electronic payments rather than having people carry large cash balances,” he said. “It’s easier for regulators and everyone else to make sure the industry is healthy and operating compliantly.”

Indeed, that very argument became part of the House debate. Colorado state Rep. Ed Perlmutter argued that keeping cannabis banking illegal is “an invitation to theft, it’s an invitation to money-laundering, it’s an invitation to tax evasion, and it stifles the opportunities of this business.”

Joint Resolutions

Foster said the immediate impact of the SAFE Banking Act would be significant on current cannabis businesses, which would now be able to access local branches of local banks, instead of running a ponderous all-cash operation — and requiring the security that entails — or seeking services from an institution across the state.

“We can’t apply for loans — working capital, construction loans, any lending right now,” Gallagher noted, adding that the handful of banks nationwide that are currently risking the cannabis business are passing on exorbitant costs to customers to do so.

“You’ve had some companies that have been willing to shoulder the risk associated with servicing an operation that’s federally illegal,” he told BusinessWest. “They’ve been able to charge excessive rates for that. As [legalization] happens in this industry, the fees will come down and start to normalize.”

Nichols expects that competition to emerge quickly, saying banks typically respect the decisions made by voters in the states where they operate. “Those voters had weighed the societal and cultural issues that come with legalization, and they made their decision. Instead, the industry is focused on the impact of the gap between state and federal laws on banks and their ability to serve those in their communities.”

The other major impact of a change in the law, Foster said, has to do with the concept of social equity. Massachusetts’ Cannabis Control Commission launched what it calls its Social Equity Program to expedite business applications and provide technical assistance, mentoring, and other resources for individuals from communities that have been disproportionately harmed by marijuana prohibition — typically poverty-stricken areas.

“Even though Massachusetts law has a social-equity component to it, giving expedited processing to social-equity candidates, the practical reality is, most of the investors are still wealthy, white gentlemen who have disposable income invested in cannabis,” he noted.

By allowing entrepreneurs to finance these operations instead of needing all the money up front, Foster explained, “you’ll have more players at the table, and be able to leverage smaller sums into larger companies. I haven’t heard a lot of talk about the social-equity piece, but to me, that’s a big piece, to help more people be able to engage in this business and apply for a loan if they qualify. That, to me, is a potential game changer.”

A companion bill in the U.S. Senate has yet to be voted on by the Senate Banking Committee, which held a hearing in late July on the issue. While that debate is coming, some lawmakers believe it’s only the start. For instance, House Majority Leader Steny Hoyer said he doesn’t believe the SAFE Banking Act goes far enough.

“This must be a first step toward the decriminalization of marijuana, which has led to the prosecution and incarceration of far too many of our fellow Americans for possession,” he argued.

For now, people like Gallagher are happy the banking issue may finally be resolved.

“We’ve been following this, so it’s not a surprise,” he said. “It’s something that makes a lot of sense from an operations and compliance perspective. We weren’t sure of the timing of it in terms of the evolution of the industry, but it’s something we expected to happen.”

Joseph Bednar can be reached at [email protected]

Banking and Financial Services

The Business of Selling a Business

By Brendan Mitchell

For business owners looking to sell soon, there is still plenty to be optimistic about.

Capital for purchasing businesses continues to flow thanks to low interest rates from banks and investment portfolios lingering near high-water marks.

Meanwhile, the Massachusetts economy has pushed to new highs from Boston to Springfield. Most recent reports show unemployment rates at historic lows, with both sides of the state making improvements. MGM Springfield and Encore Boston Harbor have attracted out-of-state plates. Private equity and public companies, both flush with cash, continue to show confidence in the state through investments in their workforce and current business as well as construction and new business acquisitions. We’ve seen national tax reform increase cash flows to businesses across the country.

These factors have helped to keep buyers engaged as retiring Baby Boomers head for the exits. The timing has been great for some business owners cashing out recently, but buyers have become more selective in some industries. While some businesses are snagged as soon as they go to market, many are aging on the shelf with buyers and sellers unwilling to bridge pricing gaps.

When figuring the value of their business, owners can fall into the trap of including sentimental value in their estimation. Some are relying on what a similar business sold for in a different market or, worse, have a target number they drew up without any real anchor to reality.

For business owners who have dedicated their lives to a business, it can be hard to take a step back and objectively consider what their business is worth. Business owners who are willing to take an objective look at the value of their business can be proactive now instead of reactive when they are ready to retire and list their business for the first time.

The value of a business is dynamic. While there is no way to get a buyer to price sentimental value into a purchase price, there is a potential to make changes to the business that will increase the value over time.

There are three approaches to valuing a business — asset, income, and market approaches. For most privately held companies, valuators rely on either the income approach, market approach, or a combination of the two. The basic formulas for these calculations are widely available online, but what owners can do with this information may be less obvious.

First, it’s important to know that the years leading up to the valuation or sale are the most important. A long history of profits can show stability for a small business; however, only the most recent three to five years are going to be considered in a calculation. Small-business owners with eyes on an exit have a tendency to disconnect from the business during this most important period when they should be pushing in the opposite direction.

Flat revenues or increases in expenses during this period have the potential to erase even decades of growth and profitability. Owners should resist the temptation to ‘pull the parachute’ as they get closer to the finish line. Continue to push for revenue growth and pay close attention to expense control. This is the time to let the numbers showcase the full potential of the business.

Nobody knows the ins and outs of a small business like the owner. Buyers and valuators weigh heavily on the impact the seller’s exit will have on the future of the business. Owners should focus on replacing themselves in the areas in which they are most intertwined in the business to lessen the impact. To identify these high-dependency areas, owners can interview managers and employees, noting issues that cannot be resolved without them.

Key areas of focus generally depend on the industry or business model but usually include sales generation, relationship management, product development, strategic decision making, or day-to-day business management. If continuity can be achieved through process improvement or process documentation, it should be a key focus. Some results can be found through training current employees and empowering them. Consider restructuring tasks and delegating the current owner’s duties to rising managers.

Revisit labor costs. Business owners with family members at above-market wages face a double expense. While they may overpay weekly on purpose, it will cost them a multiple of that annual salary when it’s time to cash out. For hourly workers, be ready to field questions about how the rising minimum wages will impact more labor-intensive businesses.

Finally, clean up the financial statements. For various reasons, including tax motivations, small-business owners have a tendency to let their personal and business lives collide on their company financial statements. Documentation is important for any personal expenses being charged to the business. Owners should be ready to prove which expenses were not necessary for the business so that buyers and valuators exclude the expenses to calculate the value — buyers will not report findings to the IRS.

Performing a financial analysis can also help owners understand how their business compares to the rest of the industry, making them ready to articulate strengths and defend or improve weaknesses.

Overall, the current market remains friendly to someone looking to sell their business. It’s also a great time to be proactive in managing an exit strategy, whether it lies around the corner or several years out. Getting realistic about the value of their business enables owners to take steps to improve it and make informed decisions.

Brandon Mitchell is a certified valuation analyst and supervisor in auditing and consulting for Blumshapiro, the largest regional accounting, tax, and business-advisory firm based in New England, and winner of the Massachusetts Lawyers Weekly Reader Rankings for Best Appraisal Service and Best Accounting Firm.

Banking and Financial Services

Uniting Forces

People’s United Bank is no longer the small, Springfield-based institution, then known as the Bank of Western Massachusetts, that made its name three decades ago through a strong emphasis on local commercial lending. And the now-Connecticut-based institution is growing again, with a planned acquisition of United Bank that will push its assets well above $50 billion. But local connections are still key to the People’s United ethos, its Massachusetts president says — and he hopes United Bank customers feel the same way.

Patrick Sullivan thinks People’s United Bank has built a strong reputation in Western Mass. — and hopes customers of United Bank feel the same way following a recently announced acquisition.

“We trust that customers kind of know us already in Western Mass., and that they’re confident this isn’t a big change in the sense of somebody they don’t know. They’ve known us for a long time,” said Sullivan, Massachusetts president of People’s United, the Bridgeport, Conn.-based bank that began life in downtown Springfield 32 years ago as the Bank of Western Massachusetts.

“We have people that have worked for either the Bank of Western Mass. or People’s United for a long time,” he added. “Long-term relationships are valued here, and long-time principles and dynamics don’t change. Local is local.”

The two institutions announced in July that People’s United Financial Inc., the holding company for Peoples’s United Bank, would acquire United Financial Bancorp Inc., the holding company for United Bank, in a 100% stock transaction valued at approximately $759 million. Then banks’ leaders characterized it as a strong cultural fit that would benefit customers.

“We are excited to welcome United Bank to People’s United,” said Jack Barnes, chairman and CEO of People’s United Financial. “With the fourth-largest deposit market share in the combined Hartford and Springfield market, a complementary array of commercial and retail capabilities, and a shared legacy of community giving, United will solidify our presence in the Central Connecticut market and strengthen our franchise in Western Massachusetts.”

William Crawford, president and CEO of United Financial Bancorp, added that “People’s United Bank has long been a premier brand in Connecticut that is committed to building meaningful relationships with its customers and communities. We are confident their broad array of products and services, in-market knowledge, and the size and strength of their balance sheet will deliver enhanced value to our stakeholders.”

Patrick Sullivan says the acquisition of United Bank makes sense on a number of levels, both financially and culturally.

Indeed, the move is, in one sense, the story of two Connecticut-based banks —United is based in Hartford — but both banks have a long history and a strong presence in Western Mass.

Sullivan — who joined People’s United six years ago as Massachusetts president and also oversees the bank’s commercial, industrial, and business banking, noted that the institution was already the eighth-largest bank in Massachusetts, and will obviously be slightly larger, growing from 56 branches in its multi-state footprint to around double that, though some are expected to close (more on that later).

“Because of the economy in Massachuetts and the size of the market, we’ve invested a lot in people from other institutions that have joined us with specific expertise in lending, commercial markets, retail, wealth, insurance, whatever,” he went on, citing its government-banking niche as one strength.

“We had a good government business in Western Mass. before I came on six years ago. Today, we’ve got 90 clients in Western Mass. with $162 million in deposits. It’s a big business for us. Likewise, it’s a big business for us throughout the whole company. The city of Springfield is a major customer,” he explained, as are Worcester, Pittsfield, Easthampton, and many others.

For this issue’s focus on banking and finance, BusinessWest spoke with Sullivan about the broadened services and technology People’s Bank will bring to United Bank customers, and why he feels this growing institution will continue to maintain a local focus in the communities where it operates.

Growth Pattern

Immediately after the merger, People’s United will go from five branches in Hampden County to 20, from five to 10 in Worcester County, and from three to four in Hampshire County; its roster of three branches in Franklin County won’t change.

Still, not every branch will remain open; in some communities, both banks now operate within a block or so of each other, which means consolidation is inevitable, Sullivan said. “We’ll make a decision in the best interests of our customers, according to where they bank. But all the retail employees have been told they will have positions with us.”

Just as it has during its growth over the years — People’s United boasts assets around $47.9 billion, and is acquiring a bank with about $7.3 billion — Sullivan said the institution stresses local decision making when it comes to lending, philanthropy, and other matters.

“We still operate just like we did when we had $30 billion. We want to keep it local,” he told BusinessWest. “Our biggest client has its headquarters in Western Mass. Our challenge has been small businesses, those $100,000 loans, the startups. We try to take care of the small-business segment. Let’s face it, those are the heart of a lot of the communities we’re in, and we’re always trying to be more responsive to them.”

In recent years, People’s United has made significant investments in its commercial specialties, including hiring teams of specialized industry experts to better serve customers. Among these niches are technology companies, restaurant franchises, and a healthcare finance team. While those divisions are based out of Boston, they serve the bank’s entire New England and New York footprint and beyond.

The bank has also invested heavily in technology, said Steven Bodakowski, vice president of Corporate Communications.

This United Bank branch in downtown Springfield is just a couple blocks from the People’s United branch — one of many examples of overlapping branches the organization must examine post-merger.

“We’re constantly focused on on how, when, and where we interface with customers in this changing age of banking,” he noted. “Technology and digital enhancements continue to be a major focus for the bank as we aim to stay one step ahead of customer needs and deliver a truly integrated service model that blends the best in customer service with technology.”

To that end, People’s United has developed a strategic initiative to provide customers with online and digital solutions for a suite of its most popular offerings.

“This digital banking experience is designed to mirror and be an extension of the branch experience — serve as another path to interact with and receive guidance from bankers, based on individual customer preferences,” Bodakowski said. “Our bankers are being trained to become digital advocates.”

Offerings include a technology-based home-lending platform designed to simplify and transform the way customers apply for a home-equity loan or home mortgage, providing the ability to virtually interact with mortgage account officers in real time to complete the online application.

Other features include a refreshed online and mobile solution for opening checking and savings accounts, a digital small-business loan application for loans $250,000 or less, a direct-to-client robo-advisory offering, and a new, digitally driven financial-literacy platform that allows customers and the community to access financial-literacy classes and modules.

The latter is an especially important tool to help young people, the elderly, and anyone, really, become more financially savvy, make better decisions, plan for the future, and avoid scams.

“We also launched a new website in May with a fully optimized user experience,” Bodakowski said, one that delivers a fully optimized user experience for mobile devices, an enhanced ‘storefront’ feature to highlight key product areas, and a robust support and security center and new content areas designed to engage and educate customers.

The bank has also enhanced its marketing capabilities to more accurately target its customers and understand their lifestyles, through the use of integrated third-party digital e-mail and marketing platforms such as Marketo and Salesforce.

“We look forward to welcoming [United Bank’s] well-established customer base and delivering to them our enhanced technology and digital capabilities, combined with our network of expert bankers,” Barnes said when the acquisition was first announced.

Living Local

That’s a lot of growth since the institution opened its doors in 1987 as the Bank of Western Massachusetts with $9.3 million in assets. By way of contrast, People’s United awarded almost half that total — about $4 million — to nonprofits last year, about $2.3 million of that in Massachusetts. Of that latter figure, more than $854,000 was contributed by the bank in donations and sponsorships, while more than $1.4 million was awarded in grants by People’s United Community Foundation and People’s United Community Foundation of Eastern Massachusetts.

Those giving decisions remain, as they always been, local, Sullivan said, because the local bankers know the market and its needs. He knows that’s part of the community-bank ethos in Western Mass., and even banks that have grown far beyond community-bank size still have to operate like one.

“Our philanthropy is very local. We take very seriously how things get allocated to these organizations,” he added. “Our principles are always to stay local, whether it’s the specialty expertise in the market or our volunteerism and philanthropy. That’s in our DNA.”

Joseph Bednar can be reached at [email protected]

Banking and Financial Services

Growing Concern

The American Bankers Assoc. argued it’s critical that legal, cannabis-related businesses have access to the regulated banking system as it urged the Senate to advance the SAFE Banking Act in recent testimony before the Senate Banking Committee.

Joanne Sherwood, president and CEO of Citywide Banks in Denver and chair of the Colorado Bankers Assoc., testified on behalf of ABA. Sherwood explained how current federal law prevents financial institutions from banking any money derived from cannabis-related businesses and how a narrow, banking-specific remedy to the cannabis banking problem will reap immediate public-safety, tax, and regulatory benefits.

“Because cannabis continues to be illegal at the federal level, handling funds associated with cannabis businesses can be deemed money laundering,” said Sherwood. “That federal/state divide has particularly severe repercussions for banks and communities like mine, where the cannabis industry is fully operational, but it also impacts banks in every state.”

With limited access to banking services available, large amounts of cash remain on site in many of the cannabis-related businesses, which creates significant safety concerns for the communities where they are located. For example, on average, more than 100 burglaries occur at cannabis businesses each year in Denver, according to the Denver Police Department.

“Providing a mechanism for the cannabis industry to access the regulated banking system would help those businesses and their surrounding communities by reducing the high volume of cash on hand, thereby reducing instances of cash-motivated crime,” Sherwood said.

Additionally, since many cannabis businesses do not have a bank account, they are forced to pay their taxes in cash at local IRS offices. Processing paper-based returns costs the IRS nearly 17 times more compared to an e-filed return — a cost borne by taxpayers. Cash-based taxpayers are also more likely to underreport income than those who receive payment by check or those subject to third-party reporting or withholding.

“Banking the cannabis industry is a straightforward way to ensure that businesses have the means and motivation to remain fully tax-compliant,” Sherwood said.

The SAFE Banking Act, which is currently before the committee for consideration, would help address this urgent problem. The bill specifies that proceeds from a state-licensed cannabis business would not be considered unlawful under federal money-laundering statutes or any other federal law and directs the Financial Crimes Enforcement Network and federal banking regulators to issue guidance and exam procedures for banks doing business with legitimate cannabis-related businesses.

“Although the SAFE Banking Act does not cure all of the cannabis-related banking challenges, it would help the 33 states that have legalized cannabis in some form to make their communities safer, collect their taxes, and regulate their cannabis markets effectively,” said Sherwood. “ABA supports the SAFE Banking Act and urges the committee to mark up and advance this legislation as soon as possible.”