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Banking and Financial Services

Banking and Financial Services

Coming Together

 

Brian Canina

Brian Canina says the merger with Cornerstone Bank’s holding company will provide both institutions with opportunities to become more efficient — and more competitive.

Brian Canina says that, while it’s being called a merger, in reality, it’s more of a partnership.

He was referring to the recent announcement that Holyoke-based PeoplesBank, which he serves as president, and Worcester-based Cornerstone Bank will combine their holding companies — PeoplesBancorp, MHC and SSB Community Bancorp, MHC, respectively — into one entity, which will take the former’s name.

This transaction, the latest to merge multi-bank holding companies, will create an entity with approximately $6 billion in assets, said Canina, a number that brings with it certain competitive advantages and a stronger ability to withstand increasingly thin margins in this sector.

“What we’re trying to do is create some scalability,” he explained. “Through the holding company, we can look for ways we can work together and share the back-office services to become more efficient through size.”

Overall, and outwardly at least, not much will change with this partnership, said Canina, noting that both banks will continue to operate under separate names and brands for the foreseeable future. All account information, branch banking, and digital access will remain the same for both banks throughout the transaction.

It will be, as he put it succinctly, “business as usual.”

Behind the scenes, though, the merger will provide both institutions with opportunities to become more efficient and, in many ways, leverage each other’s markets.

“The banking industry is pretty transparent in terms of being able to see the cost of goods sold,” he explained. “If you look at what the current market interest rates are for deposits, and what people are looking to get for a savings account or CD, and then you compare that to what the market prices are for a 30-year mortgage or a commercial loan … you can see the spread between the two and also see how thin that is.

“As a mutual bank, we can’t raise capital from stock issuances; we earn our capital through hard work and bottom-line earnings. As a result, it can be more challenging for a mutual bank to stay up to speed with inflation, the cost of wages, and competing with stock banks that have more access to capital.”

“The only way to continue to manage like any other business that has shrinking profit margins is to become more efficient in your operations,” he went on. “And that’s where this opportunity is important; you need size in order to become more efficient, and that’s the same in any business.”

 

Strength in Scale

Canina said this transaction reflects a trend in the industry: a growing number of mergers, or partnerships, among mutual banks and their holding companies, something that wasn’t seen as much years ago, when more mergers involved publicly traded institutions.

And they’re coming about out of necessity, he went on, adding that the size and scale they generate amount to better opportunities to compete with those larger stock banks.

“As a mutual bank, we can’t raise capital from stock issuances; we earn our capital through hard work and bottom-line earnings,” he explained. “As a result, it can be more challenging for a mutual bank to stay up to speed with inflation, the cost of wages, and competing with stock banks that have more access to capital. But we do it because we want a mission that’s focused on our communities, our customers, our employees, and giving back — and not about shareholders.

“So I think you’re going to see more of these mutual-to-mutual mergers,” he went on. “We’re starting to see them already, but I’ll think you’ll see more of them because they need to partner with each other to maintain that mutual status — and to remain relevant.”

Elaborating, he said that, when it comes to such transactions, with no stock to acquire, it’s not as much about dollars as it is about culture. And these two institutions are very similar in that regard.

“We provide the same services and technology as the larger regional and national banks, but we’re also giving back to the community, which a lot of those banks don’t do,” he went on. “That’s what we do, and when we partner with other like-minded mutual banks, we can start really competing — and giving back more to the community.”

Indeed, as noted earlier, bringing these holding companies together creates a $6 billion entity — PeoplesBank has roughly $4.4 billion in assets, and Cornerstone is a $1.6 billion institution — which creates more economies of scale and, thus, opportunities to increase overall profits, Canina explained.

And while it will be business as usual for the time being, the two banks will, over time, seek out ways to share best-in-class technologies as well as resources to become more efficient.

“Over time, we’ll look for opportunities to share employees and to share technologies to be more efficient, as a larger organization would,” he told BusinessWest, emphasizing, again, the importance of scale in banking today.

 

Promising Partnership

This quest for size helps explain other mergers of holding companies, Canina said, adding that there have been several over the past few years, including a few involving bankESB and its holding company, Hometown Financial Group Inc.

Such mergers enable institutions, often on the other end of this state or in other states, to build on each other’s success in their respective markets. It’s the same with PeoplesBank and Cornerstone.

“We can’t build 11 banking centers in the Worcester County area, and Cornerstone can’t build 21 banking centers in the Western Mass. and Northern Connecticut markets,” he explained. “But by partnering, we’re able to leverage each other’s markets and find ways to enhance each other’s franchise values in those markets by partnering together.

“We don’t necessarily need to merge with Cornerstone — we’re financially strong, and we’re doing great,” he added. “It’s more of the opportunity and what we can do better with a partner.”

 

Banking and Financial Services

Closing the Account

 

On July 1, CEO Paul Scully announced his retirement after a career of 28 years at Country Bank and 48 years in the financial-services industry. His retirement will be effective on July 31.

Scully, who started his banking career as a part-time teller while attending Bentley University, previously served as senior vice president of Country Bank, was appointed president in 2004, and later assumed the position of CEO in 2005.

“Throughout my career, I’ve been guided by the belief that success is not just about growth in numbers, but about the positive impact we make in the lives of our team members, customers, and communities,” he said. “It’s been an incredible journey, and I’m immensely proud of what we’ve achieved together.

“As I retire, I leave with a deep sense of gratitude for the opportunity to serve as Country Bank’s CEO for the past 20 years and with the utmost respect of my successor, Mary McGovern, and the entire Country Bank team to continue the bank’s legacy of excellence,” he added.

Paul Scully

Paul Scully

“Throughout my career, I’ve been guided by the belief that success is not just about growth in numbers, but about the positive impact we make in the lives of our team members, customers, and communities.”

McGovern, appointed president by the bank’s board of trustees on April 1, will assume the role of CEO effective Aug. 1. McGovern, who has been with the bank since 2011, previously served as executive vice president and chief financial officer before assuming the role of chief operating officer in 2023. With her extensive experience in the financial-services industry spanning more than three decades, she brings a wealth of knowledge and expertise to her new position.

“I am honored to have worked alongside Paul for the past 13 years,” McGovern said. As I assume the organization’s leadership, I am dedicated to the bank’s continued growth and supporting our customers, community, and team members. The bank is committed to providing best-in-class customer service; the latest banking services, safety and security; and ensuring Country Bank remains a trusted financial institution in our communities.

Country Bank’s board of trustees added that its members and bank employees “are deeply grateful to Paul for his exceptional leadership and unwavering dedication throughout his tenure. His visionary guidance has positioned the bank for continued success and growth. As the bank embarks on this new chapter, it looks forward to the leadership of Mary McGovern, who will undoubtedly build upon Scully’s legacy and drive Country Bank to new heights.”

Banking and Financial Services Special Coverage

Lending Perspective

President and CEO Tony Worden

President and CEO Tony Worden

Tony Worden has worked at several banks in his career, of various types and sizes, but there’s something about a small community bank that … well, just suits him.

For starters, “there’s less pressure,” said Worden, president and CEO of Greenfield Cooperative Bank (GCB). “I mean, we certainly have to grow, and we have to make money, but there’s less emphasis on that and more emphasis on relationships. I’m not trying to pat us on the back because I know Florence is like this, bankESB is like this, Greenfield Savings, too — we all need to make money, we need to grow, but we also get how important we are to the communities that we serve.

“There are loans we make that, at a previous bank, we never would have made,” he went on. “They just would have said, ‘no, we’re not doing that.’ But community banks find ways to stretch to get people’s mortgages done, and even on commercial loans. As a community bank, we have to think about how we’re serving our community, and bigger banks worry less about that. It’s easier for them to turn loans down because they’re not as involved.”

Worden knows a lot about commercial lending after working in that realm for the vast majority of his career before former GCB President and CEO Michael Tucker persuaded him, in 2019, to pursue that role as Tucker prepared to retire. Worden knew he’d have a steep learning curve in areas ranging from finance to IT to human resources — but he embraced the challenge.

“My thought was, someday, if I play my cards right, maybe I’ll get a chance to be the senior lender somewhere. And I got to be that here. It was not part of my grand plan to be president.”

“A lot of people get into this business, and their dream or goal is to become president of a bank. But I never really thought about that. My thought was, someday, if I play my cards right, maybe I’ll get a chance to be the senior lender somewhere. And I got to be that here,” he said. “It was not part of my grand plan to be president.”

But Tucker was convinced Worden was the right candidate to put forth internally, and the board eventually chose him over two external candidates. Worden, a longtime senior commercial loan officer, initially worked alongside Tucker as chief operating officer through 2020, then took over as president at the start of 2021; Tucker stayed in the CEO role until the start of 2022, when he retired and passed that mantle to Worden as well.

The long transition period working alongside Tucker turned out to be a blessing in more than one way. Not only was Worden learning the ins and outs of a much broader job than his previous career in commercial lending, but the emergence of the pandemic threw a major wrench into the banking world.

“The transition got stunted a little by the pandemic,” he recalled. “Obviously, I was excited when I accepted the job, and we knew COVID was a thing that was happening, but no one knew exactly what it was going to do. And literally within a week, my excitement ended because it was, ‘OK, now we have survive this.’”

Greenfield headquarters

While nine of its 10 branches are in Franklin and Hampshire counties, including its Greenfield headquarters (pictured), GCB has been making inroads into Hampden County as well.

Worden said bank leaders will be telling stories for decades about the adventure of PPP loans and everything else they had to do to help customers navigate that whitewater, but they are gratifying stories to tell.

“It’s amazing, in hindsight, to think about what all the banks accomplished. There were certainly technological hurdles because the SBA was not set up to be doing this volume.”

But in the years that followed, Worden has become accustomed to many other challenges, from a shifting rate environment — and its impact on lending — to the continued evolution of digital banking platforms, to Greenfield Co-op’s own growth trajectory.

“As a community bank, we have a responsibility to serve our customers’ needs as fully as we possibly can,” he told BusinessWest. “So we all stretch a little bit more to get loans done, to get projects done.”

 

Steady Growth

Greenfield Cooperative Bank has grown in numerous ways over the past decade, most notably by merging with Northampton Cooperative Bank in 2015, which increased its branch total from five to nine; a tenth branch opened in South Hadley in 2020, the first outside of Franklin or Hampshire county.

At the time of the merger, Greenfield Co-op boasted roughly $350 million in assets, and Northampton brought roughly $150 million, to create a $500 million bank.

“Right now, we’re just under $800 million in total,” Worden said. “So, in a decade, we’ve had about $300 million worth of growth, which, obviously, for a bigger bank or a publicly traded bank, wouldn’t be acceptable. But we don’t have stockholders, so we can grow sensibly.”

“The real growth, from a demographic perspective, is in Hampden County. And with all the mergers and acquisitions, there are fewer banks in Hampden County than there used to be.”

That said, he views Hampden County as a big part of GCB’s future, and the South Hadley branch as a jumping-off point to do more business in that region. In fact, many of the bank’s lenders have worked at Springfield-area institutions in the past and have maintained relationships there.

“If you look at the demographics, Hampden County is growing. Franklin County is not; it’s actually retracting. Hampshire County’s growing a little bit, but the real growth, from a demographic perspective, is in Hampden County. And with all the mergers and acquisitions, there are fewer banks in Hampden County than there used to be.

“So we see opportunity,” he went on. “We’ve had some success on the commercial side, and this past winter, we hired a mortgage originator from a local competitor who’s based out of Holyoke and knows that market, and we’re making a push to start doing some residential mortgages in all of Hampden County. But our focus right now is Holyoke, Chicopee, and Springfield because we feel like we can handle that through a branch in South Hadley, which isn’t technically in Hampden County, but it’s not that far away. So we’re taking tentative steps to be more of a presence down there.”

Greenfield Cooperative Bank

Greenfield Cooperative Bank partners with many community organizations, such as Montague Public Libraries (pictured) for programs like its bilingual children’s music and movement program.

That said, when Worden joined the commercial lending team at GCB 15 years ago, the bank had $29 million in commercial loans; that number is now $260 million, and the bank employs more lenders, credit analysts, and administrative staff.

“But we’ve also seen some significant payoffs of our loans — not because they’ve gone and refinanced somewhere else, but because they sold their properties when the market got so hot,” he noted.

At the same time, “I think the rising rate environment has made people shyer about going out and pursuing things because, again, no one wants to finance something at the top of the market and have the rates start to go down the day after they do it. So I think what we’ve seen is people kind of sitting and waiting: ‘is the economy going to tank or not?’

“As time has gone on, I think more people are buying into this idea that there could be a soft landing,” he went on. “But I think it would help to see the rates drop because I think that would get people active again. There’s a lot of wait and see at this point.”

That said, a large swath of the customer base never lived through really high rates.

“When I first started, I was a junior commercial credit analyst at Vermont National Bank up in Brattleboro,” Worden said. “And people were saying, ‘you know, if prime would just get down to 10%, that would be perfect.’ And then we were so low for so long that people started to think that was normal.”

He recently watched a recording of a Red Sox game from the 1980s, complete with commercials, and one in particular made him laugh. “It was a car commercial, and it said, ‘low, 11.99% financing for well-qualified buyers.’ Today, people would see that, and their heads would explode.”

Historical perspective isn’t the only thing separating younger from older bank customers — they have different banking habits as well, as Millennials and Gen Z grew up with technolology and are more apt to eschew physical branches.

“They go in as little as possible. They want to do as much remotely and through their phone as they possibly can,” Worden said. “That’s a new reality, making sure we have the technology and the channels for them to bank the way they want to bank.”

But there will always be a need for a physical presence and face-to-face interactions, he added, which is why banks continue to expand geographically.

“For a decade or so before the pandemic, if you went to any banking-industry events, they said, ‘get rid of your branches, get rid of the bricks and mortar; they’re expensive. The fintechs are eating your lunch because they don’t have those costs. They’re not paying real-estate taxes. They’re not paying for AC. They’re not paying for the lights.’ But now, we’re hearing, ‘lean into your branch network because that’s your advantage over the fintechs. The fintechs wish they had a building on the corner that people could walk into.’

“If everything is going well for you as a customer, maybe you don’t need to talk to somebody face-to-face. But as soon as something goes sideways, it’s nice to know you can walk into a building and talk to somebody face-to-face and deal with them,” he went on. “We, as a bank and as an industry, have to do a better job explaining to people what the value is of having someone local working with you.”

 

Different Kind of Dream

That local face and relationship banking may be even more important at a time when mergers are creating ever-larger institutions — and fewer of them, Worden noted.

“Some people say to me, ‘you must be happy when you see these bank mergers because it’s one less piece of competition for you.’ But no — I think it’s a shame that local options are going away.

At a Massachusetts Bankers Assoc. meeting he attended last fall, attendees were told there are half as many banks in Massachusetts as there were 20 years ago, and it’s estimated that, over the next decade, that figure could be halved again. “I left there thinking, ‘we have to focus on what it will take for us to make sure we’re one of those banks that survive.”

But it’s a challenge he’ll enjoy, even though it’s not one he dreamed about taking on earlier in his career.

“When it was announced that I got this job, people would come up to me and say, ‘you got your dream job.’ And I’d say, ‘no, actually, I gave up my dream job for this job.’ If someone offers you the chance to be the president of a bank, you take the job. But what’s been fun is focusing on other parts of the bank than commercial lending.”

One of those is philanthropy, and Worden appreciates being in a place where community giving decisions are made locally, rather than regionally or nationally, as is the case at larger banks.

“The decisions we make about where we’re going to give our money happen right here in this building, for the most part,” he noted. “We certainly upped our giving during COVID, and then we never went back down to the historical level — not that it was low before.”

Overall, Worden said, GCB is a relatively uncomplicated bank to run. “We’re very vanilla. I think my senior staff gets sick of hearing me say that, but I say it as a good thing. We’re not in all kinds of weird things. We stick to what we know how to do, and we do them well.”

While Greenfield Co-op isn’t among the region’s largest banks in terms of assets, it’s well on its way to $1 billion, and Worden is looking forward to that milestone.

“Things will change a little bit; there’s more regulation,” he told BusinessWest. “But it’s gratifying to see the growth and to know I played a small part in that. A lot of the reason for the success was Mike Tucker. He did a great job for 20 years; he got the ball rolling. I’m just trying to keep the thing moving down the road.”

Banking and Financial Services

Doubling Down

Community Bank’s branch inside Tower Square

Community Bank’s branch inside Tower Square will be complemented later this year by a second Springfield location on Boston Road.

 

 

 

When Community Bank expanded in 2017 with the acquisition of Merchants Bank, it gained a large network of branches in Vermont … and one in Massachusetts.

That office is located in Tower Square in downtown Springfield and had been NUVO Bank before hanging the Merchants banner. Located far from any other Community location — the organization has a strong presence in Pennsylvania and New York as well as its newer footprint in Vermont — it wouldn’t have been surprising had Community shed it altogether. But the bank saw value in a Springfield presence.

And now, seven years later, it’s doubling down, planning to open a second Springfield location on Boston Road later this year.

“It’s a market that’s not too far from Albany, but far enough where it’s a very distinct market by itself. And because it’s one branch, it’s been a little bit under the radar,” President and CEO Dimitar Karaivanov said. “But it’s a good market with good opportunities, and we have a really good team in the market, and the level of energy and activity in Springfield has been very hot.

“So almost a year ago, we decided we hadn’t given Springfield its rightful chance to succeed,” he went on. “We’re just one branch and have a good team, but we’re somewhat limited by the fact that it’s only one branch downtown. So we decided to kind of invest in the team and the opportunities that we have in the market, and we’re going to double our presence.”

The bank is doing so, he said, in locations that make strategic sense, and also, in some cases, investing in lower-income areas. “We’re looking at communities that offer opportunity from an economic perspective, but we also consider it our responsibility to invest in communities and bring them along in terms of growth. That’s how we’ve been selecting some areas that we’re going into.”

While Greater Springfield has been called overbanked, Karaivanov said Community Bank sees plenty of potential in expanding.

“We’re just one branch and have a good team, but we’re somewhat limited by the fact that it’s only one branch downtown. So we decided to kind of invest in the team and the opportunities that we have in the market, and we’re going to double our presence.”

“There’s no lack of competition in Springfield — there are a lot of banks, a lot of mutuals, a lot of credit unions,” he said. “But the reason that we feel like we can be successful is our team. So we’re really investing in our team. That’s how we look at expansion; it’s really people-based. Obviously, the market needs to be sizable enough for another entrant, but we feel like we’ve got a team that we have basically under-leveraged over the past several years. And now we’re trying to give them more runway and opportunity to be successful.”

 

Branching Out

As Community Bank expands in Springfield and other markets, it’s doing so, the organization explains, by reimagining the in-branch experience with clean, modern designs that encourage customer and banker collaboration, local community tie-ins, and staff that can handle a wide array of financial needs.

“Branches are still pretty important, and I think they will continue to be important,” Karaivanov said. “If you look at where most accounts, especially new accounts, are opened, it is still predominantly in the branch. People still get their mortgages predominantly in the branch. That initial contact with a financial institution is mostly in the branch.

“Now, when you open your second account, or if you are already a customer of a bank, you might go online to apply for a mortgage and other things. But to get into the ecosystem, usually the average person still starts in the branch.”

He cited the example of JPMorgan Chase launching an online-only bank six years ago, “and no one’s heard of it since,” he noted. “Instead, you’re seeing JPMorgan open branches all over the place. It’s hard to be just online. You need both parts.”

To that end, modern branch designs are different than the old, traditional model of counters and lines, he added.

“Today, the branch is really more advisory and consultative than transaction-based because transactions are easy to do on your phone, and you don’t need to go into the branch for a specific transaction anymore. But people do go to the branch for advice and for questions and when they have a problem. So spaces in the branch are designed in a much different way.”

Dimitar Karaivanov

Dimitar Karaivanov

“Transactions are easy to do on your phone, and you don’t need to go into the branch for a specific transaction anymore. But people do go to the branch for advice and for questions and when they have a problem.”

Community Bank currently boasts 28 branches in New England, all but one of them in Vermont, and its current expansion plans include the first New Hampshire branch in addition to the second Springfield location.

“Community Bank is not just expanding, but deepening our roots in New England,” said Matthew Durkee, regional president for New England. “Our branches are the cornerstone of our retail business, and each one allows us to support the community and deepen our relationships with our customers as we partner together throughout their financial journey.”

Those community relationships involve philanthropy and volunteerism in communities where the bank has a presence, Karaivanov added.

“We do a lot of that, led by our branch staff most of the time,” he told BusinessWest. “It’s in our name, right? So we live by it. Our people are involved, they’re on boards, they’re in the Rotary Clubs, they know their neighbors, they’re supporting the local schools, teams, and everything else. It’s how we distinguish ourselves. Those are our neighbors, they’re our friends, and being part of the community is just as important as being a financial institution.”

With its commitment to Springfield affirmed, he added that Community Bank could look to expand further in Massachusetts where it makes sense.

“Hopefully, as we are successful in this expansion, we would like to do more. I’m a big believer in getting behind your success. So if we continue to be successful in Springfield, we’re going to continue to grow.

“Again, this has been a little bit of an outpost for us. Meanwhile, the team’s been doing a great job. And now is the time for us to empower them to do even more.”

 

One-stop Shop

Earlier this month, Community Bank System Inc. — which encompasses four key businesses: banking, benefits administration, insurance, and wealth management — changed its name to Community Financial System Inc. to better reflect the company’s reach.

“The new name allows us to emphasize the evolution of our capabilities, solutions, and focus,” Karaivanov said. “In aggregate, over 39% of our revenue is comprised of diversified fee-income businesses, well over twice that of industry peers. Bringing all of that under the new name, Community Financial System, underscores our mission and drives our inclusiveness as one company.”

It’s a different model, he said, than financial-services organizations in which banking is 90% of the pie.

“We’re a bit of a unicorn because we have four different businesses, and the way we run the company, the bank is our largest business, but it’s not the whole business. With our benefits business, we help people with their 401(k) plans; we administer those all over the country. Or, if you’re an individual and you’re coming for a mortgage from us, we can directly give you a quote for the homeowners’ insurance as well.”

Meanwhile “if you have amounts in your banking accounts that clearly can be invested in better outcomes for you, we’ve got the wealth-management side of the house, or the trust capability. And on the commercial side, especially for small to mid-sized businesses, we can provide everything from capital to insurance to managing their benefit plans, actually helping them with HR consulting.

“It gives us a real leg up when we talk to customers because we’re not just a one-widget shop,” Karaivanov added. “We can provide comprehensive solutions.”

Banking and Financial Services Cover Story

A Community Asset

 

Country Bank president Mary McGovern

Country Bank president Mary McGovern

 

Country Bank, according to its slogan, is “made to make a difference.”

Mary McGovern has taken that as a personal challenge.

“I’ve been at several institutions, public institutions, that run a little differently than mutuals, having to answer to shareholders every quarter,” said McGovern, who recently became Country’s first female president in its 174-year history. “With a mutual bank, we feel we take a different approach with our customers, and our involvement in the community means a lot to them. It’s a differentiator.”

McGovern brings three decades of context and experience — at different types of institutions — to that philosophy.

Prior to her 13-year rise at Country Bank, where she has served as chief financial officer, executive vice president, and chief operating officer, McGovern served in management roles at Danversbank, Capital Crossing Bank, and Boston Private Bank & Trust. Her areas of expertise include finance, operations, information technology, retail banking, commercial lending, financial and credit analysis, compliance, risk, sales, and strategic business and relationship development.

“With a mutual bank, we feel we take a different approach with our customers, and our involvement in the community means a lot to them. It’s a differentiator.”

“I started at Boston Private when it was a de novo with $80 million in assets. I was the 20th or 22nd person they hired. I came in on the ground floor in a finance role, in accounting, and grew with the department,” she recalled.

After that institution went public and was acquired, she left, earned her MBA, and moved to Capital Crossing in the late ’90s, doing a lot of work with distressed real estate. Danversbank, her next stop, was a reunion of sorts with some individuals she had worked with at Boston Private.

“They were like Country Bank is today, a nice, local, mutual community bank,” she said, adding that she served Danversbank as senior vice president and chief accounting officer. “But they went public in 2008 and were sold in 2011, and my position was eliminated.”

So, the same year, she joined the team at Country — and has never looked back.

“The mission is to be the bank of choice in Central and Western Massachusetts,” McGovern told BusinessWest. “I’m excited to lead as the first female president of Country Bank as we approach our 175th anniversary. It’s a good opportunity to get out and talk in the community, talk to our customers, put a new face in front of them. It’s been really exciting.”

Country Bank’s productive partnership with the WooSox

Country Bank’s productive partnership with the WooSox is reflected by its prominent right-field signage.

From a bottom-line perspective, she said, Country is doing well, even showing growth in the mortgage market, despite high rates and higher prices.

“Obviously people still have to buy and sell homes and move different places. The pipeline may not be as robust, but there’s still a lot of activity.”

On the commercial side, the bank is being selective, focusing on building lasting relationships and not targeting huge volume for its own sake, to maintain liquidity. “We’re looking for 5% to 6% growth in loans this year, so we’re keeping busy for sure.”

Geographically, the bank is in a growth mode as well. With a physical footprint that currently stretches from Springfield to Worcester, with the Ware headquarters between those two cities, County is adding two additional locations to the east this year — a second in Worcester and one in Uxbridge — while making plans to add two more branches to the west, in Springfield and another community.

Earlier this year, the board of trustees announced it had full confidence in McGovern to lead that strategy, as well as all of Country’s other operations and activities in the community. Paul Scully, who has been president and chief executive officer since 2004, remains in the CEO role.

“We are thrilled to announce Mary’s appointment as the next president of Country Bank,” James Phaneuf, board chair, said when the selection was announced. “Mary’s proven track record, dedication, and strategic vision make her the ideal candidate for this role.

“In a challenging time of food insecurity and other challenges out there, it’s important to give back to local nonprofits. They need our support to do their important work. That’s valuable to our staff, and I believe it’s valuable to our customers as well.”

“The board is confident that Mary’s leadership will drive the bank’s continued success and growth,” he added. “With her extensive experience, strategic mindset, and dedication to excellence, Mary is poised to lead the bank into a new era of innovation and customer satisfaction while maintaining its position as one of the most highly capitalized financial institutions in the region.”

 

Community Partner

Country is also well-known for its community involvement. Those efforts have focused in recent years on a number of priorities, including food insecurity, health, and education, as well as homeless shelters, senior-serving programs, youth organizations, and more.

To that end, Country reported more than $1.2 million in donations in 2023, with 463 organizations receiving grants. In addition, the bank’s team members volunteered 1,255 hours of community service in 2023, while 37 employees served on a total of 65 nonprofit boards and committees.

“We are a valued piece of the community. We try to give back to all the communities we serve,” McGovern said, adding that the bank’s financial-literacy programs continue to be a priority, as is a partnership with the WooSox — signified by a very prominent Country Bank sign in right field at Polar Park — and the team’s WooStars awards and its teacher-recognition program.

“We’re just continuing to build on a great foundation set by Paul in his 20 years here,” she added. “Being a community bank, we’re really invested in the health of our communities.”

McGovern speaks the language of community-bank presidents in Western Mass. that place a high value on local philanthropy.

“We’ll continue to do a hybrid approach. It seems to be working. The staff seems to be happy. We don’t see that changing — in the foreseeable future, anyway.”

“We’re different from a big commercial bank that’s not as worried about the individual communities that they serve,” she said. “As a mutual bank, obviously it’s important to make money, but making money also allows us to give back. So we’re trying to give back to our communities. In a challenging time of food insecurity and other challenges out there, it’s important to give back to local nonprofits. They need our support to do their important work. That’s valuable to our staff, and I believe it’s valuable to our customers as well.”

Also of value to customers is a physical presence in their communities, even at a time when online banking is dominant.

“There are differences of opinion among financial institutions, some of whom are pulling back from their banking centers,” McGovern said. “But we feel it’s important to support the different ways our customers want to bank.

“There are plenty of the younger generation who don’t want to talk to people, who would prefer to do everything online; self-service is important to them,” she added. “But we have a good component of customers who like to go in and talk to people face to face. Even younger people want to sit down and talk to somebody when they’re buying their first house; it’s an important, life-changing kind of event.”

In addition, she said, “I feel it’s important that we show our presence. It’s hard to say that you’re in Springfield without having signage there. We have a business center in Tower Square, but it’s not quite as visible as having a branch location with a sign.”

Country Bank has consolidated in some cases as well — for instance, it used to have three branches in Ware, but now only houses its headquarters and a digital banking center there. And many branches are staffed with fewer employees than in years past, to reflect how many customers bank online only.

“But while there’s less foot traffic, we’re still there to serve people, allowing customers to bank how they want.”

Other elements of the bank experience have changed over the years as well, including how — and where — employees work.

“Since the pandemic, it’s been a different way of working,” she told BusinessWest. “For some time, we were fully remote. Over time, we went with a more flexible work arrangement. So the average employee works three days in and two days out. There are some with a little more flexibility based on what kind of job it is.”

While some employees prefer to come in five days a week, and do so, McGovern added, for most of them — those who don’t deal face to face with the public, anyway — working remotely at least part of the time is a valued part of their job. “I don’t see how we can be competitive without that. I know different institutions that have lost staff when they requested people come in five days.

“So we’ll continue to do a hybrid approach,” she went on. “It seems to be working. The staff seems to be happy. We don’t see that changing — in the foreseeable future, anyway.”

 

Making a Difference

McGovern also doesn’t want to change a culture at Country Bank that she feels benefits both employees and customers.

“It’s hard to be a differentiator when all banks sell the same products, but I feel we are different,” she said. “Our people are spending a lot of their life doing something they like in an institution they like with peers they like. And we’re trying to keep that culture going.”

The challenge, she said, is understanding that employees want and appreciate hybrid work schedules, while maintaining a positive office culture whether they’re in the office or not.

“It’s a fine line managing both aspects,” she said. “But I think we’ve got a good thing going, and hopefully I can keep it going into the future.”

Banking and Financial Services

Branching Out — Again

Matt Sosik

Matt Sosik says Hometown’s latest acquisition is part of an ongoing initiative to gain needed size and extend the institution’s footprint.

 

Matt Sosik referred to it as a “mutual admiration society.”

That’s how he chose to describe the respect that he developed for the manner in which Kevin Tierney had grown North Shore Bank into a force in that region of the Commonwealth and, likewise, how Tierney respected what Sosik had done with Easthampton-based Hometown Financial Group, using acquisition and organic growth to transform it into a $4.7 billion multi-bank holding company with a reach that extends across Western and Central Mass., the South Shore, and into Northeastern Conn.

This mutual admiration eventually became the catalyst for talks to bring the institutions together, said Sosik, chairman and CEO of Hometown Financial, adding that North Shore will become part of the Hometown family of banks through a merger of Abington Bank, acquired by Hometown in 2019, into North Shore.

The combined bank will have more than $3 billion in assets and 25 full-service retail locations across the Bay State’s North and South Shore regions and Southern New Hampshire. Meanwhile, Hometown will become, with more than $6 billion in assets, one of the largest mutual banks in the country, said Sosik, adding that the merger gives the group more of what banks need in this challenging day and age — size.

“Margins have been falling steadily, and the only way to beat that back and try to win that battle is drive down costs, at least on the average.”

Indeed, when asked what greater size — $6.4 billion in assets compared to $4.7 billion — provides, Sosik started by saying simply, “survival.”

“Margins have been falling steadily, and the only way to beat that back and try to win that battle is drive down costs, at least on the average,” he explained. “So scale is the way to achieve that; when you put more assets under one roof and achieve more efficiencies, you’re driving down per-asset costs, and that’s what this business model tries to attain.

“We want to use that $6.5 billion chassis that’s headquartered in Easthampton to run the back offices of all of our three subsidiary banks,” he went on, listing bankESB, bankHometown in Central Mass., and the soon-to-be-much-larger North Shore Bank. “We can liberate those banks to do what they do best, which is use the power of their local brand in their communities they’re serving and let the shared service model of the holding company do the grungy stuff to produce efficiencies.”

That business model he mentioned has been an aggressive course of acquisitions that makes sense on every level, but especially those involving new opportunities for achieving growth and diversity when it comes to markets and regional vibrancy.

For this issue and its focus on banking & financial services, we take an in-depth look at the latest of these acquisitions for Hometown Financial and what it means for the institution moving forward.

 

Another Transaction of Note

As he talked about Hometown’s latest expansion effort, Sosik broke it down into two parts, essentially.

The first is the merger of North Shore into Hometown Financial Group, and then the merger of two of its subsidiary banks, North Shore and Abington, under the North Shore banner — although the Abington name will live on.

Putting those two institutions together under one roof, if you will, gives Hometown a dynamic presence in the eastern part of the state, which, like Western Mass. — and all corners of the state, for that matter — is a highly competitive region charactized by a strong mix of local, regional, and national banks, Sosik said.

Elaborating, he noted that the joining of Abington and North Shore brings a number of benefits, everything from resolution of succession issues at Abington — long-time President and CEO Andrew Raczka is entering retirement — to needed size and scale for North Shore.

“For North Shore, this makes a lot of sense strategically because they’re going to expand their footprint around Boston, gain market share … all the important things,” Sosik told BusinessWest. “But they’re also sliding underneath this $6.5 million company. They’re going to get to run their bank, and yet they can have their cake and eat it too in the sense that they’ll have access to our shared services and gain the efficiences of a much larger company. The benefits are the same for us — ensuring long-term viability and relevance in a very slim-margin industry.”

Rewinding the tape, Sosik said the talks between him and Tierney began just over a year ago and accelerated over the past few months. The merger was announced early last month, and the transaction is anticipated to close in the second half of this year.

It is the latest of seven strategic mergers for Hometown Financial Group over the past nine years, an aggressive pattern of acquisition that has taken the institition well beyond the 413. Indeed, its reach now extends across most of the state into neighboring Connecticut and New Hampshire.

Recounting those acquisitions, Sosik said they started in June 2015, when Citizens National Bancorp and its subsidiary, Citizens National Bank, merged into bankESB, which was operating at the time under the name Easthampton Savings Bank. In April 2016, Hometown Community Bancorp and its subsidiary, Hometown Community Bank, joined Hometown Financial Group to become the second subsidiary of the holding company; Hometown Community Bank has since changed its name to bankHometown. And in January 2019, Pilgrim Bancorp and its subsidiary, Pilgrim Bank, joined Hometown Financial Group.

Later that year, Abington Bank merged into Pilgrim Bank, with the name of the combined bank changed to Abington Bank, and Millbury Savings Bank merged into bankHometown. In October 2022, Randolph Bancorp and its subsidiary, Envision Bank, merged into Abington Bank, and last month, North Shore Bancorp and its subsidiary, North Shore Bank, announced plans to merge with Abington Bank; at transaction closing, Abington Bank will operate as a division of North Shore Bank.

 

Moves of Interest

This latest merger transforms North Shore into a $3.1 billion powerhouse, one of the largest mutuals in that part of the state, with reach across Eastern Mass., where, again, there are many competitors, size is an all-important asset, and meaningful, organic growth is far more attainable than it is Western Mass., which is typically described as a slow- or no-growth area.

“It’s a very competitive market, but also a very vibrant market,” said Sosik. “When you look at our demographics in the Pioneer Valley, they’re not very impressive; we love that market, and it’s very stable, but it’s not high-growth.

“It’s different in the eastern part of the state,” he went on. “In spite of the depth of the competition, it’s still a great market to be in; there are opportunites for growth.”

From a bigger-picture perspective, this latest merger provides an opportunity to take the stability of Western Mass. and juxtapose it against the “higher highs and lower lows” that define the far more dynamic eastern part of the state, he continued, adding that this diversity of regions and markets is another solid asset for Hometown Financial Group.

It’s an asset most other banks in the region are seeking as well, he said, noting that several banks in Western Mass. are pushing into Connecticut and other regions, and some Connecticut-based banks are moving north.

It’s all a function of gaining access to higher-growth areas and, overall, much-needed size, said Sosik, as he returned once again to the topics of margins — and how they became even smaller in the wake of repeated interest-rate hikes last year — and scale and the importance of attaining it.

“Banks are not built to withstand that kind of pressure,” he said in reference to climbing deposit rates and an inability to increase yields on existing loan portfolios beyond a certain point. “So you’re seeing banks in various degrees of duress becase of that predicament.”

The pace of interest-rate increases has certainly slowed, and rates may even decline somewhat this year, but this will remain a challenging climate for banks of all sizes, he went on, adding that the only course of action is to achieve greater size.

“In a low-margin business of any kind, and banking is certainly right at the top of that list, you have got to grow, or you’re going backward,” he went on. “That’s the nature of the beast. How do you acomplish that growth? We’ve chosen one model, and there are other successful pathways.”

Thus far, this model has chosen to be successful at achieving its various goals — from territorial expansion and regional diversity to much-needed scale.

And Sosik expects this pattern to continue with the acquisition of North Shore Bank.

Banking and Financial Services Special Coverage

Community Interest

Mary McGovern, incoming president of Country Bank.

Mary McGovern, incoming president of Country Bank.

 

When asked why Country Bank supports local nonprofits, incoming President Mary McGovern gave a simple answer. “It’s a way for us to make a difference in our community.”

Then she elaborated.

“We have a tagline we adopted two years ago, ‘made to make a difference.’ We feel that encapsulates what Country Bank is all about, trying to make a difference in our community. It’s something we’ve done over the history of Country Bank, and we continue to make a positive impact by supporting local nonprofits, specifically the kind that rely on donations from their local businesses to help support them.”

Those efforts have focused in recent years on a number of priorities, she added, including food insecurity, health, education, and financial literacy, as well as homeless shelters, senior-serving programs, youth organizations, and more.

To that end, Country reported more than $1.2 million in donations in 2023, with 463 organizations receiving grants. One highlight last year was a partnership with (and $30,000 donation to) the Wonderfund, which aims to improve the lives of individuals in the Department of Children and Families system.

That large number of supported nonprofits resonates with Matt Bannister, senior vice president of Marketing and Corporate Responsibility at PeoplesBank, who was named a 2024 Difference Maker by BusinessWest last month for his extensive role in the bank’s community-support efforts. PeoplesBank recorded $1.6 million in donations last year to more than 550 area nonprofits, making the average grant just under $3,000.

“We continue to make a positive impact by supporting local nonprofits, specifically the kind that rely on donations from their local businesses to help support them.”

“We give a little to a lot of groups. We don’t tend to do large capital campaigns,” he said. “One big ‘yes’ often means a lot of little ‘no’s.’ So many nonprofits out there are doing good work, so it feels wrong to say ‘no’ to people.”

So, outside of a few big splashes — like a major donation to help the Food Bank of Western Massachusetts build its new headquarters — spreading the wealth around is a guideline the bank tends to stick with.

“The overall philosophy for our funding is we want to level the playing field — give opportunities to those who are disadvantaged and need more help,” Bannister added. “We have funding areas — food insecurity, housing, economic development, etc. — and the overarching principle of all these funding areas is to level the playing field.”

Many area institutions share their donation figures each year; Pittsfield Cooperative Bank donates nearly $200,000 — a striking number, considering it boasts around $385 million in total assets — through its charitable contributions to regional scholarships, youth mentorship programs, and nonprofit, economic-development, and health and human-service organizations.

Meanwhile, the Liberty Bank Foundation granted $1,453,742 to local nonprofits in 2023, including $10,000 as an annual ‘holiday gift’ from the bank, with the recipient chosen by bank customers. And Greenfield Savings Bank (GSB) gave more than $1 million in 2023 to more than 300 organizations.

Peter Albero, GSB’s chief financial officer and treasurer, noted that, while profits have been challenged over the past couple years by rising interest rates, the bank has not cut back on its financial support in the community, or its level of employee volunteerism.

Freedom Credit Union President Glenn Welch (right) presents a check to John Beaulieu

Freedom Credit Union President Glenn Welch (right) presents a check to John Beaulieu, president of the Westover Galaxy Community Council, one of the recipients of Freedom’s Month of Giving campaign.

“Profitability may be reduced, but we have not reduced our commitment to our communities. I think we are a pillar of Greenfield and the broader community,” Albero said. “So we continue to reinvest in the community, and everyone benefits from that.”

A.J. Bresciano, first vice president and commercial loan officer at GSB, agreed.

“Even in a higher-interest-rate environment, we’re taking measures to ensure our impact in the community is not being impacted and not deteriorating. So many local organizations throughout the Pioneer Valley rely on contributions of time, talent, and treasure. We make supporting those organizations a priority at Greenfield Savings Bank, and we want our team members to invest going forward.”

 

Philanthropic Priorities

Bannister made it clear that banks are required, to some degree, to be involved in their communities in a charitable way, noting that bank examiners make sure a bank’s locations and loan activities are representative of where it does business — meaning not just serving and lending to those with high incomes or profits — and they also ask how the institution gives back to the community.

“The challenge with that is there’s no right answer. We just have to go to the examiners each year and say, ‘here’s what we did.’ And when we give, we make sure a substantial amount that we give away benefits LMI — lower- to middle-income communities.”

Area banks and credit unions have increasingly inspired employees and customers to involved in giving efforts as well. In 2023, Freedom Credit Union contributed $181,898 to more than 70 charitable organizations throughout the four counties of Western Mass.

Of that, corporate charitable giving accounted for $130,432, but throughout the year, Freedom also conducts Month of Giving campaigns, in which customers can support a specific organization each month; those programs raised $17,316 in 2023. And local branch and department giving contributed an additional $34,150 to local charities.

“Our members and staff are passionate about supporting the community where we live, work, and serve,” Freedom Credit Union President Glenn Welch said. “In 2023, we were proud to donate funds for a wide variety of deserving institutions.”

“We give a little to a lot of groups. We don’t tend to do large capital campaigns. One big ‘yes’ often means a lot of little ‘no’s.’ So many nonprofits out there are doing good work, so it feels wrong to say ‘no’ to people.”

Other institutions take customer involvement to the polls. Both Florence Bank and Monson Savings Bank boast popular programs — called the Customers’ Choice Community Grants Program and the Community Giving Initiative, respectively — that complement other bank philanthropy by letting customers vote for nonprofits to support.

Through that initiative, Florence Bank awarded $150,000 to 46 area nonprofits in 2023, the 21st year of the program; the higher-than-usual total commemorated the bank’s 150 years in business.

“It’s amazing to see so many community organizations being recognized, and the fact that the recognition comes from Florence Bank customers in the form of votes is really special,” President and CEO Matt Garrity said.

Meanwhile, in the 14th year of its community-giving program, Monson Savings Bank awarded a total of $15,000 to the 10 top vote-getting nonprofits.

PeoplesBank employees volunteers

A team of PeoplesBank employees volunteers at Kent Memorial Library in Kent, Conn.

“Everyone’s passion for our annual Community Giving Initiative is always so exciting,” said Michael Rouette, the bank’s executive vice president and chief operating officer. “As a locally operated bank, Monson Savings has a great desire to support the residents, businesses, and nonprofits of the communities that we work in and live in.”

President and CEO Dan Moriarty added that “these organizations are worthy nonprofits that supply important resources to our communities. It is clear why they were chosen by our community members to receive support from Monson Savings.”

 

More Than Money

But community banks and credit unions in Western Mass. aren’t just giving money; many also emphasize a culture of volunteerism, even providing time for their employees to get involved in the community.

For example, employees at UMassFive College Federal Credit Union raised more than $18,000 for two local nonprofits last fall — $13,677 for the UMass Cancer Center via participation in the UMass Cancer Walk and Run, and $4,800 for the Food Bank of Western Massachusetts via participation in Will Bike 4 Food.

A supporter of the UMass Cancer Walk and Run for more than 20 years — during which time it has raised more than $186,600 for the cause — UMassFive employees join together annually as Team UMassFive to raise funds, both personally and in branch locations. In 2023, fundraising efforts included raffle baskets, bake sales, candy sales, and art and jewelry sales, and the credit union’s corporate partners also pitched in.

Will Bike 4 Food is a more recent priority at UMassFive, as employees have taken part since 2020, raising a total of $17,500 in just four years, which equates to providing 70,332 meals to neighbors in need.

“We are so proud of our employees for supporting local causes that they care about,” said Cait Murray, Community Outreach manager at UMassFive. “Together, our team can make a more significant impact than if we all participate in events on our own. These organizations make such a big difference in our communities, and we are thrilled to support those efforts.”

Country Bank reported that its team members volunteered 1,255 hours of community service in 2023, while 37 team members served on 65 nonprofit boards and committees.

“Oftentimes, we can supplement or replace a monetary donation with volunteers, whether it’s picking vegetables at a local farm to be donated out, or helping nonprofits clean up the facility, or doing outdoor work like volunteering with Habitat for Humanity,” McGovern said. “We’re still putting the bank’s dollars to work, but the hands of our employees are helping to sustain some of these nonprofits as well.”

Liberty Bank reported 13,721 employee volunteer hours, including nearly 170 hours at Connecticut Foodshare, the aforementioned recipient of the bank’s holiday gift in 2023. The bank also actively solicits nonprofits to share information on what types of volunteer help is needed — whether working on a project or serving on a board or committee — and aims to meet those requests.

At PeoplesBank, employee volunteerism is considered part of the bank’s culture, Bannister said — part of its DNA, in fact, and something made clear to job applicants.

“We report volunteer hours to the bank examiners, and we were third in the state last year in hours volunteered per employee. It’s something that’s expected, and it’s something that builds camaraderie,” he said.

And it’s something that community banks simply should do.

“We’re more engaged in the community, where national banks are not known for that as much,” Bannister told BusinessWest. “And we consider it a competitive advantage. When you’re choosing a bank, hopefully the bank’s values are something you consider, and hopefully that volunteerism reflects well on the brand.”

 

Banking and Financial Services

Lending Perspective

 

Tom Senecal has been president, CEO, and chairman of PeoplesBank since 2016, and moving forward, he’s shedding the ‘president’ part of that title. But that doesn’t mean he’s slowing down.

“It’s more of a transition of the daily responsibilities,” he said, explaining why Brian Canina has been promoted to president and chief operating officer, and Hayes Murray has been promoted to executive vice president, chief financial officer, and treasurer, taking on some of Canina’s former duties.

“I reassigned to Brian three or four different responsibilities, but when you look at both of us, it’s still a lot on both our plates,” said Senecal, who retains his CEO and chairman titles. “This is a recognition of Brian’s success and talent and the timing of the growth that we’re going through. And quite frankly, the operational side of things needs more daily attention. And Brian really has the fortitude, the wherewithal, the work ethic, and the strategy to execute all the daily operational things. So it just made sense at this point in time to transition those responsibilities.”

Tom Senecal

Tom Senecal

“This is a recognition of Brian’s success and talent and the timing of the growth that we’re going through.”

After working together for almost 15 years — Canina as CFO and controller, Senecal as president and CEO — it just made sense to reward Canina for him efforts, Senecal added, “and, quite frankly, to make sure that we have our eyes on the ball as we continue to grow.”

Canina said he has prepared for this transition over the past year or two, operating in more than just a CFO role, and more like a COO, driving strategic initiatives and monitoring and managing the strategic plan of the bank along with Senecal.

“That will continue to be a focus of mine going forward, taking more responsibility away from Tom in terms of administratively managing the strategic plan and working with him as he identifies other strategies that he’s working on,” Canina explained. “So it’s not really a significant change; it’s something that we’ve been working toward, and with the size of the bank and how we’ve grown, it was a good timing to make this more formal change.”

The leadership changes will provide Senecal with more opportunities to plan and manage the growth and revenue activities of the bank, including retail operations, consumer lending, small business, municipals, and commercial and industrial divisions. Canina will continue to be responsible for finance, facilities, PeoplesWealth, the Business Solutions Group, and information technology. In his new role, he will also be responsible for human resources, marketing, and corporate responsibility.

“I’ve kind of shed some meeting responsibilities and a few of the operational responsibilities, but my focus is on growth,” Senecal said. “We have both an organic strategy of growing the bank by opening branches, and also non-organic opportunities. We’re constantly having conversations with other banks, and we will never be bought or sold, but we are looking at opportunities with other banks that might want to partner with PeoplesBank.”

Connecticut in particular continues to present growth opportunities. After adding branches in East Granby and Suffield through acquisition, then expanding the bank’s branch footprint into South Windsor and West Hartford, the bank’s board of directors has approved plans to open banking centers in Glastonbury and Avon, in addition to seeking other opportunities for future expansion.

Brian Canina

Brian Canina

“It’s something that we’ve been working toward, and with the size of the bank and how we’ve grown, it was a good timing to make this more formal change.”

“Our commercial-lending business has been extremely successful in the Connecticut market,” Senecal noted. “We’ve hired some commercial lenders and residential lenders in the Connecticut market. We’ve always had a large presence on the commercial side, but since we’ve developed the retail side, it has brought us some synergies in the relationships with those commercial customers, bringing them in as retail customers as well. It’s been hugely successful.”

Canina agreed. “We’re at a very important time right now to really continue pushing the growth of People’sBank down into Connecticut and looking into other areas to grow. That’s what we’re really focused on, and I feel confident we’re going to have a lot of success.”

 

Soaring Assets

The numbers tell the story of PeoplesBank’s recent upward trajectory.

“When I took over as president and CEO in 2016, we were a $1.8 billion bank,” Senecal told BusinessWest. “We ended 2023 just shy of $4.1 billion. So we’ve more than doubled in those seven years.”

The bank also boasts more than 300 employees and operates 20 banking centers across Massachusetts and Connecticut, with an additional five locations when its headquarters, ATM, and VideoBankerITM locations are included, he noted. “That’s quite a bit of recent growth, which is a credit to the hard work of our entire team.”

Over the past couple years, PeoplesBank also began partnering with Zynlo, a digital bank, Senecal said. “That is starting to really take off. When we talk about growth, traditionally, brick and mortar has been our main source of banking growth. With the digital bank, that has taken on a whole different perspective.

“We’ve got different lines of business, and we’re starting a personal banking division of the bank,” he added. “We have the PeoplesWealth division. Those weren’t in existence a few years ago, so these different banking channels are really what’s driving some of our growth.”

Other expansion opportunities exist because of the merger-and-acquisition environment among large banks and how that disrupts a marketplace, Canina said, citing as one example M&T Bank’s acquisition of People’s United Bank. “That acquisition opens up opportunities for us to jump in on the disruption down in the Connecticut market and, in some cases, Western Massachusetts as well, but mostly down in the Connecticut market, which is why we have our sights set on organic growth down there.”

Opportunities will also arise from banks that aren’t faring as well as PeoplesBank, he said, due partly to the compression on interest margins coupled with increased costs for human resources and compliance, as well as coming regulatory changes.

“Some of these smaller banks are really going to be challenged,” Canina explained. “And I think that we’re at a size — more than $4 billion in assets — where we’re in a very good position to partner with another bank that’s smaller and having challenges, so I think there’s going to be opportunity there for us.”

Of course, PeoplesBank continues to grapple with those same headwinds, he added.

“The challenges right now are coming from the interest-rate environment, where the margins have really compressed from the short-term rates coming up and long-term rates coming up a bit, but not as much as the short end of the curve. So we’re paying deposits on the short end and then lending out on the long end, and there’s not a big spread there. It makes it challenging, not just for us, but for all banks.

“At the same time, a lot of the pandemic deposits that came in have started to flow out; people started spending more money, and they have the ability to to move deposits anywhere they want very easily,” Canina continued. “So the industry has been challenged with managing the interest-rate environment and maintaining deposit levels, and I see that continuing into 2024. Depending on what happens with interest rates, it’s not likely going to let up until we see the short end start to come down. And then we’ll face some different challenges when that happens, because most likely there will be some potential recessionary concerns.”

On the residential side in particular, Senecal added, “I think it’s tough for every bank these days, even though interest rates have come down a little bit from their all-time highs in the last 20 years or so. But there’s no inventory. So, even though interest rates are high, what we’re seeing is, when something comes on the market, it sells, and it’s financed. It’s just that the inventory is so low. And that will be a challenge heading into 2024 for almost all banks.”

 

Hometown Focus

As he broadens his responsibilities in dealing with these issues and working with Senecal and other bank leaders on growth strategies, Canina added that he aims to continue — and grow — PeoplesBank’s commitment to the communities it serves, noting that the bank’s charitable giving continues to be a strength, with almost $6 million donated over the past three years alone, and more than $11 million over the past 10 years.

“I think what really separates us from the larger regional banks and the national banks — we’re so invested in the communities that we’re banking with, and even though we’re contributing the amount of dollars we are back to the community, we’re still paying interest rates that are competitive with any other bank out there.”

Meanwhile, employees donate thousands of hours of volunteer service to area nonprofits and charitable causes, he noted. “More than half of our bank is on a nonprofit board of some sort, and the amount of volunteer hours is very strong; that’s something that all of our employees hold near and dear to them and really keeps them engaged.”

Banking and Financial Services

A Matter of Survival

 

When asked what it takes to thrive in the cannabis business these days, Meg Sanders paused before noting that ‘thrive’ is the wrong word.

“I think thriving is part two. Right now, surviving is really the topic of the day. That’s what we need to be looking at,” said Sanders, CEO of Canna Provisions, which operates dispensaries in Holyoke and Lee.

And it’s not just because of the heightened competition that has arisen, both within Massachusetts and from across state lines, though that factor has caused some shops to close, with others likely to follow, as the market begins to settle, eventually determining how many dispensaries is too many.

No, that development has only exacerbated one of the key challenges for cannabis entrepreneurs: the fact that the drug is federally illegal, which makes financing thorny, normal business activities difficult, and the tax environment severe, to say the least.

“Our accounting bill is probably super elevated from a normal business. Our legal bill is probably way larger than a normal business because there are just so many T’s to cross and so many I’s to dot. And that’s just part of it,” Sanders said before detailing issues with access to financial services and lending. “What if we could get SBA loans? What if we could apply for federal grants? I mean, there’s so much money out there that a small business should be eligible for, but we can’t do any of that because we’re federally illegal.”

Meg Sanders

“What if we could get SBA loans? What if we could apply for federal grants? I mean, there’s so much money out there that a small business should be eligible for, but we can’t do any of that because we’re federally illegal.”

With that in mind, a coalition of U.S. cannabis operators and investors filed a lawsuit late last year against U.S. Attorney General Merrick Garland. The coalition asserts that the federal government has no basis for enforcing the Controlled Substances Act against intrastate, state-regulated cannabis operations. The plaintiffs include Canna Provisions; Gyasi Sellers, CEO and founder of Treevit; and Wiseacre Farm, all of which are independent operators in Massachusetts that claim to have suffered significant harm and business challenges due to federal prohibition.

Verano Holdings is also named as a plaintiff, while foundational supporters of the suit include Ascend Wellness Holdings, TerrAscend, and Green Thumb Industries, as well as Eminence Capital and Poseidon Investment Management.

The lawsuit seeks to confirm the rights of Massachusetts and other states to regulate cannabis within their borders, and to limit the federal government’s power to regulate commerce.

The Controlled Substance Act bars the production, distribution, and possession of marijuana, regardless of whether those activities cross state lines or, as in the case of the plaintiffs’ businesses, are intrastate. According to the lawsuit, “this unjustified and unconstitutional prohibition on intrastate cannabis harms plaintiffs and hinders the efforts of states to provide patients and adults with access to strictly regulated and tested cannabis.”

“The purpose of the lawsuit is to basically challenge the constitutionality of the Controlled Substance Act on intrastate activity. Basically, the suit alleges that the federal government has no say what happens within state borders,” Sanders told BusinessWest. “I wasn’t aware of this lawsuit until somebody recommended me to be part of it. So we had substantial meetings with our legal team and our board about this particular issue, and we all felt like there’s something here, and that this is an important way to approach it.”

 

Tough Environment

Cannabis banking has softened somewhat in Massachusetts, Sanders was quick to note. “I would say Massachusetts is probably one of the friendliest banking states in the United States as far as cannabis. We have a lot of very thoughtful, kind, smart bankers out there that are trying to service the industry. And that’s great; we have checking accounts, we have saving accounts, some of us are able to do debit-card acceptance. But we can’t take credit cards. I can’t get a business loan. Equipment loans are out there, but they’re at a really high interest rate. And also, I can’t get access to normal payroll services. So I can’t work with an ADP or a Paychex or some of the big guys that are really good at what they do.

“If you’re signing up to be in cannabis, you’re signing up for all of these headaches. This is the nature of the beast. And it’s not negotiable; those are the facts. This is what we have to deal with every single day. And it’s really, really hard.”

The lawsuit also takes aim at what’s known in the IRS tax code as Section 280E, which originated from a 1981 court case in which a convicted cocaine trafficker asserted his right under federal tax law to deduct ordinary business expenses. In 1982, Congress created 280E to prevent other drug dealers from following suit.

So, while state-legal cannabis businesses are allowed to deduct the cost of goods sold when paying taxes, they can not take other deductions normal to most non-cannabis businesses — salaries, health insurance, utilities, maintenance, and much more. “So I have an effective tax rate of 73%,” Sanders said.

In 2005, the U.S. Supreme Court rejected a challenge to the Controlled Substance Act’s cannabis prohibitions.

But, according to a press release announcing the new lawsuit, “a critical factor in that decision, Gonzales v. Raich, was that the federal government intended to ‘eradicate’ the market for cannabis nationwide. The court concluded that the federal goal of eliminating commerce in cannabis, combined with the assumption in 2005 that intrastate marijuana could not be differentiated from interstate cannabis, justified the Controlled Substances Act’s prohibitions on intrastate cannabis. Neither of those facts, however, are true today. In the 18 years since Gonzales, Congress and the executive branch have abandoned any intent to ‘eradicate’ cannabis, and numerous states have developed regulatory programs for legal marijuana that is not fungible with, and is readily distinguished from, illicit cannabis.”

Indeed, the plaintiffs note, today, 38 states and Washington D.C. have medical or adult-use cannabis programs with significant regulatory oversight, requiring compliance with stringent regulations aimed at protecting patients, customers, and the public, including video surveillance and seed-to-sale tracking.

“Absent the relief sought in this lawsuit, plaintiffs and other state-regulated cannabis operators will continue to suffer severe harms,” the release notes. “State-regulated cannabis businesses are deemed illegal under the CSA; their everyday activities are considered federal crimes. As a result, they are cut off from numerous federal programs and protections (including small-business loans), they are subject to discriminatory tax penalties, and many organizations — including banks and credit-card processors — refuse to do business with them, rather than risk being deemed conspirators, aiders and abettors, or money launderers.

“The result is that many cannabis businesses are suffering, people are losing their jobs, and individual wealth is being destroyed,” the statement continues. “In addition, social-equity licensees harmed by the war on drugs and who were supposed to have equal access to the industry do not have the same benefits as otherwise situated business owners to start a business and build their wealth.”

 

Appetite for Change?

Sanders sees this lawsuit as a kind of parallel track to other ongoing efforts to disentangle federal and state laws, thereby easing the cost of business in the cannabis industry, with many hoping Congress steps in at some point and removes cannabis from the Schedule 1 list of controlled substances.

“There are a lot of legislators that really support and see cannabis as an industry for their constituents and understand that jobs are being created and there’s a lot of revenue. And, bottom line, their voters want to buy weed from a regulated dispensary,” she told BusinessWest. “That’s what we see every single day. We still have more people coming in. And what voters are telling legislators is they want safe access to cannabis.”

At the same time, Sanders understands that Congress has many competing priorities, and that they struggle to come together in a bipartisan way on any issue.

“Until politicians see voters saying, ‘well, because you’re negative on cannabis, we’re not going to vote for you,’ I don’t think you’re going to see a change. I mean, that’s their business. Their business is to get votes. As voters, we want legalization, but there are so many other things that are separating us as a country, and those are way more important, probably, in the eyes of legislators.”

Banking and Financial Services Special Coverage

Moving North

President Dave Glidden

 

Dave Glidden has long referred to it as the “I-91 corridor strategy.”

This is the growth plan for Middletown, Conn.-based Liberty Bank, one that, as the name suggests, focuses on the I-91 corridor, which stretches from New Haven into Southern Vermont.

The bank has followed that strategy, increasing its presence in Southern Conn., and now Western Mass. as well, taking another important step in what could be called its northward advance with the opening last month of its first branch in this region — on Shaker Road in East Longmeadow, just a few miles from the state line.

The facility, a former United Cooperative and then PeoplesUnited branch, was home to a commercial loan-production office that Liberty opened in 2021 and eventually moved to the 23rd floor of Monarch Place in downtown Springfield — after that LPO gave Liberty a foothold of sorts and convinced Glidden, the bank’s president, and other members of his leadership team that it was time to open a full-service branch in the 413.

“We generated a lot of volume and a lot of new customers out of there, and some good deposits,” he said. “When it got to that point, I said, ‘OK … we’ve proven that there’s space and a place for us in this market,’ and that’s when I decided to move the commercial-lending team and their support staff to Monarch Place and tear down the sheetrock and outfit a nice branch on Shaker Road.”

“We are selectively and cautiously considering where to go next. We don’t have to be in a rush, but I can see a total of maybe three to six branches over the next few years — if the right opportunities present themselves.”

With that move, the logical questions — and Glidden was ready for them — is where will the bank go next within the 413, and when?

“We are selectively and cautiously considering where to go next,” he told BusinessWest. “We don’t have to be in a rush, but I can see a total of maybe three to six branches over the next few years — if the right opportunities present themselves.

“I wouldn’t force the issue,” he went on, saying there is no firm timetable and no specific number of locations as a firm goal. “Maybe three to six branches, strategically located, with drive-thrus, with the focus on catering to small to medium-sized business owners. That’s our future plan.”

How this plan shakes out remains to be seen, obviously, and we’ll delve more into where the Liberty name and logo might appear next. For now, the bank wants to continue solidifying its beachhead and take the I-91 corridor strategy to different corners of the 413.

For this issue and its focus on banking and financial services, BusinessWest talked with Glidden about the next possible steps with this strategy and how the drive north will unfold.

 

Points of Interest

Glidden laughed when he noted that, when people tell him they see the bank’s TV commercials — “the ones with the emu and that guy with the mustache” — he no longer makes the effort to correct them and inform them that those are for the insurance giant Liberty Mutual.

“Why bother — what am I fighting it for?” he asked rhetorically, adding quickly that the last four words of each of those frequently, as in frequently, aired spots — ‘Liberty, Liberty, Liberty … Liberty’ — constitute solid name recognition that he doesn’t have to pay for. “Every time I see that commercial, I’m cheering; people come up to me and say, ‘I saw your commercial.’ I just say, ‘thank you; let me open a checking account for you.’”

Bank employees and elected officials

Bank employees and elected officials cut the ceremonial ribbon last month on Liberty Bank’s East Longmeadow branch.

This form of free advertising, if you will, is just one of many things that have gone well for Liberty over the past several years. In fact, Glidden said 2023 may be the bank’s third straight year of record profits, though the final numbers are not yet in.

But even if it’s not a record, the bank is maintaining a strong upward trajectory, which it owes to several factors, but especially its aggressive I-91 corridor strategy and the qualities needed to carry it out and gain market share across that wide area.

Elaborating, Glidden said the bank has several advantages, from a name that resonates and crosses state lines easily to a broad portfolio of products on both the commercial and consumer sides of the ledger; from a commitment to the latest digital technology to an attractive size.

Indeed, with more than $7 billion in assets and 56 locations in Connecticut and two in the Bay State, Liberty, the oldest mutual bank in the country, can “out-local the national banks and out-national the local banks,” said Glidden, a native of Holyoke who is well-known in this region and has long considered Western Mass. the next logical area of expansion for the bank.

“We can deliver a balance sheet that’s going to be large enough for 99.9% of the companies up there to grow to whatever they want to be,” he said, adding that this size, coupled with lenders who know and hail from Western Mass., has enabled Liberty to make solid inroads in the local market and presents opportunities to gain market share in this region.

And many changes to the banking landscape, but especially the advent and continued evolution of digital platforms and mobile apps, make it easier to cross state lines, he went on.

“The habits of consumers and small businesses, what they’re looking for from a bank, are not the same as they were 15 years ago.”

“The habits of consumers and small businesses, what they’re looking for from a bank, are not the same as they were 15 years ago,” Glidden explained. “Do they want to know that their bank has a branch so that, if there’s an issue, they can go in and sit with someone and get advice? Yes. But, across the board, transactions and visitations to branches continue to decline, and that decline is not projected to slow down any time soon.

“And that kind of changes the playing field in the sense of being able to go over the line with maybe a toe in the market,” he continued. “If this was 10 to 15 years ago, and I made the decision that I wanted Liberty to go into Western Massachusetts and compete, I probably would have looked to do it through an acquisition strategy. That doesn’t mean that acquisition strategies are off the table, but you don’t have to do that now with digital and mobile apps.”

 

By All Accounts

As for the growth strategy in the 413, Glidden said that, as with the initial thrust into the region in East Longmeadow, the focus — the ‘macro strategy for this market,” as he called it — is an emphasis on small business and commercial lending, realms that build customers, relationships, deposits, and more, and cement the need for additional branches.

This was the strategy followed in New Haven, where the bank established an LPO, and again in Hartford. And it is the same strategy being deployed north of the border in Greater Springfield.

As he scans the Western Mass. landscape — and, again, he knows it well from his years as regional president at TD Bank — Glidden acknowledged that Western Mass., is, by and large, a no-growth area. And most of its communities — and East Longmeadow is squarely in this category — are considered overbanked.

But there are opportunities, he noted, adding that his team is looking at maps and crunching numbers as they consider where to go next.

There are what would be considered obvious landing spots, he said, mentioning larger population and commercial centers such as West Springfield, Holyoke, Chicopee, and Westfield, and these may well be the next push pins on the wall map.

“The analytics you use on this stuff gets so complicated … sometimes you need to just take a step back and say, ‘where are all the people, and where are all the businesses?’” he said. “And just put them there.”

‘There’ probably doesn’t mean Hampshire County, at least not at this time, he went on, adding quickly that he certainly wouldn’t rule out putting a branch in a community like South Hadley, which borders Holyoke, Chicopee, and Amherst, and is another of those ‘overbanked’ communities in Western Mass.

“Right now, we’ve had success on the commercial and small-business side; let’s look at Greater Springfield and the surrounding communities,” he told BusinessWest. “If Springfield is the hub, then look at the spokes around there and find the right places to sprinkle a few more branches to service our growing customer base there.”

As he looks ahead, Glidden isn’t expecting another record year when it comes to profitability for Liberty Bank.

Indeed, while 2023 was a very strong year, the pace of growth started to slow during the third and fourth quarters, and this trend will, in all likelihood, continue in the year ahead.

But what will also continue is implementation of the bank’s I-91 corridor strategy, one that has seen Liberty makes its first moves in the Western Mass. market and establish a foothold.

The goal for 2024 and the years to follow will be to strengthen that hold and take the brand to different communities across the region. Just where, when, and how the next steps will take place remain to be seen, but one thing is clear: Liberty’s march north is just getting started.

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.

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.”

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.

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.

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.

 

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.”

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.

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.

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.”

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.

 

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.”

 

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.”

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.

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.

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.”

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.

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]

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.

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.

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]

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.

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.

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]

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]

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]

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]

 

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.

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.

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

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.