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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.

Banking and Financial Services

The Art of Being Ready

By Chelsea Russell

 

Each year goes by faster than the last, and before you know it, your nonprofit’s year-end audit is right around the corner.

Collectively, we can all agree that the audit process should be quick and easy, but we often face audits that never seem to end. Have you ever wondered what you can do to make an audit go smoothly and be as efficient as possible so that deadlines can be met? This is a great opportunity for you to learn about how your organization can have a more efficient audit process and how your organization can continue to improve procedures surrounding audit preparation.

As an auditor who is involved in many not-for-profits, I’d like to share some best practices to help you prepare for your year-end audit.

 

Have a Planning Meeting

It’s never too early to start reaching out to your auditor. Having a planning meeting with your auditor a month before your organization’s year end is encouraged. This meeting will serve many purposes, such as reminding everyone of specific due dates, discussing significant activity over the last year, and deciding on a start date for the audit based on your readiness.

 

Establish a Timeline

Once you and your auditor have discussed due dates and a start date for the audit, you should start preparing for the audit early by asking for your auditor’s data-request list. Review the list with your auditors, ask for what items are priority for testing purposes, and establish an internal due date for your team. As you and your team start preparing information for the audit, have regular check-ins with your auditor as you approach each due date and the start of the audit.

Chelsea Russell

“Collectively, we can all agree that the audit process should be quick and easy, but we often face audits that never seem to end.”

Reconcile All Significant Trial Balance Accounts

Prior to starting the audit, all significant trial balance accounts should be reconciled, and you should double-check that the supporting documentation agrees with the trial balance accounts. This is a great opportunity to make sure you have the necessary internal control procedures in place, and may present an opportunity for improvement. To prevent a delay in the audit, the earlier you can start your year-end closing process and reconciliation of accounts, the sooner you can review the audit support for potential errors before handing documents over to the auditors.

 

Compliance Requirements

The level of compliance requirements you have to adhere to depends on the funding your organization receives (state, federal, grants, or donations). A best practice would be to review your funding sources and determine the compliance requirements needed well ahead of the annual audit. Depending on where your funding is coming from can dictate the level of compliance requirements you have to adhere to. For example, if you receive federal funding or federal funding passed through the state, this could require additional audit testing to be performed and additional time incurred by the auditor. It’s best to review all funding sources on a regular basis and communicate any changes with your auditors.

 

Bottom Line

Once you invest your time and try these best practices, you’ll be able to develop your own processes throughout the year, keep the information organized, and be ready for your next audit.

 

Chelsea Russell, CPA is a manager at the Holyoke-based accounting firm Meyers Brothers Kalicka, P.C.

Banking and Financial Services

Big Is Getting Even Bigger

By Jeff Liguori

 

Financial advice generally addresses the question ‘where should I put my money?’ It is a simple way of asking ‘what is the optimal investment for my hard-earned dollars?’ The more important meaning may be more literal: with today’s shifting landscape, where do I actually put my money?

The financial-services industry, which employs approximately 6.5 million people and is responsible for more than $123 trillion in assets in the U.S., has been rapidly changing over the past two decades. And the rate of that change is quickening. As with all industries, change may be the only certainty, but when it directly impacts our pocketbooks, it can create anxiety.

At the end of 2020, there were 4,377 FDIC-insured commercial banks in the U.S. That number is down from 6,519 in 2010 and more than 8,000 in 2000. During the same 20-year period, the dollar volume of loans generated by those banks has increased 127%, growing from $1.05 trillion to $2.38 trillion. Consumers seem to have fewer choices in terms of traditional banking.

Despite the number of banks being cut in half since 2000, there are more financial outlets than ever for depositors, borrowers, and investors. Finance has become a complex structure and confusing network of companies, from purely digital firms with a limited product offering, like PayPal, to massive financial supermarkets like Bank of America. Incidentally, in the past five years, the number of total active user accounts with PayPal has risen sharply from 165 million to 380 million, up 130%, with total annual transaction volume approaching $1 trillion.

Jeff Liguori

Jeff Liguori

“Finance has become a complex structure and confusing network of companies, from purely digital firms with a limited product offering, like PayPal, to massive financial supermarkets like Bank of America.”

The adoption of technology in banking is largely a function of age. At the end of 2020, nearly 50% of consumers ages 24 to 39 were making payments with digital or mobile wallets. That percentage decreases slightly up to age 54. But only one-fifth of consumers ages 55 to 73 transact digitally, and only one in 12 consumers age 74 or older are comfortable making digital payments. Focusing on younger demographics, ‘killer app’ technology has become a critical component of growth for companies in financial services. The number of financial-technology startups, or fintech, in North America has grown 90% since 2018.

Beyond technology, financial firms continue to expand their suite of products. For example, the five largest life-insurance companies measured by annual premium revenue are Northwestern Mutual, MetLife, New York Life, Prudential, and MassMutual, in that order. Those firms also have a significant presence in investment management, by way of mutual funds or wealth advisory or both. The same is true for the largest commercial banks, investment banks, and broker-dealers. Financial solutions are ubiquitous across the industry regardless of the type of firm.

Big is getting even bigger. It is an evolution in financial services, and not without precedent. Historically, consumers deposited their paycheck and took out their mortgage from the local bank. They obtained insurance through a local broker and invested with a local advisor. As these independent businesses got bought by larger firms, the relationship to the community slowly eroded. Meanwhile, our bank is connected to our PayPal account, directly pays our mortgage and car payments, and debits our monthly Netflix subscription. The idea of switching banks is enough to cause sleeplessness, even though our relationship manager works at a call center in Tulsa.

As with all trends, opportunities arise. The combination of an intricate financial landscape with rapidly changing technology and a greater access to products and solutions than ever before is exciting. Lost in the consolidation of banking is the local connection. In years past, a bigger institution had greater access, but that is no longer the case.

In It’s a Wonderful Life, George Bailey was the frustrated local banker who single-handedly saved the town from financial ruin. He couldn’t compete with the wealthy industrialist, Henry Potter, who owned half of Bedford Falls. But George had one thing Mr. Potter didn’t, the trust of his neighbors. As financial products and services continue to multiply and digitize at a dizzying pace, it will ultimately be the local trusted banker or advisor who helps confused consumers make the right choices.

 

Jeff Liguori is the co-founder and chief Investment officer of Napatree Capital, an investment boutique with offices in Longmeadow as well as Providence and Westerly, R.I.; (401) 437-4730.

Banking and Financial Services Special Coverage

The Fed Makes Its Move

 

 

Last month’s federal funds rate hike by the Federal Reserve — the first of what may be several such increases — was long-awaited and welcome in the banking community, while the Fed hopes it begins to produce its intended effect of cooling the economy and slowing inflation. The impact on loans and credit of all kinds will be meaningful, finance leaders say, but the long-term, historical perspective suggests this is still a very good time to borrow.

It’s a move many in the finance world are calling overdue, and in some ways welcome.

After keeping interest rates low through the first two years of the COVID-19 pandemic, the Federal Reserve hiked the federal funds rate by one-quarter of a percentage point on March 16, while also suggesting it might issue up to six more small increases before year’s end.

“We’ve lived with this low-rate environment for the last few years, which has been extremely difficult for banks on the margins,” said Brian Canina, executive vice president and chief of Finance and Shared Services at PeoplesBank. “So this was definitely something we have been waiting for.

“Last year was very interesting because, despite the inflation we were seeing, there was no movement on interest rates,” he added. “These have been interesting times, and hopefully, as the Fed continues to monitor this and increase the rates in the future, it would be nice to see us get back to a more normalized interest-rate environment that we’re more familiar with.”

Jeffrey Sullivan, president and CEO of New Valley Bank, said the Fed’s move was not only expected, but had been announced and much discussed in the marketplace.

“People are saying it’s overdue, and many are saying the Fed should have done it earlier to cool off the economy and keep inflation down a little bit,” he told BusinessWest. “Some people are worried there could be a lot of increases coming down the pike. But if it’s slow and steady, it’s probably not going to be a huge shock to people borrowing money, whether businesses or consumers.”

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

“We’ve lived with this low-rate environment for the last few years, which has been extremely difficult for banks on the margins. So this was definitely something we have been waiting for.”

“When the Fed raises the federal funds target rate, the goal is to increase the cost of credit throughout the economy. Higher interest rates make loans more expensive for both businesses and consumers, and everyone ends up spending more on interest payments,” the publication notes.

“Those who can’t or don’t want to afford the higher payments postpone projects that involve financing,” Forbes adds. “It simultaneously encourages people to save money to earn higher interest payments. This reduces the supply of money in circulation, which tends to lower inflation and moderate economic activity — a/k/a cool off the economy.”

Because so many other rates in the economy are tied to the funds rate, any increase by the Fed has a direct effect on the interest consumers pay when they carry a credit card balance or take out a loan, and on yields for savings accounts and certificates of deposit, Nerdwallet notes.

“In general, the Fed reduces rates to try to stimulate the economy and raises rates to try to head off inflation,” the site explains, using a mechanism that causes rates on savings accounts, mortgages, and credit cards to rise. “Interest rates have been low for so long that many consumers — Millennials and Gen Z, particularly — haven’t really known a time when borrowing wasn’t cheap and savings vehicles didn’t pay next to nothing.”

Sullivan agreed. “Obviously, they’re paying a little more than they were paying a year or two ago. But by historical standards, when you look at mortgage rates — which have been 6%, 8%, even 20% — it’s not as unbearable.

“Everyone wanted to lock it in when a 30-year mortgage was 2.75%, which was the low point — kind of like saying they wish they’d bought Apple stock early on; everyone wants to time it perfectly,” he went on. “But in the broader context, these are still really low rates compared to what consumers have seen. It shouldn’t slow down the economy tremendously.”

 

 

Gimme Shelter

Mortgages will certainly become more expensive following the Fed’s move — at least, the interest costs. Forbes noted that a $300,000, 30-year, fixed-rate mortgage would add about $185,000 in interest charges with a 3.5% rate, but would add $247,000 — almost double the amount of the original loan — with a 4.5% rate.

“In response to this increase, the family in this example might delay purchasing a home, or opt for one that requires a smaller mortgage, to minimize the size of their monthly payment,” the publication notes.

But NPR notes that rising rates could stop the “runaway train” of higher home prices, which rose nearly 20% in the U.S. last year, on average. With a historic shortage of homes for sale and very low interest rates, bidding wars regularly broke out and drove prices ever higher. Meanwhile, soaring selling prices pulled in more buyers who didn’t want to miss out, which further overheated the market.

Jeff Sullivan

Jeff Sullivan says many in the banking world feel the Fed’s rate increase is long overdue.

“Higher mortgage rates may be helpful in cooling the housing market,” Selma Hepp, an economist with CoreLogic, told NPR. “That may help bring us back more to some level of normality, and in that case we won’t see so much bidding over the asking price.”

Prices aren’t likely to fall right away, Hepp said, but they might rise much less this year, say 3%, and a few years like that could give contractors time to catch up with demand and build more homes.

Canina notes, however, that low inventory is still the main factor driving home prices in Western Mass. So with interest rates increasing, “that’s kind of a double whammy, for lack of a better term.”

Sullivan agreed. “Lack of inventory keeps prices high, no matter what the rates are.”

Ninety percent of homeowners have fixed-rate mortgages, protecting them against rising rates. But most home-equity lines of credit — funds borrowed against the home — have variable rates, which will now go up. Forbes noted that some banks will let borrowers take the money they owe on their line of credit and lock that into a fixed interest rate.

On the other side of the coin, retail banking customers may expect interest rates on savings to rise now as well, but that may happen more slowly.

“These historically low rates on savings products won’t jump higher overnight, but a higher federal funds rate can stimulate competition among banks and credit unions, and consumers may benefit from that,” Nerdwallet notes. “It may be worth looking for a savings account with better rates if your financial institution is slow to respond to a Fed rate increase.”

“If they continue to increase interest rates six or seven times before the end of this year, it’s going to be interesting to see what kind of impact that has on the markets and consumers particularly.”

Canina explained that, from a consumer standpoint, banks have been living with historically low rates, and their margins have been squeezed at the same time the federal government has been putting out trillions in stimulus into the economy. As a result, bank balance sheets have significantly expanded with deposits.

“Banks have so much liquidity on their balance sheets, and if loans slow down, even with rates rising, banks will probably be reluctant to raise [savings] rates,” he noted. “We’ve managed to maintain deposit rates at a higher level than our competitors, and we’ll continue to monitor it to make sure we stay in terms of where we are relative to our competition, but banks are likely not raising rates any time in the near-term future.”

Brian Canina

Even if the Fed decides on multiple hikes this year, Brian Canina says, consumers should realize that interest rates are still low from a historical perspective.

The expectation from consumers is that, once the Fed raises rates, savings interest rates will follow shortly after, Canina added. “In the current environment, that’s very likely not to be the case this time around.”

 

Uncertain Times

Canina noted that the Fed employed a similar rate policy in the wake of the Great Recession, but “this is a little different situation, so coming out of it, I think it will be a little different in terms of how it plays out.”

Specifically, the key factors in the financial crisis of the late oughts were credit and housing issues. “In this one, you have the supply chain. You also have the Great Resignation, and the labor market was heavily impacted. The supply chain has not corrected itself, and we do have some labor-market matters to deal with. If they continue to increase interest rates six or seven times before the end of this year, it’s going to be interesting to see what kind of impact that has on the markets and consumers particularly.”

Canina added that commercial lending at PeoplesBank slowed slightly in 2020 and 2021, and 2022 is expected to be stronger.

“But the rising interest-rate environment has not impacted the commercial side just yet,” he explained. “Commercial rates are based more on competition than the markets. Mortgage pricing is really designated by the government agencies, Freddie Mac and Fannie Mae. So that’s kind of a set market, and mortgage companies price off that.

“When pricing commercial mortgages,” he continued, “you’re pricing to competition, and they’re usually a little slower to react, so right now, we’re seeing lower rates for commercial than residential mortgages, which is a total anomaly, something we don’t see in a normalized interest-rate environment. In the next six to nine months or so, that should straighten itself out. We’re seeing some unusual trends right now.”

Sullivan said gas prices are a larger factor for people right now than interest rates. “They’re staring at gas prices that average $4 a gallon and could be going to $5 a gallon. That’s more of a psychological factor for the average person.”

It’s certainly not the first economic shock of recent years.

“The pandemic definitely shocked the system, creating disruption in the supply chain,” Sullivan said. “That certainly includes building materials, which is one reason why real-estate prices aren’t coming down. And those material costs, the people I talk to say it’ll be another year or two before that starts to correct itself. So that will keep the inflation rate high.

“The Federal Reserve has some tools, but they’re limited tools,” he added. “We’re in such a unique situation with the supply chain being so screwed up. It’ll take awhile.”

As for the other factor weighing on the economy — a persistent worker shortage — “wages are going up, and pressure on wages is going up. Is that bad or good? That depends on what lens you’re looking through. It’s tougher for employers who have to pay that.”

Taking the big picture on what’s happening in the economy, Nerdwallet said the Fed’s recent move — and those to come — aren’t necessarily a bad thing.

“Reducing debt, especially when you’re paying a variable interest rate, will help you in a rising-rate environment. So will increasing your savings and staying focused on your long-term investing strategy, in spite of day-to-day fluctuations in the stock market,” the site notes. “If you manage your money carefully and the economy stays strong, rising rates could be a good thing for your wallet.”

 

Joseph Bednar can be reached at [email protected]

Banking and Financial Services

The People Have Spoken

Dan Moriarty (left) and Michael Rouette

Dan Moriarty (left) and Michael Rouette say it’s important to give customers a say in which nonprofits Monson Savings Bank supports.

 

The numbers speak for themselves: 3,500 votes, 373 nonprofits, $15,000.

That’s roughly the number of Monson Savings Bank (MSB) customers who cast votes in the bank’s 12th annual Community Giving Initiative, the number of different nonprofits they wanted to receive donations, and the total money being given to the top 10 vote getters.

“Each and every organization is a well-deserving nonprofit, and it is clear why they were chosen by our community members,” said Dan Moriarty, president and CEO of Monson Savings Bank. “Each nonprofit provides tremendously valuable resources to our communities and their residents.”

The 2022 winners of MSB’s Community Giving Initiative, announced two weeks ago, include Academy Hill School Scholarship, Behavioral Health Network, I Found Light Against All Odds, Miracle League of Western Massachusetts, Shriner’s Hospitals for Children, and Women’s Empowerment Scholarship, all based in Springfield; Rick’s Place and Wilbraham United Players, both based in Wilbraham; Link to Libraries Inc. of Hampden; and Monson Free Library in Monson.

“There are so many nonprofits doing great work, but we don’t know them all; we couldn’t ever know them all.”

“It follows our philosophy of giving back to the local communities. Our local communities help us, so we try to find ways to continually give back, and there are various ways to do that,” Moriarty told BusinessWest.

“There are so many nonprofits doing great work, but we don’t know them all; we couldn’t ever know them all,” he added. “So this is a good way to reach out to the community and all the nonprofits out there by having their followers introduce them to us. It’s been great, and very well-received. We’ve received thousands of votes every year for nonprofits people think are doing worthy things. That’s why we started it, and why we continue to do it.”

MSB isn’t the only bank running such a program, however; other banks have involved the community in giving initiatives as well, perhaps none longer than Florence Bank, which launched its annual Customers’ Choice Community Grants Program 20 years ago. Voting runs to the end of each December, and recipients are celebrated in May.

Unlike MSB’s program, which features a set number of recipients and equal funding to all winners, Florence gives grants to all organizations receiving at least 50 votes and distributes the money ($100,500 last year) according to their share of the votes — in last year’s case, more than 7,000 votes in all.

Last May, those funds went to Dakin Humane Society, Cancer Connection, Friends of Forbes Library, and Big Brothers Big Sisters of Hampshire County, $5,000 each; Our Lady of the Hills Parish, $4,837; Belchertown Animal Relief Committee Inc., $4,326; Friends of the Williamsburg Library, $3,815; J.F.K. Middle School, $3,303; Riverside Industries Inc. and Friends of Lilly Library, $3,146 each; It Takes a Village and Goshen Firefighters Assoc., $3,107 each; Edward Hopkins Educational Foundation, $2,989; Pioneer Valley Chinese Immersion Charter School, $2,556; Northampton Neighbors, $2,399; Hitchcock Center for the Environment, Granby Senior Center, and Friends of Northampton Legion Baseball, $2,281 each; Northampton Community Music Center and Community Action, $2,202 each; Friends of M.N. Spear Memorial Library, $2,084; Safe Passage, $2,005; R.K. Finn Ryan Road School, $1,966; and Historic Northampton and Belchertown K-9, $1,966 each. In addition, the Williamsburg Firefighters Assoc. and Whole Children of Hadley were each granted $500 for coming close to receiving 50 votes.

“We do normal corporate giving, but 20 years ago, we started doing these Customers’ Choice grants in an effort to listen to our customers,” bank President Kevin Day told BusinessWest. “How better to support the community than to support the nonprofits that our customers feel are important and doing a great job in the community?

“It’s a great program, and we’ve given close to a million and a half dollars,” he went on. “And our event in May is a wonderful event that really links us to the community and our customers who have directed where some of our money should go.”

Just as the pandemic has shifted the giving priorities of some banks and credit unions based on community need (see story on page 17), Florence Bank saw the same phenomenon occur in the Customers’ Choice program last year.

In the second half of 2019, only 10% of customers cast votes for organizations that ease food insecurity. But as more people became aware of those needs in 2020, twice as many votes were cast for food-security causes, and $21,528 of the total $100,500 awarded last May went to five organizations focused on feeding people: the Food Bank of Western Massachusetts, the Amherst and Northampton Survival Centers, Manna Community Kitchen in Northampton, and Easthampton Community Center.

“How better to support the community than to support the nonprofits that our customers feel are important and doing a great job in the community?”

Moriarty said the recipients in Monson Savings Bank’s program have shifted over the years as well, with more than 100 nonprofits benefiting in all.

“Some are repeat winners, and that speaks to their efforts to reach out to their followers to vote for them,” he said. “But it’s nice to see different nonprofits chosen.”

In any case, he added, “they are so genuinely appreciative of winning. It’s always nice to win a contest, but they are genuinely honored and thrilled to receive those donations. Every year, I talk to a few of them, and they seem so, so thankful. Some of these nonprofits count on the donations they receive from us and other community banks and other community businesses.”

Moriarty noted that the internet has been an important driver of the Community Giving Initiative, as social media was still on the rise when the program launched 12 years ago, offering a new way to connect people with the bank and generate enthusiasm online. “That was a catalyst for us in the initial stages. Social media wasn’t that big yet, but we knew it was coming.”

Clearly, customers are excited to wield some influence on this one element of their hometown bank’s giving priorities.

“We love working directly with the community and giving members a voice to ensure that the nonprofits that make a positive impact in our communities are recognized and supported,” said Michael Rouette, executive vice president and chief operating officer at MSB, when the 2022 recipients were announced. “As a local, community bank, we are committed to doing whatever it takes to support our customers, businesses, and communities. We understand that these charitable organizations have the power to truly make a difference for our neighbors. Thank you for casting your votes.”

 

—Joseph Bednar

Banking and Financial Services

There Are Few Changes, but Some Could Impact Your Return

By Dan Eger and Shannon Shainwald

 

It’s that time again already: time to file your taxes and close out 2021.

Over the past two years, we have all witnessed rapid changes to how we do business and live our lives. Tax season has been no different and has seen many changes to tax law and deadlines. Unlike the past two years, the 2022 tax season is currently set to complete with the normal deadlines, so be sure to get your taxes in order before the filing deadlines: April 18 for federal returns and April 19 for Massachusetts returns.

 

What’s New on Your 2021 Tax Return?

New changes to tax law for 2021 individual filing are not as hefty as in prior years, but there are still some changes that may make a difference on your return.

Dan Eger

Dan Eger

Shannon Shainwald

Watch out for letters from the IRS. Letter 6419 will reflect the child tax credit advance payments if you receive any in 2021. The child tax credit is also higher and includes 17-year-old children in 2021, so be sure you know which of your dependents qualify and for how much. Letter 6475 will reflect the third stimulus payment if you qualified to receive one. Letter 4869C will share your identity-protection PIN for your 2021 return if you have opted into the program or have dealt with fraudulent returns in the past.

The charitable deduction is once again available for up to $300 to those taking the standard deduction and was expanded to allow up to $600 for those who are married filing jointly in 2021.

For itemized returns, the annual charitable deduction limit for monetary donations is equal to 100% of your adjusted gross income for 2021, which means you can remove all taxable income with your donations.

Cryptocurrency has risen in popularity over the past year. Be aware of the tax implications on your cryptocurrency investments. Speak with a trusted tax preparer to make sure your investments are accounted for properly on your return.

 

Preparing Your Return

Will you be preparing your return yourself, or will you hire someone to file on your behalf? Have a plan in place now, so you know what required information you need to have at hand and what you expect to pay for completion of all needed forms. If you will be using a new tax preparer for 2021, they will ask for a copy of your prior-year return in addition to all relevant documents for your 2021 tax filing.

The IRS also offers a Free File program if your income is below $72,000. Go to irs.gov or see the IRS2Go app to see your options. You may also qualify for local tax assistance through programs like Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE).

 

Use Your Resources

The Interactive Tax Assistant (ITA) is an IRS online tool (irs.gov) to help you get answers to several tax-law items. ITA can help you determine what income is taxable, which deductions are allowed, filing status, who can be claimed as a dependent, and available tax credits. You can also visit www.mbkcpa.com/2021-tax-filing to find more resources for assistance with your 2021 tax filing, including blogs on the latest changes and links to useful IRS and state resources.

 

Be Vigilant

Be especially careful during this time of year to protect yourself against those trying to defraud or scam you. The IRS will never call you directly unless you are already in litigation with them. They will not initiate contact by e-mail, text, or social media. The IRS will contact you by U.S. mail. However, you still need to be wary of items received by mail. Anything requesting your Social Security number or any credit-card information is a dead giveaway for scam identification. Watch out for websites and social-media attempts that request money or personal information. You can check the irs.gov website to research any notice you receive or any concerns you may have. You can also contact your tax practitioner for assistance.

 

What If You Have Been Compromised?

How do you know if someone has filed a return with your information? The most common way is your tax return will get rejected for e-file. These scammers file early. You may also get a letter from the IRS requesting you verify certain information. If this does happen, there are steps to take to get this rectified.

First, contact the IRS Identity Protection Specialized Unit at (800) 908-4490. Then, file Form 14039 Identity Theft Affidavit, and paper file your return.

In addition, we recommend you take further steps with agencies outside the IRS:

• Report incidents of identity theft to the Federal Trade Commission at www.consumer.ftc.gov or the FTC Identity Theft hotline at (877) 438-4338 or TTY (866) 653-4261.

• File a report with the local police.

• Contact the fraud departments of the three major credit bureaus: Equifax: www.equifax.com, (800) 525-6285; Experian: www.experian.com, (888) 397-3742; or TransUnion: www.transunion.com, (800) 680-7289.

• Close any accounts that have been tampered with or opened fraudulently.

 

Identity Protection PIN (IP PIN)

If you are a confirmed identity-theft victim, the IRS will mail you a notice with your IP PIN each year. You need this number to electronically file your tax return.

You may also opt into the IP PIN program. Visit www.irs.gov/identity-theft-fraud-scams/get-an-identity-protection-pin to set up your IP PIN. An IP PIN helps prevent someone else from filing a fraudulent tax return using your Social Security number.

 

Get Your Paperwork in Order

Get your paperwork in order early to ease the stress of tax season. First, make a note of changes to your life. Did you welcome a child to your family this past year? Get married? Will one of your children be claiming themselves for 2021? Or, if you’ve experienced the unfortunate passing of your spouse or dependents, changes to your family will affect your return. Make sure you have all the necessary documentation in order, and you know how it will be handled for your return.

Below is a list the most common required forms and items to gather, as well as few other things for you to consider as you prepare for filing your 2021 tax return. Please note that this list is not exhaustive because everyone’s tax situation is different.

 

 

Documentation of Income

• W-2: Wages, salaries, and tips

• W-2G: Gambling winnings

• 1099-Int & 1099-OID: Interest income statements

• 1099-DIV: Dividend income statements

• 1099-B: Capital gains; sales of stock, land, and other items

• 1099-G: Certain government payments, statement of state tax refunds, unemployment benefits

• 1099-Misc: Miscellaneous income

• 1099-NEC: Independent contractor income

• 1099-S: Sale of real estate (home)

• 1099-R: Retirement income

• 1099-SSA: Social Security income

• K-1: Income from partnerships, trusts, and S-corporations

 

Documentation for Deductions

If you think all your deductions for Schedule A will not add up to more than $12,550 for single, $18,800 for head of household, or $25,100 for married filing jointly, save your time and plan to take the standard deduction.

 

Itemized Deductions

• Medical expenses, out of pocket (limited to 7.5% of adjusted gross income)

– Medical insurance (paid with post-tax dollars)

– Long-term-care insurance

– Prescription medicine and drugs

– Hospital expenses

– Long-term-care expenses (in-home nurse, nursing home, etc.)

– Doctor and dentist payments

– Eyeglasses and contacts

– Miles traveled for medical purposes

• State and local taxes you paid (limited to $10,000)

– State withholding from your W-2

– Real-estate taxes paid

– Estimated state tax payments and amount paid with prior-year return

– Personal property (excise)

• Interest you paid

– 1098-Misc: Mortgage interest statement

– Interest paid to private party for home purchase

– Qualified investment interest

– Points paid on purchase of principal residence

– Points paid to refinance (amortized over life of loan)

– Mortgage insurance premiums

• Gifts to charity

– Cash and check receipts from qualified organization

– Non-cash items need a summary list and responsible gift calculation (IRS tables). If the gift is valued more than $5,000, a written appraisal is required

– Donation and acknowledgement letters (over $250)

– Gifts of stocks; you need the market value on the date of gift

 

Additional Adjustments

• 1098-T: Tuition statement

• Educator expenses (up to $250)

• 1098-E: Student-loan interest deduction

• 5498 HAS: Health savings account contributions

• 1099-SA: Distributions from HSA

• Qualified child and dependent care expenses

• Verify any estimated tax payments (does not include taxes withheld)

Sole proprietors (Schedule C) or owners of rental real estate (Schedule E, Part I) need to compile all income and expenses for the year. You need to retain adequate documentation to substantiate the amounts that are reported.

 

File with Confidence

Make this tax season smooth by getting your paperwork organized early and letting your tax preparer know about any changes to your life or financial situation. The sooner you file, the sooner you can put 2021 in the past and focus on a great outlook for 2022.

 

Dan Eger is a tax supervisor at the Holyoke-based accounting firm Meyers Brothers Kalicka, P.C.; Shannon Shainwald is an administrative assistant at the firm.

 

Banking and Financial Services

The $1 Million Exemption Level Is Among the Lowest in the Country

By Barbara Trombley

Did you ever wonder why all of your Massachusetts neighbors move to Florida when they retire? And they make sure they spend six months and a day at their southern address?

Of course, the warm winter weather in sunny Florida is a draw. But another reason many people in Massachusetts change their state residence is to avoid the Massachusetts estate tax, which is levied on estates valued over $1 million. Given the value of real estate and 401(k) plans in Massachusetts, it is not that hard to pass this threshold for many middle-class people.

Surprisingly, the federal estate tax is $12.06 million per person in 2022. Also, it is portable between spouses. With the correct steps, a married couple can protect $24.12 million after the death of both spouses in 2022. Our state estate tax is shockingly different. Of the 18 states with an estate or inheritance tax, Massachusetts and Oregon have the lowest exemption level of $1 million.

Also, the Massachusetts estate tax has a regressive feature where, if you die with an estate valued at $1,000,001 or more, your heirs will pay a graduated tax starting at the first dollar over $40,000 (which is a small exclusion). The bill on a $1 million estate is about $40,000. The tax rate is a graduated one and rises from 0.8% to 16% depending on the size of the estate. The heirs of an estate worth $3 million could find themselves with a tax bill approaching $200,000.

Massachusetts is shockingly out of step with the nation and with the rest of New England. Maine, Connecticut, and Vermont all have exclusions of more than $5 million, and New Hampshire does not have an inheritance tax at all. Until our legislators raise the exemption to keep up with inflation and make the exemption a true one, residents will continue to flee the state or jump through hoops to help their heirs avoid the tax.

Barbara Trombley

Barbara Trombley

“The tax rate is a graduated one and rises from 0.8% to 16% depending on the size of the estate. The heirs of an estate worth $3 million could find themselves with a tax bill approaching $200,000.”

What is included in your estate? Bank accounts, real estate, retirement accounts, life-insurance proceeds, vehicles, etc. Upon the death of the first spouse, no tax is owed. It is upon the death of the last remaining spouse that the dollar amount of assets is counted and an estate tax will need to be filed if the total value exceeds $1 million. The return must be filed, and any tax must be paid nine months after the death. The state may grant an extension of time, but interest will accrue on any unpaid amounts past the due date.

What can be done to mitigate the tax if the laws don’t change? Perhaps you retitle the ownership of your house to a trust or to an adult child to remove it from your estate. Each spouse can also set up a trust to shelter $1 million upon their death. This keeps the funds out of their estate but available to the surviving spouse to use if set up correctly.

Cash and other assets can be gifted to reduce an estate, but be careful about capital gains or tax owed on retirement funds. Charitable contributions can also be made to reduce the size of the estate. Many retirees move to a tax-friendly state, like Florida, and become residents. Working with a qualified financial planner and an estate attorney is imperative to mitigate the estate tax.

 

Barbara Trombley is a financial advisor and CPA with Wilbraham-based Trombley, CPA; (413) 596-6992. Securities offered through LPL Financial. Member FINRA/SIPC. Advisory services offered through Trombley Associates, a registered investment advisor and separate entity from LPL Financial.

Banking and Financial Services Special Coverage

More Than Writing Checks

Kevin Day

Kevin Day says banks — including Florence — responded strongly to rising food-insecurity needs during the pandemic.

Banks and credit unions have long touted their role in supporting local nonprofits through philanthropic efforts, but those efforts took on more urgency over the past two years, especially in areas such as food insecurity and other basic human needs. But even before the pandemic, these institutions were giving back in ways that went well beyond writing checks, from participating in fundraising events in the community to promoting a culture of volunteerism among officers and employees. In other words, the needs remain numerous, but so do the ways to address them.

 

 

When it comes to philanthropy, Kevin Day, says, Florence Bank’s overall goal never changes.

“We just try to be resilient and strengthen our communities and nonprofit sector,” said Day, the bank’s president and CEO. “We don’t necessarily go out year after year and do the same things; we tend to respond to the needs that arise, and needs in the community ebb and flow each year. Certainly, the last two years with COVID, we’ve responded to what the needs are and basically evaluated requests as they come in and tried to find the ones that have the broadest impact.”

The most obvious such need — one that many banks made a point of focus over the last two years — is food insecurity. Since the start of the pandemic, Florence Bank has donated at least $140,000 to organizations addressing that issue.

“We supported many local pantries and survival centers because the pandemic ramped up that need,” Day said. Meanwhile, “other organizations couldn’t run their normal events or even run the services they normally do. The way we managed our donations was responding to needs as they grew, and we were able to respond in a bigger way than normal.”

Craig Boivin, vice president of Marketing at UMassFive College Federal Credit Union, said it’s “in the DNA” of credit unions to invest money back into their local communities, and his institution does so in four main ways: writing checks to nonprofits, running donation drives, encouraging volunteerism among employees to help out community organizations, and financial-education programs that empower members in their financial lives.

“We had new requests coming in that we never had before because of agencies that were feeling an impact from a surge of families and individuals needing support because of the pandemic.”

Some of the events UMassFive typically supports, such as Will Bike 4 Food and Monte’s March, which both support the Food Bank of Western Massachusetts, took on new importance during the pandemic, while the credit union also raised $16,000 last year for the UMass Cancer Walk and Run, bringing its total support of cancer detection and prevention through that event to around $160,000. It has also made a 10-year, $100,000 commitment to CISA to help people access healthy food through farm shares.

Meanwhile, members can use their ‘Buzz Points’ from a debit-card reward program, typically redeemable for gift cards at local establishments, to donate to area nonprofits instead, Boivin said.

“We’ve really tried to play that up over the past couple years because there’s so much need in those local organizations, and not everyone has the means to support them by writing checks, so, just by doing normal shopping, they can donate points earned from the program.”

On what Boivin calls the “roll up your sleeves” side of the bank’s efforts, members and employees provided 350 pounds of personal items to food pantries and the Amherst and Northampton Survival Centers last year, collected hundreds of winter coats for people in need, while continuing to participate in events like the Connecticut River Conservancy’s Source to Sea Cleanup.

“During the pandemic, we were thinking creatively about what else can we do that’s different than what we’ve done in the past to support different folks,” Boivin said. “In some cases, it was really kind of doubling down on our efforts because the needs jumped more than expected.”

Kevin O’Connor, executive vice president and chief banking officer at Westfield Bank, agreed. He said that, during the pandemic, the bank has received requests for help for many new organizations, as well as different kinds of requests from nonprofits it has assisted in the past.

“We had new requests coming in that we never had before because of agencies that were feeling an impact from a surge of families and individuals needing support because of the pandemic,” he noted. “We looked at every agency we didn’t know and looked at how they were doing things to support people. It might have been people we already gave to before, like the Boys and Girls Club of Westfield, that was doing something new and different.”

The bank was able to support many of these new requests through what he called a ‘reallocation’ of resources, especially when it came to events — and there were many of them — that were canceled because of the pandemic.

Moving forward, he said the bank has increased its budget for giving in 2022 to support events and organizations it has backed for years, if not decades, and also support some of those new, pandemic-related requests that won’t be going away any time soon.

 

Expanding Needs

Dan Moriarty, president and CEO of Monson Savings Bank (MSB), said the bank has long supported the basic needs of people in the community, whether that’s food, shelter, clothing, or education, to name a few. “We look at the basic needs first, and then we look at community development and youth. We try to spread money around to as many organizations as we can. And need plays a major role in those decisions.”

The nature of the pandemic, and how it isolated people and disrupted the economic well-being of families and forced them into challenging situations, certainly changed the calculus of those efforts, Moriarty noted. “I think it exacerbated the need to help people with their basic needs, even more than during a normal cycle, outside of a pandemic. Again, with so much need out there, we strive to eliminate it.”

PeoplesBank recently announced a record level of charitable contributions in 2021, with donations reaching $1,315,000 over the past year with a total of close to $11 million donated since 2011. The bank has doubled its donations in the last five years.

“During the pandemic, we were thinking creatively about what else can we do that’s different than what we’ve done in the past to support different folks. In some cases, it was really kind of doubling down on our efforts because the needs jumped more than expected.”

“We do have funding focus areas, as we call them, that are probably similar to other banks,” said Matt Bannister, the bank’s senior vice president of Marketing and Corporate Responsibility, listing among them economic development, food insecurity, housing, social services, sustainability and the environment, and literacy (both early-childhood and financial).

“I would say 90% of our grant requests fit into one of those categories,” he said. “The other category is community, which is anything that doesn’t fit another category. For instance, fireworks or First Night Northampton — things that are good for community spirit.”

The bank has donated meals to frontline responders during the pandemic (as has UMassFive and other institutions) and PPE, actions which are unique to the current environment, but most people negatively impacted by COVID tend to fall into one of PeoplesBank’s traditional philanthropic focus areas, like housing needs, food insecurity, or social services.

“We’ve given to specific COVID causes as they’ve come up over the past couple of years,” Bannister said. “We’ve done that over and above the normal giving we do anyway.”

He noted that, “even giving what we give, we’re still not able to give to everyone who asks; the needs out there are pressing.” To further address those needs, the bank’s employees donate 10,000 volunteer hours per year, and 74 of them have served on 54 different nonprofit boards.

Florence Bank takes pride in similar efforts, Day said. “We encourage all our officers to be part of the nonprofit community in some way. And our employees are involved in roughly 125 organizations in the area, as board members, volunteering at events, and so on.”

Monson Savings Bank recently announced that its employees donated $8,880 to various local nonprofits in 2021 through the bank’s Team Giving Initiative Friday (TGIF) program.

“Western Massachusetts is not only the bank’s home, but home for many of our team members,” Moriarty said. “We work here, live here, and raise our families here. We are invested in the well-being of the local landscape and ensuring that our neighbors’ needs are met.”

Through the TGIF program, bank employees elect to donate $5 out of each of their paychecks to employee-selected nonprofit organizations that support the bank’s local communities. Since the program was launched seven years ago, MSB employees have donated a total of $45,170 to various charitable organizations.

“The TGIF program is just one example of our employees holding up the bank’s value of helping our neighbors in need,” Moriarty went on. “I often refer to us as a team here at Monson Savings. The TGIF program is a true team effort. Participants of this program donate just $5 out of their pay, and each donation comes together to create a large impact.”

 

Mission Driven

O’Connor said Westfield Bank, like other institutions, looked at new and different ways to support the community as a result of COVID, with many of them being public-health-related.

As one example, he cited the bank’s support of vaccination efforts in Springfield in a partnership effort with the Basketball Hall of Fame and other entities.

“We offered some support to help draw some bands and other kinds of entertainment to the Hall of Fame so that people would then hopefully go in and learn about vaccination, and hopefully get vaccinated, if that was their choosing,” he noted, adding that there were other initiatives with the Food Bank of Western Massachusetts and other agencies working to meet growing needs during the pandemic.

Boivin stressed that part of UMassFive’s community support stems from its financial-empowerment workshops, which have traditionally been offered at branches during the evening and sometimes during lunch hours.

“One silver lining of this pandemic is that it really forced us to get into the virtual world, opening those workshops up to a greater pool of people who might not get into our branches,” he said. “We had people from a much wider range of locations because we put content online and they could log in from home and don’t have to trek over to a branch.”

The workshop topics range from budgeting essentials to understanding credit to the basics of homebuying 101 — “quite a range of topics that all directly support our mission,” Boivin added, noting that these efforts and those directly supporting nonprofits all stem from the same philosophy.

“Even by giving out loans to people buying their first car or their first home, all those big life events, we play a role in the community,” he told BusinessWest. “Part of playing a role in the community is keeping more dollars local, investing in local organizations, and at the same time amplifying the mission of the credit union to better the financial lives of the people we serve. It takes many forms.”

Day agreed. “Community banks are in the same boat. Our employees are here, we all live and work in the community, and we all have a vested interest in making sure our community thrives.”

Unlike larger institutions whose management or directors don’t necessarily have a personal stake in the community, “for us, it’s a very important connection,” he added. “The decision makers are all here in the community. We’re not giving to places we don’t know. We see people impacted every single day, so there’s a tight connection between a bank like ours, where all our customers come from the local community, and our local organizations.”

Moriarty said Monson Savings Bank turns 150 this year, and he’s been looking at documents from the institution’s founding, which drove home MSB’s place in the community and why philanthropy is important, whether in a pandemic year or … well, a more normal one.

“Community banks were established to help people. They’ve always followed that mission,” he said. “We’re here to help the community; our mission is to help people save and prosper, but also to help the community wherever there’s a need, and we take that to heart.”

 

Joseph Bednar can be reached at [email protected]

Banking and Financial Services Special Coverage

Seeking a Return

Paul Scully says customers are feeling more optimistic about the future.

Paul Scully says customers are feeling more optimistic about the future.

While year one of the pandemic taught banks how to constantly pivot — to remote work, new modes of serving customers, and multiple phases of PPP loans — year two has brought more stability, even normalcy, but also new challenges, particularly inflation and supply-chain disruption that has made it more difficult for customers to save, borrow, and invest. That they’re doing all these things, to some degree, lends a healthy sense of optimism to 2022.

 

There’s nothing wrong with normalcy, Paul Scully said.

And if nothing else, the business of banking in 2021 was more stable than in 2020. That doesn’t mean all the economic issues individuals and businesses are dealing with have gone away, just that banks, and businesses in general, had to do less pivoting. Or at least have learned to roll with the punches.

“With vaccination rates increasing — or at least the availability of vaccinations up — we saw business picking up and customers feeling more confident coming into the banking centers,” said Scully, president and CEO of Country Bank. “And with commercial business picking up, people were feeling a little more optimistic with what the future has in store for them — where 2020 was all about trying to figure out what the heck was going on.”

What was going on last year were the early throes of a pandemic with no vaccines available, widespread shutdowns of economic activity, and banks more involved in PPP loans than normal commercial activity. “But we started to see, probably by the second quarter of this year, a normalizing, with customers feeling more confident and feeling more optimistic about the future and for their business.”

“With commercial business picking up, people were feeling a little more optimistic with what the future has in store for them — where 2020 was all about trying to figure out what the heck was going on.”

That’s a positive trend for commercial lending. Glenn Welch, president and CEO of Freedom Credit Union, was on an economic-outlook call with Visa recently, which projected a 7% uptick in 2022 in business investments in fixed assets, which means more borrowing. “That’s pretty healthy growth,” he told BusinessWest. “People are looking to borrow out there. Corporations’ financial statements are looking pretty strong the last couple of years, and a lot of consumers are sitting in pretty good financial shape; we’ll see whether they want to pull the trigger or not.”

On the consumer side, they have, with 2021 being the second straight year of double-digit growth on the mortgage-lending side at Freedom, along with healthy business in auto and home-equity loans. “And last year, deposits were up over 20%; this year, it was 10%. Our balance sheet, like many institutions, has grown pretty significantly since COVID hit.”

Tony Liberopoulos, Liberty Bank’s senior vice president and regional manager for Commercial Banking, said the bank’s new commercial-lending push in Western Mass. — it opened a loan-production office in East Longmeadow in June and has added three more employees since then — has gone well.

“We’ve been very happy. We had a very strong year; we’ve been very busy,” he told BusinessWest, noting that much of that success can be attributed to customers craving normalcy — in this case, face-to-face dealings with a stable team.

“With the amount of market disruption between mergers, community lenders leaving their jobs for other opportunities, and, in many instances, competitors still working from home, we’ve had opportunities to meet prospects and clients to grow our business,” he explained.

Tony Liberopoulos

Tony Liberopoulos says borrowers want access to digital tools, but mainly prefer face-to-face interactions.

“We’re firm believers that, while businesses have been struggling with things like COVID and supply chains, things will bounce back,” he went on. “And we’re seeing a lot of opportunities just by being in front of the clients. They want to see familiar faces; they don’t want to deal with just Webex and phone calls.”

Liberty’s lending numbers have borne that out, with 2021 figures close to what they were pre-COVID, Liberopoulos added. “That’s all we can ask for at this point. We’ve found customers and prospects still want face-to-face meetings; they want a normal relationship with banks.”

With that in mind, “I think the trend is toward more confidence in 2022 than there was in 2021,” he went on. “I think companies have seen their business come back since late May, early June, when a lot of COVID restrictions were lifted. We’re seeing businesses thrive again, and now they’re starting to invest in 2022. That’s what we’re counting on.”

 

Into the Digital Age

While many customers do, indeed, prefer to bank in person, Scully said, one of the big industry stories of the pandemic was how customers who had avoided digital banking options embraced them when they had to — and then stuck with them.

“More and more people developed a comfort level with technology,” he explained. “Many had a fear of the unknown — ‘will my money be safe?’ But the last 20 months allowed people to recalibrate a little bit, and we’re seeing more and more reliance on technology, which is great.”

Country even converted a small branch in the Ware Walmart to an interactive banking office with two interactive teller machines (ITMs). “They can absolutely do anything on the machine. The customer response has been really positive.”

Technology has helped banks in other ways — including combating a workforce shortage that has affected every industry and has not spared banks and credit unions.

“The fact that there aren’t a lot of employable people out there is taking its toll on businesses. Anyone in a customer-service business is looking for people; it doesn’t matter whether if you’re running a bank or a local coffee shop.”

“Honestly, it doesn’t matter what business you’re in these days, the fact that there aren’t a lot of employable people out there is taking its toll on businesses. Anyone in a customer-service business is looking for people; it doesn’t matter whether if you’re running a bank or a local coffee shop.

“But that customer expectation still exists for us, so technology has helped quite a bit,” Scully went on. “Customers during the pandemic became more familiar with doing their banking through technology, and their reduced reliance on coming into the branch reduced some of our traffic.”

At Country, while the banking centers operate five or six days a week with in-person staff, in the back-office areas, employees remain on a hybrid schedule, three days in the office, two remote — with Wednesdays mandatory for everyone to come in. “That’s more of a cultural thing for us, so folks would still be connected to one another.”

And the hybrid model has worked well, he noted. “We recognized early on, as we started to look at the reopening process, there are a lot of benefits to having a hybrid workforce. It’s like 2020 allowed us all to recalibrate, and ask why you’re spending an hour twice a day commuting to the office just to do work you were able to do at home for a year. We decided, ‘let’s rethink this.’”

Staffing has also been a challenge for Freedom, Welch said, which had to close down a branch or revert to drive-up only on occasion to deal with it.

Glenn Welch

Glenn Welch says workforce issues have not only affected staffing for banks and credit unions, but have begun to put pressure on wages.

“We’ve seen other institutions have the same issue. We’re certainly trying to hire people, but it’s been difficult. People leave, and it’s hard to get people interested in coming in and working. I don’t know if it’s because it’s a retail environment — that’s where most of our openings are, in branches — or it’s just people retiring or finding other things they want to do.”

The crunch has started to put pressure on wages, Welch added, which not only affects the banks themselves, but often doesn’t do enough to balance surging inflation for those earning the paychecks.

Liberopoulos said the shift toward digital banking options is a good one, and even though many of his commercial clients have wanted to do business in person, they, too, also want to be able to access the same digital experience — with its speed, flexibility, and personalization — that consumer clients have.

“Innovation is always the key to growth and sustainability. To survive, you need to invest not only in talent, but in products and services,” he said, noting that there’s certainly a need for both online options and a bricks-and-mortar presence.

 

Back to the Street

Communities and nonprofits saw their needs soar during the pandemic, too, and that’s one area community banks and credit unions continued to focus on in 2021. For example, over the summer, Country Bank — which has traditionally focused its giving on basic needs like food insecurity, homelessness, and healthcare — donated a total of $1 million to two regional food banks.

“To be a healthy community, residents in the community need to be in good health. Nutrition should be a right and not a privilege,” Scully said, noting that needs became more dire due to the pandemic, job losses, inflation, and an increase in addiction.

“If you have a heartbeat, you enjoy giving back, and it doesn’t have to be a certain size,” he said, turning the topic around as a challenge to others. “You may be able to donate only a dozen boxes of pasta, but that’s a dozen more boxes of pasta available for someone in need. What we like to do is partner with organizations and get their stories out there, so other people can jump on the bandwagon and be a part of it too.”

That speaks to Liberty’s priorities as well, Liberopoulos said. “We’re very in tune with our community and helping out the non-for-profits; we’ve done a lot of good things so far and continue to do that. That’s very important to us. We live, work, and lend in this area, and we want to support this area as well.”

Welch said Freedom has not only supported nonprofits, but gotten others involved by choosing a charity each month — A Bed for Every Child, the Walk to End Alzheimer’s, and Unify Against Bullying are just three recent examples — and involving members in the giving.

“We have been advertising that on our website and trying to get donations not only from the credit union, but from members who find the causes worthwhile and have the ability to donate,” he explained.

As for member business in the coming year, Welch knows inflation remains a drain on savings and assumes interest rates will rise at some point in an attempt to slow it down. “That could have an impact on people being able to borrow. Student-loan payments are starting up again, too, so people will have $300 or $400 coming out of their pocket for that in addition to increased prices and increased rates.”

These are problems that affect businesses, too, Scully said.

“With inflation and the cost of goods going up, and so many businesses looking at inflated utility expenses, now, with the shortage of qualified, available help, payroll tends to go up as well,” he noted. “Clearly there are a lot of challenges for folks in the business arena — which is why you really want to encourage people to shop local and keep Main Street storefronts occupied.”

Many businesses struggling with higher costs are still looking to borrow and invest, he added. While the PPP loans of 2020 were about keeping the lights on and keeping employees paid, for more traditional loans going forward, borrowers need to show a continuation of revenue streams without the PPP revenue to bolster them.

“For the most part, that’s exactly what happened. Businesses have returned to a good level,” Scully said. “Certainly, some are still taking their hits — hospitality was one of the hardest-hit, whether it’s food services, hotels, or entertainment venues. They had tough restrictions put on them last year. Those restrictions were lifted for the most part, but now they can’t rehire enough workers.”

These are all factors that might cause individuals and businesses to pull back from borrowing, he added.

“What will the impact of inflation be? When will interest rates start to rise a little? The big piece that looms for me is employment: where is the workforce going to be? Will there be enough employable people for all of the jobs? We’ve heard about this Great Resignation. It’s real.”

Still, like other financial leaders we’ve spoken with recently, Scully remains optimistic. “All indications suggest 2022 should be an OK year from a business perspective.”

 

Joseph Bednar can be reached at [email protected]

Banking and Financial Services

Some Moves of Interest

 

For a bank that’s been around for 136 years, PeoplesBank came across commercial lending fairly recently.

“My predecessor, Doug Bowen, started commercial lending at PeoplesBank probably 35 years ago,” Tom Senecal, the bank’s president and CEO, told BusinessWest. “We didn’t do any commercial loans until then, and we started out with just commercial real estate. And we stayed conservative with real estate, and never went into the C&I side because we didn’t have a lot of expertise. Just by virtue of what our comfort zone was, we focused on the real-estate side.”

That’s all changed, as PeoplesBank has made a strong push into the realm of C&I (commercial and industrial) business lending over the past two years.

“A little over two years ago, we started talking about our strengths and weaknesses and who we are are and what we do as the largest mutual institution in Western Mass.,” Senecal explained. “We have a very successful commercial real-estate portfolio. What we didn’t have was the C&I side. So we started talking about how to get into the C&I business.”

The reason the bank hadn’t done so sooner came down to expertise, which it had in spades on the real-estate side but much less so in C&I, where “you’re financing equipment, you’re financing lines of credit, there’s different types of collateral, it requires more monitoring, more analysis … we didn’t have that experience,” Senecal said. “It’s a very complex and very different lending skillset than commercial real estate.”

That’s why Senecal started talking with Frank Crinella, who has decades of experience in lending in the region, about bringing over a group of individuals from a large regional bank to spearhead a push into C&I lending.

“We have a very successful commercial real-estate portfolio. What we didn’t have was the C&I side. So we started talking about how to get into the C&I business.”

“We talked for several months about his group of people coming over, and we brought over five people that have an enormous amount of experience on the C&I side,” Senecal said. “Real estate is much more transactional, and we wanted to develop relationships in our home market much better than we ever had in the past, and C&I, to us, was the way to do it.”

Crinella is now the bank’s senior vice president and senior lender, and will also take the title of senior credit officer when Mike Oleksak, the institution’s longtime senior lender and senior credit officer, retires at the end of the year.

“C&I typically brings over the relationship more than just the real-estate transaction. And now that we have the group of people that we have, I think it’s going to be tremendously successful, not just for the Western Mass. market, but for our growth strategy going down into Connecticut as well,” Senecal said. “Frank and the group of people who came over have been here just over a year and have been enormously successful in that period of time, starting to build relationships here in Western Mass.”

Crinella saw great potential in what PeoplesBank was trying to do.

“What attracted us to Peoples was really the culture,” he said. “And C&I is all about relationship lending, the team approach. We have a very strong credit culture, but we also have a lot of depth on the cash-management side, and our branch network is very strong and plays well to the companies here in Western Mass. and Northern Connecticut.”

The commercial-lending department is now up to 50 people, Crinella noted. “The team complements each other so well. They brought in a lot of credit analysts that have C&I experience, so we’ve got depth now on the underwriting side.”

He was also drawn to a lending model at Peoples that prioritizes the ability of lenders to make quick decisions (more on that later).

“We talk about speed to market around here — we make all our decisions here on Whitney Avenue, so we can turn around a loan request quickly, and kind of outmuscle the big boys in that way … and, with the depth that we brought, outmuscle the local competition as well.”

 

Lending Support

Senecal said he knew PeoplesBank could excel at C&I lending based on its culture and ability to forge relationships through its branches.

“C&I is small business,” he explained. “And the interconnectivity between our branch network and our C&I lending is extremely important. It’s very difficult to develop a relationship on the small-business side without a branch network. So, in a lot of my conversations with Frank, we’re focused on our growth strategy and continuing to have the brick-and-mortar strategy, which complements the C&I side.”

Retail banking, Senecal noted, is moving in the direction of digital modes like mobile banking, online bill pay, and ITMs.

“When you talk C&I lending and small-business lending, you can’t do all that digitally online. You need a relationship. Accounts are very different for small businesses than they are on the retail side, between needing cash-management services, wires, positive pay … there are a lot of different functionalities small businesses utilize, more than the typical retail customer. A lot of services need to be communicated, and you can’t do that necessarily digitally. So the branch network has a huge impact.”

Crinella called it “delivering the bank.”

To explain that concept, he noted that, “when a relationship lender goes out to visit a customer, oftentimes they’ll bring the banking-center manager as well as the cash-management professionals, so the customer gets the entire bank when they’re meeting with the relationship lender. That’s really the difference between C&I and commercial real-estate lending. That’s what we’re trying to capture when we talk about relationship lending.”

The relationships customers already had with the lenders who moved to Peoples have generated some business as well, Senecal said.

“When you transition a group of five people from one institution to another, you create some loyalty from those customers who had relationships with them, and you can tell that the relationship means a lot. We’re getting great, positive feedback as a result of that.”

Crinella agreed. “They become valued advisors to the customer,” he said. “They take the time to understand their business and make informed decisions. Again, I think speed to market has been a huge competitive advantage. We get there quick. We can get a term sheet out in 48 hours, and that’s something, competitively, the big boys have a tough time competing with.”

With Oleksak, and soon with Crinella, it was important that both titles — senior lender and senior credit officer — fall under the same individual, Senecal said.

“From a customer’s perspective, when Frank shows up at the table, he has the decision-making authority for quite a few loans. Certainly, when loans get larger, we have a committee, we meet and talk, but Frank has the ability to sit at the table and make decisions immediately with customers based on what he sees.

“That doesn’t occur at most larger institutions,” Senecal went on, “where the lender goes out and gets the loan, develops the conversation, and then goes back with all the information and says, ‘OK, this is the deal. This is the terms of the deal I’d like to do.’ And they sit around with other people — adjudicators, other credit people, who say, ‘yeah, I don’t like that deal. You need to do this, you need to get that.’ And it becomes a group decision.”

That’s not the best or most efficient experience for the customer, he said.

“When you sit in front of a customer and you make the customer believe we’re going to do the deal, then you go back to the office and all of a sudden five different people have their opinions on what it should look like, it’s really hard to go back to the customer and say, ‘yeah, the deal’s changed.’”

That’s why it’s important to empower people, not committees, to make decisions, Senecal explained. “If the loan is a large loan, yes, it goes up to committee discussion. But in my 25-plus years at the bank, maybe two loans didn’t get through loan committee — because the lenders know what they’re doing.”

 

By All Accounts

When commercial lenders at PeoplesBank were focusing solely on real estate, they excelled at deals for warehouses, multi-family facilities, mixed-use properties, and strip malls. With C&I, they’re talking to manufacturers, healthcare practices, nonprofits, lawyers, accounting firms, and many more entities. And that requires specialized knowledge and, yes, strong relationships.

“You’re not lending on the building, you’re lending on the business,” Senecal said. “In real estate, we lend the money and hope to get paid back. If we don’t, we have the real estate. On the business side, it’s a whole different aspect of trying to understand, ‘how are you going to pay the loan back?’ When you get into all these other industries, it takes a unique skillset to identify whether or not it’s viable and the loan is a good loan or not.”

It’s a skillset the bank plans to further grow as it evolves its lending presence in the region’s C&I landscape.

 

Joseph Bednar can be reached at [email protected]

Banking and Financial Services

‘A True Win-Win’

By Mark Morris

Jim Kelly

Jim Kelly says PNCU and Premier Source offer services and expertise that benefit each other.

Polish National Credit Union started in 1921 with an investment of $325 and has grown to more than $700 million in assets today. But there are always ways to improve and expand its services, said President and CEO Jim Kelly, who describes PNCU’s recently announced merger agreement with Premier Source Credit Union as a joining of two forces.

“No one at Premier Source will be losing their job,” he said. “In fact we are counting on their expertise on offering credits cards to members which is a business we’re not in right now.”

Meanwhile, confronted with rising costs to keep up with technology, compliance, and talent retention, Premier Source had begun looking into a merger as its best way forward. CEO Bonnie Raymond said that, after considering a number of factors, Polish National emerged as the best fit.

“As a larger organization, Polish National offers in-house mortgages and commercial lending, while we bring our credit-card portfolio to expand to their membership,” Raymond said. “Along with the credit-card business, they will benefit from the expertise of our staff, so it’s a true win-win.”

Kelly added that organic growth in Western Mass. is not easy. That’s why he called the merger with Premier Source a “once-in-a-lifetime opportunity.” The current Premier Source headquarters on North Main Street in East Longmeadow will become the ninth branch for Polish National, which is headquartered in Chicopee. That location also addresses one of Kelly’s strategic goals in finding additional space.

“We’re a growing credit union, and there’s not much room left at our headquarters in Chicopee or at our operations center in Wilbraham,” he said. “The Premier Source building is large and beautiful, so it helps us in a huge way.”

What has become known across the U.S. as the Great Resignation has also affected the two credit unions. Between retirements and just leaving the job due to COVID-19 concerns, both organizations felt the impact of people leaving. Raymond noted that the merger will help address staffing issues for both.

“This was another win-win because our staff will stay employed while Polish National will be able to bring on experienced help to fill any openings they might have.”

“This was another win-win because our staff will stay employed while Polish National will be able to bring on experienced help to fill any openings they might have,” she explained.

In recent years, both organizations have grown through mergers with smaller credit unions. On a national level, Kelly told BusinessWest, approximately one credit union per day is involved in a merger.

 

Strategic Partnership

Premier Source began in 1941 as Kelko Credit Union, founded by employees of the Kellogg Envelope Company. Over the years, Premier Source acquired employee credit unions from companies such as Spalding, Hasbro Games, and Western Mass Electric. While membership now exceeds 4,500, Raymond said its growth still doesn’t provide the economies of scale of larger institutions.

“For example, interactive teller machines have become popular, but they are extremely pricey, and just buying one doesn’t recoup the investment,” she said. At $80,000 each, an institution needs to own several ITMs to find any economies of scale.

By agreeing to the merger, Premier Source will not be investing in ITMs, but its members will see a direct benefit. A common practice when a credit union merges involves paying a dividend to its members. Raymond explained that members are the reason Premier Source has a strong capital foundation, so the board will soon vote for a special dividend to compensate members for staying with the credit union.

“It’s a way to reward members for their longevity. Members who have been with us for more than 10 years will receive the largest dividend,” she said, adding that most members have belonged to Premier Source for more than 10 years.

Far from a cold and calculated business deal, Kelly said a credit-union merger is typically a more personal type of transaction, done only with people who have earned one’s trust.

“You don’t merge with someone you’ve only met a few months ago,” he noted. “It usually involves people you’ve known for at least several years because you want to make sure your members and employees are taken care of as a result of the merger.”

Kelly said he and Raymond go way back, having crossed paths many times because they work in the same industry. “I’ve known Bonnie for a long time. She is a high-quality and talented person.”

The next step in the merger process involves regulatory approval from the Massachusetts Division of Banks, the National Credit Union Administration, and the Massachusetts Credit Union Share Insurance Corp., as well as approval from the memberships of both credit unions.

A recent news release suggested the merger could be completed by the spring of 2022. Kelly, a former regulator, said he would not offer a timetable because it’s completely in the hands of the regulators as to when they complete their work on the merger.

 

Healthy Outlook

Polish National ranks 174th among the top 200 healthiest credit unions in the country, according to the Cooperative Credit Union Assoc. Kelly is proud of this accomplishment and noted that it’s positive news considering there are 5,164 credit unions in the U.S.

For now, the numbers Kelly looks forward to involve the 4,500 Premier Source members joining the 25,000-plus members of Polish National. It’s a fitting way to start the next 100 years of the credit union,” he said.

“While our founders were Polish, we have always been a community credit union and will continue that tradition,” he added, noting that the quote credited to the revered TV22 meteorologist John Quill still rings true: “you don’t have to be Polish to be a member.”

Banking and Financial Services

Contractor or Employee?

By Sarah Rose Stack

 

Even prior to the pandemic, the ‘gig economy’ was growing at unprecedented rates. That growth has only been accelerated with more traditional companies relying on remote workers and hiring more contractor workers. Freelancing is big business, with nearly $1 trillion of income generated. However, although that total number is impressive, independent contractors earn 58% less than full-time employees (FTEs), and more than half don’t have any employer-provided benefits.

From a business perspective, there are advantages and disadvantages to how a company classifies its workers. With employees, you’ll have more control, but that comes with more compliance obligations. With contractors, you’ll have fewer compliance obligations, but you will also have less control.

“From a business perspective, there are advantages and disadvantages to how a company classifies its workers.”

Some tax advantages to hiring independent contractors include the ability to avoid several tax obligations that apply to employees. For example, a company generally isn’t required to withhold federal or state income taxes, pay the employer’s share of Social Security and Medicare (FICA) taxes, withhold the workers’ share of FICA taxes, or pay federal or state unemployment taxes.

In addition, companies that use contractors may avoid other obligations, such as the requirement to pay minimum wages and overtime under the federal Fair Labor Standards Act and similar state laws, furnish workers’-compensation insurance (in many states), make state disability-insurance contributions, or provide employee benefits.

Keep in mind that simply having a written agreement or labeling a worker as an independent contractor doesn’t make them so. The IRS and other government agencies look at all the facts and circumstances to determine whether workers are misclassified.

When someone is hired, they must be classified as either an employee or an independent contractor. Here’s how the IRS determines worker status.

 

Behavioral Control

If the company has a great deal of control over the behavior of the worker — for example, where they work, when they work, or how they perform their jobs — the worker should be classified as an employee. If the company is giving the worker evaluations, conducting extensive or ongoing training about procedures and methods, or demanding that the worker attend daily meetings or set hours, then the worker is more likely an employee. Independent contractors will customarily set their own hours, decide on how to implement a project, and dictate where they work.

 

Financial Control

If a company provides equipment for the worker (tools, software, computers, phone, etc.), often reimburses expenses, and/or pays on regular and ongoing basis, then the worker is more likely to be an employee. The IRS clarifies by considering the following:

• Significant investment in the equipment the worker uses in working for someone else;

• Unreimbursed expenses, which independent contractors are more likely to incur than employees;

• Opportunity for profit or loss, which is often an indicator of an independent contractor;

• Services available to the market, as independent contractors are generally free to seek out business opportunities; and

• Method of payment. An employee is generally guaranteed a regular wage amount for an hourly, weekly, or other period of time even when supplemented by a commission, while independent contractors are most often paid for the job by a flat fee.

 

Relationship

Perception of the relationship is considered, but the interactions between workers and employees is what ultimately defines the relationship. Written contracts are considered; however, an employer cannot classify their workers as independent contractors when they, in fact, treat them like employees. If the company is providing employee benefits, insurance, paid time off, sick days, or pension plans, then the worker is most likely an employee.

Another area to consider is the permanency of the relationship. Employees are more likely to be hired indefinitely, and either party can terminate the relationship at any time, for any legal reason. Independent contractors’ rights are subject to a contract.

 

Penalties for Misclassifying Workers

The consequences for misclassifying employees as independent contractors can include IRS penalties and other non-tax implications. The IRS may assess back taxes against the company and demand that the company pay the employees’ share of unpaid payroll and income taxes, regardless of whether or not the independent contractors met those tax obligations. Companies can also expect to pay IRS penalties and interest. Further, workers can file a lawsuit against employers to demand back pay, overtime, and benefits.

 

Review Your Current Workers’ Status and Hiring Policies

The potential tax and non-tax savings do not outweigh the significant cost of misclassifying workers. It’s important to review your hiring policies, even if you are comfortable with your classification of current workers, to ensure that you are meeting all applicable standards for classification. Talk with your advisors if you believe you may have misclassified an employee or have questions about the standards.

 

Sarah Rose Stack is the Marketing manager for Holyoke-based accounting firm Meyers Brothers Kalicka, P.C.

Banking and Financial Services

And Why Investors Should Consider Re-evaluating This Strategy

By Jeff Liguori

 

Humans are historically bad at long-term thinking. In the world of finance, that behavior has dramatically worsened over the past 50 years.

Today, the average investor holds an individual stock for less than six months; in the late 1990s, that period was approximately two years. Go back to the 1950s, and investors were holding individual stock for nearly eight years on average.

What has caused such a drastic shift in investor behavior? First, access to markets has never been greater, which creates ample amounts of liquidity for trading. Second, ever-growing reams of information are disseminated at lightning speed, preying on our psyches. Finally, the cost to trade shares of a stock is negligible — in many cases, zero. Each of these trends is quite beneficial to the average investor. However, the combination of these factors promotes behavior that does not support a long-term view of investing.

For the sake of analysis, let’s look at the performance of Target Corp. (symbol: TGT). From July 1, 2013 through Nov. 30, 2021, the total return of Target’s stock (price appreciation and dividends) was 350%. During that same timeframe, the S&P 500 had a total return of 230%. However, shares of Target largely underperformed the broader market in the five years following July 1, 2013, returning 29% vs. 86% for the S&P 500.

Jeff Liguori

Jeff Liguori

“Ever-growing reams of information are disseminated at lightning speed, preying on our psyches.”

There was no lack of bad news in that five-year period, including a change in leadership with a new CEO and a failed plan to expand into Canada that cost the company more than $5 billion. But a patient investor with a long-term view, who believes in owning solid businesses, has been handsomely rewarded by staying with Target.

A recent article in the Wall Street Journal highlighted a little-known mutual fund manager, Wilmot Kidd, who has had exceptional investment performance.

“Over the past 20 years,” it notes, “Mr. Kidd’s Central Securities Corp. … has outperformed Warren Buffett’s Berkshire Hathaway Inc. Over the past 25, 30, 40, and even nearly 50 years under Mr. Kidd, Central Securities has resoundingly beaten the S&P 500. The keys to his success? Patience, concentration, and courage.

“If you had invested $10,000 in Central Securities at the end of March 1974, when Mr. Kidd officially took over,” the article continues, “you would have had nearly $6.4 million by the end of this October, according to the Center for Research in Security Prices. The same amount put into the stocks in the S&P 500 would have grown to $1.9 million.”

Analysis on Kidd’s fund suggests an average holding period north of 10 years. But some of the companies in which Central Securities is invested have been part of the fund for more than 30 years. And during Kidd’s tenure, the fund has underperformed the S&P 500 several times. But having the courage of his convictions, and staying invested through market cycles, has served his clients very well, despite periods of underperformance.

Investing today is about constant measurement. Companies produce quarterly earnings reports, compelling Wall Street analysts to change projections and adjust ratings, which forces investors to rethink their investment ideas. Add in exogenous events to amplify anxieties, and it is no surprise that the investing public has become so shortsighted. No, I don’t worry about the potential ramifications of Russia invading Ukraine on my stock portfolio (an actual assertion from a client!).

As a kid, I remember my grandfather diligently keeping track of the few stocks he owned, writing the end-of-month prices in a journal. He didn’t have the luxury of technology; his analysis was straightforward and pragmatic. He invested in companies with which he was familiar. He had no formal degree, having to forgo college to support his family during the Depression. The son of immigrants, he owned and operated a small grocery store whose customers were almost entirely working-class or even working poor.

One of his suppliers was a company called Corn Products Inc. The company still exists, now called Ingredion (symbol: INGR). For him, investing was about owning a piece of this company that he had a personal connection to, in the hopes of growing a nest egg. Whenever there was ‘extra’ money from his earnings, he would add to his positions. My grandfather retired in 1982 having never earned more than $30,000 in any given year. The value of his portfolio exceeded $600,000 prior to his death in 2011.

He didn’t know he would live for nearly a century, passing at age 97, but he sure invested like it. u

 

Jeff Liguori is the co-founder and chief Investment officer of Napatree Capital, an investment boutique with offices in Longmeadow as well as Providence and Westerly, R.I.; (401) 437-4730.

Banking and Financial Services Special Coverage

Open for Business

Ben Leonard outside Tower Square

Ben Leonard outside Tower Square, where Country Bank just opened an office to service growing commercial business in and around Springfield.

Businesses didn’t stop borrowing in 2020, although much of last year’s lending activity had more to do with staying afloat with Paycheck Protection Program (PPP) loans than expanding operations. These days, with the economy in a more stable — if not exactly robust — place, many businesses are looking to invest and grow (that is, if they can get enough people to come to work), at a time when banks are sitting on more liquidity than usual and are anxious to lend it out.

When Country Bank announced it was opening a commercial-banking office in Springfield, Ben Leonard was intrigued by the opportunity, noting its similarities to the bank’s push into Worcester in recent years.

“Country Bank has been around a long time, but historically, the physical presence has been between Worcester and Springfield,” noted Leonard, a senior vice president who leads the new Springfield office, located downtown in Tower Square.

“But we’ve always served clients everywhere within a 100-mile radius, and we’ve seen more activity here,” he went on. “We have clients in Springfield and the greater area of Western Mass., so the impetus to build that office was to be closer to those customers. Part of that is growing our C&I [commercial and industrial lending] business — we see a growth market here. It’s an opportunity to grow.”

The C&I lenders who work in the Springfield office have experience in niches like manufacturing, distribution, and equipment-heavy companies, Leonard explained. “That’s kind of what the team knows, and that’s a big part of why Springfield and Worcester are appealing markets for the bank to expand in, because those kinds of businesses are what’s here.”

Those are also the kinds of businesses that maintained operations at a more or less steady level during the pandemic, and now they’re ready to grow — and borrow, he said, adding that the real-estate market is active as well.

Jeff Sullivan

Jeff Sullivan

“If there’s a hindrance to businesses growing, it’s labor. It’s not being able to buy the machine, it’s hiring someone to run the machine.”

“Certainly there’s a need for affordable housing, and we’re seeing a lot of turnover in real-estate properties, some repurposing, and some interesting dynamics with real-estate valuations being as high as they are. We’re also seeing situations where the dynamics have changed, where an office building is half-empty now, and it needs to change hands.”

In short, commercial lenders are busy, which marks a change from a year ago. More accurately, they were just as busy last year, but often dealing with some very pandemic-specific activities, from PPP loan processing to commercial-loan deferments, particularly for hard-hit industries like hospitality. These days, however, businesses (not all, but many) are moving past the treading-water stage and calling on banks to help them expand, not just survive.

“People are spending money,” said Jeff Sullivan, president of New Valley Bank, which is based in downtown Springfield, noting that some business owners are looking to buy property rather than continue to pay a landlord, while others are making speculative investments in real estate, rather than sitting on cash they may have accumulated during the pandemic, when spending was suppressed for both individuals and businesses.

“We’ll see two or three buddies get together and pool some money to use for a down payment on a two-family or three-family house, thinking, ‘I can make 10 to 15% on my money investing in real estate rather than have it make zero percent in my savings account,’” Sullivan said.

Many are first-time real-estate investors, he added, including young people and people of color aiming to build wealth, while established businesses are anxious to invest in their own operations.

“A lot of people have squirreled away cash from the government programs during the pandemic, and have been hanging onto that cash for a rainy day, and now they’re in a situation where they can use some of that — and banks are lending,” he said. “If there’s a hindrance to businesses growing, it’s labor. It’s not being able to buy the machine, it’s hiring someone to run the machine.”

Mike Lynch, senior lender at Florence Bank, said his institution is looking at commercial-loan numbers that are at least equal to pre-pandemic activity — and that’s on top of PPP loans.

Kevin Day says last year’s loan deferments were a “lifesaver” for many businesses.

Kevin Day says last year’s loan deferments were a “lifesaver” for many businesses.

“We do all kinds of loans, commercial real estate and C&I loans. We’ve seen strong activity across all sectors; it hasn’t been one pocket more than others,” Lynch said.

Florence Bank President Kevin Day agreed. “It’s kind of across the board — not every sector, necessarily; we’re not seeing many new hotels and restaurants opening up. But investment properties are creating new borrowers, and they need help with financing.”

The combination of low interest rates and high prices were driving the commercial-loan market a year ago, the last time BusinessWest tackled this story, and that has remained true. “In the real-estate market, everyone understands residential properties are hot,” Day said. “But in commercial real estate, it’s similar.”

 

Back to Normal?

One thing that has changed is the reliance on loan deferments, which was one of the leading stories in commercial lending (and retail lending as well, for mortgages, car loans, and credit cards) last year.

“We were very active in the deferment program. It was a lifesaver for a lot of businesses,” Day said. “As we’ve come into 2021, a lot of the deferment periods have ended, customers are emerging from pandemic lockdown activity, and things are becoming more normal.”

In the business world, “almost all commercial customers are out of deferments, back on normal schedules, and it feels like their business is gaining traction, getting back to to pre-pandemic levels,” he added. “In the hospitality areas — hotels, restaurants, and such — the pandemic hurt them, but even they’re coming back out of the malaise, and business is starting to pick up. The deferments gave people time, and as everything is starting to come back online, those businesses will get their customers back and should come out of it fine.”

Leonard said Country Bank handled close to 1,000 PPP loans totaling around $75 million.

“I’m happy to say we deployed a lot of that, and consulted with folks on the front end to be sure it wasn’t a rubber stamp,” he said. “It was a differentiator; I think the smaller banks really shined, and were nimble enough to support their customers. You can talk about being there for your customers when they need it, but could you deliver? I think Country Bank did.”

The bank is well-positioned to be a stable provider of financing going forward, he added, “because our capital ratios are head and shoulders above most other banks, which allows us to do a couple things. It means our lending limits are higher, but it also allows us to be patient and pragmatic with our customers.

“We have a lot of capital to lend and the ability to lend it, but where we’re going to be most successful is really understanding our businesses, so that we can bank them through cycles.”

“So I think we see an opportunity because of that,” he added. “We have a lot of capital to lend and the ability to lend it, but where we’re going to be most successful is really understanding our businesses, so that we can bank them through cycles. That is more important than ever, I think.”

Elaborating, Leonard said the pandemic reinforced the need for banks to have close relationships with their commercial clients and really understand their business, and to understand how much struggle — or success — over the past two years was a pandemic-induced anomaly and how much might remain the trend going forward.

“The value add for any banker, especially a C&I lender, is knowing a company well enough to make those educated decisions,” he told BusinessWest. “Our strategy is to spend a lot of time getting to know the companies we bank, so once we start a banking relationship, we’re in it, and we find a way to be pragmatic and support companies for the long term. That takes thoughtfulness on the front end.”

Sullivan said New Valley has been actively reaching out to small-business owners, who are often too busy running their business to seek help. “Larger companies have more resources and have banks calling on them all the time. There’s plenty of capital out there, and we want to make sure we connect with those business people, and that’s what we’re trying to do.”

Almost as one, bankers say there’s plenty of liquidity in the market, and once businesses began seeing some clarity with the pandemic — and, to be sure, there’s still plenty of uncertainty — they started moving into growth mode. But, again, the current labor situation is dampening some of that enthusiasm.

“I talk to a lot of business owners who are grateful the government bailed out businesses during the pandemic,” Sullivan said. “But there are some who would rather have a more normalized market where people are coming back to work.”

Meanwhile, “deposits are way up, and all the community banks I know are looking to put that money to work as loans rather than having it sitting around in cash. If anything, that’s become more exacerbated the last few weeks.”

 

Good Business

Like Country Bank, Florence Bank has expanded its geographic footprint in recent years, into Hampden County, specifically, to serve — and expand on — commercial business it was already doing in the region.

It has been a successful transition, Day said, one that has turned into retail business growth as well. But right now, he sees plenty of opportunity on the commercial side.

“Our credit quality, frankly, has never been better. People who had jobs and operated businesses during the pandemic have a lot of cash on hand. Hospitality businesses had to take time off because of the pandemic, but are now starting to get over it. Deferments helped people like that a great deal to come back online.”

The resulting liquidity in the system — and the resulting credit quality — mean delinquencies are at record lows, Day added. “Not only is business good, but the business we have is good business as well.”

 

Joseph Bednar can be reached at [email protected]

Banking and Financial Services

Gathering Storm

Christopher Viale

Christopher Viale says student-loan deferments, set to end in February, may pose issues for families who haven’t paid them back in a while.

 

During times of recession or economic upheaval, the last thing economists expect is for credit-card debt to fall.

Yet, that’s exactly what happened during the first year of the pandemic. According to Experian, from the third quarter of 2019 to the third quarter of 2020, credit-card balances fell by 24% nationally. The percentage of credit-card users carrying an interest-bleeding balance month to month fell from 58% to 53%, according to the American Bankers Assoc.

One reason was that this was no normal economic downturn; during the early months of COVID-19, businesses were shuttered, restaurants were closed, and consumers simply reduced their spending dramatically — even if they were still working, and despite the government stimulus checks.

“For the first year of the pandemic, people weren’t really spending; they were paying down debt. Record amounts of debt were being paid down,” said Christopher Viale, CEO of Cambridge Credit Counseling in Agawam.

But that has not been the case in 2021.

“When things started opening up a little bit, people went haywire; they started spending like crazy,” Viale noted. “Credit-card debt has increased by 13% over the last quarter, which is the most it’s ever increased in a quarter.”

“For the most part, consumers have been in a good position, but then, when all these debts start to come due again, it’s going to be a very difficult time.”

Basically, stimulus worked — in the sense of stimulating spending. “You got free money, the $250 tax credit per child, you got whatever other government programs were there … people had a lot of money in their hands. Even though they weren’t working, the unemployment checks they were getting were as good as if they were working. So, for the most part, consumers have been in a good position, but then, when all these debts start to come due again, it’s going to be a very difficult time.”

And that’s what economic leaders — and people like Viale, who help families get out of debt — worry about. The increased spending in 2021 has coincided with an end to loan-deferment programs launched at the start of the pandemic, and if they haven’t been paying attention to their budget, many families might be in for a shock.

“It really is a perfect storm,” Viale said. “Consumers have had the ability to not pay their rent or mortgage or credit-card payments. Most, if not all, of that has ended, except for the 800-pound gorilla, which is student loans.”

Those will continue to be in moratorium until Feb. 1, which is when $1.3 trillion of debt will start to be drafted back out of consumers’ checking accounts. “Yes, they are being alerted and warned to be ready, but after not paying on these loans for almost two years, it’s going to be a shock for many.”

All of this has banks — with whom Viale talks all the time — worried about huge loss rates due to credit defaults starting in late 2022 and early 2023. In short, we may be heading into perilous times for household debt.

 

Change of Plans

According to a recent CreditCards.com survey, 44% of respondents they are willing to take on debt in the second half of 2021 for non-essential purchases, such as dining out.

That marks a dramatic change from savings-happy 2020. Even after that temporary dip in debt in 2020, 42% of U.S. adults with credit-card debt have increased those balances overall since the pandemic began in March 2020, according to a Bankrate.com survey conducted in September.

“It’s been an upside-down credit environment,” Stephen Biggar, who covers financial institutions at Argus Research, told CNBC this month. “If you told me the market was going to crash 40% and we would have 20% unemployment, you would have also said card delinquency rates would go through the roof, particularly for the lower-end consumer.”

But instead, the savings rate spiked to levels not seen in 70 years, as consumers curtailed spending — and were allowed to halt payments on student loans and mortgages — and started paying back other debt, notably credit-card balances. Now, the tide has completely turned. Meanwhile, most of those deferment programs no longer offer last year’s safety net.

“People haven’t had to pay their bills for a long time,” Viale said. “Mortgage, rent, student loans, even credit cards allowed a period of time when people didn’t have to make payments.”

Unlike payment deferment for credit cards, in which interest keeps accruing, “student loans are very different because that was a true moratorium; no one was being charged,” he explained. “So whatever status someone was in with their student loans when the pandemic started is where they’re going to be in February when they have to start paying again.

“Yes, they are being alerted and warned to be ready, but after not paying on these loans for almost two years, it’s going to be a shock for many.”

But on Feb. 1, those autodrafts will begin again. “And that’s going to be a shock for consumers because they haven’t made these payments in 18 months or so.”

Politico reported that the U.S. Department of Education is considering providing student-loan relief to borrowers who miss a payment during the first 90 days after payments resume, so credit scores won’t be adversely impacted.

According to Forbes, U.S. Sen. Elizabeth Warren wants to go even further; fretting about a surge in student-loan delinquency and default once payments resume, she and other members of Congress have repeatedly asked the Biden administration to postpone the restart of payments.

The average monthly payment for student-loan debt is between $400 and $600, Viale noted. “That’s a pretty big-ticket item they haven’t had to pay for a long time, and now, out of nowhere, they’re going to have to start paying it again.”

This will only exacerbate what seems to be a looming credit crisis, Viale said, one that makes programs like Cambridge’s — which manage and pay down a client’s debt payments in a way that reduces interest costs and protects their credit rating — even more critical.

Because of concerns about consumer debt next year, the Federal Reserve is allowing such relief programs to be extended to offer consumers even more concessions if they are struggling to keep up with mortgage and credit-card payments, Viale added. “My industry has been working flat out to develop and implement these additional hardship programs.”

 

Back to School

It’s not easy to escape credit-card debt — especially with the average annual percentage rate topping 16%.

According to a Bankrate.com survey, 54% of adults carry credit-card balances from month to month, and 50% of have been in credit-card debt for at least a year. The average person with credit card debt owes $5,525.

And that’s only one element of household debt. Wth student-loan payments ramping back up in February, the Department of Education has launched an extensive outreach campaign to borrowers.

“They’re giving people several months notice. They’re doing a pretty good job of letting consumers know this is coming,” Viale said. “But that doesn’t really mean much when you haven’t had to do it in a long time.”

 

—Joseph Bednar

Banking and Financial Services Special Coverage

Open for Business

Romika Odedra says the branch’s layout emphasizes the customer experience.

Holyoke-based PeoplesBank recently expanded its presence in Connecticut with a branch in West Hartford. The new location is projected to help the bank grow its already considerable portfolio of consumer and commercial business from south of the border, especially in an ongoing climate of mergers and acquisitions.

 

When PeoplesBank opened its newest branch in West Hartford on August 30, it wasn’t exactly its first foray into Connecticut’s capital region. Far from it.

“This is a retail opening in West Hartford, but half of our commercial business is in Connecticut already — actually, about 60%,” said Matt Bannister, the bank’s senior vice president of Marketing & Corporate Responsibility.

“Some is up in the Granby-Windsor-Suffield area,” he went on, alluding to PeoplesBank’s first three Connecticut locations, in East Granby, Suffield, and West Suffield. “Some is down here in the Hartford region, and it actually goes all the way down to the shore. We’re kind of catching up with this retail storefront because the commercial customers want a presence here. They’ve been saying to us, ‘come down to Connecticut.’ And West Hartford just makes sense; it’s a great community, and a good place to be.”

Aleda De Maria, executive vice president of Consumer Banking and Operations, said a growing commercial presence in Hartford County cried out for a full-service physical branch.

“The banking centers are there for when they need a little more contact, when they have a little more complexity, or they just want to expand their relationship. We need to make sure we have everything.”

“We absolutely need it. The majority of our new accounts are still opened at brick-and-mortar locations. For more complex conversations, customers want to talk to a person, and they want to have that live interaction. There still is a need for that face-to-face contact.

“I think what the industry is trying to do with the self-service channels — with online, with mobile, with video bankers — is give people the ability to do the quick, day-to-day transactions when they want to, without having to park and go in and talk to somebody, and get it done quickly,” she went on. “The banking centers are there for when they need a little more contact, when they have a little more complexity, or they just want to expand their relationship. We need to make sure we have everything.”

Michael Oleksak, executive vice president and chief lending and credit officer, said all those Connecticut dollars in the bank’s commercial portfolio have not come mainly from the Granby-Suffield area, but predated those physical locations.

Matt Bannister with one of the West Hartford branch’s two interactive video teller machines.

Matt Bannister with one of the West Hartford branch’s two interactive video teller machines.

“We have a significant amount of business in the Greater Hartford area, specifically in the Farmington, Glastonbury, West Hartford communities and downtown Hartford, but we also go as far as New Haven and Greenwich. So our tentacles are fairly long when it comes to our Connecticut presence.

“Most of that is in commercial real estate, which tends to be more transactional,” he went on. “We are able to do a lot of full-service banking for these commercial real-estate customers because of our cash-management expertise and the different products we have, but without a branch presence, it’s really difficult to do business banking.”

The branch presence in West Hartford allows the team to do more commercial and industrial (C&I) lending, and complements a recent expansion of the bank’s C&I team with former TD Bank veterans, Oleksak noted.

“We have a very strong following now, and I think by having a physical presence there, we’ll become a more visible part of the community,” he went on. “We do support our current borrowers, including with a lot of their philanthropic initiatives, but it’s kind of behind the scenes because we don’t have a presence there. But with a physical presence, and with the disruption in the market with the M&T acquisition of People’s United, it will really open the door for us to be a bigger part of the community.”

De Maria agreed. “We’ve already created such a solid foundation with our name and then with the physical presence from the acquisition we did in Suffield in 2018,” she told BusinessWest. “And now, with our West Hartford presence, I think we have a solid opportunity to bring the service we provide for our commercial customers to our retail-customer world, and really marry those two sides together and make an impact.”

 

Making Contact

Many visitors to the new branch will first notice the interactive video tellers, one in the entry and one in the drive-thru lanes, bringing the bank’s total number of such machines to 22 at 17 locations. Users can call up a live teller in Holyoke who manages four or five machines at once.

“That way, we can be open seven days a week and have extended hours and not have to have people physically in the branch. And the video banker can do almost any transaction,” Bannister said, noting that Peoples is the only bank in the Hartford to offer the service. “Part of our technology story is good, consumer-facing technology.”

Romika Odedra, vice president and regional manager, said customers appreciate face time with a live person rather than interacting with a machine and the more limited options available at an ATM. And Bannister added that, with the pandemic still raging, many customers appreciate being able to conduct complex transactions in a contactless way.

“We are able to do a lot of full-service banking for these commercial real-estate customers because of our cash-management expertise and the different products we have, but without a branch presence, it’s really difficult to do business banking.”

“Video tellers are something we’re proud to bring to the market,” De Maria said. “It brings seven-day-a-week banking to West Hartford and our surrounding areas.”

Once inside the branch, customers will see pods instead of traditional customer lines — a model Peoples and other banks have been implementing for years. Customers can stand beside the teller and even see what he or she is looking at on the computer screen, if necessary. “In the beginning, people were like, ‘where do I go?’” Odedra said. “But it’s so easy — it’s warm, it’s welcoming, it’s not ‘there’s the line.’ It’s nice to have that one-on-one experience.”

The branch also employs a ‘universal banker’ model, Bannister said. “Any bank employee you see out here can do all the transactions. You can go to a teller pod or pop into an office if it’s more convenient or you just want privacy to have a conversation.” In other, more specialized offices down the hallway from the main area, he added, the bank will offer a mortgage expert, a wealth adviser, and other ancillary services.

And in front, at the main entrance, is a high table, couch, and coffee bar. “We’re trying to say to people, ‘come on in and hang out; get to know us a little bit,” Bannister said. “The thought is, we want to have sort of an open storefront.”

That’s partly to reflect the neighborhood the branch is in, with restaurants and small shops lining the streets and the shopping and dining mecca Blue Back Square just down the road.

“This area really is hopping with foot traffic,” he said. “And if you’re a bank with a retail storefront, you want foot traffic.”

Those who drive to PeoplesBank will appreciate the free parking lot the bank shares with the town’s Post Office.

“I used to work at a different bank, and that was the biggest issue we had, the parking,” Odedra said. “I’m so glad we have the parking we have. We don’t have to rush the customer out; we have time to have that one-on-one with them and invite them to have a cup of coffee.”

Bannister said West Hartford has been an enthusiastic town to work with, from its Chamber of Commerce to local economic-development leaders.

“Right from the start, when we were saying we wanted to come down, they were like, ‘how can we help?’ We’re in a lot of communities, and some of them are very welcoming, and some are maybe not so much. This one has been great to work with.”

 

Opportunity Knocks

The branch is fully staffed as well, with a mix of on-site and hybrid workers, reflecting the current makeup of the entire PeoplesBank organization. Some are West Hartford natives who know the market, Bannisher said, while some were attracted by working near all the nearby restaurants and other neighborhood amenities.

Aleda De Maria

Even in an age of mobile banking, Aleda De Maria says, people still want face-to-face interaction at branches for many services.

There’s room to expand in Hartford County, he added, with plans to open at least two more branches in the next couple of years.

“We’re coming in with a message of ‘we’re here, and we’re here to stay, and we can do everything the big banks do, but with a local feel and local decisions,’” De Maria said. “And I think that’s what’s missing in banking in general nowadays — being able to bank how you want to bank but also at a community bank where you don’t have to worry about who’s going to buy them.”

That presence means civic involvement and philanthropy as well, Bannister said, noting that PeoplesBank plans to give close to $60,000 in the first month alone to local organizations like Habitat for Humanity, Hands on Hartford (which assists with food pantries and the homeless population), the United Way, Foodshare, and even two West Hartford community events the bank will sponsor this fall and next summer.

“Right from the start, when we were saying we wanted to come down, they were like, ‘how can we help?’ We’re in a lot of communities, and some of them are very welcoming, and some are maybe not so much. This one has been great to work with.”

“We feel like we’re leading with the values we want to be known by in the community, which are innovation, technology, customer service, and the community support.”

De Maria agreed with Bannister than broadening the bank’s footprint in Connecticut is a must. “We will continue to actively look for physical locations, primarily in Hartford County,” she said. “We’re not opposed to outside Hartford County should it make sense, but in Hartford County, we feel we have an opportunity for our brand to really make an impact in the community.”

And that means expanded business, including commercial lending, Oleksak said. “I think there’s tremendous opportunity in this market for us, given our size and the experience of our lending staff. We’re very diverse, and between small business, large commercial real-estate loans, and now C&I expertise, I think we bring a lot to the table. It’s a great opportunity for us.”

 

Joseph Bednar can be reached at [email protected]

Banking and Financial Services

Developments of Interest

By Mark Morris

John Howland calls the recent flood of deposits an “unprecedented” situation.

John Howland calls the recent flood of deposits an “unprecedented” situation.

John Howland admits that the word ‘unprecedented’ is overused these days. But for him and others in the banking business, it seems like the right word to describe all that’s going on.

Howland, president and CEO of Greenfield Savings Bank, was talking specifically about the record amounts of deposits flooding into banks — and what’s happening with those deposits, or not happening, as the case may be.

In the early months of the pandemic, from January to June of 2020, banks in the U.S. saw a surge of nearly $2 trillion in deposits. At that time, most people were staying close to home and had reduced their spending to necessities.

As a local example, PeoplesBank reported deposit increases of 33% since last April, or nearly $700 million in additional deposits.

More deposits arrived as businesses applied for Paycheck Protection Program (PPP) loans and consumers received stimulus checks from the government. During normal times, money gets deposited but does not stay in an account for long. These days, however, deposits are staying and growing to an extent Howland and his counterparts in Western Mass. have never seen before.

And while record deposits would seem like a good thing, all that cash is sitting still, for the most part, and the key to any bank generating revenue and earning profits is loaning its deposits out to borrowers.

“I never thought I would say there are too many deposits and not enough people to lend the money to,” said Tony Worden, president and chief operating officer of Greenfield Cooperative Bank. “The point of our business is to get deposits … so this goes against everything we were taught.”

In normal times, banks take in deposits and lend that money out to businesses and individuals. Balancing the number of loans to deposits helps determine what interest rates will be paid to savers and charged to borrowers. Banks profit on the difference between the two.

“I never thought I would say there are too many deposits and not enough people to lend the money to. The point of our business is to get deposits … so this goes against everything we were taught.”

But these are certainly not normal times. These days, banks have record deposits and diminished loan demand — for several reasons, which we’ll get into later — which translates to lower interest rates for savers and borrowers, as well as lower profits for banks.

Howland pointed out that the lower interest rates are great news for people looking for a business loan or a mortgage.

“The residential and commercial rates are down to levels that were inconceivable 10 years ago,” he said, adding that, moving forward, banks will be competing much harder to entice people to borrow money than deposit it.

 

By All Accounts

There are many theories as to why deposits have soared at area banks — and why those deposits are going largely untouched.

Dan Moriarty, president and CEO of Monson Savings Bank, suggested that once people tightened their spending during the pandemic, they may have changed their overall spending patterns, which is in many ways good for consumers, but not for the overall economy.

“It’s good for consumers to increase their savings and their capacity to have money, but it also slows down the economy,” Moriarty told BusinessWest. “We believe there is still some pent-up rebound spending by both consumers and businesses that we will be seeing.”

Howland agreed, noting that there are a number of reasons contributing to the surge in deposits, with one of them bring what he called a “flight to quality.”

“With all the uncertainty in the world, people understand that putting their money into a bank where their deposits are insured by the FDIC is one of the safest moves you can make,” he said, adding that, despite the consistently upward movement of the stock markets, many consumers are seeking a safe harbor in which to park their money.

Tony Worden says he never expected there to be too many deposits and not enough people to lend to.

Tony Worden says he never expected there to be too many deposits and not enough people to lend to.

As for the business of converting those deposits into loans — and revenue — many of those same factors are holding some consumers back from borrowing, said those we spoke with, although many have pressed ahead with purchases of new cars, new homes, and vacation homes.

Meanwhile, a number of businesses, still struggling to fully recover from the pandemic, are being cautious about moving ahead with expansions or new ventures. And for those that have the confidence to move forward, the current workforce crisis is keeping them from doing so.

Indeed, Worden said the current labor market is affecting activity in commercial lending. “We have businesses that can’t take on all the jobs they want because they don’t have enough staff to get them done.”

Moriarty agreed, but spoke optimistically about the prospects for improvement when people return to the workforce in large numbers. “Once our businesses can hire the staff they need and expand their products and services, they may look to the banks to borrow and grow.”

The surge in deposits and frustrating inability to put much of them to work has been one of many stories to unfold during what has been a challenging — and very different — year for area banks.

They all played a key role in helping businesses apply for PPP loans when they became available last spring. During two rounds of PPP loan offerings, Moriarty said, Monson Savings processed 565 loans totaling nearly $50 million.

In the early days of the pandemic, qualifications for PPP loans included every small business that was affected by COVID-19. Tom Senecal, president and CEO of PeoplesBank, said many applied because they didn’t know if they were going to be impacted.

“It’s good for consumers to increase their savings and their capacity to have money, but it also slows down the economy. We believe there is still some pent-up rebound spending by both consumers and businesses that we will be seeing.”

“There were many businesses that thought they were going to be hit hard but really weren’t,” he noted, giving an example of construction companies that were closed early in the pandemic but were then designated as essential and allowed to reopen.

Worden added that many companies that received PPP loans in the first round didn’t touch the money until it became clear their loan would be forgiven by the government. Once they figured out how to get loan forgiveness, they didn’t sit on the next round.

“We’ve had around 96% of our first- and second-round PPP loans forgiven with no denials,” he said. “The only ones who haven’t been forgiven have all started the process.”

All the bankers who spoke with BusinessWest said they were grateful to process PPP loans for area businesses. Worden said the urgency to get the first-round applications done required an “all hands on deck” approach that brought in many outside the loan department. His story reflects similar efforts from the other banks.

Dan Moriarty

Dan Moriarty says the pandemic changed people’s spending patterns, which may not be good for the overall economy.

Another dominant story during the pandemic was the real-estate boom, driven in part by record-low interest rates. Moriarty said activity on the buying and selling side has been brisk for some time. “We’ve seen a lot of activity where people are moving into a new house or buying a second home, whether it’s for vacation or an investment.”

The low interest rates have also brought a significant increase in people looking to refinance their mortgage.

“While it’s smart for people to refinance their current debt to get a lower rate, it doesn’t necessarily create new funds for the bank,” Worden said.

In early 2020, Monson Savings opened a new branch in East Longmeadow to increase its access to more companies and consumers. Moriarty admitted he had some anxiety about the timing.

“We made the decision back when no one predicted the pandemic would last so long,” he said, noting that, after a soft opening in August 2020, the branch has performed far above its forecasted numbers. “We’ve seen deposits increase 40% to 50% from when we opened.”

 

Bottom Line

All the bankers we talked with agreed the next three to six months will give everyone a better idea of where the economy, COVID, and the prospects for area banks are headed.

“I think we need to focus on getting through these next few months, and let’s get through the Delta variant,” Worden said. “We all have short-range goals, but we’re also keeping our eye on the long range.”

And that long-range forecast will hopefully call for taking that surge in deposits and putting it to work in ways that will bolster the local economy.

Banking and Financial Services

Know the Rules

By James T. Krupienski, CPA

 

At the start of the COVID-19 pandemic in the early parts of 2020, the concern of business survival was the number-one thought of countless businesses, with each industry having its own struggles. The medical industry was not without its own real concerns at that time, particularly given its role in the pandemic fight. People would continue to get sick, require treatment, and see their physicians, but how could it be done safely?

Recognizing the financial crisis that was about to overtake this industry, along with how detrimental it was for the industry to remain open and accessible to patients, the federal government took dramatic steps. In addition to Paycheck Protection Program (PPP) loans, for which medical practices were eligible, the Coronavirus Aid, Relief and Economic Security (CARES) Act also allocated funds directly to the medical industry through the Department of Health and Human Services (HHS) and the newly created Provider Relief Fund (PRF).

James T. Krupienski

James T. Krupienski

“While the COVID-19 relief provisions, as part of the CARES Act, provided a lifeline for many medical, dental, and other healthcare-related practices during the pandemic, that support was not without certain compliance requirements and reporting.”

The first round of funding, which was completely unexpected to many, occurred in early April 2020, when $30 billion was deposited directly into the accounts of eligible practices. Throughout 2020, additional funds were later rolled out in phases 2 and 3, as well as through targeted distributions to specific industries, such as rural providers and skilled-nursing facilities. Of importance is that, for all practices receiving these funds, there are several rules to be followed.

While the COVID-19 relief provisions, as part of the CARES Act, provided a lifeline for many medical, dental, and other healthcare-related practices during the pandemic, that support was not without certain compliance requirements and reporting, which we will dive into within this article.

 

Attestations

First, within 90 days of receipt of the funds, each provider was required to attest to certain terms of use. For those electing to return the funds, it was required to be done within 14 days of this attestation. Attestations were required for receipt of funds in all phases and were to be completed through use of a portal with the HHS (www.hhs.gov/coronavirus/cares-act-provider-relief-fund/for-providers/index.html#how-to-attest).

 

Reporting

As part of the attestation process, any provider receiving more than $10,000 in payments through the PRF would be required to report on use of the funds. While the specifics on the exact reporting took months to be finalized and continued to be reworked by the HHS, the general guidelines were known. Barring no future changes, PRF dollars are to be applied in the order of:

1. Certain qualifying expenses that can be directly attributable to coronavirus; and

2. Lost revenues.

Of greatest importance is the understanding that the use of these funds must be kept separate and distinct from the use of other coronavirus-relief aid. For example, if you report on the use of a personnel or payroll related expense, it cannot also be tied to dollars used in applying for PPP loan forgiveness. Essentially, a practice cannot ‘double-dip.’

Initially, reporting was set to begin back in the summer of 2020, which was then pushed to the fall of 2020 and then again to Jan. 15, 2021. However, because of updated legislation and a change in administration, reporting had been delayed even further. In late June 2021, the reporting requirements were finalized, and the reporting portal is now open to many, depending on when funds were received (see chart).

For all recipients of the fund, it is important to continue to monitor this process so that a reporting deadline is not missed. To stay on top of this process, the HHS has been updating its site (www.hhs.gov/coronavirus/cares-act-provider-relief-fund/reporting-auditing/index.html) with current regulations.

 

Audit Requirement

One stipulation, not known to many, is that a government single audit is required if the combined federal funds (PRF and other federal assistance) received were more than $750,000. Note that PPP funding does not count towards this total.

A single audit would be required of an organization that has $750,000 or more in federal awards. While typically, federal funding is awarded to not-for-profits and governmental organizations, the HHS PRF has opened many organizations, including for-profit medical practices, to these compliance requirements. If a practice has received combined federal awards though the Provider Relief Fund in excess of $750,000, a single audit will be required.

While the majority of relief programs under the CARES Act (such as the Paycheck Protection Program) are subject to reporting requirements, the PRF has its own distinct rules to navigate. If your healthcare practice took advantage of the PRF in any amount, it is highly encouraged that you speak with an advisor as soon as possible to fully understand the compliance requirements. Navigating federal compliance can be intimidating and confusing, especially if this is your first time doing so. Speaking with an advisor can demystify this process and help ensure that you understand the regulations.

 

James T. Krupienski, CPA, MSA, is a partner in the Healthcare Services niche for Holyoke-based Meyers Brothers Kalicka, certified public accountants and business strategists; (413) 536-8510; www.mbkcpa.com

Banking and Financial Services Special Coverage

Stating Its Case

Tony Liberopoulos

Tony Liberopoulos says Liberty Bank might be new to Western Mass., but its lenders are anything but.

Dave Glidden is no stranger to the Western Mass. banking community, and neither is the lending team he’s assembled to grow Liberty Bank — the Connecticut-based institution he currently serves as president and CEO — within this region. Liberty’s leaders believe those community ties — some of the Western Mass. team’s lenders have worked in this market for three decades — will prove fruitful at a time when customers are looking for experience and stability.

Liberty Bank is the oldest currently operating bank in Connecticut. But Dave Glidden prefers not to think in terms of state lines.

“We’ve been in Connecticut a long time, and very recently we’ve crossed the border into Western Mass.,” said Glidden, the bank’s president and CEO and a familiar figure to the Pioneer Valley’s banking community from his years as regional president at TD Bank.

The reasons for the northward push, he said, seemed obvious.

“When I looked at this opportunity and took the job, one of the things I talked about with the board and my teammates was that, when you think about it, there are so many similarities between Connecticut and the Greater Springfield market, economically and culturally; people work back and forth across the border.

“So, really, if you stop looking at state boundaries for a second, we really lend in that I-91 corridor, New Haven on up through Middletown, through Hartford, and now into Greater Springfield,” he went on. “There are many similarities in industries and types of businesses, and we know a lot of the borrowers, the centers of influence, the CPA firms, the legal firms … and we know many of the businesses.”

“Liberty Bank is new to Western Mass., but our team is not new to Western Mass.”

That’s because Glidden and Liberty’s Western Mass. team — Chief Credit Officer Dan Flynn; lenders Tony Liberopoulos, Jeff Sattler, Rick Rabideau, and Gene Rondeau; and Sue Fearn, who specializes in cash management — have roughly 160 years of combined experience working in banking in Western Mass.

“Liberty Bank is new to Western Mass., but our team is not new to Western Mass.,” Liberopoulos said. “We’ve got one of the most experienced teams in Western Mass., even though we’re the rookie bank in this area.”

With the ability to assemble a team with that depth of experience in the market, Glidden said, expansion into this region — lending activity began last year, and a commercial loan-production office is opening this month in East Longmeadow — just made sense.

“Obviously, this commercial loan production under Tony’s leadership is the first foray over the border,” Glidden said, “and we’re continually evaluating and looking at retail branch sites and how we’ll build out the franchise over the course of the next couple of years in support of the commercial-lending activities that really started about a year or so ago.”

With more than $7 billion in assets but strong ties to its local communities, Glidden said Liberty is the kind of stable institution that appeals to customers in Western Mass., especially at a time when mergers and acquisitions (M&A) continue to shake up the landscape.

“With everything that’s going on in all the banking markets, there’s a lot of disruption with M&A, and it’s projected there will be a lot more M&A industry-wide,” he noted. “So, as a bank with our size and history, and the teams we have, we’re in a unique position where we can kind of out-local national banks and out-national local banks and be that entity in the middle that can deliver services and make decisions in a very local fashion, but has the scale and the size to grow with borrowers, usually past where a lot of the other community banks are restricted due to their size.”

Dave Glidden with a map of Liberty’s locations

Dave Glidden with a map of Liberty’s locations, most of which are concentrated along, or not far from, the I-91 corridor.

While commercial lending is the main focus right now, Glidden said, he sees Liberty eventually expanding its presence to offer that type of appeal to retail customers as well. “When a bank gets acquired, customers often say, ‘my bank’s changing, my banking relationship is changing — maybe now is the time I should have the conversation with someone else.”

It’s a sense that was only supercharged by the pandemic, a time when online retailers thrived and changed people’s expectations about service delivery.

“We have to continue to deliver the right type of distribution system for our customers if we expect to gain market share and capture those who get disrupted due to M&A activity, or whatever other market event might happen,” Glidden told BusinessWest.

“There are great banks in Western Mass., super people, experienced bankers, but there’s going to continue to be disruption — everywhere, not just in Western Mass.,” he went on. “And we think, with our balance sheet and existing franchise and the investments we’ve been making, which have been significant over the past few years, to really up our digital offerings across the board, we’re in a great position to enter a great market that means a lot to the executive leadership here at Liberty Bank.”

 

Lending Support

Since launching activity in Greater Springfield, Liberopoulos and the rest of the lending team have assembled a broad variety of clients. “It’s across the board,” he said. “We’ll do loans up to $50 million for the right client, or even higher than that. We’re primarily looking at small to medium-sized businesses. We’ll look at investment real-estate deals, and we’ll look at any privately held business, if it’s the right size for us.”

Like the Greater Hartford market in which Liberty has recently expanded its presence, Glidden doesn’t see loans in a vacuum, but rather takes a big-picture look at how each loan-funded project or expansion impacts economic development in an entire region.

“It’s important, when you’re a community bank and you go into a market, that you have a strategy to align with and understand what’s going on in those markets. Who are the key economic-development companies, the drivers? Who are the key not-for-profits that we can align ourselves with and support? Because when we invest in the communities we do business in, it’s not only the right thing to do, it’s smart business.”

As it eyes growth across its footprint, including expansion of retail, investment, and other services in Western Mass., Liberty is making another kind of investment, Glidden said: in its digital channels.

“Banking customers’ habits are changing rapidly. They were changing rapidly before the pandemic,” he said. “But, obviously, the pandemic forced people to adopt online channels that, before, they wouldn’t have felt comfortable with, or didn’t think they needed — but it became a need during the pandemic.”

Part of the bank’s strategy for this region includes what shape the physical footprint will take to support the services Liberty wants to provide, he noted — but that strategy must roll out in tandem with the digital one.

Tony Liberopoulos (left) and Dave Glidden

Tony Liberopoulos (left) and Dave Glidden say there’s a space in Western Mass. for a bank of Liberty’s size and local focus.

“Branches are changing, and customers’ habits are changing — they’re using them less, but that doesn’t mean they’re not still important,” Glidden said, noting that part of what he called his “aspirational three-year plan” has involved bolstering digital assets, so customers can choose how to interact with the bank.

“It’s not up to us to choose how customers do business with us. It’s for them to choose, and it’s incumbent on us to make sure we have all those channels there. Branches are one of them, as are online, digital, and live chat.”

As he noted earlier, Amazon and other online entities, particularly during the pandemic, have altered people’s expectations when it comes to retail, and banks are, indeed, a retail business — so a bank’s digital channels need to live up to those heightened expectations.

The pandemic impacted Liberty’s Western Mass. plans in another way, Liberopoulos said: by giving it an opportunity to stay aggressive when not every bank did.

“It was an interesting time. We came to work every day, took our precautions, properly distanced, wore our masks,” he said, noting that clients still wanted to meet, some in person, some by phone or Zoom, whatever made them most comfortable. And those meetings were often productive.

“We were firm believers that COVID was going to end, so we’d look at their financial performance prior to COVID,” Liberopoulos said. “We knew 2020 and 2021 were going to be difficult, but if they were strong in ’17, ’18, and ’19 — and if their interim results look good in ’21 now that we’re getting past vaccinations — we were very eager to win that business.

“When some other banks were uncomfortable lending because of the numbers they saw for 2020, we were not,” he went on. “We understood it’s about the owners of the business, the history of the business, and we were all convinced, here at Liberty Bank, that we could see the light at the end of the tunnel and we would find the right clients to work with.”

Glidden said he was “never prouder to be a banker” than he was in 2020.

“I never want to go through it again, of course, but what the banking industry did with the Paycheck Protection Program and the SBA lending as part of the CARES Act, that was a huge challenge for the banking industry.”

He praised not only his own team, but his colleagues at other banks for working non-stop in those chaotic early days of PPP last spring, and kept working to get customers the help they needed.

“I could see it was a very unique, maybe the most unique, time in my career,” he said. “I really felt an obligation as a banker, that we’re the only way this money is getting out there in this once-in-a-lifetime — knock on wood — pandemic.”

 

Community Ties

Getting back to the consolidation landscape, Liberopoulos said acquisitions can often distance a bank’s philanthropic arm from the communities in which is does business, but Liberty continues to be focused on those activities.

“The bank is very sensitive to the fact that we’re seeing consolidations, so we’re seeing less money being given to non-for-profits in the community, and one of our chief slogans now is ‘be community kind.’ We want to give back to the community where we work, where we lend, and where we live. And we’ve done that already,” he said, citing donations to Ronald McDonald House, and the Boys & Girls Club as recent examples.

“It’s certainly been part of Liberty Bank’s DNA and corporate culture,” Glidden agreed, noting that the bank’s foundation, which he also serves as president and CEO, gives away around $1.5 million per year, and the bank itself contributes in the seven-figure range as well.

“And our commitments are growing,” he added. “As a community bank, you have a responsibility and obligation to give back; all of us truly believe that. That’s why we’re here. We walk the talk. We give back to our communities. It’s what community banks should do. We’re mutual, we’re private, we’re owned by our customers, so you have to give back to those communities.”

Which is even more important in an era of M&A activity.

“I just think, given the disruption and consolidation in the market, that we’re a bank that’s still local and makes decisions locally. We give back to our communities; we put our money where our mouth is.”

As one of the largest PPP lenders in Connecticut, Liberty also felt a responsibility to support community members who weren’t customers, which is why it serviced PPP loans for such individuals. In some cases, that opened the door to a new relationship opportunity.

In the end, Liberty grew during the pandemic — by about $1.2 billion during 2020, in fact. Some of that was PPP activity, Glidden noted, but about two-thirds sprung from new market share and new customers.

“We continue to feel optimistic — 196 years is pretty old, but I feel more optimistic about the next 196 years than I was pre-pandemic, and I was pretty optimistic pre-pandemic.”

Liberopoulos is optimistic, too. “We’re new to the market, but we’re not new to banking. We’ve got an experienced, well-known team, and we make local decisions with quick turnaround time. We’ll make loan decisions on the spot, in front of a client, when we meet with them. That’s the kind of bank I’m happy to say I work for.”

And it’s the sort of bank that shouldn’t be constrained by state lines, Glidden added.

“Liberty Bank is coming to Western Mass. to be a business partner with the community. We’re not coming there just to make loans and take deposits. This is the first stake in the ground, so to speak, but I think everyone will see and feel our commitment to Western Mass. as we build out our franchise there.”

 

Joseph Bednar can be reached at [email protected]

Banking and Financial Services

Brokerage App Is a Dangerous Culmination of Intersecting Trends

By Jeff Liguori

 

It was supposed to democratize Wall Street — yet another DIY trend, this time with your hard-earned money.

Robinhood is a popular brokerage application that allows subscribers to open an account with as little as $1, charges nothing for commissions, and allows users to buy fractional shares of stock. Backed by venture capital and slated to go public with an estimated $30 billion valuation, the company has enjoyed meteoric growth with an estimated 13 million users, 50% of whom use the mobile app daily, often multiple times, and 90% of whom use it on a weekly basis. The overwhelming majority of its user base belongs to the millennial demographic.

Robinhood achieved what it set out to do, but at what cost?

I’ve worked in the investment field since 1994 and have managed assets for clients since 2006. I’m also an entrepreneur, so I appreciate disruptive technology amid a changing business landscape. Robinhood, however, is the dangerous culmination of intersecting trends that have harmed investors and, according to financial regulators, may have contributed to a death by suicide.

Jeff Liquori

Jeff Liguori

“Robinhood is not the Home Depot of investing. Do-it-yourself portfolio management has been around since the advent of E-Trade in the mid-’90s. That company disrupted the brokerage industry and forced commissions at most every other firm lower in order to compete for customers.”

The basic business model for financial advisory or money management is that the client pays a percentage of his or her account balance as an annual fee, generally around 1%. To be clear, Robinhood is a brokerage; the firm does not use discretion to manage a client account or offer advisory services. Many brokerage firms have morphed into advisors and now focus more on money management as trading commissions have trended to zero. Overall, this trend has been a positive for individual investors and has improved access to many financial solutions — mutual funds, exchange-traded funds, or individual stocks — as well as financial research and news.

Robinhood is not the Home Depot of investing. Do-it-yourself portfolio management has been around since the advent of E-Trade in the mid-’90s. That company disrupted the brokerage industry and forced commissions at most every other firm lower in order to compete for customers. Just as E-Trade blazed a path for lower commissions, Schwab, Fidelity, and TD Ameritrade slashed commissions to zero in 2019 in response to Robinhood taking market share.

But growth has consequences. Robinhood was at the center of some incredibly volatile trading in a handful of individual stocks. You may have heard of GameStop (GME). The Robinhooders gathered virtually in chat rooms, most notably on a platform called Reddit, and decided as a community which stock they wanted to manipulate. It was no small feat. From Jan. 18 to Jan. 28 of this year, the price of GME went from about $18 to a high of $478, an increase of more than 2,600%. The Robinhood crowd is believed to be the main catalyst for this action. The day GME hit $478, it also went down to $112 before finally closing around $193.

In the month of January, 1.26 billion shares of stock changed hands in GME, almost 15 times the average monthly volume. Robinhood eventually cut off any trading in GME shares on Jan. 28, as well as trading in several other stocks with a similar backstory. Imagine being a small investor, buying GME shares at, say, $250 on Jan. 27, watching your investment nearly double the next day, but not being able to trade and exit your position profitably.

As previously stated, the Robinhood story is the intersection of several trends: fiercely independent millennials, ‘killer app’ technology, and the rewards reaped from the instantaneous decision making of like-minded people, all backed by institutions awash in venture capital, looking for the next big idea. I cringe at the thought that Robinhood may compete with what firms like mine provide for clients, namely deep expertise, sound financial advice, and disciplined investing backed by serious research.

FINRA, a regulatory agency that oversees brokerage firms, recently fined Robinhood $57 million and ordered $13 million in restitution to customers. It is the largest fine ever imposed by that regulator. In the press release, FINRA even referenced the suicide of a 20-year-old trader who panicked when his Robinhood app may have incorrectly displayed a massive $730,000 loss and received only a generic autoreply when he e-mailed Robinhood customer service three times seeking help.

Robinhood the idea is a good one. Robinhood the company has a lot more growing pains on the horizon, which likely won’t prevent the founders from becoming fabulously rich. And I have no problem with wealthy entrepreneurs, who typically risk everything for a single idea. Time and again, however, the investment profession is plagued with these stories in which investors are persuaded to pursue the next big thing. I think FINRA’s message is a powerful one. Now, if someone would just listen.

 

Jeff Liguori is the co-founder and chief Investment officer of Napatree Capital, an investment boutique with offices in Longmeadow as well as Providence and Westerly, R.I.; (401) 437-4730.

 

Banking and Financial Services

Strike Against Hunger

Andrew Morehouse thanks Country Bank

A surprised Andrew Morehouse thanks Country Bank for the $500,000 donation to the Food Bank of Western Massachusetts.

Paul Scully says he wants to “throw hunger a curveball.”

And to the leaders of two Massachusetts food banks, it was a welcome pitch indeed.

At its annual meeting on June 21, Country Bank unveiled its most recent — and largest — donation targeting the persistent issue of food insecurity in the Bay State, surprising Andrew Morehouse, executive director of the Food Bank of Western Massachusetts, and Jean McMurray, executive director of the Worcester Food Bank, with two $500,000 checks, one for each organization.

“With everything we’re hearing these days about the shortage of food and the high expense of food … the need is real out there,” Scully said during the announcement event. “It’s really exciting for us and an honor to announce we’re kicking off a million-dollar pledge to throw hunger a curveball, and we are presenting a $500,000 check to both Jean and Andrew for your organizations.”

It’s just the latest, and largest, in a remarkable show of support from banks across the region in the fight against food insecurity, which spiked during the COVID-19 pandemic and continues to be a persistent problem. Most banks in Western Mass. have ramped up their contributions to area food banks and food pantries, often significantly.

“As a community partner, we care deeply about the sustainability of our communities and the people who live in them,” Scully added, noting that this $1 million pledge reflects an recognition of the burdens many have experienced throughout this past year.

“I’m in awe of Country Bank’s generosity and so impressed by their commitment to the community, whether it be Worcester County or the four counties of Western Massachusetts.”

Newly appointed Country Bank board members Elizabeth Cohen-Rappaport, Richard Maynard, Ross Dik, and Stacey Luster presented the checks to Morehouse and McMurray at the annual meeting.

“I’m in awe of Country Bank’s generosity and so impressed by their commitment to the community, whether it be Worcester County or the four counties of Western Massachusetts,” a visibly surprised Morehouse said. “This demonstrates that Country Bank is for real, and they practice what they preach.”

McMurray was equally touched. “This was totally unexpected, but, when I think about it, Worcester, and Worcester County, is the best place to live, to work, and to give back, and we are going to put this tremendous gift from Country Bank to work so none of our neighbors has to go hungry.”

The Food Bank of Western Massachusetts relies on donations from individuals, businesses, foundations, civic organizations, faith-based groups, schools, and government to fulfill its expanding mission. With the help of that support, it provided the equivalent of 12.3 million meals in in the fiscal year that ended Sept. 30, 2020 — a significant increase from meals provided in previous years, and a pace that continued as the pandemic extended well into 2021.

“Country Bank is always looking at the basic needs of folks in our communities, whether food services, shelter and homelessness, as well as healthcare — those are the primary pillars where the bank tries to make the most of its donations,” said Shelley Regin, the bank’s senior vice president of Marketing.

The support for food banks comes at a critical time, not just in Massachusetts, but nationally. Feeding America estimates that the pandemic caused 13.1 million non-elderly adults to seek free meals or free groceries for the first time.

“The pandemic forced businesses and workers to make tough decisions,” said Ash Slupski, the organization’s website marketing manager. “To prevent the spread of coronavirus, many businesses were forced to close or lay off employees. This is especially true for people employed in restaurants, hotels, other service industries, and small businesses.”

Meanwhile, the needs of remote learning, especially for young children, forced many working parents to temporarily leave their jobs to be home, if they couldn’t work remotely themselves. And many faced reduced hours and paychecks when they did return to work, Slupski noted. “All these changes impact people’s ability to provide for their families now and plan for the future.”

To meet the growing need locally, the Food Bank of Western Massachusetts recently revealed plans for a new distribution center and headquarters, which will be located on the corner of Carew and East Main streets in Chicopee. Construction on the new headquarters, which will be larger and more sustainably build than the current location in Hatfield, is expected to begin next spring.

Regin noted that, in 2020, Country Bank’s philanthropy exceeded $1 million by supporting 450 nonprofits throughout the region, mainly focused on helping food pantries, homeless shelters, COVID-19 relief services, veterans, and other programs that supported the everyday needs of the people in its communities.

“Country Bank really wants to make sure we’re supporting all our communities,” which extend geographically from Springfield to Worcester, she noted. “It starts with Paul, and we all follow his lead in looking for ways the bank can make a difference. We support many charities, as many banks do, but it starts with Paul; he’s a great leader in that way, and we’re all on board.”

 

—Joseph Bednar

Banking and Financial Services Special Coverage

Making Change

As essential businesses that couldn’t shut down operations during the pandemic, banks and credit unions met some daunting challenges over the past year — both logistical and in meeting the needs of customers, many of whom were navigating difficult financial times. While things are starting getting back to normal now, the definition of ‘normal’ has shifted — and area banking leaders say they’ve learned some lessons they will certainly bring into the future.

Aleda De Maria says PeoplesBank

Aleda De Maria says PeoplesBank’s call-center activity tripled over the past 14 months.

By Mark Morris

Winston Churchill gets credit for first remarking, “never let a good crisis go to waste.”

For bankers in Western Mass., the COVID-19 crisis was in many ways a chance to learn what works best for their customers and their workers.

While branch offices for most banks have reopened, they were ordered closed to the general public at the beginning of the pandemic, opening to customers only by appointment. As a result, many customers relied on online banking to handle routine transactions.

For those who needed to open an account, it was no longer necessary to visit a branch, as the entire process can be done online, said Aleda De Maria, senior vice president, Retail and Operations for PeoplesBank, who noted that new account applications doubled in the past year, and the use of mobile deposits is up nearly 40%.

“Customers who may have been reluctant in the past to try our online self-service channels are now using them,” she added. “We’ve also seen occasional users of these tools become more aggressive users.”

Because customers had plenty of questions amid the uncertainty of the past 14 months, De Maria reported a significant increase in activity on the bank’s phone lines. “Our call center tripled the volume of activity we would normally see. Now we’re back to what I would call a busy, but more normal level.”

As cars lined up at drive-up windows during business hours, many banks increased their use of video tellers to extend the hours tellers can be available. A video teller looks and functions like a standard ATM, but the customer can also reach a live professional when they have a more complex transaction.

“Customers who may have been reluctant in the past to try our online self-service channels are now using them. We’ve also seen occasional users of these tools become more aggressive users.”

“It’s as if you are standing in front of a teller,” said John Howland, president and CEO of Greenfield Savings Bank. “We had six of these in place before COVID, and they really worked well for us during that time when we could not allow people to come into the branches.” The bank has since added six more of its Teller Connect video tellers.

De Maria said video tellers made it possible to expand beyond normal business hours to even include Sundays.

Glenn Welch

Glenn Welch says credit-union CEOs have been discussing the future of hybrid work arrangements, since employees will expect that flexibility.

“We can now offer banking services seven days a week without us having to keep our banking centers open seven days a week,” she noted, adding that the pandemic made one point crystal clear: customers want options, now more than ever. “Customers want the flexibility to either interact with someone or not to interact.”

For this issue’s focus on banking and finance, BusinessWest spoke with several executives from local banks and credit unions about how they have weathered the past year, what lies ahead, and what they — and their customers — have learned.

 

From a Distance

In addition to new ways of serving customers, banks were challenged to become more flexible with their employees, many of whom were forced to work from home.

Glenn Welch, president and CEO of Freedom Credit Union, recalled that, at the height of the pandemic, 30 employees worked exclusively from home while another 30 split their time between home and the office. Now, 47 employees are taking a hybrid approach of splitting their work time between the office and home.

“Going forward, employees are going to expect to have an option for some kind of hybrid between working at home and the office,” Welch said, adding that an online forum of credit-union CEOs recently discussed how a hybrid approach might work. “The consensus is to bring people back to the office as much as possible while still allowing them the flexibility to work from home probably one or two days a week.”

“The consensus is to bring people back to the office as much as possible while still allowing them the flexibility to work from home probably one or two days a week.”

John Bissell, president and CEO of Greylock Federal Credit Union, said 176 of his employees work from home right now, and he has no immediate plans to require a mass return to the office.

“In fact, we are so confident in the success of the work-from-home model that we are consolidating one of our branches with a nearby operations center,” Bissell said. While Greylock has no plans to permanently close branches, it is looking into shared-space arrangements to increase efficiency and save on future real-estate investments.

All the bankers agreed that, when possible, they prefer personal interactions with their employees and customers. When that’s not possible, they are grateful for advances in technology that have made it easier to work from home. Sometimes it results in seeing certain jobs in a different light.

John Howland

John Howland says some positions, such as those in loan processing, are more suited for a remote setup than others.

“I never thought I’d say this, but there are some situations where the business and the task is better suited to work remotely,” Howland said, citing certain loan-processing positions as one example. “Because all the documents are electronic, it’s easy to measure a person’s productivity without looking over their shoulder.”

Bissell admits this past year has helped him understand how the pandemic affects employees in different ways.

“Those with school-aged children or who are caregivers have different needs than those who may be at risk themselves or have a partner who works as a first responder,” he said. “We must pay close attention to employee needs and build in opportunities to meet them where they are.”

Whether employees worked in the office or from home, they all stayed busy with mortgage applications for people buying new homes and for those looking to refinance at historically low interest rates.

“Our mortgage business was up nearly 65% last year,” Welch said. “As fewer houses are available for sale, we’re making up some of that slack in the refinancing area.”

He predicts slower growth could loom on the horizon, however. “There are only so many people who can refinance, and when you have less housing inventory to sell, it suggests a slowdown in the mortgage business may be coming.”

While the mortgage market is still active, Bissell pointed out there is a greater demand than housing supply, so Greylock is trying to help increase the supply. “We are partnering with local leaders to look at ways to stimulate development of more housing across the pricing spectrum,” he said, with the goal of a healthy housing market that is accessible to all members of the community.

On the flip side of new mortgages, job losses during the pandemic made staying current on mortgage payments a burden for many.

“We anticipated that people would have trouble when COVID hit,” Howland said, “so we allowed people to defer their mortgage payments without having to substantiate they had a need.”

 

By All Accounts

The pandemic — and the economic shutdown it ushered in — challenged business-banking clients as well, and for the first round of Paycheck Protection Program (PPP) loans, Greenfield Savings Bank created a task force of 43 employees to help local businesses process their loan applications. Employees often made calls on the weekend to clarify any point that might slow down the process. Several applicants received calls from Howland himself.

“It was amazing that no one complained for calling them at 8 p.m. on a Saturday,” he said. “They were all just happy we were working on their behalf.”

In the first round of PPP, Greenfield Savings processed 720 loans totaling around $60 million, and followed up with nearly the same amount in the second round. Meanwhile, the business-banking team at Greylock secured $30 million in PPP loans, which Bissell said helped save nearly 4,000 jobs in the Pittsfield area.

As everyone tries to figure out what lies ahead, bankers remain optimistic. Like every institution, Freedom Credit Union saw a surge in deposits after $1,400 pandemic-relief checks began landing in accounts, Welch noted. “People have only spent about 25% of their government checks, so there’s lot of pent-up demand out there.”

While banks had been increasing their use of technology anyway, industry data suggests COVID accelerated that shift by at least five years. Based on that trend, Welch sees bankers moving toward more of a consulting role.

“I think, eventually, people will visit a bank or credit-union branch when they need financial advice such as buying a home or a car,” he said. “Increasingly, they will handle their routine transactions online.”

Video teller machines are another example of the increased use of technology for everyday transactions.

“I think the pandemic made customers more willing to try new technology that we hadn’t offered before,” De Maria said. “We’ve seen some real success in their adoption of tools like our video banker.”

Still, while bankers are pleased with how well customers have adjusted to making technology part of their banking routine, they all look forward to the time when in-person banking becomes normal once again.

“When you get down to the basics, we provide relationship-based financial services,” Bissell said. “It’s really about personal relationships.”

In addition to engaging customers again, Howland said the camaraderie and collegiality of the staff being together is also essential.

“I’m a big believer in the small talk around the water bubbler,” he said, adding that the pandemic robbed people of those everyday social interactions that were taken for granted in the past.

“We are looking forward to a routine where we see our customers on a regular basis and we can have that friendly conversation once again,” he went on. “Everyone in our company is looking forward to that happening.”

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