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Banking and Financial Services

At bankESB, Growth Continues on a Number of Fronts

By
The new Holyoke branch
Banking and Financial Services

Taking Account

Matt Sosik says branches serve a different role than they used to

Matt Sosik says branches serve a different role than they used to, providing more value but less volume in the age of online and mobile banking.

In this era of rampant mobile banking, opening a physical branch is a different proposition than it used to be, Matt Sosik said. But it’s still an important one.

“At this point in the cycle of our industry, branching has fallen by the wayside a little bit,” said Sosik, president and CEO of bankESB, which recently opened its 11th branch on Sargeant Street in Holyoke — a move that, despite the declining emphasis on bricks and mortar, made a lot of sense.

“We feel we’ve been banking with the people of Holyoke for years and years, so Holyoke is a natural extension of our footprint,” he said, noting that today’s branches are smaller and more efficient than those built in the past, but still must emphasize customer service — something that Tiffany Raines, Holyoke’s branch manager, has said she will emphasize there.

Indeed, online channels do change the dynamics of a branch as a delivery channel, Sosik told BusinessWest, if only because branches simply serve fewer people in person than they used to.

“Customers, as they should, love that technology can improve their banking experience, and we really encourage our customers to use those online and mobile banking products; they’re so robust and provide so much to customers,” he noted. “That said, we’ll never lose our ability to interact with them face to face. We covet that, and when we get our customers in front of us, we certainly take advantage of that and provide guidance to them.”

“Actual in-person branch transaction volume is well off over the past 20 years, so it’s really about building the initial relationships with the customer; that’s what a branch does best in 2019.”

With that in mind, he said, the new Holyoke branch, like any new branch at most banks, is designed to provide value, not volume — a more personalized experience, in other words, for fewer customers each day.

“Actual in-person branch transaction volume is well off over the past 20 years, so it’s really about building the initial relationships with the customer; that’s what a branch does best in 2019,” he went on. “It’s more a source for originating the customer relationship than it is a delivery channel — more for acute problem resolution and consultative conversations.”

Yet, new branches also reflect growth, and bankESB is certainly growing, with $1.3 billion in assets across its 11-branch network in Hampden and Hampshire counties. Meanwhile, its holding company, Hometown Financial Group, also based in Easthampton, boasts $2.1 billion in assets and 24 branches across Western and Central Mass. and Connecticut, with further expansion to come (more on that later).

Banking today, Sosik said, is less about products and “more about how we deliver those products we’ve all become very familiar with.”

Take residential lending, for example. “The mortgage world has lent itself well to the online world, where we can efficiently process a transaction for somebody to buy what is arguably the biggest asset of their life, and we can do that almost entirely online for them — and very efficiently. That’s what technology has done — improved on products we’ve all come to know and love. That’s the difference between 2019 and, say, the 1990s.”

Dena Hall, the bank’s executive vice president and chief Marketing officer, noted that bankESB has the second-highest market share in Hampshire County at almost 22%, and the expansion into Holyoke follows growing name recognition in Hampden County, where it also maintains branches in Agawam and Westfield.

“We’ve seen an increasing level of awareness across the Pioneer Valley, up and down the 91 corridor, which is important to serve customer needs in this region,” she added. “Really, we’re all about meeting customers where they want to meet us. We want them to know we’re a viable option for them.”

Lending Thoughts

To understand the importance of face-to-face relationships in banking, Hall said, look no further than commercial lending, an increasingly important part of bankESB’s business and strategic direction. The institution added three new lenders to its commercial team in 2018, all from larger local banks, in an effort to add more resources to the division and demonstrate the capability to meet the commercial financing needs of businesses in the region. The team now has seven lenders under the direction of Executive Vice President Ryan Leap.

“When you think about how the customer has gotten physically away from us, that’s less so with the commercial business,” Sosik said. “Commercial lending has a lot to do with what we do best — customer service, face-to-face interactions, and building long-term, value-added relationships. For us, it’s a very natural customer-service direction in which to grow.”

The new Holyoke branch

The new Holyoke branch is a physical extension of business that bankESB had been doing in that city for many years.

That growth comes at a time when businesses continue to invest in capital projects, he added.

“We see a lot of things going on in the economy. The economy has such a long and slow build that it’s hard to see it in motion, but take a look back at the past year and years prior, and we’ve definitely seen continuous, slow, steady growth. Thankfully for Western and Central Massachusetts, we see that growth in small and medium-sized businesses coming in and taking advantage of the economy and improvements in commercial real estate.”

At the same time, Hall said, bankESB is building its consumer divisions. “Last year, we hired a new leader for the residential mortgage and consumer loan division with several years of experience in mortgage operations and origination, most recently with Peoples United Bank,” she noted.

In addition, after a year of developing its back-office processing and underwriting area, the bank recently added two new mortgage loan originators and upgraded its online mortgage application so that customers can apply how and when they want, either in person with a loan originator or online.

“With some banks in our market pulling back on their mortgage efforts, we’re excited to make more products and sales people available to the region,” she said.

Sosik agreed. “We continue to build the depth and breadth of the team to handle our growth. That’s generally been our strategic direction when it comes to community lending.”

That’s why developing both sides of the customer-service equation — a more robust online presence and also branches focused on customer service — are equally important, Hall said.

“A lot of customers are doing research online but close the deal in the branch, and we have people ready to serve them,” she told BusinessWest. “Clients want that face-to-face interaction, and we’ve hit a nice balance of being technologically savvy with mobile offerings and very customer-service-oriented, very customer-facing. That’s a perfect fit in this market.”

Mutual Successes

Hall noted that bankESB has received some key accolades of late. In June, it was named one of America’s best-in-state banks by Forbes in a nationwide survey; of the five banks selected in Massachusetts, bankESB ranked second, and was the only bank on that list headquartered in Western Mass.

Understanding the importance of building a bank’s name, its holding company, Hometown Financial Group, continues to grow its franchise and build a separate brand presence in each region. That means three separate banks will operate under the holding-company profile: bankESB, bankHometown, and Pilgrim Bank. The latter acquisition, based in Cohasset, closes this month and adds three branches and $263 million in assets to the Hometown family.

“We have a commitment to mutuality and building those local brands, building market share in each region, then we consolidate and make efficient the back-office and operation side. We think that’s a compelling business structure going forward,” Sosik said.

“Commercial lending has a lot to do with what we do best — customer service, face-to-face interactions, and building long-term, value-added relationships.”

“We’re big believers in our mutual structure,” he continued. “First and foremost, as a mutual company, we’re not owned by stockholders. We choose to be very entrepreneurial, and we run very much like a stock company would from the business side of it. But that mutuality gives us the ability to service customers and the community in ways that stock banks cannot.”

With so many community banks operating in Western Mass., he explained, that mutual structure helps set bankESB apart. “I think that’s a real difference maker for us, showing how much we are committed to mutuality and community banking.”

At the same time, Hall said, the company’s commitment to mutuality and its holding-company structure makes it an attractive partner for other like-minded mutual banks in its current market and beyond.

“We have some exciting transactions in the works, and we hope to be able to announce those transactions within the next 30 to 45 days,” Sosik added. “I think they’re compelling; there will be market interest there. We’re really moving our company forward in a number of ways. We’re excited about that. There’s a lot going on.”

Joseph Bednar can be reached at [email protected]

Wealth Technology Group Takes a Holistic View of Financial Planning

By
Gary Thomas
Banking and Financial Services

Life Goals

Gary Thomas

Gary Thomas says a diversified portfolio of investments is always a good idea, with a mix of high growth potential and stable returns.

In an ever-changing world — one in which career trends, technology, and, yes, financial markets have a way of shifting — it can be daunting to craft an investment strategy. Gary Thomas, president of the Wealth Technology Group, relishes the chance to help clients do just that, by focusing on the big picture. His job isn’t just financial planning, he says, but life planning — at least, as much as one can plan for the unexpected turns of life.

It can be daunting, Gary Thomas said, to plan for the future when no one knows what the future will look like.

“As long as there are innovators in this country, there’s going to be change, and that change is going to create disruption. And we’ve seen it already in the jobs that aren’t there that were there 20 years ago,” he said.

That’s not a new trend, of course. “We don’t even know what we want until we see it,” Thomas went on. “Henry Ford once said that, if he’d asked his consumers what they wanted, they would have said ‘faster horses.’ You just don’t know what you want until you get introduced to an idea. You always think things will be the same as they are in this little snapshot of life. You want to hang on to the past, but technology is going to be changing. And we can’t stop that.”

That’s the definition of progress, and that’s good for investment markets, which — despite their short-term fluctuations — have always grown over the long term, said Thomas, president of the Wealth Technology Group. “When the economy grows, everybody benefits sooner or later, but it doesn’t always go in a straight line.”

“Henry Ford once said that, if he’d asked his consumers what they wanted, they would have said ‘faster horses.'”

He shared these thoughts by way of explaining why it’s important for individuals planning for retirement — or just looking to save for college and other expenses — to diversify their investment portfolios. And, indeed, Wealth Technology Group helps clients preserve assets, lower their tax burden, and pass legacies to the next generation through a broad mix of tools, including mutual funds, managed accounts, real-estate investment trusts, energy shares, annuities, and life-insurance options — with the goal of creating financial stability in what can be a volatile world.

That means trusting the long-term record of the stock market, he went on, but also making sure to place money in vehicles with a more predictable return.

“You have to have a philosophy where you basically pay yourself first,” he said. “I almost don’t care where you put it, as long as you put it away. If you’re far enough away from retirement, you should have a pretty diversified approach in equities, but as you get close to retirement, you need to make sure you have some secure money, for when markets go down.”

In other words, investors have to be both educated and flexible — especially at a time when Americans are living longer, meaning they have to make their money last longer.

“We’re in a different situation than our parents or grandparents were. It takes a more creative approach, it takes education, and it takes some hand holding, too,” Thomas said, bringing the conversation back to the role his firm plays. He cited studies suggesting that individuals with a consistent financial advisor tend to do as much as 2% better per year than those that don’t, even accounting for fees.

“Part of it is behavioral science — and having somebody to call,” he explained. “Typically, people make mistakes by moving around too much. You’ve got to have a balanced approach, where you have some secure money and some growth-oriented money for your older years.”

Thomas doesn’t only help his clients navigate this landscape in his Westfield office. He’s been active over the years delivering workshops, seminars, and classroom lectures on financial topics, so he knows the value of educating people.

“In some ways, people are more torn these days, because trying to sort out all that information on the internet is like trying to take a sip through a firehose,” he told BusinessWest. “Everybody’s got an agenda — the posts you see on websites are often promoted content, and it’s hard to distinguish. Even if they’re not, they still represent one person’s philosophy.”

The goal, he added, is for clients to develop their own philosophy.

“Money and financial security mean different things to different people, and it plays a big role in our life whether we want to admit it or not,” he said. “At the same time, there’s just too much information out there — we’re bombarded with it — and there’s a big difference between information and knowledge, or between information and wisdom.”

So, while some investors get wrapped up in “the latest shiny thing,” like Bitcoin or gold, he said, it’s more important to save consistently.

“You can make a lot of money from being average if you don’t switch things around too much, because the market’s averages are pretty darn good,” he said. “But you also have to have that nest egg because when things go down.”

Growing Need

When Thomas launched his business around 1991, financial planning was a field on the cusp of significant evolution.

“Before that, everybody just had a stockbroker, they had an insurance agent, they had an accountant, but there wasn’t much in the financial-planning world. So, basically, we started the company, and it was more estate planning to begin with, but it just sort of evolved over time into money management and financial planning, because that’s where the need was.”

For years, he built the company’s reputation through a number of call-in radio programs around Western Mass., an approach that appealed to listeners hungry for information about financial strategies. “People were looking for straight information and not a sales job. That’s been our philosophy ever since.”

It’s a philosophy that’s also middle-of-the-road when it comes to investment risk, he added.

“If you come from an insurance background, you tend to be very conservative. If you come from a stock background, you tend to be maybe more aggressive. Well, I come from a legal background, and lawyers like to question everything. So it also made me a little skeptical about some of the products. So, basically, we took a more conservative approach to money management — not ultra-conservative, but middle of the road.”

One key message, which has become a company motto of sorts, is “it’s not what you make, it’s what you keep” — which is why he helps clients navigate tax-related pitfalls as well.

“I take more of a holistic approach because of my background; I have a master’s in tax law. And what good is it if you make a ton of money but you have to pay 40% of it back in taxes? So we try to use strategies to avoid that. It’s a total approach of, where are you going to be down the road? If you take money out, is it going to be taxable? Are you going to have some tax-free money?”

While taking a conservative approach, he remains confident in the stock market, but understands that it can be scary to obsess over its fluctuations on a day-to-day basis — and that investors need to rely on other sources for guaranteed returns.

“I take more of a holistic approach because of my background; I have a master’s in tax law. And what good is it if you make a ton of money but you have to pay 40% of it back in taxes? So we try to use strategies to avoid that. It’s a total approach of, where are you going to be down the road? If you take money out, is it going to be taxable? Are you going to have some tax-free money?”

“I’ve been around long enough to see that markets don’t always go up,” he explained, “and when the markets are down, you need a conservative piece someplace to take money from when you need it.”

That said, Thomas added, “this country’s always going to grow. No matter what happens, no matter what financial crisis there is, we’re always looking for new ideas and new ways to grow. And that’s what the market does. You think of the major companies today that are big names, which were not in existence 25 years ago, like Amazon and Google. And Apple was almost out of business.”

He shares these strategies of diversified investment with mainly clients approaching their retirement years, but also many young families that are trying to figure out how they’ll pay for college for their kids, at a time when the average sticker price for four years of education is around $200,000. “It’s a real challenge today,” he noted.

In short, there are many reasons why people walk through his door.

“We do some estate planning, too, but it’s primarily holistic, complete financial planning — helping to find the right portfolio and the right financial tools for each individual, and then we actively manage that,” he explained. “It’s not just about picking an investment. It’s got to be right for you.”

As an independent financial-services firm, the Wealth Technology Group isn’t tied to any single product, and as an accredited investment fiduciary, he’s required to keep the client’s interests at the fore.

“If someone goes into a store, and the owner says, ‘that suit looks good on you,’ maybe it does — but maybe that’s just the suit they want to push that day,” he explained by way of analogy. Fiduciary responsibility simply means the firm considers more than what’s suitable for a client, but what would best meet his or her needs. “It’s not just going to benefit me as a financial advisor, but benefit you as the owner of it.”

Getting the Word Out

Long after his radio talk-show days, Thomas still enjoys conducting seminars and workshops that promote his work in more effective ways than a short radio or TV ad. They’re a means not only to help people understand the compexities of financial planning, but to get the word out that the Wealth Technology Group helps clients from all walks of life, not just high-net-worth individuals, as some firms do.

And when he shares his perspectives, both through seminars and one-on-one, he emphasizes that financial planning is really about life planning — and people are not always emotionally prepared for the changes that retirement will bring.

“Retirement brings a change in lifestyle,” he said. “It’s like you’re going 60 miles an hour, then you retire — and it can be hard to adjust when you don’t have eight hours a day filled up. If your purpose in life was to be a journalist and you were a journalist for 35 years and all of a sudden someone told you you weren’t valued as a journalist anymore, you’d better have a purpose beyond that. So we encourage people to have interests that really excite them beyond work.”

In fact, people don’t expect to be impacted by that lifestyle change, as well as the social withdrawal that sometimes comes with it, as much as they worry about money.

“I’ve had clients in the past that have come in and said, ‘I’m only 200 more Mondays away from retirement,’ and the next time I see them, they say, ‘only 150 more Mondays.’ And I say, ‘you know, what are you going to do the day you walk out the door?’”

Sometimes, the sudden change brings about problems with drinking or eating or their marriage, he went on, noting that some of the first astronauts who went to the moon came back and ran into personal issues once they were past that exciting, challenging phase of their lives.

But you don’t have to go to the moon to feel loss, he went on, and Thomas continues to help people plan for all stages of life — not just financially, but holistically. Because money matters, but it’s not everything.

“There’s got to be something beyond that ‘200 more Mondays.’ So that’s what we encourage people to think about,” he said. “Join a senior center, do something, get involved. And don’t concentrate too much on money. That’s our job.”

Joseph Bednar can be reached at [email protected]

PVGrows Investment Fund Reaches Investment Milestone

By
Julia Coffey brought this selection of mushrooms to a local farmers market
Banking and Financial Services

Sowing Seeds

Julia Coffey brought this selection of mushrooms to a local farmers market

Julia Coffey brought this selection of mushrooms to a local farmers market. She also sells to restaurants, campus food services, and other food distributors.

Julia Coffey’s business was mushrooming — in more ways than one.

In fact, her enterprise, Mycoterra Farm, specializes in mushrooms. And when she was looking for a larger space in which to grow, she received a fortuitous phone call.

“In mushroom production, as with much agriculture, efficiency of scale is big — and we had maxed out capacity at our farm in Westhampton,” Coffey said.

She found a closed equestrian center on the market in South Deerfield that would make an ideal space, and initially pursued loans through the USDA Farm Service Agency. But she still needed more funding to get up and running on the new site.

“We were trying to figure out how to get the new farm online with a little less money than I needed, and it was Rebecca who reached out to me to see if we had any funding needs,” she recalled. “It was very timely.”

That was Rebecca Busansky, program manager for the Pioneer Valley Grows Investment Fund, or PVGrows for short, a regional investment and loan program launched in 2015 that provides financing and technical assistance to food and farming businesses in Western Mass.

“We really set out to help the whole food system. This is about farms and local food businesses and everything that makes a healthy food system,” Busansky told BusinessWest the day after the Franklin County Community Development Corp. (FCCDC), which oversees the fund, marked the project’s three-year anniversary with a celebration at Raven Hollow Winery at Koskinski Farms in Westfield.

It wasn’t just an anniversary being celebrated, but a funding milestone — $1.25 million, in fact, halfway to the fund’s original goal of $2.5 million. That money has helped more than 25 local farms and food entrepreneurs grow their businesses — and, in turn, a critical sector of the Western Mass. economy.

Mycoterra is a good example. The gourmet and exotic mushroom farm, as Coffey described it, grows “wood-loving” mushrooms indoors year-round. Mycoterra specializes in shiitake, oyster, and lion’s mane mushrooms, but experiments with many other varieties as well — and, in doing so, impacts scores of other food-related businesses.

“We market directly to farmers markets, about 50 restaurants statewide, and campus food services, and with the recent move, we’re increasing production and are working with a number of local distributors,” she noted.

John Waite, executive director of the FCCDC, said PVGrows offers an innovative, mission-driven way for community members to invest in their values by supporting and sustaining businesses that can make real changes to how food is grown, distributed, and purchased. “It takes the local movement to a whole new level. It’s beyond eating local — it’s investing locally.”

Good Idea, Naturally

To date, nearly 50 investors, including individuals, businesses, and foundations from New England and New York, have contributed a minimum investment of $1,000 to the fund, with interest paid annually, Busansky explained. These community investments are pooled together to provide the financing that farm and food entrepreneurs need to grow their businesses.

The fund grew out of existing FCCDC programs that provide technical assistance to local farms and food producers in the Valley, she added, noting that a need became evident for a funding source specifically aimed at benefiting these businesses.

Jennifer Ladd says supporting local food production brings cultural, economic, and even regional security benefits.

Jennifer Ladd says supporting local food production brings cultural, economic, and even regional security benefits.

Three foundations have been important to the fund’s growth: the Solidago Foundation, the Lydia B. Stokes Foundation, and the Henry P. Kendall Foundation, which collectively established a loan-loss reserve. A community pool was then established, accepting investments of $1,000 to $10,000 with a five-year term and a very low interest rate.

“We felt it was important to add this community-investment piece,” Busansky said. “The whole idea was to make it a minimum $1,000 to invest, which doesn’t make it completely accessible to everyone, but it’s not only open to wealthy people, either. It democratizes capital.”

Larger investments come with longer terms and higher interest rates, with the idea that investors with a little more money could be willing to take on more risk, Busansky added. But so far, there hasn’t been much risk for investors.

“We have 25 well-performing businesses borrow from us so far, and we haven’t touched the loan-loss reserve — in part because we give a lot of technical assistance.”

Coffey described the loan process as easy to navigate, but that straightforward experience wasn’t the only thing that impressed her.

The recent three-year anniversary celebration featured food provided by many of the fund’s borrowers.

The recent three-year anniversary celebration featured food provided by many of the fund’s borrowers.

“I’ve got a background in bookkeeping, so I feel I had some skill sets that some people don’t,” she said. “But they were prepared to offer technical assistance, too, for people and startups and agricultural food businesses that need it. They are a very knowledgeable resource, and it was great getting things established right away.”

The FCCDC has been involved in small-business lending for close to 30 years and has plenty of expertise in providing guidance to young enterprises, Busansky noted, from business plans to websites. So she’s not surprised the PVGrows fund has found early success in its mission. “We have a system in place that’s worked well, and now we’re ready to seek the additional $1.25 million in commitments.”

Jennifer Ladd is one of those investors. “You don’t have too be a wealthy person to invest in Pioneer Valley Grows, which I think is a wonderful thing about it,” she told BusinessWest.

“Supporting agriculture in this Valley feels like contributing to a sense of vitality. It’s the same kind of feeling I get when supporting the arts — there’s creativity, growth, collaborations between people,” she went on. “And there are multiple layers of assurance that your money will actually have an impact and be of service.”

Ladd said the low interest rates for investors shouldn’t deter anyone because most people getting involved in this do so because they believe in the value of supporting local farm and food businesses.

“I enjoy cheese, fruits, vegetables, and wine around here, and I don’t mind not getting much of a financial return,” she said. “I’m choosing low interest because that serves people just starting out. These new endeavors need time to get their roots in the ground, so to speak, and this money can help them do that. It will yield benefits in many ways.”

Some of that benefit is cultural, she added, contributing to quality of life and a certain agricultural fabric of the region, as well as a sense of connection with people who thrive off the land and wind up feeding their neighbors.

“We don’t have huge farms here, like in the Midwest, with thousands of acres of corn. This is agriculture we actually do benefit from immediately,” Ladd said. “I also feel like it’s contributing to my sense of security; with climate change and the volatility we see in the world, it’s good to have food being produced locally. So it’s a sort of regional security that has a payoff right now.”

Green Thoughts

Food and farm businesses applying for financing and business support through the PV Grows Investment Fund are vetted for mission fit by a consortium of community-lending institutions and food and agriculture specialists, Busansky explained.

Terry and Susan Ragasa, owners of Sutter Meats in Northampton, were among the early borrowers. “From start-up funds to get us open to facilitating a business consultation to get us to the next level, the PVGrows Investment Fund has been an incredibly supportive asset for Sutter Meats,” Terry noted.

Coffey has had a similar experience, as she grows a business that takes agriculture and sustainability seriously. Her mushrooms are handcrafted in small batches, and her natural methods of production accelerate decomposition, build soil, and cycle nutrients — critical processes for healthy ecosystems, she explained.

In turn, she also appreciates the financial ecosystem being created through the PVGrows investors and borrowers. She said she ran into an old friend recently who had invested in the fund, around the same time Coffey became a borrower, and it struck her how PVGrows is essentially neighbors helping neighbors — and helping a critical part of the region’s economy succeed.

“Western Mass. has a phenomenal agricultural economy, not just the producing, but the processing, and the loan program helps add layers to it,” Coffey said. “We eat really well locally, but the funding and the technical aspects of setting up a business — and setting up a business well — is something that is often overlooked.”

As the fund expands, the hope is that Mycoterra won’t be the only agricultural business in the region that’s mushrooming.


Joseph Bednar can be reached at [email protected]

Country Bank Aims for a Google Feel in Its Headquarters

By
One of the casual meeting spaces at Country Bank
Banking and Financial Services

Collaborative Culture

President Paul Scully

President Paul Scully

When Country Bank sought to overhaul its space on South Street in Ware a few years ago — a former mill building that houses about 110 employees — its leaders banked on what they call a collaborative culture, where low cubicles, glass walls, and comfortable, casual meeting spaces all aim to promote better communication and interaction, and a work environment that appeals to the young professionals that comprise the bank’s future.

Walking down the wide main hallway of Country Bank’s headquarters in Ware, you notice certain things. The central, glass-walled café. Conference spaces with names like ‘Integrity Room’ and ‘Prosperity Room,’ reflecting the bank’s values. The occasional beach ball.

Wait, what?

“Someone said to me, ‘what’s the deal with the beach balls?’” bank President Paul Scully said. “Well, we had them at a company event, and they ended up in the hallway. And when you’re walking down the hall and someone’s coming toward you and there’s a beach ball there, what do you do? You kick it.”

It can be an icebreaker of sorts, he went on, as the roughly 110 employees who work in the former mill building on South Street — almost half of the entire Country Bank organization — don’t necessarily all know each other. But it’s also, well, kind of fun.

“For people who visit, it’s unexpected,” said Shelley Regin, the bank’s senior vice president of Marketing, who estimated about 40 such balls reside somewhere in the building. “Normally, the hallway’s full of beach balls, but they make their ways into the offices, too.”

While fun to kick around, Scully said, the balls also promote interaction, a concept which was, frankly, the driving force in a recent, multi-year renovation of Country Bank’s main office. It’s the reason cubicles were lowered, solid walls were replaced by glass, and some of the gathering spaces feature couches rather than traditional chairs.

“When we moved in here 13 years ago, everyone had a cubicle as tall as me, and you couldn’t see one another,” he told BusinessWest. “That didn’t foster good collaboration. And there was no daylight because the work stations were so tall, they blocked the daylight.”

Scully had a catchy description of what the renovation aimed to reflect — “Google comes to Ware” — and explained why that type of culture is important.

One of the casual meeting spaces at Country Bank

One of the casual meeting spaces at Country Bank, is meant to spur creative thinking in an informal setting.

“We love the fact that we are in a mill town and that we’re a flourishing business here. But how can we attract the talent we need? We’re a $1.6 billion bank with 14 locations and growing — and we need to have Millennial talent to help move it forward. And they’re not going to want to hide in a cubicle and come out twice a day, for lunch and to leave. We said, ‘let’s really look at what is happening in workspaces that’s breeding collaboration and fun, and people just working together as a whole unit.’”

Like the low cubicles, the glass promotes more openness as well, Regin said.

“They put me behind glass walls so they can keep an eye on me,” Scully joked, before noting that his office used to be tucked away in a corner, as opposed to its current spot at the end of that main hallway. “You never went there unless you had to. It didn’t do anything for collaboration, nor did it allow me really to be a part of things. Now, right here, at my desk, this is the hub.

“We’re a $1.6 billion bank with 14 locations and growing — and we need to have Millennial talent to help move it forward. And they’re not going to want to hide in a cubicle and come out twice a day, for lunch and to leave.”

“The glass just opens everything up,” he went on, “and it supports the philosophy that we’re all equal components of the organization, and it’s not like you have to be behind a closed wall to do important things. We do have shades that come down. But if you put the shades down, everyone’s going to want to know what’s going on in Paul’s office, so you might as well just have them up and let them see.”

For this issue’s focus on banking and finance, BusinessWest paid a visit to Ware to learn how Country Bank is using its thoroughly 21st-century space — and several touches of fun that go well beyond the stray beach ball — to better position itself as an employer of choice at a time when competition is high for young talent.

Milling About

When Country Bank moved its headquarters in 2005 from Main Street to 44,000 square feet of former mill space on nearby South Street, it had options to relocate in another town, but the bank’s leaders felt it important to remain an economic engine in the community it had called home for more than 150 years.

“We looked at adding onto the main office, which was a Band-Aid approach, and then this fell in our lap,” Scully said of the former American Athletic Shoe plant, famous for its ice skates. “It was a very large employer, and had maintained the building meticulously. We have a lot of space here. You could easily say we could use half of it, but it works well for us; it allows us to have a big area for innovation and technology, and we have a whole education facility as well.”

The first renovation, to make the space suitable for bank operations, took place 13 years ago, and included those high cubicles and some decidedly unattractive color schemes and décor.

“Everything was kind of a pale yellow,” Scully said. “I started to walk around one Saturday and said, ‘this is awful. The color tones aren’t energizing. You can’t see anything. Let’s bulldoze it down and make it something where people are going to come in and say it’s is a really cool space.’

“It’s a great company, too, which is more important than being a cool space,” he was quick to add. “But you have to have those two together in order to really have it become a destination.”

As opposed to 2005, however, the latest renovation, which began around 2015, took place while people were working in the building — and often shifting around to accommodate the changes. “I moved five times in a year,” Regin said.

One of the casual meeting spaces at Country Bank

One of the casual meeting spaces at Country Bank, is meant to spur creative thinking in an informal setting.

“Really, the key piece was that group that moved into the first section that was done,” Scully recalled. “They were going to make it or break it for us, because if they said, ‘oh, it’s awful,’ we were doomed. Like anything else, when you say you’re going to change something, people immediately think of 1,000 reasons why it’s not going to work. It’s like Who Moved My Cheese? — ‘you’re throwing me off, you didn’t ask my input.’

But when that first group of employees settled in, they were more than satisfied. “Within the first week, they invited everybody in the building for brunch on a Friday because they were so excited about their space. We didn’t pay them for that. I think it spoke to just how much they loved it.”

The renovation stretched over two years because of the need to work around each department. In addition to the collaborative elements, the building also features a conference center with state-of-the-art multi-media equipment, an expansive IT space, and a number of small activity rooms. A gym was considered at one point, but Scully worried that it might turn into wasted space if interest waned, and besides, there’s a gym around the corner that Country didn’t want to siphon business from.

He had reservations about the central café as well, but that has proven to be a big hit. The fridge is stocked with fresh fruit all week, and Fridays feature a brunch with pastries or a yogurt bar. Then there are the Friday-morning games, like Hangman or Pictionary, that began with a few employees sneaking away from the brunch.

“We would all be hanging in the café, and one of the departments would go in a conference room and close the doors every Friday, and that wasn’t really working with me,” Scully recalled. When he found out they were using the short morning break to play games, however, “I said, ‘how about if you do that for everybody?’ They said, ‘really? We can do that?’”

bank based in an old mill building.

Paul Scully says visitors are often surprised to see a bank based in an old mill building.

So now, employees get an e-mail telling them what that Friday’s game is, and anyone is welcome to join in. It’s as much a way to get people talking and collaborating as are the small meeting spaces decked out with couches.

“When you go into a conference room, so often people think there’s a protocol of behavior, in the way you interact with one another,” Scully said. “It’s different when you’re sitting on a couch, bouncing ideas around. That’s what we really wanted to do — have it so people can think in an innovative fashion and look at things totally differently.”

Have a Ball

If visitors and new employees are surprised by the culture being fostered inside the building, he added, the exterior can be unexpected, too.

“I had a gentleman come in last week, and I explained, ‘OK, we’re in a mill building. And you’re going to think, this can’t be it. But you’re in the right place.’ And he said to me, ‘Scully, you’ve explained to us your building before, but this is not the typical bank,’ and I said, ‘at many levels, we’re not the typical bank.’ And that’s fine with us.”

He recalled speaking with someone who had also renovated a mill some years ago. “When I explained about the beach balls, he said, ‘beach balls?’ I couldn’t decide at that time whether we had just lost his confidence in us as a bank or not. But that wasn’t the case at all. The next day, I Federal Expressed him a bunch of beach balls and got a text from him the following day saying, ‘where’s the pump?’ I have every reason to believe those beach balls are flying through the air at his office as well.”

Banking, admittedly, has a staid reputation, and it’s not necessarily a field young people get excited about, he noted. But it is an industry where the culture is changing, and banks with an ear toward what Millennials prefer — when it comes to collaboration, flexibility, and even fun — will have an edge in attracting them.

“We would all be hanging in the café, and one of the departments would go in a conference room and close the doors every Friday, and that wasn’t really working with me.”

“This isn’t about a space,” he said. “It’s about the present and the future. Clearly, my generation is the minority this building, which is great. The Scully generation can’t be the generation that dictates how we’re going to do business. We want to be able to attract young talent and then unleash them, and let them think about how to do things differently.”

In that sense, the physical space is critical, Regin said. And it’s working. “A few years ago, most of our people who worked here were very local — 20 minutes to a half-hour away — and now they’re coming an hour. When they come to this space and realize what Country Bank has to offer, they’re willing to travel that hour, or even longer.”

In a job market where banks have to compete for talent, she added, Country Bank has plenty to offer when it comes to culture. “When people walk in here and see there’s a collaborative atmosphere, that’s important. That’s what people are looking for, especially the Millennial segment — they want to be at a place where they feel valued and there’s room for growth. It’s a destination, not just a job, where they sit in their cube all day and don’t see anyone.”

Scully agreed. “It’s important to have a place where, if someone is comparing their options, hopefully they say, ‘hey we like the option of coming here.’”

Joseph Bednar can be reached at [email protected]

Freedom Credit Union to Merge with WSFCU

By
Tale of Two Cities
Banking and Financial Services

Expanding the Footprint

Glenn Welch

Glenn Welch

Although many Freedom Credit Union members have ties to West Springfield, Glenn Welch said, the institution has never had a physical branch there.

But that will soon change, following the announcement that Freedom has agreed to a merger with West Springfield Federal Credit Union (WSFCU), bringing the West Side institution under the Freedom umbrella.

“This is a tremendous opportunity to extend our products and services to West Springfield, an area where we do not have a branch but where many of our members live and work,” said Welch, Freedom’s president and CEO. “We promise our members accessibility to us, whether it’s at a branch location or through mobile banking. This merger delivers on that promise.”

Freedom, which is headquartered in Springfield and serves members in the four counties of Western Mass. with 10 branches, was originally chartered as the Western Massachusetts Telephone Workers Credit Union in 1922 and renamed in 2004. It currently has $491 million in assets with 28,000 members who live, work, or attend school in Hampden, Hampshire, Franklin, or Berkshire county.

West Springfield Federal Credit Union, which was initially chartered in 1960 as the West Springfield Municipal Employees Credit Union before its name change in 2003, has nearly 3,000 members and more than $29 million in assets.

Welch noted that WSFCU members will have access to many new products and services, including member business lending, use of 55,000 surcharge-free ATMs across the worldwide Allpoint Network, and robust mobile-banking products and services. All employees of WSFCU will become part of the Freedom Credit Union family. The West Springfield Federal Credit Union location will remain open at 58 Union St. and conduct business as Freedom Credit Union.

“This is a tremendous opportunity to extend our products and services to West Springfield, an area where we do not have a branch but where many of our members live and work. We promise our members accessibility to us, whether it’s at a branch or through mobile banking.”

“The additional products, services, and opportunities available to both our members and the employees who serve them is a win-win proposition,” said Ann Manchino, manager of West Springfield Federal Credit Union. “We are excited for a new chapter in our history and to be part of the Freedom Credit Union family.”

The merger will require regulatory and member approvals, and is anticipated to be complete by the end of 2018.

Pending regulatory approval, Freedom Credit Union will have 11 total branches, including three offices in Springfield and locations in Feeding Hills, Ludlow, Chicopee, Easthampton, Northampton, Turners Falls, and Greenfield.

Credit unions are cooperative financial institutions owned by their members. As a not-for-profit organization, Welch noted, Freedom Credit Union returns its profits to its members in the form of high rates on deposit accounts, low rates on loans, and low or no fees for its services.

Income-tax Benefits from Charitable Contributions after the TCJA

By
Tax-Incentives
Banking and Financial Services

Giving Some Insight

By Terri Judycki

Terri Judycki, CPA, MST

Terri Judycki, CPA, MST

The Tax Cuts and Jobs Act (TCJA) has resulted in many changes for taxpayers. One area in particular is charitable giving.

For those who regularly make charitable contributions, changing philanthropic giving habits may result in greater tax benefits. This article will explore various strategies for maximizing the tax benefit of charitable giving under the new law.

The TCJA increases the standard deduction to $12,000 for a single taxpayer and $24,000 for a married couple filing a joint tax return. In addition, the itemized deduction for taxes has been capped at $10,000 for all combined state and local tax payments. The Congressional Budget Office estimates that these changes will reduce the number of taxpayers who itemize deductions by more than half.

To maximize the benefit of the higher standard deduction, consider bunching charitable contributions in alternating years. For example, if a married couple with no mortgage ordinarily gives $12,000 to charity each year, they will likely take advantage of the $24,000 standard deduction ($12,000 to charity plus $10,000 in state and local states is less than the $24,000 standard deduction). If, instead, they give $24,000 every other year, they will use the $24,000 standard deduction in the ‘off’ year and $34,000 in itemized deductions in the year with the gifts ($24,000 charitable contributions plus $10,000 state and local taxes), resulting in lower taxable income without any increase in cash expenditures.

From the charity’s perspective, though, this could leave some budget challenges.

Another way to bunch deductions without bunching the charities’ income is through the use of a donor-advised fund (DAF). DAFs are funds controlled by 501(c)(3) organizations in which the person establishing the fund has advisory privileges as to the ultimate distribution to charities.

In our example above, the married couple might establish a DAF with $24,000 in one year and direct or ‘advise’ that donations be made to specific charities over time. Amounts used to establish the DAF are deductible charitable contributions when transferred to the sponsoring organization.

“For those who regularly make charitable contributions, changing philanthropic giving habits may result in greater tax benefits.”

Whether the idea of bunching appeals to you or not, don’t overlook the benefits of gifting appreciated stock to charity. The stock must have been held for more than a year to take advantage of this planning opportunity. The charitable deduction is the fair market value on the date gifted. Gifting the stock instead of cash avoids income tax on the appreciation.

For example, if a taxpayer wants to make a gift of $10,000 to a charity and sells stock worth $10,000 for which he paid $7,000, he would have a $10,000 deduction and $3,000 taxable gain. If, instead, he directs his broker to transfer the stock to the charity, he is still entitled to a $10,000 deduction, but does not report the $3,000 gain.

Finally, taxpayers age 70½ or older have another option available. An individual who is 70½ or older on the transfer date can direct the trustee of his IRA to distribute directly to a qualified public charity. The distribution is called a qualified charitable distribution (QCD). The amount transferred counts as a distribution for purposes of meeting the minimum distribution requirement but is not included in the taxpayer’s income.

There are a few requirements. The charity cannot be a private foundation or a donor-advised fund. No more than $100,000 can be donated by an account owner each year. The gift to the charity must be one that would have been entirely deductible if made from the taxpayer’s other assets — for example, the donor should obtain adequate substantiation from the charity, and the donation should not be one that entitles the donor to attend a dinner, play golf, or receive any other benefit.

In our example above, the couple who makes a QCD from IRAs for the $12,000 each year reduces taxable income by $12,000 and still uses the standard deduction.

Another possible advantage is the effect the reduction may have on other taxable items. Depending on the taxpayer’s total income, reducing adjusted gross income could result in reduction of the amount of Social Security benefits that are taxed, an allowed loss from certain real-estate rentals, or a reduction in the net investment income tax (if the amount of excess AGI exceeds the net investment income).

Reducing income may also result in lower Medicare premiums that are based on income for higher-income taxpayers. In addition, some states do not provide deductions for charitable donations, but do follow the federal treatment of excluding the QCD from income.

These changes may result in tax savings that could be used to make an even larger donation to a favorite charity.

Terri Judycki is a senior tax manager with the Holyoke-based public accounting firm Meyers Brothers Kalicka, P.C.; (413) 322-3510; [email protected]

Springfield’s Economy Continues to Outperform Hartford

By
Banking and Financial Services

Tale of Two Cities

Connecticut has had its share of economic challenges in recent years, including a slow but steady outmigration of residents. Many might not be aware, however, of how stark the differences are between Connecticut and Massachusetts when it comes to long-term job recovery from the Great Recession — including Springfield’s relative strength when compared to Hartford. Farmington Bank’s economic adviser recently broke down the numbers, painting a picture that should be encouraging to those north of the border.

As an economic adviser for Farmington Bank, Don Klepper-Smith spends most of his analytical energy on Connecticut, but when he compares that state’s recent performance with its neighbor to the north, the numbers are stark.

“When we talk about Springfield and Hartford, I think the analogy ‘tale of two cities’ is appropriate,” Klepper-Smith said during a recent Farmington Bank webinar on the national and regional economy.

Since the low point of the Great Recession in 2009 — when unemployment spiked across the U.S. before the gradual recovery kicked in — the Greater Springfield area has created 32,000 new jobs, while Greater Hartford has created 37,000.

“So you’ve got close to 70,000 new jobs in the I-91 corridor between these two areas,” he noted. That’s all good. “But when we look at them in the context of our job-recovery rate, you can see Springfield is clearly outperforming Hartford — and looking a lot like the nation.”

The key takeaway is how much of the 2008-09 job losses have returned, he explained, and that’s where Springfield has really outpaced Hartford. While Hartford is now 4,200 jobs above full recovery — that is, above where the job picture stood in March 2008, before the economy collapsed — Springfield is 16,600 jobs above that line. To put it another way, Hartford has recovered 112.7% of its recession-era job losses, while Springfield has recovered 209.2%, gaining back its losses more than twice over. The national recovery figure, by the way, is 217.8%.

“When I think of Springfield, two words that come to mind are ‘stellar performance,’ with a job recovery rate that’s about twice that of Hartford,” Klepper-Smith said. “I think Hartford has its own challenges. We know the fiscal situation there has been tenuous, but I think economic-development policies are the reasons why Springfield is doing as well as it is.”

That’s good news for Springfield, which has been on a hot streak of good economic news for some time now, with the MGM Springfield casino at the forefront of that. But the numbers also reflect an overall disconnect in the way Massachusetts and Connecticut have respectively recovered from the economic downturn of a decade ago — and it’s a striking gap.

Tale of Two States

It’s hard to believe, Klepper-Smith says, that the U.S. recovery from the trough of the recession is now nine years old.

“The average postwar recovery is five years, so we’re getting a little bit long in the tooth here, and we’re looking for what could go wrong and trying to keep a positive attitude as we move through the balance of the year,” he went on. “Looking at the tea leaves and looking at the fundamentals, I’d say there’s a two in three chance we go forward with positive but slower economic growth — in the 2% to 2.5% range.”

Don Klepper-Smith

Don Klepper-Smith says economic-development policies have contributed to Springfield’s recent successes.

Yet, Connecticut continues to struggle — in fact, Hartford is among its strongest metropolitan areas in job growth, putting the rest of the state into stark relief. “State budget issues have undermined business confidence and promoted outmigration,” Klepper-Smith said, noting that the Nutmeg State has been shedding 428 people per week on average to other states.

“But as we go forward,” he said, “it boils down to consumers. Right now, what are consumers going to be doing for rest of 2018?”

Consumer confidence is rooted firmly in job creation, he was quick to note on more than one occasion. And Massachusetts job creation has been running circles around its southerly neighbor for much of the past decade.

Let’s go back to job-recovery rates, this time on the state level. Connecticut peaked at 1,713,000 jobs in March 2008, dropped to 1,594,000 by the following year — a 7% erosion — and has returned to a level of 1,687,000 jobs. That’s a recovery rate of just 78%, far below any other New England state.

“We seem to be stuck in this 80% range for job recovery, and right now we’re the only state in New England not to see full job recovery,” Klepper-Smith said of Connecticut. “I’ll be honest: I don’t see that number going above 100% any time soon. I don’t see robust job growth materializing any time soon.”

Massachusetts, in contrast, has been a model of recovery. From a 3,331,000 peak in 2008, the Bay State fell to 3,191,000 jobs at its 2009 trough — a 4.2% erosion — but now stands at 3,645,000, a whopping 322% recovery rate.

“In Connecticut, I’d have to use the word ‘lackluster’ for job recovery,” Klepper-Smith said, projecting that state likely won’t reach full recovery until 2020, several years after Massachusetts did so multiple times over.

The good news locally, he said, is that the Knowledge Corridor — the amorphous region stretching from Greater Hartford to Hampshire County — is doing well, even on the Connecticut side.

“We’ve got varying degrees of both strength and weakness. What we can say is the regional economy in the I-91 corridor is clearly performing well,” he noted, adding that the total non-farm job-growth rate is currently 0.8% in Hartford and 1.2% in Springfield, while the national figure is 1.6%. Again, Hartford pales in that comparison, but it’s behind only Danbury (1.0%) among Connecticut’s metro areas.

“I think the Connecticut economy seems to be moving sideways more than anything else, with pockets of both strength and weakness. We’re seeing signs of decelerating in many of the economic metrics we have,” Klepper-Smith said, noting that Connecticut’s gross state product ranks 49th nationally, ahead of only Louisiana.

“I’m hoping we can make some progress there as we move into 2019. We’re underperforming in job growth and income creation — and job growth will be what it’s all about. Jobs, jobs, jobs — they’re so important because of income, spending confidence, tax revenue, and all those linkages.”

National Picture

Nationally, Klepper-Smith said, the U.S. continues on a moderately positive path, growing at a seasonally adjusted annual rate of about 2.2%, though inflation — and rising costs of gas, healthcare, and home prices — are a concern.

“One of the things we can all agree on is that there are some pros and cons of living in an interconnected global economy,” he said. “And in economics, there are always tradeoffs; there’s never really a sense of clear winners and losers. Sometimes we have to wait and see how that all shakes out.

“But what we do know is what’s going on with the consumer sector,” he went on. “Consumers are so important to what’s going on because personal consumption accounts for roughly two-thirds of real gross domestic product.”

On one hand, he said, consumer-confidence measurables are strong — up 8% from last year and approaching 1990s levels, which is encouraging. But that trend could be tripped up by any number of factors.

“What we do know is that consumer fundamentals are being pressured, and risks to the current business expansion are becoming imperiled with rising energy prices, higher interest rates, and the expectation of higher healthcare costs heading into 2019. I think that’s a table setter for where we are, with the consumer feeling a little more squeezed and a little less comfortable compared to where we were back in March.”

Klepper-Smith expects the Fed to move with caution for the rest of the year. “We can now say the Fed sees rising inflationary pressures, and I honestly don’t feel they’re going to be aggressive on rate increases going forward. We’re probably not looking at more than two rate increases for the balance of 2018.”

If there’s one indicator to watch closely through the rest of the year, he said, it is, quite simply, how are consumers feeling? “One of the factors is the fact that the labor markets themselves have not shown meaningful progress. What that means is that we have not seen meaningful growth in consumer spending power.

“People ask me, ‘why doesn’t this feel like economic recovery the way I understood it in the past?’” he went on. “The answer is that we haven’t seen robust growth in consumer spending power.”

Back to Work

That comes down to jobs, of course, and Klepper-Smith admitted his dampened enthusiasm is mainly due to what he sees in Connecticut — which, again, puts Massachusetts in a very good light when it comes to its continuing recovery and expansion after the Great Recession.

“The good news is that we’ve seen job recovery in both regions, but I think that the problems that we have in Hartford are a bit more pronounced on the fiscal side, and I don’t think they’ll be going away any time soon,” he concluded.

It’s a sobering reflection of the myriad factors at play in creating an economic outlook — and a reminder that, even on the most challenging days in Massachusetts, things could be a lot worse.

Joseph Bednar can be reached at [email protected]

Tax-bill Provision Presents Challenges to Those in Healthcare

By
Banking and Financial Services

Take Caution with Section 199A

By Kristina Drzal Houghton, CPA, MST

Kristina Drzal Houghton

Kristina Drzal Houghton

On Dec. 22, 2017, the Tax Cuts and Jobs Act was signed into law, bringing the biggest changes to both corporations and individuals in the past 30 years. Having spoken before groups of medical professionals on this issue, I have found that many believe limitations in the law will prohibit physicians from benefiting from these tax reductions.

This article will focus on medical practices and highlight some techniques available to benefit from the 20% deduction which might otherwise be limited. Additionally, there will be detailed examples of said techniques that will help to provide perspective and clarity to practice owners and shareholders on this very complicated tax issue.

Over the past few decades, many practices have been formed as pass-through entities. In contrast to C-corporations, income earned by a sole proprietorship, S-corporation, or partnership is subject to only a single level of tax. There is generally no tax at the entity level; instead, owners of these businesses report their share of the business’ income directly on their tax return and pay the corresponding tax at ordinary rates.

The Tax Cuts and Jobs Act, signed into law this past December, reduced the top rate on ordinary income of individuals from 39.6% to 37%, and Section 199A further reduced the effective top rate on qualified business income earned by owners of sole proprietorships, S-corporations, and partnerships to 29.6%. Section 199A allows taxpayers other than corporations a deduction of 20% of qualified business income (QBI) earned in a qualified trade or business, subject to certain limitations.

Business owners below the applicable threshold amount — which is $157,500 of taxable income for all filers except joint filers, and $315,000 for those filing jointly —— can enjoy a QBI deduction for the lesser of 20% of their qualified business income or 20% of their taxable income. It does not matter what type of business is generating the income, nor is there a need to analyze W-2 wages paid by the business or depreciable assets owned by the business. The QBI deduction is what it is.

Business owners over their applicable threshold who derive their income from a business that is not a specialized trade or service business may also have their QBI deduction at least partially phased out, but the full deduction may be ‘saved’ based on how much they pay in W-2 wages and/or how much depreciable property they have in the business.

Business owners over their applicable threshold who derive their income from a ‘specified service’ business — which includes doctors, lawyers, CPAs, financial advisors, athletes, musicians, and any business in which the principal asset of the business is the skill or reputation of one or more of its employees — will have their QBI deduction phased out.

The phaseout range is $50,000 for all filers except joint filers, and $100,000 for those filing jointly. Once a business owner’s taxable income exceeds the upper range of their phase-out threshold ($207,500 for individuals and $415,000 for married filing jointly), they cannot claim a QBI deduction for income generated from a specialized trade or service business.

Examine your practice to determine if all your income is from a specified trade or business. A careful analysis of your practice could identify that it consists of multiple different trades or businesses. For example, an orthopedic practice might sell medical equipment. Breaking this portion of the practice off into its own LLC will decrease the specified service trade or business income and could potentially qualify for a QBI deduction with proper planning.

Shifting Business-owned Real Estate to New Entities and Paying Rent

Many practices own the real estate out of which they operate. If this is the case for a higher-earning business owner, there is an obvious way of converting some of the specified service-business income into income from a business that may qualify for a QBI deduction. In short, the business owner can create a new entity, transfer the real estate into that entity — provided the transfer is not tax prohibitive — and then lease that real estate back to the original business.

The original business’s profits, which are not eligible for the QBI deduction (assuming the business owner’s taxable income exceeds their applicable threshold), will decrease, and profits can be shifted to the new real-estate company, which could potentially qualify for at least a partial QBI deduction.

Example: John is a dentist and is the sole owner of an oral-surgery practice organized as an LLC. His income from the practice — which falls under the specified service business umbrella — is $900,000 per year. Thus, John is currently ineligible for any QBI deduction. Several years ago, the LLC purchased the medical offices out of which the practice operates for $2 million. The upkeep on the office space, the depreciation on the property, and other expenses currently reduce the net profit of the LLC by about $100,000 per year, but the property provides little else in the way of tax benefit for John.

One option to consider in a case like this would be to spin off the medical office building into a separate LLC, or other business structure, and have the dental practice rent space in the building. Those rent payments would be deductible for the medical practice, and taxable income for the new business … except the profit in the new business may be eligible for the QBI deduction.

For instance, suppose that, after spinning the medical office off into its own entity, the dental practice leases the office space at the rate of $220,000 per year. The net result of such a transaction would be reducing the dental practice’s net income $120,000 ($220,000 rental expense minus $100,000 prior expenses ‘lost’ = $120,000). The real-estate entity, on the other hand, would now have a profit of $120,000 — a net shift of zero — but the real estate’s income could qualify for the QBI deduction. Thus, the result is an equivalent amount of business income, but a $24,000 QBI deduction for John on his personal return that, at his tax rate, would save him nearly $9,000 in federal income taxes annually.

Shifting Other Business-owned Assets to Other Entities and Leasing Them Back

For some business owners, there’s the potential to continue to push the boundary even further on shifting depreciable property out of a business, and then leasing it back to the original business entity.

Example: Continuing the earlier example of John and the dental practice above, suppose the practice also owns X-ray machines and a variety of other depreciable medical equipment as well, with an unadjusted basis of $750,000. This equipment could be spun off into yet another business, and the dental practice could lease back the equipment.

The mechanics and potential tax benefits of this move are essentially the same as when real estate is moved into a separate entity. When it comes to the QBI deduction, depreciable business property is depreciable business property. The 2.5% limitation is not impacted by the type of depreciable property or the length of time over which it will be depreciated.

Of course, the limitation to this strategy is that not all small businesses have substantial (or much, or any) depreciable property to spin off into other entities in the first place … and at some point, any and all depreciable property that could be spun off will have been. So that’s it, right? Maybe not.

If You Can’t Lease Equipment, Lease People with an Employee-leasing Company

Many specified service businesses are labor intensive but may not necessarily require a great deal of depreciable property. Anesthesia and radiology practices are both good examples of this. Outside of some office furniture and some computers, these businesses can generate substantial profits without ever owning any significant amount of depreciable property since they operate out of hospital-owned facilities. They do, however, often employ a great number of people, and spend substantial amounts on human capital.

To that end, the language in Section 199A leaves the door open to the possibility of creating an employee-leasing company and leasing back one’s employees from that company. Some practitioners believe this to be a gaping hole in the rules, while other practitioners are a little more cautious at this time. Even on the conservative side, the billing and administrative employees could defensibly be split off into a separate LLC if it can be demonstrated that it is not a specified trade or business because it is not dependent on the skill or reputation of one or more of its employees.

Notwithstanding the benefits of the above strategy, some caution is merited. Tax advisers are understandably eager for answers, but unfortunately, Section 199A is just one small piece of the most significant overhaul of the tax law in 31 years. The IRS is now charged with the herculean task of providing guidance for a host of new and changed statutory provisions, and, as a result, it may be some time before tax advisers have certainty related to some of the strategies posed in this article.

Until that guidance arrives, Section 199A will best be approached cautiously, particularly considering the potential substantial-understatement penalty that comes with claiming a deduction under this provision.

Kristina Drzal Houghton, CPA, MST is a partner with the Holyoke-based accounting firm Meyers Brothers Kalicka, P.C. and director of the firm’s Taxation Division; [email protected]

Credit Unions Continue to Promote Their Structure, Culture

By
Banking and Financial Services Sections

Members Only

Katherine Hutchinson says members expect a credit union to be attuned to their needs.

Katherine Hutchinson says members expect a credit union to be attuned to their needs.

Although myths persist about what credit unions are, their leaders are cheered by statistics showing that 43% of Massachusetts residents belong to one. But they know members aren’t satisfied with mere messaging; they want the high-tech tools available at larger banks, melded with a culture of personal service. It’s a challenge they say they work hard to meet.

Michael Ostrowski has made a career in credit-union leadership, and the numbers startled even him.

Specifically, it’s the statistic that 43% of the population of Massachusetts is a credit-union member, compared to about 33% nationally.

“That’s huge. I was surprised by that,” said Ostrowski, president and CEO of Arrha Credit Union. But after considering it, he wondered why that 43% figure should be a shock at all. “I’m surprised more people don’t take advantage of credit unions, from the fees and everything right down the line. We are typically a better deal, and you don’t see any of these credit unions in the newspaper like a Wells Fargo.”

By that, he meant the financial turmoil that many national banks brought upon themselves at the start of the Great Recession — a crisis that actually led to marketing opportunities for credit unions, said Katherine Hutchinson, president and CEO of UMassFive College Federal Credit Union.

“We did see growth throughout the recession,” she told BusinessWest. “We wanted to make sure we were not letting our members down by not lending through that period, but we were also very conscientious about how we were spending our money — all the things good financial institutions do to protect the interests of their shareholders and, in our case, our members. That’s really important to us, and I think it was a time where people were taking a second look and saw credit unions as alternatives.”

The lobby walls at UMassFive’s Hadley headquarters are adorned with messaging touting the member-centric (don’t call them customers) philosophy of credit unions, and, “believe me, we try very hard to follow the philosophy,” Hutchinson went on. “I’ve been at the credit union for 42 years — I’ve kind of grown up in the industry. When I started, we were very focused on the member, and I’ve tried to convey that and live that philosophy as we grew bigger.”

Credit unions are financial institutions that look and feel like a bank in the products and service they offer, she explained, but the difference is their structure as cooperatives.

“Because of a credit union’s non-for-profit status, consumers do expect better rates and lower fees, and I think that’s what they experience,” she said. “But they also want us to be focused on what they need, on how we can help them personally — to listen to their story, hear about why they’re in a certain situation, and what would really help them.”

Glenn Welch says local leadership means credit unions can respond to members’ concerns quickly.

Glenn Welch says local leadership means credit unions can respond to members’ concerns quickly.

Glenn Welch, president and CEO of Freedom Credit Union, said member ownership of the institution is important to those who do business there. “Whether you have $5 in your account of $500,000, it’s one member, one vote,” he said, adding that members of his board of directors must hail from the four western counties. “The board is local, so members know we can make decisions and resolve situations quickly.”

Resolving situations, and writing more success stories, is a point of pride for UMassFive, Hutchinson noted. “I think it’s important that we hear those stories and share those stories to encourage our employees to listen to the members and find ways to help. The stories are important.”

Numbers Don’t Lie

The story for credit unions has been positive in recent years, Ostrowski said, pointing to statistics like a capital-to-assets ratio of 10.4%, on average, for credit unions in Massachusetts. “Over 7 is well-capitalized — we’re over 10. That shows strength in the credit-union industry.”

Meanwhile, the 167 credit unions in Massachusetts employ 6,158 people full-time and another 908 part-time, and boast more than 2.9 million members — again, about 43% of all residents.

Still, myths persist about credit unions, Welch said, sharing four common ones identified by the Credit Union National Assoc.

The first myth: “I can’t join.” CUNA points out that many Americans believe they are ineligible to join a credit union, but membership eligibility today is typically based on geography, he noted. Membership at Freedom Credit Union, for example, is available to anyone who lives, works, or attends college in Hampden, Hampshire, Franklin, or Berkshire counties.

The second myth: “accessing my money may be hard.” Not true, Welch said, noting that, along with boasting a mobile application for online banking, many credit unions, including Freedom, have joined the Allpoint Network, allowing members surcharge-free ATM access at more than 55,000 retail locations worldwide.

The third myth: “they’re too small.” Rather, he noted, credit unions provide the same security and protection of a larger financial institution, but is accountable to members, rather than shareholders. “This means every customer is treated as an individual, not a number, enjoying personalized service and customized products.”

The final myth: “they’re primarily for those in need.” Based on generational notions, Welch explained, some may believe credit unions mainly serve low-income consumers. In truth, he added, they serve every population, as well as every size and type of business.

Essentially, he told BusinessWest, the CUNA survey demonstrated that many people don’t understand what membership means and how to go about applying to be a member.

“Several things came up; one was that they didn’t feel that credit unions can offer them the level of technology and products of banking institutions. But we had a good year in 2017 and approached the board with quite a few investment upgrades,” he noted, expanding the tasks that can be done online, like electronically signing for loans.

“People don’t want to set foot in a bank or credit union lobby unless they have to,” he continued. “We have the same products available at bigger banks, but at a local level.”

Ostrowski agreed that credit-union members appreciate the institution’s purpose and philosophy, but also demand current technology. In fact, Arrha is in the process of upgrading all its systems to improve electronic communication and its mobile banking platforms.

“I think the credit unions are still filling that void of the banks that had their roots in the small towns, and that really hasn’t changed,” he said. “But I think it’s important that people realize that we have the same systems all the big banks have, and we have the same cybersecurity functionality they do. Clearly, from a systems standpoint, we can compete very well with them.”

Michael Ostrowski says credit-union members expect the same high-tech products they can find at large banks.

Michael Ostrowski says credit-union members expect the same high-tech products they can find at large banks.

Likewise, Hutchinson noted that the area colleges the credit union was built upon still form its core membership group, but it wouldn’t have grown beyond that without a recognition in the region of the credit-union philosophy — and without a commitment on the institution’s side to stay atop trends in products and services and continually invest in technology. “That is important to growth and our sustainability, so we’re proud of that.”

Loan Stars

Ostrowski said messages like this — and a vibrant economy — have helped Arrha grow steadily in recent years, with deposits up, loan delinquency down, and investments in technology helping to attract new members.

Meanwhile, Welch noted that the competitive interest rates Freedom pays on savings accounts and charges for loans have both attracted new business. All that led to growth in 2017 in return on assets and total loans, as well as hiring a second commercial lender and a credit manager, focusing on individuals and small businesses.

“Typically, we don’t lend more than $3.5 million or $4.5 million, although we could, based on capital,” he noted.

But the credit-union presidents BusinessWest spoke with all noted that the model’s philosophy doesn’t stop at dollars and cents, but extends to a robust community outreach, often in the form of educational seminars.

“That goes to the concept of people helping people,” Welch said. “We find, when we’re not able to help someone, it’s usually a credit issue, and often, they haven’t been educated on the value of credit. So we participate with other banking institutions in Credit for Life fairs, reaching out to students when they’re still in high school to talk about good and bad credit, and what that means when they try to buy a car, rent an apartment, or get a credit card.”

Hutchinson said her board believes community education is important to UMassFive’s mission. “So many people need that kind of assistance. It ties back into what is best for our members — educating them on how to make decisions.

“Financial literacy is key,” she went on. “We try to have a variety of topics, from understanding your credit score to budgeting to preparing for retirement and first-time homebuying. We also work with UMass, doing some seminars for students on student debt.”

Ostrowski noted that even recent college graduates don’t understand their credit score and the impact it can have, while others take advantage of a credit-card offer in the mail and quickly wind up thousands of dollars in debt without thinking about the consequences. “All our programs in financial literacy are drivers that we make no money on — they are absolutely out of love of our members and to protect them.”

The credit-union culture runs deep in Massachusetts, the state where such institutions were first chartered way back in 1909, Ostrowski explained. State partnerships are still critical, he added, noting that Gov. Charlie Baker has backed an effort by the state’s credit unions, called CU Senior Safeguard, to fight elder financial abuse and fraud. All frontline credit-union staffers are participating in the program, while a statewide effort is targeting consumers with information about how elders are defrauded — a problem that costs some $10 billion every year nationally.

“I’ve heard wild stories about members getting ripped off by contractors,” he said, or individuals who were ready to send money to an unknown e-mailer on the promise of more in return. “I’ve literally had to argue with individuals not to send their money away.”

Better, he said, to deposit it with a credit union — and join that 43% number that, in an age of constant mergers and acquisitions among area banks, only continues to grow.

Joseph Bednar can be reached at [email protected]

Team Forwards Plans for Another New Bank in the Region

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Banking and Financial Services Sections

Addition by Addition

While there are plenty of banks doing business in this region, Jeff Sullivan says, there is an opportunity for a new one that is based locally.

While there are plenty of banks doing business in this region, Jeff Sullivan says, there is an opportunity for a new one that is based locally.

 

Jeff Sullivan has spent more than 30 years working in and around the region’s banking community, most recently as chief operating officer for United Bank.

So he understands fully when people use that term ‘overbanked’ to describe this area. In fact, he’s used that word himself over the years as he’s watched branches proliferate in a host of area communities.

But over the past few years as he’s done consulting work for the industry after leaving United following its merger with Connecticut-based Rockville Bank, Sullivan says he’s come to understand that just because there are branches on almost every corner in some cities and towns, that doesn’t mean the region’s population — and especially certain segments of it — are adequately served.

“There’s plenty of good local banks around,” he told BusinessWest. “But there is opportunity, because the largest financial institution based in the city of Springfield now is a credit union. So there is opportunity for a Springfield-based institution with local decision making.

“I was getting asked by a lot of people — individuals I would just bump into on the street or in the supermarket — ‘can you send me to a good lender?’ or ‘can you give me a good bank to go to?’ or ‘are you going back to work? I need to make a switch,’ he went on. “After that happened 10 or 12 times in a relatively short period of time, I began to think there was room for a new bank.”

And these sentiments, grounded in what Sullivan considers more scientific analysis and sound due diligence, has led him to partner with attorney Frank Fitzgerald and Jim Garvey, owner of St. James Check Cashing, to begin the process of adding a new bank to the landscape.

It will be called New Valley Bank & Trust, the partners announced late last week, adding that the team is now seeking approval from the Federal Deposit Insurance Corp. (FDIC) to form the new institution before launching a capital raise aimed at amassing $25 million to $30 million.

This will be the first new bank launched in the area since NUVO Bank (since acquired by Community Bank) opened in 2008. New Valley Bank & Trust almost certainly will open in better economic conditions — NUVO had the misfortune of launching just as the country was heading into the Great Recession — and it will have a different model, said Sullivan.

Indeed, while NUVO was focused on a mostly digital banking model — it has just one branch, in downtown Springfield — New Valley will have slightly more of a brick-and-mortar foundation, he explained.

It will be headquartered in downtown Springfield and will start with a full-service branch somewhere in the city (the location has not been determined) and a second location on the west side of the Connecticut River (again, that community has not been chosen) within a year after opening.

New Valley, like most banks now doing business in this region, will offer a full range of business and retail banking services for residents and small to medium-sized businesses in Massachusetts and Northern Conn.

Like NUVO, though, this proposed new institution will focus considerable energy on commercial lending, said Sullivan, who has spent most of his career in that realm. Despite stern competition in the commercial market and a huge number of established players, he sees room for opportunity.

That opportunity — on both the commercial and residential sides of the ledger — results from the spate of mergers and acquisitions in recent years, he told BusinessWest, an ongoing development that has decreased the population of community banks and, as he noted, left Springfield without a bank headquartered within its boundaries.

“With fewer local banks servicing the region, we have heard from countless residents and small to medium-sized business owners that are looking for a level of customer service and credit that is simply not available in the market today,” Sullivan said in a press release announcing formation of New Valley. “Our focus will be on meeting this demand with personalized attention and cutting-edge technology that will shorten wait times for funding decisions and opening accounts.”

On the commercial side, the bank will focus on smaller loans and quick turn-around times, said Sullivan, adding that the mergers in recent years have created opportunities to meet a specific niche.

“We have a lot of good banks around here, but they’ve grown to a larger size,” he explained. “And they’re focusing on larger deals than they probably did 10 years ago. I think there’s a real opening for personal service being delivered to small businesses.”

But another point of emphasis for New Valley will be what Sullivan described as a still-large population of area households that are “unbanked and underbanked.”

Elaborating, he said research continues to show that the volume of business at check-cashing establishments has remained fairly stable — and comparatively high — in this region, despite considerable improvement in the economy over the past decade.

Sullivan and his partners estimate there are some 20,000 households in Hampden County alone that use a bank sparingly, if at all, and in these numbers, he sees more opportunity in the form of need for a new bank.

“These are working women and men whose barrier to entry into the banking system has been too high for too long,” her went on. “As a local bank, we want to find opportunities to serve this significant segment of our community and create lifelong customers in the process.”

Elaborating, Sullivan noted that, in many cases, individuals or households don’t use banks because of a lack of trust or because of a bad experience — or several.

“The biggest reason, the FDIC says, is lack of trust,” he explained. “They don’t trust the system. People have had bad experiences; they got kicked when they were down, and it’s led to a lack of trust.”

In response, New Valley will offer products and services designed to build trust, he went on, such as bounce-proof checking accounts, incentivized savings accounts, and financial-literacy programs.

Sullivan said the need for a new, locally based, bank can be verified by the makeup of the 60 founding sponsors — what he described as a “large and diverse group of business owners and entrepreneurs from throughout the region — and the enthusiasm shown for the concept, especially among young business owners.

That’s significant, he said, because they will have to be the backbone of the customer base moving forward.

“We decided that, if we were going to do this, it has to be about a younger generation of business cohort,” he explained. “So we needed to know if the Millennials and the Gen-Ys care enough about this kind of stuff.

“We had a series of focus groups — we put about 100 people in a room, 20 people at a time, and we pitched them on what we were trying to do,” he went on. “About 60 people wrote checks to give us the seed money to get started, and of those 60, close to half of them were people under the age of 45. We were pleasantly surprised by that, and based on that response, we decided to take things to the next level, which is where we are today.”

—George O’Brien

Monson Savings Continues to Prove a Small Bank Can Thrive

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MonsonBankFeature 0318a
Banking and Financial Services Sections

Happy Returns

Since taking over as president of Monson Savings Bank seven years ago, Steven Lowell has overseen an impressive growth pattern, including striking success in commercial lending and ever-rising assets. He credits that success to a number of factors, from a willingness to embrace technology to a customer-focused culture to an emphasis on financial literacy aimed at making sure the customers of tomorrow are well-positioned to share in the bank’s success.

Five years ago, Monson Savings Bank opened its fourth branch in Ware, to go along with offices in Monson, Wilbraham, and Hampden.

And that’s where the branch total stands today: Four. Which would be a meager haul in one of the big-bank acquisitions that have become so commonplace.

So why is MSB growing at such a healthy rate? President Steven Lowell has a few ideas.

“A lot of people are saying that small banks can’t survive, that they need to be bigger, they need to merge. And we’ve seen some of that. But Monson Savings Bank isn’t just surviving; it’s thriving,” Lowell said, noting that the institution has grown by 7% to 8% every year since he took the reins seven years ago.

“That’s a strong number,” he added, noting that the bank’s assets have risen from $230 million seven years ago to $365 million today.

“People think a bank needs a certain asset size to afford the expenses that every bank has at this point in time,” Lowell said, specifically citing increased regulatory and compliance demands in an industry that’s increasingly heavily regulated. “But we haven’t merged with anyone or had anyone merge into us; we’ve been successful in attracting new customers and developing new relationships.”

We’re performing better than many billion-dollar banks are. We’re living proof that small banks can do it, and do it well.”

He noted that MSB’s return on assets, or ROA — which measures a bank’s profits in relation to its overall resources — was 0.6 last year, while Massachusetts-based banks in MSB’s asset class — $250 million to $500 million — recorded an average ROA of 0.27. Meanwhile, banks in the $500 to $1 billion range averaged an ROA of 0.53 last year, and banks with more than $1 billion in assets averaged 0.72.

“We’re performing better than many billion-dollar banks are,” at least by the ROA metric, Lowell noted. “We’re living proof that small banks can do it, and do it well.”

A few different factors account for that success, he told BusinessWest. First was the determination made several years ago that the strongest market for the bank is commercial lending, and since then, commercial loans have risen from 40% of the total portfolio to around 65%.

“That’s been a significant driver for us,” he said. “We focus on what we do well; we don’t try to be everything for everyone. At our size, we can’t do that. But we know we’re good at commercial lending — and residential lending — and good at providing high-touch customer service. Everything we do goes back to, ‘is this good for the customer?’ We want to make sure we don’t lose that closeness with the customer.”

With all the mergers that have taken place in recent years, he suggested, business owners are looking for a banking partner they know is going to be around, and don’t like it when their loan officer keeps switching.

“We’ve been the beneficiary of a lot of these mergers,” he went on. “And we’ve developed a reputation as a bank that’s easy to do business with. We’re up front with customers and try to be as fast and efficient as we can, and that reputation starts to get around. Now we’re getting phone calls: ‘I was talking to so-and-so, and he raved about you guys, that you’re easy to do business with.’ That reputation is very important to us and has helped us spread our reach much farther.”

He also praised his team, which hasn’t necessarily grown larger — technology has created efficiencies for all banks, and, as noted earlier, MSB’s branch count is only four — but the team is peppered with long-timers who understand the customer-focused culture, a culture Lowell expects to continue to build more organic growth.

Early Adopters

Speaking of technology, MSB has consistently been an early adopter of innovations that make customers’ lives easier, from mobile banking to remote check capture. “We’re not large enough to be an innovator — we can’t be creating new software — but we’ve been right there, so as soon as a product is proven, we’ve adopted it successfully,” Lowell explained.

Some recent products speak to that success. Mobile check deposit allows far-flung cutomers to make deposits from home or anywhere else, on weekdays or weekends.

“Not only our retail customers, but our commercial customers are very comfortable not having a branch within five miles,” he noted, adding that these capabilities have allowed customers — such as a landscaping company on Cape Cod — to access services without needing a physical branch.

“We’re not marketing ourselves on Cape Cod or in the Boston area,” he noted, “but if someone has ties to Western Mass. and wants to do business in one of these areas, we can accommodate them, and they love that.”

Steve Lowell, Monson Savings

Steve Lowell says customers appreciate MSB’s stability at a time when many other small banks have merged or been acquired.

Another recent product, the CardValet mobile app, gives users complete control of their debit card, so they can essentially shut it off between uses, or if it goes missing. “There’s so much fraud in the world, and cybersecurity is a big concern,” Lowell said. “This is a great product, and we don’t charge for it; I think it’s going to be big.”

A new loan product marries the bank’s well-known financial-responsibility messaging by marrying a deposit account and a secured loan, the latter of which is deposited into an account accessible only when the loan is paid off. “From the bank’s standpoint, there’s no credit risk, and the customer is building credit, whether it’s for a down payment on a car or a first month’s security deposit. It’s a good product for people who are just starting out or running into issues trying to re-establish good credit.”

It slots well into MSB’s continued focus on financial literacy, which ranges from its Dollars & Sense program in elementary schools to workshops for college students and community members. A survey conducted by the National Foundation for Credit Counseling shows that 40% of the public would grade themselves a C or worse when it comes to their financial literacy, and that lack of knowledge can lead to poor financial planning and hurdles when it comes time to seek a loan.

“Financial literacy is really important to us,” Lowell said. “Day in and day out, our staff see people they have to turn down for mortgage loans, and they don’t like doing that; it’s not a fun part of the job.”

With that in mind, he went on “we’ve come up with ways to talk to people and help them improve their financial lives, whether it’s how important it is to build credit or how not to get in trouble with credit-card debt, or the importance of saving for retirement and contributing the most you possibly can to your 401(k), and paying yourself before paying others.”

Lowell feels like today’s parents, for whatever reason, don’t like talking about these matters with their kids, and when the kids grow up, they haven’t developed a comfort level, and may be at the mercy of predatory credit companies that aren’t looking out for their best interest. “It’s important for us to be talking about that so they know how to manage money and get into a good place.”

That Monson Savings Bank puts resources into these educational programs says a lot about its desire to be a complete community resource in the towns it serves, and to continue adding products and services that customers want.

“I believe one of our strengths, because of our size, is that we can be really nimble,” he said. “We’re able to come up with new initiatives and new products a lot quicker than some of the bigger banks. We don’t have quite the amount of red tape most banks have to deal with.”

One example, he noted, is MSB’s newest initiative, a foray into municipal banking. Since appointing an officer to lead that effort six months ago, the bank has posted $10 million in municipal deposits. “That decision was made because somebody very good became available, and we saw it as a growth opportunity that presented itself, and we didn’t want to lose that opportunity.”

Giving Back

Monson Savings Bank has invested in the community in other ways as well, most notably through annual donations to various nonprofits, which totaled more than $130,000 last year.

The year Lowell arrived, MSB launched an initiative to ask the public for help in selecting some of the nonprofits that would receive funding. The bank solicits nominations on Facebook and through other outlets, and the top 10 vote getters receive donations. More than 300 organizations received votes last year, and the top 10 were given grants between $750 and $2,000.

“People get really excited about it,” he said. “And I think community philanthropy is really good for business, and that has helped us be successful. We sponsor sports teams, we’re involved in most of the school systems, giving them money for various programs, we give some scholarships … people appreciate that.”

They also appreciate efforts by bank leadership to be accessible, he went on.

“We send a newsletter to all our customers, and my e-mail is on that newsletter. I give out my direct phone number to customers all the time. I’ve even given out my mobile number on the weekend. I think the accessible reputation of the bank is very important to our commercial customers in particular.”

Lowell said an emphasis on accessibility extends to the employees as well.

“Sometimes the people with the best ideas are the people on the front lines, so I’m talking to them, but I’m also asking what the customers are saying,” he told BusinessWest. “When a customer takes the time to send me an e-mail or give me a call because he’s not happy with us, that’s important for me to hear. Some of the best ideas come from a customer saying, ‘you guys did this, and I didn’t like it,’ and we’ve ended up changing it.

“I’ve had really good input from customers who were unhappy or felt we fell a little short,” he went on. “I’m convinced that’s how you get better. We’re in a competitive environment, so if you’re not getting better all the time, you’re losing ground — and we can’t afford to lose ground.”

Joseph Bednar can be reached at [email protected]

There Are Some New Rules — and Situations — to Be Avoided

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Banking and Financial Services Sections

The Tax Cuts and Jobs Act

By Sean Wandrei

Sean Wandrei

Sean Wandrei

In December 2017, Congress passed H.R.1, better known as the Tax Cuts and Jobs Act. The act is the largest overhaul of the tax code since 1986. As with any new legislation, there are opportunities and pitfalls that one needs to be aware of when trying to take advantage of the new rules and avoid unwanted situations.

There are still many questions related to the act that the IRS will need to issue guidance on. There is a lot to unpack here, so let’s take a look at some items that businesses and individuals should be aware of.

The act reduces the corporate tax rate to a flat tax rate of 21%. This means the first dollar of taxable income is taxed at a 21% rate. This reduction could cause many owners of non-taxpaying entities (e.g. partnerships, limited liability companies, and S-corporations, also known as pass-through entities) to consider switching to a taxpaying entity (i.e. C-corporation). The maximum tax rate that the income of a pass-through entity could be taxed at is 37%.

Business owners could decide that their business should convert from a pass-through entity to a C-corporation based on this. While the reduction of the tax rate sounds great, there could be some issues that could increase the overall tax due if the entity is a C-corporation. If the owner(s) want to take money out of the C-corporation in the form of dividends, it will have to pay taxes on the dividends from the C-corporation at a maximum rate of 23.8% (20% tax on the dividend plus 3.8% net investment-income tax).

This is known as double taxation, which impacts only C-corporations and not pass-through entities. This could reduce or eliminate the overall tax savings of converting the entity to a C-corporation.

While taxes paid are usually a major factor on entity selection, there are some non-tax items to consider. Owners of C-corporations can receive tax-free employee benefits that pass-through entities are not entitled to. Another tax-savings option that was available prior to the act is the exclusions of the gain on the sale of qualified small-business stock (QSBS) under Code Section 1202. This provision was amended in 2010, allowing QSBS acquired after Sept. 27, 2010 to be eligible to exclude the total gain on the sale.  There are a few rules that have to be met to allow for the 100% exclusion. Section 1202 is available only for C-corporations. This means that, when the owner decides to sell his or her stock, the gain from the sale of that stock would be tax-free. The reduced tax rate and non-tax benefits could make C-corporations more attractive to some.

C-corporations are not the only business entities that received a tax break from the act. Pass-through entities are able to take a deduction of 20% on the qualified business income (QBI) earned from the business. Individuals who are sole proprietor and file a Schedule C and individuals with rental activity reported on Schedule E also qualify for this deduction.

On the surface, this deduction seems to be straightforward, but there is a lot to this deduction. Not all businesses qualify, and the deduction could be limited. QBI can be thought of as ordinary income from the business. The catch is that the deduction is limited to the lesser of 20% of QBI or 50% of the total W-2 wages paid by the business. So wages need to be paid to be able to take this deduction.

The 50% of W-2 wages does not apply if the owner’s taxable income is below $315,000 for married filing jointly (MFJ) and $157,500 for other taxpayers. This deduction may not be available to a specified service trade or business (SSTB). A SSTB is a business involving service in many fields, including law, accounting, consulting, and financial services. Engineers and architects were excluded from the definition of SSTB in a last-minute change. If the owner’s taxable income is below $315,000 for MFJ and $157,500 for other taxpayers, the SSTB limitation does not apply.  

The planning that comes into play for this deduction is based on the entity type. QBI does not include reasonable compensation paid by an S-corporation to the owner(s). Similarly, QBI does not include amounts paid as guaranteed payments by a partnership to the owner(s).

Based on this, if the pass-through entity is an S-corporation, reasonable wages are going to be deducted from the QBI, which will reduce QBI and the deduction. A partnership and sole proprietor are not required to take guaranteed payments, so the QBI could be larger for a partnership than an S-corporation based on this. If the taxable income is below the limits mentioned above, the 50% of W-2 wages option does not come into play, and the larger deduction will be had by the partnership and sole proprietor.

If the 50% of W-2 wages comes into play, then the S-corporation will have to pay W-2 wages, and the partnership will have to pay guaranteed payments to owners or wages to non-owners to be able to take this deduction. With this in mind, the owner’s taxable income will need to be monitored.

For individuals, the elimination of exemptions and the doubling of the standard deduction will cause more taxpayers to take the standard deduction instead of itemizing. It is said that only 10% of the population will itemize in 2018 compared to 30% in 2017. If you fall into the 10% of people who itemize, you may have heard that one of the biggest deductions, state and local taxes, is limited to $10,000 per return.

This is the case if you are single or filing as MFJ; the deduction is limited to $10,000. The marriage penalty is back. If the MFJ couple was not married and filed as single taxpayers, then they each would be able to deduct up to $10,000 in state and local taxes.

In the past, the interest from a home-equity loan was deductible. The proceeds from the home-equity loan could have been used for anything. Now the interest from a home-equity loan is no longer deductible unless it is used to buy, build, or substantially improve the taxpayer’s home that secures the loan. Prior to the act, employees were able to deduct unreimbursed business expenses related to their job. This is no longer the case.

As you can see, the act has provided many new things to consider when it comes to taxes. Now, more than ever, your CPA will be counted on to help with tax planning.

Sean Wandrei is a lecturer in Taxation at the Isenberg School of Management at UMass Amherst. He also practices at a local CPA firm; [email protected]

Business Owners Should Be Aware of Key Changes in This Realm

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Banking and Financial Services Sections

Entertaining Thoughts

By Carolyn Bourgoin, CPA

Carolyn Bourgoin

Carolyn Bourgoin

For many businesses, corporate entertainment has long been a means of building relationships with referral sources, vendors, and strategic partners as well as providing networking opportunities for physicians and practice managers to meet new referral sources and industry influencers and to build a presence in the marketplace.

The recently enacted Tax Cuts and Jobs Act (TCJA) has eliminated most deductions for business-entertainment expenses paid or incurred after Dec. 31, 2017. Drawing the line between the portion of an entertainment activity that is business-related versus for pleasure has long been an area of contention between the IRS and taxpayers. Though the TCJA did eliminate most business-entertainment expenses, certain expenditures, mainly those benefiting employees, did survive the tax cut.

Taxpayers need to understand what expenses survived the repeal so that they can properly segregate the deductible costs.

Expenditures Paid or Incurred Prior to 12/31/17

Prior to the TCJA, entertainment expenses and the use of entertainment facilities were deductible only if the taxpayer could establish that the costs were either directly related to a taxpayer’s trade or business or associated with the active conduct of a trade or business for which a substantial and bona fide business discussion occurred either directly before or after the event. In addition to meeting the ‘directly related to or associated with’ test, entertainment-expense deductions had to satisfy strict substantiation requirements, including details on the amount of the expense, the time and place of the entertainment, the business purpose, and the business relationship with the persons entertained. The term ‘entertainment’ includes activities at country clubs, nightclubs, sporting events, cocktail lounges, and theaters. Though not defined by regulations, business-entertainment expenses are to be further reduced by amounts considered “lavish or extravagant.”

Additional cost limitations apply to skybox rentals, sports tickets purchased for more than face value, and attendance at foreign conventions. Country-club dues were (and still are) nondeductible.

Business entertainment expenses that had escaped limitation at this point were then generally limited to 50% of the expense, unless they fell under one of several exceptions, including certain entertainment expenses included as compensation to the recipient and social or recreational entertainment provided primarily for the benefit of employees who were not highly compensated. These business-entertainment expenditures were fully deductible and survived the TCJA repeal and will be addressed later in this article.

Entertainment Expenditures Paid or Incurred After Dec. 31, 2017

Pursuant to the TCJA, expenses related to entertainment, amusement, or recreation that are directly related to or associated with the active conduct of the taxpayers’ trade or business are no longer deductible. As a result, a tax deduction will not be allowed for the following items incurred after Dec. 31, 2017:

• Expenses incurred for the use of entertainment facilities, such as the lease of skyboxes, are no longer deductible. However, businesses should review their lease agreements to see if there may be a component included in the rental price for advertising. This portion of the rental cost would be fully deductible as advertising if properly documented and reclassified;

• Expenses related to the entertainment of a client or prospect at a sporting event, theater, concert, or similar type venue (unless included in a 1099 as a prize) are not deductible under the new rules;

• Expenses for attending charitable sporting events, such as a golf tournament, where the entire net proceeds go to charity, will not be deductible to the extent of the cost of the golf or other goods or services provided. Until further guidance is issued, it is unclear whether the meals offered at an entertainment event are still 50% deductible. To the extent the ticket price exceeds the goods and services received, the taxpayer will be entitled to a charitable deduction; and

• As was the case prior to the tax-reform act, dues paid to any social, athletic, or sporting club or organization are non-deductible expenses.

Business-entertainment Expenses Still Allowed

As discussed previously, there are nine categories of entertainment-related expenditures that were not eliminated by the TCJA, as follows:

• Expenses for recreational, social, or similar activities (including related facilities) offered primarily for the benefit of employees other than highly compensated employees are fully deductible. A holiday party or annual picnic are examples;

• Expenses directly related to bona fide business meetings of stockholders, employees, agents, or directors are allowed. Examples of such expenditures would be refreshments offered to employees at a meeting where they are being instructed in a new business procedure. Food and beverages served at these meetings would be subject to the 50% limitation;

• Expenses directly related and necessary to attendance at a business meeting or convention held by a business league, chamber of commerce, real-estate board, or board of trade are deductible. Meals at these meetings would be subject to the 50% limitation;

• Expenses for services, goods, and facilities made available by the taxpayer to the general public, such as during a promotional campaign, are deductible;

• Expenses for food and beverages furnished on the taxpayer’s business premises primarily for the taxpayer’s employees (i.e. more than half), are deductible. The cost of meals provided for the convenience of the employer, such as when employees must be available throughout a mealtime, are only 50% deductible as of Jan. 1, 2018. Prior to the TCJA, these meals were 100% deductible. In addition, meals provided at an employer’s on-site dining facility are subject to the 50% limitation until Jan. 1, 2026, when meals for the convenience of the employer as well as the meals and cost of operating an on-site dining facility are no longer deductible;

• Entertainment expenses that are treated as compensation to employees, by including the costs in employee wages for income-tax-withholding purposes, are deductible;

• Expenses for entertainment-related goods or services, to the extent they are includible in the gross income of the recipient as compensation for services rendered or as a prize or award, are allowed. The recipient in this case would not be an employee of the taxpayer and must be issued a 1099 to the extent the goods or services received exceed $600;

• Expenses for goods or services (including the use of facilities) which are sold by the taxpayer in a bona fide transaction for adequate and full consideration in money or money’s worth are deductible. An example of this would be the cost of meals sold by a restaurant, and

• Expenses incurred by a professional firm for actual meal expenses that are charged back and reimbursed by a client, where the meals are separately stated in the invoice, are deductible.

De minimis fringe benefits, which are benefits that are so small as to make accounting for them unreasonable, such as coffee, soft drinks, and donuts offered to employees, remain fully deductible through the tax year 2025. In addition, meals associated with the active conduct of the taxpayer’s trade or business are still allowed, subject to the 50% limitation. Until further guidance is issued, it is unclear whether meals purchased at a business-entertainment event, such as after a round of golf or attending a ballgame, are a non-deductible entertainment expense or if they meet the business-related tests and are still deductible subject to the 50% meals limitation.

Classifying sporting tickets provided to clients as business gifts does not provide much relief, as the tax deduction is limited to $25 per item.

Bottom Line

Due to the recent changes in the tax law, it is important for taxpayers to consult with their tax advisors and develop an understanding of the business meals and entertainment expenses that remain deductible and develop a strategy to track them. It would be wise to set up separate accounts based on whether they are 100%, 50% or nondeductible.

Amounts paid to attend entertainment events should be analyzed to see if there are advertising or charitable components to the cost that can be reclassified as fully deductible. Consideration could be given to issuing 1099s to clients or prospects being provided with free tickets to events to make the cost deductible as prizes. Though the TCJA was not favorable to taxpayers that incur business-entertainment expenses, there are still some expenses in this area that remain deductible.

Carolyn Bourgoin, CPA is a senior tax manager with the Holyoke-based public accounting firm Meyers Brothers Kalicka, P.C.; (413) 322-3483; [email protected]

Granite State Development Corp. Helps Businesses — and the Economy — Expand

By
Banking and Financial Services Sections

Growth Engine

Tracey Gaylord of Granite State Development Corp. (right) with Shannon Reichelt, who used Granite State’s services to finance a new property for her company, S. Reichelt & Co.

Tracey Gaylord of Granite State Development Corp. (right) with Shannon Reichelt, who used Granite State’s services to finance a new property for her company, S. Reichelt & Co.

Certified development companies, or CDCs, are entities that partner with banks to help small businesses secure financing to grow their operations. But in doing so, they’re also growing the economy by promoting economic development, which is, in fact, a key element of their mission. Since its inception in New Hampshire in 1982 — and its subsequent, ever-expanding work across Massachusetts — Granite State Development Corp. has been executing that mission.

Shannon Reichelt recently purchased a building in Holyoke to consolidate her CPA organization, S. Reichelt & Co.

Meanwhile, Ben LaRoche and Jared Martin purchased a property in Lanesboro to house their technology-integration business, Amenitek; Gordon and Patricia Hubbard bought Hidden Valley Campground in Lanesboro and renamed it Mt. Greylock Campsite Park; and Pat Ononibaku purchased the adult day-care operation known as ThayerCare and renamed it Bakucare.

Then there are Anthony Chojnowski, who is building a new structure for his clothing store, Casablanca, in Lenox, and Frank Muytjens and Scott Cole, who are developing the Inn at Kenmore Hall in Richmond, near the New York line.

While those are six very different businesses, the common thread is how they financed their property purchases: through the certified development company (CDC) called Granite State Development Corp. (GSDC).

“We work with businesses looking to either acquire an existing business that has tangible assets, or take a loan on real estate or piece of equipment,” said Tracey Gaylord, Granite State’s vice president and business development officer.

Specifically, Granite State is a nonprofit lender authorized to process and service Small Business Administration (SBA) loans utilizing the 504 lending program (more on that later). It’s the second active certified development company (CDC) in New England and provide financing in the states of Maine, Massachusetts, New Hampshire and Vermont.

“The main goal is to promote economic development and job growth,” Gaylord said. “We help banks do loans they might not be able to do otherwise.”

Those loans are spread among a broad range of sectors, she added. “We do anything from manufacturing companies to wineries to restaurants to healthcare facilities to assisted living to campgrounds. And equipment financing for manufacturing — big machines they might buy every 10 or 15 years — we do a lot with those types of projects as well.”

For this issue’s focus on banking and financial services, Gaylord explained why companies find the 504 loan program — and Granite State’s services — an attractive option when financing a purchase or investing in future growth.

Impressive Growth

GSDC President Alan Abraham created the company in 1982 in Portsmouth, N.H., with a geographic territory initially limited to three counties in that state. In 1986, its territory expanded to include the entire state of New Hampshire, and it has since grown to provide statewide coverage for the four northernmost New England states, including Massachusetts.

Granite State Development is one of the largest CDCs nationwide, ranking fifth in both loan volume and dollars, and has been the most active 504 lender in New England for almost a decade. Since 1990, in cooperation with its bank lending partners, the nonprofit has participated in more than 4,000 transactions worth more than $1.5 billion, helping create more than 20,000 jobs in New England in the process, based on borrower growth stemming from the loans.

Meanwhile, 2017 was a banner year for GSDC in Western Mass., where it has poured increasing resources in recent years, as most of its Bay State projects have historically been farther east.

Those projects fall under the SBA’s 504 loan program, which provides approved small businesses with long-term, fixed-rate financing to acquire assets for expansion or modernization. These 504 loans are made available through CDCs like Granite State. CDCs — there are more than 260 nationwide — are certified and regulated by the SBA, and work with SBA and participating lenders, typically banks, to provide financing to small businesses.

A typical 504 loan is structured in three parts: 50% is a lien from the bank, 40% is a second lien through the CDC, and 10% is a required down payment from the borrower.

This is an important element in the program, Gaylord noted, as many banks require 20%, 25%, even 30% down for certain loans, simply as a matter of policy, “and this actually allows them to do projects people may need.”

At the same time, it’s a win for the borrower, she added, because a bigger down payment may cut into funds they need to get through a lean time. “Maybe it’s a seasonal business, and they need money to get through the winter, to fill that gap.”

The bank sets its own interest rate and term for its 50% share of the loan, she went on. “If they want to do a fixed five-year rate, they can do that. They do not have to match what we do. That’s the benefit for the bank.”

As for GSDC’s portion, it determines terms based on the type of project, she explained. A real-estate project might come with a 20-year term, while 10 years might be more appropriate when purchasing a piece of equipment with a useful life of 10 to 15 years.

“Whatever the type of project, the bank chooses what to do with the other 50%,” Gaylord said. “People say, ‘why would I use this program?’ My quick response is, ‘it’s a low capital investment and a low fixed rate.’”

There are limits to what 504 loans may be used to purchase, however. They are specifically intended for fixed assets and certain soft costs, including the purchase of existing buildings; the purchase of land and land improvements, including grading, street improvements, utilities, parking lots, and landscaping; the construction of new facilities or modernizing, renovating, or converting existing facilities; the purchase of long-term machinery; or the refinancing of debt in connection with an expansion of the business through new or renovated facilities or equipment.

The 504 program cannot be used for working capital or inventory, consolidating or repaying debt, or refinancing, except for projects with an expansion component.

Bigger Picture

At its heart, the 504 lending program and CDCs like Granite State exist not only to help small businesses, but to boost economic development over an entire region. In short, applicants must demonstrate that their purchase or investment will create jobs.

“That’s one of the primary purposes of this,” Gaylord said. “We have to track the number of jobs the business has at the current time and how many jobs they’re predicting they’ll have in the first year and the next 24 months.”

That calculation incorporates job retention as well, she noted. “If they have only two employees but doing the project means they’ll be able to retain those two, that’s fantastic. If they can create more jobs, that’s even better.”

According to the SBA, community-development goals of the 504 loan program include improving, diversifying, or stabilizing the local economy; stimulating other business development; bringing new income into the community; and assisting manufacturing firms and production facilities located in the U.S.

Public-policy goals include revitalizing a business district of a community with a written revitalization or redevelopment plan; expanding exports; expanding small businesses owned and controlled by women, veterans, and minorities; aiding rural development; increasing productivity and competitiveness; modernizing or upgrading facilities to meet health, safety, and environmental requirements; and assisting businesses in, or moving to, areas affected by federal budget reductions, including base closings; reduction of energy consumption by at least 10%.

There are a few environmental goals as well, including increased use of sustainable design, building design that reduces the use of non-renewable resources and minimizes environmental impact; reduction in the use of greenhouse-gas-producing fossil fuels; and production of alternative and renewable forms of energy.

These are worthy goals, obviously, but businesses that qualify for 504 loans are typically more concerned with how the program affects their bottom line.

“We see ebbs and flows, just like conventional banks do, but we’re obviously in a good market right now,” Gaylord said. “This is a good opportunity for people to lock in those loan rates before they start to rise. Now is a really good time.”

There have been many of those good times since Granite State Development Corp. took root in New England 35 years ago, with a mission to help small businesses expand and grow, thereby helping the New England economy.

“It’s a very easy process,” Gaylord told BusinessWest. “I think that the bankers are comfortable with it, and look to us for guidance. We’re bankers and want to work with them.

“People ask, ‘are you competing with banks?’” she went on. “No, we don’t compete with banks, we work with them. We look at banks as our partners. And I get excited when I see the jobs and economic growth. That’s the best part.”

Joseph Bednar can be reached at [email protected]

It May Be Tax Reform, but It Isn’t Really Tax Simplification

By
Banking and Financial Services Sections

Adding Things Up

Nicholas LaPier, CPA

Nicholas LaPier, CPA

By Nicholas LaPier

Ah, tax reform.

As long as the U.S. has had a federal tax, candidates running for office have promised to simplify and make reforms to the tax code. These promises always fall positively on the ears of the electorate, but often end up on the cutting-room floor.

President Trump campaigned that he wanted to reform the tax code, which, in his opinion, would bring back business, and jobs, to America. In Trump’s opinion, reducing the corporate tax rates would entice American businesses to stay here and not move operations and jobs overseas. Trump also believes that reducing personal taxes that individuals pay would translate into enhanced consumer spending, which is an important element of economic growth. Finally, making sweeping reforms to the federal tax code would also simplify it, and allow for many taxpayers to easily understand and file their own taxes.

True, the federal tax code is complicated. It is hard to read and harder to understand. It may even be unfair or inequitable to some. Its many pages of rules, regulations, and interpretations require many taxpayers to hire professionals to assist them in preparing and filing their required annual tax returns. After all, it is a living document more than 100 years in the making.

But what is this they call tax simplification and reform? Is it something governance does to keep busy between the dog days of summer and the winter solstice? Is it an honest intention to create a simpler, fairer system for all of us to understand and employ? Or is it a necessary act to adjust a system of taxation that will boost our economy and create jobs?

I proffer that it is all of that. The Tax Act signed by president Trump on Dec. 22 is the most comprehensive piece of tax legislation enacted in more than 30 years. Almost all of the provisions began last week, on Jan. 1.

Here’s a quick primer.

Corporate Taxation

First, let’s address the reforms and simplification of the federal corporate tax laws.

Although not in its truest form, the new law does create, for the first time, a virtual flat tax. Strange how this nomenclature never got any media attention. After 2017, U.S. corporations will now have a flat 21% corporate tax rate, truly reform, which Washington believed would be commensurate with, or at least fairly attractive compared with, corporate tax rates around the globe. Further, the act eliminates the corporate alternative minimum tax, which goes hand in hand with the concept of a flat corporate tax rate..”

Although not in its truest form, the new law does create, for the first time, a virtual flat tax. Strange how this nomenclature never got any media attention. After 2017, U.S. corporations will now have a flat 21% corporate tax rate, truly reform, which Washington believed would be commensurate with, or at least fairly attractive compared with, corporate tax rates around the globe. Further, the act eliminates the corporate alternative minimum tax, which goes hand in hand with the concept of a flat corporate tax rate.

Other notable changes include expanding the bonus-depreciation rules, which, unlike many other parts of the act, became effective for assets purchased after Sept. 27, 2017.  The act also significantly enhances the amount of depreciation allowed on business vehicles, which, prior to 2018, was limited. An interesting non-publicized change was the full elimination of the business deduction for meals and entertainment, compared to the previously allowed 50% deduction.

All of these changes are, in fact, tax reforms, but not necessarily tax simplification. The actual process of preparing a corporate tax return is still complex, with numerous calculations, add-backs, subtractions, credits, etc. that didn’t go away with the act, as well as other sundry forms that are still required to be attached to a corporate tax return.

Since these new changes all took effect on Jan. 1, the real economic effect won’t be felt for years to come. Some pundits argue that many U.S. corporations don’t pay the maximum rates anyhow, and the reason why jobs were shifted over the borders and overseas was because of business opportunities and the lower cost of wages. Others believe that the tax savings will either transfer to shareholders as additional dividends, or, if corporations hold onto the cash, will increase the market value of their stock.

Washington wants us to believe otherwise, suggesting that overall surplus corporate money (saved vis-a-vis lower taxes) will be spent here on economic development and used to hire more people. This may be closer to the truth when you consider that smaller, closely held, and non-public corporations do not necessarily worry about shareholder value, nor have the benefits of tax credits and creative tax accounting that publicly traded corporations may have.

Personal Income Tax

In regards to personal income taxes, there were numerous changes made, but, in the interest of brevity, I will highlight those with the most impact.

Congress did give all tax filers a year-end gift by reducing the personal income tax rates, and brackets thereon, across the board. As an added bonus, the act made no changes in the tax rates for qualified dividends or long-term capital gains, keeping those lower rates in place.

At first glance, the reduced rates and other sundry changes should have a positive impact on almost everyone.

Except for the income tax-rate reductions, the biggest reform in the new Tax Act is the significant increase in the standard deduction that all filers will get. The act almost doubles the amount of the standard deduction, which will result in many taxpayers no longer itemizing their deductions. Some state senators lobbied heavily against putting a cap of $5,000 ($10,000 for a married couple) on the state and local tax (SALT) deduction, and among others, the National Assoc. of Realtors hit Congress hard against the mortgage-interest cap, and the possible change to the tax exemption on the gain on the sale of a home (which didn’t get changed). Thus, the much-publicized debates on the limits on state and local tax deductions and the mortgage-interest deduction became mostly moot points.

Additionally, filers will no longer be able to deduct unreimbursed employee expenses, which, if in excess of 2% of their adjusted gross income, would have otherwise been allowed for other itemized deductions. These few changes alone result in tax-filing simplification for millions of filers because they may now qualify for the traditional short-tax-form filing. Expect the IRS to amend the filing rules for who qualifies to use the short-form 1040-EZ compared to the long-form 1040.

The act has eliminated the personal exemptions, which in 2017 filers still have a deduction of up to $4,050 per person. To help counter the tax hit for this, the act has doubled the child tax credit from $1,000 to $2,000, and increased the amount that was refundable to a maximum of $1,400. This is a good tax benefit to qualified low-income filers with dependents. The benefit to other filers is an increase in the threshold of adjusted gross income before the child tax credit is eventually phased out entirely. This new limit is at $200,000, compared to $75,000 under prior law; for a married couple, these amounts are now $400,000, compared to $110,000 in 2017.

Aside from the adjustment to the standard deduction and the reduced tax rates, most of the other changes are far from simple, nor do they qualify as tax reform. For example, the act has a complicated formula to calculate how much of the child tax credit can be refundable, with specific criteria including what type of earned income qualifies, family size, and maximum income limits. Also, deductions that are allowed on page one of the long form, called above-the-line deductions, are still voluminous, and tricky.

Alternative minimum tax (AMT) is still in play, albeit with some minor increases to the limits thereto. Finally, if you are a shareholder in a flow-through business like a partnership or S-corporation, how you calculate the 20% deductible portion, combined with rules on limitations on owner wages and business type, is very complex.

In the end, how much each person and family saves as a result of all these reforms will vary, until an actual tax return is prepared for 2018.

Estate Taxation

Included in the Tax Act is the doubling of the estate- and gift-tax exclusion, as well as the generation-skipping tax (GST) exemption. This can also be deemed a year-end gift because, for federal tax purposes, the scope of taxpayers subject to this tax has been significantly reduced. This change alone is pure tax reform.

Affordable Care Act

Call this reform or political posturing (or both); the first major modification of the original Affordable Care Act (ACA) has become law. As part of the Tax Act, filers who do not have health insurance will no longer be assessed the healthcare penalty, otherwise known as the individual shared responsibility requirement, after 2017. Not only will this save some filers money (reform), it will definitely make their tax filing simpler, removing the very difficult-to-prepare Form 8965 from the return.

State Tax

This article has focused on the new federal Tax Act without taking into consideration the possible impact on your own state income tax. For individual filers, unless you live in one of the last seven states that have no income tax (Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming), the many changes to the federal tax code will most likely have an impact on your own state taxes.

Many states are ‘piggyback’ states, meaning they take your federal adjusted income as a base, then have various add-backs and subtractions, before getting to their own taxable income. For example, Massachusetts never recognized the principles of bonus depreciation, which results in federal-to-state tax differences. As far as the new federal deduction for flow-through income, it will be interesting if any of the states will allow for that; it may already be provided for under existing state law, or it may take specific legislative action to adopt.

Regardless, you should take into consideration how any of the new federal provisions will impact you on your own state tax return. When in doubt, always consult a professional tax advisor.

By the time the ink has dried on this article and published, the new Tax Act will be law, and government lawyers will be putting the finishing touches on the official final regulations. Interpretations and minor fixes will surely follow, well into 2018.

Many of the new tax-law changes will expire after 2025, so expect that the next round of tax simplification and reform will be here before long.  Stay tuned.

Nicholas LaPier, CPA is the principal at Nicholas LaPier CPA PC in West Springfield; (413)732-0200; [email protected]

KeyBank Aims to Be a Broad Resource for Customers

By
Banking and Financial Services Sections

Unlocking Financial Health

KeyBank’s Courtney Jinjika and Jeff Hubbard

KeyBank’s Courtney Jinjika and Jeff Hubbard

KeyBank is fairly new to the Western Mass. financial marketplace, taking over eight Hampden County branches following its acquisition of First Niagara Bank last year. But its leaders are already fluent in speaking the language of the region’s customers, who want their institutions to be customer-friendly and civic-minded. With a host of high-tech products melded with a focus on helping customers effectively use them to manage their financial health, Key seems ready to unlock more business.

It’s called HelloWallet.

“It’s an online platform that KeyBank uses to help customers make smarter, more confident financial decisions. The user first inputs information about their account balances, income, spending, demographics, and more to produce a score of sorts — a picture of where they are financially, where they want to be, and how to get there, by setting budgets, planning for retirement, and more.

“We focus on bringing financial confidence and wellness to all of our customers — individuals and business — across a broad spectrum of needs,” said Courtney Jinjika, the bank’s regional retail executive for Connecticut and Western Mass. “A key differentiator for us is HelloWallet, an online, real-time financial-assessment and planning tool, which, coupled with personalized guidance from their trusted banker, helps our clients achieve financial wellness and accomplish their goals.”

When it acquired HelloWallet last year, KeyBank saw it as one of several strategies for better connecting their clients, both retail and commercial, to helpful financial resources.

“Our focus is on our clients’ overall financial wellness and helping them make solid financial decisions,” Jinjika explained. “With HelloWallet, we integrated a tool into our system that allows clients to assess where they stand within a few components of overall financial wellness; it actually gives recommendations and feeds information back to bankers, who are able to reach out to clients and help them make difficult financial decisions and guide them to better financial wellness.”

As a digitally based tool, it also appeals to the growing set of customers who prefer resources they can access at any time, not just in a branch, said Jeff Hubbard, Key’s market president for Connecticut and Western Mass. “It’s an exciting tool to offer to customers, and a way to better focus on financial literacy.”

The theme of connection is one KeyBank touts in its marketing efforts and its services, Hubbard noted. When the institution, currently the 29th-largest bank in the U.S. by asset size, acquired First Niagara Bank in 2016, it inherited a large footprint in Western Mass. and Connecticut to complement its existing New England presence in Maine, Vermont, and the Boston area.

And if there’s one thing Hubbard understands about Western Mass., where KeyBank now operates eight branches boasting 70 employees, it’s that customers appreciate a community-focused model.

Those eight branches — in East Longmeadow, Feeding Hills, Holyoke, Ludlow, Southwick, Westfield, and two in West Springfield — have been busy introducing resources including commercial lending, residential mortgage lending, investments, wealth management, and insurance.

In doing so, Hubbard said, it’s also touting the value of “meeting customers on whatever playing field they might want to be on.”

High-tech, Personal Touch

Jinjika said bank employees are skilled at helping customers navigate the various high-tech banking options available to them, from online bill pay and remote deposit capture to the HelloWallet tool, and show them how they can use them to monitor their financial wellness. There’s also an online scheduling tool customers can use to make appointments at the branch and outline what issues they want to discuss.

After all, Hubbard said, online banking hasn’t killed branch banking, not by a longshot. It has certainly forced the branch model to evolve in the ways Jinjika described, but a street-level presence remains crucial.

“Lots of people want to visit a branch for lots of reasons,” Hubbard said. “Here, they’ll visit highly trained, experienced people who want to help them. To be successful in the Springfield market, you need to meet people anywhere they want to meet.”

A decade ago, he went on, products like remote deposit capture for businesses seemed strikingly innovative, and now clients have come to expect them as a baseline. Meanwhile, Millennials might have led the way in adopting technology that allows them to control their finances from their computers and smartphones, there’s less of a demographic breakdown today.

“Millennials get on board faster; they’re quicker adopters, but they’re targeted at everyone,” Jinjika said. “Keeping people out of the branch line is a good thing, so adoption rates are pretty strong.”

In addition, Jinjika said, the vast majority of customers seeking to make major life changes, like a home mortgage, want to sit down with a professional.

“When our clients have a concern or are making major financial decisions, they want to do that in person at the branch,” she explained. “What we find is that they’ll do their research online, but when it actually comes down to fully making that decision, they want to sit down with someone and get answers face to face.”

The same goes for commercial customers, Hubbard said, noting that Key likes to tout itself as a “Main Street bank with Wall Street capabilities,” which can leverage its investment-banking team and industry-specific bankers to bring added resources to commercial clients. We believe that these capabilities, along with our state-of-the-art cash-management services and insurance and benefit consulting services, give us a competitive advantage with our business clients.

He understands the fierce competition in a market that many analysts have called overbanked in recent years, but said loan demand is steady.

“We’re certainly getting our fair share,” he told BusinessWest. “Springfield is a wonderful market with lots of opportunities. We’re grateful to have into some very large clients, very good-sized companies in Greater Springfield, in addition to small, mom-and-pop businesses.”

Another business-minded program is Key@Work, which partners with companies and provides free and discounted banking services employees at no cost to the employer. A dedicated Key@Work ‘relationship manager’ delivers a customized program on site to meet the specific needs of workers through financial-education presentations and one-on-one financial assessments.

It’s another way KeyBank aims to broaden its customer base in its existing branches, rather than having to open new branches to grow.

“We’re very happy with the branch locations we have today,” Hubbard said. “The objective is to get our employees out of the branch into the community and grow our business organically.”

Community Ties

The bank also understands that the region’s community-banking culture means community involvement on a charitable level, Hubbard said, noting that Key expects to make $100,000 in community sponsorships and charitable grants to nonprofits serving the Greater Springfield market in 2017. “We think it’s very important to support the market where we live and work. That’s something we take seriously.”

On a national level, KeyBank also released its National Community Benefits plan last year, which includes $16.5 billion in investments across the communities it serves. The commitments are part of a comprehensive blueprint for steps Key will take over the next five years.

As part of a partnership with the National Community Reinvestment Coalition, KeyBank committed to $16.5 billion in mortgage lending, small-business lending, community-development lending, and philanthropy, with the goal of stimulating job and economic growth in those communities. KeyBank has also committed to reducing neighborhood blight as well as maintenance and disposition of foreclosed properties.

Additionally, the KeyBank Foundation is committing $175 million in philanthropic investments for its traditional priorities of education and workforce development. The investments will also focus on the stabilization of urban neighborhoods and rural communities through local capacity building, affordable housing, and building technical assistance to execute locally.

Nationwide, KeyBank employees will support the plan through local service projects and board leadership. Employees will continue to be heavily engaged in their communities, with the expectation of 500,000 of additional volunteer hours over the next five years.

“Key has jumped into this in a big way,” Hubbard said, noting that the effort crosses 15 states, but each market will feel an impact. “This is a broad but very meaningful delivery of strong foundational support.”

The bank has also earned national recognition as one of Points of Light’s top 50 most community-minded companies for the last three consecutive years; a Top 50 Company for Diversity by Diversity Inc. for the last seven years, and eight annual ‘outstanding’ ratings from the Community Reinvestment Act for its levels of lending, investment, and service to low- and moderate-income communities — one of less than 10% of all U.S. banks to achieve that goal.

Those accolades further demonstrate, Jinjika noted, that KeyBank aims to be an effective partner both for customers who walk in the branch and in the communities surrounding those branches.

“We keep clients at the center of all we do,” she told BusinessWest. “We compete where some of the bigger banks won’t, and where the smaller banks can’t. We really think about the individual in front of us when we put together a package that will work for their financial wellness.”

Joseph Bednar can be reached at [email protected]

Peoples United Relocates Office, Names New Manager

By
Banking and Financial Services Sections

Moving Forward

Jim Curran was asked about the heightened state of competition within the commercial-lending realm in Western Mass. and how People’s United Bank is responding to this changing landscape.

Jim Curran

Jim Curran

He began his answer by noting that, while conditions in this region are perhaps somewhat more competitive than they were when he first started working in this market more than 30 years ago, the reality is that there have always been a lot of strong competitors for People’s United, formerly the Bank of Western Mass.

And he knows that because he worked for some of them.

“It’s been a competitive market for 30 years,” said Curran, the recently named senior vice president and regional manager for Central and Western Mass. “When I sit and talk with people about how competitive the market is today, that’s the same conversation we were having 20 years ago; nothing’s really changed in that regard.”

But many other aspects of banking, and doing business in general, have changed over the past few decades, including everything from the way people work to the technology they use, and that’s why Curran will be managing an office occupying the 10th floor of Monarch Place.

Indeed, the 32 employees at the regional office have moved only a few hundred feet across Main Street in downtown Springfield, but the relocation from the property most still know as Harrison Place (even though it had the People’s United name over the front) to Monarch Place is a considerable step forward, said Patrick Sullivan, the bank’s market president for Massachusetts.

He told BusinessWest that the move has been in the planning stages for more than 18 months, and arose from simple necessity.

When I sit and talk with people about how competitive the market is today, that’s the same conversation we were having 20 years ago; nothing’s really changed in that regard.”

“That’s an old building, and its functionality just doesn’t suit today’s world with the technology and the way people work; when you have an old building, you just can’t do certain things,” he explained. “We were spread out over four floors at one time, and, more recently, we were in two or three floors; now, we’re all on one floor, and that’s much more efficient.

“The new building will allow for greater synergies and collaboration between our cross-functional teams,” Sullivan went on, “including commercial, wealth management, consumer, and insurance services.”

The search for new quarters was an extensive one, he noted, adding that a number of sites were considered — within downtown, outside it, and also outside Springfield itself. Ultimately, the bank, which had been headquartered at Harrison Place for more than 20 years, decided to stay in the central business district.

“Although our customers are spread throughout Western Mass., centrally, downtown Springfield is the best place for our people,” he explained.

Curran agreed, saying that “there’s a lot of really good, positive energy with this move.”

As noted, Curran brings to his new position at People’s United a wealth of experience in banking, commercial lending, and in serving business owners in the Western Mass. market.

Most recently, he served seven years as executive vice president of Berkshire Bank and regional manager of the Western Mass./Central Mass. and Northern Conn. commercial-banking teams. In that role, he established Berkshire Bank’s present Central Mass. location, recruited the commercial-lending and credit team, built market identity and brand awareness, and built a loan portfolio from scratch to $215 million.

Prior to that, he served in a similar role with Santander Bank and its predecessor, Sovereign Bank, managing a team with a portfolio of commercial loans that approached $1 billion prior to the Santander acquisition of Sovereign in 2009. He got his start in banking with Bank of New England (later Fleet Financial) in 1983.

Those stops on his résumé translate into being part of that considerable competition within the commercial lending market that he spoke of earlier, so he obviously speaks from experience when he addressed how to thrive within such an environment.

Specifically, he said it comes down to several factors, including having a large portfolio of products, being local (instead of just saying your institution is local), and understanding customers and their needs.

“That’s the beauty of this bank,” he said. “When you go into a relationship, you have everything in front of you to deliver the financial services and products to that customer — whether it’s the retail side or additional services like treasury management, or whether you’re looking to do an interest-rate derivative on a large commercial real-estate deal or you’re simply looking to do payroll for a manufacturer with 30 people.”

Sullivan agreed. “The competitive advantage we have is to keep all our bankers as local as possible,” he said. “But we have people who know how to take care of a Western New England University or a Springfield College, or a healthcare system, or make a $200,000 loan fast. We stick to our core competency, which is commercial lending, which is important, because it’s competitive out there.

“We respect the fact that the local banks are good competition,” he went on. “We have to out-local them and also out-product them; that’s the world today.”

— George O’Brien

Owners Need to Get Realistic — and Proactive

By
Banking and Financial Services Sections

Business Valuation

By Brandon Mitchell

Brandon Mitchell

Brandon Mitchell

For business owners looking to sell in the near future, there is plenty to be optimistic about.

Buyers have access to capital at low interest rates through banks. Stocks are at all-time highs, driving individual net worth and access to down payments. The Massachusetts economy is vibrant. Most recent reports show GDP growth and unemployment rates outperforming the national average. There is positivity around MGM coming to Springfield, a new GE headquarters moving to Boston, and the potential for business-friendly legislation coming down the pipeline.

These factors will drive buyers to jump into the market and take the keys to a business, but there is a catch. With more than 1,100 businesses listed for sale across Massachusetts right now, buyers have options and are willing to wait for a value that makes sense.

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

Owners should resist the temptation to ‘pull the parachute’ as they get closer to the finish line.”

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

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

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

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

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

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

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

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

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

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

Brandon Mitchell is a certified valuation analyst and owner of BLM Valuation Services, LLC, which specializes in certified independent business valuations for SBA lenders and small-business owners; (413) 306-1940.

Whittlesey Rebrands to Put Emphasis on Its Array of Services

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bankingfeature1017a
Banking and Financial Services Sections

Name of the Game

Drew Andrews, managing partner and CEO

Drew Andrews, managing partner and CEO

The accounting firm formerly known as Whittlesey & Hadley has undertaken a rebranding effort, and is now known simply as Whittlesey. The new name was chosen in an effort to be more modern and less formal, while also maintaining valuable name recognition. But the new name is only part of an effort to better communicate all that the firm can do for its clients.

Drew Andrews said the new name was chosen in an effort to be, among other things, less formal, more modern, and perhaps even more efficient by using one word instead of two.

These are trends, if you will, when it comes to the names over the doors and on the letterhead of professional-services providers such as accounting firms and law firms, said Andrews, so much so that a story he’s retelling often these days seems to speak volumes about the matters at hand.

“I was at meetings with two clients over the past two weeks where they were referring to us as ‘Whittlesey,’” he recalled, noting that this wasn’t the firm’s name at the time — but it is now (it became official Oct. 1, to be exact).

Indeed, the Hartford-based firm known as Whittlesey & Hadley for the better part of five decades has officially dropped the ampersand and ‘Hadley’ (dropping just the ampersand was one of many other options considered) but kept Whittlesey as a nod to history, tradition, and, perhaps most importantly, name recognition.

And the fact that people were calling the firm by its new name while it was still using the old name and hadn’t given any hint that a change was coming, only confirms that this was the right decision, said Andrews, CEO and managing partner of the firm.

“Whittlesey & Hadley was more old school,” he said, referring to the name, not the firm, noting that clients, at least some of them, anyway had already come to this conclusion, and were already referring to their accountants in different ways. “What we found was that a lot of people had already shortened it themselves — they were calling us Whittesey or W&H.”

Yes, much ado about a name. But there is a lot more to what Andrews referred to as a ‘rebrand’ than just this new name and the one on the company’s subsidiary — Whittlesey Technology (formerly the Technology Group). There are new colors (blue and coral), a new, more ‘responsive’ website (wadvising.com), and a new marketing tagline, or slogan: ‘Forward Advising.’

whittleseylogoonly

Those two words say quite a bit, said Andrews, noting that, historically, and to generalize somewhat, accounting firms have dealt mostly with the past tense, especially with regard to financials, taxes, and audits. But increasingly, clients are looking for help when it comes to the present and future tenses as well, he said, and the firm now known simply as Whittlesey has been ahead of this curve and intends to stay there.

“Even though we’re an accounting firm and we do taxes and audits and things of that nature, our business has morphed into being more of strategic advisors,” he explained. “We’ve helped people with profitability analysis, new products, forecasting, budgeting, succession planning, operational reviews, and a significant effort in technology support in recent years.

“That was kind of a natural progression,” he went on. “We’re really become more advisors than accountants. That’s where we think the profession’s going, and that’s a big part of why we did this rebrand.”

For this issue and its focus on banking and financial services, BusinessWest talked at length with Andrews and Cora Hall, director of Marketing and Communications for Whittlesey, about the rebranding efforts, especially as they relate the firm’s efforts to grow its presence in the Western Mass. market.

It Added Up

Andrews told BusinessWest that the rebranding efforts were launched roughly a year ago, and have taken longer than some might have expected because work naturally slowed down during the height of tax season, when many of those involved had more pressing matters to address.

But this project, like most all those of this nature, was undertaken because it was deemed necessary and important to the company’s broad efforts to continue to grow and claim market share in all its markets, including Western Mass.

“We wanted to look at what our communication was to our clients and our potential clients,” Andrews explained, noting that, over the past several years, the company has merged two firms into its fold, if you will — Holyoke-based Lester Halpern and Hamden, Conn.-based Weinstein & Anastasio, P.C. — and needed a common message to go along with the shared name.

“We had what amounted to three firms, and we wanted to have a unified message going out about who we are, what we do, and how we do it,” he told BusinessWest. “We were doing a lot more than accounting and taxes, and were doing advising in many areas — and this didn’t seem to get communicated through our messaging and our website.”

Drew Andrews and Cora Hall say Whittlesey’s rebranding effort is aimed at better communicating to clients and potential clients the firm’s full range of services.

Drew Andrews and Cora Hall say Whittlesey’s rebranding effort is aimed at better communicating to clients and potential clients the firm’s full range of services.

And improved communication is at the heart of this rebrand, he went on, adding that by this, he means what is being communicated and how it’s being communicated.

Elaborating, he said the overall message needed to change and convey the full portfolio of products and services, and the vehicles for delivering the message — and especially the website and a host of social-media platforms — needed to change in order to better communicate to all audiences, particularly the younger ones, and to both customers and potential employees.

“We needed a refresh on our website and how we were going into digital — not only from a client perspective, but from a recruitment perspective and always getting the best of the best talent-wise,” he explained. “We needed to relate better to them in their language.”

What is being related to all audiences is that the firm will still handle a client’s tax and audit needs — but it can also do much more.

“We can help businesses and individuals gain confidence and assurance before they act,” said Andrews. “We work as an extension of an organization’s management team delivering advisory services in the here and now as well as looking forward.

“When we go visit our clients, we talk about what’s going to happen; we’re not just focused on the past, which is what accountants do, because we usually report on historical information,” he went on. “We ask, ‘where are you going in the future? Where are you bringing this business? How can we help you achieve what your financial goals are?’”

All this wasn’t effectively communicated by the old website or old branding messages, said Hall, adding that the new platforms do a much better job at this, as well as conveying the firm’s commitment to the communities it serves.

“We’ve really made a consolidated effort to invest in the region and really become part of the community,” she explained. “And that’s something else we wanted to communicate.”

As for the new name, Andrews said something ‘new school’ or at least ‘newer school’ was needed.

‘W&H’ or ‘WH’ were considered, and might have worked, he told BusinessWest, adding quickly that, as the firm went through the search process, if you will, it came to the conclusion that ‘Whittlesey’ had both a unique sound to it and a great deal of brand equity in all the markets in which it was operating.

“That was true not only in the Hartford market, where we’ve been since 1961, when we were just ‘Whittlesey’ because [Bob] Hadley, Willis Whittlesey’s first partner, didn’t arrive until 1965, but also in Western Mass. and Southern Connecticut with the two mergers,” he said. “We didn’t want to lose that momentum, but we wanted a modern twist on it.”

Sign of the Times

And these days, one name instead of two constitutes a modern twist.

That became clear to Andrews and others when people started calling this firm ‘Whittlesey’ well before Oct. 1, when the official press release announcing the change went out.

But while the new name is significant, that new tag line ‘Forward Advising’ is perhaps even more so, because of the many kinds of messages it delivers.

“The refreshed Whittlesey brand represents where our firm is today and where we want to strategically grow,” Andrews explained, adding that ‘forward’ is where he expects this important exercise to bring the company.

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

United Bank Steps Up Its Presence in Downtown Springfield

By
Banking and Financial Services Sections

Making a Statement

United Bank’s new branch at Monarch Place

United Bank’s new branch at Monarch Place is expected to yield a boost in commercial business amid a host of other benefits.

On paper — and on a map — it’s only a few blocks, really.

But United Bank’s relocation of its office in downtown Springfield, from the corner of Main and State streets to the front of Monarch Place, constitutes a major move in all other respects.

The new address — formerly home to a Bank of America branch that closed its doors several months ago — is projected to bring everything from much greater visibility to significantly higher foot traffic, to a likely surge in commercial-side market share as business owners based in the center of downtown take advantage of another bank opening on that site.

“There was a void left by Bank of America’s departure,” said Tony Liberopoulos, regional commercial executive for United, adding that the bank will move aggressively to fill that void.

Dena Hall, Western Mass. regional president and chief marketing officer, agreed.

“This is one of the premier locations in the city, particularly with the renovations currently taking place at Monarch and all the exciting things happening in that area,” she said, noting that a Starbucks soon to go into that building is just one of the items on that list. “We’re thrilled to be there.”

Indeed, even though the bank’s current location downtown is almost directly across Main Street from the $950 million MGM Springfield casino now taking shape and due to open in about a year — and would no doubt see a surge in retail traffic from that development — that branch is limited in many ways, said Hall.

Elaborating, she said that location is relatively small and, more to the point, cannot easily be renovated and enlarged to provide everything that the bank wants to provide the customers downtown.

unitedbankcomingsoonsign

“Our new branch will really give them that ‘wow’ factor of high technology, an open landscape, and everything people expect today,” she said, adding that the Monarch Place location offers an intriguing blank canvas, if you will.

That’s why United, based in Glastonbury, Conn. and with a main office locally in West Springfield, moved assertively to seize what she called a tremendous opportunity when BOA announced it was closing that location.

“I’m not sure how many other banks looked at it, but I know we moved quickly and started the conversations,” said Hall, adding that the location presents opportunities in many forms, and from many directions.

For starters, there are the many businesses based within a few blocks of the site, most all of them with owners desiring to bank conveniently.

“That Bank of America branch had a lot of commercial clients that utilized that location,” said Liberopoulos. “The buildings all around it are full of commercial clients, and we look at that as an opportunity to grow our commercial base as well as our deposit base. I think there’s a lot of businesses looking forward to having another bank in Monarch Place; we think it’s a great opportunity for us.”

Also, there is the enhanced foot traffic already in evidence downtown due to a slew of new developments in the central business district and growing convention and meeting business — not to mention the additional traffic downtown expected to be generated by MGM Springfield.

Add it all up, and the Monarch Place location seemed to be the right place at the right time, said Hall. And to take full advantage of all that the location presents in terms of opportunities, the bank is building a branch that will be full-service in every respect.

Hall said the branch will be modern and open, but it will still feature what she called a “neighborhood branch” approach, meaning it will have tellers, but also cash recyclers.

“It will be set up to service the retail and business customer in any way they want or need to bank with us,” she explained. “But it will also have a more modern feel to it than some of the current United branches.

Construction began roughly a month ago, she went on, and the branch is due to be open by the end of the year. United will occupy about 3,000 square feet, which is roughly half the old BOA footprint.

As noted earlier, the move is not significant in terms of geography — the bank is only moving a few hundred yards to the north — but it’s a meaningful move forward, said Hall.

“This positions us very well,” she said. “We’ve made some big commitments to Springfield — we’re very committed to the Thunderbirds and to business development and community support in the area. So we feel that moving to this new location will further highlight some of the commitments we’re making to the city and give us some really nice new space in the best building in Springfield.”

—George O’Brien

Employee vs. Contractor: It’s Important for Managers to Know the Rules in This Matter

By
Banking and Financial Services Sections

Employee vs. Contractor

By Christopher Marini, MSA, MOS

Christopher Marini

Christopher Marini

One of the most exciting moments for any small-business owner is reaching the point of having sufficient demand and capital to need additional help. Many businesses benefit from hiring employees, whereas others function better utilizing independent contractors. Generally, most businesses have a need for both employees and independent contractors.

The most noticeable difference between these classifications is how they are paid. Employees are part of the payroll, and accordingly the employer is also required to pay certain payroll taxes as well as workers’ compensation insurance. In contrast, independent contractors are not part of the payroll, and are typically paid through accounts payable. Following the end of the year, employees must be given a W-2, and all independent contractors who were paid $600 or more must be sent a 1099-MISC.

Determining whether to pay an individual as an employee or independent contractor requires the business owner to understand the distinguishing differences in classification. Failure to do so could have detrimental financial consequences. Under IRS regulations, classification at the federal level follows ‘common-law rules,’ which consist of three categories: behavioral, financial, and type of relationship. Here are some specifics:

Behavioral

Behavioral control relates to the degree of oversight by the employer. If the worker is subject to employer instructions, this tends to be indicative of an employee. Pursuant to IRS Publication 15-A, examples of “instructions” include:

• When and where to do the work;

• What tools or equipment to use;

• What additional workers to hire or to assist with the work;

• Where to purchase supplies and services;

• What work must be performed by a specified individual; and

• What order or sequence to follow when performing the work.

Other behavioral factors to consider are whether the worker undergoes training or periodic evaluations. Both of these circumstances would point to the need for an employee classification.

Financial

Independent contractors generally have much more complex financial structures. For example, independent contractors often have a significant personal investment in equipment needed to perform their work. Often, their service is for a short-term period of time, and they perform similar services for several other consumers. Because of this, they often have various unreimbursed expenses.

In terms of pay, independent contractors are typically paid a flat fee for their service, whereas employees are usually paid a wage based on hours worked. Because employees are paid a wage, and don’t typically have significant investments in equipment or unreimbursed expenses, employees are guaranteed a profit.

However, independent contractors incur the possibility of having a loss if expenditures exceed the fee they collect for their service.

Type of Relationship

One important relationship factor is permanency. Workers who are hired for an indefinitely continued period of time are typically employees, whereas workers hired for a specified period, or until a particular project is completed, are generally considered independent contractors. Employers should be cautioned that the behavioral or financial rules could cause temporary or seasonal workers to be classified as employees.

Another important factor to consider is whether the service being provided is considered a key activity of the business. Workers performing activities that are major components of a business’ offered services are typically employees. Independent contractors typically perform services that are outside the realm of key activities.

Consider State Rules

Certain states have their own sets of rules, which may differ from the federal laws, so be sure to consider if there are any significant differences. For example, Massachusetts has established the Massachusetts Independent Contractor Law, which is even stricter than the federal laws. Under the Massachusetts regulations, workers, by default, are assumed to be employees unless the employer can pass a ‘three-prong test,’ which, similarly to the federal regulations, examines control and nature of the service being provided.

Although rare, it is possible that a worker could be classified as an independent contractor per federal laws and as an employee per state laws. In Massachusetts, this unique situation would result in the need for an employer to pay state unemployment tax, even though the employer is not paying any federal payroll taxes.

Misclassification Consequences

If an employer has improperly classified an employee as an independent contractor, they may be held liable for the payroll taxes that they have not paid. The IRS has implemented a Voluntary Classification Settlement Program, which offers partial relief in back taxes owed in exchange for prospectively reclassifying employees previously classified as independent contractors. Additionally, misclassifying employees as independent contractors could carry penalties related to other benefit plans as well as workers’ compensation issues.

Still Unsure?

If, after consideration of all of the above information, it is still unclear which classification is appropriate, Form SS-8 can be filed with the IRS.  Using this method, the IRS will consider the facts provided to make the appropriate determination. However, this process typically takes more than six months, according to the IRS website, so seeking advice from an accountant or lawyer may prove to be the most efficient method.

In any event, knowing these rules will prove to be a tremendous asset, both in the present and in the future. Classification of workers is an important procedure for small businesses beginning operations, as well as for more established businesses. Understanding the regulations allows employers to operate more efficiently and effectively and could help them avoid future problems.

Christopher Marini, MSA, MOS is senior Auditing & Accounting associate at Meyers Brothers Kalicka, P.C.; (413) 322-3549; [email protected].

Adams Bank Leader, Now Chair of MBA, Pushes Agenda for Change

By
Banking and Financial Services Sections

Points of Interest

It’s not easy to get from Adams or Williamstown, communities in the far northwest corner of the state, to Boston.

You can get there using Route 2, but that’s not a particularly fast road, especially in the fall, at the height of foliage/tourist season. Taking the turnpike is another option, but it takes nearly an hour just to get to the exit 2 interchange in Lee. And it’s at least two hours from there.

“Either way, you’re looking at three hours, three and a half, depending on the traffic,” said Charlie O’Brien, who has become an expert on this commute. He’s had a lot of practice over the past several years, or since he’s been on the board of the Mass. Bankers Assoc. (MBA), and especially since he assumed leadership positions with the board.

And the travel has increased even more since he became president of the MBA on July 1.

Charlie O’Brien

Charlie O’Brien

But O’Brien, president and CEO of Adams Community Bank, who works in Adams and lives in Williamstown, isn’t begrudging the treks to Boston — or Washington, D.C. (there are many of those, too), because they are both part and parcel to his role with the MBA.

His stint as president is an honor for him personally and professionally, he said, and it puts a spotlight of sorts on both the Berkshires (he’s the first banking leader from that region to serve as chair of the MBA) and also his institution, which, mostly through a series of mergers, has grown from just over $100 million in assets several years ago to more than a half-billion.

But mostly, O’Brien is excited to be part of efforts on behalf of the MBA and organizations like it to press for needed change with regard to the financial-services industry and, more specifically, the laws that govern it.

And his ascension to chair of the MBA — and his recent talk with BusinessWest about that development — provides an intriguing window into the ongoing work of the association, especially in the category of advocacy for its members.

O’Brien, like dozens of banking leaders who have talked with BusinessWest over the past several years, said that, while these are relatively good times for banks, especially the smaller, community-oriented institutions like Adams Community Bank and many others headquartered in Western Mass., they face a number of stern challenges.

Many come in the form of increased regulatory burdens (and the many financial burdens of compliance with these regulations) that arrived with passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, better known simply as Dodd-Frank.

“We embrace parts of Dodd-Frank,” said O’Brien as he referenced the legislation passed in the wake of financial crisis of a decade ago, brought about in large part because of the subprime mortgage crisis and bursting real-estate bubble. “But, quite honestly, there are parts of Dodd-Frank that have been quite punitive for small banks.

“We embrace proper legislation, but we also embrace a tiered approach,” he went on. “Banks like us, at $500 million, would like to see regulations that are less burdensome. Some of these laws were passed because of the actions of Wells Fargo and Bank of America … it’s a huge burden for us to comply with certain things, when we’re not the offending banks that created these problems.”

Surveying the landscape, O’Brien, who noted that efforts to reform Dodd-Frank have been ongoing for years now, and for the reasons he stated, said momentum is gathering for change, and this might be the year it happens.

That momentum takes many forms, including the so-called Financial Choice Act, a bill introduced this year that would, if enacted, roll back many of the Dodd-Frank regulations. Passed by the House in June, the massive, 600-page bill has moved on to the Senate for consideration.

“Time will tell how far this gets,” O’Brien told BusinessWest. “But right now, the appetite for regulatory change in Washington is greater than it has been in recent years. We’re working with our lobbyists and elected officials to try to advance those initiatives.”

Meanwhile, there are other matters to contend with, including ongoing efforts that fall in the category of leveling the playing field when it comes to a host of what O’Brien called “non-bank competitors.”

He put credit unions in that category, obviously, but also national mortgage players such as Quicken Loans. O’Brien said he and others in the banking industry don’t necessarily mind competing against such rivals, but they would prefer the field to be more level than it is.

This is an old argument and an ongoing fight, especially when it comes to credit unions, which are still exempt from paying the taxes that banks do, despite the huge size, reach, and portfolio of products that many of them now boast.

“For the very large credit unions out there, and there are some in our backyard … they’re twice our size, but they pay no taxes,” said O’Brien. “All bankers struggle with that concept; some of these credit unions have grown to be billion-dollar institutions, and if you’re that size, you should be paying taxes; that’s our position.”

As for other non-bank competitors, especially those mostly doing business on the Internet, such as Quicken Loans, O’Brien said banks take a similar position.

“We just want to make sure the playing field is as level as possible,” he said, “and that they are complying with the same rules and regulations that we have to comply with.”

O’Brien said he isn’t sure what will happen on those fronts and others over the course of his year in office — and well beyond. What he does know is that there are more trips to Washington and especially Boston in his immediate future. Which is fine, because he certainly has those routes down by now.

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

Appeal Pending in Bankruptcy Case Regarding Tuition Payments

By
Banking and Financial Services Sections

A Matter to Watch

By Steven Weiss

Steven Weiss

Steven Weiss

One of the biggest priorities for parents of college-age students is paying tuition. While it is not a legal obligation (at least in Massachusetts) to provide education and support to children over 18, many feel a strong moral obligation to do so.

What happens, however, when parents pay a child’s (often substantial) college tuition, but at a time when they can’t pay their own debts and end up in bankruptcy? Can the bankruptcy trustee recover the tuition payments from the university so the payments can be distributed to the parents’ creditors?

Bankruptcy courts across the country have been wrestling with this issue, with inconsistent results. A recent Massachusetts case involving a trustee’s efforts to recover tuition payments is drawing national attention and may ultimately reach the Supreme Court.

The case pits the well-established rights of trustees in bankruptcy to recover funds for creditors, against colleges and universities, who claim it is fundamentally unfair to be required to repay tuition payments made for debtors’ children.

In DeGiacomo v Sacred Heart University, the parents had paid more than $60,000 in tuition payments for their daughter to attend Sacred Heart University (SHU). However, at the same time they were making these payments, they owed millions of dollars to their creditors; worse yet, those debts were the result of a Ponzi scheme perpetrated by the parents.

When they filed for Chapter 7 bankruptcy relief, the trustee in their case filed suit against SHU, seeking to recover the tuition payments made within four years as fraudulent transfers. Under state and federal fraudulent-transfer statutes, the trustee does not need to prove the payments were actually intended to defraud creditors; the transfers are “constructively fraudulent” if they were made while the debtors were insolvent and for which the debtors did not receive “reasonably equivalent value.”

It was on whether the parents received “reasonably equivalent value” that the case turned. There was no question that the parents were not legally obligated to pay their daughter’s tuition. Thus, the trustee argued that they did not receive any legally recognizable value for the payments, and that satisfying a “moral” obligation to provide for their non-minor daughter’s education was not of any direct or sufficiently quantifiable economic benefit to the parents, and certainly of no benefit to their creditors.

SHU, with the support of the debtors, opposed the trustee’s arguments. They pointed out that, while the parents may not have been legally obligated to pay tuition, their daughter was classified as a ‘dependent’ on both the debtors’ tax returns and on college financial-aid applications. More importantly, SHU asserted that the debtors did in fact receive economic consideration for the payments. By paying for their daughter’s education, the university argued, the parents ensured that she would become more financially independent, less likely to be a drain on her parents’ financial resources, and more likely to care for them as they aged. Finally, SHU pointed out that society as a whole benefited from the payments.

Bankruptcy Judge Melvin Hoffman sided with the university. He wrote as follows: “I find that the [parents] paid [SHU] because they believed that a financially self-sufficient daughter offered them an economic benefit and that a college degree would directly contribute to financial self-sufficiency. I find that motivation to be concrete and quantifiable enough. The operative standard used in [the fraudulent conveyance statutes] is ‘reasonably equivalent value.’ The emphasis should be on ‘reasonably.’”

The trustee has appealed the decision. Recognizing the importance of this issue nationally, Hoffman took the unusual step of recommending that the appeal bypass the U.S. District Court and be heard directly by the First Circuit Court of Appeals. The case has drawn national attention.

In addition to briefs by the parties, amicus briefs have been filed by the National Assoc. of Bankruptcy Trustees and by a group of 20 organizations supporting colleges and universities. Briefing has been completed. Oral arguments are scheduled in October, and a decision is expected early next year.

Steven Weiss is a shareholder with the Springfield-based law firm, Shatz, Schwartz and Fentin, P.C.; (413) 737-1131.

Florence Bank Makes Its Move into Hampden County

By
fsbfeature-0717a
Banking and Financial Services Sections

West Side Story

A rendering of the new Florence Bank branch in West Springfield.

A rendering of the new Florence Bank branch in West Springfield.

After recording impressive growth during his 22-year tenure as president, John Heaps Jr. says Florence Bank is ready to take the next strategic step, by opening its first branch in Hampden County later this summer. The move comes at an opportune time, he said — a time when many Greater Springfield banks are being bought up and merging with institutions based well outside the region. A community-focused bank like Florence, he believes, is well-positioned to fill the gap.

John Heaps Jr. has deep roots in Hampden County. A 37-year resident of East Longmeadow who attended Cathedral High School and started his career at Valley Bank & Trust Co. in Springfield, he has personal reasons to celebrate Florence Bank’s first Hampden County branch, set to open in West Springfield in August.

“For me, it’s like coming home,” he said. “I grew up here in East Forest Park, and I’ve lived here all my life. So this is home to me, and coming here is just something that feels like coming back home, even though I live here.”

But as much as the move means to him personally, it says more about the bank’s growth, and the opportunities available to a community-focused institution in the midst of industry consolidation that has left the region without a Springfield-headquartered bank.

“The first part of my career with Florence Bank was focused on expanding within Hampshire County, and now it just makes sense to expand into Hampden County,” said Heaps, who has served as the bank’s president since 1995. “Because of the significant consolidation, many of the independent players are gone. There’s a real need for a community bank. People want banking decisions made locally, by local people and for the right reasons. That’s what we do.”

Bank President John Heaps Jr. visits the construction site.

Bank President John Heaps Jr. visits the construction site.

Construction is nearing the final stages at what will be a 9,000-square-foot plaza at 1010 Union St., one-third of which will house Florence Bank’s new Hampden County Banking Center, scheduled to open this summer.

All Florence Bank services will be offered through the new center, including deposits and loan products, mobile services to provide 24-hour access to accounts, mortgage-application services, debit-card issuance, commercial-loan capacity, and investment services. The center, which will also offer a drive-up ATM and night depository, will be staffed by eight employees, led by Branch Manager Maureen Buxton.

Heaps said the recent spate of mergers — United Bank was acquired by Rockville Savings Bank in 2014; the following year saw Hampden Bank acquired by Berkshire Bank, First Niagara Bank sold to Key Bank, and NUVO Bank & Trust acquired by Merchants Bancshares; and Westfield Bank acquired Chicopee Savings Bank in 2016 — creates an uncommon opportunity for a mutually-held bank that makes decisions about what’s best for customers and the community without input from stockholders.

“The Springfield area needs our kind of independent institution,” he said, and the bank has already found success in Hampden County following its opening, in 2007, of a loan-production office in West Springfield. It’s success helped boost the bank’s total commercial-loan portfolio to more than 36% from Hampden County-based businesses.

In fact, between the loan center, an ATM in Springfield, a relationship with the Basketball Hall of Fame, and employees — like Heaps — who live in Hampden County, the bank already boasts nearly 3,000 retail customers and more than 400 commercial clients in the Greater Springfield region. The bank also has a relationship with 97 nonprofits in Hampden County that have received over $300,000 in grants and gifts in the past five years.

In short, Heaps said, the time was right for the West Springfield branch.

Steady Growth

Florence Bank, headquartered in its namesake town, has long been a Hampshire County institution, with branches in Amherst, Belchertown, Easthampton, Granby, Hadley, Northampton, and Williamsburg. Heaps has seen the bank grow in his tenure from a $250 million institution with two branches to $1.3 billion and 10 branches. But growth didn’t mean abandoning the community culture.

“It was clear the bank wanted to stay mutual and wanted to grow, and quite frankly, we did that in Hampshire County,” he said. “Our capital has grown from $25 million to $135 million, which is really nice growth, so we’ve been extremely profitable while still being able to keep our focus on what we wanted, which was to stay mutual.”

From left, John Heaps Jr., West Springfield Mayor Will Reichelt, developer Frank Colaccino, and West Springfield Fire Chief Bill Flaherty

From left, John Heaps Jr., West Springfield Mayor Will Reichelt, developer Frank Colaccino, and West Springfield Fire Chief Bill Flaherty were among those who attended a recent hard-hat tour of the site.

Another goal was to stay current with technological trends, he added. “We’ve got the best of both worlds; we’ve been able to keep the focus on customer service, but we’ve also added technology that has allowed us to keep up with the Bank of Americas. There’s nothing you can get there that you can’t get at Florence Bank, things like mobile management to get into your bank account, stop a debit card, pay bills, things like that.”

In fact, in the past five years, the percentage of customers using the bank’s mobile services has risen from about 5% to around 40%, and it’s still on the rise, among all demographics.

“Sometimes it’s just a matter of showing people,” he said. “If you come in the branch to talk about mobile banking, we’ll give you a $5 deposit check, and we’ll ask you to deposit it to set up your account. You wouldn’t believe how many people thank us for that.”

Customers aren’t the only ones with questions, however. “Strategically, other senior managers and even the board asks about bricks and mortar, why we continue to build branches when transactions have gone down in the branches,” Heaps said. “Clearly, the number of transactions has gone down significantly in the past five years — to around 60% of what it was. That obviously has an impact.”

But a physical branch still plays a critical role in the communities where a bank operates, he went on, not only because the majority of customers still do business there, but because it shows commitment to a city or town.

“Do you need 10 tellers? No, but you certainly need the branch,” he said, adding that branches of the future are likely to be smaller than in the past, and division of roles between tellers and customer-service professionals at Florence Bank will be blurred, with employees able to handle either task, so the teller window, or pod, will be a one-stop shop of sorts.

John Heaps Jr.

John Heaps Jr. stands before what will be the teller pod area in the new West Springfield branch.

“That’s the teller of the future, and it allows you to have a smaller footprint, and to do everything with much fewer people,” he said. “With remote capture, customers don’t even need to go to the bank to make deposits.”

The result, he said, has been a streamlined workflow, so as the bank has grown in size, it hasn’t added many employees, instead shifting roles to boost efficiency. A branch like the one in West Springfield, had it opened a decade ago, would have required more staff and a larger footprint, he noted.

Branching Out

To create the new space, the Colvest Group of Springfield is developing the new building where St. Ann Roman Catholic Church was once located, at the intersection of Union Street and Memorial Avenue.

The building’s exterior will feature stone wainscoting on the first few feet near ground level and tan siding and multiple windows across the front. Florence Bank will occupy one-third — or 3,000 square feet — of the new plaza, and up to three additional commercial tenants will fill the remaining space, said developer Frank Colaccino.

“We certainly think it’s a high-quality location, and the building is very attractive, he added. “We’re excited to have Florence Bank as our anchor tenant, and we’re confident we’ll have some good-quality tenants in addition to Florence Bank.”

It’s the same promise Heaps sees in the site and, more importantly, in the Greater Springfield region.

“There’s just so much happening in Hampden County,” he said, adding that the region’s economic vibrancy is reflected in Florence Bank’s steadily growing loan activity there. He noted that, at a time when mergers and acqusitions are the order of the day, retail and business customers are still looking for a community-bank experience and a financial partner across all aspects of life. “Eighty percent of our mortgage customers have checking accounts with us; that’s an amazing statistic.”

Which is why West Springfield is just the first stop along the way to the bank’s goal to become much more than a Hampshire County institution.

“It’s not just going to be one branch, just sticking our toe in the water,” he told BusinessWest. “Over the next three or four years, we’ll be adding between three and four new branches as part of a strategic move. I think Hampden County is ready for us, and we’re ready for Hampden County.”

Joseph Bednar can be reached at [email protected]

Steps Taken Now Can Make a Difference on Your 2017 Return

By
Banking and Financial Services Sections

Mid-year Tax Moves

By Kristina Drzal Houghton, CPA, MST

 

Kristina Drzal-Houghton

Kristina Drzal-Houghton

Most people don’t include tax planning on their summertime agenda, but maybe they should.

The problem with waiting until the end of the year is that you reduce the time for planning strategies to take effect. If you take the time now to do mid-year tax planning, you’ll still have six months for your actions to make a difference on your 2017 tax return.

In addition, proposed tax reform could be cause for additional changes to your tax plan. Planning now for 2017 taxes not only helps reduce your tax burden, but it can help you gain control of your entire financial situation.

This year may seem especially tricky with the uncertainty of potential changes in the tax laws. This article is going to focus on planning assuming there is no change, since executives, lobbyists and Wall Street analysts increasingly believe the administration — distracted by repeated crises while facing a short and crowded legislative calendar — will be unable to deliver on President Trump’s promise to slash corporate and individual tax rates this year and ignite significantly faster economic growth.

While Hill Republicans argue that ongoing issues related to the current administration will have no impact on tax reform, movement on Capitol Hill has slowed momentum and emboldened Democrats to try to block Republicans’ every move. And Wall Street analysts believe it will help push tax reform into 2018 and perhaps even beyond next year’s midterm elections.

Here are a few things you should consider.

Assess Changes That Affect Your Situation

Have you experienced any life events that can change your tax situation? Here are some examples:

• A job change. If you are eligible for a distribution from your former employer’s retirement-savings plan, consider rolling the money into another tax-favored plan or an individual retirement account (IRA) to avoid the receipt of currently taxable income.

• A home sale. You may exclude profit — within limits — on the sale of your principal residence from your taxable income if you meet the tax law’s requirements.

• A marriage or divorce. File a new W-4 withholding allowance certificate with your employer, or, if you pay quarterly estimated taxes, review the amount you are paying.

• A new child arrives. As a parent, you may be eligible for various tax breaks.

Size Up Deductions and Credits

Use last year’s tax return to estimate what your highest tax bracket will be and how you can reduce your tax liability through deductions and credits. For instance, you might make deductible charitable donations of money or property to reduce your marginal tax rate.

This might be particularly important for 2017 since rates are expected to decrease in the future.

Examine Your Investment Portfolio

You can harvest capital losses from securities sales to offset capital gains plus up to $3,000 of ordinary income each year. You may also use capital gains to offset capital losses from earlier in the year.

Planning your securities activities early will help you prepare for tax time.

Take Retirement Plans  into Account

When possible, boost contributions to retirement plans within the generous tax-law limits. You may also be able to supplement your retirement plan at work with contributions to an IRA plan.

On the flip side, you’re generally required to take annual required minimum distributions from retirement plans after reaching age 70½. Keep that in mind if you will reach that milestone this year.

Focus on Higher Education

If you have a child in college, you may be able to claim higher-education credits even if the child graduates this year. However, each credit is phased out for upper-income taxpayers. The tuition deduction expired after 2016, so make sure to plan for the best use of the remaining education tax benefits.

Update Your Estate Plan

Finally, review your estate plan to ensure you’re maximizing tax benefits. Currently, transfers between spouses are completely exempt from estate and gift tax, while other transfers are sheltered by a $5.49 million exemption in 2017 ($10.98 million for a couple).

While estate-tax reform remains a strong possibility, if not in 2017 then in a future year, waiting to plan may not be prudent.

Outside Collection Agencies

While many things in the tax arena remain uncertain at this point, two changes at the IRS have taken effect in 2017 that you should be aware of.

First, the IRS is now using outside collection agencies to collect unpaid tax obligations. This new program will start slowly, with only a few hundred taxpayers receiving mailings. The number will grow into the thousands later in the summer.

Taxpayers who are contacted will first receive several collection notices from the IRS before their accounts are turned over to the private collection agencies. The agency will then send its own letter to the taxpayer informing them that the IRS has transferred the account to the agency.

These agencies are required to identify themselves as working with the IRS in all communications. Unfortunately, a change like this can often lead to confusion among taxpayers, which gives scammers a new opportunity to steal taxpayer dollars. The IRS is aware of the potential fraud problems and plans to continue to help taxpayers avoid confusion.

The IRS reminds taxpayers that private collection companies, like the IRS, will never approach taxpayers in a threatening way, pressure taxpayers for immediate payment, request credit-card information, or request payments in gift cards, prepaid debit cards, or a wire transfer. A legitimate letter from a collection agency associated with the IRS will instruct taxpayers to write a check directly to the IRS.

Correspondence Audits on the Rise

The IRS is now handling many routine audit reviews through form letters called correspondence audits. These letters come from the IRS and ask for clarification and justification of specific deductions on your tax return.

Common issues that trigger a correspondence audit are large charitable deductions, withdrawals from retirement accounts and education-savings plans, excess miscellaneous deductions, and small-business expenses.

Don’t panic if you get one of these audit form letters. The IRS often uses computer programs to compare individual return deductions with the averages for a person’s income level or profession. If you’ve received a letter, you may have simply fallen outside the averages.

As long as you respond promptly, thoroughly, and with good documentation, it won’t necessarily become a contentious issue. The key is to keep proper, well-organized documentation under the assumption you may need it to support your deductions. If you do this right, the correspondence audit will end with a ‘no change’ letter from the IRS, acknowledging you’ve addressed their concerns.

These are just a few possible mid-year tax-planning moves to consider. In between summer picnics and family outings, take the time to review actions that might be beneficial to you at tax time next year. It will be here before you know it.

Kristina Drzal Houghton, CPA, MST is a partner and director of the Taxation Division at Meyers Brothers Kalicka in Holyoke; (413) 536-8510.

At Burkhart Pizzanelli, Relationships Are Paramount

By
burkhartfeature-0517b
Banking and Financial Services Sections

Beyond the Numbers

Managing Principal Julie Quink, left, and Principal Deborah Penzias

Managing Principal Julie Quink, left, and Principal Deborah Penzias

The two youngest partners at Burkhart Pizzanelli say they’ve learned well from the accounting firm’s founders, who have long cultivated a relationship-driven culture that builds not only business, but, more importantly, trust. It’s a model they hope to build upon in the coming decades, with the goal of helping clients navigate the many facets of growing a successful enterprise.

To those outside the accounting industry, it may seem like a dry, numbers-driven game.

But that’s not the case at West Springfield-based Burkhart Pizzanelli, said Managing Principal Julie Quink, noting that each of those numbers tells a story, and it’s a story she and her team want to hear and understand.

“We’re very relationship-driven in terms of our clients, and also with our team — we’re a very close-knit team; that’s how we function,” Quink said. “We don’t want to be one-and-done, where we prepare your tax return and don’t hear from you until next year. We want to reach out often to see how things are going. We want to hear when positive things are happening.”

That leads to new business opportunities, said Partner Deborah Penzias, but also a deepening of trust between Burkhart Pizzanelli and its clients that often results in decades-long business relationships.

“We stress the relationship aspect of it; that’s really important to us,” Quink added. “Our topmost priority here is quality, and building relationships is second.”

The company dates back to 1986, when Richard Burkhart and Salvatore Pizzanelli, still partners with the company today, went into business together as an accounting, tax, and consulting firm. A third partner, Thomas Pratt, joined them soon after, and the three steadily grew the firm. Penzias came on board in 1998, followed by Quink in 2011, and today, the five partners are among 18 total employees, performing services in a variety of areas.

“We provide your traditional tax and accounting services, and we also do a lot of things other firms don’t do,” Quink said. “We have a forensic accounting practice, we have our own bookkeeping group in house, and we have access to a third-party administrator on site who can help with defined-contribution plans and plan design.”

 

We don’t want to be one-and-done, where we prepare your tax return and don’t hear from you until next year. We want to reach out often to see how things are going. We want to hear when positive things are happening.”

 

The firm specializes in a number of industry groups, including healthcare, construction, affordable housing, auto dealers, manufacturing, nonprofits, professional services, real estate, restaurants, and wholesale and distribution. “It’s a good mix,” Quink said.

In all those areas, she and Penzias stressed that the company’s culture is one of collaboration, honesty, mutual respect, and trust, and that means forging relationships with all the members of a client’s financial-advisory team, which may include an attorney, an investment adviser, a bank, and an insurance agent. “We’re all part of the financial team advising the business,” Penzias noted.

Whether dealing with a small-business client with $100,000 in revenues or a $100 million entity, that philosophy stays the same, Quink added.

“We like to function as a team. If we find something is not in our bailiwick to deal with, we refer it out. We feel that we should be advising on our core competencies, and if something is outside that realm, we’ll refer it to one of the others on the team. There’s a lot of crossover with legal counsel in terms of estate planning, divorce situations, and business planning. That’s why it’s important for us to work as a team.”

Current Events

It’s equally important to stay on the cutting edge of the accounting and business-advisory world, which Burkhart Pizzanelli does in two critical ways.

“We recently rolled out to the team what our financial picture looks like, where we spend our money,” Quink said. “If you look at it as a pie graph, clearly the biggest piece is our human capital, our people. But the next-biggest buckets where we spend our resources are education and technology.”

“The industry has changed so much since I started in business, when we were preparing tax returns by hand with pen and paper,” Penzias said by way of explaining the commitment to current technology. “That has evolved over the years. Now, we replace our computers on a three-year cycle, whether they need it or not. We’re constantly adding new programs, new tools, so we can delegate the calculation tasks to computers and focus on what’s really important to a business.”

Julie Quink

Julie Quink says she sees Burkhart Pizzanelli as a critical part of a client’s financial team.

Quink added that clients are encouraged to use as much technology as possible, both because it creates an electronic trail, and to make their operations as convenient as possible for them. “We’re conscious of the security piece of it, and we’re very secure,” she added.

Burkhart Pizzanelli also invests substantial resources into continuing education, far beyond the minimum requirements of licensing authorities, the partners explained. This includes industry-specific and technical training in the areas in which they operate and want to expand.

Most team members require at least 80 hours of education every two years to retain their certifications, which they usually split into 40 hours each year. But those industry-specific certifications require additional education and may push them well past 60 hours annually.

“The firm pays for this education and makes sure they’re current with what’s happening in different industries, and that we have appropriate knowledge to work in these areas,” said Quink, who became a certified fraud examiner last year. “We should have a working knowledge of any business we’re serving.”

She reiterated that continuing education isn’t just beneficial, but an integral part of the business. “There are certain educational criteria we need to meet. Some folks here have their insurance licenses and are able to help underwrite policies. On the tax side, we need specialized tax knowledge; most of our people here can do tax returns, so the majority of our people get tax training every year to make sure they’re up on their education. We don’t ever want to be in a situation where we’re serving industries we don’t have expertise in.”

Penzias agreed. “We would refer away before doing something we couldn’t handle,” she said, noting that expertise combined with candor helps build trust with clients. “The best referral sources are happy customers.”

The company’s culture is producing happy employees, too, Quink said, noting that more than half of them have been with the firm more than 10 years.

Community Ties

That kind of retention bolsters a relationship-oriented culture that also manifests itself in the community. Many Burkhart Pizzanelli employees volunteer with local organizations in various capacities, including board membership, advising, and other forms of service.

“One thing we stress here is community service,” Quink said. “We encourage the team and provide time during the day or evening to attend events or be involved. We feel like we make a difference in the West Springfield area — both with clients and in our community. We feel it’s important to be a good community partner.”

“We want to give back,” Penzias added, “and we encourage that in our team.”

Meanwhile, the firm continues to expand its reach in professional areas as well. Take Quink’s certification as a forensic accountant, which allows her to work with legal counsel — sometimes on the plaintiff side, sometimes the defense — to help build a case in matters ranging from divorce to business disputes.

“What we don’t do is come up with an opinion on innocence or guilt — just a pattern of facts to help with the case,” she explained. “It’s not just hard numbers; you see what causes people to do things, what motivates them, and it’s often not pleasant for clients because there’s a level of trust that’s been violated, or it may be a marital situation where one spouse is hiding assets from the other. It’s a little more interesting than just doing a tax return.”

The company continues to expand its traditional services as well, now boasting 10 CPAs but also strengthening client relationships on matters from transactional needs to succession planning.

SEE: List of Banks in Western Mass.

“Tom has one client who’s been with him more than 40 years,” Quink said. “They may not need the same level of service anymore, but they stay because of the relationship aspect. They feel comfortable that we’re giving them the best advice for their situation. Clients look to us for advice, and we provide that. If we’re not able to help them with some particular aspect, we refer them to one of the trusted people we deal with.”

As the youngest partners, and the ones who will eventually be fully in charge, Quink and Penzias want that culture to spur the next 30 years of growth at Burkhart Pizzanelli. As a professor at Elms College, Quink has access to a pipeline of talent she can observe and evaluate in the early stages; four of the firm’s employees are Elms graduates.

Counting on Them

In such a diverse business, they added, everything comes back to those relationships they touted multiple times — those real people, with real issues, behind the numbers.

“We’ve seen companies start from seedlings and grow and watch the next generation take over,” Penzias said. “I’ve worked with the parents, and then the kids take over, and we have to foster those relationships as well. It is very gratifying to see our clients succeed.”

But even when they struggle, Burkhart & Pizzanelli has a place — perhaps an even more important one, Quink said.

“When clients aren’t doing so well, I think we shine there,” she said. “We can provide a lot of insight, alternatives, and strategies. At some point in each business’ life cycle, they’ve had some struggles. Most of our clients are closely held, family-run, not publicly traded companies. Family businesses have their own dynamic — and we understand the dynamics of a family business.”

Being there for all aspects of a clients’ business also creates a personal bond as well, Quink said, recalling a client who lost his spouse, and one of the very first calls he made was to Burkhart. “We have so much impact on people’s lives; it’s impressive,” she said. “But, likewise, so is the impact our clients have on our lives.

“As we evolve as a firm, Debbie and I are the future owners; ultimately, she and I will own the firm,” she went on. “With that happening, we are also grooming the next wave. We’re always forward thinking; we’re finding our replacements, too. We’ll be here awhile, but it takes awhile to build referral networks and understand how the business works and really gain experience in the industry. We’re grooming our next leadership team.”

That grooming and training goes far beyond the technical aspects of the accounting industry, Penzias said, but extends to soft skills and relationship building, which are as much art as science, but are critical to continuing the culture first cultivated by the firm’s original partners.

“Trust is important, and relationships are important,” Quink said — much more important, in fact, than the dry numbers on a computer screen.

Joseph Bednar can be reached at [email protected]

Who Benefits from Trump’s Plan?

By
Banking and Financial Services Sections

At This Early Juncture, We Honestly Cannot Tell

By Kristina Drzal-Houghton, CPA MST

Kristina Drzal-Houghton

Kristina Drzal-Houghton

President Trump’s skeletal outline of a tax package, unveiled at the White House late last month in a single-page statement filled with bullet points, was less a plan than a wish list.

Treasury Secretary Steven Mnuchin and Gary Cohn, the director of Trump’s National Economic Council, laid out the skeleton of a plan to reporters. They pitched his new tax proposal as a cut for the middle class and not the wealthy. However, it appears as if it would undoubtedly mean lower taxes for top earners, while the impact on middle incomes is less clear.

The proposal envisions slashing the tax rate paid by businesses large and small to 15%. Lowering the corporate tax rate from 35% to 15% is one of the most aggressive moves in the plan. The administration says it gets the rate down to where it is for most other industrialized nations.

Additionally, corporations would pay reduced or no taxes on foreign profits brought back to the U.S. It would be a special, one-time opportunity to bring home cash that they are parking overseas. They did not say how low that rate would be or how they would ensure that the money would be invested productively.

Pass-through businesses, such as S corporations and LLCs, would also pay the same 15% tax rate that Trump has proposed for corporations. As the name suggests, pass-through businesses pass their income through to their owners, who pay tax at their individual rates. For high-income earners, the rate could decrease from 39.6% to 15%. Critics have noted that this will not only benefit small family businesses, but also large business empires like Trump’s own.

On the individual tax front, the number of tax brackets for individuals is reduced from seven to three: 10%, 25% and 35%. The Trump administration did not say where those brackets begin and end. Individual tax rates currently have a ceiling of 39.6% and a floor of 10%. That lowers the top rate by nearly five percentage points, easing the tax burdens on most Americans, including, again, the rich.

Under the plan, the top federal capital-gains rate is cut from 23.8% to 20%. This is achieved by eliminating a 3.8% tax that is used to fund the Affordable Care Act. The reduction is meant to create greater incentives for people to invest.

Currently, single individuals have a standard deduction of $6,350, and married couples can deduct $12,700 from their taxable income. The president’s plan would double the standard deduction. That is intended to put more money in the pockets of the average taxpayers who do not itemize their deductions. It has the added benefit of simplifying the preparation of tax returns for more people. Cohn tried to frame this as a benefit to middle- and lower-income people who don’t have deductions, saying some people would pay little or no taxes under Trump’s plan.

The one-page blueprint proposes, without specifics, to “eliminate target tax breaks that mainly benefit the wealthiest taxpayers.” The proposal would scrap most itemized deductions, such as those for state and local tax payments, a valuable break for taxpayers in Massachusetts and Connecticut, which have high income-tax rates as well as real-estate taxes. But the president would leave in place popular breaks for mortgage interest, charitable contributions, and retirement savings.

The plan would eliminate the estate tax and alternative minimum tax, a parallel system that primarily hits wealthier people by effectively limiting the deductions and other benefits available to them — both moves that would richly benefit Trump himself.

In a brief session with reporters, Cohn and Mnuchin said they had been toiling for weeks on the proposal, much of which closely resembles the plan Trump championed as a presidential candidate. They argued that it would spur robust economic growth that would, along with the elimination of deductions, cover the potentially multi-trillion-dollar proposal entirely, a prospect that even many Republicans believe is virtually impossible.

“This will pay for itself with growth and with reduction of different deductions and closing loopholes,” Mnuchin said, repeating his optimistic estimate that the plan would spur the economy to grow at a rate of 3% annually. “The economic plan under Trump will grow the economy and will create massive amounts of revenues, trillions of dollars in additional revenues.”

The non-partisan Committee for a Responsible Federal Budget has estimated that the Trump outline could cost $5.5 trillion in revenues. The likelihood of our needing to worry about the accuracy of this estimate seems slim given recent developments.

Congressional leaders reached a bipartisan agreement on April 30 to fund the government through September, effectively ending any suspense about the possibility of a government shutdown. The agreement includes increased funding for the military and for border security. But it does not include funding for the wall that President Trump wants to build along the border with Mexico, one of his major campaign promises.

While the agreement avoids the embarrassment of a government shut-down, it also gives a glimpse of the reluctance of lawmakers to bend to Trump’s spending priorities, like his desire for sharp cuts to domestic programs, with the increase in funding for medical research a prime example.

While you may want to consult your tax adviser about the possible benefits the Trump plan would have on your taxes, I would suggest you hold off on changing your withholdings or estimated tax payments for 2017.

Kristina Drzal-Houghton, CPA MST is the partner in charge of Taxation at Holyoke-based Meyers Brothers Kalicka, P.C.; (413) 536-8510.

Moriarty & Primack Reflects on a Quarter-century of Growth

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moriartyprimackfeature0317b
Banking and Financial Services Sections

Taking Account

Principals Patrick Leary (left) and Doug Theobald

Principals Patrick Leary (left) and Doug Theobald

The field of accounting is broad, diverse, and constantly changing, so the leaders of Moriarty & Primack are rightfully proud that their firm has weathered those changes with near-constant growth and little turnover. They credit a culture of connection, where open communication is valued in the office and client relationships dig deeper than mere numbers on a ledger. As it approaches its second quarter-century, those are values the company intends to preserve.

After a quarter-century in business, it’s natural for an accounting firm to re-evaluate its place in the financial-services industry — particularly for a firm with the consistent growth record of Moriarty & Primack.

“We’re probably at the cusp where we’re not a small firm anymore, but not a large firm, either — maybe a medium-sized firm,” said Patrick Leary, CPA, Assurance Services partner with the firm, which now totals almost 40 employees. “So, what does that mean to our clients and how we market ourselves in the community?”

When he and other leaders of the Springfield-based firm sat down with BusinessWest recently, they talked about how the company’s evolution had sparked conversations, now ongoing, about its messaging and growth strategy going forward. What kept coming up was a wave of young talent.

“You can certainly say we’re younger than we were 10 years ago,” Leary said. “That certainly changes the firm’s culture — younger people with lots of energy, people who are building their careers, striving to move forward.”

They also bring their own, varied perspectives, said Douglas Theobald, Tax Services partner and the firm’s president, noting that they were recruited from both Western Mass. colleges and well outside the region, and hail from both accounting programs and other professions, bringing a richness of life experience to their jobs.

This group — which definitely doesn’t represent the old vanguard of “green-eyeshade accountants,” Leary noted — also bring key experience in modern modes of communication and connection.

“The world is changing so quickly, with social media and technology and such,” said Margie Smith, human resources director, “and they are really savvy in all those areas in a way that some of us older folks may not be.”

 

We’re probably at the cusp where we’re not a small firm anymore, but not a large firm, either — maybe a medium-sized firm.”

 

Conversely, noted Lisa Behan, CPA and director, the company’s leaders can model the close client relationships that have been a hallmark of Moriarty & Primack’s 24 years in business. “The only way to teach them that is to show them.”

To that end, Leary said, the firm’s leaders make an effort to draw younger employees into many of their client discussions, if only to help them gain experience in myriad areas. “That builds our bench; someday our clients will be going to them with these questions, and the more situations we throw our staff into, the better they’re going to be in their career.”

Smith said the younger employees appreciate that culture. “It helps them develop more quickly than they might otherwise. We also have an open-door policy here. Everyone is approachable, and they know they can come to anyone, anytime, with any questions. There’s a lot of collaboration here, and everyone is on a first-name basis. It’s not ‘Mr. Theobald’ or ‘Mr. Leary’; it’s Doug and Patrick. That open-door policy helps everyone work together and makes them feel like they can ask questions, that questions aren’t stupid.”

For this issue’s focus on financial services, Moriarty & Primack’s leaders spoke with BusinessWest about how asking the right questions, and answering them with a culture that prioritizes relationship building, has fostered continual growth since 1993, and likely more moving forward.

Making a Name

Richard Moriarty and Jay Primack were long-time employees of Coopers & Lybrand when they decided to put their own names over the door, using their experience and effective recruiting of talented CPAs to make their firm one of the standouts in the local accounting community. They started in a 1,000-square-foot office in One Financial Plaza, then expanded that footprint before moving one block down Main Street to Monarch Place in 2001.

Now in its second generation of leadership, said Theobald, the firm has come to focus on four key areas: Auditing services to business clients, nonprofits, and other business entities; tax-consultation and compliance services to business clients, individuals, and other segments; business-valuation work; and employee benefit plans.

From left, Doug Theobald, Margie Smith, Lisa Behan, and Patrick Leary

From left, Doug Theobald, Margie Smith, Lisa Behan, and Patrick Leary say the company benefits from a culture of open communication.

“Those are our core service lines,” Leary added. “It’s a fairly traditional core set of services for a CPA firm of our size.”

Theobald said the firm is well-versed in virtually every industry, but its accountants aren’t afraid to consult with someone else in the company who might have broader experience in a certain field.

“We do collaborate internally amongst ourselves. Patrick may have more experience in the construction field than I have, and if I have a construction client, I can come to him with a question. And vice versa — he might come to me with a tax issue. That’s been very successful for us; we work with individual clients with a team approach, and try to use the best knowledge we can internally.”

That’s an important part of the culture, Leary added. “We tell our people that nobody here knows everything. To me, being a good CPA means asking a lot of questions. We’re not going to go to a client and just pretend we know all the answers.”

That emphasis on candor and communication appeals to Behan, who joined the firm last year from Owens & Co. in Connecticut. “I’ve seen the whole profession change over the past 10 to 20 years around relationships as opposed to technical expertise,” she said. “What’s really important to clients now is the trust, the connections, the relationships, the experience … a lot of intangibles around our relationships with clients. Twenty years ago, what we did was more of a commodity, and less personal.”

Theobald agreed. “The only way you can be successful in this business is by driving deep in relationships with your clients. They look to you as a confidant. We clearly bring technical expertise, or you wouldn’t be working with us, but it’s also a relationship built on trust. We wouldn’t have approached Lisa to join this business if she didn’t have both those skill sets.”

Smart Growth

Behan’s arrival was one example of organic growth, Theobald said, as she brought her own client base into the firm. Other growth over the years has been driven by acquisition, referrals, and a broadening of services.

“We realize we’ve got to continue to grow, and we give our staff as much opportunity as possible to grow,” he told BusinessWest, and that means drawing in new clients from near and far. “We are committed to Springfield, and we value the Pioneer Valley; we work here and reinvest in this community. But we’re also very active outside Western Mass. — in the Boston marketplace, in the Hartford marketplace. We realize that, if we want to grow the firm, we have to expand our footprint, and we’ve done this very successfully.”

To move forward, though — beyond that ‘medium-sized firm’ status — Moriarty & Primack is now examining its growth goals and formulating new marketing strategies, which is in some ways untilled ground.

A wave of new employees over the past decade

A wave of new employees over the past decade, many of them young professionals, has given Moriarty & Primack an injection of energy and ideas.

 

“I think our success has been built off hard work and past successes with clients,” Theobald said. “We do very little in marketing, but get a lot of referrals — but we only get those referrals if clients have seen us do a good job, and are confident in our ability to work together, to bring high-end service with good ideas and good execution.”

Smith noted that the firm has also committed to boosting employee training and updating its technology and infrastructure to better serve clients, which is critical in an age when so much business is handled by electronic means.

“A lot of times growth is a byproduct of where the industry as a whole is going, and so much these days is done electronically,” Theobald said. “We can serve clients totally through electronic means. We might meet with a client twice a year but still do a lot of work with them throughout the year.”

Behan agreed. “Relationships can really be built and maintained electronically. We have clients on the West Coast … so much of it is phone and e-mail. If you stay on it and maintain these relationships, you don’t always have to be face to face with people anymore.”

Busy clients tend to appreciate doing business through those channels, because carving out an afternoon meeting can be a real commitment on their end, Leary added. “We get it. We know how clients work — they may wake up at 5:30, check their e-mail, and get a lot of work done during that quiet time.”

The challenge, Theobald said, is to be accessible at all hours, but respectful of the work-life balance that’s such a key factor in retaining talent in the Western Mass. marketplace “Young professionals don’t want to work 8 to 7 every day; they want that work-life balance, and that forces us as managers to run a business that can effectively serve clients but also be a good fit for the staff.”

Getting Involved

So far, it’s working, Theobald added. “We’re only as successful as our staff, and we have a low turnover rate, which translates into continuity of service and not having to retrain the staff every so often. Turnover is very disruptive to a firm, and that is maybe the best judge of what we are doing right as a firm.”

Moriarty & Primack keeps employees engaged in ways that go beyond their job description, he added — for example, though a social-action committee through which employees decide  where to target the firm’s charitable resources, whether through dollars or events. “They like that; it’s empowerment. They’re contributing more than just in an accounting sense.”

The company also manages a mentorship program for younger staff, who have the opportunity to give and get feedback, Smith said. “They can help grow their own careers by talking to someone more experienced, and have someone watching out for them a little bit.”

These sorts of endeavors have myriad positive effects, Leary said, notably building employees’ knowledge — about their field and what’s happening in the community — which they can bring to bear in the future as they move throughout their careers.

As Moriarty & Primack looks to its second quarter-century, he went on, its leaders are drawing on history and experience to craft a vision of what they want to look like down the road.

“We’re a much larger firm than we were 10 years ago, and we’re a more diverse firm,” he told BusinessWest. “So we’re going through a strategic thought process: how do we get from here to there, how do we continue to distinguish ourselves from our competitors? The goal is to create a good strategy and execute it.”

It’s a vision that appeals to Behan. “I admire that Doug and Patrick are looking years down the road instead of looking back. They’re open-minded to how the firm might look in 10 years.”

It will certainly look much different — and has for a long time — from that small office Richard Moriarty and Jay Primack launched 24 years ago, Theobald said. “But we owe a lot to them for what they started.”

Joseph Bednar can be reached at [email protected]

Alden Credit Union Expands with New Financial-services Center

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Banking and Financial Services Sections

Seizing an Opportunity

Adam Corcoran

Adam Corcoran says the new facility in Belchertown exudes what he and others call the ‘Alden mystique.’

Adam Corcoran calls it the “Alden mystique.”

And by about the third casual reference to it, he was hard-pressed by BusinessWest to elaborate and elucidate as to just what that is.

He struggled a little with that assignment, because, in his view, and those of others around him nodding their head in agreement as he spoke, this isn’t exactly something you can see or easily qualify.

“The Alden mystique? It’s hard to explain, really … it’s more something you feel; it’s our personality, for lack of a better word,” said Corcoran, president of Chicopee-based Alden Credit Union. “It’s our brand — it’s who we are, it’s everything we say, and how we say it; it’s everything. You have to witness the service and get the full effect to really understand.”

Whatever the Alden mystique is, it will be — again, according to the people acquainted with the phenomenon — very much in evidence at the new, 4,000-square-foot Alden Financial Center on State Street in Belchertown, set to open its doors at the end of this month.

“It speaks to who we are — it adds to our mystique,” said Corcoran, adding that the name ‘financial center’ is significant, because this isn’t a branch, in the strictest definition of that term, and so, therefore, that is not what it is. Rather, it’s a full-service facility to be staffed by a full-time investment/financial advisor, a full-time property and casualty insurance advisor, and those providing traditional banking and loan services.

“It’s truly a one-stop financial center,” said Corcoran, and one that speaks to the credit union’s explosive growth in recent years, from $78 million in assets in 2010, when Corcoran arrived, to $161 million at present — and its ambitious plans to continue on that trajectory.

Indeed, the Belchertown facility, formerly occupied by Easthampton Savings Bank before it relocated to another location in Belchertown, is part of a strategic initiative to better serve the credit union’s many customers in the Ludlow-Belchertown area, and attract more of them, said Corcoran. But it was also pursued (ultra-aggressively, as we’ll see shortly) out of sheer necessity; the company has been growing at such a rate that it simply needed more space, and in a hurry.

 

The Alden mystique? It’s hard to explain, really … it’s more something you feel; it’s our personality, for lack of a better word. It’s our brand — it’s who we are, it’s everything we say, and how we say it; it’s everything.”

 

“One of the biggest challenges we’ve had over the years has been trying to find space for the staff we’ve assembled to support the growth we’ve had,” he explained. “Our main office in Chicopee is only so big … we’ve had board meetings in the basement for years. We then moved into the administration building across the parking lot from us, but it seems like every year we run out of space.”

That shouldn’t be the case any longer, he went on, noting that the new center in Belchertown should provide adequate space for years to come.

Meanwhile, it will become the cornerstone of expansion efforts in an area identified as one with high growth potential.

“One of the things we decided was that expanding for the sake of expansion and just putting branches up where we had an opportunity to do so was not really the way to go,” said Alden board chairman David Hodge, referring to a branch opened in Amherst in 2012 and closed three years later due to underperformance. “We all thought this [State Street] location was a great opportunity to not only solve our space problem, but better serve existing new customers and generate additional growth.”

 

List of Credit Unions in Western Mass.

 

For this issue and its focus on banking and financial services, BusinessWest takes an in-depth look at the new Alden Financial Center, the circumstances that made in a necessary reality, and the role it will play as the credit union seeks to continue and even accelerate an ambitious pattern of expansion — in every sense of that phrase.

Site for Sore Eyes

Corcoran told BusinessWest that Alden undertook what would be considered a very elaborate search for a location for its new financial center, one that would take it to several communities and a host of potential sites, many of which did not fit that aforementioned Alden personality for one reason or another, or didn’t work from a financial perspective.

To say that it became enamored with the State Street parcel in Belchertown, owned by Pride Stores, would be a huge understatement, as Corcoran’s recollection of efforts to acquire it reveals.

“This wasn’t even available when we first looked at it,” he recalled. “When we first inquired, they said, ‘oh, you want to rent it?’ We said, ‘no, we want to buy it,’ and they said, ‘but it’s not for sale.’”

Continuing with the story, he said the credit union asked the individual in question if inquiries could be made into if, and under what circumstances, the property might come up for sale.

“Some time went by, and we got a call back, and the person said, ‘I hear you’re interested in leasing the bank space in Belchertown,’” he went on. “I said, ‘no, we’re interested in buying it,’ and he said, ‘but it’s not for sale.’ And I said, ‘we’ve had this conversation.’”

Adam Corcoran, left, and David Hodge

Adam Corcoran, left, and David Hodge, chairman of the Alden board of trustees, believe the new facility in Belchertown will enable the credit union to continue its torrid pace of growth.

In essence, Alden wasn’t interested in taking ‘no’ for an answer, and it didn’t, eventually convincing Pride to let it acquire the property and the 1.3 acres it sits upon, a small portion of a much larger development (still owned by Pride) that includes a Tractor Supply Store, Planet Fitness, and other retail outlets, and will soon include a Pride store itself.

Why was Alden so persistent? A combination of factors, said Corcoran, including the geographic location — the proximity to communities with many customers and Belchertown itself, still one of the fastest-growing communities in the region — but also potential traffic flow at that expanding retail site, complete with the new Pride store, and the attractive physical space in the building itself. Also, there are no other credit unions in the vicinity.

“This was one of those things where timing and the pieces to the puzzle all came together,” he said. “It’s worked out fantastic so far.”

To get a better appreciation of all that, we need to back up a bit, to when Corcoran came to the company. It had $78 million in assets and roughly 12,000 members. Today, as noted, the numbers are $161 million and 22,075, respectively, and growing, with all of that growth coming organically and well ahead of the pace industry-wide, he noted.

When asked how this was accomplished, he made perhaps the first reference to the Alden mystique, noting that, during his first few years at the helm, the institution built up what he called its “infrastructure.”

By that, he meant a foundation on which to grow, meaning everything from products, a staff, new branches, and a platform for providing quality service, to aggressive marketing and smart use of improved information technology.

“We’ve set the bar higher for ourselves when it comes to the value we provide the membership and potential new members,” he explained. “We haven’t been afraid to take risks; sometimes they’ve worked out, and sometimes they haven’t, but we haven’t been afraid.”

In that ‘haven’t worked out’ category is that aforementioned branch in Amherst, undertaken as part of a partnership with UMass Amherst Athletics. The branch, located on Main Street, was not ideal, with no drive-up window and limited space, said Corcoran, and didn’t develop as expected.

Thus, the credit union, still desperately in need of more space, commenced a search for a more strategic location in Hampshire County, and for something that would be much more than a branch.

The search ended in Belchertown.

Center of Attention

Thus begins an intriguing new chapter in the story of this nearly 90-year-old institution.

Its marketing slogan is ‘Banking. No Boundaries,’ and that saying now has new meaning with the Alden Financial Center. The literal boundaries have been extended, and the figurative ones — well, there weren’t any to begin with, as evidenced by the Alden mystique.

That phenomenon is, as Corcoran said, hard to see and define. It’s the institution’s personality. And it will be on full display at this new facility.

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

GSB Adds New Branches in Amherst and Northampton

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Banking and Financial Services Sections

Expanding the Profile

nhampphoto-sign-wcoratm-rev-1

The planned new Greenfield Savings Bank branches in Northampton (top) and Amherst.

The planned new Greenfield Savings Bank branches in Northampton (top) and Amherst.

Denise Coyne says one of the most important tenets of customer service is listening to the customers. And an even more critical one, she went on, is acting on what is being heard.

Adherence to both parts of that equation sums up, quickly and efficiently, Greenfield Savings Bank’s recent announcement that it will open two new branches in Amherst and Northampton, thus putting another exclamation point on the institution’s expansion into Hampshire County.

In short, the bank listened, and it acted.

“We have a great relationship with our customers, and we talk with them a lot,” said Coyne, the bank’s executive vice president and chief operating officer. “Over the past year or so, what we kept hearing about was location. We have great branches in those communities, and we’re going to keep those branches — they’re great locations. But customers wanted us to be on Main Street.”

In Northampton, that meant literally — the city’s bustling Main Street. In Amherst, it meant what amounts to the main thoroughfare for retail and foot traffic (which is not actually Main Street).

Thus, the bank will augment its large, full-service branches in those communities — 6 University Dr. in Amherst and 325 King St. in Northampton — with smaller, almost full-service branches in the heart of those downtowns. There will soon be a branch at 207 Main St. in Northampton, and another at 108 North Pleasant St. in Amherst.

 

Over the past year or so, what we kept hearing about was location. We have great branches in those communities, and we’re going to keep those branches — they’re great locations. But customers wanted us to be on Main Street.”

 

The new branches are being undertaken in direct response to customer need for convenience — “parking is at a premium in Amherst and Northampton, and once you get a spot in those communities, you don’t want to move,” said Coyne — but also as part of the bank’s ongoing efforts to grow market share in communities several exits to the south on I-91 from its base in Greenfield.

And that growth has come across the board, she went on.

“We have a trust department … we’ve seen an increase in wealth-management services,” she explained. “And as far as deposits go, since we opened our branch in Northampton in 2012, we’ve seen 16% growth in deposits annually.”

But perhaps the most profound growth has come on the commercial side of the ledger, said Mark Grumoli, senior vice president and director of Commercial Lending for the nearly 160-year-old institution.

“One of the factors that spearheaded our look to establish another branch in Northampton has been from the commercial-loan growth we’ve experienced,” he said. “Over the past nine years, we’ve generated in excess of $400 million in loan volume, and a large percentage of that has come in Hampshire County; the loan portfolio has grown almost three-fold over those nine years.”

Elaborating, he said that, to better serve that growing number of commercial customers, the additional branches were a necessary strategic initiative.

And the new additions have come after a lengthy search for sites that would meet customers’ needs for more convenience, but also give the bank needed visibility and the desirable space it needed.

“We’ve been looking for locations for more than a year now,” said Coyne, adding that, in Northampton, especially, there were many options to consider, but not many that would allow the bank to accomplish its primary mission. So it waited for such an opportunity to develop.

The Northampton site, located favorably near a Starbucks and across the street from City Hall, was previously home to a clothing store, and covers nearly 700 square feet. The Amherst site, meanwhile, near a CVS and across the street from Judie’s Restaurant, had been occupied by a bookstore and was vacant for some time.

Thus, both sites will require extensive renovation, said Coyne, adding that they will feature most of the traditional services, other than safe-deposit boxes and drive-thru facilities.

Both are slated to open their doors in June, and both are needed additions in those communities, Coyne noted.

“These are ‘walking’ communities,” she stressed. “And we wanted to bring that additional convenience to our customers.”

—George O’Brien

Tax-related Incidents Are the Most Common Form of Fraud

By
Banking and Financial Services Sections

Avoiding Identity Theft

By Cheryl M Fitzgerald, CPA, MST

 

Identity theft has become an increasing concern for all. The Federal Trade Commission (FTC) estimates that as many as 9 million Americans have their identities stolen each year. According to a Jan. 26, 2015, FTC press release, tax-related identity theft was the most common form of reported identity theft in 2014.

Personal information (including Social Security numbers) is stolen by using various methods (including dumpster diving, skimming, and phishing). The people stealing identities have become very adept and strategic in the ways that they are obtaining this information.

According to the Internal Revenue Service (IRS), tax-related identify theft occurs when someone uses your Social Security Number (SSN) to file a tax return claiming a fraudulent refund. Taxpayers are usually unaware of this until they receive a notice from the IRS indicating that multiple returns have been filed using the same SSN. The IRS uses your SSN to make sure your filing is accurate and complete, and that you get any refund you are due.

Cheryl M Fitzgerald

Cheryl M Fitzgerald

Remember to be extremely cautious when you receive unexpected e-mails or phone calls from the IRS. If no written correspondence preceded it, there is reason to be suspicious.”

 

Identify theft can affect how your return is processed. An unexpected notice or letter from the IRS could alert you that someone else is using your SSN; however, the IRS does not start contact with a taxpayer by sending an e-mail, text, or social-media message that asks for personal or financial information.

Some of the things that you can do to in the event that identify theft (not just with the IRS) has occurred are as follows:

• Call your credit-card companies if you believe fraud has occurred;
• Place a fraud alert on your credit reports and get copies of the report;
• Report identify theft to the FTC;
• File a report with your local police department; and
• Contact your financial institutions and close any financial or credit account opened without your permission.

If your SSN is compromised and you know or suspect you are a victim of a tax-related identify theft, the IRS recommends these additional steps:

• Respond immediately to any IRS notice. Call the number provided or, if instructed, go to idverify.irs.gov;
• Complete IRS Form 14039 (identity-theft affidavit) if your e-filed return rejects because of a duplicate filing under your SSN or you are instructed to do so. Use a fillable form at IRS.gov, print, then attach the form to your paper filed return and mail according to the instructions; and
• Continue to pay your taxes and file your tax return, even if you must do so by paper.

According to the IRS, some suggestions that you can do in order to help reduce your risk are as follows:

• Always use security software with firewall and anti-virus protections, and use strong passwords;
• Learn to recognize and avoid phishing e-mails, threatening calls, and texts from thieves posing as legitimate organizations such as your bank, credit-card companies, and even the IRS;
• Do not click on links or download attachments from unknown or suspicious e-mails; and
• Protect your personal data; do not routinely carry your Social Security card, and make sure your tax records are secure.

These steps should be followed because, if an identity theft does occur, the situation can typically take many months to correct. Some identity-theft victims have experienced a year or more wait before receiving their appropriate refund. The IRS will typically tell taxpayers who inquire about the status of their identity-theft case that cases are resolved within 180 days; however, it has typically taken longer than that time frame.

In conclusion, the single most important takeaway is that the IRS will always send a written correspondence first. Remember to be extremely cautious when you receive unexpected e-mails or phone calls from the IRS. If no written correspondence preceded it, there is reason to be suspicious. With the increased occurrence of identity theft, it is especially important this tax season (and throughout the year) to be diligent with your information and take proper measures to secure it.

Cheryl M Fitzgerald, CPA, MST, is senior manager at Holyoke-based public accounting firm Meyers Brothers Kalicka, P.C.; (413) 322-3500; [email protected]

Berkshire Bank Has Continued Momentum, Growth in Its Sights

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berkshirebankcoverfeature-0217a
Banking and Financial Services Cover Story Sections
Jim Hickson

Jim Hickson, Berkshire Bank’s Springfield Regional President

Through organic growth and a series of acquisitions, Berkshire Bank has achieved the kind of size ($9 billion in assets at present) that is necessary to succeed in the challenging climate within this industry. But Springfield Regional President Jim Hickson says it blends this size with a small-bank feel and “attitude,” and this is why it has been able to improve its share of the local market.

Jim Hickson says the conference room at Berkshire Bank’s main Springfield offices have become a popular spot lately, seeing far more visitation than would be considered normal — in large part because the bank is certainly encouraging it.

The reason is the room’s windows, which feature northerly and easterly exposures and, more specifically, stunning views of the construction work going on at MGM Springfield, just a few dozen feet away in some cases. Indeed, the massive, 2,000-car parking garage now looms over that conference room — Hickson commented several times on how quickly the structure went up — and the windows at the north end provide views of much of the rest of the construction site.

What visitors obviously see is a casino taking shape, said Hickson, senior vice president and commercial regional president for the Pioneer Valley and Connecticut. What he sees — and what others probably see as well — is what the casino represents: regional momentum and additional growth opportunities, which could come in a number of forms, from large corporations coming to Springfield, like CRRC, to smaller businesses that may take advantage of what will be a growing need for services.

“Those cranes that you see … they translate into momentum for the region; it’s a very exciting time,” said Hickson, adding that he believes Berkshire Bank, a.k.a. America’s Most Exciting Bank (or AMEB, as is written on his zip-front fleece jacket), is very well-positioned to take advantage of the momentum that can now be seen out those conference-room windows, and also in some of the other offices in the bank’s large suite at 1259 Columbus Ave.

That’s because the Pittsfield-based institution has the requisite size — achieved through several acquisitions, including that of Springfield-based Hampden Bank early last year — to be a major player, but it doesn’t act like the proverbial ‘big bank’ you read and hear so much about.

List of Banks in Western Mass.

“We have big-bank resources, but with small-bank attention and approach,” he said, adding that, while this might sound like a line from the marketing department, it accurately conveys what goes on across what is now a huge Berkshire footprint, covering much of the Northeast, as we’ll see later.

And also in those offices on East Columbus Avenue, which comprise a regional headquarters, said Hickson, meaning that customers can avail themselves of a full slate of services, including commercial lending, residential lending, cash management, investment services, private banking, and more.

This combination of large-bank resources and small-bank attitude has enabled the bank to significantly grow its market share in the Greater Springfield area across the board, and especially in the highly competitive commercial-lending realm, said Hickson, adding that a variety of factors are spurring activity among area business owners.

“For the first few years after the recession, even up to three or four years ago, no one was really borrowing money; instead, people were paying down their lines of credit and getting rid of debt,” he explained. “But in recent years, many of our customers are finally saying, ‘I do need to invest in that piece of equipment’ or ‘I do need to put an addition on my building.’ People have been saying, ‘maybe we are finally out of this.’”

To effectively capitalize on these sentiments and this movement, banks need to be large, but also versatile, flexible, and ‘local,’ meaning local decision making, not simply lenders with phone numbers starting with ‘413,’ said Hickson, adding that he believes Berkshire is all those things, and thus well-positioned for what might come.

For this issue and its focus on banking and financial services, BusinessWest talked at length with Hickson about what can be seen out those conference-room windows, and how AMEB is poised to be at the forefront of it all — in every sense of that word.

By All Accounts

As he talked with BusinessWest about the bank, its recent pattern of growth, its growing presence in Greater Springfield, and its large-bank-with-a-small-bank feel, Hickson referred early and often to one ongoing project that underscores seemingly all of the above.

Springfield Innovation Center

Jim Hickson says Berkshire Bank’s involvement with the Springfield Innovation Center is an example of its commitment to the region.

That would be the construction of Springfield’s new Innovation Center on Bridge Street in two buildings acquired by DevelopSpringfield. The $2.7 million project represents a collaborative effort involving a number of partners, including the city, the state, DevelopSpringfield, Valley Venture Mentors, MassDevelopment, the Innovation Hub, and MassMutual. Funding is being provided by the state, through a MassWorks Infrastructure Program grant to MassDevelopment, MassMutual, the Beveridge Foundation, and the Berkshire Bank Foundation.

The bank itself is in the process of underwriting a construction loan to DevelopSpringfield for the renovation work and completion of the innovation center project, said Hickson, adding that final approval is expected within the next several days.

“It’s projects like this that exemplify that we’re here to serve everyone and have a vested interest in Springfield and this region,” he explained. “This a big project in the revitalization of Springfield, and we’re excited to be a part of it.”

Thus, as mentioned, that project checks many boxes when it comes to the bank’s operating philosophy and its goals for being a big part of the progress represented by the view out the back of the company’s offices on East Columbus Avenue.

Hickson arrived there — or back there, to be more precise — last October when he was named to his current post. Indeed, included in his nearly three decades of experience within the banking industry is a stint with Berkshire as senior vice president and asset-based lending relationship manager.

He’s also had tours of duty with People’s United, TD Bank, KPMG Consulting, and Fleet Capital. He is also chairman of the board for Common Capital.

With those accumulated business cards, he’s certainly had a front-row seat from which to witness an era of profound change in the local banking scene, with many new brands ariving, some old ones disappearing from the landscape, and a host of mergers and acquisitions.

Berkshire has been a part of that, he acknowledged, adding that the Pittsfield institution has greatly expanded its footprint in recent years. It now extends all the way from Syracuse, N.Y. in the western corner of the Empire State to Boston — a territory that includes three state capitals (Albany and Hartford are the others). And with the acquisition of New Jersey-based First Choice Bank, it now extends all the way to Philadelphia.

In the current banking climate, size brings a number of advantages — from larger lending limits to all-important economies of scale when it comes to operations in the face of rising technology costs and regulatory burdens — and Berkshire now possesses $9 billion in assets, 96 branches, more than $6.5 billion in loans, $6.6 billion in deposits, and $1.4 billion in wealth assets under management. Such growth has come organically, but also through those acquisitions, the latest of which involved First Choice, a $1.1 billion institution.

The Hampden Bank acquisition, completed in 2015, effectively doubled Berkshire’s presence in the Greater Springfield area, giving it 18 branches, while also doubling its commercial-lending portfolio within the region, said Hickson, adding that this strategic initiative is a good example of how the bank doesn’t simply grow for growth’s sake.

“That acquisition was a key development for the bank; Berkshire has always viewed the Pioneer Valley as a key strategic market,” he explained. “The bank’s not looking to grow to be the biggest in town; it’s looking for key strategic opportunities that fit our core values, and this acquisition was one of them.”

Points of Interest

Hickson said he doesn’t have to look out the conference-room window to know there is more activity in the commercial lending realm these days. He can see it in his office and with everything he sees as a member of the bank’s executive loan committee.

“The economy is better, and with a better economy comes more loan opportunities,” he said while summing up the landscape before getting into more specifics. “It may not be new entrants into the market, but maybe existing companies looking to grow either by diversifying into another product line or acquiring another company in the business sector they’re in.”

As one example, he cited the region’s large core of precision-manufacturing companies (one of Berkshire’s stronger specific niches), many of which are investing in new equipment, expanding facilities or building new ones, and diversifying product lines, largely as a result of greater confidence in the economy.

The next wave, he predicts, with both precision manufacturers and the local business community in general, will come in the form of mergers and acquisitions as smaller firms owned by retiring Baby Boomers face inevitable succession-planning issues.

“There are ways to finance those kinds of transactions,” he explained. “And we obviously want to keep as many of those firms local as we can.”

In the meantime, there is that increased optimism and subsequent lending activity that he mentioned earlier, adding that, to take advantage of it, banks need versatility and the ability to both develop specific niches and be generalists, said Hickson, adding, again, that Berkshire possesses such traits and skills, while some of the larger institutions don’t.

“As banks get bigger, they tend to lose sight of the local community they serve,” he explained, adding that Berkshire hasn’t done that, as evidenced by the Innovation Center and countless others in the portfolio.

This would include the large number of Small Business Assoc.-assisted loans the bank has participated in over the years.

“We’ve been very successful with SBA loans,” he explained, adding that this statement applies to this region, certainly, but also to the wide Berkshire footprint. Indeed, the institution has been top-rated in this realm by the SBA in several of the regions it serves, including the Pioneer Valley, Connecticut, and the Syracuse area.

“We’re very proud of that distinction — the SBA’s a great way to finance things, and we’re a big supporter of the agency,” he went on, adding that the SBA currently ranks the bank among the 100 most active in the country with such loans, with more than 110 transactions totaling more than $21.9 million.

However, those SBA loans are just a tiny fraction of the total portfolio, he went on, adding that, with the size generated by the acquisitions in recent years, Berkshire can make loans of all sizes and serve virtually every customer within the region’s business community, but with a small-bank approach.

Bottom Line

Rising from his chair, Hickson gestured out the conference-room windows and admired the view he and his staff regularly invite visitors to share.

“It’s such a beehive of activity; it’s exciting to take it all in every day and watch things progress,” he said. “It’s mesmerizing.”

He was talking about the MGM project, obviously, but he may as well have been referring to the region’s economy as a whole, although it is probably not worthy of such superlatives — yet.

But those cranes do translate into momentum and, hopefully, more progress and growth for area businesses. And Hickson believes AMEB is ready to be right in the middle of it all, just as it is in the South End.

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

Driven by Millennial Demand, Mobile Banking Surges

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Banking and Financial Services Sections

Business at Hand

Steve Lowell

Steve Lowell says a surge in usage of Monson Savings Bank’s mobile offerings has coincided with a downturn in branch traffic.

You never know what will persuade any given customer to switch banks, Karen Buell says.

Buell, vice president of Customer Technologies at PeoplesBank, recalled a couple of non-customers who recently visited a branch to cash checks. When they saw the bank had recently introduced Apple Pay, Android Pay, and Samsung Pay for its customers, they returned — to open accounts.

“Wow. What a win,” said Buell, who has been tracking the usage rate of the bank’s electronic and mobile banking offerings for years. PeoplesBank launched its first mobile app for iPhones in 2009, one of the first 50 financial institutions in the U.S. to do so. Today, 34% of all the institution’s checking-account holders use mobile services. But it was still pleasantly surprising to see those services create a customer on the spot.

Maybe it shouldn’t be a surprise, particularly among the younger crowd. A study last year by the Federal Reserve reported that 67% of Millennials now use mobile banking, compared to 18% of consumers age 60 or over. This usage gap is projected to widen further as the youngest of the 85 million-strong Millennial generation enters the workforce.

Steve Lowell, president of Monson Savings Bank (MSB), says about half of that institution’s customers bank online, and of this group, more than half, about 60%, use the mobile app — up from 31% three years ago and 8% in 2011, the year the app launched.

Customers can perform a number of banking tasks on their mobile devices, Lowell said, including transferring funds between accounts, making loan and bill payments, taking pictures of their checks to make deposits online, and sending money to other banks through an app called Popmoney.

He said adoption has been strong by customers of all ages, but especially Millennials, who have come to expect robust online and mobile services in many areas of life.

“If you don’t have mobile banking, you won’t get the Millennial generation. That said, we have people in their 80s using their smartphones to do their banking. It’s definitely skewed toward the younger generation, but we see it across all age groups,” he said, noting that he uses the function himself. “It’s so easy to use.”

Buell reports similar momentum driven by younger customers at PeoplesBank, noting that 51% of Millennial customers use mobile check deposit, a service the bank began offering in 2014, compared to 24% of the bank’s Gen-X customers and 16% of Baby Boomers. Given those demographics, it seems like demand for mobile banking will only rise.

“Our customer base has enjoyed this for a while, and we’ve had great adoption of it,” Buell said. Specifically, mobile check deposit has grown 140% in overall usage between 2014 and 2016, and total checks deposited rose by 133%. At the same time, total dollars deposited through mobile check deposit went up 202%, partly because the bank increased the dollar-amount limits for that service for many customers based on their balances and relationship with the bank.

Karen Buell

Karen Buell, seen here in PeoplesBank’s Customer Innovation Lab, says the bank has made just about all its e-banking activities accessible on mobile devices, with more to come.

“We’re constantly looking at data to determine how to serve customers better,” said Buell, who also oversees PeoplesBank’s Customer Innovation Lab, which, as the name suggests, develops new products for retail and business customers. “We saw that some mobile-deposit users were still coming to the branch for larger items, so we made some changes and gave them significantly higher limits to accommodate their needs.”

Making Change

Industry analysts have long noted that adoption of mobile banking followed a path similar to online banking, with some customers enthusiastic early adopters, and others initially reluctant for a variety of reasons, often having to do with security, or perceptions thereof.

“I think that’s absolutely the case,” Lowell said. “You still have to have that discussion with people who are concerned about security. But once we run through the precautions we have, and the logins they have to go through, they get pretty comfortable with it. And once they’ve tried it for a while, they get hooked on it. It’s such a convenience; it makes life easier. Of course, people have the right to be concerned about cybersecurity. But the more they learn about it, the less of a concern it is.”

Surging use of mobile banking has, naturally, raised questions about the future of physical branches — or, at least, their rate of expansion — but these are the same questions that arose when desktop online banking was introduced, and institutions have long asserted there will always be a need for brick-and-mortar offices. But Lowell says it’s something to keep an eye on.

“It’s a really important consideration. From 2013 to 2015, we didn’t see a significant decline in branch traffic — maybe 5% year over year — but from 2015 to 2016, we saw a 19% decrease in branch traffic; we went from roughly 555,000 transactions at our branches in 2015 to 452,000 transactions in 2016,” he explained, noting that, at the same time, the overall customer base has increased.

“We definitely see a transition — not just in mobile banking, but in electronic banking in general — and we’ve adjusted our staffing levels as a result of that, and we’re looking at adjusting our hours. We may not need to be open as many hours as we used to be. It’s something we’re watching really closely.”

Industry analysis is mixed on this topic. The Federal Reserve study indicated that even regular users of mobile banking still want to use other banking channels, from visiting an ATM or branch to withdraw cash to speaking with a customer-service representative or loan officer.

Specifically, survey respondents were asked about their use of five distinct banking channels. In the previous 12 months, 83% of smartphone owners with bank accounts visited a branch, 82% used an ATM, 82% used online banking, 53% used mobile banking, and 29% used telephone banking.

But electronic channels have had an impact on branch growth across the U.S. More than 1,600 branches shut down during 2015, the last year for which full figures are available, and several large, national institutions continued to shed offices in 2016.

The branches that remain boast fewer staff as well, from an average of 13 full-time employees per branch in 2004 to fewer than six last year. A recent study by Citi, “Digital Disruption,” predicts that new technologies could cause up to 30% of branch positions to disappear by 2025.

“People find it more convenient to do their banking from home,” Lowell said. “Our strategy is to do whatever is easy for them — they’re the customer, and we want to develop our relationship with them and make things as easy as possible.”

More to Come

Still, despite the concerns, mobile technology has stirred plenty of excitement in the industry. Lowell is enthusiastic about some advances just around the corner for MSB customers, including CardValet, technology that allows users to turn a debit card on and off with their phones, rendering it useless if stolen, and set custom-designed alerts for things like low balances and cleared checks, instantly transferring money between accounts to protect against overdraws. Another upcoming function is the ability to pay bills by taking photos of the invoice and the check.

“At this point, we’ve really put most of what you can do from your desktop onto your phone,” Buell said, noting that 60% of all electronic-banking logins at PeoplesBank are now made from mobile devices. Last fall, the bank launched fingerprint authentication, which allows users to log in without needing a username or password. The bank is also looking to introduce technology that uses the GPS function on smartphones to shut down a debit card when it’s not in the vicinity of the phone, to combat use of stolen cards.

“We want to be first to market with these things for our customers,” she told BusinessWest. “We’re really committed to being early adopters of technology, so they can get all the functionality of of a national bank, but the personal customer experience of a local bank.”

Joseph Bednar can be reached at [email protected]

Meyers Brothers Kalicka Adds Two New Partners

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mbkfeature-1216b
Banking and Financial Services Sections

A Matter of Addition

Kristi Reale and Jim Krupienski

Kristi Reale and Jim Krupienski are the newest partners at Meyers Brothers Kalicka.

As part of a strategic plan to generate new opportunities and more profound growth for the company, and also to ensure a steady flow of new leadership, the Holyoke-based accounting firm Meyers Brothers Kalicka has named two new partners — senior managers Jim Krupienski and Kristi Reale. They’ve been acting essentially as partners without that title for more than year now, and say the firm has provided them all the tools they need to succeed.

Jim Barrett says it was maybe the worst-kept secret he’d seen in quite some time.

He was referring to the granting of partner status to two senior managers at the Holyoke-based accounting firm Meyers Brothers Kalicka — Jim Krupienski and Kristi Reale. The two, who have been with the firm for 12 and 15 years respectively, and had risen through the ranks to senior manager, were told more than a year ago, in something approaching confidentiality, that they were on the track to becoming partners and would likely achieve such status so by the end of this year.

Their promotion wasn’t exactly classified information, but it certainly wasn’t broadcast loudly, said Barrett, the firm’s managing partner since 2009, adding that he made it all official in an announcement to the staff on Dec. 19.

To say that it was somewhat anti-climactic was an understatement, as evidenced by this anecdote from Reale, several days before the news was scheduled to break internally.

“Someone walked up to me and said ‘has your promotion been made official yet?’ she recalled. “It wasn’t exactly a secret, but I didn’t think everyone knew. I guess they did.”

But while the promotions may not have been as discreet as intended, they are certainly significant, said Barrett, and represent an important and in many ways unique step in the company’s efforts to grow and put in place an effective succession plan that will ensure solid leadership for decades to come.

“This was a well-thought-out component of our strategic plan,” he explained. “We have a partner who is retiring, so we have a practice need; Jim and Kristi have demonstrated all prerequisite skills to get there, and we’ve been talking to them for almost two years about how they’re on the track.

“It’s been a process that’s taken a number of years to unfold,” he went on. “We want to onboard them so they know what to expect and the know what’s expected of them; we want this to be a success for everyone.”

While Reale and Krupienski took essentially the same path to a partnership, and their resumes have many common denominators, including extensive work in the community, BusinessWest 40 Under Forty plaques (Reale in 2009 and Krupinski a year later), and a number of bylined submissions to this magazine, they arrived at MBK with different career aspirations, as we’ll see in a few moments.

But they arrived at this career moment together, and for now, they’re excited about moving into different, slightly bigger offices and having their names and bios found by clicking the ‘partners’ button on the MBK homepage. But they’re far more focused on meeting the responsibilities that some with that title and helping the firm grow at a time when doing so is certainly challenging for any financial services firm in a region that has seen little, if any, overall expansion.

For this issue and its focus on Banking & Financial Services, BusinessWest talked with the two new partners, as well as the managing partner, about the promotions and the firm’s strategic plans moving forward.

Watching Their Figures

When she first came to Meyers Brothers, P.C. in February of 2001, Reale was thinking more about staying maybe 16 weeks than the nearly 16 years it took her to reach partner.

Indeed, a veteran with seven years of public accounting work under her belt, she was hired to help during tax season on a per-diem basis, and walked in the door already thinking about what she might do next. But a funny thing happened on the way to carrying out those plans.

“I never left,” she said, stating the obvious before moving on to the more important topic — why.

“I was thinking about going into private industry, but after a couple of months at Meyers Brothers, I just loved it and decided to stay,” she explained, adding that she was hired after just five weeks of per-diem work. “It was very professional, everyone was treated well … it was just a great place to work. I looked forward to going there every day.”

Kristi Reale

When she arrived at Meyers Brothers, Kristi Reale was focused on staying 16 weeks, not 16 years, but the environment she found changed those plans quickly.

 

Meanwhile, Krupienski got off the elevator on the eighth floor of the PeoplesBank Building just off I-91 (the merged companies came together there in 2005) with a much different mindset.

After serving as a senior accountant at a Big-4 firm (PricewaterhouseCoopers) and then shifting gears and working as a senior auditor at the Hartford, he had made up his mind to return to public accounting. The question was where, he said, adding that through a friend he heard about an opening at MBK.

“I interviewed, liked what I heard, liked the firm, the culture, the people I met with … and felt I should throw my hat into the ring,” said Krupienski, adding that while it would be a leap to start thinking about making partner back in 2003, he allowed himself to harbor such thoughts, and before long, that became a hard goal.

“It was kind of a thought in the back of my mind — I had made the jump back into public accounting, and you generally don’t do that if you don’t have some aspirations for being partner someday,” he told BusinessWest, adding quickly that reaching this rung at a firm of that size is never a given and it would likely take much more than a decade.

“I came from a big-firm mentality,” he explained. “It’s very structured there in terms of the progression, and while this firm isn’t PricewaterhouseCoopers … things are similar in many ways.”

Those sentiments help explain how accounting firms are in many ways different from small and medium-sized law firms, said Barrett, adding that with the latter, an associate is in many cases on a partner track soon after arrival, and if they’re good at what they do, can probably expect to make partner within a certain number of years, although the number and circumstances vary widely with the firm.

In accounting, it’s different, he said, adding that law is more of a transactional business, where individual lawyers have what amounts to their own book of business and client list, while in accounting, one to 10 people could be working with the same client.

Jim Krupienski

Jim Krupienski says MBK has provided him and fellow new partner Kristi Reale with all the tools they need to succeed.

When asked why both Reale and Krupienski were named partners at this time, Barrett said it this amounted to a sound business decision. Both are qualified, experienced managers, and both have the capacity to help the firm grow market share.

Elaborating, he said there are certain required skill sets for reaching the partner rung, and both certainly possess them.

“Can you serve clients?” he began. “Are you able to grow the practice — attract new clients and develop relationships with existing clients? Can you train and develop staff? These are the prerequisites, and they have them.”

By the Numbers

Beyond those required skills, Reale and Krupienski also complement each other in many ways, said Barrett, adding that while they’re both involved in auditing and accounting, or A&A as they say in this business, they have different focus areas and specialize in different sectors of the economy.

Krupienski, for example, specializes — and has written about — medical practice operation, tax planning, and retirement plan strategy, while Reale specializes in closely held businesses, business valuations, management advisory services, and business and tax planning, and has extensive experience in retail, manufacturing, construction, distribution, real estate, insurance, and other service organizations.

“We have people with somewhat similar skill sets,” said Barrett. “But they’re different enough so they can go out and not compete with each other, and complement each other in some cases.”

Meanwhile, bringing them both on as partners now is a proactive step within the company’s broad efforts within the realm of succession planning, he went on, adding that many firms, especially smaller operations, are not putting enough emphasis on creating a solid pipeline of leadership of the years to come.

Elaborating, he said that when the two firms merged, there were 13 partners, a large number that the shareholders knew would eventually be whittled down, out of necessity, through retirement. That point has been reached, he went on, and the firm needs to replace that leadership.

“Our number one strategy starting when I became managing partner was to have a succession plan,” he told BusinessWest. “And everything we’ve done subsequent to that has been to develop that plan, including an investment in technology, investment in people through training, investment in human resources; this is just the culmination of that.

“We chopped this down to a five-year program,” he went on. “And the culmination of that is to have our replacements in place. This is the first example of all those efforts coming to fruition.”

When asked if, when, and under what circumstances additional partners would be named, Barrett gave a very quick answer: “Growth of the firm.”

And there are several ways to achieve growth, he went on, listing acquisition, geographic expansion, attaining a larger piece of the existing pie, or moving aggressively and effectively if the pie should happen to become larger.

And the two partners could, and likely will, play a large role in those growth efforts.

“We’re hoping that with their respective areas of expertise — Jim in medical and pension work and Kristi with business valuation — that they’re going to bring another level of services to clients or perspective clients that will allow us to grow,” he explained.

Both partners sounded like they were up for that mix of opportunity and challenge.

“It’s taken us time to get here, we’ve gone through the needed steps,” said Krupienski. “And in terms of where we are — they’ve afforded us with every tool we need to meet those challenges — training, development, helping us get out there, supporting us with joining boards and getting involved in the community … all of that will help in terms of meeting new people, meeting new prospective clients, and meeting other associates and professionals that will develop our base moving forward.”

Said Reale, “we’ve both had a lot of training, whether it’s in our own special niche, sales training, soft-skills training, leadership training … and it’s all going to help us develop professionally. And we’ve already been essentially working as partners, just without the title, for more than a year now.”

Focus on the Bottom Line

That last point certainly helps explain why the promotion of Reale and Krupienski to partner has been the proverbial worst-kept secret.

But while the announcement on the 19th might have been anti-climactic in some ways, it was a milestone moment nonetheless.

That’s because, as Barrett noted, it represented one significant step in ongoing efforts to achieve growth and a solid leadership for the future.

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

BRP/Grenier Takes Clients Beyond the Bottom Line

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Banking and Financial Services Sections

Family Matters

 

Some of the team at BRP/Grenier

Some of the team at BRP/Grenier, from left: Kelly Landron, Pat Grenier, Kim Galinski, and Lindsey Arventos.

As one of eight children, Patricia Grenier says she really doesn’t need any more family. Yet, as principal at BRP/Grenier, her growing financial-services practice, she treats clients like family members — which often means helping them make tough decisions.

One client was transitioning into assisted living and needed $200,000 immediately, and wanted to take it from her investment account. But the market was down, so Grenier was loath to do that.

“Her response was, ‘I don’t care what you do, just find me the money,’” she told BusinessWest. “So I called an associate at a bank and asked him if we could coordinate an equity line for this woman.” They did, and six months later, she sold her home, paid off the equity line, and moved into the facility.

“Those are the kinds of things we think about,” she said. “If all we focus on is investments, we would not go beyond and start asking the appropriate questions that need to be asked.”

Another client called about wanting to buy a car, and asking about loan options. “I asked, ‘why are you taking out a loan? You have enough money invested. You can use your own money.’ She was elderly; there was no need for her to have debt.”

In short, BRP/Grenier is an investment-strategy firm that goes well beyond its advertised services, which run the gamut from financial planning and education savings to retirement strategies and estate planning. Grenier considers it all life planning, which encompasses far more than crunching numbers.

Clients want to protect what they have but also grow it, and helping them do so takes a comprehensive understanding of their lives and goals — what’s important to them, what their resources are, and what their challenges will be to get there. With close to $200 million under management, it’s a responsibility she takes seriously.

“There are all kinds of issues to resolve: do they need more cash flow? Maybe there’s too much liquid, too much invested. Do they have a will? We’ll prod them to do a will or trust, those kinds of things.”

Those are questions she and her firm are asking many more clients these days, following the acquisition of a practice in Wethersfield, Conn. (more on that later). Getting to know the ins and outs of those lives is a challenge Grenier embraces, because it’s key to helping them succeed.

“I try not to focus on what the market is doing currently,” she said. “It’s a long-term strategy, so I focus on your life — what will make your life better. Temporary moves in the market won’t make a big difference in the scheme of things.”

Getting to Know You

Grenier says her skills as a listener, problem-solver, planner, and fact-checker were developed at a very young age, as the family interpreter and liaison for her large, family of Ecuadorean immigrants. So she enjoys learning the details of clients’ situations to help them formulate a big-picture perspective.

“Some things that people might find daunting, we think are really easy to handle,” she said. “For example, they might not be able to make ends meet, and they’re charging monthly expenses on a credit card. We’ll work on cash flow, figure out how to reprioritize spending. Maybe it’s time to downsize their home, or buy things for less money.”

Pat Grenier

Pat Grenier says crafting a strategy for long-term financial security begins with fully understanding the goals, circumstances, and challenges of each client.

While many clients are concentrated around the pre-retirement years, Grenier said, she helps people in all stages of life — for example, young professional couples making enough to save but worried about mortgages and school debt and saving for their kids’ college education, and knowing they’re in an income bracket that isn’t making them rich, but won’t be a magnet for financial aid. So they need a strategy.

And young people don’t start out with the advantages past generations did, notably the idea that they’ll work for one employer and retire with a healthy pension that will see them through their retirement years. These days, young professionals expect to progress through several jobs, none of them offering pensions. So it’s up to them to navigate investment options like 401(k)s and other vehicles.

“It’s a dynamic process. Life isn’t black and white, and we have to adjust,” Grenier said. “If there’s a job change or an illness or a birth or a divorce, we have to make sure we can adjust their plan so that it’s a viable plan that works for them. Everyone’s different, so the plan is going to be different for everybody.

“We want to help them achieve their goals, and sometimes we have to be the reality check,” she went on. “We have to say, ‘no, you can’t do this; you don’t have enough money.’ And sometimes, we need to say, ‘yes, you can buy that home on the Cape; you can afford it.’ So it works both ways.”

After a while, she explained, as she gets to know clients better, they come to trust her and her team, and they’ll be more comfortable divulging personal matters.

“I feel like sometimes I know them better than their own family members. And sometimes I have to protect them,” she said. For example, one client was diagnosed with Alzheimer’s and her nephew wanted power of attorney, but she didn’t feel he’d do a good job and recommended she pick someone else.

That said, Grenier can’t force anyone to make a financial decision.

“People have to be willing to cooperate. They have to want to be willing to make changes. If not, it’s not going to work. And sometimes it’s not going to work. Maybe they’re not willing to make the change. But it’s our job to explain, in our professional opinion, what they need to do to realize their goals.”

Not every decision is bottom-line based. One client was selling her business to family members and wanted to know how much she should get for it — not necessarily top dollar according to its value, but what she needed to strike a fair deal for her family, yet be able to live comfortably in retirement. “So we needed to make a projection about life expectancy and her needs, and once we figured that out, it was easy to come up with a number.”

Branching Out

Grenier was looking to expand her practice’s footprint when she learned that Joseph Connelly, owner of the Wethersfield Investment Center, was looking to retire. A few months after he and Grenier met, they agreed their cultures were a good match, and Wethersfield became a division of BRP/Grenier in September.

The Wethersfield office, which had previously operated under a different name, became the Wethersfield Investment Center in 2003 when Connelly assumed full ownership and became a Cadaret Grant-registered financial professional. The fact that Wethersfield and BRP/Grenier share the Cadaret Grant connection has made for a smooth transition, Grenier said.

“It’s in Connecticut, so it’s a different market, different laws, things like that, but a lot of the same principles apply,” she told BusinessWest. “I’m getting to know the clients, starting to delve into their lives, telling them, ‘you can count on us to help you with whatever you need help with.’ I know I have big shoes to fill. It’s a big challenge, but I love a challenge.”

All this makes for what she calls an exciting time in her business, but through the growth, she doesn’t want to lose track of the personal involvement that characterizes her relationships with clients. She began her career working for large houses where she had no time to get to know clients, and that frustrated her and drove her to become an independent advisor in 1990. And people welcome the sometimes necessary hand-holding it takes to help them navigate downturns in the market and, sometimes, in their own families.

“Maybe it’s my personality, but I tend to get way involved in people’s lives, maybe because I’m one of eight kids,” she said. “Every person who comes to me is treated as if they were my own family. And every person on my staff, that’s how they look at our clients, too.”

And it’s satisfying, Grenier said, to see financial strategies pay off in the form of peace of mind.

“In this business, we are so overregulated, and we have to love our business to be in it,” she said. “We want to retire people well, and it’s so gratifying to get a note from a client thanking me for what they currently have. I want to help people lead the good, comfortable life they’re accustomed to.”

Joseph Bednar can be reached at [email protected]

Country Bank Expands Its Presence in More Ways Than One

By
Banking and Financial Services Sections

Lending Support

Country Bank President Paul Scully

Country Bank President Paul Scully

Country Bank’s sheer scope in Eastern and Central Mass. — it now boasts 15 branches, almost $1.4 billion in assets, and a loan portfolio approaching $1 billion — positions it among the larger banks in its footprint. But even during a time of financial growth, President Paul Scully is equally committed to growing the bank’s community ties, through an ever-evolving series of initiatives that engage employees, customers, and area residents alike. After all, a bank’s success, he believes, shouldn’t be reflected simply on the bottom line.

Paul Scully is gratified that Country Bank is wrapping up a particularly strong year for both commercial loans and retail business. But the bottom line isn’t all the bank is building.

For instance, employees at the bank’s newest branch, in Worcester, recently teamed with Habitat for Humanity to build a playhouse for children of veterans. “Staff members spent the day building the playhouse in the parking lot,” said Scully, the bank’s president. “They loved it.”

More significantly, Scully recently returned from Haiti, where a team of 14 built two houses over five days before being chased out by the quick-moving Hurricane Matthew. Last year, he accompanied a team of management-level employees on a similar home-building mission in the beleaguered Caribbean nation, and this year, he opened it up to all staff members.

“Thirty-three people said they’d like to go, so we had a lottery,” he explained. “It’s a tremendous feeling giving back in the most impoverished country in the western hemisphere. They realized, if they didn’t before, how amazingly fortunate everyone here is.”

The home-building project was also an exercise in team building, he added. “We got to know people for who they are — not just the role they play Monday through Friday.”

That sense of community — both within the Country Bank family and in service to the cities and towns where its 15 branches operate — has increasingly become a hallmark of the Ware-based institution’s identity, Scully said.

Country Bank employees

Country Bank employees in Worcester celebrate the construction of a playhouse for children of veterans, a project conducted alongside Habitat for Humanity.

“When it comes to giving and community involvement, we believe that’s the role of a community bank, and most community banks feel similarly,” he told BusinessWest, noting that the bank’s support of area food banks, senior centers, and Baystate Mary Lane Hospital, among other entities — in all, totaling some $600,000 annually.

“Donations are geared toward all aspects of the community to improve quality of life for residents,” he said. “We’re a staunch supporter of our local hospital because we believe healthy communities must have access to good healthcare, and people want to stay and live and perhaps move into our communities to access quality healthcare.”

To further focus its community involvement, in 2015, the bank launched its Country Bank Cares community volunteer program, offering volunteer opportunities at various events throughout the year to Country Bank staff. Each volunteer hour is logged, and at the end of the year, staff members who volunteered 10 hours or more are awarded a grant to a charity of their choice for $100; 25 hours earns $250.

 

Thirty-three people said they’d like to go, so we had a lottery. It’s a tremendous feeling giving back in the most impoverished country in the western hemisphere. They realized, if they didn’t before, how amazingly fortunate everyone here is.”

 

“They have a stake in where the money goes,” said Shelly Regin, the bank’s marketing director, noting that employees donate about 700 hours of service per year. “They’re really engaged in it and honored to take part in it.”

The spirit of giving even incorporates a dress-down day on Fridays, when employees pay to wear jeans, and the bank matches all donations. At the end of each month, a committee of staff members decides which local nonprofits get the money — to the tune of about $2,500 a month. “That’s a lot of jeans,” Scully said. Meanwhile, a recent event called Be Bald, Be Bold had employees donning bald caps to draw attention to cancer research and raise money for the Baystate Mary Lane Walk of Champions.

“This is something that existed here long before Shelly or me,” he went on, explaining the motivation behind Country Bank Cares and other initiatives. “It’s the idea that Country Bank is engaged in the community and people’s quality of life, and we want our 220 staff members to experience another dimension of giving back.”

Country and City

With assets of $1.39 billion at the end of 2015 and a loan portfolio of more than $978 million, Country Bank is, of course, deeply ingrained in its communities in the traditional banking sense as well. And 2016 has seen further financial growth.

“We’ve had a very robust year in commercial loan originations, really centered in our existing footprint but also throughout New England,” Scully said. “We’ve had a tremendous year in both loan growth and deposit growth. I think that’s attributable, in part, to improvements we’re seeing in the economy and more robust product offerings.”

He noted that the evolution of e-banking solutions increasingly allows banks to develop relationships with customers outside their branch footprint. “That’s opening up the market dramatically. Folks can open up accounts with us online, can do anything they want online.”

Still, physical branches remain important, and the move to Worcester last year made sense on multiple levels, he explained.

Go HERE for a list of Banks in Western Mass.

“We’ve been lending in Worcester for more than 50 years,” he noted, adding that the city boasts a larger population and more diverse demographic than most Country branches, both of which equate into more business opportunity. And without a branch, it was difficult to move commercial customers into other products, such as retail accounts.

“From a cultural perspective, we have not changed the culture to adapt to the city — we’ve just brought the same level of service and quality to Worcester as our other marketplaces.”

Shelly Regin

Shelly Regin says employees are gratified to have opportunities for volunteerism and a say in where the bank’s charitable dollars go.

However, Country remains focused on growing its e-banking platforms as well, reaching a generation that prefers the convenience of doing business on their devices rather than visit a branch. But the community-bank world has long moved past the days of thinking branches will eventually be obsolete.

“They said years ago that ATMs are going to replace branches,” Scully said. “What happens is, every time there’s an advancement, people believe it’s going to replace something, but it doesn’t replace it — it just complements it. In this case, it allows customers to enjoy many different ways to do their banking. Has the foot traffic slowed down? Yes, a little bit, but people still want to know it’s there if they need it for any reason.”

Mortgage applications are one area where the change in customer behavior has been stark. When Country launched an online application option 10 years ago, customers were slow to embrace it, preferring to meet with a loan officer in person. Online applications were filed mostly by customers with poor credit who were targeting multiple banks at once, hoping someone would accept them. Today, 80% of the bank’s mortgage applications originate online, simply because borrowers realize it’s easier.

Brick-and-mortar branches are important for branding as well, but marketing campaigns — through both traditional and social media — remain critical, Regin said, noting that the challenge is to effectively tell a story that’s reflective of the institution and sets it apart.

To that end, with the help of its marketing agency, the bank conducted scores of interviews, not only with customers and employees, but people with no connection at all to Country Bank, asking why they choose to bank or work there, or why they don’t. The overwhelming takeaway, Regin said, is that relationships, and how the bank treats people, are its most important investment. So its current campaign incorporates slogans driving home the importance of priorities like service and even good manners. (One slogan reads, “we think politeness is a higher form of intelligence.”)

“That’s just who we are,” she said, before Scully added that the bank has always conducted business that way, but the campaign simply crystallizes it. Equally important is providing the kind of customer or borrower experience that leads to referrals. “Someone says, ‘I had a great experience with them.’ Another says, ‘OK, maybe I’ll give them a try too.’”

Community Legacy

The Country Bank name is only 35 years old, but the institution has been around since 1850, when it was known as Ware Savings Bank. It took on its current name after a 1981 merger with Palmer Savings Bank; another merger with Leicester Savings Bank 17 years ago further increased the bank’s holdings.

With that long history behind it, the bank understands the importance of helping future generations establish their own financial health, which is why Country conducts financial-literacy programs in 29 elementary schools, conducts a Credit for Life program in area high schools — teaching seniors the importance of prioritizing spending — and expanding that program with seniors at Worcester Polytechnic Institute.

“That next step is really geared toward those graduating from college,” Scully said. “They’re the ones who will be experiencing the real workforce soon, so the engagement is greater.”

Also thinking generationally — this time focusing on Millennials — Country has been overhauling its corporate headquarters to reflect modern workforce trends, such as low walls, collaborative spaces, enhanced technology, and even a café.

“We want to be an employer of choice for Millennials and folks who say, ‘this would be a cool place to work,’” he explained. “There’s great stuff happening; we’re creating a different vibe in this building. I say we’re giving it a Google vibe. We want to have the building become a place where people not only want to work, but feel really engaged.”

It’s just one more way Country Bank continues to identify needs and meet them — just as it has for the past 166 years.

Joseph Bednar can be reached at [email protected]

What Businesses Must Understand About Recent Changes

By
Banking and Financial Services Sections

Has Little GAAP Emerged?

By Kristi Reale, CPA, CVA

Kristi Reale, CPA, CVA

Kristi Reale

Should privately held businesses be held to the same financial-reporting standards and requirements as publicly traded companies?

For many decades, small, privately held companies have been faced with accounting challenges when attempting to meet the standards set by the Generally Accepted Accounting Requirements (GAAP). The standards set by GAAP are largely influenced by the requirements of those who use the financial reports of publicly traded companies, such as the SEC. However, these standards are often financially burdensome on smaller organizations and often have no significant impact on their financial position or reporting. This has sparked lobbying for the standards of GAAP to be adjusted so that standards for privately held companies (‘Little GAAP’) are less rigorous and more reasonable than those necessary to satisfy the needs of publicly traded companies (‘Big GAAP’).

The call for change was answered, at least in part, when the Financial Accounting Standards Board (FASB), a group responsible for setting financial reporting standards in the U.S., established its Private Company Council (PCC) in 2012 to improve the process of setting accounting standards specifically for private companies. The PCC reviews and proposes alternatives within GAAP to address the needs of users of private-company financial statements.

In 2014, the FASB launched a simplification initiative aimed at reducing the complexity and costs associated with financial reporting while improving the usefulness of the information reported to investors and other third parties. Some of those changes are listed below and may have an impact on the way your organization meets its reporting standards.These changes are technical, and it is suggested that you speak with your accounting professional to determine if these changes apply to your organization:

The following Accounting Standards Updates (ASUs) are a result of the establishment of the PCC and their simplification initiative. I have detailed many of the technical implications of these updates below, but also included the salient implications to your business. Whether or not you have a formal accounting background, it is important to educate yourself on the applicable changes, as they may have an impact on your business reporting.

ASU 2014-02 — Intangibles — Goodwill and Other (Topic 350): Accounting for Goodwill (a Consensus of the PCC)

ASU 2014-02 is available to private, for-profit companies and allows an accounting alternative to amortize goodwill on a straight-line basis over 10 years or less if a lesser time is deemed appropriate. Goodwill is the value of intangible assets such as brand-name recognition or patents, and has historically been tested for impairment.

Impairment testing, which measures whether a balance-sheet item is worth the amount stated on the balance sheet, is performed if a triggering event occurs that indicates the carrying value of goodwill may exceed its fair value. This new update is an important change (and simplification) to this process, as it allows a company to write off the value of its goodwill. This ASU applies to new and existing goodwill on the books.

It is important to note that electing the ASU to amortize goodwill does not eliminate impairment testing.

ASU 2014-07 — Consolidations (Topic 810): Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements (a Consensus of the PCC)

This ASU is available to private, for-profit companies effective for annual periods beginning after Dec. 31, 2014 and effects the variable-interest entity (VIE) consolidation guidance, which historically required companies to create a consolidated financial statement when certain requirements were met. One common example exists when a business owner owns both an operating entity and real-estate entity. When the operating entity rents from the real-estate company, they would be required to consolidate their financial statements.

The ASU permits the private-company lessee (reporting entity) to not apply the variable-interest entity consolidation guidance to a lessor if all of the following conditions are met:

• The lessee and the lessor are under common control;

• There must be a substantial leasing arrangement between the entities;

• Substantially all of the activity between reporting entity and VIE is related to leasing; and

• Any obligations of the lessor are guaranteed or collateralized by the lessee.

Disclosure requirements consist of all required GAAP disclosures for leases, related parties, and guarantees.

It is important to note that this ASU is an accounting-policy election and must be applied by the private-company lessee to all current and future lessor entities that meet the requirements for applying this approach in the future.

ASU 2014-18 — Business Combinations (Topic 805): Accounting for Identifiable Intangible Assets in a Business Combination (a Consensus of the PCC)

This ASU provides an alternative to reduce the cost and complexity of identifying intangible assets in a business combination. If this ASU is elected, customer-related intangibles such as customer lists and commodity supply contracts or non-compete agreements would not be recognized separately, but rather become part of goodwill. Applying this ASU and combining other intangibles with goodwill can eliminate a bargain purchase situation (negative goodwill.)

If this ASU is elected, the reporting entity must elect ASU 2014-02 (the first ASU mentioned in this article) to amortize goodwill over 10 years. Disclosure requirements for intangible assets acquired in a business combination have not changed. If elected, it is applied prospectively. No previous intangibles on the books may be reclassified to goodwill.

ASU 2015-01 — Income Statement — Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items (Simplification Initiative)

This ASU is effective for periods beginning on or after Dec. 31, 2015 and eliminates the concept of extraordinary items (example: earthquakes in Western Mass.)  The term ‘extraordinary item’ has been changed to ‘unusual or infrequently occurring’ items.

Reporting requirements for items that are unusual, infrequent, or both are as a separate component of income from continuing operations (‘above the line’).  This supports a trend of reporting most items of income and expense as part of an entity’s results from operations. Also, the nature and financial effects of each event or transaction are shown on the income statement or disclosed in the notes to the financial statements.

ASU 2015-11 — Inventory (Topic 330): Simplifying the Measurement of Inventory (Simplification Initiative)

This ASU is effective for periods beginning on or after Dec. 31, 2016 and does not apply to entities using the LIFO (last in, first out) or retail method to measure inventory. ASU applies to FIFO (first-in, first-out) or average cost inventory measurement.

This ASU states that an entity should measure its inventory at the lower of cost or net realizable value (formerly of market). Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.

When evidence exists that the net realizable value of inventory is lower than its costs, the difference should be recognized as a loss in the earnings period in which it occurs.

ASU 2015-03 & 2015-15 — Interest; Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (Simplification Initiative)

The objective of this ASU was to simplify the presentation of costs incurred upon the issuance of debt. For example, when a business takes out a loan (debt), there are often loan-acquisition costs and other expenses (debt issuance costs), which are pre-paid at the beginning of the loan and are historically identified as assets on the books and amortized over the life of the loan as an expense. Confusion often arose among readers of financial statements when the debt-issuance costs were reported as an asset. Therefore, this ASU states that debt-issuance costs should be presented as a direct deduction from the carrying amount of the related debt liability. This requires debt-issuance costs to be changed from an asset to a contra-liability. The recognition and measurement of these costs has not changed.

This ASU is available to private companies for periods beginning on or after Dec. 15, 2016. Early application is permitted, and retrospective application is required.

ASU 2015-17 — Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (Simplification Initiative)

Previous GAAP presentation required entities to separate deferred-income tax asset and liabilities in current (short-term, within a year) and non-current (more than a year) amounts on the balance sheet. This ASU changes the GAAP presentation to require deferred-income tax assets and liabilities to be classified as non-current (long-term) on the balance sheet. The ASU does not change the requirement that deferred assets and liabilities be presented as a single amount, and income tax disclosures are not changed.

This ASU is effective for periods beginning on or after Dec. 31, 2017; early application is permitted as well as retrospective application to all prior periods presented. In the first year of change, financial statements should disclose the nature and reason for changes and effects on prior periods.

It appears that the FASB is finally trying to simplify the reporting requirements for private businesses. The above was just a sample of some of the ASUs that were released as part of this initiative. By staying informed, you can plan ahead and take advantage of these options for your business.

Prior to making any financial-statement decisions or accounting elections, you should consult your financial expert or a certified public accountant.

Kristi Reale, CPA, CVA is a senior manager with the Holyoke-based public accounting firm Meyers Brothers Kalicka, P.C. and specializes in business valuations; (413) 322-3533; [email protected]

Region’s Competitive Commercial-loan Market Poses Plenty of Opportunity

By
Banking and Financial Services Sections

Lending Optimism

Glenn Welch (left) and Jeffrey Smith

Glenn Welch (left) and Jeffrey Smith say Freedom Credit Union has built a name in local lending, but much more opportunity exists to expand the portfolio.

Banks and credit unions know all too well that the health of a commercial-loan portfolio is often dependent on the economic climate. Several years of improvement on that front has bolstered the portfolios of many regional lenders, some dramatically. But the added opportunity has brought little relief from fierce competition in the sector, both for loan business and the talent to procure it.

When asked about commercial lending, Matt Sosik doesn’t talk in terms of dollars and cents, but of relationships.

“Building long-term relationships brings value on both sides of the table,” said the president and CEO of Easthampton Savings Bank (ESB). “It allows us to transcend the pricing pressures and competitive pressures and focus on the relationship and the importance of it.”

Those relationships have become critical to banks trying to build their commercial-loan portfolio simply because, well, it’s a borrower’s market out there. A generally positive economy has businesses investing — perhaps not at pre-Great Recession levels, but close — yet the competition for those loans has only become more fierce.

“My back ground is in commercial lending, and it’s always been competitive,” said Glenn Welch, president and CEO of Freedom Credit Union. “Nobody wants to lose any deals in their portfolio. But every new loan out there … at least three institutions are looking at it. We’ve seen pricing get pretty skinny. We’ve walked away from some deals because we didn’t think they were appropriately priced for the risk in them.”

List of Banks in Western Mass.

But Freedom is making plenty of deals, too. Vice President and Chief Lending Officer Jeffrey Smith told BusinessWest the credit union’s gross volume in commercial loans is currently doubling from year to year. “We’d generally average $10 to $12 million in commercial lending each year, but in the 12 months that ended in July, we had more than $23 million.” Meanwhile, he added, the business-loan portfolio has grown from $30 million to $50 million.

Matt Sosik

Matt Sosik says a strong commercial-lending portfolio begins with strong relationships with area businesses.

“That’s still really small in a balance sheet of a half-billion,” Welch said, adding that he sees plenty of opportunity to ramp up business loans even further. “Also, commercial lending is the most profitable line of business. You can grow your balance sheet much quicker because generally the loans are larger. We service the small-business market, and we’re mostly comfortable in the $2-$3 million range, but we will go up to $5 million.”

Westfield Bank is another institution seeing significant lending growth, with higher ceilings for individual loans to boot. The bank was long known mainly as a residential lender before James Hagan’s tenure as president and CEO. But over the past two decades, the bank has significantly expanded its commercial-loan portfolio, said Allen Miles, executive vice president and senior lender — a process that will continue with the institution’s acquisition of Chicopee Savings Bank, which, once approved, will increase WB’s lending capacity from $20 million to $35 million.

“We have a small-business team, a middle-market team, and a commercial real-estate team,” Miles explained. “Our sweet spot is businesses with $5 to $10 million in revenues, but we’ve done loans for businesses with $80 to $100 million in revenue. We handle everyone differently.”

Ramping Up

While all banks were hit hard when companies pulled back on capital investments in the wake of the recession, smaller community banks were presented with opportunities as well. The nation’s larger institutions, awash in toxic debt, were having liquidity issues and pushed back on borrowers, many of whom took their business elsewhere, and community banks that had laid some groundwork and build relationships were able to take advantage.

Borrowers also appreciate locally based lenders who can make decisions quickly, Hagan explained, and Westfield became adept at turning credit applications around in 24 to 48 hours for loans up to $750,000, Miles noted. Larger loans are turned around in under a week.

“That has helped us grow,” Hagan said. “Potential borrowers appreciate that we can move things forward quickly.”

ESB, like many community banks in Western Mass., finds that lending to small to mid-size businesses is its bread and butter.

Jim Hagan

Jim Hagan says recruiting talent from area colleges has helped Westfield Bank build a formidable commercial-lending team.

“It’s a very important part of our balance sheet and, increasingly, on most community banks’ balance sheets,” Sosik said. “Commercial lending has become a priority we focus on, and we’ve grown the commercial portfolio over the past three years in particular. We’re trying to approach a level that gives us about a 50% loan mix — in other words, about 50% of the loans in the portfolio being commercially oriented.”

But he returned again to the importance of building long-term relationships with clients, rather than one-time transactions. “It’s easier for us to do that when we focus on medium to smaller businesses and geographically local businesses, for sure.”

Freedom Credit Union’s loan growth has been aided by its designation as a low-income credit union, which allows it to avoid the cap on commercial lending — 12.5% of assets — that most credit unions must adhere to. This, and an aggressive commercial-loan push in recent years, has seen the institution recognized as a top SBA lender in the region.

“The real growth has been over the last couple of years,” Welch said. “We’ve really matured into being more of a business lender than we originally started out. We do have a low-income designation, which does not put a cap on us, and that’s a big advantage to us in the market we’re in.”

Smith called the institution’s portfolio a “nice mix,” boasting clients ranging from IT companies, a construction firm, and commercial real-estate projects to social services and nonprofits. “We have a nice niche right now in the marketplace, with so many institutions in this market, headquartered in Springfield. Many times, we get phone calls based on the fact that we are a local player in this market.”

Valley’s Got Talent

Just because businesses are borrowing these days and plenty of opportunity seems to exist doesn’t mean growing a portfolio is easy, Sosik told BusinessWest.

“Commercial lending is a focus not just here at ESB, but across the community-bank sector, even on the credit-union side. There are a lot of players all vying for a finite group of customers, and that makes for a very competitive environment.”

Indeed, Welch noted that the local lending landscape has been rife with movement, with banks poaching talent from their competitors and even, in a few cases, entire teams moving from one bank to another.

Hagan said Westfield Bank has been fortunate to retain its top talent, and with the acquisition of Chicopee Savings will have three lending teams headquartered in Westfield, Springfield, and Chicopee.

“We have not lost lenders to our competitors,” he said. “But what we’ve also done is, we’ve actively recruited at colleges and universities. We interview folks and bring them on as credit trainees and groom them in-house. They get to know our culture and our customer base, and in so doing, we’ve created a way for them to grow in their career and for us to develop our own lending team. It’s been highly successful.”

It’s one way Westfield Bank has been able to continually grow its commercial-lending team and its book of loans, especially among small to mid-size, family-owned and closely held businesses that form the core of its portfolio.

As for Welch, he certainly thinks continued growth is sustainable. He noted that Springfield was recently named by CNBC as one of America’s “10 Most Overlooked Cities,” meaning cities where economic development — and, presumably, capital investments by companies — are on the rise, though not many people outside their regions are aware of it. And Springfield is only one part of a region currently booming with entrepreneurial life.

“There’s definitely more opportunity for growth, all the way up to Franklin County,” he said. “With our size and capital, we can compete pretty well. We’re trying to get our name out now, but I think there’s a lot of opportunity up and down the Valley.”

And that’s lending a measure of optimism to the region’s growing ranks of commercial lenders.

Joseph Bednar can be reached at [email protected]

Arrha Credit Union Forges a Path of Smart Growth

By
Banking and Financial Services Sections

What’s in a Name?

Mike Ostrowski

Mike Ostrowski says Arrha’s new name and logo reflect the concepts of trust and strength, two qualities that appeal to its members.

When Springfield Teachers Credit Union, after almost 75 years of exclusively serving teachers, decided to extend membership to anyone who lives or works in Hampden, Hampshire, or Franklin county, the institution’s leaders, led by then-President and CEO Gary Fishlock, shortened the name to STCU Credit Union.

It wasn’t enough, Michael Ostrowski said.

When he took the reins from Fishlock as president and CEO in early 2011, STCU had been accepting non-teachers as members for almost a decade, and the move had proven to be a wise one, growing the institution’s assets. But the name still didn’t reflect the wider community, he told BusinessWest. So he pushed for a more dramatic rebranding.

“When I got here, the board of directors expected me to make this place grow and thrive, but I was still hearing from lenders and staff that people thought you had to be a teacher to be a member,” he said. “They understood we needed a name change to better reflect what was going on.”

So STCU enlisted Cardinale Design, a Ludlow-based creative marketing firm, to rebrand the company. After considering dozens of possibilities, the leadership decided on Arrha, one of the oldest English words, meaning “money or other valuable things given to evidence a contract; a pledge in earnest.”

“It’s absolutely perfect,” Ostrowski said of the name change, which became official last year. “It says exactly what we do. I’m surprised no one picked up this name sooner. It’s an odd name, edgy, but not over the edge, and that’s what we wanted — something memorable, describable, but not over the top.”

The new logo — a stylized pyramid — is intended to convey strength and power over time, while its purple color reflects wealth, leadership, and trustworthiness. “These were all words that came back on member surveys. And ‘trust’ is one of the biggest words in banking. You have to trust where your money is,” he said.

“We want to tell a story,” he added, “and this is a great way to tell the story.”

It’s a story that begins at the dawn of the Great Depression, when many sector-specific credit unions planted roots. In 1929, 31 teachers — perhaps sensing the rough economic waters ahead — pooled their resources in an attempt to ensure their financial security. They named their institution the Springfield Teachers Credit Union and incorporated in late 1929 with just $2,160 in total assets.

For many years, the credit union operated out of a Commerce High School classroom, then purchased property on State Street in downtown Springfield. Again outgrowing its space, it purchased property on Industry Avenue in 1988 and moved its operations there the following year.

“They started in a room in Commerce and combined their assets and petitioned the government,” Ostrowski said, pointing to the original state charter hanging on his office wall. “My job is to protect that charter.”

From those roots has risen one of the larger credit unions in the region, with $127 million in assets, more than 11,000 members, three branches — in Springfield, Hadley, and the just-opened office in West Springfield — and an eye toward further growth driven by an ever-increasing public awareness of the role of credit unions in an age of big-bank consolidation.

Fueling His Fire

Ostrowski is a veteran of the region’s financial scene, but his lengthy career in banking came about by accident. He was fresh out of Springfield College, pumping gas on the Mass Pike, when Bud Doble, then president of United Co-operative Bank, pulled up. They chatted a bit, and something in Ostrowski’s demeanor impressed Dobel, who handed the young man a business card and asked him to call him. Ostrowski did, and was offered a job as a management trainee.

The problem was, he was making more money at the pump than the bank initially offered. When he told his father, the elder Ostrowski explained the difference between a job and a career, and told him to take the plunge.

As careers in banking go, it’s been a wide-ranging one, including stints at Ludlow Savings Bank, Multibank, and Pioneer Financial Co-operative Bank. He also spent nine years as vice president and chief lending officer at Freedom Credit Union in Springfield, and, more recently, senior vice president of lending at Barre Savings Bank.

With that much experience in what could collectively be called community banks, he knows a thing or two about what draws customers to those institutions, as opposed to, say the Bank of America or Santander type of institution. And credit unions like Arrha, he said, fill a similar role, though they have historically been “the best-kept secret in the Pioneer Valley.”

Still, the benefits are obvious to Ostrowski. “Our motto is ‘people helping people’ so our rates for loans are typically lower than at a bank, and deposit rates are higher,” he explained, noting that not having to answer to stockholders gives Arrha more freedom in those areas. “But we have our own difficulties — banks can go out and sell more stock to raise capital; we have to earn it on the job, which is a lot more difficult.”

But their ability to balance robust lending power with a community atmosphere is becoming more evident as so many smaller banks in the Northeast continue to merge with larger institutions, most recently Westfield Savings Bank’s acquisition of Chicopee Savings Bank.

“So many small, mutual banks that started in Massachusetts — Chicopee Savings, Ludlow Savings, Barre Savings — are gone now,” he said. “They were all great, small hometown banks where people went and trusted. Now they’re being taken over. Hopefully, Arrha is filling that void.”

Room to Grow

Most of Arrha’s programs are targeted at retail consumers, but the credit union plans to hire someone in the next six months to oversee an expansion of what, up to now, has been a limited portfolio of commercial loans. Like many credit unions, it sees plenty of opportunity in the small to mid-sized business customers that the larger banks neglect in their pursuit of $4 million and $5 million accounts.

“That’s not who we are,” Ostrowski said. “That’s not our niche. We want to help the smaller person succeed, with car loans, personal loans, student loans … we do excellent at home mortgages, with the lowest closing costs and rates in the Greater Springfield area. We have checking accounts that are dirt-cheap and don’t rip anyone off with fees. We’ve built a good foundation on those things.”

The foundation is fertile soil, he said, to grow the commercial-lending side over the next few years.

“We’re doing really well. We want to expand, but in this day and age, that’s very difficult. Do you build branches or build software? We want to have a few branches, but we don’t want to be inundated with buildings. Everything is electronic, and that’s where the money is, but we still need a physical presence, a few locations. Overall, the bank is very healthy and thriving.”

That progress puts Arrha at a sort of crossroads, he went on, but one marked by opportunity.

“We want to fill the void of the small, mutual savings banks people loved to go to. I’m positive we are doing that, but whether we can sustain it over the next five or six years and keep up with the Bank of Americas, that’s to be determined. I think we can find our niche, though. We always do.”

Joseph Bednar can be reached at [email protected]

New PeoplesBank President Looks to Set the Bar Even Higher

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Banking and Financial Services Sections

The Feeling’s Mutual

Tom Senecal

Tom Senecal

Tom Senecal takes the helm at PeoplesBank at an intriguing time for the institution — and the industry. Competition is keen, and efforts to achieve growth are challenged by thin margins and stagnant, historically low interest rates. The bank has made a commitment to continue this fight as a mutual institution, a strategy Senecal believes will continue to bring a host of inherent advantages.

Tom Senecal called it “going from the back room to the front lines.”

That’s how he chose to describe his decision in 2001 to leave his position as controller at Holyoke-based PeoplesBank and join the commercial-lending team led at that time by future President and CEO Doug Bowen.

Looking back on that not-so-subtle and fairly unusual career move, Senecal said that, at that juncture, he understood it was a necessary move if he was to achieve what was an already-emerging goal — to move higher up the ladder in banking administration, and perhaps to the top rung.

“I knew, career-wise, that if I wanted to be … well, where I am today, I needed more exposure and experience than just an accounting background,” he explained, noting that Bowen’s career trajectory has become common in the industry today. “So I made a conscious decision to change careers and move to the front line of servicing customers.

“This was outside my comfort zone — I was 41 years old, moving from an accounting environment to a sales environment,” he went on. “But I knew I needed that experience.”

What Senecal — who was named president last August after prevailing in a search for Bowen’s successor a few months after he made his retirement plans known — didn’t know in 2001 but does know now, is that, while leaving the back room improved his chances to advance in this industry, working in both settings will better enable him to handle that position’s varied job description.

“My experiences, both on the financial side and in lending, brought something different to the table, and that’s important given the current banking environment,” he explained. “Both jobs enabled me to see how the bank operates, but from different perspectives.”

Senecal takes the helm at PeoplesBank at an intriguing time for both that institution and the banking industry as a whole. Indeed, he officially takes both the president and CEO titles (Bowen maintained the latter until late June) just as the bank, probably not coincidentally, announced it was taking its commitment to being a mutual bank to a higher level.

Specifically, the institution changed its bylaws in a way that will make any future conversion to a stockholder-owned company exceedingly more difficult. Before, a vote to take such a step would require a simple majority of votes among corporators to move in that direction; now, it will take a super-majority, or 75% (much more on all this later).

As for the industry in general, a trend toward consolidation and gaining all-important size and economies of scale continues unabated, with the recently announced merger of Westfield Bank and Chicopee Savings Bank being the latest in a lengthy string of such moves.

Senecal acknowledged the benefits of size in this era of rising regulatory costs and razor-thin margins, but said PeoplesBank will continue to address those challenges as a mutual institution, and with an operating strategy forged by his immediate predecessors and honed by Bowen during his 10-year tenure.

Tenets include everything from calculated territorial expansion, including a strong push into Springfield, to permanent residency on the cutting edge of new banking technology and an emerging niche in lending to ‘green’ business ventures.

Describing what might come next, Senecal started by implying strongly that there won’t be any attempts to fix anything that isn’t broken (and that’s most things). Getting slightly more specific, he said the bank will continue its efforts to grow the only way a bank can grow in this region and this banking environment — by gaining additional market share.

And this brings him back to mutuality and a commitment to retain that operating structure. As a mutual institution, the bank is not beholden to stockholders, he explained, and in this case, the word ‘local’ doesn’t refer to where commercial lenders live and play golf, but rather to where decisions are made.

“We believe that local decisions really do mean something,” he noted. “There aren’t many mutuals left, and that means people don’t feel comfortable that the decisions are being made in Western Massachusetts. I think that’s a big advantage for us.”

For this issue and its focus on banking and financial services, BusinessWest talked at length with Senecal about his career in banking, his attainment of that goal he set long ago, and what to expect — or not expect, as the case may be — from PeoplesBank moving forward.

Matters of Note

Summing up the progressive Doug Bowen administration at the 131-year-old institution, Senecal said his predecessor “set the bar very high.”

As he spoke those words, he was referring to awards and honors, specifically to the bank’s regular appearance on a host of regional and statewide ‘best-of’ lists. They include everything from the Boston Globe’s compilation of the best places to work in the Bay State to Boston Business Journal’s list of the top corporate charitable contributors, to MassLive’s Readers Raves.

Meanwhile, Bowen himself was honored in 2009 as one of BusinessWest’s first Difference Makers, and in 2011 as a Globe 100 Innovator for, essentially, creating an environment that fostered and facilitated all of the above.

But that reference to setting the bar high actually referred to much more than placement on lists and plaques for the front lobby. It was also a reference to overall growth (the bank crashed through the $2 billion barrier in total assets during Bowen’s tenure), territorial expansion in the form of six new branches, a ‘green’ philosophy (three of those branches are LEED-certified), innovation (the institution has created a Customer Innovation Lab and hired a so-called ‘data scientist’), and the bank’s strong commitment to mutuality and the many competitive advantages it brings.

Senecal will work to keep the bar where it is and hopefully raise it even higher, and he’ll bring to this task that aforementioned blend of experience in the back room and on the front lines.

A Coast Guard veteran, Senecal eventually decided the military would not become a career, and went back to school, earning a degree in business at the Isenberg School of Management at UMass Amherst.

Tom Senecal, seen with other members of the PeoplesBank

Tom Senecal, seen with other members of the PeoplesBank team, says the bank’s commitment to remain a mutual institution makes a strong statement.

He started his career in the financial-services sector with the Big 4 firm KPMG, as a senior manager and CPA. In that capacity, he provided organizational leadership and technical consulting expertise in the areas of auditing, accounting, tax compliance, and financial reporting for small to mid-sized banks in Massachusetts and Connecticut. One of the clients in his portfolio was PeoplesBank, which eventually recruited him to the role of controller.

As mentioned earlier, he drifted far out of his comfort zone a few years later and joined the commercial-lending team, where he remained until 2004, when he accepted an offer to join Florence Savings Bank as CFO and treasurer.

He returned to Holyoke in 2008 when Bowen, who took the helm at PeoplesBank a year earlier, encouraged him to take that same role with his bank.

“I looked upon coming back here as an opportunity,” he explained. “PeoplesBank is a larger, broader-reaching bank geographically that had a lot of opportunities for growth because of its name recognition and the marketability of PeoplesBank. Having had some conversations about the future with people here, I decided to come back.”

The search for Bowen’s successor, which began in the summer of 2015, eventually focused on two internal candidates, and Senecal prevailed.

Making a Statement

Since taking over as president of the bank, Senecal has put himself even closer to the front line — actually, right on it.

Indeed, he’s spent some time behind teller windows at several of the branches, getting an up-close look at what happens there, while also taking the opportunity to speak with some customers directly.

“I don’t think one of those branches is going to invite me back to scan checks, because I wasn’t very good at it — I think I kept the staff an extra hour,” he joked, adding quickly that those experiences were nonetheless fruitful and somewhat eye-opening. “As much as I can laugh about it now, that’s an example of understanding what the front line is really like.”

Beyond this time in the field, Senecal said he’s spent his first several months as president working toward that vote on mutuality and also developing a new four-year strategic plan. Dubbed Vision 2020, it will be presented to the board of directors in September.

When asked what’s in it, Senecal offered only generalities, and said it focuses on every aspect of the banking operation, including retail and commercial products and services, cash management, retail delivery channels, digital delivery channels, and more.

“We’re strategizing and looking at best-in-class products and services to compete with the larger institutions,” he explained. “Remaining as a mutual enables us to do that; we don’t have to worry about the next quarter’s earnings — we can make investments in these technologies and people and not worry about it. We’re in it for the long term.”

Elaborating, he said the bank changed two bylaws that will make converting to a public company far less likely. The first is the new requirement of a super-majority. The second is a so-called ‘protective self-enrichment clause,’ which prevents any director or senior manager from financially benefiting if that 75% vote from the corporators is actually obtained.

“Management and directors cannot participate in any initial public offering,” he explained. “This takes away all the financial incentive to convert; it requires senior management to focus on the long term and growing responsibly.”

Commenting on the decision to change the bylaws regarding mutuality, Senecal said he’s not sure such a step was necessary given that the bank hasn’t shown any interest in moving toward converting to stock ownership. But the vote does make a statement, and an important one, he went on, in terms of its commitment to the community.

“It was an opportunity to commit the institution and send a message to the community about who we are,” he explained. “I think it’s hard to deliver that message because most people don’t understand what mutuality is and how it affects them.

“Having been the CFO of two banks and having talked to other banks, I’ve gotten a real sense for what community banks do for our communities,” he explained. “You can talk to the big banks and the public banks, and they’ll tell you they’re committed and they’re creating foundations, but take a look at what they contribute to the community compared to what the mutual banks contribute, and you’ll see a huge difference.

“The public doesn’t see that,” he went on. “But on the inside, we see that.”

On-the-money Analysis

Still, despite the apparent advantages of mutuality, it does bring some competitive challenges, especially when it comes to size and its benefits, and capital (which ultimately determines how much a bank can lend) and how to attain it.

“Size is not overrated,” Senecal said, adding that it is the best method for coping with costs that continue to rise (compliance costs have nearly tripled for PeoplesBank over the past three years, from $1 million to $2.5 million, for example), while banks cannot recover them by adjusting rates for loans and deposits.

As for raising capital, public banks do so through stock offerings, he noted, while for mutual banks, the only source of capital is earnings, which are elusive in this era of those rising operating costs and in a region generally defined by the compound modifier ‘no-growth.’

But Senecal said there is room for growth in market share, and, as an example, he pointed to the residential mortgage market.

“We were a top-four mortgage lender in Hampden and Hampshire counties last year,” he explained. “There were probably 190 originators in our market, and we had 4% of that market. To me, there’s a lot of market share that can be acquired — and in many ways beyond bricks and mortar.”

This was a reference to emerging technology in the financial world and digital ways of doing business, a realm the bank has been on the leading edge of for years, Senecal noted — a trend he expects to continue.

Meanwhile, there is also room for growth in commercial lending, he said, adding quickly that the market remains highly competitive, despite the fact that the spate of mergers and acquisitions has actually created fewer players.

“There may be fewer banks, but there aren’t fewer lenders — this remains a very competitive environment fueled by historically low rates,” he explained, adding that area institutions are raising the already-high stakes by recruiting not simply individual lenders, but entire teams of lenders.

“I think the public institutions are feeling that they can steal market share by acquiring a group of commercial lenders,” he explained, adding that PeoplesBank has a different strategy, one focused on creating and maintaining relationships through stability.

“We’ve had very little turnover in our commercial lending area,” he explained, “and that has definitely helped us grow that part of our business.”

As for the overall growth strategy, Senecal said PeoplesBank has historically done it organically (it has never acquired another institution), and this trend will continue.

“When I arrived in 1995, this bank had $450 million in assets; today, we’re just about $2.1 billion,” he explained. “We did that through organic growth — putting branches in, increasing our loans, increasing our deposit base. We will continue to focus on that same strategy, although it’s definitely challenging.”

A Strong Bottom Line

When asked to compare and contrast work in the back room and on the front lines, Senecal said there are basic and very important differences.

“Having worked in the finance area, I’d say it’s very easy to make decisions looking at numbers and not understanding the customer impact,” he explained. “When you get to the front lines, you realize those decisions impact your customers, and they become more difficult.”

As he noted earlier, working in both environments will benefit him immensely as he goes about trying to move an already-lofty bar still higher.

He said he’s ready for the many challenges facing the banking industry today, and so is the institution he now leads.

In other words, the feeling is mutual — in all kinds of ways.

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