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Banking and Financial Services Special Coverage

Community Interest

Mary McGovern, incoming president of Country Bank.

Mary McGovern, incoming president of Country Bank.

 

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

Then she elaborated.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

Philanthropic Priorities

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

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

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

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

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

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

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

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

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

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

PeoplesBank employees volunteers

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

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

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

 

More Than Money

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

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

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

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

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

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

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

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

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

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

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

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

 

Banking & Finance

Knowledge Is Power

Greenfield Cooperative Bank employees

Greenfield Cooperative Bank employees actively participated in scam-prevention education during Cybersecurity Awareness Month.

 

$8.8 billion. With a B.

That’s how much money, according to the Federal Trade Commission (FTC), consumers lost in 2022 to phishing scams and other fraud — an increase of more than 65% compared to 2021.

It’s a number leaders at Greenfield Cooperative Bank (GCB) take seriously, which is why it’s participating, for the fourth straight year, in #BanksNeverAskThat, an online campaign by the American Bankers Assoc. in partnership with banks across the U.S. to educate consumers about the persistent threat of phishing scams.

To combat those attacks, the campaign uses attention-grabbing humor and other engaging content to empower consumers to identify bogus bank communications asking for sensitive information like their passwords and Social Security numbers.

“We are proud to join the ABA #BanksNeverAskThat campaign to educate our customers and the community about how to protect themselves from phishing scams,” GCB President and CEO Tony Worden said. Phishing is a serious threat that can compromise your personal and financial information, and we want to help you avoid falling victim to it.”

“Phishing is a serious threat that can compromise your personal and financial information, and we want to help you avoid falling victim to it.”

Among the bank’s messaging to customers, Worden continued, “we never ask you to provide sensitive information like your account number, PIN, password, or Social Security number in an email, text, or phone call. If you receive a suspicious message that claims to be from Greenfield Co-op, do not click on any links, open any attachments, or reply with any information. Instead, contact us directly using the phone number on the back of your card or on our website.”

Considering the uptick in phishing and other scams — and the continued effectiveness of such techniques — the ABA says such messaging is more important than ever.

“By impersonating a bank, a scammer can steal thousands of dollars with just one text message, phone call, or email,” said Paul Benda, senior vice president for Operational Risk and Cybersecurity at ABA, adding that, with the support of individual banks, “the campaign seeks to turn the tables by arming consumers with the information they need to outsmart the scammers and protect their money.”

Throughout Cybersecurity Awareness Month in October, Greenfield Cooperative Bank shared consumer tips on social media and highlighted the campaign in its branches with posters and employee T-shirts.

Because cybersecurity education and fraud awareness can often be dull and forgettable to many consumers, the #BanksNeverAskThat campaign is designed to be bright and bold, with a bit of comedy.

Lisa Pandolfi, fraud analyst with Freedom Credit Union

Lisa Pandolfi, fraud analyst with Freedom Credit Union, discusses strategies to avoid financial scams with an audience at Southwick Villages.

“Would you rather give up sugar or salt?” one of the campaign’s social-media posts asks users. “Banks texting you about sweet vs. savory would be just as weird as banks texting you a link to log in, ’cause #BanksNeverAskThat.”

The campaign’s short videos offer similarly ridiculous scenarios like wallpapering a room with cash, roasting marshmallows over a cash fire, and recycling cash on garbage day to remind people they stand to lose real money if they aren’t vigilant.

At banksneveraskthat.com, consumers will find a new, interactive quiz; a video game called Scam City; engaging videos, and tips on how to spot phishing scams. This year, the campaign is also offering a Spanish-language version of the website, bancosnuncapideneso.com, and providing a host of other scam education and consumer resources in Spanish.

 

Targeting the Elderly

Greenfield Cooperative Bank has also reached out to local Councils on Aging with tips on how to spot scams, and for good reason. According to the FBI’s 2022 Elder Fraud Report, Americans over age 60 lost $3.1 billion to fraud in 2022, an increase of 84% from 2021. That’s the highest loss amount reported out of any age group.

To combat that trend, Freedom Credit Union announced it has taken action to help its members and the community at large, particularly the vulnerable senior population, protect themselves. Most recently, those efforts included free educational sessions at senior centers throughout the region, including Agawam, East Longmeadow, West Springfield, and Chicopee.

Freedom’s team also led a fraud-education seminar for Health New England employees in Springfield, as well as at the Senior Health and Safety Expo in Greenfield, sponsored by the Franklin County Sheriff’s Office TRIAD Unit.

The next session open to the public is scheduled for Wednesday, Dec. 20 at noon at the Pleasant View Senior Center, 328 North Main St., East Longmeadow. The seminar is free, and lunch is available for $3. Registration is required by Dec. 19 by calling (413) 525-5436.

“We have long been committed to helping our members and community protect their identities and finances from criminals,” Freedom Credit Union President Glenn Welch said. “We regularly communicate with our members about new scams and maintain a robust Cyber Security Center with resources for consumers on our website.”

One recent post on that site details the ‘grandparent scam,’ in which a fraudster acquires a consumer’s personal information through various means, such as mining social media or purchasing data from cyber thieves, then uses that information to contact the victim with a deceptive story, claiming to be in a crisis and needing financial assistance, sometimes even spoofing the caller ID to make it seem as though the name and number are coming from a trusted source.

“We have seen firsthand that seniors are especially at-risk targets, so we developed these free educational seminars to help them shore up their defenses,” Welch noted. 

During these public sessions, Freedom’s security experts discuss how some of the most common scams work, red flags to look for, strategies to maintain security, and resources for those who think they may be victims. Older adults are often prime targets for financial cons, as they may have accumulated significant savings and valuable possessions; may not be as technically savvy to online, social, and telephone scams; or may be perceived as easier to confuse and intimidate.

“People are often embarrassed if they fall victim to these crimes, but it can happen to anyone,” Welch added. “Scammers have become increasingly sophisticated in their approaches, which can appear quite legitimate. Education is essential to prevention. The sessions we’ve held so far have been well-attended and popular. They offer an open and safe forum for seniors to talk freely and ask questions.”

Senior centers or community organization wishing to schedule a financial scam-prevention session at their facility can call Lisa Pandolfi, fraud analyst at Freedom Credit Union, at (413) 505-5717.

 

—Joseph Bednar

Banking and Financial Services Community Spotlight Special Coverage

An Uphill Climb

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Tom Senecal

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

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

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

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

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

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

 

Points of Interest

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

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

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

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

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

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

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

Jeff Sullivan

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

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

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

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

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

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

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

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

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

Dan Moriarty

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

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

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

 

No Margin for Error

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

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

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

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

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

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

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

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

Kevin O’Connor

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

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

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

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

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

 

Taking Account

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

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

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

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

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

 

Banking and Financial Services

Checks and Balances

 

By Mark Morris

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

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

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

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

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

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

Mary McGovern

Mary McGovern

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

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

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

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

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

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

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

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

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

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

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

Jeff Sullivan

Jeff Sullivan

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

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

 

Points of Interest

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

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

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

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

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

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

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

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

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

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

Dan Moriarty

Dan Moriarty

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

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

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

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

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

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

 

By All Accounts

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

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

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

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

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

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

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

Banking and Financial Services Special Coverage

Cloudy Forecast

Paul Scully

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

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

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

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

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

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

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

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

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

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

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

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

Matt Sosik

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

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

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

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

 

Saving and Spending

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

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

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

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

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

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

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

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

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

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

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

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

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

Tony Worden

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

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

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

 

Community Counts

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

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

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

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

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

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

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

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

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

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

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

Banking and Financial Services

Matters of Interest

 

team of mortgage consultants

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

 

Mike Ostrowski remembers signing for his first mortgage.

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

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

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

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

Mike Ostrowski

Mike Ostrowski

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

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

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

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

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

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

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

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

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

 

Bottom-line Impact

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

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

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

Craig Boivan

Craig Boivan

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

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

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

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

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

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

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

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

Kevin O’Connor

Kevin O’Connor

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

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

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

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

 

Dollars and Sense

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

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

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

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

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

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

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

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

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

 

Joseph Bednar can be reached at [email protected]

Banking and Financial Services

The People Have Spoken

Dan Moriarty (left) and Michael Rouette

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

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

—Joseph Bednar

Banking and Financial Services Special Coverage

More Than Writing Checks

Kevin Day

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

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

 

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

Expanding Needs

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

Mission Driven

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

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

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

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

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

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

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

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

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

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

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

 

Joseph Bednar can be reached at [email protected]

Banking and Financial Services Special Coverage

Open for Business

Ben Leonard outside Tower Square

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

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

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

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

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

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

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

Jeff Sullivan

Jeff Sullivan

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

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

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

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

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

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

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

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

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

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

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

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

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

 

Back to Normal?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

Good Business

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

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

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

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

 

Joseph Bednar can be reached at [email protected]

Banking and Financial Services

Developments of Interest

By Mark Morris

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

By All Accounts

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Dan Moriarty

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

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

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

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

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

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

 

Bottom Line

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

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

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

Banking and Financial Services

Checking on the Community

Paul Scully

Paul Scully says much of Country Bank’s philanthropy in 2020 was directed at “COVID-related initiatives.”

Paul Scully says local philanthropy is baked into the DNA of this region’s financial institutions.

“Banks have always been great about supporting communities. And we are fairly philanthropic,” Country Bank’s president and CEO added, noting that the bank gave $1.3 million to local nonprofits last year, touching about 400 different organizations in some way.

Those numbers aren’t atypical. What made 2020 slightly different is where that money went.

“Of that, about a half-million went to what I would call COVID-related initiatives,” Scully said, citing causes ranging from equipping frontline workers at hospitals to meeting soaring demand at local food banks due to the pandemic’s economic impact on families.

At Freedom Credit Union’s April board meeting — the first one after it and the region’s other banking institutions closed their doors in mid-March — President and CEO Glenn Welch said he asked to make larger monthly donations to the community than usual.

“I told them, ‘I’m not sure what’s going to happen, but we need to support the community.’ The board agreed and allocated a chunk of money that we could utilize in the community.”

In the days that followed, Freedom announced a donation of $55,000 to be dispersed among several community organizations at the front lines of the local fight against the COVID-19 pandemic, including Baystate Health Foundation; Mercy Medical Center; Cooley Dickinson Health Care; the Food Bank of Western Massachusetts; Hampshire Hospitality Group, whose Hampshire County Heroes feed first responders in Hampshire County; and Feed the Fight, an initiative of Peter Pan Bus Lines and area restaurants to feed healthcare workers and first responders in the community.

“If you’re still employed with no interruption in your household income, you might not realize a lot people were living on a shoestring, and that shoestring broke. The opportunity to donate and give back is huge.”

“A lot of those are things we haven’t done every year,” Welch said, noting that the credit union’s philanthropic contributions were up 17% from 2019 to 2020, even though it was a tougher financial year for financial institutions.

It’s a story being told across the region — not that banks and credit unions are being more generous this year (although, in many cases, they are), but that the pandemic has revealed different needs, causing a shift in where those grants are being targeted.

In September, for instance, the Berkshire Bank Foundation contributed an additional $1 million — over its $3 million total annual grant budget — to collaborative efforts supporting nonprofit organizations responding to rising community needs, including MHA, the YMCA of Greater Springfield, Western Massachusetts SCORE, and the Community Foundation of Western Massachusetts, among others.

“The COVID-19 pandemic has affected our local communities in ways that no one could have predicted, and the economic impact has created significant challenges for organizations who help so many every day,” said Jim Hickson, Berkshire Bank’s Pioneer Valley regional president.

The foundation’s grants have supported community-based organizations in the areas of housing, food security, health supplies, student aid, small-business assistance — all needs that have been heightened by a pandemic whose impacts will continue to be felt well into 2021.

 

First Response

Some of the earliest contributions from banks and credit unions, at the start of the pandemic, were targeted to hospitals and first responders. Country Bank donated $250,000 to four local hospitals, and also gave $50,000 to the Hampden County Sheriff’s Department’s First Responder Recovery Home, which provided a safe haven for doctors, nurses, EMTs, police, firefighters, and corrections professionals who were diagnosed with COVID-19, but couldn’t safely go home to recover without jeopardizing the health of a vulnerable family member.

Glenn Welch

Glenn Welch

“I told them, ‘I’m not sure what’s going to happen, but we need to support the community.’ The board agreed and allocated a chunk of money that we could utilize in the community.”

As the pandemic evolved and other nonprofits began reshaping their missions to respond to it, Country Bank directed funds to organizations like the Community Foundation of Western Massachusetts, Springfield Rescue Mission, and Friends of the Homeless, as well as similar organizations in the Worcester area.

PeoplesBank’s charitable giving in 2020 surpassed its previous record high, totaling $1,300,000, and benefiting 292 different nonprofits in the region. While the long-standing funding priorities of PeoplesBank include education, community vibrancy, and environmental sustainability, support in 2020 also included donations to COVID-19 emergency relief funds, purchases of PPE for frontline responders, organizations fighting food insecurity and homelessness, and many area youth groups and early-childhood education centers.

“We try to say ‘no’ as infrequently as possible,” said Matt Bannister, the bank’s senior vice president of Marketing and Corporate Responsibility — even though last year’s needs definitely widened, especially considering that many nonprofits gain much of their funding from annual events that never happened.

“When the COVID hit the fan, we said to all our nonprofits we had agreements with, ‘we are going to honor all our commitments, even if you can’t hold your gala or your walk. The money’s still yours,’” Bannister said.

“The event may go away, but the need doesn’t,” he continued. “On one hand, if they don’t have the event, they don’t have to spend money on it, so that’s good. But these events are money makers. They were counting on this revenue. The visibility we get from these events is nice, but the real reason we do it is to support that cause, not because they put our logo on a T-shirt.”

Matt Bannister

Matt Bannister

“The event may go away, but the need doesn’t. On one hand, if they don’t have the event, they don’t have to spend money on it, so that’s good. But these events are money makers. They were counting on this revenue. The visibility we get from these events is nice, but the real reason we do it is to support that cause, not because they put our logo on a T-shirt.”

 

Kevin Day, president and CEO of Florence Bank, said his institution had no inclination to take back money spent to support such events.

“COVID drove everyone indoors this year, and a lot of events got canceled,” Day said. “We usually sign up for events, and we send money ahead of time. The nonprofits all reached out and said, “we’re not going to hold this ball or gala. Do you need the money back?’ But we’re here to support you, and the fact that you can’t throw a ball actually makes it more important that we support you. So even though we didn’t get to go to these events, we still made the donations; that didn’t change a bit.”

Later in the year, as nonprofits scrambled to find other ways to raise funds, banks looked for new ways to support them, Bannister added. “Like, the Community Foundation put together an emergency COVID fund — there’s a new need. We contributed to buy PPE for the frontline workers — that was something that wasn’t a need before. And a number of chambers put together microgrant programs for the members in their communities, with a special round of fundraising for that, and we supported that, too.”

 

Food for Thought

Like PeoplesBank, Florence Bank directs its philanthropy in a few general ways.

“We’ve always focused on what we call the three H’s: hungry, hurt, homeless. We thought food-insecure people having trouble getting food and buying food might be a big deal this year, so we said, ‘hey, let’s do everything we can in that area, if possible,’” Day said, adding that Florence has made good on that pledge by supporting 11 different food pantries and homeless shelters.

“We’ve always supported many of these organizations,” he was quick to add, but cast a wider net this year, donating nearly $100,000 to 10 organizations that address food insecurity.

Kevin Day

“We’ve always focused on what we call the three H’s: hungry, hurt, homeless.”

“We are so grateful. Without the support of donors, we would not have been able to continue our mission,” Ruben Reyes, executive director of Lorraine’s Soup Kitchen & Pantry in Chicopee, one of the recipients, said in December. “COVID has affected us very hard. All of our fundraisers were canceled, and we were very worried about how to fund our programs.”

Compounding the problem, COVID-19 has also affected Lorraine’s clientele. Reyes said he is seeing an additional 200 to 300 families each month, and provides a month’s supply of groceries and dinners five nights a week to a total of 600 to 700 families. “We’re seeing a lot more families who typically would not need pantry services. They are coming to our doors for the very first time.”

Meanwhile, Scully noted that a Greater Boston Food Bank report that food insecurity in Massachusetts reached an all-time high in November. The state has experienced a 59% increase since 2018, representing more than 1 million people in need of food assistance. Most people are using food pantries for the first time.

“We’ve seen the demand at the food banks, and in so many other different areas,” he told BusinessWest, noting that Country has donated more than $130,000 to local food pantries throughout the year. “We’ve always supported local food pantries and food banks, and we made significant contributions to them as well. Everyone is feeling the demands are greater than ever.”

As another example of the way financial institutions have rallied to the cause of food insecurity, Freedom Credit Union partnered with its members and the local community in December by matching funds donated to benefit the Pioneer Valley USO.

Located at Westover Air Reserve Base in Chicopee, that organization provides more than 102,000 pounds of food to more than 3,200 individuals annually through the Emergency Food Pantry, among other efforts.

“We’d heard that some of the people who serve us in the military are having trouble feeding their families, and the food pantries need to be stocked,” Welch said. “It’s pretty sad when people in the U.S. have to be going to the food banks, with the loss of jobs due to COVID. A lot of people are hurting this year.”

All the region’s banks and credit unions helped customers who were struggling financially in other ways as well, such as mortgage and loan deferrals and relief loans.

“All the institutions did a lot to help members by deferring payments and coming up with loan programs,” Welch said. “It’s important to help people out, and we’re still doing that.”

 

Community Partners

While food insecurity and other basic needs are front of mind these days, banks and credit unions support a host of other nonprofits as well, many of which rely on performances, events, and member activity to pay their bills. Many of these were able to pivot to virtual events to maintain connections with the community until they can go back to live events, but those don’t bring in nearly as much funding as in-person gatherings.

Through its philanthropic efforts, Scully said “what we try to do is help communities thrive, whether it’s economic health, physical health, or nutritional health. Put all those pieces together, and these communities will thrive. If there’s a need and we’re able to help satisfy some of these needs, we’ll do our part to the extent we can.”

That attitude, at most local financial institutions, extends beyond monetary donations into volunteerism, Bannister noted.

“We’ve averaged about 10,000 volunteer hours across the organization pretty consistently for the past four or five years,” he said, adding that the total in 2020 was closer to 5,000, due to organizations moving to remote operations and events being canceled. “That wasn’t from a lack of desire; people were concerned about going out in public, so there was a lack of opportunity. We expect that to come back this year as things start to open up again.”

At an employee giving campaign in November, the bank actually had more associates give more money this year than ever before, Bannister added. “That could have gone the other way. There’s a lot more economic insecurity out there. So that, to us, was a sign that folks are still engaged, and they still want to give.”

While nonprofits have cut back hours and volunteers can’t always come in, especially at organizations that deal with an older population. “people have been creative,” Scully said. “We work once a month with the Ware mobile food pantry. We were there the week before Christmas, and that had upwards of 300 cars coming in. They turned it into a mobile experience. There’s a group of us there, you’re outside, masks on. It’s a way to give back, volunteer, and be safe.”

After all, he added, people want to help, and so do banks.

Day said the outpouring of concern was so great in 2020 that some nonprofits actually weathered the early months of the pandemic well.

“In March, maybe the first week of April, I think my supposition would have been that everyone is going to be hurting instantly,” he said. “But I’m involved in several nonprofit boards, and across the region, many are saying their needs have been met, in my view, pretty well.”

But 2021 poses a trap of sorts.

“The critical aspect is coming in the next year,” Day said. “Many of them received a great deal of donations during this past year, and we’re happy to do our part. I think the needs will come as the recovery moves along this year, once the perception of need goes away.”

That’s because human needs are still great among families that come to nonprofits for help, especially those in the lower economic strata who have experienced economic devastation. “They’re going to need continued support, and I expect that need will continue through 2021, easily.”

Scully agreed. “The needs are greater than the average person realizes. If you’re still employed with no interruption in your household income, you might not realize a lot people were living on a shoestring, and that shoestring broke. The opportunity to donate and give back is huge.”

And will remain so going forward, Day added.

“We gave more money this year than we ever have, sprayed it around, touched every aspect of the nonprofit world,” he said. “People know we’re a good partner of the community, and we’re happy to help out those in need.”

 

Joseph Bednar can be reached at [email protected]

 

Banking and Financial Services Special Coverage

Lending a Hand

By Mark Morris

Sometimes being thrown into a challenging situation leads to … well, a good idea or two. Or at least a new way of thinking.

Back in March, when COVID-19 first hit, banks and credit unions in Massachusetts were designated essential businesses by Gov. Charlie Baker. That meant making sure everyone had access to their accounts while, at the same time, limiting in-person banking to appointments only, complete with masks, social distancing, and frequent sanitizing protocols.

“It forced us to think outside the box and to figure out the best ways to serve our members during a time of reduced access,” said Kara Herman, vice president, Retail Administration with Freedom Credit Union, adding that her team set out to first communicate all the options members had available to them to get business done without going inside a branch.

BusinessWest spoke with several local bank and credit-union professionals about the challenge of making adjustments to their businesses in the middle of a pandemic. For Kevin O’Connor, executive vice president and chief banking officer for Westfield Bank, reducing foot traffic in the lobbies back in the spring was a chance to review how to make customer interactions with the bank easier in ways that were not face-to-face.

“We published all our branch phone numbers on our website so people can easily reach their local branch,” O’Connor said. “In this way, we could blend the digital experience with the personal touch of a local branch staff member who is there to assist.”

During the summer months, mandates were relaxed, and banks and credit unions were allowed to reopen their lobbies to walk-in traffic. But this month, as COVID-19 infection rates spiked, lobby restrictions were reinstated at many institutions.

“Because we went through lobby closures back in the spring, we were able to refine the process of helping customers find different ways to accomplish what they need to do,” O’Connor said.

Mike Ostrowski

Mike Ostrowski says the pandemic has been a “disruptive innovation” that helped many customers appreciate the benefits of banking online.

For example, Westfield Bank makes video tutorials available online for those who are new to electronic banking. “We do this to encourage people to be comfortable in whatever way they interact with us.”

Michael Ostrowski, president and CEO of Arrha Credit Union, noted that, when lobby traffic was first curtailed and members would call to complete a basic transaction, his staff would take the the time to educate the caller on how to accomplish what they wanted to do electronically.

“In some ways, the pandemic was a disruptive innovation because it helped us to migrate so many people to the electronic world,” Ostrowski, said adding that online and mobile activity with Arrha has increased 30% in the last nine months.

Educating members is also the approach Craig Boivin, vice president of UMassFive College Federal Credit Union, has taken. While the aim is to reduce traffic in the branch, there’s still one in-person appointment that he encourages.

“A member of our contact center staff will set up an in-branch appointment with folks who aren’t as tech-savvy and take them through a hands-on tutorial on how to use what’s available,” he explained. “We do this so the member can avoid going to the branch in the future for simple transactions.”

Customers who regularly use online banking and mobile apps barely noticed the limited lobby access, but there are others who rely on being able to walk into a branch and do business face-to-face.

“Some of our customers need to come in every day, such as small-business people who need coin and currency to run their shops,” said Kate Megraw, chief operating officer and chief information officer for New Valley Bank and Trust. This past summer, while adhering to all safety and cleaning protocols, New Valley’s lobbies stayed busy.

Kevin O’Connor

Kevin O’Connor

“We published all our branch phone numbers on our website so people can easily reach their local branch. In this way, we could blend the digital experience with the personal touch of a local branch staff member who is there to assist.”

“As a new bank, we are in a growth mode right now, so we were trying to make it easy for customers to come in and open accounts,” she noted. With renewed limits on lobby access, she now encourages appointments as well as the drive-up location at the 16 Acres branch.

Drive-up banking has gone from a routine convenience to a vital service as customers bring more complex transactions to the drive-up window than in the past. It’s one way both bank customers and employees had to adjust to a new environment back in the spring — and may have to adjust again.

 

Striking a Balance

As branches reopened over the summer, loan activity related to the Paycheck Protection Program (PPP) ramped up as as well, Megraw said, providing another opportunity.

“The PPP allowed us to touch a lot of local businesses in Massachusetts and parts of Connecticut,” she added, noting that, through the PPP, New Valley arranged more than 500 small-business loans totaling nearly $90 million.

With branches retreating to a less-accessible time, the challenge now is to strike the right balance between giving people the time they need and keeping the line of cars in the drive-thru moving. Along with placing experienced tellers at the window, O’Connor said, other branch staff speak with people as they approach the drive-up to make sure they have their materials at the ready to make their visit more efficient.

Kate MeGraw

Kate MeGraw

“The pandemic has shown us that high-touch customer service and the ability to speak to someone over the phone or safely take a meeting still makes a big difference when a customer is trying to get something done.”

UMassFive recently converted a drive-up ATM machine at its Hadley branch to a video teller. As a complement to the two existing drive-up tellers, the video teller provides a third option that reduces long lines and still maintains the personal touch.

“It gives our members an additional way to talk to a live person without having to come into the branch or get out of their car,” Boivin said. Installed in two other branch foyers, he added, video tellers have really caught on as usage has tripled just this fall.

Herman said Freedom recently launched video chat as part of its online offerings and said it’s the next best thing to an in-person meeting. “It gives people a chance to see us and talk to us. It’s face-to-face communication even though they are not physically in front of us.”

Because so many people are more comfortable doing things from their home, opening accounts online has substantially increased. While this tool was lightly employed before the pandemic, O’Connor saw an opportunity to enhance it for customers who use it.

“We are supplementing the online account-opening process by having a branch person follow up with the customer to make sure they received the experience they wanted,” he said.

On the lending side of the business, Herman noted that online applications and electronic signatures have further streamlined the process of people conducting bank business from home.

Boivin reported that volume at the UMassFive contact center is up 43% for the year and has nearly doubled in the last two months as coronavirus has spiked. A number of employees moved out of their traditional retail positions to handle the increased activity in the contact center.

“Our staff has been impressive with their flexibility and willingness to work in different departments to get the job done,” he added.

Ostrowski believes his staff were as vulnerable as essential retail workers who have been on the job throughout the pandemic. “Because we appreciate their hard work,” he said, “we recently rewarded our staff with a hazard-pay bonus for all their efforts during COVID-19.”

 

The People Part

As customers increasingly use online and mobile apps for banking, all the managers we spoke with agree that in-person branches still play a vital role. Ostrowski emphasized that technology doesn’t take the place of personal service, but just enhances it.

While acknowledging that digital services are an important and growing part of banking, Megraw also believes the “people part” is still essential.

Craig Boivin

Craig Boivin

“Our staff has been impressive with their flexibility and willingness to work in different departments to get the job done.”

“The pandemic has shown us that high-touch customer service and the ability to speak to someone over the phone or safely take a meeting still makes a big difference when a customer is trying to get something done.”

Boivin hopes the changes that forced people out of the branches will result in more convenience for them and an elevated role for the branches.

“In the long run, we see branches being centers where people can sit down with someone face-to-face for those in-depth conversations about their finances, such as buying a house for the first time,” he said. “We still see a need for those interactions to continue at the branch level.”

Ostrowski predicts banking will move toward a hybrid approach that combines the latest technology innovations with an old-fashioned, hometown banking experience.

“I like the term ‘the big hug,’ meaning, even if you do all your regular business electronically, there are times when you want to come in for a mortgage, or you’re having trouble with a tax bill, and we’re there to give you that big hug of caring service when you need it.”

Herman believes the events of the last nine months have caused banks to re-evaluate the roles and responsibilities that branch staff will have in the future.

“I think the traditional job descriptions we had back in February no longer exist, and they are evolving as we speak,” she said, adding that, while people will remain an important part of branch banking, the industry has to figure out how to serve the new needs their customers will have going forward.

Banking and Financial Services Coronavirus Special Coverage

Lending Support

Chuck Leach, president and CEO of Lee Bank.

Chuck Leach, president and CEO of Lee Bank.

Community banks love commercial lending, Chuck Leach says.

“It’s just good business for us — Main Street lending, that’s where we can have a nice give and take with customers. It’s kind of our wheelhouse.”

That’s all still true, even though 2020 has rocked that wheelhouse in unexpected ways.

“We’re not seeing the same commercial demand,” said Leach, president and CEO of Lee Bank. “It’s either risk aversion or businesses are waiting to see what happens.”

Or, in some cases, they’re extra liquid after taking advantage of the Paycheck Protection Program (PPP) and other stimulus measures, as well as deferring payments on other bank loans, he added. “Put all that together, and they may not have borrowing needs right now, or they’re sitting on their liquidity until they see some clarity with the pandemic or the election or both.”

Clarity has been in short supply since the COVID-19 pandemic forced a widespread economic shutdown at the start of spring that continues to wreak havoc.

Michael Oleksak remembers the first few months of the year, of hearing occasional news about the novel coronavirus back in January, and much more of it as February crept along.

“I’d been asking myself for years, ‘what are we missing? What’s next?’ Because there had to be a ‘next.’ Who would have thought it would be a pandemic?”

“Then, from mid-March into April, everything was a blur. It just spiraled,” said Oleksak, executive vice president, senior lender, and chief credit officer for PeoplesBank, before discussing the PPP surge and other measures that followed (more on that later).

Blurring the picture further was the very uncertainty of what was coming. Having experienced several economic upheavals, from the bank failures of the early ’90s to the bursting of the dot-com bubble in 2000 and 2001, to the housing crisis in 2007 and 2008, he had no idea what the next crisis would be.

“I’d been asking myself for years, ‘what are we missing? What’s next?’ Because there had to be a ‘next.’ Who would have thought it would be a pandemic?

“This will be the fourth economic cycle I’ve been through, and every one has been different,” he added. “And this one is far different than the others. We’re not seeing a lot of new activity. I think everyone is kind of hunkered down, for lack of a better word, in survival mode.”

As Allen Miles, executive vice president at Westfield Bank, put it, “obviously this one was a lot different. You couldn’t see the train wreck coming; that’s the best way to explain it. It just got dropped on us.”

What happened next in commercial lending is an oft-told story recently, but one worth telling again. What will happen next … well, no one really knows. But banks will certainly take lessons from a challenging past seven months as that story takes shape.

 

Lending a Hand

Miles said Westfield Bank started reaching out to loan customers in February when coronavirus became a more widely reported issue. In mid-March, like other banks, it was actively sending employees home. And then the storm hit.

From mid-March into the start of April, “that two weeks was absolutely crazy because you had people looking for loan deferrals, and the bank examiners were very friendly to both the banks and borrowers to try to help these people out,” he recalled. “We were just trying to help our customers. You’re not worried about loan origination; you’re just worried about getting people through the unknown and the craziness.”

Michael Oleksak says new lending activity has been down

Michael Oleksak says new lending activity has been down because many businesses are “in survival mode.”

The first Monday in April, the bank received about 500 PPP applications, and about the same number the next day.

“We needed to get all hands on deck,” Miles told BusinessWest. “We were still waiting on guidance from regulators and the Treasury Department. We had people afraid for their livelihoods, their families, and everything. It was organized chaos.”

The bank got $185 million in PPP loans approved in that first round, what he called a “herculean task.” The second round, several weeks later, was much less chaotic. “That was more for the smaller businesses — a lot more applications, but smaller in dollar size. We were able to keep up with those because we’d been through it, and they weren’t as complicated.”

Oleksak said the PPP was a critical lifeline for a lot of people. “There was kind of a mass panic there wouldn’t be a round two, which put a lot of pressure on the banks and our customers, trying to rush to get them into a program that was not very well-defined from the outset,” he recalled. “Then round two came along, and everyone who needed funds was able to access them, and that made a big difference.”

Leach said the widely reported chaos was quite real, but the larger story was a positive one.

“For now, this has put a lot of capital in the banks and a lot of capital in businesses in our region and beyond. A lot of our customers are in good shape right now.”

“In spite of the controversy, and the people who thought they were making up the rules as they went along, I think the PPP was very functional,” he said. “We’re seeing a lot of customers well-capitalized right now, which is the untold story nationally.

“Maybe that changes and this is just a Band-Aid,” he added, due to the lack of clarity about the next few months, from fears of a second COVID-19 surge to the limbo status of further federal stimulus. “But, for now, this has put a lot of capital in the banks and a lot of capital in businesses in our region and beyond. A lot of our customers are in good shape right now.”

Lee Bank processed 348 PPP loans and has submitted more than 100 forgiveness applications, although some customers are waiting to see if the federal forgiveness guidelines change, specifically whether “they do a sweeping approach where everything under $150,000 is forgiven with a very, very simple forgiveness application.”

Again, borrowers want clarity. Still, Leach came back to the positive impact his bank was able to make with the PPP — and also with loan-payment deferrals for about 240 customers, with about $60 million deferred in total. “In a bank that has $400 million in total assets, you can see that’s a good chunk,” he said, adding that only a fraction of those customers requested a second deferral period.

Oleksak and Miles both reported similar trends, with requests for continued deferrals dropping after the first 90-day period.

“Thirty days before the first deferment was up, we contacted people, and 85% to 90% said, ‘we’re good, we’re not going to be looking for a deferral going forward.’ So that made us feel really comfortable,” Miles said. “With the PPP and the deferrals, it bridged the gap for customers.”

“We’re being very sensitive,” added Kevin O’Connor, Westfield Bank’s executive vice president and chief banking officer. “We’ve been very involved with them, understanding their needs and how the bank can work with them.”

While borrowers in the broad hospitality sector continue to struggle, for obvious reasons, most customers have come through the past seven months well with the help of PPP and loan-payment deferrals, Miles added. “The main ones hurting are the ones being affected by the phases and the rollouts — restaurants, bars. They’ll take a while to get back on their feet.”

 

Starts and Stops

That’s true in the Berkshires as well, Leach said, and restaurants in particular are worried about the onset of cold weather and an inability to seat more customers, due to both the state’s indoor-capacity restrictions and the reluctance among some patrons to eat inside restaurants right now.

But the region’s hospitality businesses have benefited in others ways during the pandemic; in fact, one bed-and-breakfast he spoke with did record business this summer.

Allen Miles says some loan customers are doing well

Allen Miles says some loan customers are doing well, while others, particularly in hospitality, continue to struggle.

“People left urban areas for a safer place, whether for weekends or longer,” he said, adding that some secondary homes became primary homes, while other people bought first homes in an area they felt was safer than, say, New York City. “Interest rates are obviously really low, but there’s also the fear factor of ‘wait, I’ve got to get out of this urban area.’ So there’s been a huge sense of urgency to buy in an area like the Berkshires.”

Unlike some lending institutions, Westfield Bank has seen healthy activity in loan originations recently, Miles said.

“The deferments and PPP money actually made some people stronger because it’s been cash preservation instead of cash burn,” he noted. “Usually for commercial lending, it starts getting busy after Labor Day. We weren’t sure if we were going to see that cycle again, but now it’s quite busy, and people are active. So that’s a really good sign.”

That activity is strong across the board, particularly in commercial real estate, where customers are refinancing for a lower rate or selling, he explained. “It’s a great time to sell — low interest rates, lower cap rates, people are going to pay you more for the property — so you’re seeing a lot of transactions going on right now.”

Commercial and industrial (C&I) loans are healthy as well, he said, adding, of course, that, “with anything related to hospitality or travel, the jury’s still out on that. The longer this [pandemic] hangs over us, the longer the recovery for them.”

At PeoplesBank, Oleksak said, many customers have been accumulating cash and paying down lines of credit, or shopping around to lock in better long-term rates on loans, which is a challenge for banks already facing flattened yield curves. “I think the depth of the crisis is a little bit masked by the amount of stimulus money in the market, from PPP, SBA programs, and deferments.

“The deferments and PPP money actually made some people stronger because it’s been cash preservation instead of cash burn.”

“Some individuals out there are suffering mightily, particularly restaurants and hospitality,” he added. “The other great unknown is, we don’t have a vaccine yet. Are we going to see another spike? People are trying to get back to normal here, but I’m not sure what the new normal is going to look like.”

He pointed to his own institution as an example. Between half and two-thirds of PeoplesBank employees are still working remotely, a trend being reflected across all geographic regions and business sectors.

As a result, “nobody really knows what’s going to happen with the office segment of the market, with so many people working from home. Will they go back at some point? Will companies decide they don’t need so much space, or does social distancing mean you have fewer people but still need more space? It’s a total unknown for us.”

It’s unfortunate that some industries, like restaurants, will likely see a slower return to health, O’Connor said, “but it’s good to see customer confidence in some areas coming back, even a little bit sooner than we would have expected.”

Miles agreed. “We’re very happy with what we’re seeing right now. It’s not behind us, but it’s not as bad as people anticipated. If activity is picking up and people are borrowing, they’re confident, which is good.”

 

Joseph Bednar can be reached at [email protected]

Banking and Financial Services Coronavirus Special Coverage

Uncharted Waters

Michael Tucker

Michael Tucker, president of Greenfield Cooperative Bank.

It’s safe to say 2020 has been an unpredictable year, testing the ability of all businesses to be nimble. Matt Sosik thinks banks are passing that test.

“Community banks may seem like they’re a staid industry, but we’re actually very accustomed to change, and sometimes a fast pace to that change,” said Sosik, president of bankESB. “So we’re used to it. It’s not always visible from the outside, but culturally, we were very well-positioned to deal with the pandemic.

“The unique thing was that it just seemed to happen so fast. It was zero to 60, and you can’t always move at that pace,” he added, noting that bankESB is part of a family of three different banks with almost 500 employees. “But we pivoted as fast as we could.”

Part of that was recognizing that many customers were suddenly in turbid financial waters, and needed help. So, early in the pandemic, all banks were doing what they could to help them, whether that meant deferring mortgage loans for a few months or guiding businesses through the hastily assembled Paycheck Protection Program, or PPP.

“We had a customer-centric focus, which meant helping people navigate payment-related financial issues — at least the financial issues in their lives that could impact their ability to pay us. We did modifications for a lot of folks; we could foresee this was going to be a problematic situation for them. We got out front of it early and tried to alleviate that one piece of stress at a time when so many aspects of life were stressful. We did millions-of-dollars-worth of modifications for customers in the Pioneer Valley.”

Business customers, especially ones forced by a state mandate to shut their doors, were facing similarly dire issues, Sosik said. “We were also doing PPP by the truckload. It was uniquely challenging for us because it all happened at once.”

Such efforts have impacted banks’ bottom line, said Michael Tucker, president of Greenfield Cooperative Bank (GCB), noting that about 15% of mortgage and commercial loan customers took advantage of deferral programs, resulting in an impact of $900,000 from an accounting perspective.

“Everyone else seemed to be in good shape — but that doesn’t mean it’s going to stay that way,” he told BusinessWest. “I don’t see this totally ending until there’s some sort of treatment or vaccine that’s really effective. That being said, things are slowly reopening, and Massachusetts has done a pretty good job keeping infections down.”

And community banks were an important part of that, he said, noting that those loan deferrals, plus costs related to the shutdown and investments in safety protocols in order to reopen, have contributed to GCB being about $1.5 million behind where it would normally be.

“Community banks may seem like they’re a staid industry, but we’re actually very accustomed to change, and sometimes a fast pace to that change. So we’re used to it.”

“It’s going to be a profitable year, but a lot leaner. It’s going to be a challenge,” Tucker went on. “What worries me is what hasn’t risen to the top. We did the payment holiday, but now that the unemployment supplement is gone, and companies rightsize — a lot of them were paying people but couldn’t keep it up forever — I think, until we have a vaccine, we’re looking at a very difficult 2020 and 2021. We’ll be solid; we’ve put a lot of reserves aside, but it’s going to be a challenge.”

Loan Stars

There are some positive signs in the economy, said Jeff Sullivan, president of New Valley Bank, which launched in Springfield last year. He participates in a group of bank CEOs, and on their last group call a couple weeks ago, most said they were pleasantly surprised that, at least on the commercial-loan side, customers who had deferred loan payments had largely returned to their normal payment schedule.

He noted that bank stocks have been “beat up,” as the analyst community didn’t like the idea of deferring principal and interest. “But the overall, totally unscientific trend I’ve seen is that people are pleasantly surprised with how businesses are coming back.

“From our standpoint, we see a lot of growth; businesses are making plans again,” he went on, conceding that New Valley doesn’t yet have a huge portfolio to manage.

Meanwhile, the housing market and stock market are doing better than anyone expected three months ago, he noted, which contributes to an overall mix message when GDP was down 30% in the second quarter and unemployment rose to 16%. “These are troubling numbers, and from a community-bank perspective, we hope it doesn’t turn into a haves-and-have-nots recovery, where the rich get richer and more people get left behind.”

Tucker said demand for loan deferrals has been way down, and banks are now pivoting to help businesses with the forgiveness-application phase of the PPP.

“We did about $18 million worth of PPP, which for us was a lot because most of our loans were under $250,000,” he said, noting that GSB handled about 280 such loans. “It was about a year’s worth of work in a month. Like a lot of banks, our staff was working nights and weekends.”

Sosik added that the waters surrounding the PPP forgiveness phase are still a but murkey and could use some clarity from Congress so the forgiveness path can be clearer. “If people are unclear about forgiveness, they don’t want to spend the money, so it doesn’t get out into the economy.”

At the same time, he added, banks are also being cautious when it comes to growth plans.

“It’s a time to be careful, but at the same time it’s been a very successful year,” he told BusinessWest. “We’ve grown a lot this year, but we’re obviously looking forward, expecting continued economic challenges, and our job is to be here for many years. There are times to push hard and run fast, and times to slow that down and be cautious.”

Still, banking leaders are pleased to have made the investments they did in online and remote banking models, Tucker noted, while holding up his smartphone. “Our fastest-growing branch is this. That’s a reality.”

“Banks caused the 2008 recession. Banks were weakened and in a penalty box and reviled by the mainstream for several years afterward. The big difference now is, this recession was not caused by banks.”

But while the number of GCB customers using remote banking is 25% higher than before COVID-19, branches still serve a critical purpose, he added. “We’ve seen a lot of people realize we are invaluable to them. When they had problems with their mortgage, they can deal with one person and not get shuffled through a lot of bureaucracy. That’s a plus.”

While branches are still necessary, he went on, they’re different than they used to be; the recently opened South Hadley branch is 1,800 square feet, less than half the space the bank used to set aside for new branches. But he doesn’t foresee any closures, aside from two Amherst branches, about a mile apart, that recently consolidated into one.

“Some banks are using this time as a trigger to say, ‘OK, we’re going to close these branches,’” Tucker added. “We’ve chosen not to do that because there’s enough disruption for customers as it is.”

Sosik noted that bankESB has invested a lot of money in the remote infrastructure and platform. “The technology works seamlessly, and the adoption was good. We were looking for a catalyst we could use to push it and have customers really start enjoying the technological advances. We didn’t expect it to come from a pandemic; we didn’t want it to come from a pandemic. But the pandemic absolutely pushed people to use it.”

That said, “we totally believe in the branch part of the overall delivery system, and we’re still investing in branches,” including one recently opened in Amherst. “But they’re much different than the ones we built a decade ago, or even five years ago. There’s still a need for a branch; customers still want that. Even if they don’t need to be there, they still like that someone they know and trust can work with them when they need it.”

Here for the Long Haul

Whatever the model, the presidents BusinessWest spoke with all believe in the work community banks have done and continue to do during a very difficult year for so many.

“We believe in it,” Sosik said. “Everyone who works for a community bank does it because we love that part of it. If you look at any successful New England town, you’re going to find a locally managed, if not locally owned, community-type bank at its economic center”

While banks still grapple with the impact of not only loan deferrals but ultra-low interest rates, they’re still in strong shape, he added.

Sullivan agreed. “Banks caused the 2008 recession. Banks were weakened and in a penalty box and reviled by the mainstream for several years afterward. The big difference now is, this recession was not caused by banks. Banks are healthy and have lots of capital. And hopefully we can turn the page soon and get back to normal lending.”

Tucker doesn’t know what shape the recovery will take — a U, a V, or the one he feels is most likely, resembling the Nike ‘swoosh’ logo, with a long, gradual ascent to normalcy.

“But we’ll do fine, and we are doing fine,” he said. “There’s just a lot of pressure on the margin with rates as low as they are and all the unknown with COVID.

“I’m very optimistic, though,” he added. “Businesses are doing OK. Yeah, a lot of them are struggling, but we see a lot of small businesses trying their damnedest. And we’re trying to support those businesses. We’re here, and we’re going to be here.”

Joseph Bednar can be reached at [email protected]