Since the implementation of Dodd-Frank, the community banking sector has been going through a period of consolidation. The number of state-charted banks in Massachusetts has decreased from 165 at the end of 2010 – around the time Dodd-Frank was implemented – to 120 at the end of 2018.
But not all community banks have performed the same.
Within that subset, many banks over $500 million in assets have seen record earnings in recent years, while most of the smallest banks, particularly those under $100 million in assets, are merging and being absorbed into bigger banks.
There were 24 banks under $100 million in assets in Massachusetts at the end of 2010, according to the FDIC. By 2013, that number had dropped to 18. After this past year, there were only five banks left under $100 million in assets and two in the group – Fidelity Personal Trust Co. and Boston Trust & Investment Management Co. – are not community banks.
One of the banks that has managed to survive in the fiercely competitive Massachusetts banking environment is the $88 million asset Millbury National Bank.
To stay independent, MNB has put its hopes in lines of business where it already has experience, said Kathleen Marcum, president, CEO and chairwoman of the board of directors at MNB.
“One of the things that we’ve been able to do is to promote ourselves as a boutique, and we focus on small businesses,” she said. “So, we are not a commodity and we do what we do well and those things we don’t know a lot about, we just don’t even go there.”
Just being in business today is an accomplishment for MNB.
The bank was one of the 10 smallest banks in the commonwealth at the end of 2013. Since that time, every other bank in that group has been acquired – Meetinghouse, Avon Cooperative, Merrimac Savings, Colonial Cooperative, Granite Savings, Lenox National, First Federal Savings of Boston, Chelsea Bank and FamilyFirst.
The bank also just outlasted one of its neighboring institutions – Millbury Savings Bank was purchased by Hometown Financial Group last week.
To survive as one of the smallest banks in the state, Millbury National Bank’s leadership has focused the institution on small business lending, where it says it excels. From left: Chief Operations Officer John Latino; President, CEO and board chairwoman Kathleen Marcum; and Chief Financial Officer Suzanne Nydham.
How to Make it on Less than $100M
When Marcum discussed not pursuing lines of business the bank didn’t know about, she wasn’t kidding.
Unlike most banks, which build their foundation on the mortgage business, MNB has never offered the standard 30-year fixed mortgage to its customers or sold them on the secondary market. The bank does offer some portfolio adjustable–rate mortgage products that it keeps entirely in–house, but mainly focuses on commercial lending.
“By not pursuing that [mortgage] market, it allows us to take our resources and focus on being one of the best small business lenders around,” MNB Chief Operating Officer John Latino said.
The bank has used a similar strategy in all aspects of its business.
For instance, when it comes to technology Latino said the bank knows it has to innovate, but that it must weigh the costs and benefits very carefully before implementing anything new.
“We are never going to be the first bank on the block to roll out the latest and greatest tech tool, but we do want to make sure we are rolling out technology to stay relevant,” he said. “We want to make sure it’s a technology that is here to stay.”
MNB recently redesigned its website for a more modern, user-friendly feel. The bank has also started allowing customers to make loan payments or fund accounts with a debit or credit card, rolled out online account openings and partnered with the financial services firm Kasasa, which allows qualifying customers to earn cash back or receive higher interest on their checking accounts.
Latino said Kasasa has helped the bank open 250 new accounts since 2017, a big number for the bank. MNB is also looking at creating an app for its customers and offering some text banking services in the future, he said.
Smallest Banks Saw Modest Performance
While MNB has been able to succeed in an competitive landscape and remain profitable, it has challenges ahead.
The bank has grown its assets by about $14 million since the end of 2013 and by a little more than $3 million since the end of 2015. Its efficiency ratio has been on the rise, reaching 90 percent at the end of 2018, according to the FDIC, while its return on assets and equity has been on the decline as well.
MNB is not alone.
Most banks under $100 million in assets have performed modestly compared to bigger community banks. They are also reporting worse credit quality.
Banks under $100 million in Massachusetts averaged a 1.3 percent ratio of nonperforming loans to total loans at the end of the third quarter of 2018, more than double what banks between $100 million and $1 billion in assets were seeing, and more than double that seen by banks over $1 billion in assets, according to The Navis Group.
Bram Berkowitz
When Mutual Bank and North Easton Savings Bank merged late last year, the CEOs of each bank told Banker & Tradesman they believed there was an asset threshold community banks would need to reach to be sustainable.
“I think as bankers, we believe the $1 billion mark is the new equilibrium,” said Rich Spencer, CEO of Mutual Bank, who will become CEO of the combined entity once the merger is complete. “But we also believe the number is going to move, and it’s going to move swiftly.”
Still, despite the regulatory burden and challenges ahead, MNB intends to remain independent.
“Our stockholders and directors are very committed to that,” Marcum said. “There is a place in the market for us. We have maintained our capital position as well as our profitability and rewarding our stockholders as well. We plan on remaining independent and changing as we need to, to meet the changing needs of our customers.”
