Bay State Savings Bank's new executive team poses for a photo outside the bank's headquarters in downtown Worcester. From left: Chief Financial Officerr Olufemi Elegbe, Chief Community Engagement Officer Diane Giampa, President and CEO Seth Pitts, Chief Risk Officer Courtney R.Y. Nuara, Chief Retail Banking Officer Tami M. Gunsch and Interim Chief Commercial Banking Officer Daniel J. Kelser. Photo courtesy of Bay State Savings Bank
Worcester’s $534 million-asset community bank Bay State Savings Bank announced a new team of executives this month, with bullish ambitions for growth, but are these dreams warranted given an interest rate environment that’s pressuring banks?
Mid- to large-size banks are challenged by the uncertain economic climate due to persisting high interest rates, potential rate hikes in the near future, and a slew of banking regulations after the bank failures in the spring.
And while the state’s smallest banks may not be able to fund the kinds of big commercial real estate loans that help competitors rake in interest payments and fees, experts and bankers say their fewer layers of bureaucracy make well-positioned to chase a large world of small business clients that bigger banks usually ignore.
Bay State Savings, in particular, is targeting accelerated growth over the long term by servicing more diverse communities within and outside of Worcester, the region it serves.
The bank’s president and CEO, Seth A. Pitts, said that with its new C-suite team, Bay State Savings aims to capture diverse populations across the state of Massachusetts and serve the customized banking and lending needs of small businesses, a sector that has historically been less sought-after by bigger banks.
“Our bank has been pretty much the same for 100 plus years. We’ve done the same thing, we’ve stayed in the Worcester area, and [offered] similar products and services [as] many other banks,” Pitts said. “Now we need to differentiate ourselves in a way and establish, hopefully, niche products that can target different and diverse client populations …Our goal is to hopefully strengthen ourselves and reposition ourselves to fit the future.”
A Community Bank’s Niche
Bay State’s Pitts is looking to grow the bank at a faster rate than it did years before, and one way he believes this is achievable is through expanding its small businesses lending and financing, extending in territories outside of the Worcester region.
Another small bank, Springfield’s New Valley Bank, launched in 2019 specializing and only focusing on serving small business banking customers that are predominantly owned by diverse minority communities and giving them “strong, concierge-level service.”
“We are filling a niche where there’s a little bit of competition from banks, but a lot of the competition is from non-banks. Small businesses turn to non-bank sources to get capital because it’s faster, but it’s usually more costly. So, we try to be as fast as the non-banks but provide better service and better [interest] rates,” CEO Jeffrey Sullivan said.
Other banks chasing that niche include Connecticut’s Liberty Bank, which launched a digital bank arm in Massachusetts earlier this year called Owners Bank.
Given the emergence of up-and-coming entrepreneurs in its Western Massachusetts market, Sullivan said New Valley Bank saw successes in sticking to solely offering small business banking and lending, as well as actively managing its expenses. The bank reported that it turned a profit in the third quarter of the year, albeit a small amount, after being in the red for the past quarters due to the challenging economic environment.
“We’ve succeeded in finding customers that prefer to have a loan officer assigned to their account. They wanted a kind of trusted advisor from the bank and not just being a provider that they find on the internet. So that tends to be our customer in markets like Western Mass.,” Sullivan said.
‘You Aren’t a Number’
Regardless of the economic challenges, small-business owners are dedicated to growing their businesses and have put their life savings in their ventures, which make them hungry for the best customer service from their bank, the New Valley Bank CEO said.
He further noted that community banks also sometimes offer wrap-around services such as accountants and lawyers to help small businesses they have relationships with. Some of the fastest growing community banks have also used this tactic to support their small business clients.
A recent J.D. Power survey showed that more residential mortgage borrowers tend to go for lenders with better services and customer care than just the lender presenting the lowest rates.
Arthur Loomis, president of consultancy Loomis and Co., said small community banks are better suited to cater this niche market as they are nimble, flexible and can provide customized solutions for their customers. These banks can also provide direct senior management access to customers that large banks can’t.
“Small banks may not have the sophisticated products or spectrum of services, but they are more customer-friendly and can make customized decisions more rapidly than the behemoths. Simply, you aren’t a number. Community banks offer the customer the highest ‘trust coefficient’ for financial advice, and that is worth a lot to discerning customers, particularly those who have had large-bank relationship experiences,” Loomis said.
When it comes to lending risk, Sullivan said the federal Small Business Administration helps with securing as much as 80 percent of the small business loans in case the borrowers are unable to continue with loan payments. This cushion enables smaller banks like New Valley Bank to issue loans to borrowers that are usually not granted loans as they carry a lot of risk for banks.
Technology and Relationship Banking
Bay State Savings is still in the early stages of evaluating which growth areas it will pursue, and plans to “reevaluate, shift, or repurpose” many of its products.
But Pitts, the bank’s CEO, said he is looking at deploying more technologies to better serve the evolving needs of its diverse target clients, in addition to leaning on the local and hands-on relationship banking approach that is natural a community bank like his.
“We know more and more customers are OK with not having a physical branch,” Pitts said. “We are looking to improve our technology so that we can expand our online account opening and reach the entire state to begin and offer an ability to connect with people that may be outside of our geographic location.”
The bank wants technology investments to help its employees “serve the customers in any way our customers want to be served,” he added.
Loomis said adopting advanced technologies can optimize community banks operations by focusing human resources to provide deep financial advice that is personalized to each client.
“As technology strains out the transactional activity from banking, the key is the relationship with the customer. Thus far, nothing beats a person-to-person interface for material personal and corporate decisions like loans or wealth management advice,” Loomis said.
Nika Cataldo
Challenges for Small Banks
Small community banks may have high hopes for growth and can be positioned to achieve it, but they can be also challenged by different factors that can ultimately lead to consolidation – or absorption by bigger banks – and failures.
Loomis said that the number of banks in the country is now down to 4,500, from the roughly 20,000 operating in the early 1980s due to consolidations and failures through the years.
Despite threats of consolidation and closures, he said community banks have more growth opportunities than bigger banks, and “will always grow, maybe not in excess of 4 to 5 percent per year” to survive. He noted that some community banks may even shoot for and achieve 10 to 15 percent growth per year.
Despite not having flashy, sophisticated and wide array of products and services like big banks, Loomis said community banks can survive and even thrive, for as long as they focus on their core strengths and identify niche markets that will bring them growth over time.
Email: ncataldo@thewarrengroup.com
