Commonwealth National Bank’s main branch at 33 Waldo St. in downtown Worcester opened in December 2001.

Under the best conditions, the challenges inherent in surviving the first year are formidable for any start-up business. And while 2002 could hardly be described as an ideal business environment, one local de novo bank managed to carve a new niche in a long-established market during the past 12 months and is celebrating not only its first anniversary but also its plan to open a third branch office.

When Commonwealth National Bank opened last December in downtown Worcester, its goal was to return to old-fashioned community banking, with a strong focus on customer service and none of the red tape found at the mega-banks, according to Charlie Valade, a 30-year veteran of the local banking industry and president and chief executive officer of Commonwealth.

Commonwealth, Worcester’s first new bank in 15 years, has experienced growth in assets surprising even to the bank’s board of directors and the bank is preparing to open its third branch, in Shrewsbury, in the beginning of 2003. The bank’s second branch, on West Boylston Street in Worcester, opened in June.

How does a small community bank with a staff of 34 survive in an economy threatened with war, corporate scandals, privacy issues and the lingering threat of a housing bust?

According to Valade, it is all in the product.

“The product that we have in the marketplace is competitive … our service has been high and our name is spreading by word of mouth,” said Valade. “Our first year in business was better than we expected. But with any new business you face challenges along the way and make adjustments along the way.”

Valade said Commonwealth came out ahead in 2002 by word of mouth in the community, and also because a community bank emphasizes customer relationships.

“We are seeing a good referral shoot … it took the community about six months to get comfortable knowing that we were going to be around in the future,” said Valade. “At larger banks, the economy is having an impact on their performance and we are getting a chance to look at a lot of business … being a community bank you tend to stick with your customers longer than a larger bank.”

Andrea White, chief retail officer at Commonwealth, said by the end of September, approximately 10 months after opening, the bank’s assets had grown to nearly $70 million.

“We’ve had a lot of support from the community in terms of referral, and a lot of support from the board,” said White. “Our marketing strategy was to stay out in the media and to grow the awareness of the bank name.”

But building a good name in a close-knit community took patience and a lot of commitment, according to Valade.

Raising the necessary capital for the new bank was no easy undertaking in a slumping economy but Valade and his associate, board member Larry Glick, said the most challenging aspect of the start-up process has been building confidence in their products with customers.

Working Year

In 2001, Commonwealth issued a prospectus and raised approximately $14 million to start the bank, but Glick, director of the bank and also vice president of Bancroft Motors in Worcester, said the federal Office of the Comptroller of the Currency, was at first doubtful that the funds necessary to begin the enterprise would be raised in time.

“Everyone was skeptical at first,” said Glick. “We felt there was a need for this institution and the community would embrace the bank, and we used that approach when we were selling the stock. It took a few months to hit the $14 million, but we were ultimately successful.”

Glick said the bank’s board stood on shaky ground until the preliminary close date in the spring of 2001, which was assigned by the OCC, and then the money “started coming in.”

“None of us had experience raising capital, so all of this was surprising,” said Glick. “When you are raising capital, there is no incentive for anyone to give you a dollar before the closing, but as we got closer to the closing date the commitments started coming in.”

According to Valade, the OCC gave the bank one year from initial approval to raise the necessary capital and open for business.

Valade said opening the second Worcester branch of the bank in Worcester in June built confidence in Commonwealth’s customers that the bank was not leaving and provided incentive – and funds – to open a third branch in January 2003.

“We have effectively put three branches up in one year and it is due to our team,” said Valade. “From a lending side, we have four lenders plus myself and you don’t generally have that type of experience. We may be the smallest in town but no one has as much experience as we do.”

While most banks and financial institutions tout the experience of their staff, few have been forced to call on that experience to start a business in the midst of a slumping economy. In fact, according to Valade, Commonwealth benefited in large part because larger banks become conservative in an uncertain economy.

“In the past year, a lot of the larger banks – when times get tough – are not there for their customers and the customers are impacted,” said Valade. “If you are a community bank, you have to take a hard look at your customers and make some decisions. In some ways, the poor economy helped our deposit growth.”

Although the initial decision to open the bank came during a time when the economy was at a peak, Glick said the bank’s founders never considered halting the project when economic conditions worsened.

“The economy was strong in 1999, and in Worcester there was all of the consolidation of the larger banks, which left the option for a [new] community bank,” said Glick.

Success has not come instantly for all aspects of the bank, however. While the deposit side of the bank continues to grow, the bank’s loan accounts are lagging, according to Valade, who said, “for the most part, deposits are better than expected but on the loan side we were running about 30 days behind where we wanted to be.”

According to White, the loan portfolio is close to the only thing behind schedule at the new business.

Being a start-up bank has allowed management to start from scratch with products and services and design its offerings specifically for the Worcester community, and with the competition in mind.

“The nice thing about being a brand-new bank is that we can choose our products and don’t have to use the products in place,” said Valade. “The products that we have are competitive with the other banks in the community.”

As a new bank, Commonwealth purchased and established online software immediately to serve their customers.

“There was no infrastructure built so we built every product and wrote every procedure and policy and requirement,” said White. “It’s been a really hard year and, in addition to really growing the business, we’ve had to work [to implement] the policy and compliance issues.”

By bringing together various members of the Worcester community, Commonwealth established a board of directors and set a list of policies and procedures for the bank.

The Commonwealth National Bank Board of Directors is made up of local businessmen and businesswomen representing industries including car dealers, accountants, attorneys and managers. Their occupation wasn’t the most important factor in selecting directors, however, according to Glick. The key requirement was that they be intimately familiar with the Worcester community.

With 15 outside directors serving the bank as directors, Valade said the bank has survived on the credibility of people on the board and the knowledge and expertise of the bank staff.

“We picked these people on purpose,” said Valade. “The employees are what makes this bank and all of our employees came looking to be part of a new bank.”

While the prospects for a rapid economic recover remain uncertain for 2003, with the addition of a third branch in Shrewsbury, Valade said he anticipates continued growth for the bank in the coming year.