Bankers ride wave of changing marketplace

Higher rates are boon for savers, not for borrowers

By JIM K Inney jkinney@repub.com

For much of 2022 homes were selling, businesses were borrowing and interest rates were low.

“We had a very nice year all the way around,” said Matthew S. Sosik, president and CEO of Hometown Financial Group, which includes BankESB in Easthampton. “For most of the year the lending side of our business stayed robust. Demand on the home side was robust. We were sort of able to make hay while the sun was shining.”

But 2023 doesn’t look as good. With the Federal Reserve raising interest rates to combat inflation it’s more expensive to borrow. Higher interest rates also make it more expensive for bankers to get money. They have to pay higher interest rates to get it, and it squeezes their profit margin.

“You can see how the net interest margins will shrink in the industry in 2023,” he said.

“All the while, the costs will rise.”

The Federal Reserve increased interest rates by a quarter point on Feb. 1, slowing the pace of interest rate hikes in response to slowing inflation.

That does mean higher interest rates for savers, Sosik said. Competition is growing for depositors. “I would say it’s just now growing,” he said.

Daniel R. Moriarty, president and CEO of Monson Savings Bank, said banks may start and a multitude of safety precautions in place. As things got better last year, we moved back toward a more “normal” banking model; however, our members have realized the value of using online and mobile services, and we have seen a continued double-digit decline in in-person branch transactions. Freedom has invested significantly in technology and services, giving our members the flexibility to decide if they want to visit our ninebranch network or utilize our significant online capabilities. We have a very robust online and mobile banking suite of products, which allow individual and business members to make deposits, transfer funds, pay bills and more at any time.

Members can apply for consumer loans 24/7 online or via phone and get instant approval. They can also close on their consumer loan from home with the help of e-sign.

Members can have video calls with our call center or mortgage loan originators and even exchange confidential documents through a secure portal. Going forward, we are looking to install our first ITM and continue to make it quicker and easier to open accounts or get loans. We will improve our deposit product set, offer Freedom credit cards and roll out merchant lending for business members, allowing them to finance their customers’ purchases.

During COVID-19, we had almost half of our staff enabled to work remotely: up from 10 when the epidemic began. We currently have approximately 50-plus-orminus employees with the ability to be remote. Some departments have fixed hybrid schedules, with half the staff remote the first few days of the week and the other half at the end of the week but all staff in on Wednesdays for team meetings, for example. Other remote work is not as competing again for deposits, advertising rates for CDs and savings accounts instead of loans.

As far as the general economy, while unemployment remains low, “I feel we are on the cusp of change,” Moriarty said. “We are not quite to that place yet.”

Added Kevin O’Connor, executive vice president and chief banking officer at Westfield Bank, the full impact of interest rate changes is difficult to estimate now because winter is typically slow. But he reminds people that a few years ago, a 7% or 8% mortgage was considered normal.

“Then people got very used to those very low numbers,” O’Connor said. “Will people get used to this new norm?”

A 30-year fixed-rate mortgage averaged 6.15% in recent weeks, according to Freddie Mac.com

O’Connor said he predicts more home equity loans in the next few months. Customers looking to tap home equity in the last few years have been cash-out refinancing — borrowing money while getting a lower interest rate.

“Now no one is going to give up that low interest rate,” he said.

Interest rates are not the only things changing. Bankers are getting used to a new competitive landscape.

In April, M&T Bank completed its $8.3 billion purchase of People’s United Bank, including branches in Western Massachusetts that were once part of either the Bank of Western Massachusetts or of United Bank, which was once headquartered in West Springfield.

Matthew Bannister, PeoplesBank senior vice president for marketing and corporate responsibility, said it is a relief, in a way, to have M&T in the market because it signaled the end of Peoples United and the resulting confusion between

Peoples United and PeoplesBank.

PeoplesBank is continuing its expansion into Connecticut markets, he said. A new branch in South Windsor opens in April and there will likely be another new branch opening in that area later in 2023.

The reason, he said, is that PeoplesBank’s commercial department is doing well in those towns at expanding the base of business customers.

As those businesses do more with PeoplesBank, they ask for offices so they can do things face to face, including cash handling, getting change and other routine transactions.

For PeoplesBank, deposits are now a concern. All banks amassed deposits during the pandemic, when businesses and people received government aid or earned money and had no way of spending it.

Balances went up. “Now they are trickling away,” he said. But overall, PeoplesBank is optimistic, according to Bannister.

In West Springfield, startup New Valley Bank & Trust Co. moved into an office at 333 Elm St. that was most recently Holyoke Credit Union. Holyoke Credit Union has moved to 85 Elm St., a former People’s United Bank and before that a Farmington Bank. JP Morgan Chase, the largest bank in the country, will open locations at 391 Main St., Springfield, in March and at 1 King St., Northampton, in April.

Chase is also working on a location near the Hampshire Mall in Hadley, a spokesman confirmed.

Sosik said it’s interesting looking at the strategies employed by the national brands. Chase is opening local branches while Bank of America has closed local offices.

And banks don’t just face competition from banks. They also battle for business with financial technology companies that offer alternative checking and bill-paying products. BankESB is competing in this modern environment using a pretty old-fashioned model of a mutual bank.

It’s part of Hometown Financial, parent company of bankESB, bankHometown, and Abington Bank, with 37 branch offices located throughout Massachusetts and northeastern Connecticut.

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