Banking New England Jan/Feb 2015 by The Warren Group

JAN/FEB 2015

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Reinventing the Community Bank Midsize Mergers Redefine Markets, Turf

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LETTER FROM THE EDITOR

The Sharper Eye

ur cover story and a complementary feature address the changing economic landscape for small and midsized banks. The articles address different aspects of the causes and effects of mergers. There’s the marketing and turf aspect, and then there are the behind-the-scenes issues brought on by stock conversions of mutual banks. The last time this happened, it was a response to a burgeoning stock market in the late 1980s that promised a brass ring for any shareholder with a pulse and an outstretched hand. That didn’t always work out, as anyone who invested in real estate based on speculation back then can tell you. Investors would go on to pursue other bubbles with varying degrees of success, dependent on when they got into the market and when they got out. That’s where we got into the culture of timing the market rather than investing for the long term. Technology that can track trades in milliseconds was first the province

Christina P. O’Neill Editor, Banking New England

of the Bloombergs of the world, and has since been pushed down the system. But there’s a difference between sophisticated technology and sophisticated buyers, which threatens to perpetuate an inequality gap of more subtle origins than the difference between minimum wage and living wage. In the land of the blind, the one-eyed man is king. One of the sources in the cover feature says economies of scale are not easily achievable in today’s mergers, and that mergers benefit managers rather than customers and owners. Another source, though, provides a mirror opposite observation, saying that the builtin cost of running a $100 million bank and a $500 million bank aren’t that much different. Yet others say that more subjective costs, such as paying enough to retain talented executives, figure in to the mix. That’s getting back to the argument about the one-eyed man in the land of the blind. In the end, it’s hoped that a long-term vision may prevail. BNE

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A PUBL ICAT ION OF T HE WA RRE N G ROUP

CONTENTS

NEW ENGLAND

THE RESOURCE FOR NEW ENGLAND’S FINANCIAL LEADERS

A WHOLE NEW WORLD

The Rise of the Modern Banking Compliance Professional

BANK PROFILE

Sugar River Bank Brings Hometown to Downtown

BIG DATA

Real-Time Analytics for Mission-Critical Needs

INDUSTRY NEWS

ALL TOGETHER NOW

Banks Across New England Joining Up

PERSONNEL FILE

COMMUNITY GOOD WORKS

Reinventing the Community Bank TWG STAFF CEO & PUBLISHER Timothy M. Warren Jr. PRESIDENT David B. Lovins

www.thewarrengroup.com ©2015 The Warren Group Inc. All rights reserved. The Warren Group is a trademark of The Warren Group Inc. No part of this publication may be reproduced in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without written permission from the publisher. Advertising, editorial and production inquiries should be directed to: The Warren Group, 280 Summer Street, Boston, MA 02210

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IN CASE YOU MISSED IT

Call 617-896-5307 or email custompubs@thewarrengroup.com

EDITORIAL EDITORIAL DIRECTOR Cassidy Murphy CUSTOM PUBLICATIONS EDITOR Christina P. O’Neill ASSOCIATE EDITOR Anna Sims INTERN Rachel Benoit SALES DIRECTOR OF BUSINESS MEDIA George Chateauneuf PUBLISHING GROUP SALES MANAGER Rich Ofsthun ADVERTISING ACCOUNT MANAGERS Claire Merritt, Bob Holzhacker and Michael Lydon CREATIVE/MARKETING DIRECTOR OF MARKETING & CREATIVE SERVICES John Bottini MARKETING COMMUNICATIONS MANAGER Nicole Patti DESIGN PRODUCTION MANAGER Scott Ellison GRAPHIC DESIGNERS Amanda Martocchio, Tom Agostino and Tyler Grazio

BANKING NEW ENGLAND

A WHOLE NEW WORLD

The Rise of the Modern Banking Compliance Professional BY EDMUND GREENE Edmund A. Greene Esq., LL.M., banking and financial law, ARM, CRCM, is president of Greene Consulting Group Inc., a consulting and legal-based firm providing bank compliance and legal services. He may be reached at edgreene@greenegroup.net or (781) 254 2346.

oday’s banking compliance professional has evolved from the pariah that loan officers and business line managers avoided into an integral part of a financial institution’s leadership. The modern banking compliance professional is necessarily educated and adept at navigating the complex and disjointed array of regulations and risks, including the Dodd-Frank Act, the Bank Secrecy Act (BSA) and anti-money laundering (AML) schemes. The modern banking compliance professional also embraces the need for profitability and new technology, and is no longer the naysayer of risk. Technology, terrorist attacks and the nearcollapse of the entire financial system have forever changed the landscape of banking compliance. Banking compliance is vastly different than it was just five years ago – and new regulations and technology are responsible for the changes. Twitter, LinkedIn, Facebook, smartphones, virtual offices and BYOD are now the norm. In 2010, the Dodd6

BANKING NEW ENGLAND

Frank Act had just passed, and cybersecurity was in its infancy. Today, there is a recognized need from both government agencies and financial institutions for compliance specialists in Dodd-Frank, BSA, AML and cybersecurity. Recently, state and federal government agencies announced they will hire IT specialists to train their own IT examiners. The Dodd-Frank Act and its over 2,000 pages of new regulations became banking compliance professionals’ top priority – and their greatest source of angst – from its passage in 2010 to the present. Many of the act’s rules became effective in January 2014. The act is one of the most sweeping regulatory changes to the banking industry since the Great Depression and was promulgated in response to the mortgage crisis beginning in 2007. In sum, the act requires banks to implement numerous new consumer protection policies and procedures and authorizes the formation of a new agency – the Consumer Financial Protection Bureau. Big banks have dedicated mortgage compliance specialists

to tackle their new mortgage regulatory obligations, while for smaller community banks, it is one of many regulations for the compliance officer to manage. While BSA and AML regulations now have a long history, it is extremely noteworthy that the federal government just updated its BSA Manual comprised of 440 pages. Big bank BSA and AML violations have been headline grabbers over the last couple years, virtually displacing Dodd-Frank from the banking lexicon. BSA and AML violations pinnacled in January 2014 when JPMorgan paid fines and forfeited monies combining $2.05 billion ($1.7 billion forfeiture for Bernie Madoff ’s Ponzi scheme victims). While BSA and AML are also complex and involved regulations, what is far more concerning to financial institutions is the magnitude of fines and the loss of reputation violations bring. Due to the significance, BSA and AML have now become a thriving area of specialty compliance. Most big banks have hired a veritable army of BSA and AML personnel both to vigilantly combat crime

and to remain compliant. Both big and small banks now rely on technology to assist them with BSA and AML compliance. The scope, administration, parameter and reports that BSA and AML software provide are also part of a regulator’s examination. Inarguably cybersecurity is the “hottest” compliance risk today due to the sensitivity of consumers’ person information. In fact, the Justice Department is expected to announce on Dec. 4, 2014, the creation of a cybersecurity unit. That same week Sony Pictures’ internal computer systems were hacked and disabled. The hackers were able to obtain and publish an abundance of personal information, including salaries, health care records and performance reviews. With the advance of technology follows the advance of cyberattacks. Distributed denial of service (DDoS) attacks have become the latest type of cyberattack in which a skilled hacker “smokescreens” a bank. Smokescreening is when cybercriminals tie up IT personnel, who focus on the disruption. Meanwhile, while all focus is

on the disruption, the cybercriminal will infiltrate the network to steal money, personal customer data and intellectual property. These events cost organizations large sums of money in the form of service-level agreements, service interruptions, and credit protection for clients affected by the attack. Cybersecurity compliance and specialists in this risk area are quickly becoming the top priority of regulators and financial institutions. Managing the myriad of regulations and growing risk from technological advances is daunting for the most seasoned banking professional. Consequently, banking professionals continue to supplement their knowledge with industry recognized certifications. Many compliance officers are lawyers, finance and MBA graduates – and now, IT specialists. With consumers relying on banks to keep their money and identities safe, the modern banking compliance professional must be a champion of cuttingedge technology and a key participant in business strategies and risk management at the C-level. BNE

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BANK PROFILE

Sugar River Bank Brings Hometown to Downtown BY LINDA GOODSPEED

President and CEO Mark Pitkin

Groundbreaking for the Concord, N.H. branch.

fter more than a century of serving rural central New Hampshire, Sugar River Bank will open its first “city” branch this spring – its first expansion in 22 years. “We’ve always been comfortable servicing the same five markets,” said Mark Pitkin, president and CEO. “But with significant changes in the marketplace in terms of competition, technology, costs and regulation over the last several years, I think all banks have to look at growth as an integral component of success. It’s hard to keep up if you don’t grow.”

“We compete with a lot of similar-size mutuals When you compete with a lot of like-kind, it’s always challenging.” — Mark Pitkin, president and CEO, Sugar River Bank

Founded in 1895, Sugar River Bank is a fullservice retail and business mutual bank with total assets of $260 million. Its five offices serve the communities of Newport, Grantham, Sunapee, New London and Warner along the I-89 corridor. Later 8

BANKING NEW ENGLAND

this spring, Sugar River will open its sixth branch at the start of I-89 in the state’s capital city of Concord. “Concord is a natural progression for us,” said Pitkin. “It’s a vibrant community that I think is right for a hometown banking experience. We want to bring what we are in small communities to a bigger metro.” Headquartered in Newport (population: 6,000), Sugar River calls itself “Your hometown bank.” Even Pitkin, its president, is home-grown, graduating from Newport High School in 1987, and then from the University of New Hampshire. He joined Sugar River in 1995 as a commercial loan officer, and was named president in 2009 at the age of 39, one of the state’s youngest bank presidents. Newport is located about 75 minutes from Manchester, and about halfway between Concord and Lebanon. More people leave than move into the area, whose economy is primarily based on recreation with a small concentration of precision manufacturing and small retail. Sturm Ruger, one of the nation’s largest gun manufacturers, is the area’s largest employer, with about 1,000 workers. The local banking environment is also small, but competitive. “We compete with a lot of similar-size mutuals,” Pitkin said. “When you compete with a lot of likekind, it’s always challenging.”

Sugar River began laying the groundwork for growth even before Pitkin assumed the top job, dropping “savings” from its name in 2007 to more fully describe the bank’s focus as a full-service retail and business bank. In 2011, it formed a mutual holding company. In April 2014, it opened a loan production office in Concord in preparation for the opening of the new branch there in early 2015. Sugar River’s loan portfolio of $157 million is primarily made up of residential loans (about $119 million, or 76 percent of total loans). “Over the last three to four years, we’re moving much more heavily into commercial lending,” Pitkin said. Commercial loans now total about $37 million (24 percent of the bank’s loan portfolio), up from 8 or 9 percent just a few years ago. “It’s hard to grow your commercial business in small rural communities,” Pitkin noted. “Our interest in growing our commercial business is another reason why Concord is such a good fit for us.”

Flexibility and Cooperation

Pitkin said Sugar River came through the recent recession without missing a beat or a profitable year. “Not even a blip,” he said. Pitkin said the bank was able to maintain consistent earnings through the crisis by restructuring the balance sheet to rely more heavily on investments in securities and commercial loans. Beginning around 2009, Sugar River started selling more of its fixed rate mortgage assets to the secondary market rather than keep them in-house.

“We always retained servicing,” Pitkin said. “We took care of all the demand in the marketplace, but didn’t necessarily hold all the fixed rate assets.” Sugar River also participates in Banc Alliance (where Pitkin is a member of the board of directors), a Washington, D.C.-based community bank cooperative, formed to provide a shared national commercial and industrial lending platform for community banks. “It allows small community banks like us to participate in large syndicated loans that were only available to much larger regionals,” Pitkin said. 2015 is shaping up to be a memorable year at Sugar River. Not only will it open its first new branch in nearly a quarter century, it will also celebrate its 120th anniversary. “The bank is such a central part of every community it’s in,” noted Dave Lantz, owner of MJ Harrington & Co., a family-owned jewelry store in Newport, and member of Sugar River’s board of directors. “Most every project or endeavor that comes before the bank for support is considered.” Lantz also said well over 80 percent of the bank’s employees volunteer and participate in community organizations and nonprofits. “It’s an incredibly committed organization, both people and financial.” And that’s the point, Pitkin said. “Banking is getting more competitive. A small community bank like us has to focus on the needs of its customers and communities. It’s what sets us apart.” BNE

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BIG DATA

When You Need to Know ASAP Real-Time Analytics for Mission-Critical Needs BY CHRISTINA P. O’NEILL Christina O’Neill is editor of custom publications for The Warren Group, publisher of Banking New England.

eal-time analytics used to be the province of the biggest and richest companies. But a combination of declining cost of random access memory (RAM) and the availability of software, including opensource, to manage real-time computing needs is addressing a growing need for immediate analysis. Midsized and small banks can increasingly access in-memory computing (IMC) power that until a few years ago was economically out of reach. The upside: IMC can help smaller banks analyze data by reducing response time to milliseconds. The caveat: IMC products cannot be all things to all users. Think of it this way: You need a risk assessment profile for a prospective borrower, or you see a pattern in a customer’s transactions that may indicate cyber-theft or fraud against them or by them. Your newest data isn’t in 10 BANKING NEW ENGLAND

your system yet and the files immediately available to you only go back so far; they don’t include all possible data sets, and your most current information is a month old or more. Older history may have to be retrieved from an archived source, which may take a while to access. Enter IMC, which is expanding to the point that new, smaller entrants are joining the big players. The marquee names include Hazelcast, Pivotal GemFire, Scale Out Software and GridGain, recently renamed Apache Ignite, as some of the more robust, scalable, in-memory solutions financial institutions have trusted to host rapidperformance applications. Additionally, there’s the increasing popularity of in-memory databases like SAP HANA and VoltDB, Continued on page 12

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When You Need to Know ASAP Continued from page 10

and even in-memory options for well-known databases like Oracle, DB2,and SQL Server, according to Mike Matchett, senior analyst and consultant of Taneja Group, which follows GridGain. Max Herrmann, executive vice president of marketing at Foster City, Calif.-based GridGain Systems, says “smaller banks have to be more careful; each decision [has more impact]. It takes a lot for a big bank to fail, but small banks can’t be wrong.” GridGain Systems is an open-source and commercial in-memory data fabric solutions provider, and it has recently open-sourced its core IP software, which can be adapted into existing disk-based systems.

A Wider, Faster Approach

Matchett noted that IMC now encompasses in-memory databases, data grids, distributed caches, messaging stores, complex event processing and in-memory analytics, and that judicious selection of which key data sets to bring from disk systems into IMC can drastically reduce search time. The data explosion of online and mobile banking has created a transaction workload for small to midsized banks, bringing pressure on existing systems without an attendant increase in revenue. Transaction data itself is most likely to remain disk-based, as tracking it has limited value-to-revenue versus cost. However, John L. Myers, managing research director, business intelligence at Enterprise Management Associates, said financial institutions can supplant their disk-based data with IMC to develop cross-sell and up-sell models based on transactions. Massimo Pezzini, vice president and research fellow for Gartner Group Inc., noted that IMC technology has been in market use for the past 10 to 15 years. Offloading transactional data from a core system to an IMC platform can reduce both response time and operational cost. He cautioned, however, that it’s wrong to assume that it’s necessary to replace an existing database with IMC. “That’s too expensive. IMC is still at the stage where it can be justified for individual projects, but not for everything.” While specific costs of IMC depend on the application, plunging memory costs and rising capacity of commodity server hardware has resulted in systems of up to 6 terabytes of memory, a 50 percent increase in capacity over a similar system in 2013, Myers said. IMC can broaden the number of data sources used in analysis, with multi-platforms being utilized for larger enterprise data centers – utilizing, for example, 12 months of activity compared to three months, and a wider set of internal or external data sources, and capacity will continue to grow.

Tweets and Clouds

The explosion of social media falls into the real-time purview, with both positive and negative comments in the mix. “It’s so easy to retweet,” Herrmann told Banking New England. “Retweets can go viral through unexpected sources. [Financial institutions] have to find those posts. It’s no longer possible to wait a few days. You have to find them and analyze what happened.” As do others, Herrmann thinks that disk storage won’t go away. It’s 12 BANKING NEW ENGLAND

the most economical for many applications, but RAM access is faster and has become almost unlimited in size due to the advent of cloud computing. Increasing acceptance of and comfort with cloud computing on the part of financial institutions, if they can be assured of adequate cybersecurity. Taneja Group’s Matchett said cloud-based IMC solutions provide an environment in which a distributed IMC grid can be implemented across geographic regions, without a financial institution requiring its own geographically distributed data centers. Enterprise Management’s Myers said that many organizations will use an information lifecycle management to push low latency (fast processing) information to IMC, and pushing higher latency (slower processing) information to disk storage. Disk storage is also required for backup of in-memory information. “IMC and cloud can work together, but I am still awaiting the best use case for that,” he said. Critical to the choice to move from data center to cloud will involve security and personally identifiable information protection.

Costing out the Solutions

In the last few years, customers have embraced the pay-per-use benefit versus making capital expenditures on resources from which they will not derive immediate benefit, Herrmann said. Gartner Group’s Pezzini doesn’t see IMC replacing disk storage, but it does enable applications that were simply “unthinkable” in a purely disk storage world. Matchett suggested asking a systems designer if it’s possible to eliminate some tiers of costly intermediate infrastructure, focusing on IMC at one end and slower, less-expensive and higher-capacity disks on the other. For banks that have merged or acquired, the cost of legacy systems has to be realistically assessed. “One of the questions you might ask as a systems designer is if you can eliminate some tiers of costly intermediate infrastructure, and focus on memory on one end with cheaper, slower, higher capacity disks on the other,” Matchett said. “As you are looking at legacy systems, over time, [they do] depreciate. … Sunk cost is a fallacy if I can only make it work for another year. That cost is gone, and what’s the best thing I can do now?” BNE

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INDUSTRY NEWS

United Bank Shutters 5 Branches

Mass. ATM Law Trips up New Land Casino Operators

Real Transfer Inc. Faces License Revocation in Mass.

Vermont Bankruptcies, Foreclosures Drop

Glastonbury, Conn.-based United Bank will have closed a total of nine branches by spring of this year, after the merger of Rockville Bank and United Bank in April of 2014. Four Massachusetts branches in Northboro, Northbridge and two in Northampton are among those being closed. The bank took a one-time $5.5 million pre-tax charge to its fourth-quarter earnings to reflect the impact of the closings.

In December, Massachusetts state banking officials sought to revoke the license of a Florida-based foreign money transfer company with headquarters in Marlborough, Mass., after an examination of the company’s books turned up alleged “significant failures” to comply with state and federal laws. The state Division of Banks filed an administrative complaint against Real Transfer, which reportedly had more than two dozen authorized agents in Massachusetts, alleging that it failed to adequately record its transactions or provide detailed receipts to customers. State bank examiners charge that it also failed to properly safeguard against money laundering or report potentially suspicious transactions. The company, which formed in Florida in 2004, has operated as a foreign transmittal agency in Massachusetts since July 20, 2009. Its operations have expanded into communities stretching from MetroWest to Boston and Cape Cod. The company reported transactions totaling more than $6 million during 2012, according to the state’s complaint.

A state banking law at least three decades old prohibiting ATMs on legalized-gambling premises is glitching preparations for casinos in Massachusetts. Currently, the state’s gambling commission has recommended that ATMs should be located at least 15 feet from any gambling floors. This isn’t based on banking laws, but rather language in the 2011 casino bill that restricts where and how banking transactions can take place in casinos.

Vermont saw big drops in bankruptcy and foreclosures rates in 2014, according to the Barre Montpelier Times Argus. There were 705 bankruptcies filed in 2014 compared with 910 during the previous year, a decline of 22.5 percent, according to the U.S. Bankruptcy Court in Vermont. Foreclosures dropped to 1,035 filed in 2014, a decline of 34.4 percent from the year before. Vermont has some of lowest bankruptcy and foreclosure rates in the nation. Many sources interviewed by the Barre Montpelier Times Argus agreed that the declines this year and in years prior – the state’s bankruptcy rate has dropped four years in a row, while its foreclosure rate has fallen in four out of the last five years – stem from Green Mountain State residents dropping debt accumulated during the Great Recession. These sources attributed the dropping rates to tighter credit, rather than an improving economy. Nationally, bankruptcies dropped by 12 percent to 910,090 filed in 2014, according to data provided by Epiq Systems to the American Bankruptcy Institute, the Times Argus reported. BNE

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COVER STORY

Commun Ban It’s Not George Bailey’s Bank Anymore

16 BANKING NEW ENGLAND

By Scott Van Voorhis

nity nks Join Forces to Stay Both Local and Viable

Fiercely independent community banks across New England are bulking up for survival as they grapple with a bleak interest rate environment, rising regulations and, until recently a slow-motion economic recovery. December saw a pair of deals between small co-operative banks in both Eastern and Western Massachusetts as 2014 ended with a bang, with more of the same in store for 2015, bank executives and observers predict. Easthampton Savings Bank announced plans to acquire Connecticut-based Citizens National Bank, while Weymouth Bank announced it will be teaming up with Equitable Co-operative Bank in Lynn in an unusual combination of South Shore and North Shore financial institutions. The previous 11 months of 2014 saw a bevy of community banks on both sides of the state team up, not counting the continued expansion of Eastern Bank, now an up and coming regional player. Merger activity has been on the rise as well in other New England states, with merger deals over the last few years in Connecticut, Rhode Island and Vermont. Bank executives leading these deals say maintaining independence is becoming an increasingly costly proposition, with no end in sight to anemically low interest rates and regulatory costs hitting smaller institutions especially hard. And as they seek merger partners, local banks are carefully weighing how all the parts will fit together, from market territories to lines of business. But as they team up with old rivals, community banks face the challenge of forging a larger, stronger institution while at the same time trying to preserving their unique bonds with their customers and local communities. “What really drove this were the economics of two small organizations that really didn’t want to merge themselves out of existence with a much larger bank and lose all that rich history,” said Weymouth Bank CEO Robert Terravecchia Jr.

A Burst of Merger Activity

Banks across the state scrambled to snap up competitors and merge with rivals in 2014, with the pace of activity picking up momentum as the year wore on. In Eastern Massachusetts, 2014 saw North Shore Bank acquire Saugus Bank, Rockland Trust buy Boston-based People’s Federal Savings Bank and the Newburyport’s Institution for Savings snap up Rockport National Bank. Continued on next page

BANKING NEW ENGLAND

COVER STORY

Community Banks Join Forces Continued from page 17

Central Massachusetts saw North Brookfield Savings team up with FamilyFirst Bank. And Western Massachusetts saw Pittsfield-based Berkshire Bank announce plans to acquire Springfield’s Hampden Bank, Northampton and Greenfield co-operative banks unveiled merger plans, while United Bank wrapped up its combination with Connecticut-based Rockville Bank. “We have certainly seen a pickup,” said Collyn Gilbert, a bank analyst at Keefe, Bruyette & Woods, of merger activity in New England. “A lot of the activity has been on the smaller bank level, $2 billion in assets or less.” As they seek out partners, community banks are also pursuing geographic goals, using mergers to either enter new markets or shore up their position in their home territories. Eastern Bank’s deal for Bedford, N.H.-based Centrix Bank gave the Boston-based financial institution its first beachhead in New Hampshire, with six ready-made branch offices. Eastern, which wrapped up the $134 million deal last fall, was also attracted by Centrix’s niche but lucrative business financing the purchases of private planes. “It was a terrific fit for us in so many ways,” said Robert Rivers, president of Eastern Bank. “It was an opportunity to leverage our strengths and leverage theirs and go into that market. We see a lot of opportunities over time.” In its deal for Lynn-based Equitable, Weymouth Bank saw an opportunity to leap over the Boston market into the North Shore market, said Don Smith Jr., Equitable’s president. “Our thought was to build a presence on both sides of Boston,” Smith said. Rockland’s acquisition of People’s gave the South Shore bank a long-sought prize, a foothold in Boston itself, with People’s based in Brighton. North Shore Bank’s acquisition of Saugusbank and Newburyport’s deal for Rockport strengthened both banks’ position in the North Shore. Similar forces were at play in Western Massachusetts, with Northampton and Greenfield cooperative banks shoring up their local market position, while West Springfield-based United Bank and Easthampton Savings both bought into the Connecticut market with acquisitions of banks there. Pittsfield-based Berkshire Bank leaped the Western Massachusetts mountain range to buy Springfield’s Hampden Bank. Merger mania has also paid a visit to other New England states – Lebanon, N.H.-based Mascoma Savings Bank completed its acquisition of Connecticut River Bank last August, adding branches in the Granite State and Vermont. Milford, N.H.-based Lake Sunapee Bank has acquired four banks over the past few years, including two in central Vermont, while also picking up a local insurance firm as well. And Brookline Bancorp picked up 17 branches in Rhode Island after its 2012 purchase of Bank Rhode Island.

Driven to Deal-Making

But while entering new markets is all wonderful, something else must be at work for banks that have been independent for generations 18 BANKING NEW ENGLAND

to either agree to be acquired or go on the hunt for a merger partner. Take the recently announced deal between Weymouth and Lynn’s Equitable. Weymouth Bank just celebrated its 125th anniversary, while Equitable was founded even earlier, in 1877. For Equitable, agreeing to merge after 137 years of going it alone was no easy decision, notes Donald Smith Jr., the bank’s president. But with rates stuck at historic lows and the Lynn real estate market sputtering, the prospect of simply trying to hang on for the sake of hanging on was unappealing. Low interest rates have made Equitable’s core business a tough slog, with the spread razor thin, Smith said. Nor have there been attractive investments in which to park money that isn’t being loaned out, with yield in the bond market at a rock bottom low, Smith said. “As a small bank, we are looking at an ever shrinking revenue stream and the costs keep rising,” he said. “You are looking at declining revenue and increasing costs.” On top of that, keeping up with the mountain of post Great Recession bank regulations has become increasingly onerous for smaller banks. By combining, banks can spread those costs over a wider base, said Weymouth Bank’s Terravecchia. “The built in cost of running a $100 million bank and a $500 million bank are not that much different,” he said. “You have a bigger base.” Executives at other local banks involved in mergers blamed similar factors. It’s not just finding a way to pay for compliance and IT, but also to afford to pay talented executives enough so they won’t jump ship for larger financial institutions, said Matthew Sosik, CEO of Easthampton Savings Bank. “I have worked for smaller banks in my career and I can tell you very simply the concept of scale is very real,” he said. “It allows you to absorb higher costs and, hopefully, higher talent.” “It’s just economics 101 – it’s easier to spread the cost of talented staff over a broader base,” Sosik added. However, it’s not just low rates and high regulator costs that are putting the squeeze on smaller banks. The need to keep up with new banking technology- and ever more elaborate security systems – is also taking a toll, said Rivers of Eastern. “We hear a lot about squeezed margins,” he noted. “The one that is probably the most significant is technology. The ability to have comparable offerings and mobile banking requires a tremendous investment and it is very hard for smaller organizations to keep up with that spend.”

Unconvinced in Amherst

Not everyone is sold on the need to merge, though. Ben Branch, a professor of finance at the University of Massachusetts Amherst, acknowledged that banks face challenges in a low rate environment, but he’s skeptical about claims that mergers will reap major economies of scale. “Most of what banks do don’t yield a lot of economies of scale,” he said. “I think a lot of this activity is more for the benefits of the managers than it is for the customers and owners.”

Meanwhile, as they merge, banks are taking different approaches, with some seeking continuity, even as others shake things up. The new United Bank, the product of a merger between the previously West Springfield-based United and Connecticut-based Rockville, is closing two branches in Northampton, one each in Northborough and Whitinsville, and one in Broad Brook Connecticut. By contrast, Weymouth and Equitable have been able to avoid large scale cuts, even as they forge plans for a somewhat slimmer combined bank. There are not a lot of overlapping positions that have to be eliminated. Some key executives have retired, while Equitable has focused on residential lending while Weymouth specialized in commercial real estate loans. The two banks are taking a go-slow approach, planning to keep their branches operating separately for up to two years as they work on melding their separate IT and back office systems into a single platform. Still, the two banks have already made one of their biggest decisions, with plans to name the new, combined bank Equitable. “We love the name Equitable – it’s an old name and it’s nongeographic,” Terravecchia said. “It’s bittersweet to leave it – the Weymouth Bank name – but it will be an easier sell on the North Shore.” BNE

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ALL TOGETHER NOW

Banks Across New England Joining Up M&As Active in 2014; More Expected in 2015

BY KEVIN J. HANDLY Kevin Handly is a Boston-based lawyer and lectures on financial institution mergers and acquisitions law at Boston University Law School’s graduate program in banking and financial law. He can be reached at khandly@bostonbankinglaw.com.

KEVIN J. HANDLY

014, like the year before it, was a busy year for bank mergers and acquisitions in Massachusetts. This year promises more of the same. The year 2014 saw five credit union mergers, three mutual bank mergers, two acquisitions of stock banks by mutuals and three mergers of stockholder-owned banks. At the beginning of 2015, the first merger of Massachusetts mutual banks had already been announced. Over the past year, M&A activity has been sparse elsewhere in New England. In 2014, Connecticut saw three bank mergers and New Hampshire, one, while none were reported in Vermont, Maine or Rhode Island. New Hampshire saw the first attempt in years to form a de novo bank, Bedford-based Primary Bank, in New England. One driving force behind the credit union and mutual bank mergers was, not surprisingly, economies of scale. For the most part, the mutual bank mergers, including the acquisition of Granite Savings Bank by Cape Ann Savings Bank, the merger of Saugus Bank into North Shore Bank, FamilyFirst Bank’s merger into North Brookfield Savings Bank, and the recently announced plans of Northampton Cooperative Bank to merge into Greenfield Cooperative Bank involved small institutions in the same or adjacent communities seeking to spread the increasing costs of technology and regulatory compliance over a broader customer base. The cash acquisition of stockholder-owned Rockport National Bank by the Institution for Savings in Newburyport falls in the same category.

Geographic Expansion

Geographic market expansion was also a significant deal-motivating factor. Last year saw two interstate acquisitions involving Massachusetts banks. In one, Boston-based mega-mutual Eastern Bank made a strategic market extension acquisition of small, Bedford, N.H.-based Centrix Bank & Trust Co. In the other, aggressive Glastonbury, C.T.-based Rockville Bank acquired the name and franchise of West Springfield, Mass.-based United Bank. Elsewhere in Connecticut, Fairfield Countybased Bankwell Bank expanded eastward into 20 BANKING NEW ENGLAND

New Haven County with its acquisition of the $100 million-asset Quinnipiac Bank & Trust Co.. Salisbury Bank & Trust Co. expanded westward across the Hudson, acquiring the much smaller Poughkeepsie, N.Y.-based Riverside Bank. Both transactions resulted in community banking institutions approaching the $1 billion mark in total assets. Further north, Lebanon, N.H.-based Mascoma Savings Bank paid cash to acquire Connecticut River Bank, N.A., and extend the mutual’s Connecticut River Valley franchise south to the Massachusetts border. The year 2014 saw two acquisitions of small, recently converted savings banks by larger stock bank acquirers: Facing serious threat of a proxy fight from activist shareholders seeking to force a sale, Springfield, Mass.-based Hampden Bank sought and found refuge in a timely, negotiated sale to “white knight” Berkshire Bank. And the ever-acquisitive Rockland Trust expanded its Boston presence with the purchase of Brightonbased Peoples Savings Bank. With five combinations announced in 2014, the credit union side of the Massachusetts retail banking sector was just as active. Four credit union mergers involved small institutions in adjacent communities serving similar or overlapping community-, employment- or ethnically-defined fields of membership. The fifth involved the expansion of the everexpansive Metro Credit Union into Newton with the absorption of tiny Newton Municipal Credit Union.

Stock Conversions & Holding Companies In addition to a steady stream of bank mergers and acquisitions, 2014 saw a marked increase in stock conversion transactions by Massachusetts mutual banks. East Boston Savings Bank, Cohasset-based Pilgrim Bank, Melrose Savings Bank and Norwood-based Blue Hills Bank all completed successful stock conversions during 2014. However, a couple of year-end developments may portend a slow-down in mutual bank conversion activity in 2015. These include an activist shareholder threat pushing converted

Continued on page 22

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ALL TOGETHER NOW Banks Across New England Joining Up Continued from page 20

thrift Hampden Bank into a merger with Berkshire Bank, the failure of Beverly Bank to secure the depositors vote required to approve management’s plan of mutual to stock conversion, and finally, adoption by Reading Cooperative Bank of a bylaw specifically removing the insider financial incentive for converting from mutual to stock form. Time will tell whether these developments mark a turning point, or are simply speed bumps on the road to conversion. For the first time in recent memory, the Massachusetts Division of Banks did not approve any mutual holding company formations in 2014. Approval of these ownership reorganizations of mutual savings and cooperative banks had become a staple of the Division of Bank Activity Reports since 1995. Rather than disaffection, the drop-off in applications reflects the near universal adoption of this form of ownership structure by mutual banking institution since MHCs were first authorized in 1987. New legislation provides authority for mutual banks to unwind previously formed mutual holding companies that they no longer need. It will be interesting to see whether any banks take advantage of this new authority during 2015. Meanwhile, in Maine, Kennebunk Savings Bank completed its mutual holding company formation. In Massachusetts, the bank M&A forecast is complicated somewhat by Gov. Deval Patrick’s term-ending signature of a

sweeping revision of Massachusetts’ bank mergers and acquisitions laws on Jan. 7. Chapter 482 of the Acts of 2014 repeals and recodifies much of the prior statute law governing mergers and acquisitions of Massachusetts banks as new Chapter 167I of the General Laws. It remains to be seen how, if at all, these statutory changes, which go into effect in April, will affect the pace of bank M&A activity in Massachusetts. More technically minded observers note that one of the year’s transactions involved creative transaction structuring to work around perceived regulatory obstacles. The Institution for Savings in Newburyport structured its cash purchase of Rockport National Bank as a two step transaction involving the merger of Rockport’s holding company into a newly formed “shell” subsidiary, followed by the purchase of all of Rockport’s assets and assumption of all its deposits and other liabilities by IFS, apparently to overcome the apparent absence of Massachusetts statutory authority to merge a federally-chartered stock bank directly into a mutual. All in all, our forecast is for a continuation and perhaps a slight increase in the pace of Massachusetts and other New England bank M&A activity in 2015. Though there have been no new banks successfully formed in several years, we are fortunate to still enjoy the benefits of a large number of community banks serving the New England region. BNE

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PERSONNEL FILE

Career achievers in banks across New England are constantly on the move, with their professional journeys reflecting a combination of mobility and longstanding service. In this space, we acknowledge them, and welcome readers to submit news of their own banks’ efforts and endeavors to Editor Christina P. O’Neill at coneill@ thewarrengroup.com.

Featured Banks • BayCoast Bank • Bridgewater Savings • East Boston Savings Bank • Eastern Bank • Eastern Insurance • The First Bancorp • Katahdin Financial Services • Katahdin Trust Co. • Kennebunk Savings Bank • Merchants Bank • Merrimack County Savings Bank • North Middlesex Savings Bank • Northeast Bank • Plimoth Investment Advisors • Radius Bank • Sugar River Bank

Appointments and Elections BayCoast Bank Fall River, Mass.-based BayCoast Bank has appointed June D. Goguen to vice president and commercial lending officer. She manages the bank’s existing commercial loan relationships as well as developing June D. Goguen additional commercial lending business. Goguen has more than22 years of experience in banking, and 15 years as a vice president and commercial loan officer. Most recently, she was vice president of commercial lending at Bridgewater Savings Bank.

Katahdin Trust Co. Sherry Roberts has been appointed vice president and business development officer at Katahdin Trust Co. Roberts will be responsible for business development for small business, commercial and nonprofit entities in the greater Bangor area.

Kennebunk Savings Bank Maine-based mutual bank Kennebunk Savings Bank has made changes to its board of trustees. Tim Dietz, president of Dietz Assoc., has more than 30 years of experience in marketing and Tim Dietz public relations as a creative writer, producer and event planner. Lori Howell is vice president and general counsel of Spinney Creek Shellfish. She also runs her own law practice in Eliot, where she handles

regulatory and corporate law. Howell is currently on the board of directors of the Interstate Shellfish Sanitation Conference and past chair of the Maine Shellfish Advisory Council. Lori Howell Stephen H. Roberts is a partner with the Hoefle, Phoenix, Gormley & Roberts law practice in Portsmouth, N.H., where his emphasis is on environmental matters, corporate, real estate/land use, municipal law, probate and commercial litigation. Roberts was a circuit court judge from 1989 until 2011. Stephen H. Roberts He is currently chair of the Webber Goodwin Investigation Task Force in Portsmouth. Douglas R. Stockbridge is president of Rollins Management Group, a health care and real estate management company that designs, builds and manages senior housing. Stockbridge is also the assistant freshman football coach at Kennebunk High School.

Merchants Bank South Burlington, Vt.-based Merchants Bancshares Inc., parent company of Merchants Bank, has appointed Geoffrey R. Hesslink as the bank’s 13th president and CEO, effective Jan. 1, 2015. Hesslink previously served as the bank’s executive vice president and COO. Michael Tuttle retains his position as president and CEO of Merchants Bancshares Inc. and delegates the day-to-day responsibilities for running the bank to Hesslink.

• TD Bank • Webster Five Cents Savings Bank

Promotions The First Bancorp Tony C. McKim has assumed the role of president and CEO of the Damariscottabased First Bancorp and its wholly-owned banking subsidiary, The First, N.A. McKim joined the company as executive vice president, COO and member of the board of directors upon completion of the 2005 merger with FNB Bankshares and its subsidiary, The First National Bank of Bar Harbor. Tony C. McKim

24 BANKING NEW ENGLAND

Promotions Merrimack County Savings Bank

Merrimack County Savings Bank (The Merrimack) has marked the retirement of Donna Benson, former Merrimack County Savings Bank senior vice president and senior retail loan officer, retired effective Dec. 31, 2014, after more than 17 years of service. Benson joined The Merrimack in 1997 as vice president of mortgage originations Donna Benson and secondary market sales. Carol Bickford, who has served as senior vice president of retail lending for Meredith Village Savings Bank has been promoted to oversee loan processing, underwriting and residential lending for both MVSB and The Merrimack, wholly owned subsidiaries of New Hampshire Mutual Bancorp. Bickford will be responsible for directing Carol Bickford all of the retail lending activities and developing and implementing new lending products, services, and programs for both financial institutions.

Plimoth Investment Advisors

Plimoth Investment Advisors, an investment firm jointly owned by BayCoast Bank and Dedham Institution for Savings, has promoted Edward J. Misiolek to first vice president and operations compliance officer. He was previously vice president and operations Edward J. Misiolek officer. Misiolek began working in the trust and investment industry in 1992, after spending several years in retail banking.

TD Bank

TD Bankâ&#x20AC;&#x2122;s Dover, N.H. office has promoted Amy R. Sharp to vice president and commercial relationship manager in commercial lending. She is responsible for maintaining and growing a commercial portfolio, providing a range of lending services and deposit products to businesses throughout Eastern New Hampshire. Sharp has 17 years of retail banking and lending experience and joined TD Bank in early 2014.

New Arrivals Bridgewater Savings

Raynham, Mass.-based Bridgewater Savings Bank has added John Moran and Glenn Silverberg, Jr. to its commercial lending department. Moran has more than 25 years of banking experience, John Moran Glenn Silverberg specializing in helping businesses and real estate investors meet their short- and long-term financial goals. He previously worked at Bank of America. Silverberg has 21 years of commercial lending experience and building strong relationships with his customers. He was most recent a vice president, commercial relationship manager for TD Bank.

Eastern Insurance

Eastern Insurance Group, a subsidiary of Eastern Bank, has hired William Lemos as a senior vice president and manager of its construction practice. He will provide oversight and direction for William Lemos Janice Belmonte operations, marketing and new business growth within Easternâ&#x20AC;&#x2122;s construction practice. Eastern Insurance Group also hired Janice Belmonte. As a vice president and account executive, Belmonte, will handle group employee benefits consulting. She most recently was the vice president of business development for group benefits at Sapers & Wallack, Inc.

East Boston Savings Bank

Elaine Foley has rejoined East Boston Savings Bank (EBSB) as assistant vice president, residential loan officer for the Melrose and Wakefield markets. Foley has worked in the banking industry for 25 years, including 20 previously at EBSB. She is a recognized leader in the residential mortgage industry with 14 of Elaine Foley experience and known for her personal service and exceptional knowledge of the industry.

Katahdin Financial Services

Betty Buzzell

Betty Buzzell has joined Katahdin Financial Services as a cetera investment services consultant. Located throughout Aroostook County, Cetera Investment Services has offices at Katahdin Trust Co. in Caribou, Presque Isle and Houlton. She will work with clients in the Caribou, Limestone and St. John Valley areas.

North Middlesex Savings Bank

North Middlesex Savings Bank has added Andrew Witherbee as vice president of marketing, where he will oversee the bankâ&#x20AC;&#x2122;s marketing, retail and community engagement areas. Most recently, Witherbee was managing director of Partnership Marketing, LLC a Newburyport, Mass.-based strategic consulting firm.

Eastern Bank

Boston-based Eastern Bank has hired Levon Sarian as a vice president and mortgage loan officer in the consumer and home financing division. Sarian will handle mortgages in the eastern Massachusetts area. Andrew Witherbee

Continued on page 26

BANKING NEW ENGLAND

PERSONNEL FILE

26 BANKING NEW ENGLAND

New Arrivals Northeast Bank

Lewiston, Maine- based Northeast Bank has expanded its Small Business Administration (SBA) Lending Division to include the following new vice presidents and SBA business development officers: Eric Bancroft formerly served as an SBA business development officer at TD Bank. He is responsible for originating loans across Southeastern Massachusetts and Rhode Island. David Coletti formerly served as a small business relationship manager at Santander Bank. He has extensive experience financing capital equipment and technology as a result of his previous role as business development manager for Greystone Bank & Equipment Finance Corp. Javier Placencia formerly served at TD Bank as vice president, business development officer, SBA lending in the Chicago-metro area. Prior to this role, he was a business development officer for Square 1 Bank and has over 10 years of experience directing account relationships in commercial lending. Thomas Blackburne formerly served at TD Bank as vice president, business development officer, SBA lending in New York. Prior to this role, he was a business development officer at AT&T Capital Corp. Daniel O’Meara formerly served as vice president, business development officer, SBA lending in Colorado at TD Bank. Prior to this, he was regional vice president, business development officer for Celtic Bank. David Sportelli formerly served as vice president, small business lending specialist in Connecticut at Newtek Business Services Inc. Prior to this role, he was the vice president of small business lending for TD Bank serving the state of Connecticut. Carrie Stanley formerly served as vice president, business development officer, SBA lending at TD Bank, responsible for lending in the Houston-metro area. Prior to this role, she was the first assistant vice president and credit analyst with MidFirst Bank.

Radius Bank

Radius Bank, with offices in Massachusetts and New York, recently named Debbie Orloff as vice president and commercial real estate relationship manager. She will be responsible for cultivating Debbie Orloff new commercial real estate business in the New England region.

Sugar River Bank

Mary Sullivan

Newport, N.H.-based Sugar River Bank has hired Mary Sullivan as assistant vice president and mortgage loan officer. With more than 30 years of banking and lending experience, Sullivan will serve customers in the Concord area.

Webster Five Cents Savings Bank

Webster, Mass.-based Webster Five Cents Savings Bank has hired five people to its administrative team. Russell Dye joins as vice president and team leader in commercial Russell Dye lending. With more than 30 years of experience, he will be responsible for generating new business and managing customer relationships. Robert J. Kelley Jr. has joined the bank as vice president, business loan officer. He has spent 41 years in banking and 38 years as a commercial lender in Worcester. He was most recently at United Bank as a Robert J. Kelley Jr. commercial lender. Karen Kagan has joined the bank as a credit officer. She has 15 years of experience in the financial industry. In her new role, she will be responsible for the analysis of business financial statements, tax returns and cash flow statements, while collaborating with the business lending officers in the decision process. Patrick McKeon has joined the bank as vice president of business banking. With 38 years of banking experience, he will be responsible for portfolio management and new business development. He previously provided commercial lending Patrick McKeon services, most recently at United Bank. BNE

COMMUNITYGOOD GOODWORKS WORKS COMMUNITY

Financial institutions large and small have been making a difference in their communities for years. In this space, we acknowledge them, and welcome readers to submit news of their own banks’ efforts and endeavors to Editor Christina P. O’Neill at coneill@thewarrengroup.com.

Bank of New Hampshire

Featured Banks • Bank of New Hampshire • Bay State Savings Bank • BayCoast Bank • Bristol County Savings Bank • Eastern Bank • Marlborough Savings Bank • Meredith Village Savings Bank

Bank of New Hampshire’s fifth annual Feeding New Hampshire Food collected nearly 3,000 non-perishable food items and more than $500 in monetary donations. The donations were delivered to 19 local food pantries throughout New Hampshire the week prior to Thanksgiving.

BayCoast Bank

Fall River, Mass-based BayCoast Bank helped move a Model PT boat, donated to the National PT Boat Museum in Fall River, from California to Fall River. The museum displays the world’s largest collection of PT boat artifacts and memorabilia. Battleship Cove is home to two rare PT boats, PT 617 and PT 796. Both boats are National Historic Landmarks. The boat was donated by James and Sue Treleaven of Camino, Calif. Battleship Cove will use the model for education purposes and local parades. Pictured, from left: Tyler Rocha, driver; Brad King, executive director, Battleship Cove; Nick Christ, president and CEO, BayCoast Bank; Carl Sawejko, president, Battleship Cove; Doug Bank, driver; and Gregg Pontes, driver. 28 BANKING NEW ENGLAND

Bay State Savings Bank

Worcester, Mass.-based Bay State Savings Bank recently awarded $15,000 in grants to eight local nonprofit organizations through its charitable foundation. Among the recipients were: African Community Education Program, Inc.; Boys & Girls Club of Worcester; Community Harvest Project, Inc.; First Night Worcester, Inc.; Friendly House, Inc.; Music Worcester, Inc.; Regional Environmental Council, Inc. and Worcester Youth Center, Inc. Each organization received a grant to support a specific program or initiative.

Bristol County Savings Bank

Eastern Bank

Bristol County Savings Bank (BCSB), through its Bristol County Savings Charitable Foundation (BCSCF), presents a $20,000 grant for the City of New Bedford’s Holiday Happenings and City Celebrates! New Year’s Eve! activities. Pictured from left are Michele Roberts, clerk, BCSCF, and executive vice president and community relations officer, BCSB; Jack Silva, vice president of commercial lending, BCSB; Peter Selley, senior vice president of commercial lending, BCSB; Dagny Ashley, director of tourism and marketing, city of New Bedford; Patrick J. Murray Jr., president, BCSCF, and president and CEO, BCSB; Jon Mitchell, mayor of New Bedford; Diane Arsenault, executive director, Downtown New Bedford Inc.; Lee Heald, program director, AHA!; and David Medeiros, vice president and regional banking officer, BCSB.

Marlborough Savings Bank

Marlborough Savings Bank employees and members of the Boys & Girls Club of MetroWest in Marlborough played a friendly game of basketball in December. The event was proposed by Christopher DiBenedetto, vice president and risk officer of Marlborough Savings Bank. Participating MSB employees included: Rick Bennett, Chris Berglund, Chris DiBenedetto, David Nicholson, Jennifer Marble, Martin O’Sullivan, Jamie Belmore, Stephen Maintanis, Tracy Carter and Judy Cowdrey. The bank has been a long-time sponsor of the Boys & Girls Club basketball league.

Rana Murphy, senior vice president, Eastern Bank, and Suzanne Gordon, vice president and branch manager, West Plymouth, present a $10,000 grant from the Eastern Bank Charitable Foundation to Helen MacLean, executive director of Plymouth Area Coalition for the Homeless.

Meredith Village Savings Bank

Tilton Senior Center received a $4,592 grant from the MVSB fund in 2014, which it used to fabricate and install a fire suppression system over its stove and to purchase a commercial dishwasher. The improvements allowed the center to expand from serving just one meal per week to three meals. Pictured, from left: Stacy Trites, branch services supervisor, MVSB; Tilton Senior Center Board Members Emily LaPlante, Judy Suzedelis, Jane Alden, Iris Ianno and Pat Consentino; and Eric Petell, assistant vice president, branch and business development officer, MVSB. BANKING NEW ENGLAND