When Clay Adams joined the Mascoma Savings Bank board in 2011, he felt compelled to disclose an unsettling fact to fellow board members: For his banking needs, Adams relied on USAA, the Texas-based financial services giant that has always dealt with customers through the mail and by phone (and now internet), and which, despite being one of the largest financial institutions in the country, doesn’t have local branches where customers can walk in to make deposits, withdrawals and do other routine banking business.
“I hadn’t stepped foot into a bank branch in 25 years,” said the 45-year-old Adams, who in January became chief executive of Mascoma Savings Bank, succeeding Stephen Christy, who retired after leading the bank for nearly 27 years. “There were already many ways to bank without going to a branch.”
It might seem ironic for a bank like Mascoma, which has 26 branches in New Hampshire and Vermont that provide vital lines to the communities they serve, to select for its new president someone who, until a few years ago, hadn’t visited a local teller’s window since he was a student at Dartmouth College in the 1990s.
But banks today are in uncharted territory, facing wholesale changes as they respond to shifting demographics, new consumer habits and technology upending their business.
These industrywide disruptions are a backdrop to concurrent transitions among some of the Upper Valley’s community banks, where new leadership at two legacy institutions, and the sale of a third to an out-of-state bank, have all occurred within a few months of one other.
Mascoma’s Adams, who formerly served as chief executive of Quechee-based glassware maker Simon Pearce, and consulting firm Resource Systems Group before that, took the reins of the 118-year-old mutually owned bank on Jan. 1.
In June, Reggie Greene, who headed up Ledyard National Bank’s commercial loan business, became chief executive of the 100-year-old mutually owned Claremont Savings Bank, succeeding longtime CEO Sherwood Moody, who retired.
And on Jan. 13, publicly owned Lake Sunapee Bank closed on its sale to Maine’s Bar Harbor Bankshares for $143 million. William McIver, former senior executive vice president and chief operating officer of Lake Sunapee, is now regional vice president, overseeing the combined 47 branch offices in three states for Bar Harbor Bankshares.
Those transitions followed actions taken among several Upper Valley and regional banks in response to new realities in the marketplace, forcing branch closings and employee layoffs.
In 2014, Vermont’s Merchants Bank laid off 6 percent of its workforce before being sold last fall to Syracuse, N.Y., regional bank Community Bank System for $304 million. Lake Sunapee Bank closed its Centerra Marketplace location in 2015 and merged the branch’s operations with its Heater Road location, and Claremont Savings Bank, seeing a 50 percent drop in traffic over the prior two years, last year closed its Cornish Flat branch — which was the only bank in the towns of Plainfield and Cornish.
Finally, Citizens Bank, after a review of customer traffic patterns, announced it was closing its branch at the corner of Maple Street and Pine Street in White River Junction in February. A succession of banks have been located at the site for 41 years and half a dozen senior Upper Valley banking executives trained there at one time or another on their way up the career ladder.
Closing on Main Street
The recent branch closings and sale of Lake Sunapee Bank are part of a decades-long industry consolidation trend that has seen the number of federally insured banks decline from 17,901 in 1984 to 7,357 in 2011 and 5,980 in 2016, according to the Federal Deposit Insurance Corp.
Particularly hard hit have been so-called community banks — traditionally defined as regional-based institutions with assets of less than $2 billion.
Now gone from the Upper Valley are such once familiar names as Connecticut River Bank, Dartmouth National Bank of Hanover, Randolph National Bank, Woodstock National Bank, National Bank of Lebanon, First National Bank of White River Junction and New London Trust, to name a few. All were either acquired or merged into other banks.
“It used to be that you could put a bank on every corner in town,” said Moody, who was president of Claremont Savings Bank for 20 years after previously running banks in Maine and Pennsylvania. “People are still using our services, but when they used to visit us once a week, they now come in twice a quarter.”
The decline in the frequency of branch office use is occurring among many banks.
Kathy Underwood, chief executive of Hanover-based Ledyard National Bank, said customer walk-in transactions have declined 40 percent at the bank’s seven branches in recent years — although the bank’s overall transactions have increased as customers have shifted to making deposits and paying bills online and via smartphone.
“We understand customers are no longer coming into branches every day, and that’s OK,” Underwood said. “We now have the technology to connect with them in new ways.”
But new ways to bank are presenting new challenges for banks, especially community banks, whose existence is closely tied to the local economy and population trends.
Digital-savvy millennials — often defined as those born between about 1981-1998 — are comfortable using their phones to make personal financial decisions, such as applying for a home mortgage, that their parents could only imagine doing in hushed tones behind the partition of a loan officer’s cubicle.
So-called “fintech,” or financial technology firms, such as Quicken Loans, Rocket Mortgage and Lending Tree, are grabbing a chunk of the home mortgage market from community banks, too — traditionally one of banks’ two biggest sources of revenue, along with commercial loans to local businesses.
At the same time, the need for businesses to deposit and withdraw cash from their account, a staple service of local banks, is increasingly anachronistic as debit cards supplant cash for even simple purchases, such as groceries, gas and coffee.
“What it takes for banks to exist and be successful is coming under fire from many different directions,” said Mark Shaw, president of The NBS Group, a New England bank consulting firm. “It will become a Darwinian-like survival of the fittest.”
BY THE NUMBERS
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Mascoma Savings Bank
Year: 1899
Type: Mutual
Assets: $1.5 billion
Capital: $144.9 million
Net income: $5.9 million
Branches: 37
Employees: 322
Established in 1899, Mascoma Savings Bank is a mutual savings bank with assets of $1.5 billion and capital of $144.9 million. Its net income is $5.9 million. It operates 37 branches and employs 322.
Lake Sunapee Bank
Year: 1868
Type: Federal
Assets: $1.6 billion
Capital: $176.2 million
Net income: $9.7 million
Branches: 35
Employees: 339
Lake Sunapee Bank is a federal bank that opened in 1868. It has assets of $1.6 billion and $176.2 million in capital, and it nets income of $9.7 million. A total of 339 people work among the bank’s 35 branches.
Ledyard National Bank
Year: 1991
Type: Federal
Assets: $470.5 million
Capital: $42.8 million
Net income: $3.2 million
Branches: 7
Employees: 108
The federally chartered Ledyard National Bank, established in 1991, is the youngest of the group. With assets of $470.5 million, capital of $42.8 million and net income of $3.2 million, it has seven branches and 108 employees.
Claremont Savings Bank
Year: 1907
Charter: State
Assets: $384.8 million
Capital: $54.3 million
Net income: $1.6 million
Branches: 5
Employees: 108
Though it operates the fewest branches, Claremont Savings Bank, which was founded in 1907, has 108 employees at its five locations. The state-chartered bank has assets of $384.8 million, capital of $54.3 million and net income of $1.6 million.
Northfield Savings Bank
Year: 1867
Charter: State
Assets: $883.3 million
Capital: $110.7 million
Net income: $3.8 million
Branches: 13
Employees: 159
Wells River Savings Bank
Year: 1892
Charter: State
Assets: $167.5 million
Capital: $21.4 million
Income: $503,000
Branches: 5
Employees: 60
Woodsville Guaranty Savings Bank
Year: 1889
Charter: State
Assets: $453.5 million
Capital: $41 million
Net income: $1.9 million
Branches: 9
Employees: 123
Sugar River Bank
Established: 1895
Charter: State
Assets: $280 million
Capital: $38.3 million
Net income: $881,000
Branches: 6
Employees: 73
Source: Federal Financial Institutions Examination Council
Yankee Ethos
Unlike the large national banks that were in peril during the 2007 to 2009 financial crisis, the Upper Valley’s community banks navigated the Great Recession and emerged from it in relatively good shape.
The dodgy lending practices that helped to fuel the housing bubble, during which banking giants offered low-interest teaser rate loans to lure high-risk buyers into homes they couldn’t afford and financed housing developments that became ghost towns, were eschewed by the Upper Valley’s community banks.
“We never made a sub-prime loan in our life,” said Stephen Theroux, who retired as CEO of Lake Sunapee Bank upon the closing of its sale to Bar Harbor Bankshares in January.
Indeed, a key measure of a bank’s health — the so-called “Tier 1 Leverage Capital Ratio” — is more than double that required under law at Mascoma Savings Bank, Lake Sunapee Bank and Ledyard National Bank, and three times the minimum at Claremont Savings Bank.
Essentially, this means these banks are more than comfortably cushioned to absorb any losses from bad loans and have the capital available to invest in the technology to grow their business.
Much of that is the result of a cautious approach to business long associated with New England banks — only one bank in the region, Butler Bank in Lowell, Mass., failed during the financial crisis — and a Yankee ethos of thrift.
Most of the revenues at Mascoma, Lake Sunapee, Claremont Savings and Mascoma continue to come from the same sources as they did when the banks were first chartered: interest income from home mortgages and commercial loans to local businesses.
“As the saying goes, we’ve stuck to our knitting,” Ledyard’s Underwood said.
At the same time, the ample capital base among the banks reveals a challenge: constricted opportunity to make loans.
Typically, there are more borrowers when the population and economy are growing, increasing demand for home loans and business financing.
But the population of the two cities and 44 towns that comprise the Upper Valley has been flat at about 160,000 since 2010, according data from the U.S. Census Bureau.
Although Dartmouth College and Dartmouth-Hitchcock Medical Center, as employers of about 20,000 people, provide a stable economic foundation for the surrounding communities and unemployment is low, growth nonetheless is hampered because of lackluster new business formation and employer expansion in the region.
Couple that with the historically low interest rates of the past 10 years — set by the Federal Reserve Bank to spur lending, but which also reduce the margins banks can earn on their loans — and a more subdued picture emerges about the growth prospects for the region’s community banks.
“This is not an area that’s growing at 4 percent a year,” Claremont Savings’ Greene said. “It’s growing at 1 percent, 1.5 percent a year. … Then what little growth you have is eaten up” by higher operating costs and ongoing historically low interest rates on the revenue side, he said.
New Niches
The Upper Valley’s community banks are responding, some in different ways, to keep abreast of broader industry changes and to find new revenue sources without straying from their core mission of serving their communities.
Most now offer mobile phone apps that allow customers to, for example, snap photographs of their checks to deposit into their accounts without having to visit a branch or ATM machine.
At Mascoma, board Chairwoman Gretchen Cherington said the board was “very consciously recruiting members who are not afraid of change and as a group willing to look at what the banking space might look like in the next 10 years.”
Naturally, that includes the role of branches. No one is predicting branches will go the way they have in Scandinavian countries, where bank kiosks have become ubiquitous. But bank officials are preparing for the day when branches will be handling even fewer transactions than their already declining number.
“Everyone is talking about the ‘universal banker,’ ” Lake Sunapee’s Theroux said.
Traditionally, bank employees have been assigned specific positions for specific purposes: the teller handles deposits and withdrawals, a mortgage banker handles mortgage applications and processing, an investment adviser helps customers with their IRAs, 401(k)s and other retirement issues.
Under the universal banker concept, however, many aspects of those functions are combined in a single individual who can address the customer’s needs.
“We’ll have a universal banker at every branch,” said Ledyard’s Underwood, who predicts branches will be staffed by “fewer people with more advice.”
One model frequently held up as what a bank branch of the future might look like is the mobile phone store: a storefront with an open space and a small central counter staffed by tablet-equipped employees available to help walk-in customers with everything from buying a new phone to technical support.
This model, already in practice in some European countries, envisions a banking future that is entirely digital but still requires personal interaction with customers.
New technology and the transition to a digital economy is actually helping community banks remain financially solid because they act as a counter to the rising costs associated with increased regulatory compliance imposed by lawmakers in the wake of the financial crisis, according to bankers.
The adoption of more stringent regulatory oversight contained in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act resulted in a greater burden in both staff and costs, even though most community banks were not the source of the most egregious bad loan practices.
“It added about $100,000 a year in costs for us,” said Claremont Savings’ Moody, who oversaw implementation of the new compliance rules when he was the bank’s CEO.
His successor, Reggie Greene, said the pressures exerted by slow capital growth, higher regulatory compliance costs and low interest rates leave few options for community banks to improve their bottom lines.
“You’ve got to monitor your expenses and manage growth more efficiently,” he said.
With their traditional lines of growth slowed, community banks have carved out different niches to develop other sources of revenue that fit with their core business.
Ledyard National Bank, for example, has about one-third of its employees working in its wealth management division, which manages $1.2 billion in investments on behalf of mostly well-heeled clients. Lake Sunapee Bank also has a wealth management division, Charter Trust Co., that manages about $1.5 billion.
Mascoma Savings Bank opened its own wealth management division a few years ago, but the bank’s specialty has been an esoteric commercial financing program that utilizes federal tax credits to spur business development in underserved areas of New England.
Ledyard also is expanding outside the Upper Valley by recently opening a financial adviser office in Concord, and Mascoma opened a commercial loan office in Burlington.
And Claremont Savings, looking to expand its loan portfolio outside its immediate vicinity, acquires home loans on properties in Hanover and Lebanon through the secondary mortgage market.
“We’re going outside our area,” Claremont Savings’ Greene said.
The Millennial Challenge
The greatest challenge facing community banks may be how to attract the next generation of depositors — those people, many of them young, who have grown up online and are comfortable dealing with an anonymous institution through an app on a smartphone. It’s already happening with mortgages, and the day might not be far off when a Google or an Amazon starts to offer routine banking services. Local bankers counter that online mortgage providers are fine — until there is a glitch and the customer does not know where to turn for help. Community banks have the advantage in that department because there is always a person on hand to guide the borrower through the labyrinthine loan process when problems arise.
“It’s a real estate loan,” Mascoma’s Adams noted. “It doesn’t always go smoothly.”
Community banks are optimistic that, if they can persuade young customers to come on board early, then the banks actually have an opportunity to hold onto them for the long term.
That’s because digital banking, which allows access from anywhere, means customers do not have to find a new bank when they relocate to another area.
Moreover, transferring all of one’s online bill-paying accounts to another bank is a laborious task, so customers tend to want to stay with the institution at which they set up their accounts, unless they’ve had an unhappy experience with the bank’s service.
Millennials are more willing to engage with faceless businesses over their smartphones, whether it’s buying a pair of shoes on Zappos.com or applying for loans, Adams acknowledged, but “they are also a purpose-driven cohort” who see value in frequenting local businesses, whether it’s a community-supported agriculture program or bank, “as long as they offer services on par with larger institutions.”
Although banking-via-app is taken for granted among younger customers for whom the phone is an appendage of their hand, the pre-millennial generation nonetheless may still take more persuasion — a point that was not lost on Adams during his first Mascoma board meeting in January, according to Cherington, the board chairwoman.
“He encouraged everyone to get the Mascoma app on their phone and try it if they hadn’t already,” Cherington said. “It’s not clear all the board members had it on their phones.”
John Lippman covers business for the VALLEY NEWS. He can be reached at 603-727-3219 or jlippman@vnews.com.
