| 
Officials at the $981 million-asset Berkshire Bank in Pittsfield say the institution has seen growth in nearly all areas of business despite a shrinking population in Berkshire County.
While the tech wrecks occurring earlier in the year have had a detrimental effect on the economy as a whole, the downbeat was much slower in Western Massachusetts, spelling good news for the banking industry west of Worcester.
Generally it’s quite good, actually. We’re obviously seeing some signs of a weakening economy but not such that it’s causing any significant asset quality issues for us, said James A. Cunningham Jr., president of the $981 million-asset Berkshire Bank in Pittsfield.
According to David J. Bruce, president of the $217 million-asset Lee Bank, the nature of what drives the Western Massachusetts economy insulated it from economic chaos. He hasn’t noticed a decline, But we also have to realize that because of the demographics and a pretty narrow economic base, we didn’t have a great expansion either. So rather than hitting a peak and then hitting a valley, I think we’ve been a little more steady over a couple of years in terms of the overall economy.
While Western Massachusetts has long been out of the spotlight, which is usually directed at Boston, other factors have contributed over the last several years to challenge the banking sector of Berkshire County.
The latest census figures show that the population of the county declined 3.2 percent overall between 1990 and 2000, falling from 139,352 to 134,953. Berkshire is the only county to show a negative growth rate in the state.
Clearly population is not increasing substantially, but the thing that’s missing in that aspect in our area, particularly the southern part of Berkshire County, there’s a huge influx of second-home owners who obviously don’t get counted in population growth but provide a good deal of economic benefit to the area. So, the numbers are a bit misleading as it relates to the economy. We’ve had good growth in the past three years in all areas of our operations, said Cunningham.
Loan activity has been pretty good but once again, some of that is driven by the second homeowner out of that Greater New York area and also tourism-related credit like inns and restaurants, said Bruce.
In fact, the slowing economy in New York has probably driven a lot of the tourism in Western Massachusetts.
There might be a couple of reasons for that. In fact, if there is some economic weakness in the Greater New York area and people are still looking for some sort of vacation, the Berkshires area is a pretty cheap alternative to other vacation spots, mainly because it’s so close that people can drive, said Bruce. And always there are the cultural attractions of Tanglewood and various artistic festivals.
We’ve had a tremendous shift in what drives our economy in the last 20 or 30 years, said J. Williar Dunlaevy, president of the $428 million-asset City Savings Bank in Pittsfield. There are no huge manufacturing companies in the area aside from a few paper mills, which have been weakening, and a plastics shop owned by General Electric.
We’ve shifted toward being much more of a service economy. Tourism is just a tremendous business now in the Berkshires. In addition to that, there are lot of second-home owners. I think that’s where you’re getting a lot of the increase in the elderly population. This isn’t Florida, by any means, in terms of people coming here to retire. But when people reach an age where they can afford a second home, this is a very attractive area for it, he said.
Old Money
It is affordable, too. The median home price in the county through July 2001 is just $105,000. Total home sales for the year are at 125, a 17 percent rise over last year’s 107 single-family home sales in the county, according to statistics compiled by Warren Information Services, a sister company of Banker & Tradesman.
Additionally, U.S. Census figures show that 30.3 percent of the county’s population falls between the ages of 35 and 54, a sharp contrast to some Eastern Massachusetts regions such as Suffolk County, where 35.5 percent of the population is aged 25 to 44.
[The aging population] is primarily affecting deposit flows. One of the problems that we have is the group that makes up the bulk of our deposit base is certainly aging in place. One of the problems is that their heirs don’t live around here. Unfortunately, I hate to be morbid about deposit flows, but as depositors pass away, the money flows outside of Berkshire County. Without a lot of new growth, there’s nothing to replace it, said Bruce.
That leaves banks with the problem of how to generate income, a quandary that will continue to be reflected in the rest of the country, according to a new study by TowerGroup, a research firm in Needham. A strong focus on fee-income opportunities will be necessary through services such as brokerage services, financial planning and advice services, according to the report. But that also will pose a challenge.
It’s not just selling them [customers] something. It’s advising them on what they ought to be doing, said one of the study’s authors, Jim Eckenrode. For bigger banks, that will involve realigning all information systems to improve customer relationship management. Smaller banks may have more of an advantage in that they have more face time with customers. Becoming customer-centric really involves a further evolution, I think, and this is not just indiscriminately selling people things to improve cross-selling ratios, but it’s gathering and delivering a more holistic understanding of what the customer’s relationship is with you, where they are in their life stage, what their needs might be and then advising them as to how they can more effectively leverage their relationship with the bank, he said.
Cunningham said core deposit growth has been difficult over the past several years at his bank. Dunlaevy concurred, saying his bank relies more on the Federal Home Loan Bank for funds in addition to other services the bank offers.
While Cunningham’s bank still offers traditional services, the emphasis of the bank has probably changed a bit. For instance, we have a very active asset management trust division which we think, because of an aging population, will continue to be very viable for a long time in the future. We think that will be a good provider of non-interest revenue for the organization over a long period of time, he said. But the bank has not gone so far as to develop alternative loan products such as reverse mortgages. It already has substantial commercial lending business in the area.
Dunlaevy said the competitive money market accounts his bank offers have become the core deposits of yesteryear’s traditional bank. Additionally, the bank offers Internet banking, a limited purpose trust company that manages assets and soon hopes to announce a strategic affiliation which will expand its insurance offering.
But Bruce at Lee Bank said his company, in addition to expanding its product line, is looking at other markets. There are very few unmet banking needs in Berkshire County. It’s probably the best consumer deal in the state, he said. Because no large regional or national bank has a presence in the county, most of the community banks look alike to consumers, he said. As a result, his bank is looking to increase efficiencies and cost control amid narrowing margins in revenue growth.
Quite frankly, one of our strategies is to expand where the demographics are better, he said. As a result, the bank’s holding company, Berkshire Financial Services, has just received preliminary approval from the Office of the Comptroller of the Currency to open a bank in Greenville, R.I., called Freedom National Bank.
That doesn’t mean that … we’re de-emphasizing anything in Berkshire County, he said, adding the bank is ready to expand its location in Great Barrington.
An analysis by Bruce showed that 87 percent of the deposit base in Berkshire County is controlled by banks that are based there.
While banks in the Western part of the state tailor their products to their customers and continue to reap benefits from what bankers there say is an extraordinary demonstration of loyalty for community banks in the area, the retail banking industry in general will have to employ a similar approach in generating more loyalty by increasingly focusing on what the individual customers want, according to the TowerGroup report.
