How Belmont Savings Bank increased year-over-year earnings by more than 50 percent — without acquisitions.
By Alaina Webster, Managing Editor
Learning that his community-focused Belmont Savings Bank was listed in Fortune magazine’s 2017 list of “100 Fastest Growing Companies” came as something of a shock for President and CEO Robert “Bob” Mahoney.
“I said, ‘Oh, really? The fastest growing 100 companies in New England?’”
No, Fortune’s representative corrected him, “This is the fastest growing 100 companies in America … You’re number 41.” (What’s more, the bank recently made the list again in 2018.)
While it may have been a surprise to Mahoney, the numbers coming out of the Massachusetts-based BSB Bancorp leave little doubt that the past year has been an extremely successful one for the firm. In July, Belmont reported a net income of $6.1 million or 0.65 cents per diluted share for the quarter ended on June 30. This represents an increase of 51.2 percent over the same period in 2017. Moreover, excluding the one-time impact of the Tax Cuts and Jobs Act in the fourth quarter of last year, Belmont has posted 20 consecutive quarters of earnings growth. In the past six months alone, it’s seen its net income increase 57.3 percent.
Mahoney began his career as a chemist before earning a MBA from Columbia University and joining First National Bank of Boston, then moving to Citizens Bank in Rhode Island in 1993, followed by a private equity stint in New York. After a phone call from a friend, and some encouragement from his wife, he stepped out of retirement to take the reins at Belmont.
“Belmont Savings Bank was a small bank, $500 million in assets, 125 years old, a typical mutual savings bank. The board had decided they wanted to grow the bank, so they approached me,” he said. “I brought a bunch of my Citizens folks over, and we took it public in 2011, raised $90 million, and … we just grew organically, no acquisitions at all. We’ve gone from $500 million to almost $3 billion since 2011, one loan at a time, one customer at a time, and it’s been great fun.”
The secret to Belmont’s new success lies in something quite old-fashioned, according to Mahoney — Sales.
“Every single person here is a sales person. No matter where you work in the bank, everybody’s looking for business, all the time,” he said.
However, he’s quick to point out that sales, especially at a community bank, is inextricably linked to customer experience and community involvement.
“I think they go hand-in-hand,” he acknowledged. “I think that most successful sales start with a service experience. You’ve done something nice for somebody. You’ve helped somebody out — they’ve told a neighbor. You answer the phone during business hours; you don’t let it go to voicemail.”
Belmont’s employees, who staff the bank’s six branches spread throughout five towns, make an effort to be seen in their community. They volunteer their time at spelling bees and community fairs, Mahoney reports, hosting tables and games, meeting people and then encouraging them to sign up for a prize, securing that all-important contact information.
The bank also has three branches in area supermarkets, and the employees, who all wear Belmont-branded aprons, are encouraged to walk the aisles and engage with shoppers, directing people toward hard-to-find items, simply making connections between the Belmont name and a friendly face.
“You comment on their children, you just make a friend,” Mahoney said. “Do something nice for them, and the next thing you know you’re saying, ‘If you’re ever interested in a mortgage, you know where to find us. Right here, over by the bread.’”
Behind the scenes, Belmont is working hard to maintain an exemplary efficiency ratio, keeping operational costs low. Most banks spend about 65 or 70 cents for every dollar of revenues, Mahoney noted, but Belmont averages closer to 46 cents for every dollar of revenue.
“I don’t know anybody that’s under 50 percent,” he said. “I think it really comes back to having such a sales orientation. Everyone who works here feels like it’s their job to bring in revenues … They’re pretty creative.”
As for the bank’s credit risk management strategy, much like many other aspects of Belmont’s culture, it’s refreshingly straightforward.
“Don’t lose money on loans,” Mahoney said.
Due to extreme competition in the New England market (Mahoney mentioned he can see six other banks from the window of his office alone), Belmont prices quite aggressively on loans and pays up for deposits. From Dec. 31, 2017 to June 30, the bank experienced net loan growth of $242.4 million (10.6 percent), and one-to-four family residential real estate loans and commercial real estate loans increased by $187.8 million and $87.3 million, respectively.
Because of the extremely low rates his bank offers, however, Mahoney ensures that his staff exercises caution when approving a loan.
“We are just very thoughtful about who we lend money to. We don’t take chances,” he said. “Our commercial loans are primarily to people we’ve known for a long time. These are people we’ve banked for 20 and 30 years; sometimes it’s the sons and daughters of people that we banked back in the ‘70s and ‘80s. These are very stable, well-known, ethical people, and they pay you back.”
On the deposit side, Belmont is especially focused on securing business with many of New England’s numerous non-profit organizations. Due to the region’s relatively wealthy population (when compared with other areas of the country) as well as its high concentration of universities, colleges and churches, one in every five companies in Massachusetts is a non-profit, Mahoney stated.
“Nonprofits tend to have a lot of cash. They have endowments. They have to do fundraising, and then they hold their cash until they’re building out the church or building the school.”
To attract new non-profit clients to the bank, Belmont offers a series of seminars geared toward these organizations. Topics include how to improve fundraising efforts, branding or changing a brand, and managing boards of directors. Hosted by the bank with a panel of field-experts, Mahoney describes the events as service to sales.
“We’ve given them a freebie, and they pick up the phone and say ‘Geeze, we’d like to do business with you’ … It’s pretty common sense.”
Outsourcing IT is another way Mahoney and Belmont strive to maintain the current efficiency ratio. Using financial services technology companies to provide operational support for smaller banks decreases the number of personnel assigned to “operational” tasks. Mahoney embraces outsourcing as a way to even the playing field between a bank like Belmont and larger institutions.
“Back in the old days, a bank like ours couldn’t compete with Bank of America or Citizens. But now, there are all these fintechs out there — they’ve got the staff, they’ve got the best technology, and our costs only increase as the customers use the service.”
The bank has adopted much of the latest mobile banking technology consumers demand, including remote deposit and online banking.
“We’re good at selling. We’re good at service. Let somebody else be good at IT, let someone else be good at developing technologies and operations,” Mahoney suggested.
Still, there’s one thing you won’t find Belmont outsourcing: If you call the bank during business hours, you will speak with someone who works at the bank. (The bank does employ an offsite answering service during non-peak hours.)
“The trick is not to let the customer see it [outsourcing] because if I end up sending my customer to an 800 number, I might as well be B of A … It costs money to answer the phone; it’s very tempting to let someone else, but once you’ve given your customer contact to a third party, you’ve lost control of that relationship, and you’ve lost control of the service experience.”
Mahoney described his experience at Belmont as being similar to managing a new company.
“It’s a 125-year-old startup,” he chuckled. “It started in the late-1800s, growing to $500 million in 125 years. Meanwhile, we grew by $500 million just last year alone. So, it feels like a high-growth startup.
“It just goes to show that with a little bit of imagination and the right people, you can take a very, very fundamental business, like banking, and turn it on its ear … be up there with the Facebooks and the Amazons, the PayPals … be the 41st fastest growing company in America. It’s kind of cool.”