Community Banker of the Year: Eastern Bank's Richard Holbrook
Depositors at mutuals in Ohio and Massachusetts have approved measures making it more difficult for their institutions to convert to stock ownership. Still, many industry observers believe the mutual industry is poised for more consolidation.
Eastern Bank is considering a plan that would boost its biggest donations from $50,000 to seven-figure sums. While the plan could shrink the total number of grants given, it should also allow the organization to have more influence in certain areas.
Eastern Bank's 18-month-old innovation unit, run by startup veterans, is preparing to release its first product as the industry continues to allocate resources to internal tech labs while wondering when and how such efforts will pay off.
Most banks that deploy voice authentication require a specific spoken passphrase. Eastern Bank customers can have a normal conversation with call center reps; software in the background compares their voice patterns to a recorded snippet.
Community bankers have been thirsting for more merger and acquisition activity, and Eastern's announcement Tuesday that it has agreed to pay $163 million for Wainwright is the second-biggest proposed bank acquisition of the year.
It's hard to lose track of time in Richard Holbrook's office.
A giant Dr. Pepper clock hangs on one wall, and two grandfather clocks greet visitors just outside of his Boston office — one is from 1792, the other is from 1904. Another dozen or so clocks sit atop of an ornate oriental-themed credenza. Gifts mostly, he says, from various folks who know about his hobby.
"I've always liked clocks. Time is an interesting concept, in that it only goes one direction. It goes forward and there is nothing you can do when you look backward," said Holbrook, the chairman and chief executive at Eastern Bank. "All you can do is anticipate how time will move forward."
Of course, nowadays most people don't rely on clocks for the time — they look at their phones. Similarly, the digital revolution is changing the financial services industry and Holbrook is trying to make sure that his $9.6 billion-asset bank doesn't end up like the clock — a once essential part of life that has been replaced by technology that does basically the same thing in a more appealing way.
Always looking ahead, Holbrook in 2012 ordered an overhaul of bank's operating system so that it could more readily adopt new technology without relying on its core processor. A year later, he took the unusual step — for a bank its size anyway — of creating an in-house technology laboratory and tasked it with driving innovation inside the bank.
The investments signal to customers and employees that Eastern is dead serious about creating a culture of innovation, something Holbrook says is key to staying relevant in the increasingly fragmented financial services marketplace. CEOs of large banks get this, but Holbrook worries that many of his counterparts at smaller institutions don't.
"There are a number of community bankers who think, 'I've been successful for 20 years. The rest of the world can keep moving, but if we keep doing what we've been doing to be successful we are going to stay successful,'" said Holbrook, who became Eastern's CEO in 2007. "That's an ostrich with its head in the sand."
In the ongoing battle for customers, scale and visibility matter too, and under Holbrook, the 200-year-old Eastern has significantly raised its profile. It has increased its assets by roughly 50%, largely through acquisitions, since 2007, and has become a household name across New England, thanks in part to its six-year sponsorship agreement it had with the Boston Red Sox and the team's cable television partner, New England Sports Network.
Since its acquisition of Wainwright Bank and Trust in 2011, Eastern has also become far more vocal on social issues. Wainwright was well known for its advocacy for gay rights and other causes and Eastern has adopted much of that culture. It was, for example, among the signers of the amicus brief sent to the Supreme Court challenging the constitutionality of the Defense of Marriage Act.
All of these initiatives have helped to build Eastern into what is now the largest commercial bank based in Massachusetts and are big reasons why the bank consistently earns high marks in both employee and customer satisfaction. Perhaps most important, they are helping to position Eastern as a survivor in an industry that's destined for consolidation.
It's for these reasons and more that American Banker has named Holbrook as one of its Community Bankers of the Year for 2015.
Holbrook, who is retiring at the end of 2016, said that Eastern was built upon a commitment to customer relationships and service. That, he added, will never change.
What's different, he said, is that "we became much more outspoken in our advocacy, we've become much more focused on the need for innovation and for the capacity to change. Eastern has grown; it has prospered, matured and gotten itself ready for its next 200 years."
Holbrook began banging the drum about how technology was going to change banking early on his tenure, said Bob Rivers, president and chief operating officer of Eastern and who is set to replace Holbrook when he retires next year.
It took time for him to get that message across to the board and other senior executives, but they started paying more attention around 2010, when they noticed that branch transactions across the industry had fallen by the same percentage in 2009 as they had in the cumulative five previous years. Mobile banking had arrived.
"It was the tipping point for us and was a real rallying cry," Rivers said.
It wasn't just the decline in branch traffic that forced Eastern to up its game. The glut of idle cash following the global financial crisis of 2008 had given rise to crops of alternative lenders and payments firms.
"We see all kinds of disruptors chipping away at the traditional business model of banking, so we decided we needed to do a better job," he said.
In 2013, Eastern found an opportunity in another company's misfortune. PerkStreet, a Boston-based startup focused on cards rewards, was shuttering.
Dan O'Malley, the founder of PerkStreet, had worked for banks before and was reluctant to rejoin one. But O'Malley and his team agreed to do a pilot program with Eastern later that year. By April, Eastern asked them to stay and start Eastern Labs. With it, Eastern inherited a team of seasoned entrepreneurs with data-science and social media expertise who didn't think like bankers. The former PerkStreet folks got something so many fintech startups crave: the treasure trove of data for them to build ideas around.
"And it is all because we said the future is not going to be what the past has been because time keeps marching on. How do we anticipate the inevitable and react faster than others?" Holbrook said. "We weren't going to be able to see anything faster with our own eyes — we needed new sets of eyes."
The bank has committed 1% of its revenues to Labs, or about $4 million. The money is designated for the group to, broadly, innovate. There is no mandate — it doesn't have to crank out a new product that will be a cash cow for Eastern. But new products are certainly the hope.
Eastern has put the oversight of the call center under Labs, too. The bank had received high marks from J.D. Power for its complaint resolution in the center, but it decided that if it did a better job of analyzing the complaints it could reduce complaints overall.
One of the first outcomes of that oversight is the introduction of technology that authenticates customers in the background as the call center agent addresses the purpose for the call. It is one of the first banks in the U.S. to adopt that kind of authentication.
Also, the company is piloting its first product — an online loan product that would serve as a platform for multiple products to come, Holbrook said. He declined to elaborate until the testing is complete.
Its other big investment came years ago, when Eastern adopted what it is known as a service-oriented architecture.
One of the major issues facing banks today is that the core systems they run on were built for a different era. Many see updating the core to something more modern as a Herculean task. Eastern is no different — it didn't build a new core, but instead built middleware that would make it less dependent on its core vendor, FIS.
Before, choosing a product besides one offered by its vendor was tricky. Now, it is easier. For instance, the company is in the midst of testing a new mobile banking app with Infosys, an Indian software company.
"It enables us to deal with vendors so that our business lines get exactly what they think they need, it gives us a sense of having more control over our destiny as opposed to relying on a vendor," Holbrook said. "We couldn't have done it if we didn't change the foundation."
Yet, as Eastern looks to the future, it is stepping carefully to not disrupt its customers who are content with products of a bygone era, like passbook savings accounts. It is a delicate dance for storied banks that are exploring innovation; while they might be focused on their future, not all of their customers are.
"For some people, particularly older people, it is still important," he said. "I know banks that have stopped offering them. Why would you do that? It doesn't cost much and it keeps those customers happy."
As a young man, Holbrook didn't see banking as his future; he studied molecular biophysics at Yale University.
As a student at Yale he served as the varsity college basketball manager. (Holbrook, who stands at 5'5", has two varsity letters in Division I basketball for the job as manager.) That role led to him getting a job in the athletic department at Yale following graduation. After several years there, he started his studies at Harvard Business School. He figured he would combine his science background with his business degree and work for a large pharmaceutical company.
But a recruiter from Connecticut Bank and Trust in Hartford began pursuing him and one day asked him to attend to a meeting with the bank. Sweaty, tired and hungry from refereeing intramural basketball, he tried to get out of it. But the bank had food.
"He said, 'we have shrimp,'" Holbrook said. "I said, 'I'll be right down.'"
While he came for the food, he stayed for the promise. They told him that banks could make a difference and it started within their own community. They told him it would be intellectually challenging, too.
He accepted a job and when Connecticut Bank and Trust was acquired by the Bank of New England in 1987, Holbrook was named controller.
When the Bank of New England failed in 1991, Holbrook pivoted back to life science. He became the chief financial officer of OsteoArthritis Sciences, a biotech startup looking for an agent that would stop the degradation of cartilage. The endeavor was ultimately unsuccessful and the company liquidated in 1996.
So he returned to banking — later that year he joined Eastern as its chief financial officer. He became president in 2001. He succeeded Stanley J. Lukowski as the chairman and chief executive in January 2007.
Holbrook attributes his flexibility and willingness to accept change to his childhood.
Holbrook and his twin sister Gail are the eldest of six kids. While most of his life has been spent in Massachusetts, there was a year when the family lived in Phoenix and Los Angeles. They also spent five years in Maine, before settling back in Dighton, Mass.
"When you move a lot as a kid, I think you become more adaptable and more willing to change than other people," Holbrook said. "There is so much uncertainty about what is going to happen next."
The Mutual Advantage
The decision to invest heavily in Eastern's infrastructure, the creation of Eastern Labs and the 16-year-old practice of setting aside 10% of its profits for charity might be great for the bank's reputation, but they have put a dent on earnings.
The bank's return on assets is 0.70%, according to the Federal Deposit Insurance Corp. Averages for all banks, commercial banks of similar size and savings banks of similar size had a ROA higher than 1%.
Eastern is a mutual organization, though, so it's not under pressure from shareholders to meet quarterly earnings targets. Profits matter, of course, but it doesn't have worry about a dividend or wringing out the last nickel of savings.
"You need a board that understands the value of the long term: if we don't spend this now, we won't need to worry about it in the future because we'll be out of the business," he said. "If you look at the companies in the nonfinancial services world, they all designate a huge amount of money to R&D. What do banks designate to R&D? It is always incremental. We need to do more than incremental."
Some stock-based banks might want to heed that message, said JP Nicols, the president and chief operating officer of Innosect, an innovation enablement and analytics company.
"This is the core of the innovator's dilemma — you need to make earnings, but you also need to make changes," said Nicols, who is also a co-founder of the Bank Innovators Council, a global organization that promotes bank innovation. "I wonder when, if ever, shareholders will begin to penalize for lack of innovation."
Holbrook has been an advocate for the mutual bank structure and has served as chairman of the American Bankers Association Mutual Institutions Council. But even Eastern has toyed with the idea of a conversion. Holbrook said the bank "fully discussed it" in the early 1990s before he arrived and the conversation comes up again every couple of years. He knows of other mutuals that have written into their bylaws to forbid a conversion.
"It is an admirable commitment to being a mutual, but I don't believe in foreclosing on your options," he said.
Early Lesson in Service
As part of Holbrook's planned ascension to the top job in 2007, Eastern needed to find a replacement for him in his old job in 2006.
Like any good candidate, Bob Rivers, who was then at M&T Bank, decided to do his research on his potential boss.
"His last name is Holbrook, he did undergrad at Yale and went to Harvard Business School. He just sounded like someone very advantaged," Rivers said. Instead, he said he encountered someone who describes as bright, modest and down-to-earth.
"He is just a really good, really ethical person and a good family man," he said. He recalled when the company was trying to come up with a set of values for the bank and its employees to follow early in the new regimen's tenure. Holbrook "pulled out a dog-eared piece of paper from his wallet that he said were his personal values."
The card had the words: integrity, urgency, accountability, creativity and teamwork.
"When it comes to integrity, his motto is to not do or say anything he wouldn't tell his wife or mother," Rivers said. "He's just one of those kinds of people."
Holbrook and his wife, Susan, have been married for 31 years. Susan Holbrook is the director of children's ministry for the United Church of Christ in Medfield, Mass., where the family has worshipped since 1987. Richard Holbrook teaches fourth-grade Sunday school.
The couple have two adult sons. Scott Holbrook is 26 years old and is a small business lender for M&T Bank in New York City. He also writes a blog about beer. Kevin Holbrook is 22 and recently began his graduate studies at Boston College, where he also received his undergraduate degree. He is studying education.
Holbrook's parents didn't go to college, but his dad worked his way up from a payroll clerk to accountant. His mom also worked as cashier for a grocery store for 17 years. Holbrook says his mom's job taught him about banking and the importance of building relationships with customers.
"My mother would have the longest line. I'd tell her, 'Mom, you got to learn to scan faster.' 'I'm the fastest scanner we've got,' she'd say" Holbrook said. "'My customers want to see me,' she'd say. They wanted to talk and have an interaction with a person.'"
The Wainwright Effect
Carol Rose was worried Eastern announced in the summer of 2010 when it would acquire the $1.1 billion-asset Wainwright, a Boston institution that championed social causes and banked many of the city's nonprofits. Rose is the executive director of the American Civil Liberties Union of Massachusetts and the organization had banked with Wainwright for 25 years, she said.
"Whenever there is a change, you wonder the culture of the new bank would be," Rose said. "As the leader of a social justice nonprofit, I think it is important to align our business relationships with our organization's values."
But around the same time, Rose kept running into Holbrook at various charitable dinners and it was enough for her to decide to give Eastern a chance.
"Eastern has continued and built upon Wainwright's position," Rose said.
Rivers said Holbrook and the rest of the management team worked hard to make sure that Wainwright had left more of an imprint on the bank's culture than a typical deal would.
Eastern was already working on issues like homelessness, housing, education and health care for the less fortunate when Holbrook arrived at Eastern in 1996 as its chief financial officer. In 1999, he pushed for the bank to funnel 10% of its earnings to the bank's charitable organization. Holbrook says the deal gave Eastern the opportunity to up the ante on its dedication to the community.
"We've always been social-justice minded, but with the acquisition of Wainwright we became advocates, rather than supporters," Holbrook said.
Besides signing the amicus brief challenging the constitutionality of the Defense of Marriage Act, the bank has also thrown its support behind several Massachusetts measures related to gay and transgender rights issues, gun control issues and gender equality. Rivers, for instance, testified before Massachusetts lawmakers in July on a measure that would require any corporate board with more than nine members to have at least three women. (Eastern had three women on its 12-person board, but one recently stepped down. It is searching for a third, Holbrook said.)
"We believe that as an institution, we ought to worry about all the members of the community, even if that means sometimes taking controversial stances," Holbrook said.
Like so many bankers, Holbrook turns to George Bailey, the protagonist of "It's a Wonderful Life" for guidance.
"What was he trying to do? He was trying to make his town better," Holbrook said. "That's the vision we have for ourselves."
The movie is downloaded onto his iPhone 6.