Fireside Chat: Interview with Webster Five Bank's Brian McEvoy

How Community Banks Can Win in the Small Business Banking Space

Competition for small businesses' deposits, loans, fee income, and community connections has never been tougher. Fintechs, money-center banks, and digital platforms are all targeting this lucrative segment with speed, convenience, and sophisticated data tools. How can smaller institutions compete effectively?

This conversation will focus on winning and retaining small business relationships at the community level including: How small business owner expectations of community banks and credit unions are changing; the profitable opportunity for community banks and credit unions;  how to define and integrate high-touch relationship banking with modern digital capabilities; where smaller institutions can differentiate most effectively; and how to prepare and deploy staff to support growth in this critical segment.

Transcription:
Transcripts are generated using a combination of speech recognition software and human transcribers, and may contain errors. Please check the corresponding audio for the authoritative record.

Nick Miller (00:08):
Well, good morning. Thank you for staying. I'm here with Brian McEvoy, who is the chief retail banking officer at Webster Five, which is a community bank based in Massachusetts. I'll have Brian introduce himself in a moment, but I want to set the stage a little bit. The topic we're here to discuss is how community banks can win in the small business banking space. I think the larger question is, how can community banks win at all? I was reading that Kearney, the consulting firm, wrote recently that smaller banking providers can no longer compete with larger institutions on community presence, costs, productivity, or digital banking experience. It pretty much runs down the list of how you might choose to go. And you all have seen the statistics about declines in the number of FDIC insured banks—that it's about 4% a year and that within 20 years we'll have half the number of banks that we have now. So we are here to discuss how community banks compete in the small business space, but I think the larger undercurrent is how they will compete at all with banks that have perhaps lower costs, broader community presence, and greater productivity. So with that, welcome to the stage.

Brian McEvoy (01:34):
Geez, Nick. I didn't know you were going to do me dirty like that.

Nick Miller (01:39):
Just get your adrenaline going a bit. So Brian, tell us a little bit about you and Webster Five, and then we'll jump into the discussion.

Brian McEvoy (01:47):
Absolutely. Happy to be here. Brian McEvoy, Chief Retail Banking Officer at Webster Five. I oversee retail and small business banking at the bank. We're about a $1.3 billion mutually chartered community bank in central Massachusetts. I've been there for a little over five years. Similar to Thomas from Citadel, I'm a reformed commercial banking leader. I spent most of my career at places like TD, Synovus, and Citizens Bank. It's definitely a different environment here in the community banking space. And I think the question, Nick, is the right question. Honestly, I think the answer lies in small business.

Nick Miller (02:36):
Lucky that we're here.

Brian McEvoy (02:37):
Yeah.

Nick Miller (02:37):
Perfect.

Brian McEvoy (02:38):
I also just, as an aside, I didn't realize I was going to be sharing the stage with such a legend here. So Nick, congratulations on all your accomplishments with this conference.

Nick Miller (02:48):
Thank you. It's been fun. So maybe a good place to start is just with the customers. We're going to talk about Webster Five as well as community banks at large, but tell us about the customers that you have in central Massachusetts and what you're hearing from them at this point—what they're looking for from a bank.

Brian McEvoy (03:08):
Yeah. Before we do that, can we do a little interactive engagement here, do you think? Just quickly?

Nick Miller (03:13):
Really risky.

Brian McEvoy (03:15):
Yeah, no, it's going to be fun. So how many people in the room here, vendors aside, how many work for a bank or a credit union? Show of hands. I know it's early and there were some drinks last night, but if you can keep your hands up, that would be great. Okay. Of all of you, how many work for a bank or a credit union that's over $250 billion in assets? Okay. Of those with the remaining hands, how many have worked for a bank or credit union that's over $10 billion in assets? Okay. So looking at the mix here, I'd say it's a little bit top heavy. And if you look at the number of banks and credit unions in the country, as Nick pointed out, it's declining, but there's about 4,500 banks in the United States and 4,400 credit unions. I think of those, 130 are over $250 billion, then there's maybe another hundred or so that are over 10. Representing the community banking space and the credit unions, there's a lot of us out there and yet I don't see many people focused on the small business segment. That's why I wanted to come here and talk about the opportunity. So to answer your question, Nick, what are we hearing from customers in the market? Talking to small business owners in my market, there are a lot of things that keep them up at night. Those things are tariffs, inflation, high interest rates, and surprisingly the labor market—how challenging it is, even though unemployment is going up, to attract talent to support their businesses. Those are all things certainly outside of our control, but that we can help them with through providing advice.

Nick Miller (05:20):
I'm going to take a risk here and ask a question. How many of you have seen Mel Brooks' movie Silent Movie? Ooh, nobody under 60. Perfect. There was a company represented in that movie called Engulf and Devour. The question I have for you, Brian, is in that kind of environment where large banks are growing, putting out more branches and so on, and smaller banks are disappearing, how do you see the opportunity for community banks in small business?

Brian McEvoy (05:53):
I think we saw some data yesterday—thank you to Chris at TD and some of the other presenters. There's a lot of small businesses out there. Following the 80/20 rule, I think in my market it's about 75/25. There's about 75,000 small businesses in Central Mass in Worcester County. That represents 75% of the businesses in the community. So there's a lot of them out there, and by and large, they're being underserved. What I've seen in my 30-ish year career is small business kind of doesn't fit anywhere. Sometimes it's in commercial, sometimes it's in retail, sometimes it bounces back and forth between the two. Really it's a segment of customers that requires their own solutions and their own support. I think the banks and the credit unions that figure that out and really look at the small business segment as its own addressable market are the ones that largely are going to win.

Nick Miller (07:04):
In Massachusetts, you have TD, Bank of America, Santander, Citizens, and regional banks like Eastern Bank, South Shore Bank, and others. How do you see the larger and medium banks playing in your market and what does that tell you maybe on a broader scale nationally?

Brian McEvoy (07:25):
At the risk of having people throw things at me, I don't see them in the market, to be honest. What I'm seeing in the marketplace is there are the large banks, the TDs and the Bank of Americas of the world, that are doing very well and have a full-fledged holistic approach to how they're handling these customers. And then there's the smaller community banks that are by and large focused on CRE and trying to go up market with deal size. There's really not a lot of banks out there focused on the small business segment. There's other players in the marketplace—M&T, certainly Santander—but we don't see a lot of them when we're out in the community, at chamber events, serving on boards, doing all the things that community bankers do.

Nick Miller (08:29):
You have a point of view about the types of customers that community banks can serve well. Can you share that?

Brian McEvoy (08:36):
I do. There's a lot of small business customers that, despite what all the futurists and the experts say, are looking for advice and relationships that are human. Whether that's with a relationship manager that's a commercial banker or a branch relationship, there's a lot of customers out there that are still using branch channels. They might start in the online channel—we actually have an online origination platform for small business loans where you could start the application and go end to end all the way through e-sign without talking to a person. I bet you can guess what percentage of those customers actually make it all the way through without any assistance from a branch or a contact center member. It's single digits. As much as we believe there's a digitization happening—and there is—those same customers are still relying on advice and affirmation and validation from people they trust, their bankers in the community, for what they're pursuing.

Nick Miller (09:50):
I'd like to come back to the advice topic, but what's your sense? I've been in the industry a long time. You ask banks, "What's your secret sauce? How do you differentiate from others?" Almost always "service" is one of the first or second answers. What else do you have? If I'm running a community bank and I know service is important, from your perspective, what else do we need to bring to the table in order to compete against these larger banks that may have lower costs, wider distribution, and so on?

Brian McEvoy (10:24):
Great point. I think the "service is what we do well" is the equivalent of an interview question, "What's your biggest strength?" "Well, I'm a people person." If you're not, you're in the wrong business to begin with. Everybody should be good at service; it's a baseline. But you have to unpack that a little bit. What does service actually mean? For me, as a reformed commercial banker, there's certainly things that branch people in larger branch distribution networks do really, really well. And then there's things that they don't do so well. I've hired a lot of people from regional banks that came over and they're really good at sales and customer experience, but they're also really good at managing inbound foot traffic. They're not great at business development. They don't really understand the economics of banking and they don't frankly have to touch as much of the operational side of the business as community bankers do. So we build better bankers. You come into a community bank branch and it might have the reputation of being sleepy or behind, but we have actually some of the most sophisticated and well-respected bankers in the community. They know that the small business customers are coming in the doors; they're serving on non-profit boards with them, they're going to dinner events with them, they're neighbors. It really is that whole concept of being local that rings true. I think service is too general, but I think "local" actually resonates.

Nick Miller (12:17):
But how do you scale that? I can understand that community banks that have done well have deep roots in the community. They are on the boards, the hospital board, and so on, so they're well respected and well known. But it seems to me it's very hard to scale that model. Maybe you don't think scaling is important, but it seems to me you're going down a path that has success, but you can't build it.

Brian McEvoy (12:47):
A couple things on that. First, I don't think it's just the trust and the relationship and the local aspect. You hinted at it earlier, Nick—there is the technology component. Ten years ago, or even five, all the headlines were "Chase spends a billion dollars on technology every year." My bank is only worth a billion dollars in assets. How do you compete with that? But there's really been the great technology democratization that's happened out there. There's companies like Lenders Cooperative that provide a platform easy for community banks and credit unions to use that can deliver an end-to-end digital experience for customers. ¹ It takes out the cost factor and the profitability factor of doing business in the small business arena by not over-commercializing the process. Digital account opening solutions—you have to be relevant and current on your technology stack as a baseline and then pair that with the service delivery model and the relationship management model. I think how those two things come together is really where the secret sauce is. But to your point about scale, I think the scale question is limited. It's different depending on what segment you work in and what your goals are. We're a $1.3 billion community bank. We've grown our assets by 50% in the last five years. Do I think we're going to be a $10 billion bank? No. Do I think we can be a $2 billion bank? Yes. What that comes with is deepening the relationships in the targeted geography that we serve and picking up significantly more small business households. The larger question you introduced, which is a little scary and dire straits feeling, is: can community banking survive?

(15:07):
All the data out there shows if you're looking at the consumer side of the business, increasingly new account adoption is going to the Chases of the world, or Chime or Acorns. The share of new deposit relationships owned by particularly community banks and credit unions is declining. We also have an average older customer base than the median bank does.

Nick Miller (15:41):
Both of them have seen Silent Movie, but...

Brian McEvoy (15:42):
Never mind. I have not seen that one; I'm going to have to check it out on the plane ride home. But the consumer base is declining. So it's not just a question of how do you grow scale? It's a question of how do you survive and thrive in this space? Thomas talked about it before—Citadel, the credit union side, is going through significant transformation. Their entire leadership team is new. Actually, a former board member of ours in Central Mass, Michael DeSimone, is the chief lending officer. You see they're turning the corner, and a lot of us in the community financial institution space that see the data and believe it are turning the corner and really focusing on how we differentiate our business model.

Nick Miller (16:37):
The argument so far is that the larger banks aren't serving the small businesses you see as your target; that being deeply penetrated in the community is a way to compete; and that you are building better bankers by either hiring or training them to do it the community bank way. Advice was another thing you mentioned.

Brian McEvoy (17:04):
Yeah, I think that's right. I think there's a place for the larger banks too. We've seen some great presentations here the last couple of days. Scale is really a question for the large banks. How do you take that and turn it into a scaled full-service solution and do that over and over again? I think that's a different approach and there's a customer base for that. There's also a customer base looking for something more personalized, organic, and on the ground. That's where we come in and play.

Nick Miller (17:42):
Talk a bit about the profitability side of this. You've mentioned technology, but the argument for technology is it's on twenty-four seven and ultimately it's cheaper. If you're going to compete in the small business space as a community bank, how do you do that profitably? When I talk to community bankers, large portions of their portfolios are in CRE. What would your counsel be to a potential investor in a community bank at this point? How are you going to do it profitably?

Brian McEvoy (18:24):
A lot of it is process automation. You've got to strip out as much of the back office work, particularly on the lending side—underwriting and processing—in order to make that profitable. You also have to be really targeted around pricing. There was a group out there earlier showing profitability metrics and how community banks, on loan pricing in particular, are lower than market. I think we need to not be ashamed to price turnkey solutions properly because we're not just competing with other banks; we're really competing with non-bank lenders. The OnDecks of the world that are pricing stuff in the 20 plus percent range—I can do a line of credit at 11 or 12% and make enough margin on that, and I can turn that loan around for the customer in two to three days. That's really what they're looking for: access to capital quickly. It's really about reimagining the processes, automating as much of that as possible on the backend, and then deploying the banker as the customer-facing agent to handle the handholding aspect.

Nick Miller (19:58):
You spoke earlier about people and saying that you build a better banker. Can you share a little bit about your vision for the "better banker"? How would you describe that to somebody considering working for you?

Brian McEvoy (20:21):
I'll give an example. There was a gentleman we had our eye on a couple years ago, long-term Bank of the West branch manager, trip winner, all of that. He was based in California and moved to Massachusetts. He ultimately landed at a regional bank and was a branch manager there, but he wasn't happy with the culture. We were talking to him and I wanted to bring him into the team, but I could tell he was really great at meeting a sales target. If the goal was $10 million in deposits, he'd figure out how to motivate the team and go get that. But these regional banks have significant marketing budgets driving foot traffic into the branches. My bank, not so much. It's a lot more grassroots oriented.

(22:10):
We wanted to bring him in as what we call a sales and service manager. A few years ago, I restructured the branches so that our branch managers became market managers focused on outbound business development. I work in a high market share environment; in three of our locations, we're number one in the community, so there's not a lot of headroom for deposit growth. When we repositioned the market managers, we elevated roles within our branches to leadership level. One was the inside sales and service manager who would drive the sales culture in the branch and manage relationship bankers. I really wanted to hire this individual for that role because making the transition into community banking is not easy. You have a lot more stuff to do. Just sitting back here prepping, I got an email: "Hey, can you approve an international wire that's over my limit?" Somebody else needed me to sign a bank check. There are always a million different things you've got to do, and you have to have your shop in order operationally. The other big difference in a community bank is that deposits matter a lot more, especially in a mutual. Our only capital base is the retained earnings we grow every year, and our funding is core deposits. We can't grow the bank if we're not growing our deposits in the community. Understanding the mechanics—net interest margin and how to price deposits—is really important. Brought this individual in; he fought it for a while because he saw it as a demotion initially. He cut his teeth in the community banking space, we put him through banking school to understand the back office stuff, and promoted him to market manager. He's my highest performing market manager now because he already had what it takes in terms of client-facing and leadership skill. He just needed to learn banking.

Nick Miller (24:20):
One of the questions I wanted to ask about surviving in the small business space has to do with going outside the footprint. There are examples of community banks with a regional or national equipment leasing program or over-the-road truck receivables that generate fee income beyond the footprint. How important is it to have sources of fee income that are outside the footprint?

Brian McEvoy (24:58):
I don't think it's critical. I think it's opportunistic. We were having a conversation last night about how the cost of boats has risen and there's a marine lending segment opportunity. Some banks do a really good job of that. There's a community bank in my area that I won't name that has a marine lending segment. They're doing a lot of business down in Florida, even though they're in Central Mass, because they had somebody on the team with that skill set and those relationships. In community banking, it's about being opportunistic around what you already have. If you have the talent to go after a certain market, great. If you stepped into a space through acquisition, great. If you have a lot of a certain segment in your portfolio and you're doing well within your defined geography, can you branch out? That's great too, but I don't think it's critical. Some banks develop these niches and do really well, and others just do basic blocking and tackling, focusing on executing well with their core competencies.

Nick Miller (26:18):
What about partnerships with fintechs, chambers of commerce, and local accelerators? What are other ways to accelerate community penetration, flow of leads, and building relationships? How do you see those third parties?

Brian McEvoy (26:39):
Absolutely crucial. In the community banking space, we need to build more of that. I guess "jealous" is the word that comes to mind regarding the CUSO network the credit union space has built up. There's a lot of collaborative investment in technologies that benefit the segment. We're trying to do more of the same in community banking. Fintech partnerships are critical because in a bank like mine with 140 people and maybe 15 in technology, there are no developers on staff. You're not building these capabilities yourself. You're building them in concert with a fintech or an accelerator group. There are a lot of community banks that you don't compete with in your space that have shared goals and needs, and you can build those roadmaps together. It's probably the greatest unlock out there—partnering more effectively with those groups.

Nick Miller (27:52):
Can we talk about advice for a moment?

Brian McEvoy (27:54):
Sure.

Nick Miller (27:55):
I'd love some advice.

Brian McEvoy (27:57):
Okay.

Nick Miller (28:00):
Many banks say they want their bankers to be trusted advisors. In my work with community bankers, I think of people who've been in the industry 20 years and have seen a lot. They can provide industry perspective, financial counsel, and ask questions you never thought of. Very valuable. In larger banks hiring at scale at the branch level, it's very hard to find that. How do you see that not only at Webster Five, but more broadly? If the true value is this expertise amassed over decades, how do you get that and keep it?

Brian McEvoy (28:47):
You need to have a really ambitious talent acquisition strategy. Your mission has to resonate with people who are looking to do a little bit more and feel their personal values are aligned with the corporate values or the direction of the bank. Our mission statement at Webster Five is: "We amplify the good in our communities." We say "communities," plural, because that can be geographic, it can be our employees, it could be our corporators, or it can be certain small business segments. The core—and the presentation from US Bank yesterday touched on this—is return on community. We measure the impact we make. How do you measure that? One way is that my bank is one of 8% of the banks in the country with an "Outstanding" CRA rating. We're not going for satisfactory; we're going for outstanding. It costs a little bit more to achieve that, but that's part of the value proposition. Attracting talent with a compelling mission is important. Then from a retention standpoint, a lot of it is employee development. Nick, you and I and Stacy at Clarity Advantage worked on a bunch of this with our market managers. It's how you actually teach them to be more sophisticated bankers who understand what business owners need and how their cashflow works so that you can slot in the right solutions. Even at the in-branch banker level, teaching them to have conversations with business customers and ask about their business is key. You've got to continuously invest in employee development. There's in-person training which you have to reinforce, and there are microlearning opportunities like Lemonade. We've built probably a couple hundred courses of self-directed learning through that platform with gamification that keeps our employees engaged.