Arthur Connelly—chairman of South Shore Savings Bank—is a New Englander who’s no stranger to rough weather. He becomes ABA’s chairman at a time of financial turbulence.
By Bill Streeter, editor-in-chief,
Arthur Connelly steps up to ABA’s top post at a time of unimaginable change. He brings to the job 44 years of experience and a remarkable reserve of energy, both of which he likely will need
New Englanders know storms. They have the occasional hurricane, which moves in fast, hits hard, and is gone. And then they have their particular specialty, the Nor’easter. Unnamed and little noticed on national news, these storms come at any time of year with gale-force winds, heavy rains or snow, and high tides and high surf that pound away for days on end.
What if the two came together? Then you’d have what Sebastian Junger labeled The Perfect Storm, the title of his 1997 best seller based on one such storm off the New England coast.
Arthur Connelly, who has lived on or near the coast of Massachusetts his entire life, and respects the power of storms, finds himself in a financial perfect storm. The long run of bad news in the mortgage sector, and in the credit markets was like the Nor’easter, pounding away at confidence, culminating in the events of September that moved with hurricane-like speed and intensity.
Back in August when Connelly was first interviewed for this article, the shaky economy and nervous financial markets naturally came up for discussion. He fully expected that the situation would spill over into his term as ABA Chairman, which begins this month with his election at the ABA Annual Convention in San Francisco. He just didn’t realize quite how big a storm was coming. Nobody did. Its effects will dominate his term and perhaps the terms of those following him.
Outgoing Chairman Brad Rock, CEO of Bank of Smithtown, provided leadership during both the buildup and the hurricane, even receiving a personal call from Treasury Secretary Paulson at one critical moment late in September. Connelly and the other ABA officers were all involved, but now Connelly, the first ABA chairman from a mutual institution since 1938, moves to the point.
He is simultaneously a gregarious, upbeat person, a cautious banker, and a keen observer of changing markets who has managed to keep his bank competitive for more than two decades.
He found his calling
Arthur R. Connelly, chairman of South Shore Bancorp, South Weymouth, Mass., couldn’t have been less involved in the mortgage shenanigans that led to the current troubles than if he had worked as the manager of a hardware store instead of as a banker.
South Shore Bancorp is a $1 billion-asset mutual holding company, sole owner of South Shore Savings Bank. For most of its history the 175-year old mutual could have answered a casting call for the part of the Bailey Building & Loan in the movie “It’s a Wonderful Life.” Connelly himself could have auditioned for the role of George Bailey. While not exactly a Jimmy Stewart look-alike, Connelly nevertheless has much in common with the screen banker. He is an almost iconic community banker, a devoted family man, a counselor/advisor/sympathetic ear for employees and customers, supporter of the less fortunate, and a willing volunteer for countless nonprofit organizations.
For most of his 44 years at South Shore, he lived within walking distance of the bank, took customer calls at night, and answered their questions at baseball games and even on the way into Christmas Eve Mass.
Connelly, who describes himself as a “blue-collar guy,” nearly became a priest. He spent almost two years in a seminary before he realized that priestly service was not for him. But service was in his blood and he knew he wanted to do something that involved helping people. A friend suggested he go to Boston’s Kirstein Business Library and research different industries. There he discovered two things about banking. One, it seemed like a way to help people. Two, while it was a low-paying field, it had a dearth of middle managers, so there were likely to be some good opportunities.
After a brief stint at a savings bank in his home town of Lynn, and following six months active duty in the Army Reserves, Connelly joined South Weymouth Savings Bank in 1966 at the age of 22. He has been there ever since, doing a little of everything on the way to becoming president in 1984. It has been a perfect fit.
“If you like your job,” Connelly likes to say, “you don’t work a day in your life.” He doesn’t just like his job, he loves it.
“I’ve never seen Arthur in a bad mood,” says his longtime colleague and successor as CEO, John Boucher (pronounced Bu-shay). “He is always ‘up’.”
“You usually know when he’s in the building,” says Senior Vice-President and Human Resources Director, Rose McGillicuddy, “because he’s whistling.”
“He knows everyone around town,” adds Sharon Fernandes, vice-president, Branch Administration. “He could be the mayor of Weymouth.”
Connelly is a familiar figure not only in Weymouth—a town of 54,000 situated about 25 miles south of Boston—but throughout the South Shore community, which extends from Boston to Cape Cod. He is well known especially because of his work with dozens of nonprofit organizations. He has spent 25 years, for example, in various volunteer positions— including board chairman—for the South Shore Hospital, a large regional medical center. Many bank leaders do likewise, of course, but with Connelly it’s more of a calling than simply part of the job. He has a particular interest in groups that help the less fortunate. One of these is called Work, Inc., which provides housing and employment opportunities for handicapped people, where Connelly has volunteered for more than 30 years.
Connelly’s philosophy—the way he runs his life, says Boucher, is built around the idea that the bank is more than a business; that its employees need to be a vital part of the community. “Arthur was always a champion of the less fortunate,” says Boucher. “People say, that’s the priest in him. He certainly is a father figure to many people in the bank.”
“One of his greatest gifts is his ability to make people feel comfortable,” says Linda Ellis, Connelly’s administrative assistant.
“Schmoozing” and thinking
It’s difficult to overestimate the value of a leader who is good at getting people to work together—especially in an association. Connelly’s definition of leadership is to surround yourself with people smarter than you, then to help them bring out the best in themselves. That’s his particular gift, he says, and he likes nothing better than encouraging people to step up to a bigger position, and watching them exceed their own expectations. He points to John Boucher as a prime example of this.
There is more to Connelly than being a self-described “people person.”
Those who know him marvel at the stamina the 64-year old has. “He’s got more energy than a 25-year-old,” says Boucher. “Any time you see him—it can be 6 in the morning—he’s ready to go, fired up.”
As a result he can be very quick on his feet. Several years ago, South Weymouth’s historic Old South Union Congregational Church caught fire. Connelly, who could see the smoke from his office, immediately called the minister and offered the use of the bank’s ad agency (at the bank’s expense) to help facilitate news coverage that could help in the eventual rebuilding. This resulted not only in television coverage, but a front-page color photo in USA Today, prompting offers of support from around the country.
One other thing: Boucher notes that for all his people skills (“schmoozing,” Connelly calls it) the chairman is a forward thinker. “He’s often a year ahead of everyone else,” says Boucher. “He’s already on the end game while I’m trying to put all the pieces together to get there.”
From pure thrift to full-service
The bank Connelly ran for nearly a quarter century, while it has stuck to traditional underwriting standards, is hardly the sleepy thrift he joined in 1966. Back then, the $27 million-assets bank waited for people to come in and inquire about getting mortgages. It was a simpler time.
Later came the realization that the traditional savings bank model with its focus on savings and residential mortgage lending wasn’t going to allow the bank to generate sufficient profits to grow. Mutuals rely primarily on retained earnings for their capital.
In the last nine years the bank has become a full-service commercial bank. Right from the start, management set up a commercial lending division with staff, hired a senior commercial loan officer from their market area, and gave him a year to build a team. He hired a half dozen experienced lenders and built the book of business after the fact. Being a mutual, as explained in the accompanying story, “A matter of mutual interest” (next page), allowed Connelly and Boucher the time to build the infrastructure before bringing in the assets, something a public company wouldn’t be able to do.
Prior to this, South Shore’s lending was 100% residential mortgages. At present it’s 50/50 residential/commercial, says Connelly. Further, it grew from $275 million in assets ten years ago to $1 billion now, boosted in 2003 by the acquisition of Horizon Bank & Trust Co, a seven-year-old commercial bank in nearby Braintree, Mass., with $126 million in assets. South Shore had invested in the bank in 1998. To acquire it, the mutual had to form a mutual holding company. It then delisted Horizon and took it private, merging it into the South Shore Savings Bank.
Now that’s old
South Shore Savings Bank is the product of a 1997 in-market merger between Weymouth Savings Bank, founded in 1833, and South Weymouth Savings Bank, which was founded in 1868. However, the bank’s market—the South Shore region—was already 200 years old by the time the first of them was formed!
The area is steeped in history. Weymouth, for example, had the first Town Meeting in the New World and only recently switched to a city form of government. About 20 miles south of Weymouth is Plymouth, the oldest town in America (disputed by Virginians who claim Jamestown deserves that distinction). It is where Arthur and Carole Connelly now make their home. Plymouth’s biggest tourist attraction is Plymouth Rock—where the Pilgrims set foot in 1620 after first touching land at Provincetown on the tip of Cape Cod. Other big draws are the Mayflower II, a replica of the original ship, and the “Plimouth Plantation” Museum.
Quincy, Mass., closer to Boston, was home to both John Adams and John Quincy Adams. All these communities fall in South Shore Savings Bank’s market area.
The shipbuilding and shoe manufacturing industries that once drove the Weymouth economy have long since departed, replaced by a mixture of technology, financial services, and retail. But one old-line business continues: granite quarrying. The area was once honeycombed with quarries, but in Weymouth only one remains, Bates Quarries, which Connelly has personally banked for three generations.
Impact of the mortgage mess
South Shore Savings’ profits are off this year, like many other banks, but despite having half its assets in residential mortgages, the few losses it has suffered to date have actually been in its commercial loan portfolio.
Over the years, the bank has had to change how it competes in the residential mortgage business, which saw an influx of non-local competitors, but it did not alter its basic underwriting standards.
“With adjustable rate loans, we underwrote them at the high end,” says Connelly, “rather than what the payment was going to be.” The customer had to have the capacity to repay the debt. The bank did not do subprime, no-doc, or “ninja” (no income, no job, no assets) loans. As a result, its delinquencies are virtually nil.
This policy has kept the bank out of trouble, but led to a loss of market share. At one time it had about 35% of local residential lending. As the competition increased, that slipped to about 5-6%, says Connelly, which is part of what prompted he and Boucher to reevaluate the bank’s strategic focus. But the recent turmoil has brought a silver lining. “We lost a lot of customers to the unregulated mortgage brokers,” says Connelly, “but they are coming back to us, and we’re regaining market share.”
That doesn’t mean South Shore Savings still does things as it did in the old “pure thrift” days. The bank has retooled to stay in the residential mortgage game.
“Years ago we were order takers,” Connelly explains, “Today we’ll meet customers at their place of employment, in their home, at a rest stop, to take the application.” The bank developed a sales force of outside originators—bank employees—to bring in business. Connelly doesn’t rule out affiliating with an independent mortgage company, either. It also recently outsourced its loan servicing (but still done in its name), because it was two to three times less expensive than doing it in house.
Connelly supports the licensing of mortgage brokers as required under the Housing and Economic Recovery Act that became law in July, and he recognizes the need for greater oversight. But at the same time he wants to be sure that lawmakers and regulators don’t overreact, which would constrain credit.
Despite the takeover of Fannie Mae and Freddie Mac, for example, Connelly still believes securitization is a wonderful source of liquidity: “When done responsibly and with integrity, the system works very well.”
From “painful” to “fierce”
While the current situation at the national level is the worst he’s seen, the most painful time Connelly’s bank faced was during the period of runaway inflation—the “banana inflation” years, he calls them—during the Carter Administration when banks were paying 16% or 17% on deposits. “We were fighting every day with deposit customers who wanted to squeeze us for the maximum,” he recalls, “while the people who were borrowing were fighting with us because they felt they were being cheated. Those were the worst days of my career.”
Deposit competition now is pretty fierce, but in a different way. “Virtually every financial service company in the country and internationally are major competitors for deposits,” says Connelly. He cites ING Direct, the online bank, along with local banks and local credit unions who are aggressive competitors in his market.
The solution at South Shore, successful so far, is similar to what other community banks apply. They try to focus on relationships and not just chasing deposits. “The most successful thing is to have a customer with multiple products and then service them to death,” John Boucher says.
But the bank isn’t relying solely on that formula. It has an “e-branch,” for example, where it opens accounts online.
“We have all the bells and whistles of bill paying, electronic banking, debit cards. We’re finding that the activity in the traditional branch is becoming less and less each year and all of those other things are just growing off the charts—doubling every year,” notes Boucher.
Further, the $1 billion bank is putting a big effort into mobile banking service. Connelly and Boucher recognize that the world is changing and many people don’t come in to branches anymore. The last few branches the bank opened have not shown the kind of growth that a new branch used to generate. With the way young people text message all the time, they figure that mobile banking won’t be tough to sell to them.
Connelly notes that the bank’s slogan is “Live life for all it’s worth.” It’s a message of empowerment, he says. “That’s what a good community bank does.” And if the empowerment comes via a cell phone—so be it.
A complement to empowerment is recognition, and Connelly makes a point of crediting the bank’s and his own success to the bank’s “passionate and hard working staff” and to its “diligent and mature board.”
Goals as ABA Chairman
In any position of leadership, much of what a person can hope to accomplish depends on events beyond his or her control. Connelly’s term looks to be shaped largely by the aftermath of the massive government intervention and investment in the financial services industry, and by what happens with the economy.
Nevertheless, Arthur Connelly has a few things he hopes to be able to focus on as the 123rd chairman of the American Bankers Association.
Even before the events of the fall, market conditions made it clear that reinforcing the message of the safety and soundness of the banking industry was the top association priority. Subsequent events have only made that more important—and more challenging. At every opportunity, Connelly and the other ABA officers point out that the vast majority of the banks in this country are “well capitalized.”
His second major issue will be to continue to develop the ABA’s already strong grassroots program, which has proven highly effective in 2008.
“This is a time of great opportunity for the ABA,” he says. “It is a time when banks need a consolidated, unified, strong industry voice.” Last year’s merger with America’s Community Bankers has been a big plus in achieving that, says Connelly, and has bolstered ABA’s professional staff expertise at a critical time.
Connelly has plans to retire from the bank after his term ends, and says he’s looking forward to it. Clearly the bank is already in good hands, and Arthur C. Johnson, chairman and CEO of United Bank of Michigan, is ready to succeed Connelly as ABA chairman.
It’s hard to imagine someone with his love of people and abundant energy devoting much time to the usual quiet pursuits of retirement. But who knows, after his year as ABA chairman in the current environment, Connelly may be ready for some serious “R&R.” BJ
A matter of mutual interest
Arthur Connelly and John Boucher have toiled together for nearly four decades at South Shore Savings Bank, a mutual savings bank that Connelly sometimes refers to as a “little country bank.” The two men couldn’t be more different. Connelly, now chairman and CEO of the holding company, but CEO of the bank for 23 years, is the classic Mr. Outside.
Boucher (pronounced Bu-shay), on the other hand, is Mr. Inside. “The kind of operational guy who has to make sure everything is done right and the i’s are dotted,” he says of himself.
Who owns a mutual?
Despite their different personalities, the two men share a common passion. Not just community banking, but mutual community banking. They both believe in the value of this structure and look askance at mutuals that have converted to stock for no other reason than to enrich a relative handful of people.
The first mutuals were founded by philanthropists to promote the virtues of thrift and self-reliance among the middle and poorer classes, and offer them the security to save their money.
It’s a common misconception that a mutual’s depositors own the bank. They do not. The profits, net of operations, belong to depositors, and they do have the right, should the institution decide to convert to stock form, to buy shares at the initial public offering price. This fact has given rise to the so-called professional depositor—investors who open deposit accounts in mutuals for the sole purpose of profiting from a conversion.
Who does own a mutual savings bank? In a sense it owns itself. “It’s a self-perpetuating organization that represents the legacy of the community activists that originally founded the bank,” Connelly says.
These activists put up the original capital and were called corporators, a position that is handed down generation by generation. On an annual basis from among themselves the corporators elect a board of trustees, which holds the statutory responsibility for operating the bank, according to Connelly. The trustees in turn delegate that responsibility to an executive committee—call it a board of directors—to retain management and to approve the actions of management.
It’s a bit more cumbersome than the traditional bank model, Connelly says, but it avoids the SEC reporting of a public company. South Shore is regulated by the state and the FDIC.
A mutual holding company, by contrast, can be a stock owned institution or not. South Shore Savings formed an MHC three years ago in order to acquire a commercial bank, but management and trustees elected to have it retain the mutual structure. They have the ability, if they choose, to raise capital by selling minority shares of the holding company.
Freedom to take the long view
Both Connelly and Boucher like working for a mutual because it frees them from an excessive short-term focus. “It removes a level of pressure if the stockholders don’t like something that’s happening in the bank that might be for the ultimate long-term benefit of the bank and the community,” says Connelly.
Success for a mutual, as both executives make clear, is not measured in shareholder return but in stakeholder return—being able to help the community grow, provide jobs for employees, and be able to support nonprofit groups that contribute to a community’s well being. In that respect, Connelly acknowledges that a mutual institution would be similar to family-owned or closely-held community banks.
“Mutuality isn’t for everybody,” says Connelly, “but it’s a viable and very vital business model.” While more mutuals may opt to convert to stock, he believes one promising avenue for growth is the conversion of credit unions to the mutual charter as has happened in several cases already. “It would be the next logical step for a large credit union that has grown beyond the scope of its original common bond,” he says.
ABA had savings institution members prior to its merger with America’s Community Bankers last year, but it now represents 95% of the mutuals in the country, says Connelly. As the first ABA chairman from a mutual institution since Philip Benson of The Dime Savings Bank in 1938, Connelly will work to ensure that legislators and regulators understand the importance of charter choice—not only a mutual charter, but a savings institution charter, and state and federal charters, as well.
Meet the Connelly clan
For 38 years, Arthur and Carole Connelly and their four children lived in a modest house a few blocks from South Shore Savings’ Columbian Square office in South Weymouth.
“Despite the fact that I was out many nights at meetings and community activities, I had the benefit and privilege that a lot of people don’t have—to be home for dinner many nights,” says Connelly.
After the kids went to bed, however, he would often go back to the office to catch up on paperwork. Being a people person often left paperwork backed up, he admits.
The “kids” are grown now. Michael, the eldest, at 40, works in tech support for a stock transfer business and lives nearby, as does Kathleen, a second grade teacher in Weymouth, who is married to Mark Day. Daughter Erin is a physical therapist living in San Diego with her husband, Neill Saunders. Andrew, the youngest, at 25, lives in Columbus, Ohio, where he works as a financial analyst for the investment banking firm Keefe, Bruyette and Woods.
Carole Connelly, whom her husband calls a world-class mom, left a job in the MIT registrar’s office to be at home and closely involved with her children’s lives, which turned out to be a 30-year job.
“We had children twice as long as most people,” says Connelly. “For us that was great. It was back-to-school nights, baseball, soccer, and football, and a lot of kids in the backyard pool. We loved it. Now we enjoy seeing our adult children. They become your best friends as the cycles of life change.”
In addition to being “Mom,” Carole is much like her spouse when it comes to helping in the community. She has quietly volunteered for 30 years at the local hospital, Arthur says.
Lately she has been traveling with Arthur on many of his ABA trips. In fact, she handles the arrangements for many of them.
“I struggle with details,” he says, “so we now jokingly call her my traveling secretary.”
The electronic version of this article available at: http://lb.ec2.nxtbook.com/nxtbooks/sb/ababj1108/index.php?startid=34