Oneida Savings Bank: Diversification turns sleepy bank into community powerhouse

ONEIDA — One year after the Civil War ended, residents of Oneida established the Oneida Savings Bank (OSB). Chartered in New York state, the corporation was structured as a mutual savings bank, whereby the depositors were the bank’s owners.

Serving clients in Oneida and Madison counties, OSB collected deposits, paid interest, and financed residential mortgages for 113 years, when the banking world suddenly turned upside down.

Determined to wring rampant inflation out of the economy, then Federal Reserve chairman, Paul Volcker, slowed the rate of money supply. Between 1979 and 1981, he also raised the federal-funds rate from 11 percent to 20 percent. The prime interest rate hit 21.5 percent in June 1982. “The recession was a … [double-whammy],” says Eric E. (Rick) Stickels, the current president and COO of Oneida Savings Bank who joined the bank in 1982. “The industry was already grappling with deregulation, which was enacted in 1980. The recession of 1981, coupled with deregulation, forced 1,617 financial institutions, of which 747 were savings-and-loan associations, to close or seek FDIC assistance between 1980 and 1994.”

In July 1982, Congress enacted additional, deregulation legislation authorizing banks to offer money-market accounts, removed restrictions on real-estate lending, and relaxed the loans-to-one-borrower limits. Not surprisingly, there was a rapid expansion of real-estate lending, just at a time the real-estate market was collapsing. Where once the savings-and-loan banks represented a stable sector, it now faced competition from commercial banks as well as other S&Ls pressured to find additional income. Saddled with 30-year residential mortgages issued at low interest rates, some S&Ls rushed to finance high-risk developments such as casinos, fast-food franchises, ski resorts, junk bonds, arbitrage schemes, and a variety of derivative instruments.

“When I joined the bank in 1983,” says Michael R. Kallet, president and CEO of Oneida Financial Corp. (NASDAQ: ONFC), the stock-holding company for OSB, “we were still a sleepy, little bank. OSB had just offered checking accounts and adjustable-rate mortgages, but it was difficult to compete. There’s no doubt that the bank took its lumps in the 1980s and 1990s.” Kallet was appointed CEO of the bank in 1989, and Stickels assumed responsibility for operations and finance.

Growth strategy

During the 1990s, the team of Kallet and Stickels crafted a strategy to grow the bank and diversify its revenue streams. In 1998, they took step one by establishing a mutual-holding company, which, in turn, created a stock-savings bank subsidiary to hold all the assets and liabilities. The parent company owned a majority of the subsidiary and was authorized to sell shares in order to raise capital. “After 12 years of growth and success, we decided to take step two,” continues Kallet. “In 2010, we shed the mutual structure and created Oneida Financial Corp., a Maryland stock-holding corporation. Our second offering raised $31 million in new capital, of which we have deployed $5 million to date.”

“The funds raised since 1998 have been used largely for acquisitions,” notes Stickels. “We entered the insurance business in 2000 with the purchase of Bailey & Haskell Associates, Inc. Oneida Financial concluded its eighth insurance-agency acquisition in 2012, buying McMahon, Fenaroli, and White, Inc. (d/b/a Schenectady Insuring Agency or SIA). Our merger-and-acquisition activity [since demutualization] also included two banks — the State Bank of Chittenango and the National Bank of Vernon. In 2006, we acquired the Benefit Consulting Group, LLC. (BCG) located in [North] Syracuse. BCG, formed in 1983 as Retirement Income Services, focuses on 401(k)-plan analysis, design, and administration; personal financial services; business financial services; human-resources consulting; and health insurance and employee benefits. Altogether, the bank has invested nearly $36 million in acquisitions over the past 13 years.”

In 2008, Oneida Savings Bank created Workplace Health Solutions, a company specializing in offering employers access to networks of independent medical examiners in New York state. The goal is to partner with those providers who commit to timely appointments, give objective feedback on their diagnoses, and offer treatment recommendations to return injured workers to the workplace as quickly as medically appropriate. “Our growth is not confined just to acquisitions,” says Kallet. “We create companies where we see the need for a new product or service.”

Kallet stresses that the goal is not just to acquire and grow. “We need to find a good fit that will help us to leverage our assets and create synergies. The companies we target should be free to focus on selling, while our back office [of IT, marketing, and audit] supports their efforts. In the case of Bailey & Haskell and BCG, both were vendors to the bank, and we were comfortable that we could integrate the different cultures into the bank.”

The demutualization strategy has wrought significant changes at OSB. “When Mike and I joined the bank back in 1982-1983, we had 35 employees. Today, [Oneida Financial (OFC)] has 365,” says Stickels. “In 1982, the bank’s assets were $130 million. When we … [initiated] demutualization in 1998, our assets were $220 million. At the end of 2013, OSB posted more than $750 million in assets. OFC’s consolidated [annual] revenues [Dec. 31, 2013] were approximately $58 million and our income exceeded $6 million, with most of the growth coming from our non-banking subsidiaries. (Subsidiary income rose 13.6 percent in 2013.) OSB has expanded to 11 full-service offices, and our equity exceeds $90 million, all while remaining well capitalized. At the time of our secondary IPO in July 2010, shares sold for $8.” Today, Oneida Financial shares trade above $12 (the stock was trading at $12.35 as of late morning, Jan. 21.)

The next step

The day after the SIA deal closed on Dec. 31, 2012, Kallet and Stickels implemented the next step in the strategic plan: they created a new corporation — Oneida Wealth Management, Inc. “Our major concern is client services,” posits Donald J. Abernethy, Oneida Wealth’s president. “We needed to bring … a common vision … to all Oneida Financial companies offering wealth-management services: life insurance, wealth management, the broker-dealer functions, pensions, financial planning, and trust services. A perfect example of the benefits of this approach is our new, centralized [software] platform that integrates our pension, administration, and trust departments so that we can see all of our clients’ needs and respond. The name ‘Oneida Wealth’ also lets us create a single brand as we expand into new markets, such as Albany and Long Island.”

Abernethy continues, “[In short,] our mission is to implement what we call the Premier Advantage, a trade-marked name for providing a comprehensive portfolio of services to help our clients manage their personal and business needs while reducing their risk. The old model of utilizing multiple services and advisers is confusing and often costly because of overlapping expenses and gaps in coverage. With our new platform, all of our programs mesh seamlessly.”

Abernethy joined Retirement Income Services as a partner in 2003, following a stint at First Albany Securities. A 1994 graduate of Siena College, he holds multiple licenses and is a registered principal broker. Oneida Wealth Management also includes Chasity Jaynes, the company’s vice president and COO. Jaynes was the assistant vice president in charge of transition at Cadaret, Grant & Co., Inc. in Syracuse before joining BCG in 2005. She and Abernethy sit on the Oneida Wealth Management board of directors.

New location

The growth of Oneida Financial’s Syracuse–based insurance and financial services business has forced the company to seek new quarters. “We just announced that we are moving [our 110 employees] from the current North Syracuse [town of Clay] location to a building just two blocks from the Syracuse Inner Harbor,” says Kallet. (COR Development is currently planning to build a hotel, apartments, retail space, and other amenities in the Inner Harbor.) “By late 2014, we hope to occupy 28,000 square feet in the old Nabisco plant located at 706-716 N. Clinton St. Andy Breuer (Hueber-Breuer Construction Company, Inc.) and Josh Podkaminer (Emhoff Associates) are developing the former bakery into office space for medical and financial tenants.” Abernethy adds that the staff will initially occupy 20,000 feet, which provides room to grow.

Oneida Financial’s success has been built on a model that closely controls the process. “Ours is a more expensive model than other financial-services companies that outsource many of their functions,” asserts Kallet. “We like to keep as much in-house as we can. We’re convinced that we provide better service … This means a big investment in our technology. [For example,] we were the first bank north of metro New York [City] to offer online banking. As our mobile usage increased, we deployed new software in 2012 to keep up with the changing habits of our customers.”

Even with the investments in technology, it still comes down to the quality of the staff, according to Oneida Financial’s leader.

“Our ultimate success is based on our people,” Kallet opines. “[Oneida Financial] … has a team of long-term employees with talent. We nurture them and invest heavily in their education. We teach them that change is a constant, and they must be facile in responding to it.”

Oneida Financial’s success is also attributable to its management team which includes Kallet and Stickels; Pierre Morrisseau as the CEO and John F. Catanzarita as the COO of Bailey Haskell/BCG; Abernethy at Oneida Wealth Management; and Deresa Durkee as a senior vice president and CFO, and Russell Brewer as a senior vice president and chief lending officer at Oneida Savings Bank.

Kallet, 62, says Oneida Financial has already put a succession plan in place for the company and for all department heads. “Rick [Stickels] will succeed me, although we have not chosen a date. We have worked together as a team for 30 years, and he is intimately involved in our strategy and execution to diversify and grow.”

Kallet, who started in the 1970s with the Bank of New York, says “[t]here has never been a better time to be a community bank. The public understands and appreciates our role as the economic engine of development in small communities. We understand the communities we serve and their needs, and we believe strongly in supporting them.” Looking back on three decades of radical change in the banking industry, Kallet says “I have never been more optimistic of the future. To me, challenges make us better.”

Kallet, a 1972 graduate of St. Lawrence University and a music major who went on to study at the Berklee College of Music in Boston, has orchestrated a major change at what was once a sleepy bank and is now the community’s economic powerhouse. His approach seems to have avoided improvisation, even though he enjoys jazz, instead following a carefully crafted score that has made his stockholders, employees, and the Oneida community smile.

Contact Poltenson at npoltenson@cnybj.com