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Central Mass. Bank Profits Down In 2007
Despite a tough year, local bankers remain positive
Of the 36 banks based in Central Massachusetts, only nine saw their annual profits climb from 2006 to 2007, according to an analysis of FDIC reports by the Worcester Business Journal.
In fact, total profits at the 36 institutions based in Central Massachusetts totaled $69.9 million in 2007, a 15 percent drop from the $82.4 million reported by the same banks a year earlier.
The lackluster results aren't a surprise. While banks haven't been the primary movers behind the subprime mortgage collapse, they're suffering from a weakened housing market. And interest rate pressure has continued to pinch the bottom line, according to local bankers.
Nationally the story on bank profits was similarly dim. Fourth-quarter net income in the United States totaled $5.8 billion, the lowest amount reported by the industry since the fourth quarter of 1991, according to the FDIC.
The local banks that saw the most profit growth from 2006 to 2007 included Middlesex Savings Bank in Natick, which reported a profit increase of 6.8 percent to more than $18.5 million.
Robert Lewis, president and CEO of Bay State Savings in Worcester, said his bank's profit growth in 2007 was thanks to a weak 2006 that suffered from high litigation costs. Because of the tough environment, he said Bay State engaged in an "extensive expense reduction program" in 2007 that aimed to curb spending.
Strong Optimism
For the majority of banks that saw profits shrink, there's still a sense of optimism, including at Savers Bank, whose profits declined from more than $2 million to $967,000, a drop of 53.6 percent.
Paul Jalbert, president and CEO of Savers, which has branches in Southbridge, Uxbridge, Auburn, Grafton, Charlton, and Sturbridge, acknowledged the smaller profits at the bank, but instead focused on the 5 percent growth in assets. He also said that the bank's total loan portfolio, including commercial and residential, increased 7 percent.
Still a concern at Savers, and banks in general, is pressure on net interest margins, which is the difference between interest income and interest expenses.
As net interest margins get tighter, banks profits are squeezed. Statewide, the median net interest margin in Massachusetts was 2.97 percent in the third quarter of 2007, according to the FDIC. That's down from 3.46 percent in 2005 and 3.20 percent in 2006.
However, despite the cries to the contrary, Jalbert said 2008 is off to a solid start.
"We are doing very well already this year, and we're almost to the end of the first quarter," he said.
Brian Thompson, president and CEO of Worcester-based Commerce Bank & Trust, was similarly upbeat, despite the fact that profits at Commerce declined from more than $8.3 million in 2006 to slightly more than $5 million 2007, a drop of nearly 40 percent.
Thompson attributed the decline in part to 1-800 East-West Mortgage Co., a subsidiary of Commerce Bank that focuses on home loans. He said East-West has been hit hard by the housing crisis, forcing the operation to consolidate from a peak of 300 employees in 2003 to only 60 employees today. The operation also cut back its space, moving from 35,000 square feet of space in Peabody to only 8,500 square feet in Marlborough.
Without East-West Mortgage's losses, the bank's profits would have totaled approximately $7.6 million, according to Thompson.
"The bank had a good year last year, and the good news is that we're looking forward to 2008 very optimistically," he said.
As for expansion plans, Thompson said Commerce plans to stick with its current 12 branches.
"I think what happens in today's world is that you don't always have to add branches," he said.
Similarly, Savers doesn't have any plans to add any bricks and mortar "in the foreseeable future," according to Jalbert. As he sees it, Central Massachusetts is "very over-banked as it is" and with more people moving to online banking, physical branches are less important.
However, de novo branches aren't completely off limits in the region.
Bay State plans to open a new branch in May at 2 Eastern Ave. in Worcester.
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