Closing Thoughts: John Heerwagen, CEO of Middlesex Savings Bank
Banking on the future
John Heerwagen recently took over as CEO of Middlesex Savings Bank, an independent bank based in Natick with more than $3 billion in assets. Heerwagen replaced A. James Lavoie who stepped down after 32 years with the bank. Heerwagen has had a 28-year career in banking that included a stint as deputy commissioner of banks for the Commonwealth of Massachusetts. While he had an initial interest in urban planning, Heerwagen has spent the bulk of his career in the world of banking. Here, he discusses the challenges he faces and his take on the banking industry and the state's economy.
You've spent the bulk of your career working at banks. What's kept you interested?
Heerwagen: Well, it's never been dull. Probably around the 1970s there started to be sea change in the banking world. It's always been a heavily regulated industry, but it was especially so then, like when and where you could branch. As a result, the industry was very insulated from competition. But as regulations changed, it all came undone and its been nonstop change ever since. It's been exciting and exhilarating and challenging. There's never been a dull moment – it's been terrific in that way.
What are the challenges your bank faces today?
Heerwagen: I would say at the moment for the banking industry and for us, it's earnings. They are, fortunately for us, positive. Banks in general aren't losing money, but earnings aren't up to what they have been by historical standards, primarily because of the level and the nature of interest rates. The interest rates on deposits are pretty high compared to the yield banks get on loans, which is exerting pressure on our net interest margins. It's not a matter of great urgency, but it is a challenge and it's something everyone working in the industry is thinking about.
What is your strategy for dealing with the inverted yield curve? Do you just grit your teeth and bare it?
Heerwagen: I think it's a combination of several things. We've repositioned our deposit pricing and have been restrained somewhat in the growth in operating expenses. We're also looking to find other ways to generate income where we can. This actually has worked for us. We've seen a lift in earnings in the last nine months or so.
What's your take on competition from credit unions?
Heerwagen: I think we bankers feel competition from all sorts of sources. Competition from credit unions is one, but there's also competition from other community banks or large regional and national banks. We also see competition in different sectors like mortgage companies or internet banks. There's competition that's broad-based or narrowly focused and intense. It's all over the lot. Credit unions represent one area of competition and they are a factor, but they aren't the only one.
How concerning is the current implosion in the subprime lending arena?
Heerwagen: I wouldn't put us in that category because we don't have any exposure to the subprime market and as a result we're not directly impacted. There is some level of concern absolutely, particularly how foreclosure activity will affect people and the neighborhoods in which they live and property values.
Were you surprised by the upheaval in the subprime world, or did you see it coming?
Heerwagen: I can't say it's surprising, but it's always hard to forecast. I think there had been enough indication around. Certainly there were loan originators looking to create activity where conventional market lenders stayed away. And as a result some lenders began to devise loan products with too little regard to whether they were the right loans for the right people. I do think it kind of hit pretty quick and it hit pretty hard.
You earned a master's in urban planning. Are you still interested in that topic?
Heerwagen: I served on the homeownership advisory council of MassHousing for about 20 years and from time to time at different banks I've been involved in community development corporations. I've always had an interest and it's something I've had some fun doing. Right now, I'm involved in other stuff. For example, I sit on the strategic planning committee for the town of Natick. I think, too, as a member of a bank with a community orientation in the first place and obligations, we always look to support housing and community development type activities. So my urban planning background is never too far away.
What's your take on the Massachusetts economy? Are you optimistic?
Heerwagen: I'm not pessimistic. I'm sort of moderately optimistic as long as the housing market remains stable. I think that if we can get through this year with it remaining where it is, I think we'll be okay. Beyond that, I think the economy is fairly solid. I would say my forecast is moderate growth. It's steady as she goes, assuming the bottom doesn't fall out of the housing market, and I don't think it will as long as people are employed and that appears to be the case.
This interview was edited for content and length by Christina H. Davis.
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