Finance Forecast: Bankers Planning For A Thrifty '09 | Investment losses, credit crisis reinforce conservative practices
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James Garvey, head of Flagship Bank of Worcester expects an increase in home equity loans next year.
Central Massachusetts banks have two stories heading into 2009: Banks working to put Fannie Mae and Freddie Mac losses behind them and banks just trying to carve out opportunity in difficult times.
Strata Bank of Medway announced its $6.6 million loss back in September when its regulatory rating was downgraded to “adequately capitalized” following government takeover of the mortgage giants. But several other local banks were also hit, including Framingham Co-Operative Bank, which lost $5.7 million. Other known bank losses range from $300,000 to $3 million.
Many Worcester area banks hope for assistance under the $700 billion bailout bill, but are waiting for the federal government to finalize rules for small banks and mutual banks. Most, including Framingham Co-Operative Bank, retained their “well capitalized” regulatory rating despite losses. President and CEO Robert Lamprey said the bank’s capital ratio remains over 20 percent, well above the 10 percent “well capitalized” requirement.
“It’s not a nice occurrence and not very satisfactory because everyone thought Fannie and Freddie were one of the safest investments a bank could make, but it’s not earth shattering,” Lamprey said. “Not to us anyway.”
Lamprey said his bank expects to realize approximately $2 million in tax benefits from the federal government’s decision to allow Fannie and Freddie losses to be written off as ordinary rather than capital losses.
Framingham Co-Operative won’t seek capital assistance offered under the $700 billion bailout legislation, Lamprey said.
Leaving ’08 Behind
Medway-based Strata Bank, which reported a total third-quarter loss of $8 million on bad Fannie, Freddie, AIG and Lehman Bros. investments, saw its total assets fall 3 percent to $402.6 million compared to the previous quarter.
The bank hired Interim CEO Edward Hjerpe III and earlier this month announced its planned acquisition by Middlesex Savings Bank of Natick.
“I think they’ve got a good brand,” said Mark O’Connell, CEO of Avidia Bank of Hudson, in reference to Strata Bank’s woes.
“They’ve taken some hits that have been public, but I think it could be all behind them.”
In 2009, O’Connell hopes to reconnect with local consumers who chose subprime mortgage lenders over his bank in recent years. Like most community banks, Avidia never entered the subprime mortgage market.
“I think it will be good for community banks in the long term,” O’Connell said. “I think customers who dealt with mortgage companies are going to realize they want to work with us.”
O’Connell said his bank enters 2009 optimistic despite the bad economy.
“With a lot of big banks regrouping, so to speak, there’s a good chance for the community banks to recaputure some business,” he said.
Middlesex Savings Bank CEO and President John Heerwagen sees potential for growth in both commercial and home lending. But Heerwagen is particularly interested in loans for income-producing properties.
Debt And Opportunity
“For those of us who have been steady as she goes, there are opportunities for us to grow that kind of lending,” Heerwagen said. “Even with the difficult economy, there are still many good creditors out there.”
Others see a darker forecast.
“I think 2009 will continue to be a difficult year,” said Richard Leahy, president and CEO of Webster Five Cents Savings Bank. “You’ll see more foreclosures. I think you’ll see the credit card issue, what I call the ‘subprime credit card issue’ to be more of a focus in ‘09, too. I think the consumer probably has too much debt on average and is going to be challenged to pay it back, especially as unemployment continues to rise.”
Leahy said his bank lost a “couple million” dollars to Fannie Mae and Freddie Mac, though declined to be specific. Yet he said it wouldn’t impact his bank, which has been steadily increasing its total assets to $548.9 million as of Sept. 30.
“We’re at the opposite end of the spectrum in terms of capital (than Strata),” Leahy said about his bank, which is now reorganizing into a mutual holding company. “Ours continues to be strong.”
Leahy and other bank presidents are seeing delinquencies rise and will be proactive about working with customers to adjust payment plans in 2009, though they say so far, the situation remains in control.
“While we’ve seen some upticks in credit delinquencies, they are certainly at a manageable level and nowhere near the kind of issues we were dealing with in the late ‘80s and early ‘90s,” said Kenneth Redding, president and CEO of Unibank for Savings of Whitinsville. “And that’s good news.”
Flagship Bank & Trust Co. in Worcester saw an increase in home equity lines in 2008 and expects another strong year ahead for those who can’t postpone big purchases or home repairs, said President and CEO James Garvey.
“People are really thinking hard before making purchases,” Garvey said. “If you take out a credit line, or a home equity, it’s tax-deductible, unlike a credit card.”
Garvey said his priority for 2009 is to help reopen some of Worcester’s foreclosed homes. Flagship, along with several other banks including Unibank and Webster 5, have teamed up with the City of Worcester to provide below-market financing and low down payments as part of the Buy Worcester Now program to reopen foreclosed homes in the city.
“There’s nothing worse for a neighborhood than having houses boarded up,” Garvey said.
Sara Withee is a freelance writer based in Millis.
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