Local Loan Portfolios Grow, But Barely | Banks struggle to make gains as demand remains weak
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Don Doyle, senior vice president, Webster Five Cents Savings Bank.
Central Massachusetts is home to a great number of community banks. So many, in fact, that in the midst of a period of mergers among them, local bankers remain confident that the mergers will continue until the region is down to a more appropriate number of banks.
But in spite of this, most banks in Central Massachusetts grew their loan portfolios during the second quarter, although few by significant amounts, according to an examination of Federal Deposit Insurance Corp. data.
Some of the real winners include UniBank For Savings of Whitinsville, which saw its net loans and leases increase by 8.6 percent to $458 million in the second quarter compared to the same period a year ago. Compared to the second quarter of 2008, Commerce Bank of Worcester’s net loans and leases increased by 20.73 percent to $600 million. (Click here to see the lending changes for all banks in Central Massachusett.)
Still Struggling
Still, statewide, banks are struggling to recover from the economic collapse that began two years ago. By the end of the second quarter, Massachusetts banks had brought in net interest income of $2.6 billion compared to $2.8 billion for the same period a year ago. Over that same time, the state’s FDIC regulated institutions recorded $1.1 billion in net operating income, a decline from the $1.4 billion the FDIC reported last year.
“The ones that are doing the lending always would have, or always did,” said Philip Pettinelli, president and CEO of Southbridge Savings Bank. Southbridge’s net loans and leases increased 3.78 percent from $351 million through the second quarter of 2008 to $364 million by the end of the same period this year. That’s also an increase of nearly 2 percent compared to the first quarter.
Pettinelli said customers have “pulled back a little,” but that slowness is offset by large banks driving customers to Southbridge and other community institutions.
“On the commercial side, the larger institutions with national or international ties are putting on more and more restrictions, especially the ones that borrowed TARP (Troubled Asset Relief Program),” he said. “It’s kind of a pull-and-tug.”
“We seem to be getting more opportunities for customers that would be with the Sovereigns or Citizens or TDs of the world if they weren’t already with Bank of America, but when you have a $2 million outstanding loan and they say you have to reduce it by half, how are you going to come up with $1 million? That’s kind of why you borrowed in the first place,” Pettinelli continued.
Pettinelli’s assessment was echoed by Don Doyle, senior vice president at Webster Five Cents Savings Bank, which saw its net loans and leases increase by 6.15 percent to $379 million from the first half of 2008 to the first half of 2009.
That increase wasn’t the work of long-time clients, though.
“We don’t see too many of our clients adding to buildings or buying a new piece of equipment. Even if sales may be increasing, people are really holding back,” Doyle said. “There’s no opportunity for loan growth with existing customers.”
Home equity lending has likewise been slow for Webster Five. However, as interest rates have dropped and customers “see how they’re handled in tough times” by large banks and mortgage brokers, residential mortgage lending has been on the upswing, Doyle said.
“With the (federal) homebuyer tax credit, in the last 45 to 60 days, we’ve seen an uptick in purchases on the lower end,” he said. But that opportunity may be short-lived. If the federal government doesn’t extend the $8,000 tax credit for first-time homebuyers, “after Thanksgiving, the real estate market will be very, very slow,” Doyle predicted.
The worry for Dave Glidden, a senior vice president at TD Bank in Boston, is continued or more pronounced slowness in commercial real estate.
“Clearly, overall loan demand is down. While we’re still lending and growing, it’s at a much slower pace than we have in the past.
From two years ago, overall loan demand is down significantly and commercial investment in real estate has really dropped off.”
And that’s a dire assessment for a sector that may have a lower bottom than others and may have not yet found it.
“It’s an issue of demand,” Glidden said. Many of the small- and mid-sized companies that would under better economic circumstances be applying for commercial or industrial loans for space to expand into or upgraded office space or a bigger warehouse are simply holding tight.
“And many of these companies are doing well. They’re doing fine, but they’re very cautious,” Glidden said.
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