Waiting Game | Despite signs of recovery, MetroWest's banks continue to play it safe
They've come through the recession flush with cash, even after a tough 2009.
They've been quick to point out that they weren't doing any of that risky, subprime lending that got the country into so much trouble.
Now, MetroWest's community banks are looking cautiously at the region's small business climate and wondering when they'll be able to ramp up commercial lending again.
As the economy continues on its path to recovery, bankers say competition between them will take many different shapes, whether it's fighting for the loyalty of a shallower pool of qualified borrowers or gaining the upper hand in a particular market through merger or acquisition.
There are 10 community banks based in MetroWest from the three-branch Charles River Bank in Medway to Middlesex Savings Bank of Natick, which has 20 branch offices and claims local deposit totals on par with Bank of America and Sovereign Bank.
That, by any standard is a crowded market. But even in an economy that bankers call "fragile," the amount of competition is seen as an asset rather than a detriment to business.
"It's a lot of good competition, particularly on the business side, for commercial loans," said John Heerwagen, president and CEO of Middlesex Savings Bank.
MetroWest's banking market, like that in much of the Northeast, is fragmented, and all eyes are on the lookout for businesses that have handled the recession well and are ready to turn the corner, Heerwagen said.
If the appetite of community banks to lend money grows and the number of businesses doing well enough to want to borrow increases, "that makes for healthy competition," Heerwagen said.
Appropriate Lending
But healthy may not be the best way to describe the commercial lending environment in MetroWest.
For example, businesses in the software sector, or those who count the government as a major customer, have found that "government purchasing has continued without impact from the recession," Heerwagen said. Yet, the housing market remains unpredictable and worrisome despite government intervention, and bankers expect businesses connected to the housing market to continue to struggle.
"Banks in general have a lot of cash. Finding the appropriate lending outlet is the challenge," said William Marshall, president and CEO of Ayer-based North Middlesex Savings Bank.
Comparitively, MetroWest has been one of the regions least affected by the recession. But that doesn't mean businesses haven't had a hard time. And with so much competition, community banks can't afford to take unnecessary risks.
"Local community banks know the local environment, we can look beyond the financial statements," especially when considering loan applications from mom-and-pop businesses or mid-sized businesses," Marshall said. "The quandary is the business that says it's ready for growth, it's ready to hire some people," but its finances simply don't support the kind of turnaround it expects.
Heerwagen said, "Everybody's being pretty careful. I think there's been enough examples in the last couple of years to encourage that kind of caution."
Risking It
Timing is also going to play a part in how and when banks become more aggressive about lending.
"The issue is when to turn the switch to go up on the risk curve," said Kristen Carvalho, president and CEO of Milford National Bank & Trust Co. in Milford.
For Milford National and other community banks, 2009 had its bright spots. Customers looking for a safe place to put their money saw security in local bank products. The first quarter of 2010 was also good in that regard.
But the recovery has been slow, and customer deposits aren't enough to keep a bank viable. And even though economic indicators may predict an imminent recovery, it may be 2011 before Carvalho and other bankers throw the risk switch.
"Small businesses are still finding their way, and if we're doing a loan today, we're working with customer's 2009 financial statements. So, it's going to take some time before we see improvement, better credit and momentum," Carvalho said.
In a banking market as fragmented as MetroWest's, it's not always increased lending or deposits that put one bank at an advantage over another.
Carvalho said the acquisition of "vehement competitor" Ben Franklin Bank by Rockland Trust early last year and the acquisition of troubled Strata Bank of Medway by Middlesex Savings last summer "has created some opportunity for us."
It's not a line of qualified commercial loan customers at the door, but in this climate, it's something.
"People don't like change," Carvalho said. And while the Strata and Franklin acquisitions did drive a certain amount of business Milford National's way, it also made the Milford market "less competitive to some extent," for Milford National, she said.
"That's just a function of where the economy is today," Carvalho said.
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