danberkeley
03-16-2009, 03:35 PM
From: http://boston.bizjournals.com/boston/stories/2009/03/16/story3.html?b=1237176000^1793570&page=1
Community bank finds paranoid a smart bet
FDIC begs to differ, tells bank to lend more
Boston Business Journal - by Tim McLaughlin
Joseph A. Petrucelli is one of the most cautious bankers in America.
In fact, Petrucelli is so cautious that the Federal Deposit Insurance Corp. recently criticized his bank for not lending enough.
The FDIC’s negative review of East Bridgewater Savings Bank’s loan volume is an anomaly in today’s current banking scene as lenders reel from their role in offering too many cruddy mortgage products to borrowers with weak credit.
Still, the FDIC slapped East Bridgewater Savings with a rare “needs to improve” rating after evaluating the bank under the Community Reinvestment Act.
From late 2003 through mid-2008, East Bridgewater Savings averaged 28 cents in loans for every dollar in deposit. The average loan-to-deposit ratio among similar size savings banks is more than 90 percent, FDIC data show.
“There are no apparent financial or legal impediments that would limit the bank’s ability to help meet the credit needs of its assessment area,” the FDIC said in its CRA evaluation.
FDIC examiners also faulted East Bridgewater for not advertising and marketing its loan products enough. The bank, which does not have a Web site, offers fixed-rate mortgages.
But Petrucelli and his bank occupy the other end of the spectrum in an industry that lost $26.2 billion in the fourth quarter. Even the FDIC’s own deposit insurance fund is in bad need of a boost after paying for an upswing in bank failures.
And then there’s East Bridgewater Savings.
Bad or delinquent loans?
Zero.
Foreclosures?
None.
Money set aside in 2008 for anticipated loan losses?
Nothing.
“We’re paranoid about credit quality,” Petrucelli said. The 62-year-old chief executive has run the bank since 1992.
The negative CRA rating, he said, caught him by surprise. The bank received “satisfactory” CRA ratings from the FDIC in 2003 and from the Massachusetts Division of Banks in early 2006.
East Bridgewater Savings ended 2008 with $135 million in assets and deposits of $84 million.
The bank even squeaked out a profit of $87,000. And its Tier 1 risk-based capital ratio was 31.6 percent, or more than three times higher than many community banks in Massachusetts.
But in the eyes of regulators, East Bridgewater Savings looks stingy. Its net loans and leases equaled 21 percent of assets. That compared with 72 percent among 385 savings banks across the country with assets between $100 million and $300 million.
“We want to make loans,” Petrucelli said. “But we also wanted to avoid the next blow up.”
He said the bank is now in position to boost lending. But he quickly added that East Bridgewater Savings won’t do anything that’s not good for the bank or its customers.
Bart Narter, a senior vice president at Celent, a Boston-based financial research and consulting firm, said small banks face cost disadvantages because they don’t have the scale of their larger rivals. But they also have the means to grow because they have plenty of capital and can make loans when other banks can’t.
“Smaller banks have done a better job of lending because they actually know their borrowers,” Narter said. “Big banks are crunching big numbers, but they don’t know their customers as well.”
At the same time, Narter expects that banks in the $100 million to $300 million asset category, where East Bridgewater Savings is situated, will soon begin to decline in number as they find themselves at a competitive cost disadvantage.
Petrucelli, however, said he believes his bank can grow.
Before the mortgage boom went bust, Petrucelli said, his own employees questioned the bank’s abundance of caution. They saw other banks grow while East Bridgewater Savings sat tight.
“Other bankers wondered if we were crazy because of how cautious we are,” Petrucelli said. “They thought we could be making a lot more money.”
In 2008, loans generated total interest and fee income of $1.6 million. Interest on securities and government bonds generated more than twice as much at $3.8 million.
The son of a railroad worker, Petrucelli’s prudence and caution come from being a first-hand witness to a lending train wreck called Eliot Savings Bank.
In 1989, Petrucelli took over as CEO of Boston’s Eliot Savings after a management team of MBA hotshots turned the sleepy bank into a commercial lending juggernaut. In the hundred years before that rapid transformation, Eliot Savings did home mortgages and handled passbook savings accounts.
It was safe and steady.
But during a three-year commercial lending spree that ended in 1988, Eliot’s commercial loans skyrocketed from less than $2 million to nearly $360 million.
Bad loans already were piling up when Petrucelli arrived on the scene, and he couldn’t prevent the bank from capsizing. “I went down with the ship,” he said.
Tim McLaughlin can be reached at tmclaughlin@bizjournals.com.
Community bank finds paranoid a smart bet
FDIC begs to differ, tells bank to lend more
Boston Business Journal - by Tim McLaughlin
Joseph A. Petrucelli is one of the most cautious bankers in America.
In fact, Petrucelli is so cautious that the Federal Deposit Insurance Corp. recently criticized his bank for not lending enough.
The FDIC’s negative review of East Bridgewater Savings Bank’s loan volume is an anomaly in today’s current banking scene as lenders reel from their role in offering too many cruddy mortgage products to borrowers with weak credit.
Still, the FDIC slapped East Bridgewater Savings with a rare “needs to improve” rating after evaluating the bank under the Community Reinvestment Act.
From late 2003 through mid-2008, East Bridgewater Savings averaged 28 cents in loans for every dollar in deposit. The average loan-to-deposit ratio among similar size savings banks is more than 90 percent, FDIC data show.
“There are no apparent financial or legal impediments that would limit the bank’s ability to help meet the credit needs of its assessment area,” the FDIC said in its CRA evaluation.
FDIC examiners also faulted East Bridgewater for not advertising and marketing its loan products enough. The bank, which does not have a Web site, offers fixed-rate mortgages.
But Petrucelli and his bank occupy the other end of the spectrum in an industry that lost $26.2 billion in the fourth quarter. Even the FDIC’s own deposit insurance fund is in bad need of a boost after paying for an upswing in bank failures.
And then there’s East Bridgewater Savings.
Bad or delinquent loans?
Zero.
Foreclosures?
None.
Money set aside in 2008 for anticipated loan losses?
Nothing.
“We’re paranoid about credit quality,” Petrucelli said. The 62-year-old chief executive has run the bank since 1992.
The negative CRA rating, he said, caught him by surprise. The bank received “satisfactory” CRA ratings from the FDIC in 2003 and from the Massachusetts Division of Banks in early 2006.
East Bridgewater Savings ended 2008 with $135 million in assets and deposits of $84 million.
The bank even squeaked out a profit of $87,000. And its Tier 1 risk-based capital ratio was 31.6 percent, or more than three times higher than many community banks in Massachusetts.
But in the eyes of regulators, East Bridgewater Savings looks stingy. Its net loans and leases equaled 21 percent of assets. That compared with 72 percent among 385 savings banks across the country with assets between $100 million and $300 million.
“We want to make loans,” Petrucelli said. “But we also wanted to avoid the next blow up.”
He said the bank is now in position to boost lending. But he quickly added that East Bridgewater Savings won’t do anything that’s not good for the bank or its customers.
Bart Narter, a senior vice president at Celent, a Boston-based financial research and consulting firm, said small banks face cost disadvantages because they don’t have the scale of their larger rivals. But they also have the means to grow because they have plenty of capital and can make loans when other banks can’t.
“Smaller banks have done a better job of lending because they actually know their borrowers,” Narter said. “Big banks are crunching big numbers, but they don’t know their customers as well.”
At the same time, Narter expects that banks in the $100 million to $300 million asset category, where East Bridgewater Savings is situated, will soon begin to decline in number as they find themselves at a competitive cost disadvantage.
Petrucelli, however, said he believes his bank can grow.
Before the mortgage boom went bust, Petrucelli said, his own employees questioned the bank’s abundance of caution. They saw other banks grow while East Bridgewater Savings sat tight.
“Other bankers wondered if we were crazy because of how cautious we are,” Petrucelli said. “They thought we could be making a lot more money.”
In 2008, loans generated total interest and fee income of $1.6 million. Interest on securities and government bonds generated more than twice as much at $3.8 million.
The son of a railroad worker, Petrucelli’s prudence and caution come from being a first-hand witness to a lending train wreck called Eliot Savings Bank.
In 1989, Petrucelli took over as CEO of Boston’s Eliot Savings after a management team of MBA hotshots turned the sleepy bank into a commercial lending juggernaut. In the hundred years before that rapid transformation, Eliot Savings did home mortgages and handled passbook savings accounts.
It was safe and steady.
But during a three-year commercial lending spree that ended in 1988, Eliot’s commercial loans skyrocketed from less than $2 million to nearly $360 million.
Bad loans already were piling up when Petrucelli arrived on the scene, and he couldn’t prevent the bank from capsizing. “I went down with the ship,” he said.
Tim McLaughlin can be reached at tmclaughlin@bizjournals.com.