Franklin Bank Shifts Loan Strategy
Weakening housing market changes the rules
Normally, a more than 11 percent decline in a key component of a bank's commercial loan portfolio may be cause for alarm.
In the case of Benjamin Franklin Bancorp, however, the holding company for Franklin-based Benjamin Franklin Bank, an 11.9 percent decline in its construction loan portfolio through Sept. 30 of this year is the result of a deliberate shift in strategy, due in large part to current conditions in the residential construction market.
"When we really started to see a reduction in the number of real estate transactions, we curtailed a lot of our developmental loans and residential construction loans," said Thomas R. Venables, president and CEO of Benjamin Franklin.
Change Of Perspective
The company's 2007 third quarter earnings statement values the bank's construction loan portfolio at roughly $60.7 million through Sept. 30. On Dec. 31, 2006, the portfolio was valued at $68.9 million.
According to Venables, when the bank sensed the impending housing market slowdown in late 2005, it made a strategic decision to stop actively courting new residential development and construction customers, and to instead focus its attention on existing account holders, while bolstering commercial real estate and commercial business loans.
The strategy appears to have paid off. The bank's total commercial loan portfolio, including commercial business, commercial real estate and construction loans, stood at $363.4 million on Sept. 30, according to company filings. That is up more than 10 percent since the end of last year, when the commercial loan portfolio stood at $329.3 million.
Venables said the bank's shrinking construction loan portfolio was also the result of customers paying down their balances upon the completion of sales.
While the bank has decided not to emphasize growing its current construction portfolio, it hasn't ruled it out for the future, should the market improve.
The overall strategy of the bank is to keep its construction portfolio between $50 million and $100 million.
Other local banks aren't quite as willing as Benjamin Franklin Bank to abandon the construction loan market.
Worcester-based Commonwealth National Bank has seen its overall loan portfolio grow close to 8 percent through Sept. 30, compared to the end of 2006.
Total loan assets at the end of the third quarter totaled $216.4 million, up from $200.7 million at the end of 2006.
While Commonwealth does not break down its loan portfolio in its filings like Benjanmin Franklin does, in its quarterly earnings statement notes, the company noted $18.7 million and $3.7 million increases in its commercial and residential real estate loans, respectively.
"While there are issues in the market, our construction customers are still moving homes," said Charlie Valade, president and CEO of Commonwealth National. "Maybe they're not selling at the same pace, but there's still a market there."
Valade also said that, unlike Benjamin Franklin, his bank was not shying away from bringing in new development and construction clients, but would rather keep its doors open and evaluate new potential customers on a case by case basis.
"We were all around in the 90s when the housing market in Massachusetts went in the tank," Valade said. "We've clearly learned a lot from that about who you do business with and who you know, and we haven't forgotten those things. It's paid a lot of benefits in this particular downturn."
WBJ Web Partners
Most Recent
Most Recent
0 Comments