New Hampshire lenders remain generally optimistic about the state’s economy and business climate, which they say is helped by strong consumer sentiment, low unemployment and robust housing and commercial development.
While the business loan climate remains positive overall, bank leaders note demand for new loans remains steady but is not booming. Uncertainty around the ongoing trade war and tariffs are affecting some business decisions, according to Sheryl McQuade, TD Bank’s regional president for Northern New England. Meanwhile, the state’s persistently low unemployment makes it hard to find workers, causing some businesses to put off expansions and other investment.
“The business climate has been a little tempered by uncertainty—uncertainty in the geopolitical environment and obviously the trade headwinds,” she says. “So while we are active and our loan pipelines are robust, I would say we could always have more activity.”
Ken Howe, chief commercial banking officer for Mascoma Bank in Lebanon, strikes a positive tone for the western half of the state, particularly along the I-89 corridor where the bank does most of its business in NH. But, he adds, there is strong competition among banks across NH, particularly when it comes to commercial loans.
“We’ve seen strong price competition for new deals and some relaxing of credit standards throughout the state, but nothing particularly alarming,” he says. “I think New Hampshire banks still remember the last two recessions and the lessons learned from them and have generally avoided the underwriting mistakes of the past.”
Warning Sounded
Similar trends are playing out across the country. Deloitte issued a recent report suggesting lenders could ease credit underwriting standards through the first half of 2019, followed by a tightening of “risk appetite” in the back half spurred by recessionary concerns.
The report argues lenders should take steps to alleviate the risk and potential fallout from a downturn, regardless when it might arrive or its severity. “Banks should strengthen their specialized lending expertise, which, if executed well, can result in a superior ability to screen, value collateral, structure loans to minimize potential losses and manage the workout of problem loans,” the report states. “Smaller regional banks, especially, could stand to benefit from this focus.”
New Hampshire’s community-based bankers are already doing this, according to Paul Falvey, president and CEO of Bank of NH, based in Laconia. He says Bank of NH is not altering credit and underwriting standards depending on the business cycle. Rather, it maintains stringent loan standards regardless of economic conditions, he says.
“Lenders that really modify their approach from pretty traditional underwriting standards inevitably get hurt by that,” he says. “We have had a pretty steady approach when it comes to prudent underwriting.”
Conservative But Competitive
While banks are closely monitoring the financial landscape and adjusting their products and standards accordingly, none of the bankers interviewed are predicting a recession in 2020 (though most add that conditions and predictions can change fast.)
Even if they aren’t making big changes to their lending standards, banks seem to be taking steps to protect themselves. For instance, Falvey says Bank of NH has become more selective with construction loans, particularly new development projects without tenants already committed to the project.
“It has been a long, gradual recovery and our view here is [that] we are at or near the peak,” he says of the overall business cycle. “We have felt that way for [more than a year]. We have been pretty selective with new development projects. We have been very selective in the speculative real estate space for a while. Any new projects like that we are really doing with our existing customer base.”
Howe says Mascoma Bank is continually monitoring its commercial loan portfolio for asset quality, industry concentrations and exceptions to underwriting guidelines. It also conducts internal stress tests to gauge the effects of higher vacancy rates, interest rate spikes and other economic disruptions.
“We look at every loan [and] borrower individually and evaluate the overall risk, rather than focusing on any one metric,” he says. “That has worked well for us over the years and through various economic cycles.”
Howe adds that the bank hasn’t seen any signs of a pending recession nor changed its credit standards, “but we know the economic climate can change fairly quickly. A few businesses we work with have been hurt by the tariffs that have been imposed, but not to the point of endangering the future of the business.”
Gary Barr, NH market president for TD Bank in Manchester, says banks are ready and willing to loan money and are aggressively looking for new customers. “In New Hampshire, specifically, I see loan supplies as very abundant and loan demand not up to the supply,” he says.
While TD, like other banks, has not made big changes to its credit or underwriting requirements as the economy fluctuates, it is using data that can model how a recession would affect the bank’s commercial lending clients, their ability to repay their loans and the overall effect on the bank’s balance sheet.
“We don’t ride a roller coaster for customers with credit approval. We are very consistent and we don’t expect that to change,” Barr says. “Credit quality is holding up and we have seen stable-to-strong performance from the bulk of our portfolio clients. Nothing is giving us reason to be fearful yet.”
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