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On the Hot Seat

Expect more consolidation among state’s small banks

Richard E. Holbrook, chief executive, Eastern Bank

Josh Reynolds for The Boston Globe

Richard E. Holbrook, chief executive, Eastern Bank

Eastern Bank, already the largest community bank based in Boston, has continued to grow by taking over Wainwright Bank of Boston and Community Bank of Brockton over the past two years. Eastern Bank chief executive Richard E. Holbrook recently spoke with Globe reporter Todd Wallack.

How healthy is banking in the United States?

It’s OK. The biggest issue banks have right now is that [profit] margins are falling. And they are falling because we are in a very low interest rate environment.

Do you think the Federal Reserve has gone too far to reduce interest rates?

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I don’t. What they have done has not been good for bank earnings. But from an economic point of view, they are trying to encourage people to borrow. I don’t personally think [the Fed’s latest efforts] will stimulate the economy, but it will hopefully prevent it from getting worse.

But there are losers.

One of them is banks. The second is long-term savers. My mother called me the other day and said, “I have an account at Fidelity and I only made $2 on it last year.” There are not any good opportunities for yield out there.

Do you expect more small banks in Massachusetts to merge?

Yes, the consolidation that has been going on for 25 years is going to continue. It’s pure economics. As you know, we are merging with Community Bank in Brockton. We hope to close that transaction in November.

By some measures, Community Bank was the most troubled bank in Massachusetts.

I would say that’s a fair assessment.

Then why did Eastern decide to take it over?

We thought it would be an opportunity to assist the community and customers down there. And although it was not going to be a financial home run for us, it was not going to be a burden. Given their capital position, their only real option was to foreclose on some borrowers. We will do more loan modifications and enable them to stay in their houses. But we also hope to grow.

How many branches will you have after the deal?

Ninety-nine. We have a mobile banking product so I rarely have to go to a branch anymore to do business. The transaction volumes in our branches are falling. Our branch on Route 1 in Saugus is our largest. We used to do 60,000 teller transactions a month in that branch three years ago. We do 40,000 now.

So will you close branches as volumes decline?

I think we will close and consolidate some branches. I think we will downsize some branches. I think we will add small service centers where we need to reach customers.

You bought Wainwright Bank two years ago. How has that been going?

It has been the most effective, most transforming acquisition we have made. It provided us with the urban marketplace — Boston and the surrounding suburbs. But secondly, it elevated our view of what a bank could be. Wainwright had a reputation for being an activist bank — a real voice for social justice issues. It demonstrated to us that we could be leaders in that fight as well.

Are you making any changes with technology?

The one thing we are trying to do on the technology side is to make certain we are able to compete. I am not worried about banks. I am worried about nonbanks. Google Wallet. Square. PayPal. The people who have disruptive technologies.

Are there any changes Washington could make to help the industry?

If I were going to do one thing today, I would tell Congress to reinstitute the guarantee programs that were available under the Small Business Administration. Many businesses out there have seen their revenue, their profitability, and their capital damaged by the recession. Many are on the upswing but still don’t have the record to prove they are creditworthy. By putting the guarantees out there, it would encourage banks to do more than they are doing today.

One area I hear businesses are having trouble borrowing is for construction loans.

Absolutely. The regulators are not big proponents of development lending because there is more risk. It’s uncertain that we’ve hit bottom. It is definitely difficult, especially for small developers, to get approval for those kind of loans.

Todd Wallack can be reached at twallack@globe.com. Follow him on Twitter @twallack.
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