In difficult times, banks and community are mutual supports
The Martha's Vineyard banking community has faced some new challenges in 2008, as well as some old ones.
Finding qualified staff is problematical for most Island small businesses, and banking is no exception. The overall cost of living on Martha's Vineyard is a challenge for most ordinary people and limits the available pool of potential employees. The banks have been proactive in supporting affordable housing, but this is only a portion of the extraordinarily high cost of living for permanent residents who earn their livelihood here. The banking community is also subject to the cyclical nature of seasonal business on Martha's Vineyard and is required to plan for the change in deposit in-flows and out-flows, in terms of staffing branches and funding loans.
In addition to the higher costs of doing business on Martha's Vineyard, community bank costs have increased dramatically due to the implementation of new services, technology and risk management systems that are essential to remain competitive with larger banks and other financial service providers. This has contributed to merger activity among community banks as has recently occurred on Martha's Vineyard.
Martha's Vineyard Times file photo
There are long-term demographic challenges facing Island banks. The permanent population of Martha's Vineyard is not increasing significantly, and therefore there has been essentially no inflation-adjusted growth in total bank deposits over the past five years. The younger generation puts most of its savings in 401Ks, not in banks. Also, semi-permanent retiring "boomers," who have well-established off-Island financial ties, are replacing permanent residents. Island-based banks will need to win the core deposits of these new residents in order to grow and prosper.
The Martha's Vineyard economy relies on hospitality, construction, and sale of vacation/retirement homes and the related services. Deposits at local community banks are critical to the health of the Martha's Vineyard economy, because the local banks make loans to businesses and organizations to support their growth and operations. In addition, deposits with Island-based banks are loaned to support the construction and sale of local real estate. The most recent FDIC survey shows that Island deposits, as of June 30, 2008, totaled $600 million. The deposits were allocated as $350 million to the newly combined Martha's Vineyard Savings Bank, $94 million to Edgartown National Bank and $156 million to Sovereign Bank. These are surprisingly small numbers given the wealth and volume of business on Martha's Vineyard.
The recent credit crisis has demonstrated how important it is for the community to support its Island-based banks with deposits. Many large off-Island banks have been forced to tighten lending standards due to risky loans and investments that have depleted their capital. Fortunately, Martha's Vineyard-based banks are well capitalized and are not experiencing asset quality problems. Because credit is not readily available at many larger off-Island banks, Island-based community banks are receiving an extraordinary volume of loan applications and are lending all of their deposits to qualified borrowers to fund local businesses, individuals, and local real estate.
The challenges facing the banking community, as well as the Martha's Vineyard economy in 2009, are the housing crisis, credit crisis, and deepening recession. The strong balance sheets and financial health of Martha's Vineyard-based banks position them for an important role in supporting the Martha's Vineyard economy. While hopeful for a good tourist season, we anticipate that revenues for merchants, restaurants, inns, and other tourism dependent businesses and services may be less than in prior years. This may require more lines of credit and greater usage as seasonal cash flow fluctuations may be more dramatic. Also, businesses may need additional working capital, since cash flow may not be adequate to fund needed capital investment. It is difficult to say how long the recession will last, but it is important for our local businesses to survive the downturn, so that they continue to maintain their payrolls and support each other and the local economy.
File photo by Susan Safford
In these adverse credit markets, Martha's Vineyard-based banks continue to explore and find ways to fund purchases and improvements for Island homes for qualified borrowers through deposits, through government programs and through secondary market investors. Ultimately, the decline in real estate values and the success of the Treasury and Federal Reserve in driving down mortgage rates will make homes more affordable on Martha's Vineyard and reverse the sharp decline in sales. The decline in commodity prices and excess capacity should also result in lower costs for new construction. The wealth destruction in the markets and high unemployment are highly detrimental to a recovery. However, we are hopeful that there will be a turnaround in real estate as early as the second half of the New Year. Martha's Vineyard is one of the most desirable retirement and vacation locations on the East Coast, together with a proximity to New York and other population centers.
Island banks have been a source of support for nonprofit organizations, both in terms of funding and employee participation. While there are many very profitable businesses and wealthy individuals on Martha's Vineyard who are major supporters of our nonprofit organizations, the banks are among those businesses on the "A" list. We are pleased and proud to be able to help these organizations pursue their work to benefit people and causes that are important to all of us. The destruction of wealth in the markets as well as the losses suffered by foundations and investors in the Madoff securities scheme may result in less charitable funding for nonprofits in 2009. It is important to support our local banks and businesses, because they are accessible and concerned about the general welfare of the community. While some off-Island businesses support local nonprofit organizations, there are very large corporations that derive huge revenues from Martha's Vineyard, but are only accessible through a distant corporate bureaucracy that has limited appreciation of Martha's Vineyard or intention of giving back to the community.
Finally, I would comment that the economic prosperity of Martha's Vineyard is a primary concern, but the beauty of Martha's Vineyard and its quality of life is its greatest asset and attraction. Local banks recognize this, as well as the rest of the business community, and preservation of these qualities should be the highest priority.
Fielding Moore is president and chief executive officer of the Edgartown National Bank.