Traditional Banking Model is Key to Success, Says Danvers Bank COO

The community banking industry has been able to remain fairly stable despite the troubles investment and larger commercial banks have faced this year.

Jim McCarthy, executive president and COO, Danvers Bank located in Danvers Massachusetts, says his bank has always stuck to traditional banking practices and principals. He attributes Danvers Bank’s ability to weather the financial storm to smart and traditional banking practices that were used all along.

“When it comes to money, if it looks too good to be true, then it is,” says McCarthy. “Danvers has always stuck to traditional underwriting and sometimes that’s been frustrating for our customers who could receive money easily through other sources, but now our clients are coming back because they’ve taken on too much debt.”

McCarthy says poor underwriting standards are to blame for the financial crisis. Danvers Bank and other regional banks throughout the country have been able to steer clear of credit problems because of solid traditional banking practices. “That is how you grow,” he says. “These big banks forgot the rules of basic credit underwriting.”

McCarthy says that a customer’s relationship with their banker does matter and banking should not just be treated as a commodity. Although the basic business model for Danvers Bank hasn’t changed in terms of underwriting and lending standards, the bank has made innovations and changes to cater to the needs of its customers.

“Remote Deposit Capture has been a huge success for us,” says McCarthy. “It’s a newer initiative we’ve taken on; we have over 100 clients and take deposits from more than 13 states throughout the northeast.”

Danvers Bank was chartered as a thrift bank and over the last couple of years has gravitated towards classic commercial banking practices. Danvers offers both residential and business lines as of credit. “We like to loan money to people who can handle payments instead of burying people in debt,” says McCarthy. “We’re happy to do it.”

The investment and commercial bank mergers and acquisitions made with other commercial institutions are signs that the financial industry as a whole is moving more towards traditional banking.

“The M & A’s were done out of desperation” McCarthy says. “These banks had to get together with other banks and what you’ll see more of now is more traditional bank underwriting, banks issuing debt prudence and practicing more risk-based pricing.”

Whether or not unemployment rates continue to rise could become problematic for all banks regardless of size.

“One thing I am nervous about is unemployment,” McCarthy says. “The effects of what happens when people are unable to pay their bills on time tends to trickle across all areas.”

McCarthy says the northeast region wasn’t at the forefront of the financial crisis and the community banking industry in the northeast is in better shape than other areas.

Overall, McCarthy is hopeful that the recovery within the financial industry can be measured in quarters and not years. He’s still very bullish on the community banking industry for 2009. “We have about 17 branches around the Boston area right now,” says McCarthy. “We’re working on opening more and within the next couple of months, we hope to have 20.”