Bank leaders point to solid business conditions ahead for 2020

The Daily Record - 12/20/19 | Written by: Nick Stern

The national unemployment rate is at a 50-year low, and at 3.6%, the unemployment rate in Maryland is at an 11-year low.

The stock market has been booming — Nasdaq recently hit a new all-time high, as did the Dow Jones Industrial Average and the S&P 500. Wages, too, have been on the rise this year, and interest rates are bottoming out. Even consumer sentiment has surprised analysts by climbing in November.

For Rob Kunisch, president of Howard Bank, the favorable market conditions are reflected in the financial results of the bank’s commercial clients. Going into 2020, he’s seeing steady operating conditions and decent order backlogs.

The housing market is good, as is commercial real estate. The health care sector is strong too, he said. The bank’s bread and butter in the sector are companies providing support, like wholesale suppliers and the construction trades, which are showing solid results and backlogs into 2020.

 Even retail tied to strip malls is a pretty good asset class these days, as businesses like local nail salons, liquor and grocery stores are performing well, despite the rise of Amazon. (The big-box retailers will face an uncertain future, Kunisch noted, and it will be a challenge to repurpose the underlying real estate going forward.)

Overall, “We’re not seeing any signs of slowdowns in any sectors that are giving us pause,” Kunisch said. “I think we’re in a pretty good place right now. It doesn’t feel overheated.”

Greater Baltimore-Chesapeake M&T Bank President August “Augie” Chiasera said the bank has a unique insight into the small business sector as the bank is the top lender in the Maryland market, handling 52% of small business loans in the region this year.

     Chiasera said he’s seeing general business growth, particularly in the construction and health care industry sectors.

     Within construction, he’s noted growth in the multi-family and mixed-use properties, while building for the health care sector is booming in both the hospital side and senior living activity.

Hundreds of millions have been allocated for revitalizing construction at and around the Pimlico Race Course, as well as the 22-acre site for outpatient facilities LifeBridgeHealth is working on nearby, developments that are huge for the area, he said. The Port Covington buildout is another example of a big project that’s causing a stir.

Chiasera is also bullish on the region’s intangible assets, like education, transportation and access to the economic output associated with the National Security Agency.

Business activity in high-tech and cybersecurity has been brisk for years, and that business is starting to spill over into Baltimore city, he said. “I think businesses feel good about the economic conditions.”

The low-interest-rate environment is also not very helpful from the bank’s perspective, and Kunisch said ideally, he’d like to see an economy that’s capable of handling higher rates.

Regardless, Howard Bank has also been bolstering its balance sheet to leave it in a good position in case a garden variety recession develops.

Of course, international trade disputes and the 2020 presidential election are curveballs on everyone’s mind these days, both Chiasera and Kunisch said. It adds to uncertainty, which can be bad for business; no matter the result, half of voters are likely to be upset.

Chiasera also pointed to a potential headwind in the mature economic cycle, already more than a decade old. “It’s not a question of if but when that cycle begins to turn. It’s hard to see now because the fundamentals look strong.”

Regardless, he said it’s precisely the bank’s ability to lend in good times or bad that keeps customers loyal.

Consolidation Brings Opportunities

Just as at the national level, consolidation in the banking industry is a growing reality in Maryland. At the end of the day, firms are always looking to take advantage of scale in the banking space as it brings real advantage, Kunisch said.

Recent examples of such consolidation in Maryland include the $66 billion merger of BB&T and SunTrust, which was recently approved by authorities at the Federal Reserve Board and the Federal Deposit Insurance Corporation. The banks expected that merger to be finalized by Dec. 6.

Old Line Bank in Maryland is set to be acquired in a $500 million dollar deal by WesBanco Bank as the West Virginia bank looks to make inroads into Maryland.

Olney-based Sandy Spring Bank is planning to buy Revere Bank by the first quarter of 2020 for $460 million.

On March 1, 2020, Howard Bank will be two years into its own merger with First Mariner. During that time, the company has gotten its lending team in place and ready to go for 2020, he said.

Looking ahead, Howard Bank is on the lookout to continue expanding. The company’s goal is to grow into a $5 billion bank during the next three years, from $2.2 billion today. Organic growth alone just won’t be sufficient to get there, which is why the bank is also looking at potential acquisitions, Kunisch said. “We’re always looking for opportunities within this market.”

Bank consolidation also opens up new opportunities for smaller players in the space, he said. That’s because, mergers like this typically involve headcount reductions that can impact customer-facing personnel, like commercial loan officers, or even back-office staff who carry out daily processing activities. Meanwhile, a large portion of the merged entity has to spend time learning new procedures.

The end result can generate anxiety for bank customers, particularly those looking to take advantage of loans requiring a quick turnaround time, Kunisch said. “The most important thing you can provide is consistency.”

The situation also opens up the chance to recruit new commercial lending teams, he said.

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