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Tough times still ahead for local economy, says local banker

This article first appeared in the St. Louis Beacon: November 6, 2008 - Clayton-based Enterprise Bank and Trust, with $2.2 billion in total assets, is one of the largest local commercial lenders in the St. Louis area, helping to fund such high-profile deals as the $35 million 14th Street Mall redevelopment project and the $40 million mixed-use Cupples Station apartments and retail space near Busch Stadium, among many others.

Like many banks, Enterprise sits at the intersection of opportunity and challenge as the bank navigates the months ahead. The bank's regional president and senior credit officer for St. Louis, Scott R. Goodman, is helping steer Enterprise though these rough waters, and has a critical say in the projects that win funding. Goodman spoke with freelance reporter Susan Skiles Luke in his corner office in downtown Clayton recently, amid Cardinals and Rams memorabilia and pictures of his family.

How are things going for Enterprise, when it comes to commercial development?

Goodman: We're taking a cautious approach. We've definitely been an active participant in various segments of construction, home building, commercial construction, focusing on a few niches, including low-income housing and new-market tax credits, which has caused us to be involved in some of the new development downtown. But certainly we're not immune to the things going on with other banks -- access to capital and access to liquidity -- and that will certainly have an impact on our ability to participate in construction. We haven't turned the spigot off, though. I'd say we're going to be selective, we're going to lend on a relationship basis, less of a transaction basis going forward.

What do you mean by a relationship basis?

Goodman: We're going to look at projects that are with existing clients; we want to reward loyalty. Because liquidity and capital are issues, if we look at an opportunity that includes things other than just making a loan, (that project has a better chance of getting funded). So, if we can provide a construction loan to someone who can also put deposits in our bank, it's easier for us to get our arms around that project. Obviously, it's more profitable for the bank and more advantageous to the client because we're serving several different aspects.

I've heard that community banks will probably do more active lending during the credit crunch. Is that what you're saying?

Goodman: Certainly the approach we take to lending may be different than large institutions because we really get to know our clients. The large banks are interested in lowering overhead, providing products off the shelf. If you fit the ratios, we'll make you the loan. But sometimes there's a story in there that gets lost, and even though a ratio or two gets out of place, it still may be a reasonable loan to make. Community banks take more of a high-service, high-touch approach. We can really understand the story, understand the people, we can make a loan to the people and not simply to the numbers.

How will Enterprise's loan portfolio change in reaction to the credit squeeze? For example, will you do less residential and more construction lending?

Goodman: Overall the mix itself may not change materially. Probably if you looked at the new projects we tend to finance, just by function of the market itself, we're probably not going to do much home building, and I doubt we'll get many requests (for that). We're probably leaning more toward commercial and industrial businesses; now, that may be secured by real estate, but the source of repayment is commercial and industrial businesses.

When you look in the St. Louis area, are there geographic pockets that will do better than others?

Goodman: We may see St. Charles and parts of South County softer in terms of residential development, (meaning) a larger supply of lots and homes that need to be absorbed (because) that's where much of the recent expansion has come. I think the downtown loft market is soft, (meaning) there's an oversupply of lofts.

Regarding commercial development activity in St. Louis, many builders see a very tough '09, looking up in 2010. When you look out at the pain to come, what do you see?

Goodman: We haven't seen the worst of it yet. The downturn in the residential side is very well documented. I think you're going to see it leak into the commercial sector; it already has into the retail commercial side. The question is how far and how deep will it leak into other commercial real estate. I can see '09 and possibly much of '10 being soft on the residential side. And I guess (how severe it becomes) depends on how effective some of the things the U.S. Treasury Department is doing to help the economy, and how quickly they come.

How will the federal government's $700 billion "bailout" package effect Enterprise Bank?

Goodman: Many community banks will apply (for some of the capital available in the plan). Remember, our issues are access to capital and liquidity. And we've been looking at various alternatives to obtain additional capital to support our growth. We opened an office in Arizona, for example. We've had strong loan growth, and we're going to continue to be in a position where we can take advantage of some opportunities, which (may be) created in this market from some of the other institutions that won't be around. The program is there to inject capital into stronger financial institutions to allow them to take advantage of growth opportunities. Enterprise Bank would qualify, and we're pursuing that.

If bank consolidation is in the cards for a place like St. Louis, a city that some believe has too many banks, do you see Enterprise as a potential acquirer?

Goodman: We'll probably look at opportunities to expand geographically where it makes sense, probably to acquire new relationships, primarily depository. If it could strengthen our footprint in an existing market, (it's the kind of opportunity we may consider).

What is your advice for commercial developers, the people out there pounding the pavement to try to get financing for this or that? What do they need to consider in this environment that perhaps they didn't have to before?

Goodman: We're probably not going to chase transactions. For us it's about relationships, deposits, the opportunities (they present). One piece of advice for a developer: develop a strong relationship with one or two financial institutions, ask for their loyalty, and in return be willing to broaden your relationship with those institutions.

You also have consumer clients. What advice would you offer a family who's looking at an abrupt change, like a layoff?

Goodman: Planning is key, (as is) listening to advice from experts like a financial planner who can help you look at your total picture, also create a budget. It's income in, and expenses out, so if you have less income in, you probably have to change your expenses out. Create a budget and live to that budget. It's no different than a business. If a business doesn't have as much revenue, it's going to have to change its overhead structure.

I hear you say that whether you're in business, or a typical family with credit card debt, you need to manage in largely the same way.

Goodman: I believe so, and I believe communication is key. If we stopped receiving payments from a client and there's no communication, we'd have to make assumptions, and we'd probably assume the worst. And we'd probably react accordingly.

Shifting gears, looking around the area, do you see big, publicly funded projects more endangered than private-sector projects going forward the next couple of years, or vise versa?

Goodman: Projects like 14th Street Mall are made possible because of the many tax credit programs. So I guess the question is what's going to happen to the tax credit programs? At this point, I don't see anything in jeopardy. What has to be there also are investors to purchase the tax credits to offset income-tax liability. What could be in jeopardy is the market for those credits and the amount of equity that that creates.

A flip side of these difficult economic times is the opportunity they bring. Prices are down, and it's a buyers' market in some ways for small investors in particular. If you had an extra $20,000, is there something in in this environment that people or small businesses should look at buying?

Goodman: The answer is different for everyone. Different people and businesses have different risk tolerances. There are opportunities, though. I think cash is king. Those sitting on lots of liquidity right now will benefit greatly in the downturn.

Assets are undervalued. The crisis of confidence out there has created somewhat of a panic mentality. In the stock market, when you see blue chip companies trading at multiples that we've never seen them trade at before, something tells me there's a bargain there. If they're not a bargain, then we're all in big trouble.

Is there anything else you want to add?

Goodman: There will be consolidation in banking in this market. I think the government is going to put capital into strong institutions to encourage that consolidation. That should be a good thing for the consumer, a good thing for the business community, and we will participate if it makes sense. That should enable us to have sufficient capital to continue to support our customers and the markets we're in.

Consolidation in banking means fewer banks.

Goodman: Fewer, but stronger banks. Hopefully, that's a good thing.

Susan Skiles Luke is a freelance writer in St. Louis.