
Construction lending makes up 75 percent of the Lowell-based Butler Bank’s loan portfolio.
Old-fashioned formality, modern-day customer intimacy and 100 years of experience have kept Butler Bank in Lowell afloat, successful and family-owned through the Great Depression, the nine recessions since World War II and countless market fluctuations in between.
Last week, the bank celebrated the 100th anniversary of its founding by Gen. Gardner Pearson, who fought in the Spanish-American War and World War I. The bank is named after Pearson’s guardian, Civil War veteran Gen. Benjamin Franklin Butler. Butler served as the military governor of New Orleans during the war and saw to it that the Massachusetts Regiment got to Maryland early in the struggle, ensuring that the state would remain part of the Union.
John H. Pearson Jr., the bank’s chief executive officer and the grandson of the bank’s founder, represents the third generation of the Pearson family to oversee the bank.
Butler claims the largest percentage of construction loans to total loan portfolio of any bank in New England – something Pearson is proud of. But while the construction industry is a “risky” one to loan to, Butler has been able to do well in that field and has expanded its workforce from about 10 people five years ago to 30 today. The difference is to whom they make their loans and how closely they oversee projects.
“Our vice presidents are out on the road and in the projects. When we advance a couple of million dollars on this project or that project, we’re there. We’re not just cutting checks from our desks,” said Pearson, who added that his bankers probably know the projects they lend to as well as the borrower. Because of that level of intimacy, the bankers know where the project is headed, can sense when it’s in trouble and know what it needs to finish. Recently, one of Pearson’s vice presidents completed the requirements for her construction contractor’s license.
“We know what [a client] is doing and feel very comfortable with [a] project as opposed to many other operations that are much more desk-oriented, crunching numbers all the time. That’s very important but, on the other hand, we have a committee, including the vice presidents, that goes out [in the field]. We’re at the projects every Wednesday afternoon. I think that makes us a little different from a lot of the other construction loan banks,” he said.
In addition to knowing its customers, Pearson and his staff still address each other with the formal titles of Mr., Mrs. and Miss. He believes in showing respect to employees and customers, he said.
Although the bank offers commercial and residential mortgages, its main business today is construction loans, which make up 75 percent of its overall loan portfolio, said Pearson.
“We love construction loans. We’re good at it. We haven’t written off any loans. We haven’t charged our loan loss reserves for a number of years,” he said.
“We try to work with people. Even if the builder’s having a problem, we try to reach out and identify what the problem is and sit down and work with the builder,” he said.
The recent downturn in the economy hasn’t affected Butler’s business, said Pearson. In fact, it’s been one of the best months the $62 million-asset institution has had.
But even in the lean times the bank has performed well. The value of the lessons learned by previous generations of Pearsons has served the current leader well.
“My father taught me to loan as if there was a depression tomorrow. I’ve tried to follow that tradition. His father taught him … It’s always in the back of my mind. As a result, I think we’re pretty good underwriters in a business that sometimes is risky. But so far we’ve been able to control the risk by clearly listening to the people who have gone before us and given us pretty sensible advice we’ve been able to use every day,” he said.
Following that advice and knowing the shortfalls and attributes of the clients – sometimes the people he grew up with in Lowell – has helped Pearson, especially during the difficult late 1980s. Although they had their share of foreclosures, Pearson said the bank worked with customers who were in trouble and avoided many foreclosures.
“Most of our LTVs [loan-to-value ratios] were at 75 and 65 percent. So when the market dropped 20 percent, our LTVs were 90 percent. [Others] were 110 percent. So we had a little negotiating room instead of having a net loss. As a result, we were able to work with our customers and help them. In some cases, [we were able to] give them more money for projects that were over budget – but that was the right thing to do. It turns out that we were able to sell [the homes] and the customer got out and we got out with all of our money,” he said.
Money is one of the reasons Pearson said he doesn’t have to consider going public with the cooperative bank. “We’re very happy with the powers that we, as a co-op bank, have. We don’t need capital. We’ve got 11 percent capital so it’s not as though we’d have to go public to get capital,” he said.
In order to remain viable in the future, especially in light of increasing competition from non-banks, Pearson said it’s important to embrace change.
“We can’t get too cocky. We have to understand that times change and that people change. You have to be ready.
“The old ways are the old ways. To be successful you really have to look at different alternatives. Every project has a number of ways of solving or completing that project. The ways we tried before may or may not be successful,” he said.
‘A Great Concept’
While promoting innovation within the company as a strategy for long-term survival, it was the very chance to watch a site change while under development that made Pearson choose the family business.
“When you go out and you see a lot that’s a bunch of trees and sticks and twigs and stones, it’s a mess. And somebody can take that piece of land and beautify it with landscaping and turn it into a home that a family can live in and bring up their children – the concept is a great concept. I like the idea of it changing every day,” he said.
“Not to mention, it’s always nice to make money along the way,” he said, admitting what few bankers do, that the business is actually about making money.
Pearson said he plans on keeping the bank’s headquarters in Lowell and eventually passing the business to his son John, 19, and daughter, Ginger, 22. Both have worked in the bank while on vacation from college.
Pearson lives five houses away from where his grandfather, the general, lived, having purchased the home of Col. John H. Pearson, his father, in 1980.
Pearson is quick to say that Lowell is definitely on the comeback trail with new young professionals moving in all the time, home values rising and the ongoing revitalization of the downtown. But he said his business is still about helping the person who goes from building one home a year to eventually overseeing entire subdivisions.