When Eastern Bank decided to expand its lending portfolio, management knew it needed to call on someone who has not only led multiple asset-based lending groups, but has established a thriving division among an arena of competitors. Without prior expertise in the ABL world, team leader Robert Barnhard was brought on board to help launch Eastern’s newest endeavor.
“I have founded three asset-based groups for national banks in the past,” Barnhard says. “I have a lot of history doing that. [Eastern Bank] did not establish a lot of policies and procedures prior to launching the group because they did not have that expertise. That’s something I’ve been able to furnish them with.”
Founded in 1818, Eastern Bank has grown to have nearly $9 billion in assets. Much of its recent growth has manifested through mergers and acquisitions. Since 2008, the bank has acquired MASSBANK Corp. in Reading, MA, Wainwright Bank & Trust Company in Boston, and The Community Bank in Brockton, MA. Following its pending acquisition of Bedford, NH-based Centrix Bank & Trust, the bank will have reached nearly $10 billion. And Barnhard says there are plans to continue that growth with more acquisitions.
As the bank has continued to expend its presence in New England, it seemed like a logical next step to form an ABL group under Barnhard’s tutelage. “Given its size, Eastern felt it needed to have resident expertise in asset-based lending to deal with transactions it already had in its portfolio, as well as actively go after potential new ABL opportunities in the marketplace,” he says. “Basically, senior management felt we were at a size that dictated the need to enter this vertical.”
Industry specific expertise is the key to the group’s success in the competitive asset-based lending market. In the past, Barnhard followed the path of specialization within an industry vertical as a way to edge out the competition. At Gordon Brothers Finance Company (GBFC), for example, his focus was on retailers. In this market niche, he was able to gain a competitive advantage by relying on his experience to tilt the outcome in his favor. “I believe that the best way to compete in ABL is to have very specific industry knowledge for verticals,” Barnhard says. “Our game plan is to have a deeper knowledge of the industries that our clients would be working in.”
In addition to his vertical-focused go-to-market strategy, Barnhard says a major advantage Eastern Bank’s ABL group will have in the marketplace is being part of a mutual bank as opposed to being under a privately or publicly traded bank’s umbrella, citing the miniscule chance that the bank will be acquired. “I’ve had a history of multiple companies I have run groups for, and those banks were bought out,” he explains. “One advantage for me and my team is that we’re in a very stable environment. The likelihood of us being acquired is low.”
This sense of security is felt throughout the bank, as Barnhard notes that a loan officer’s average tenure is about 10 years. “People don’t really leave Eastern, and it’s an atmosphere of inclusion. They’ve done a lot with diversity early on. It’s a very friendly place to work.”
The ABL unit team leader, who reports to Commercial Lending Group head Joe Holland, is accompanied by senior lender Tyler Dufour who works directly with Barnhard underwriting and attending to new business development. “We have several other folks that are doing operations,” Barnhard says. “Over time as we grow our portfolio, we’ll be adding portfolio managers. Right now it’s a pretty small operation.
“Right now, I bring experience and history and best practices,” Barnhard says. “We’re looking over time to bring additional very experienced asset-based folks. At the same time, Eastern Bank, by way of its own internal philosophy, wants to give younger folks an opportunity. We’ll also be looking to promote bright people within the bank who want to learn a new form of lending.”
He notes that under his leadership, there is a cultural shift going on at the bank in the way the lending professionals think. For example, he says that the bank’s view of its commercial clients is relatively typical of most commercial lending groups’ with regard to identifying a good deal versus a bad deal. However, as Barnhard and his ABL cohorts come in and lay the groundwork for the asset-based risk profile, he finds the lenders at Eastern are learning to look at things differently. “We’re encouraged by that,” he says.
Barnhard says he and his colleagues make the joke that “the good news is that Eastern Bank did not have a lot of experience in asset-based lending, and that’s why they needed me. The bad news was that Eastern Bank did not have a lot of experience in asset-based lending, and that’s why they needed me.” His experience in the commercial and asset-based lending world began when he was in his 30s and moved to Boston for graduate school. When the opportunity arose to join startup finance firm GBFC, he left graduate school to pursue his serendipitous career in finance. “I don’t regret it at all because I was able to be a part of this very dynamic company,” he acknowledges.
After GBFC, which was later sold to Bank Boston, Barnhard moved on to IBJ Schroder (now IBJ Whitehall), where he ran the ABL group’s retail and wholesale unit. Later, he was the head of LaSalle Bank’s ABL group’s Retail and Wholesale division in Chicago, followed by running half of National City Bank’s asset-based portfolio (his portion was about $3 billion). He then moved to RBS Citizens as a senior officer for the global restructuring group.
His experience creating and managing various asset-based lending units over the years will facilitate his group’s short-term goal of establishing proper monitoring procedures and policies that will serve as a platform to build a solid, non-real estate-related, secured commercial loan portfolio. “I’d like to see us be 10% to 15% of their commercial loan portfolio over five years,” he discloses.
This internal growth goal does not cloud Barnhard’s view of an industry environment where pressure on pricing and structure is ever present. “To no one’s surprise, the lessons that many banks learned in ’08 and ’09 seem to have been forgotten,” he says. “The key is to pick your spots, knowing when to be and not to be flexible on structure and knowing when to cut the rate and play it as a commodity.
“The good news is the cost of funds is extremely low. At the same time, we don’t want to be the lowest cost provider. In many ways, the ABL industry is a ‘race to the bottom’ on pricing and on structure. Banks need to be very careful today to preclude a repeat of a similar scenario to 2008.”
Barnhard says that the bank will take an “even approach” when looking at opportunities in less volatile segments of the market and plan to engage as either a participant or in a lead role. “We’re looking to do direct deals, but will just as aggressively seek participations with other lenders in transactions that meet our investment requirements,” he explains. “We look forward to doing club deals and buying into larger syndications where there are other lenders that share a similar view on pricing and structure.”
Nestled in the New England/New York state territory, Barnhard and the ABL group are ready to make their mark. “We’re very excited to be a part of this landscape and to leverage Eastern Bank’s tremendous reputation in our region.”
Megen Donovan is an associate editor of ABF Journal.