Both consumers and financial institutions have become more careful with their money, a trend that is likely to continue as the nation starts to mount its economic recovery.  Local banking executives say their industry as a whole is remaining cautious in its lending practices.  Financial planning and retirement experts say saving money and more systematic retirement planning are moving up on the priority list of many people.

“Right now, people are trying to conserve capital.  Businesses are trying to stay as liquid as they can,” said Bill Taylor, president and chief executive officer of Merritt Island-based Community Bank of the South, which has three branches in Brevard County.  “It’s the fear of the unknown that is driving people right now.  Most business owners are trying to weather the storm.”

The challenge for financial institutions, according to Taylor, is that they must remain conservative in approving business loans, home mortgages and other consumer loans, as their lending is under the review of federal regulators, while also being aware that “we want to loan money because that’s how we make money.”  Lending is particularly crucial, Taylor said, because “the margins in a bank are less than 1 percent at the end of the day.”

Ann Luke, community bank president at Wachovia Bank’s 18 Brevard County offices, said “good, common-sense lending” to qualified individual and business customers will continue.  “We’ve got money to lend, and we’re doing it.  We’re seeing lending pick up,” commented Luke, whose bank has the leading deposit market share within Brevard.  What is more, unlike many businesses, Wachovia is adding staff locally as a consequence of the financial downturn of the last few years.  Luke hired 10 people in 2009 and plans to add 10 more this year in Brevard, increasing positions focusing on helping customers with one-on-one advice in such areas as their mortgage rates, debt loans and credit scores.

Tom Baldwin, a top executive at Brevard County’s largest credit union, also said there is money available for consumer loans.  “Consumers with good credit and the ability to repay loans are still able to get financing at Space Coast Credit Union for their homes and cars.  We have money to lend,” said Baldwin, the Suntree-based credit union’s executive vice president and chief financial officer.

In the commercial lending business, Baldwin noted many banks are reducing commercial loan portfolios to shore up their regulatory capital ratios. “Space Coast Credit Union sees this as an opportunity to provide historically low interest rates on loans to those businesses that are healthy, but are no longer wanted by their current financial institution or are stuck in loans with unreasonable terms.”

David Brock, president and chief executive officer of Rockledge-based Community Credit Union, which has seven offices in Brevard County, said lending activity remains below its peak “because people are concerned about the future.”  That’s particularly true in the home mortgage market, as consumer demand has dropped.  Nevertheless, there remains a demand for loans, according to Brock, because “people are still buying cars and financing their kids’ education.”

“We all desire to make good loans,” Brock said, and if individuals or businesses are creditworthy, they will be able to get a loan, just as they did in the past.  The financial numbers to justify the loan have to be there, though, because financial institutions “try to be more cautious in our lending profile.”

But, for an individual or business owner who shouldn’t qualify for a loan, Luke said, “Sometimes, the best thing a banker can tell you is ‘no’ to a loan, and explain why.  We’re not going to go back to the crazy lending practices” of the past at some financial institutions, that seemed to amount to “if you’re a warm body, you’re going to get a loan.”

“I think that the new normal for the future,” according to Bill Taylor, “is that banks will go back to the traditional way of lending,” sticking closely to established guidelines and insisting on extensive documentation from borrowers before approving a loan.  “There’s not going to be a lot of ‘we’re going to stretch a little bit’ to make a loan.”

It now is more challenging than it used to be for a consumer to secure a mortgage or a car loan.  “There has been and will continue to be a consolidation in the home-mortgage industry,” Taylor noted, adding that, “in the future, it’s going to cost more for everybody to borrow money.”  At the same time, he felt, consumers are trying to reduce their loan and credit card debt.

David Brock identified another trend that is becoming a new norm for the industry.  His customers are making banking transactions on the Internet or through the use of point-of-sale machines at retail outlets, rather than with a teller at a credit union branch, more and more.  The ease of electronic banking and the strides made in protecting security, plus the convenience of 24-7 availability is as Brock said, “Definitely going to be a game-changer.”

Investment trends

“People have gotten real conservative, and rightly so,” according to Brock. “We’ve had a huge economic crisis,” with increased unemployment, coupled with shrinking values in housing, as well as in 401(k) and other savings and retirement vehicles.

In early-2009, that meant many people taking “a flight to quality,” and switching a greater percentage of their assets into federally insured savings accounts.  Now, Brock said, “people are becoming much more diligent about putting more money into their 401(k)” and Individual Retirement Accounts.

Luke observed she has found that her customers are getting into a habit of saving, “paying yourself first,” and paying off credit card debt.

Certified financial planner Dan Moisand, a partner in financial planning and wealth management firm Moisand Fitzgerald Tamayo, which has offices in Suntree and Maitland, said he is seeing individual investors being more cautious, “more risk-averse,” saving more money and asking better questions when choosing a financial adviser.

As in the past, however, the appropriate investment strategy for many people would be “pretty traditional” – a broadly diversified holding of stocks and high-quality bonds.  Moisand added that the current relatively low interest rates “motivates people to do something” to invest their money, beyond just keeping it in a savings account.

“Investing is tough right now,” Baldwin observed. “Money market instruments are paying historically low rates, and the stock market has had violent swings in the past couple of years. Some investors, unfortunately, sold their stock investments when values decreased significantly, and missed the subsequent run-up in values, even though their long-term goals hadn’t changed.”

As the value of investment portfolios shrunk in recent years, law firm partner Stephen Lacey said, he has seen a trend of people ignoring their estate planning.  That’s a mistake, as is not considering long-term-care insurance, according to Lacey, a partner with McClelland, Jones, Lyons, Lacey & Williams LLC in Melbourne.  “Pre-planning is always much better than crisis planning.”

Issues for Seniors

Among many senior citizens, there has been a move to reduce spending, particularly as the value of their investments shrunk, said Don Kramer, founder and chief executive officer of One Senior Place in Viera, which houses a number of firms geared to serving the senior population.

“We’re coming out of a couple of years where almost nothing was safe, and that takes some of the wind out of their sails,” Kramer observed.  “Their life savings had vaporized before their eyes.  Obviously, there was a lot of fear and panic.”

As a result, many seniors now are focusing on putting their savings in the safest of investments.  That age group generally “is not aggressive to begin with” in their investing, according to Kramer.  He noted that one irony is that some got out of the stock market at its lows, and missed out on the market’s recent rally, so they “got hit twice.”

Shelly Lockhart, executive directory of the Watersong retirement community in Viera, said she has noticed retirees being more concerned that “they are going to outlive their money.”  That belief was brought on not only by the fact that people are living longer on average than they used to, but that the economic downturn of the last few years decreased the value of both homes and many financial investments.

In the midst of the recession, Lockhart observed, some retirees were holding off on moving into a retirement community because the value of their homes had dropped so much, and they didn’t want to sell at those prices.  But, now, she said, she is seeing a trend toward more optimism and a feeling that “the sky has not fallen.”  As a result, interest in Watersong, for example has picked back up in the last six months, she said.

Long-term-care expert Michael Gall, who also is president of The Gall Group Inc., a West Melbourne-based marketing consulting firm, said people on average are working until an older age than they used to, partly as a result of a shrinking in the value of their portfolio investments. Two results of that are: one, they are considering moving into a retirement community setting at an older age; and secondly, they may be neglecting planning early enough for long-term-care insurance, which, in many cases, also covers home-health care.