From the desk of Don Marek, Senior Vice President, Commercial Lending Executive
The All-Star break marks a key milestone for Major League Baseball — a time for team managers to assess the strengths of the first half of the year, plan for the remainder, and consider the future development of the team’s capabilities. As the leader of the Commercial Banking team here at Fremont Bank, and a baseball fan, I take note of this annual rite and the parallels for business managers. I write at this year’s midpoint to share some insights on the first half, and thoughts about the remainder, of 2023.
It's the economy stupid
The oft-repeated phrase “It’s the economy, stupid!” emerged during the 1992 presidential campaign, and it remains strikingly relevant today. There was much ado about interest rate increases and banking industry challenges in March and April — yet the economy kept playing ball. The S&P is up almost 16% for the year. And employment is strong despite layoffs at several large technology companies.
Closer to home, the unemployment rate in Alameda and Contra Costa counties is 3.7% versus 4.5% for the state of California. Between April and May, these two East Bay counties added over 10,000 jobs — mostly in hospitality, restaurants, construction, private education and healthcare. Anecdotally, this mirrors conversations with many of Fremont Bank's larger borrowers who are still trying to fill positions across industries.
While that is great news, the continuing inversion of the yield curve remains a trend to watch. An inverted yield curve means that short-term interest rates are higher than long-term interest rates. Inverted yield curves are unusual and reflect investor expectations for a decline in longer-term interest rates, often associated with recessions. As of June 30, 2023, the 10-year treasury yielded 3.86% percent, while the two-year treasury was 4.94%. In an inverted yield curve environment, banks sometimes stop lending. At Fremont Bank, we continue to provide commercial loans to local businesses in the communities we serve. I’ll share some examples of the types of loans we’ve done recently later in the letter.
We ask, we listen
Each quarter, we reach out to a diverse range of business clients to ask how they see their businesses and the Bay Area economy in general. We seek their view of the economy, supply chain, and inflation, and their general business outlook. Our Q2 survey conducted in May was decidedly more optimistic than Q1. Over two-thirds of those interviewed were optimistic about the economy versus 45% who were pessimistic earlier in the year. Those who were not outwardly positive were instead neutral — zero had a negative outlook.
Responses showed variation by industry. Several contractors shared that their backlogs and receivables were very strong, and a few even said they were having record years. Our more consumer-oriented clients were more guarded about inflation, feeling that they could no longer pass through costs by increasing prices. As one client observed, homeowners feeling less wealthy are either postponing or reducing expenditures.
We also asked how Fremont Bank met the challenges of the banking industry’s turbulence in the spring. This is where our “Success Through Partnership” really shines. Clients appreciated our proactive and transparent communication and shared that they’re now more aware of our range of services, like advising on trusts, wealth management, treasury management, deposit insurance and more.
The Bay Area and the Fremont Bank ecosystem
With almost 60 years of partnership, our team and our clients feel that we’ve created something special — a uniquely local economic ecosystem. It starts with our clients trusting us with their deposits. We responsibly lend those deposits to homeowners and businesses right here in the communities we serve. We hire local Associates who work and live in the same communities as our clients. And, a portion of our profits are donated through our Foundation to local charities that support those same communities.
I wanted to call out just a few highlights of what that ecosystem has looked like this year. We were proud to have helped a client purchase a local ice rink, which will revitalize a treasured destination for ice hockey league devotees — who we learned are as intense about their sport as I am about baseball! We helped a contractor with a temporary increase in their line of credit to bridge increased payables as their growing receivables were delayed in payment. In funding an SBA loan, we enabled an entrepreneur to open a preschool, with a down payment of less than 15%, that will serve over 80 children in the East Bay.
As I reflect on the first half of the year, I’m appraising the wins and learning from those close games. I can also report the second half of the year is coming together well for Fremont Bank. Our liquidity is strong, and from our previous experience, business owners returning from summer breaks will be ready to make investments before year-end, keeping our relationship managers and credit underwriters busy.
From all of us at Fremont Bank, we thank you, our clients, for enabling us to do what we do best: provide highly personalized banking to the vibrant communities we serve.
