Bob Mahoney isn't worried about a real estate bubble, even though Belmont Savings Bank's loan book has nearly doubled in two years.
That's because Mahoney, chief executive of the $1.9 billion-asset BSB Bancorp in Belmont, Mass., has plenty of experience dealing with economic cycles – and he knows how to prepare for a downturn.
For now, the Boston area is supercharged with no signs of a slowdown. BSB is one of seven banks around the city that posted average yearly loan growth of at least 20% from 2013 to 2015, according to data compiled by FIS FedFis.
About three dozen Boston banks posted double-digit loan growth in 2015, according to FIS FedFis. For all U.S. banks, loans increased last year at an average rate of 7.4%.
"In 45 years of banking, I've never seen it like this," said Mahoney, who also served as CEO of Citizens Bank of Massachusetts in the 1990s.
"We're making sure that we're not relying on leases that have one- or two-year terms, and we're not financing a building where a tech company that's never made a profit is taking half of the space," Mahoney added.
Several factors are at work.
The economy in Massachusetts, and Boston in particular, is diversified and booming. The state's economy grew by 2.3% in the first quarter, compared with just 0.5% nationwide, according to the University of Massachusetts. The state's 4.4% unemployment rate in March also bested the nation's 5% rate.
"We've diversified into all the right sectors," Mahoney said. "Higher education, health care, the best hospitals, all that has created amazing growth in biotech."
It also helped that General Electric in January announced plans to move its headquarters to Boston from Fairfield, Conn., said Sushil Tuli, chief executive at the $1 billion-asset Leader Bank in Arlington, Mass.
"So many biotech companies are moving here, and GE is moving here and they're bringing all their executives," Tuli said.
Leader Bank, formed in 2006, primarily originates residential mortgages, though it has increased its multifamily and commercial real estate lending, Tuli said. Total loans grew at an average of 26% over the past three years.
At the same time, a group of newly minted stock-owned banks are flush with capital after converting from mutual ownership.
"We pretty much already had the loan demand, we just didn't have the capital," said Tony Paciulli, chief executive of the $124 million-asset Meetinghouse Bank in Boston, which converted to a stock-owned company in 2012.
Since the conversion, total loans at Meetinghouse have grown at a 26% yearly average.
Other former mutuals share the same story.
Loans at the $3.7 billion-asset Meridian Bancorp and the $620 million-asset Wellesley Bank have increased by an average of 20% each year since 2013.
The fastest-growing Boston-area community bank since 2013 has been the $2.2 billion-asset Blue Hills Bancorp in Norwood, which completed its mutual conversion in July 2014. Blue Hills has posted 46% average yearly growth in total loans since 2013.
Blue Hills' run should continue, said Collyn Gilbert, an analyst at Keefe, Bruyette & Woods who projected that the company loan book will increase by 20% this year and 19% in 2017.
Blue Hills is also spending heavily to fuel future growth, Gilbert said. The company, which recently hired an asset-lending team from First Niagara Financial Group, plans to open a branch in the Seaport district of south Boston in the third quarter. Of course, such initiatives have a cost.
"These types of investments could keep expense growth in the double-digit range," Gilbert wrote in a sent to clients on Tuesday.
Still, it stands to reason that bankers and investors are worried about a commercial real estate bubble forming, Gilbert said. But the city's economy is diversified and its underlying fundamentals appear sound, she said.
"I get concerned that it's overheating, but it sounds like loan pricing is much better in Boston than what we're seeing in New York," Gilbert said. "Vacancy rates are so low and there are lots of construction projects coming on."
For all the growth, Mahoney said he, too, has to continually remind himself that the good times won't last.
"Real estate markets tend to misbehave every few years," he said, noting that BSB tests loans as if they carry higher interest rates than they actually have, to measure if borrowers can still repay at higher prices.
"We can't kid ourselves that these rates will still be here in a few years," Mahoney said.