Commercial lending activity is on the rise across the country, bankers and analysts say, reflecting an economy continuing to gradually stabilize.
Fresno, CA -- (SBWIRE) -- 11/04/2014 -- In Northeast Ohio and elsewhere in general, the demand is spread across several industries from manufacturers and energy producers to shale drillers, health care and real estate. And banks large and small are competing for the business.
While many commercial banks may feel the demand they're seeing for those loans is still shy of pre-recession levels, data from the Federal Reserve show that nationwide, more dollars are being lent out this year compared with others since the economic downturn — about $1.732 trillion through September, compared with $1.543 trillion in the like period a year ago.
Fred Cummings, a former bank securities analyst who is now president at Elizabeth Park Capital Management, a Cleveland hedge fund that invests in bank stocks, said commercial lending has been strong across the country, with many banks seeing a growth of 8% to 10% year-to-date compared with the like period of 2013.
And growth rates are accelerating more as the economy improves both across the country and regionally in Greater Cleveland, he said.
Slow but steady
Jason Sutton, head of Wells Fargo's Commercial Bank office in Cleveland, said the bank's commercial lending portfolio in the Cleveland market is up about 20% from 2013, with demand spread throughout industries from automotive and manufacturing to health care. Don Hayes, Wells Fargo regional vice president for Ohio, said the growth has been steady since 2010 but has been more “pronounced” over the last year as companies seek out loans to fund expansions of their footprints, inventories and staff.
“I think companies are trying to do more with less, and I think employment growth will continue happening, but at a very steady, modest pace,” Sutton said, “and that's better in the long term, more meaningful.”
Jeff Douglas, KeyBank Eastern Ohio district president, said he's seeing loan growth in the region of about 11%, with demand from steel and auto industries slightly stronger. Others, he said, are seeking financing to grow business through mergers and acquisitions.
“We're still not seeing demand return to pre-recession levels, but it's still been steady,” he said. “There's growth in there, and we feel good about that. We think what we see now is sustainable into next year.”
“This (lending activity) is clearly indicative of economic growth,” Cummings points out.
Midsize banks are getting in on the activity, too, leveraging the regional opportunities in a rejuvenated Greater Cleveland.
Pennsylvania-based First Commonwealth Bank, for example, branched into Cleveland for the first time in spring 2013 by opening a loan production office in the Oswald Centre to capture the opportunities in Northeast Ohio, said John Osberg, senior vice president and senior corporate banker at First Commonwealth. Osberg worked out of his home for a year while bulking up staff for the office that opened this past April.
“Ever since we opened, we've had a lot of opportunities. Our loan growth production has been really very strong,” he said, noting there is no regional data to compare growth against yet with only a couple months of business in the books.
“The demand has been tremendous,” Osberg added. “I think we're exceeding expectations. We've probably closed 14 to 15 deals.”
He said the hospitality industries, multifamily real estate and retail opportunities are becoming more prevalent in Greater Cleveland, citing the bank's participation in financing for the Crocker Park and Metropolitan at the 9 projects. Lending for real estate overall, especially to finance new apartments, is picking up across the country after stagnating in the mid-2000s.
Michigan-based Talmer Bank and Trust also launched a foray into Cleveland recently following an early 2013 acquisition of the bankrupted First Place Bank of Warren. That merger was finalized in February and was underscored by the hiring of new employees that resulted, among other things, in a dedicated commercial banking staff. Jamie Lynch, executive managing director at Talmer and region president for Ohio, said the team has doubled since May 2013.
“We're doing very well in Ohio as it relates to what we thought our opportunities would be, but also what the corporate office expectation for Ohio was,” he said.
Lynch said commercial lending prospects are expected to grow well into 2015, noting that underwriting deals in the pipeline are “strong” and other deals are heading toward closures for clients in a variety of industries. Oil and gas companies and demand for financing for mergers/acquisitions and even debt refinancing are among the top drivers, he said.
“Commercial banking is strong right now,” Lynch added, “just maybe not as strong as it was pre-2007.”
The heat of competition
Cummings points out that banks are becoming more competitive as demand for commercial loans creeps up, especially in terms of pricing. And as a result, to be more competitive, many banks are tweaking their deals to offer lower prices and fixed rates over longer periods, some even up to 10 years.
“We're hearing some very intense price competition right now,” Cummings said. “Some banks are taking on that interest rate risk in the form of making longer terms, fixed-rate loans, and that could be a risk factor if a bank is doing that.”
In another theme, there's also competition driving a need for personnel amongst the bank themselves.
“If we're a talented lender, we could have a lot of opportunities,” Cummings said. “Banks are aggressively looking to hire good talent right now. That tells us they're optimistic about loan demand because they're willing to invest in new personnel.”
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