Area Bankers Say Commercial Lending on the Upswing
YOUNGSTOWN, Ohio -- Lending to the transportation, hospitality, senior-care and steel-service sectors has grown fastest of late, say commercial lenders at banks that serve the Mahoning and Shenango valleys, a trend attributable in large measure to the drilling for oil and gas.
“Last year was the best year ever for our bank,” says Dennis Linville, senior vice president in the Cortland office of the Middlefield Banking Co. Middlefield recorded net income of better than $7 million, up from $6.28 million in 2012.
Linville has enjoyed success in extending loans to owners of hotels, residential rental properties, self-storage lockers and heavy-truck dealerships.
“The economy’s good and banks are healthy,” says Bob Kempe, senior vice president at Talmer Bank in Boardman. The banks see good credits and are looking to lend.
“Business is pretty strong,” reports Ted Schmidt, president of the Youngstown region of PNC Bank. “There’s been a pickup across all industries in the last 60 days. It’s encouraging to see the diversification.”
Farmers National Bank in Canfield also is “seeing increased business,” says Tim Shaffer, vice president and director of commercial lending, much of it related to the shale activity including support of building the pipelines that transport gas to processing plants. “Banks are willing to lend,” he adds, noting the supply of credit exceeds demand from small-business owners.
Talmer Bank in this area continues its efforts to regain the levels of loans it made as First Place Bank. “Our goal is to get back to the full relationships we had with our customers,” says Mark Weneck, regional president.
“We have plenty of capital to lend,” says Kempe, a seasoned commercial lender. “There are no more dark clouds hanging over us. … We’ve bounced back from the First Place situation,” meaning the bankruptcy and sale to Talmer. “I’m pleased with where we are.”
First National Bank of Pennsylvania finds that demand for loans “is a little more challenging this year,” says Pete Asimakopoulos, regional president in Youngstown and head of his bank’s lending to small businesses. He attributes that to a harsh winter that restrained the economy and small-businessmen here remaining “little cautious. They continue to do more with less” and wait for their competitors to make the first move.
“The first quarter was a little slow,” adds Jim Fitzpatrick, First National Bank’s senior vice president for commercial lending. “But there’s a buildup in the pipelines and I see trends improving.”
Before the Great Recession, businesses drew down 70% of their lines of credit on average, Fitzpatrick relates; post-recession it’s 40%. This tells First National Bank that smaller companies, albeit to a lesser extent than the largest corporations in America, are sitting on cash.
“Loan demand has been fairly consistent with 2013,” says Frank Hierro, regional president of Huntington Bank in Youngstown. He oversees his bank’s efforts in Trumbull, Mahoning and Columbiana counties and into western Pennsylvania north of Pittsburgh. “We see more and new requests for term loans,” much of it coming from companies that support drilling in the Utica and the northern tier of the Marcellus in northwestern Pennsylvania. Enterprises engaged in trucking and selling concrete and rebar are borrowing, he says.
Manufacturers are using their lines of credit to replace old machinery or repair or upgrade existing machinery, the bankers say. They find a hesitation to expand, add employees or acquire a competitor. Manufacturers recognize the economy is improving but are waiting for a competitor to make the first move, is the consensus.
While most lines of credit to businesses carry variable rates of interest, some owners are seeking better rates or to renegotiate or restructure the terms of their agreements.
Applications from entrepreneurs who want to start their own businesses are few, the bankers agree, unlike before The Great Recession.
Those who do approach them “are better prepared,” Hierro says, “and have what it takes to get financing.” The naïveté so pervasive before the recession is gone. So many came with a good idea and expected the bank to provide all the financing they needed
Talmer’s Kempe recalls “only one pure startup [of late]. I think they know that banks want borrowers to have some skin in the game.”
“The number of startups is significantly down,” confirms PNC’s Schmidt. “It’s a difficult environment for startups.”
Farmers’ Shaffer has found that startups that approach his bank have visited and consulted with the Mahoning Valley Economic Development Corp., the Small Business Administration, the Small Business Center at Youngstown State University or Score, formerly the Service Corps of Retired Executives.
“We see a certain number of startups,” he relates. “We’d like to do more.” Not only is there a greater awareness of MVEDC, the SBA, Score and others who work with would-be entrepreneurs, Shaffer suggests they make would-be small-business owners aware of what they’re up against and hence, fewer approach a bank. “I think the word is out,” he observes.
Besides credit, banks provide business owners with treasury management or cash management. Treasury management allows them to direct their finances from a personal computer in their offices or at home. Business owners can perform most functions on their smartphones as well.
The most popular cash management tool is remote capture, the bankers say, where a business owner or office manager can deposit a check by photographing it and transmitting the image to the bank. The electronic movement of funds through an automated clearinghouse, or ACH, runs second, Farmers’ Shaffer finds.
He marvels at the change in attitudes over the last decade. “Remote deposit capture has seen the most growth in the last 10 years,” he says. “It was a hard sell in 2005.”
Sweep accounts, where the owner can invest his excess funds overnight, are rarely used. “No one’s using a sweep account because rates are so low,” Kempe observes.
The need for credit to build, expand or improve hotels is the area most closely tied to the shale boom. Those with flags, that is, those part of a chain such as Holiday Inn, Hampton, Marriott and Residence Inn, are the properties bankers want to finance, Linville says, because the chains have vetted the franchisee and they tend to be credit-worthy.
In this region, many hotels with flags have “30 to 40% of the rooms booked four months in advance,” he says. Middlefield financed construction of a hotel in Cambridge, “the only shale-based credit I’ve done,” Linville says, because of its potential and U.S. Department of Agriculture guarantee.
The trucking industry is contending with new environmental regulations that limit emissions on cabs built after Jan. 1. “The new diesel engines are so hard to maintain,” Linville comments. The trucks “just shut down” when the urea in the exhaust exceeds emission limits.
As a result, trucking companies are buying “sliders,” that is, they buy the chassis and body but install an older diesel engine.
With technology reducing the need for small-business owners or their office managers to visit the bank as often, if at all, bankers are making it a point to stay in touch with their customers. Emails and texts have their place, the bankers agree, but personal contact and telephone calls are essential.
A couple of banks instruct their lending officers to schedule an in-person quarterly or semi-annual visit, while others tell their calling officers to play it by ear. All want at least an annual visit.
“We have regularly scheduled call nights at our branches to make sure our business-development officers are meeting our customers’ needs,” First National Bank’s Fitzpatrick says. “Some customers have more activity and need us more.” So the lending officers determine how often they need to pay a visit to the business owners. They judge how often to contact the customer so he isn’t neglected but doesn’t feel interrupted either.
“Our organization believes in high touch,” Asimakopoulos says, but that can be a telephone call or email as well as a personal meeting.
Competition for good credits in the region remains intense, says the president and CEO of Cortland Banks, James Gasior.
“Our largest obstacle to getting back to where we were is competition [from other banks],” Talmer’s Kempe concurs.
“We can be nimble,” adds Weneck, “and remove a lot of layers [of bureaucracy]. Our management’s focused on how we do that.”
“We empower our employees,” Kempe says. “My bosses want me making decisions.”
Editor's Note: This story first appeared in the June edition of The Business Journal.
Copyright 2014 The Business Journal, Youngstown, Ohio.
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