Massachusetts-based banks have been reporting an uptick in commercial lending – or seeking those dollars out of state – as the economy creeps back to life and small business owners regain the confidence to borrow and invest in their companies.
Independent Bancorp, the holding company for Rockland Trust, reported a 19.4 percent increase in commercial and industrial lending in last year’s fourth quarter, to $687.5 million from $575.7 million during the same time period in 2011. The company also saw a 14.9 percent increase in commercial real estate loans.
The parent company for Berkshire Bank also reported positive results, seeing a 46 percent increase in commercial business loans, to $600 million in December 2012 from $410 million the previous year.
“The last quarter of 2012 was our most successful quarter in the history of our bank for commercial lending,” said Gerry Nadeau, the executive vice president of commercial lending at Rockland Trust.
Nadeau chalked up some of his bank’s commercial lending increase to fears and uncertainty surrounding the fiscal cliff and impasse in the nation’s capital.
“We were facing this fiscal cliff, there was complete uncertainty as to whether corporate taxes would be increased, there was the potential that the government would not pay its bills, there was all this uncertainty in the last quarter,” he said. “Many people who were contemplating buying, selling, refinancing, decided they would rather do it in 2012 when they knew what the rules would be than wait until 2013.”
But it’s not all doom and gloom, Nadeau said, and at least some of the increase can be attributed to a slight uptick in new home construction, new apartment construction, and expansions and renovations, particularly in the health care industry. He noted that Rockland Trust has nursing home and assisted living home clients who have borrowed to fund recent expansions and renovations.
Pat Sullivan, an executive vice president at Berkshire Bank, estimated that asset-based lending in the bank’s Central and Eastern Massachusetts markets accounted for around $350 million worth of growth over the last three years, and he said that most of those dollars have been loaned to family-owned businesses doing between $3 million and $100 million worth of sales a year.
Sullivan said Berkshire Bank has put particular focus in recent years on increasing its commercial and industrial lending to balance out the commercial real estate on its books.
Facing stiff competition for commercial loans in their local markets, some small banks have turned to lending cooperatives and participation loans to try their luck elsewhere.
Expanding Geographic Reach
Pentucket Bank, for example, joined a Washington, D.C.-based lending cooperative called BancAlliance.
Chief Credit Officer Charles Walker said Pentucket joined the cooperative, which consists of about 100 banks across 31 states, because, “We were interested in whatever diversification we could get. Growing commercial loans locally right now is tough.”
Walker said that participating in loans with BancAlliance has allowed his bank access to commercial and industrial loans it has had difficulty securing in its immediate geographic area. He also said that Pentucket Bank is not looking to make an especially large percentage of its commercial lending in participation loans, adding that $5 million to $10 million would be comfortable for the bank, which has $650 million in assets. Walker estimated $250 million of those assets are in commercial loans.
“For smaller community banks, in many cases, they might not have access to some of these loans on their own. You really need to have a $10 million bite size. Many banks might be interested in having a million or two, but they can’t take in $10 [million] or 20 million,” BancAlliance President Lori Bettinger said.
Regulators tend to be wary of such third-party relationships and participation loans, mainly because of concerns over banks’ underwriting and lending well outside their immediate geographic location.
But Bettinger said that while the cooperative arranges the loans, each member bank is responsible for doing its own underwriting.
Walker said Pentucket Bank has done its due diligence. It’s helped, too, to already have employees with previous experience in syndicated and multi-bank lending at Pentucket, and he thinks that makes a stronger case to regulators.
Berkshire Bank, however, won’t engage in participation loans, Sullivan said.
“For us, we lend to our local markets. We lend where our customers are, where our offices are. We don’t go make a loan in Florida or even New York City,” he said, but Sullivan added that even though economic activity may be picking up in the commercial sector, it’s still slow going and the competition for loans is fierce.
Email: lalix@thewarrengroup.com
