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Commercial lenders voice optimism, expect good 2014

Rochester Business Journal
March 7, 2014

Commercial lenders at Rochester’s small and large financial institutions expect 2014 to be a good year.

“We anticipate growth across all market segments in terms of commercial lending,” says Gary Babbitt, executive vice president and chief lending officer at Canandaigua National Bank & Trust Co.

Commercial lending nationwide generally rides the waves of the economy. Though the current outlook is positive, it has not been an easy ride during the past few years. Difficult conditions in the late 2000s took their toll.

“Banks were tightening credit during that period of time,” says Keith Leggett, executive vice president and senior economist for the American Bankers Association in Washington, D.C. “Businesses were reluctant to borrow because they didn’t see any final demand for their goods and services.”

Lending improved from the third quarter of 2010 to the same period in 2011, according to Leggett, growing by 10.1 percent as the country slowly recovered from recession. It rose by a further 13.5 percent in the 12 months that followed, drawn upward in part by businesses that wanted to take advantage of the federal government’s accelerated depreciation tax credit. The credit, which expired at the end of 2012, allowed small businesses to write off 100 percent of their investments in plants and equipment in a given tax year.

“That gave businesses an incentive to expand and invest and grow,” Leggett says.

Though lending grew less quickly from the third quarter of 2012 to the third quarter of 2013, in part because of the impact of sequestration and the government shutdown, it still increased by 8.1 percent.

“We’ve continued to see an environment which has been very favorable for businesses with low interest rates to go out and to borrow,” Leggett asserts.

Some of the Rochester region’s banks have benefited from that favorable loan climate. Wells Fargo & Co. has watched its commercial loan portfolio grow by double digits in the Rochester-Western New York market since it initiated commercial banking in late 2012.

“This is very much a growth market for Wells Fargo,” says Richard Ferrari, senior vice president of commercial banking.

He gives much of the credit for the growth to his bank’s ability to fit its services to the needs of local companies.

“We’re an industry leader in food and beverage (processing) as well as technology finance,” Ferrari says. “Our upstate areas did very well, because these are growth markets.”

At CNB, outstanding commercial loans increased by 5.6 percent in 2013 to nearly $770 billion, close to half of the bank’s total loans. Though that was less of an increase than the 9.2 percent gain CNB made in 2012, it was still a plus for the bank.

“We did see an increase in commercial activity in 2013 in both the number and dollar amount of our commercial originations,” Babbitt says. “Our commercial portfolio has grown at an average of 6.5 percent for the past 10 years.”

He credits the improving economy and customer loyalty for helping bring in new business.

“Many of those customers are now beginning to feel more confident about local economic conditions and have increased their borrowing activities over the last couple of years,” he says.

CNB’s business banking unit also helped bring in new customers. Formed in 2011, the group focuses on serving the needs of small to midsize businesses.

At the other end of the financial ladder sits Fairport Savings Bank. The relative newcomer to commercial lending has about $5 million in loans on its books.

“Our strong point is community lending,” says William Kohlmeier, commercial lending specialist at Fairport Savings Bank. “We help the smaller businessman.”

Still farther down the ladder, the Gen-esee Co-op Federal Credit Union made 19 commercial loans in 2013 that added up to $131,000.

“We exceeded our goal for how many loans we wanted,” says Melissa Marquez, CEO of Genesee Co-op.

The credit union, which had $13.5 million in deposits at the end of last year, generally provides commercial loans to Rochester’s small businesses or startups.

As 2014 proceeds, commercial lenders should continue to see growth in the market nationwide, according to Leggett, driven by businesses’ expectations of a stronger export market, the development or expansion of hydrofracking operations and rising consumer spending.

“All that translates to a need of businesses for credit,” Leggett says. “We’re looking at an 8 percent growth.”

Local lending institutions expect the Rochester area’s commercial loan market to improve, though in different ways. CNB projects that commercial loans will grow at about the same rate in the coming year as in 2013.

“We still see opportunities in certain areas of the local commercial real estate market,” Babbitt asserts. “We also expect growth in our small and middle-market segments as well in 2014.”

Ferrari says Wells Fargo expects its commercial loan business to increase in 2014, though he would not say by how much. Marquez also expects the market for Genesee Co-op’s microbusiness loans to grow this year, driven by job scarcity.

“The sector of the economy that is growing is in self-employment,” she explains. “There will be continued demand, if not increased demand, as people seek options if they can’t find employment.”

To help meet that demand, the credit union has partnered with the First Unitarian Church of Rochester to provide more small loans to the city’s microbusinesses, many of which are one-person operations.

“The church has raised money they will deposit in Genesee Co-op FCU,” Marquez says. “We will be able to do additional loans, which we would not be able to do on our own.”

Fairport Savings Bank, which brought Kohlmeier on board last December to boost its commercial loan business, hopes to raise that portion of its portfolio to $8 million by the end of the year. To that end, the bank is negotiating to have the U.S. Small Business Administration assume some of the risk for commercial loans that lack strong collateral.

“They’ll step up and guarantee 50 percent of the loan,” Kohlmeier explains.

However such efforts turn out for local lenders, banks generally have ample funding for loans on hand and 2014 appears to be a borrower’s market—at least at this point.

“There’s a lot of competition out there,” Leggett says.

Mike Costanza is a Rochester-area freelance writer.

3/7/14 (c) 2014 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email service@rbj.net.


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