While credit woes now plague many parts of the U.S., commercial lenders here say theyre still keeping their doors wide open to borrowers, although theyre upholding long-time lending standards vigilantly.
The lenders say Spokane has been largely immune to the national economic slowdown, and that theyre still feeling comfortable with demand in the commercial loan market here. While they dont expect commercial loan growth this year to be quite as strong as it was in 2007, they anticipate steady increases and intense competition for business customers.
The climate on the commercial side remains very good, and were still seeing our customers doing fairly well, says Mark Perko, senior vice president of commercial lending at Spokane-based Washington Trust Bank. The economy in Spokane hasnt seen the same downturn as the national economy, and the credit quality here remains good.
Mark Dresback, senior vice president and team leader for commercial lending at Spokane-based Inland Northwest Bank, says, Its a great time to be a commercial borrower in Spokane. As a group, banks and credit unions are being aggressive, and competition is usually good for the borrower.
For the most part, banks havent changed their underwriting criteria in light of the uncertain economy, but theyre looking for businesses that adjust to changes in their respective industries, either by scaling back expansion plans or by moving full speed ahead, Dresback says.
There are a lot of banks and credit unions vying for the same borrower, although were being careful, Dresback says. Were looking for steady, consistent growth and focusing on the fundamentals of commercial lending.
The fundamentals that INB focuses on when considering loan applicants revolve around cash flow, character, and collateral, Dresback says. Lenders seek to understand their borrowers and the risks associated with their businesses, and try to mitigate those risks.
If we get away from the fundamentals, we dont do very well, Dresback says. Its about keeping your head up and paying attention.
Perko says Washington Trust hasnt changed its underwriting criteria and hasnt gotten pickier about the market segments in which it lends.
I cant say everyone is having a perfect year, but we will stick with our customers because weve weathered the ups and downs and will continue to do so, Perko says. We havent changed how weve done business.
Linda Elkin, vice president and relationship manager in commercial lending at U.S. Bank here, says that when considering loan applications, the Minneapolis-based banks commercial lenders evaluate whether a companys historical cash flow can support its debt. The banks standard is that every dollar in debt service must be matched by $1.20 in positive cash flow, Elkin says.
Weve been very steady in our credit underwriting policies, Elkin says. Our standards are consistent and strict, and that benefits the bank and the client, especially in uncertain times like these.
Denise Kuhta, team leader in commercial lending at U.S. Bank, adds that bank employees keep their customers informed about U.S. Banks underwriting guidelines, and often meet with them quarterly to discuss those standards.
Lenders here say that for the most part, they arent refusing loans that they would have taken when the national economy looked brighter, but are taking into account the economic environment surrounding each clients industry.
We have a careful underwriting process, and we talk with our clients about whats happening in their industry or company in terms of outward economic conditions, Kuhta says. We talk about how theyre making adjustments for a slowdown.
While the economy here still is strong, Kuhta says shes concerned that since Spokane generally lags behind the national economy, a slowdown here could occur in the second and third quarters. The Federal Reserves recent interest rate cuts and banks downward adjustment in their prime rates likely would help lift the slump in the fourth quarter, she says.
The Federal Reserves actions to alter interest rates affect banks because they tie their prime rates, which they charge their best customers, to the Feds rates.
For now, loan officers at U.S. Bank are fielding plenty of requests from applicants who are looking to take advantage of attractive interest rates by taking out or refinancing a loan, Elkin says. The types of loans most in demand are owner-occupied and investment real estate, lines of credit for working capital, and equipment financing.
Among Washington Trusts most popular commercial loans are those related to equipment financing, Perko says. Demand for those loans is just as high now as it was two years ago, he says.
The one sector here that has been affected by the national economy somewhat has been residential construction, Spokane-area lenders say. Although that sector has tailed off some, strong residential developers still are finding plenty of competition from lenders for their business, Dresback says.
Everyone is screaming that the sky is falling, but each industry will have a time of higher risk,
he says. Its just part of the food chain of business life, and the borrower resolves that by building a nest egg when times are good so that when times are tough they can fall back on their balance sheet.
Gary Van Assen, senior vice president of commercial real estate at Washington Trust, says secondary markets are causing some headaches for commercial lenders right now. Borrowers will take out loans with Washington Trust to construct apartment complexes, and once they have completed their projects and have leased a certain number of units, will take out new loans from secondary-market lenders to provide long-term financing. Secondary-market lenders are large businesses, such as life insurance companies or big banks, which provide long-term financing for buildings such as apartments and offices, he says.
The secondary markets are nervous, with interest rates going up and down, Van Assen says. Its a little bit scary, but thats not stopping us.
For the most part, though, commercial construction lending still is strong, Van Assen says.
The apartment and office markets here are robust, and while retail construction poses a concern because of national economic softening, its still healthy here, he says.
There hasnt been any drying up of credit, he says. The bottom line is, if its a good project and a good location with experienced developers, it will get a loan.
Other industries that are doing particularly well here right now include agriculture and medical services, Dresback says. The banks customers in those sectors arent hesitant to take out loans, and they shouldnt be, he asserts.
Although Spokanes economy is faring better than local economies in other parts of the country, INB has increased its loan-loss reserves marginally in preparation of possible economic challenges ahead, Dresback says.
U.S. Banks Kuhta says the bank watches the amount of money it has in reserve carefully and has a risk rating system so that it can stay on top of it. The bank hasnt increased its loan-loss reserves this quarter, she says.
Washington Trust hasnt adjusted its loan-loss reserves either, and doesnt plan to in the near future, says Paul Koenigs, the banks chief credit officer.
We havent suffered the problems of the subprime lending and exotic mortgages markets, and we feel good about our portfolio, Koenigs says.
Looking ahead, Washington Trust is expecting its commercial loan portfolio to grow between 6 percent and 8 percent this year, down from the double-digit growth it achieved last year, Perko says.
U.S. Bank also is anticipating commercial loan growth of between 6 percent and 8 percent in Spokane in 2008, down from 12 percent last year, Kuhta says.
Meanwhile, INB expects its total loans, most of which are commercial, to grow 14 percent this year, down from 28 percent last year, says Randy Fewel, the banks president and CEO. If the banks total loans grew more than 14 percent this year, it would have to pay top dollar for the money to fund the loans, Fewel says. INBs net interest margin already will be squeezed by lower interest rates, and it doesnt want to tighten that margin any further, Fewel says.
Net interest margin, one of the indicators that financial institutions watch closely, is the difference between interest income and interest expense, typically stated as a percentage of assets.
Contact Emily Proffitt at (509) 344-1265 or via e-mail at firstname.lastname@example.org.
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