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Banking and Financial Services

Some Moves of Interest

 

For a bank that’s been around for 136 years, PeoplesBank came across commercial lending fairly recently.

“My predecessor, Doug Bowen, started commercial lending at PeoplesBank probably 35 years ago,” Tom Senecal, the bank’s president and CEO, told BusinessWest. “We didn’t do any commercial loans until then, and we started out with just commercial real estate. And we stayed conservative with real estate, and never went into the C&I side because we didn’t have a lot of expertise. Just by virtue of what our comfort zone was, we focused on the real-estate side.”

That’s all changed, as PeoplesBank has made a strong push into the realm of C&I (commercial and industrial) business lending over the past two years.

“A little over two years ago, we started talking about our strengths and weaknesses and who we are are and what we do as the largest mutual institution in Western Mass.,” Senecal explained. “We have a very successful commercial real-estate portfolio. What we didn’t have was the C&I side. So we started talking about how to get into the C&I business.”

The reason the bank hadn’t done so sooner came down to expertise, which it had in spades on the real-estate side but much less so in C&I, where “you’re financing equipment, you’re financing lines of credit, there’s different types of collateral, it requires more monitoring, more analysis … we didn’t have that experience,” Senecal said. “It’s a very complex and very different lending skillset than commercial real estate.”

That’s why Senecal started talking with Frank Crinella, who has decades of experience in lending in the region, about bringing over a group of individuals from a large regional bank to spearhead a push into C&I lending.

“We have a very successful commercial real-estate portfolio. What we didn’t have was the C&I side. So we started talking about how to get into the C&I business.”

“We talked for several months about his group of people coming over, and we brought over five people that have an enormous amount of experience on the C&I side,” Senecal said. “Real estate is much more transactional, and we wanted to develop relationships in our home market much better than we ever had in the past, and C&I, to us, was the way to do it.”

Crinella is now the bank’s senior vice president and senior lender, and will also take the title of senior credit officer when Mike Oleksak, the institution’s longtime senior lender and senior credit officer, retires at the end of the year.

“C&I typically brings over the relationship more than just the real-estate transaction. And now that we have the group of people that we have, I think it’s going to be tremendously successful, not just for the Western Mass. market, but for our growth strategy going down into Connecticut as well,” Senecal said. “Frank and the group of people who came over have been here just over a year and have been enormously successful in that period of time, starting to build relationships here in Western Mass.”

Crinella saw great potential in what PeoplesBank was trying to do.

“What attracted us to Peoples was really the culture,” he said. “And C&I is all about relationship lending, the team approach. We have a very strong credit culture, but we also have a lot of depth on the cash-management side, and our branch network is very strong and plays well to the companies here in Western Mass. and Northern Connecticut.”

The commercial-lending department is now up to 50 people, Crinella noted. “The team complements each other so well. They brought in a lot of credit analysts that have C&I experience, so we’ve got depth now on the underwriting side.”

He was also drawn to a lending model at Peoples that prioritizes the ability of lenders to make quick decisions (more on that later).

“We talk about speed to market around here — we make all our decisions here on Whitney Avenue, so we can turn around a loan request quickly, and kind of outmuscle the big boys in that way … and, with the depth that we brought, outmuscle the local competition as well.”

 

Lending Support

Senecal said he knew PeoplesBank could excel at C&I lending based on its culture and ability to forge relationships through its branches.

“C&I is small business,” he explained. “And the interconnectivity between our branch network and our C&I lending is extremely important. It’s very difficult to develop a relationship on the small-business side without a branch network. So, in a lot of my conversations with Frank, we’re focused on our growth strategy and continuing to have the brick-and-mortar strategy, which complements the C&I side.”

Retail banking, Senecal noted, is moving in the direction of digital modes like mobile banking, online bill pay, and ITMs.

“When you talk C&I lending and small-business lending, you can’t do all that digitally online. You need a relationship. Accounts are very different for small businesses than they are on the retail side, between needing cash-management services, wires, positive pay … there are a lot of different functionalities small businesses utilize, more than the typical retail customer. A lot of services need to be communicated, and you can’t do that necessarily digitally. So the branch network has a huge impact.”

Crinella called it “delivering the bank.”

To explain that concept, he noted that, “when a relationship lender goes out to visit a customer, oftentimes they’ll bring the banking-center manager as well as the cash-management professionals, so the customer gets the entire bank when they’re meeting with the relationship lender. That’s really the difference between C&I and commercial real-estate lending. That’s what we’re trying to capture when we talk about relationship lending.”

The relationships customers already had with the lenders who moved to Peoples have generated some business as well, Senecal said.

“When you transition a group of five people from one institution to another, you create some loyalty from those customers who had relationships with them, and you can tell that the relationship means a lot. We’re getting great, positive feedback as a result of that.”

Crinella agreed. “They become valued advisors to the customer,” he said. “They take the time to understand their business and make informed decisions. Again, I think speed to market has been a huge competitive advantage. We get there quick. We can get a term sheet out in 48 hours, and that’s something, competitively, the big boys have a tough time competing with.”

With Oleksak, and soon with Crinella, it was important that both titles — senior lender and senior credit officer — fall under the same individual, Senecal said.

“From a customer’s perspective, when Frank shows up at the table, he has the decision-making authority for quite a few loans. Certainly, when loans get larger, we have a committee, we meet and talk, but Frank has the ability to sit at the table and make decisions immediately with customers based on what he sees.

“That doesn’t occur at most larger institutions,” Senecal went on, “where the lender goes out and gets the loan, develops the conversation, and then goes back with all the information and says, ‘OK, this is the deal. This is the terms of the deal I’d like to do.’ And they sit around with other people — adjudicators, other credit people, who say, ‘yeah, I don’t like that deal. You need to do this, you need to get that.’ And it becomes a group decision.”

That’s not the best or most efficient experience for the customer, he said.

“When you sit in front of a customer and you make the customer believe we’re going to do the deal, then you go back to the office and all of a sudden five different people have their opinions on what it should look like, it’s really hard to go back to the customer and say, ‘yeah, the deal’s changed.’”

That’s why it’s important to empower people, not committees, to make decisions, Senecal explained. “If the loan is a large loan, yes, it goes up to committee discussion. But in my 25-plus years at the bank, maybe two loans didn’t get through loan committee — because the lenders know what they’re doing.”

 

By All Accounts

When commercial lenders at PeoplesBank were focusing solely on real estate, they excelled at deals for warehouses, multi-family facilities, mixed-use properties, and strip malls. With C&I, they’re talking to manufacturers, healthcare practices, nonprofits, lawyers, accounting firms, and many more entities. And that requires specialized knowledge and, yes, strong relationships.

“You’re not lending on the building, you’re lending on the business,” Senecal said. “In real estate, we lend the money and hope to get paid back. If we don’t, we have the real estate. On the business side, it’s a whole different aspect of trying to understand, ‘how are you going to pay the loan back?’ When you get into all these other industries, it takes a unique skillset to identify whether or not it’s viable and the loan is a good loan or not.”

It’s a skillset the bank plans to further grow as it evolves its lending presence in the region’s C&I landscape.

 

Joseph Bednar can be reached at [email protected]

Banking and Financial Services Coronavirus Special Coverage

Lending Support

Chuck Leach, president and CEO of Lee Bank.

Chuck Leach, president and CEO of Lee Bank.

Community banks love commercial lending, Chuck Leach says.

“It’s just good business for us — Main Street lending, that’s where we can have a nice give and take with customers. It’s kind of our wheelhouse.”

That’s all still true, even though 2020 has rocked that wheelhouse in unexpected ways.

“We’re not seeing the same commercial demand,” said Leach, president and CEO of Lee Bank. “It’s either risk aversion or businesses are waiting to see what happens.”

Or, in some cases, they’re extra liquid after taking advantage of the Paycheck Protection Program (PPP) and other stimulus measures, as well as deferring payments on other bank loans, he added. “Put all that together, and they may not have borrowing needs right now, or they’re sitting on their liquidity until they see some clarity with the pandemic or the election or both.”

Clarity has been in short supply since the COVID-19 pandemic forced a widespread economic shutdown at the start of spring that continues to wreak havoc.

Michael Oleksak remembers the first few months of the year, of hearing occasional news about the novel coronavirus back in January, and much more of it as February crept along.

“I’d been asking myself for years, ‘what are we missing? What’s next?’ Because there had to be a ‘next.’ Who would have thought it would be a pandemic?”

“Then, from mid-March into April, everything was a blur. It just spiraled,” said Oleksak, executive vice president, senior lender, and chief credit officer for PeoplesBank, before discussing the PPP surge and other measures that followed (more on that later).

Blurring the picture further was the very uncertainty of what was coming. Having experienced several economic upheavals, from the bank failures of the early ’90s to the bursting of the dot-com bubble in 2000 and 2001, to the housing crisis in 2007 and 2008, he had no idea what the next crisis would be.

“I’d been asking myself for years, ‘what are we missing? What’s next?’ Because there had to be a ‘next.’ Who would have thought it would be a pandemic?

“This will be the fourth economic cycle I’ve been through, and every one has been different,” he added. “And this one is far different than the others. We’re not seeing a lot of new activity. I think everyone is kind of hunkered down, for lack of a better word, in survival mode.”

As Allen Miles, executive vice president at Westfield Bank, put it, “obviously this one was a lot different. You couldn’t see the train wreck coming; that’s the best way to explain it. It just got dropped on us.”

What happened next in commercial lending is an oft-told story recently, but one worth telling again. What will happen next … well, no one really knows. But banks will certainly take lessons from a challenging past seven months as that story takes shape.

 

Lending a Hand

Miles said Westfield Bank started reaching out to loan customers in February when coronavirus became a more widely reported issue. In mid-March, like other banks, it was actively sending employees home. And then the storm hit.

From mid-March into the start of April, “that two weeks was absolutely crazy because you had people looking for loan deferrals, and the bank examiners were very friendly to both the banks and borrowers to try to help these people out,” he recalled. “We were just trying to help our customers. You’re not worried about loan origination; you’re just worried about getting people through the unknown and the craziness.”

Michael Oleksak says new lending activity has been down

Michael Oleksak says new lending activity has been down because many businesses are “in survival mode.”

The first Monday in April, the bank received about 500 PPP applications, and about the same number the next day.

“We needed to get all hands on deck,” Miles told BusinessWest. “We were still waiting on guidance from regulators and the Treasury Department. We had people afraid for their livelihoods, their families, and everything. It was organized chaos.”

The bank got $185 million in PPP loans approved in that first round, what he called a “herculean task.” The second round, several weeks later, was much less chaotic. “That was more for the smaller businesses — a lot more applications, but smaller in dollar size. We were able to keep up with those because we’d been through it, and they weren’t as complicated.”

Oleksak said the PPP was a critical lifeline for a lot of people. “There was kind of a mass panic there wouldn’t be a round two, which put a lot of pressure on the banks and our customers, trying to rush to get them into a program that was not very well-defined from the outset,” he recalled. “Then round two came along, and everyone who needed funds was able to access them, and that made a big difference.”

Leach said the widely reported chaos was quite real, but the larger story was a positive one.

“For now, this has put a lot of capital in the banks and a lot of capital in businesses in our region and beyond. A lot of our customers are in good shape right now.”

“In spite of the controversy, and the people who thought they were making up the rules as they went along, I think the PPP was very functional,” he said. “We’re seeing a lot of customers well-capitalized right now, which is the untold story nationally.

“Maybe that changes and this is just a Band-Aid,” he added, due to the lack of clarity about the next few months, from fears of a second COVID-19 surge to the limbo status of further federal stimulus. “But, for now, this has put a lot of capital in the banks and a lot of capital in businesses in our region and beyond. A lot of our customers are in good shape right now.”

Lee Bank processed 348 PPP loans and has submitted more than 100 forgiveness applications, although some customers are waiting to see if the federal forgiveness guidelines change, specifically whether “they do a sweeping approach where everything under $150,000 is forgiven with a very, very simple forgiveness application.”

Again, borrowers want clarity. Still, Leach came back to the positive impact his bank was able to make with the PPP — and also with loan-payment deferrals for about 240 customers, with about $60 million deferred in total. “In a bank that has $400 million in total assets, you can see that’s a good chunk,” he said, adding that only a fraction of those customers requested a second deferral period.

Oleksak and Miles both reported similar trends, with requests for continued deferrals dropping after the first 90-day period.

“Thirty days before the first deferment was up, we contacted people, and 85% to 90% said, ‘we’re good, we’re not going to be looking for a deferral going forward.’ So that made us feel really comfortable,” Miles said. “With the PPP and the deferrals, it bridged the gap for customers.”

“We’re being very sensitive,” added Kevin O’Connor, Westfield Bank’s executive vice president and chief banking officer. “We’ve been very involved with them, understanding their needs and how the bank can work with them.”

While borrowers in the broad hospitality sector continue to struggle, for obvious reasons, most customers have come through the past seven months well with the help of PPP and loan-payment deferrals, Miles added. “The main ones hurting are the ones being affected by the phases and the rollouts — restaurants, bars. They’ll take a while to get back on their feet.”

 

Starts and Stops

That’s true in the Berkshires as well, Leach said, and restaurants in particular are worried about the onset of cold weather and an inability to seat more customers, due to both the state’s indoor-capacity restrictions and the reluctance among some patrons to eat inside restaurants right now.

But the region’s hospitality businesses have benefited in others ways during the pandemic; in fact, one bed-and-breakfast he spoke with did record business this summer.

Allen Miles says some loan customers are doing well

Allen Miles says some loan customers are doing well, while others, particularly in hospitality, continue to struggle.

“People left urban areas for a safer place, whether for weekends or longer,” he said, adding that some secondary homes became primary homes, while other people bought first homes in an area they felt was safer than, say, New York City. “Interest rates are obviously really low, but there’s also the fear factor of ‘wait, I’ve got to get out of this urban area.’ So there’s been a huge sense of urgency to buy in an area like the Berkshires.”

Unlike some lending institutions, Westfield Bank has seen healthy activity in loan originations recently, Miles said.

“The deferments and PPP money actually made some people stronger because it’s been cash preservation instead of cash burn,” he noted. “Usually for commercial lending, it starts getting busy after Labor Day. We weren’t sure if we were going to see that cycle again, but now it’s quite busy, and people are active. So that’s a really good sign.”

That activity is strong across the board, particularly in commercial real estate, where customers are refinancing for a lower rate or selling, he explained. “It’s a great time to sell — low interest rates, lower cap rates, people are going to pay you more for the property — so you’re seeing a lot of transactions going on right now.”

Commercial and industrial (C&I) loans are healthy as well, he said, adding, of course, that, “with anything related to hospitality or travel, the jury’s still out on that. The longer this [pandemic] hangs over us, the longer the recovery for them.”

At PeoplesBank, Oleksak said, many customers have been accumulating cash and paying down lines of credit, or shopping around to lock in better long-term rates on loans, which is a challenge for banks already facing flattened yield curves. “I think the depth of the crisis is a little bit masked by the amount of stimulus money in the market, from PPP, SBA programs, and deferments.

“The deferments and PPP money actually made some people stronger because it’s been cash preservation instead of cash burn.”

“Some individuals out there are suffering mightily, particularly restaurants and hospitality,” he added. “The other great unknown is, we don’t have a vaccine yet. Are we going to see another spike? People are trying to get back to normal here, but I’m not sure what the new normal is going to look like.”

He pointed to his own institution as an example. Between half and two-thirds of PeoplesBank employees are still working remotely, a trend being reflected across all geographic regions and business sectors.

As a result, “nobody really knows what’s going to happen with the office segment of the market, with so many people working from home. Will they go back at some point? Will companies decide they don’t need so much space, or does social distancing mean you have fewer people but still need more space? It’s a total unknown for us.”

It’s unfortunate that some industries, like restaurants, will likely see a slower return to health, O’Connor said, “but it’s good to see customer confidence in some areas coming back, even a little bit sooner than we would have expected.”

Miles agreed. “We’re very happy with what we’re seeing right now. It’s not behind us, but it’s not as bad as people anticipated. If activity is picking up and people are borrowing, they’re confident, which is good.”

 

Joseph Bednar can be reached at [email protected]

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