Commercial Lending Starts 2021 Strong

YOUNGSTOWN – Once the dust had settled on the initial wave of Paycheck Protection Program applications, local financial institutions got back to business as usual and worked their way to success that couldn’t have been envisioned at the onset of the pandemic.

“It was the most phenomenal year from a lending perspective that the credit union’s ever had,” says Bill Fulk, vice president of lending at 717 Credit Union.

“It was better than expected. Early in the year, you had no idea where it was going to go,” says Farmers National Bank’s chief credit officer, Tim Shaffer.

“We were consistently busy. Through each quarter, we never really slowed down,” says Josh Toot, commercial banking manager for Premier Bank. “When you step back, it’s hard to believe from all the craziness of 2020 that it was a fantastic year.”

Most PPP activity was wrapped up by mid-summer, bankers say, and once business leaders had more peace of mind about the state of their companies, their attention returned to the projects they had been working on before the pandemic. At Valley Economic Development Partners, its director of economic development lending, Mario Nero, says his department ended the year with $12.3 million in loans – a number that excludes PPP loans – up from $6.5 million in 2019.

“We had a banner year. We were able to double our capacity,” he says. “The majority of our funds were used by companies to expand and buy new equipment.”

At Premier Bank, Toot says lending was active across the board, from loans for expansion and acquisition to real estate purchases to lines of credit. The businesses the bank works with, he says, “weren’t borrowing to stay alive.” Rather, they were working to stay on top of the influx of work that came with the reopening of the economy.

“The work didn’t build up slowly. It was zero to 100 within a week. They were borrowing from lines [of credit], doing equipment purchases or starting expansions to handle the workload they had without shutting down,” he says.

Commercial real estate activity “wasn’t as dry as you might think,” Shaffer says of Farmers, although it wasn’t quite to pre-pandemic levels as business became more selective, especially among retailers. Overall, though, lending returned to “normal activity” over the course of the summer.

“It might not have been an expansion of physical footprint. But it included adding capital goods to their business: equipment, rolling stock and that sort of thing. That returned to some level of stability,” he says.

Farmers ended the year with commercial real estate loan balances of $713.9 million, up about $100 million from the year before, and $404.5 million worth of commercial loans, up from $255.8 million at the close of 2019.  

717 Credit Union had “double-digit growth” in its commercial lending, says its vice president of commercial lending, Brett Carnahan, and ended the year with a portfolio of $52 million.

For the fourth quarter, Premier Bank reported $1.202 billion in commercial loans and $2.383 billion in commercial real estate lending at the end of the year, up 51.9% and 58.23%, respectively. The fourth-quarter 2019 figures, however, reflect business done before the merger between Home Savings Bank and First Federal Bank of the Midwest was complete.

And at Cortland Bank, total lending rose 7% to $556.7 million. While the bank didn’t release commercial lending figures in its quarterly report, CEO Jim Gasior said in its earnings release that PPP loans “account for substantially all loan growth.” In total, Cortland Bank provided $56 million in such loans, says Stan Feret, the bank’s chief lending officer.

“We originally expected those loans to be paid off, with the bulk of them not really starting forgiveness until late December and rolling into January,” he says. “When you talk about [commercial and industrial] versus [commercial real estate] acquisitions, companies that may not have absolutely needed PPP had decent years.”

Local banks say that part of their success in 2020 resulted from the fact that they haven’t had much exposure to the industries hurt most by the pandemic, such as hotels or airlines. Still, help was available to struggling customers. As authorized by the Cares Act, institutions offered deferrals on loans, although the exact form varied based on a customer’s need.

Cortland Bank, for example, offered interest-only payments or waived interest on the principal for six months before circling back to see what state businesses were in. At one point, early in the summer, there were 127 loans totaling $124 million with deferments. By year’s end, that figure had dropped to nine loans for $18 million.

“Throughout the whole process, there was a tremendous amount of customer touch, execution of modifications and commercial work to make that happen,” Feret says. “It wasn’t just handing out deferrals. It had to make sense. … There was an aspect of conservatism where we asked where this is going, what the outlook is like, if it’s based on pro forma or speculative development.”

717 Credit Union saw a similar trend, with deferrals being more common in the first few months of the pandemic than later in the year. The first two quarters, Carnahan says, were a “mixed bag” of businesses fighting for survival and those who “were taking opportunities” of things like refinancing.

“Business owners are savvy. When rates drop, they don’t miss a beat. We fielded a lot of calls and some were able to refinance if it made sense. For others we did note modifications. It was two variable ways of getting to the same point,” he says. “Both took advantage of low rates and we saw significant activity.”

Heading into the end of the first quarter, the institutions say they’re starting off busy, more so than a typical January. In normal years, banks usually work to close as many loans as they can in December so the year-end financial statements can encompass work done in November. But in 2020, activity was sufficient that some of those deals had to have the finishing touches done in January. At 717, Carnahan and Fulk say the pipeline was, quite literally, full.

“Our pipeline of underwriting got to where we couldn’t take on more requests. It’s not that we can’t lend more money or had to put things on hold,” Carnahan says. “We hit critical mass in 2020, so we had to tell some people to come back in 2021. Some have already done that. We’re starting the year off strong.”

At Premier Bank, Toot says the commercial lending department is “100% on all cylinders,” even without the launch of the new round of the Paycheck Protection Program in mid-January. Whatever was put on hold early on in the pandemic, it seems, is back on track and businesses are looking to get the work done.

“The colder months are usually a bit slower. That has not been the case. Every one of my commercial bankers is busy. We’re seeing a lot of expansions,” he says. “There are opportunities out there and they’re jumping on them.”