Bankers: Commercial lending market beginning to slow

Commercial lenders in the Ozarks have mixed opinions about the current state of the market, largely depending on the streams of lending business at their respective banks.

Overall, banks operating in southwest Missouri run the gamut from dramatic increases in loan totals to significant slowdowns, though most have seen rates of loan growth slow in the last three months.

Feeling the effects

The largest bank in the Springfield area by deposit market share, Great Southern Bank, has seen a decline in its commercial lending of 1.4 percent in the last three months, to about $705 million, according to reports filed with the Federal Financial Institutions Examination Council.

The drop for Great Southern, according to President Joe Turner, is by design.

"We had a relatively large portfolio of construction development loans, and we're not making those loans to the same extent that we were," Turner said. "Our customers have become more cautious in their approach, and we're more cautious as well."

Turner said Great Southern's cautious approach is due to the unstable economy and not to issues related to its write-off of $35 million in loans made to Bentonville, Ark.-based ANB Financial Corp., which failed earlier this year.

For U.S. Bank, the national numbers are strong; the bank had more than $59 billion in commercial loans as of Sept. 30. That total is up 18.5 percent from the same point in 2007.

Springfield-Branson Regional President John Wilson said that increase is due primarily to the bank's strong credit rating and large companies' "flight to quality" for borrowing.

"In other words, large corporate customers want to bank with someone who is very solid, and that has brought many new customers to the bank," Wilson said. "The bank has really benefited at the national level."

The situation is actually not as strong on the local level. Though Wilson said the bank doesn't disclose local loan totals, he said loans in Springfield haven't grown as much as he would like - for the same reason the numbers are so strong nationally.

"Since our customer base here in Springfield tends to be smaller businesses, we haven't seen that flight to quality as much," Wilson said. "We have had more (lending) opportunities in the last year than I've ever seen in my four years here. But we have chosen to maintain very high standards, so the growth hasn't been what it could have been."

Holding their own

Not all the numbers are negative in southwest Missouri.

Kansas City-based Commerce Bank is one bank that has managed to hold its own, at least in southwest Missouri.

The bank's national numbers show a 4.4 percent increase to $4.5 billion in commercial loans in the last 12 months, but Springfield region Chairman John Himmel said commercial lending in the Springfield market has increased 8 percent in the last year.

"As far as commercial and industrial lending, outside of residential real estate, the market is still pretty good," Himmel said.

Even at Commerce, however, loans are slowing. The bank's $4.5 billion in commercial loans nationally is a 1.4 percent drop over the last three months. Though he didn't disclose specific numbers in Springfield, Himmel said a similar slowdown is beginning to show here.

"There are clear signs that the general economy, including here in the Ozarks, is getting closer to a full-fledged recession," he said, noting slowing activity in manufacturing and distribution.

Springfield-based Metropolitan National Bank, which operates 12 branches throughout southwest Missouri, is in a similar boat. Its commercial loan values are up 23.8 percent to $257 million in the last 12 months, but up just 1.4 percent in the last quarter.

"I think the market as a whole is somewhat tough right now. The real estate markets are impacting a lot of other segments," said Metropolitan Chief Operating Officer Sterling Huff. "If we are in a recession - and it appears we are - hopefully that won't impact a broad swath of businesses in Springfield."

One strong performer even in the last quarter is Empire Bank, which posted $333.7 million in commercial loans as of Sept. 30, up 4.1 percent for the quarter. Bank President Russ Marquart said the bank's consistent approach has helped weather tougher times.

"We didn't really participate in the speculative lending, and we made loans to people with ability to repay and to people with good credit histories," Marquart said. "Those were sound banking practices then, and those continue to be sound banking practices."

Looking ahead

Despite the variety of reactions to the current lending market, nearly all banks are in agreement in their assessment of the near future - and it's considerably more cautious than in years past.

Commerce Springfield Chairman Himmel said the most immediate issue - the problems with liquidity and credit availability - should be helped by the U.S. Treasury department's recent Troubled Assets Relief Program. That program, among other items, allows banks to sell riskier assets to the treasury department to free up capital for new loans.

"I think the banking sector is being stabilized, but as we move through and get the banking crisis under control, we'll face a more traditional general economic recession that will take some time to work our way through," Himmel said.

U.S. Bank Regional President Wilson sees continued conservative lending practices by most banks due to increased aversion to risk.

"The government is taking steps to turn this around," Wilson said. "But there is also the very real fact that financial performance of many customers is not as good this year as it was last year, and most bankers I've talked to say 2009 is going to be a tough year, too."

Great Southern's Turner said banks must be able to balance the need to stimulate the economy through lending with their own risk tolerance levels.

"It doesn't do anyone any good for us to put a loan on the books where our borrower ultimately fails. It doesn't help the borrower, it doesn't help us, and it doesn't help the economy," Turner said. "But it is helpful to everyone for us to make loans to borrowers who will be successful notwithstanding the sort of difficult economic conditions we're in right now."

Metropolitan President and CEO Dave Tooley also feels that banks are taking a "wait and see" approach, which is only compounded by the change of administrations in the White House.

"There needs to be some faith to get the market moving again," Tooley said. "But the economy has to come back a little, and even though we've traditionally been insulated, people are losing their jobs. It's a scary time. I've done this for more than 30 years, and this is uncharted territory for me."