Balanced borrowing

Bankers report growing demand, borrowers take a cautious approach

Posted on Jul 1, 2016 :: Banking
Posted by , Insight on Business Staff Writer

Mike Vogel has a pretty clear view on whether commercial lending is doing well.

“Yes and no,” says Vogel, senior vice president and commercial banking manager at Nicolet National Bank. “Our demand has been OK, but I would still say that really good customers are making sure they build their balance sheet. They still remember 2007, 8, and 9 and there is just enough negative news to make everyone cautious. While we have seen a little bit of an uptick in the last three or four months and I think our customers are doing well, nobody is just blowing the doors off.”

His views are echoed by Greg Larson, senior vice president and director of commercial lending at Bank Mutual.

“It is different than it was before the 2008 recession,” Larson says. “Business owners are not aggressively investing; they were before that last recession. Now, we are seeing business owners expand their building or buy equipment when they need to, not in a speculative way just because rates are low and prices are good.”

Bank Mutual is seeing a strong lending environment, good growth in loan portfolio, and very robust business, but it is different than before the recession, he says.

“Those business owners who survived the last recession are more conservative than before,” he says. “In spite of a good economy for a number of years, they wait until they have a need.”

Some are waiting until their businesses get uncomfortable, Larson says.

“Now, many of them need to borrow because their businesses have grown since that last recession. They rearranged the equipment on their shop floor, they’ve taken their inventory racking up another level, their places are bursting,” he says. “They almost wait too long before they expand their building.”

In the aftermath of the recession, banks were under regulatory pressure to reduce their lending, says Kim Van Osdal, senior vice president of business services at Community First Credit Union in Appleton.

“If you go back to 2009-2010 a lot of the banks shut businesses down, regulators were coming in and it was a tough time because there were some issues out there. We didn’t shut anybody down that had a viable business and we just continued to do development loans, refinancing places the banks were pushing out. So now we have a really solid reputation as somebody who is with you through thick and thin,” says Van Osdal, who previously worked with state banks before joining Community First Credit Union.

Community First’s commercial lending business grew 29 percent last year, he says.

“We don’t necessarily want to grow that fast, and this year is as strong with virtually no charge-off,” Van Osdal says. “We’ve averaged 15 to 20 percent, but last year was our best ever and this year is looking just as strong.”

As the second or third largest credit union in the state, the $2.4 billion Community First can do up to $40 million in lending to any single connected borrowing unit. The credit union doesn’t advertise its commercial loans, but word of mouth has brought the lending team all the business it can handle, he says.

Verve Credit Union in Oshkosh is also active in some commercial lending.

“Our niche is more real estate development,” says John Hill, vice president of business lending. “We are seeing a lot of development going on in the area — multi-family, commercial, mostly. Property firms from the east and west coasts are coming into Wisconsin and buying up commercial properties, he says.

“A million bucks here is $3 to $4 million on the coasts, so the land values are a lot cheaper.” Hill sees projects that are three to six years old and have national tenants selling well to outside investment firms.

Hill says he hasn’t seen as much of a lingering effect from the crash. “The members I work with are conservative and they make sure it is the right deal, so if they needed to sell off they have the ability.”

Oshkosh Corporation and Mercy Medical Center in Oshkosh and Alliance Laundry Systems in Ripon provide a solid economic base, so the area bounced back from a drop in employment, he says.

As the local economy continues to gain strength, Nicolet’s Vogel says the bank’s recent merger with Baylake will be good for the bank and opens up new possibilities.

“This market is awesome; since we closed the merger we are looking at deals we didn’t before because of our size,” Vogel says. “Baylake was the bank of Door County. For commercial lending in Door County, you have to be willing to do hotels and restaurants, which we understand.”

Rhinelander and Appleton are also seeing significant growth, he says. “And while we don’t do Marinette Marine, we do work with their suppliers.”

Larson, at Bank Mutual, says the recession shook out a lot of businesses, sometimes fairly, sometimes not. Those surviving react more nimbly to changing business trends and are cautious about taking on debt that could slow them down.

“We look at the horizon and we don’t see a lot of clouds; we think there is still life in this economy, although things are volatile,” Larson says. “By and large, companies are more liquid and have stronger balance sheets and their overall debt is down.”

Still, business owners are being careful after the recession.

“They are going to be like people who lived through the Depression; they will never forget, they will always be more conservative than they were,” Larson says. “One contributing factor, of course, is that they are eight or nine years older now, so they are going to be more conservative.”