Community banks appear to be pouncing on commercial loan opportunities in the first half of the year, claiming larger banks and other credit sources pulled back from lending momentarily as they assessed their exposure to subprime lending and other economic pockets showing signs of distress.
It is the nightmare of many small businesses in a recession ”“ that banks will strip credit lines in an effort to minimize potential losses when small businesses obtain such loans to provide cash during downturns or unexpected events.
“In 1989 and 1990 it was really bad ”“ we were getting calls from manufacturers who had lost their working capital,” said Peter Gioia, vice president and economist of the Connecticut Business and Industry Association. “We have not seen that in the current downturn ”¦ Most of the regional and community banks are out there lending, but they”™re terms have reverted back to what they were before.”
Overall, commercial borrowers “are holding up pretty well” in the words of James Fitzgerald, regional president of Wachovia Corp.”™s operations in Connecticut, including offices in Fairfield County that employ 1,000 people. While interest rates have dropped, he acknowledged loan terms have stiffened in other areas such as collateral requirements or equity contributions to projects.
“We are very active ”“ we are making credit available,” Fitzgerald said. “We are probably a bit more cautious about how we structure the loan, given that we are clearly into a (down) part of the economic cycle.”
In its April report on the regional economy, the Federal Reserve Bank of New York indicated loan demand in the area is weakening as bankers tighten credit standards, and the Fed”™s anecdotal evidence suggested delinquency rate increases have reached the highest level in 13 years.
Against that backdrop, Stamford-based Patriot National Bancorp Inc. reported a 10 percent jump in real-estate loans in the first quarter, with its subsidiary Patriot National Bank pumping an additional $69 million into the local economy.
Patriot National indicated the turmoil in the financial markets has resulted in a number of credit providers either shutting down or pulling back funds, making it difficult for many borrowers to find sources of credit, even those with strong credit histories.
Yonkers, N.Y.-based Hudson Valley Bank opened its first Connecticut branch last year in Stamford and is planning three more this year in Greenwich, Westport and Fairfield.
“Our loan production is as large as it has ever been, and that is because a lot of big banks have shut the window,” agreed Jim Landy, CEO of Hudson Valley Bank. “We have always been a traditional lender that has been in the market through thick and thin. For the first quarter, we had the best quarter of growth ever in lending.”
The obvious risk of increasing loans is any additional shock to the national or local economy, leaving borrowers overextended and unable to make payments. KeyBank N.A. recently called in a $19 million loan to Passport Marine Inc., a Florida-based boat seller that has offices in Norwalk and Mamaroneck, N.Y. KeyBank has asked a federal judge in Connecticut to enforce the repossession of boats held for sale by Passport Marine valued at nearly $2 million; Passport Marine has yet to respond in court. Norwalk Cove Marina Inc. has also sued Passport Marine in state court for nonpayment of rent.
Wachovia”™s Fitzgerald indicated such cases are rare, and said delinquency scenarios can usually be worked out through constant communications between company owners and loan officers.
“There is a sense that we have hit the low point,” Wachovia”™s Fitzgerald said. “For the most part, banks have taken a large amount of write-downs ”¦ On that side of the house things are starting to bottom out.”
