Independent Banker - November 2017 - 60

Lender Life
as it could have been. And many community
bankers remain upbeat about
the long-term prospects of CRE. The
data also paint a rosier picture than
the second-quarter survey suggests.
" It's really a mixed bag, " says
Christopher Marinac, director of
research at FIG Partners LLC, an
Atlanta-based advisory firm for community
banks and their investors.
" It's not all roses; it's not all terrible.
I think it's in between. "
Temperature check
According to FIG Partners research
on banks with $350 million or more
in assets, CRE represented 14.5
percent of all bank loans as of June
30, accounting for 25 percent of the
growth in bank loans over the prior
12 months. " CRE is certainly growing
faster than the total pool of loans for
the industry, " Marinac says.
After weakening in the wake of the
Great Recession, the total volume of
CRE loans outstanding has bounced
back in recent years to greater than
pre-recession levels, buoyed in part
by a long-standing low-interest-rate
environment and strong demand for
US real estate by foreign investors,
according to an August economic
brief from the Federal Reserve
Bank of Richmond. Continued
growth in multifamily housing has
also contributed to the CRE boom,
the report notes.
Now, there is an increasing sense
among some industry participants
that the surge in CRE lending may
be coming to an end. Rising interest
rates and a feeling that the most
creditworthy buyers may be nearing
their limits have heightened these
concerns. Regulators, too, are paying
close attention to the risks; they have
repeatedly made clear that they will
watch banks with high CRE concentrations
more closely.
Proceeding with caution
While some community banks say
they haven't changed their lending
guidelines, others are becoming more
circumspect. Having come off years
of robust lending, some banks are
being choosier about the loans they
extend. " They don't want to see their
margins compress any more than they
already have, " Marinac says.
Within the past 12 months,
Southern Community Bank, a $255
million-asset bank in Tullahoma,
Tenn., has begun experiencing a
slight slowdown in commercial real
estate lending. Bill Yoder, the bank's
president and CEO, attributes much
of the slowdown to the end of a
favorable economic cycle.
Southern Community Bank
still sees plenty of interest in the
CRE market. The trouble is, these
new investors don't have the same
credentials as past applicants; they
have tighter cash flows and lower
" CRE is certainly
growing faster
than the total
pool of loans for
the industry. "
-CHRISTOPHER MARINAC,
FIG PARTNERS LLC
liquid net worth, for instance. " I think
a lot of people have seen other people
be successful at it, and they are trying
to get on the bandwagon, " Yoder says.
" They're coming late to the game, you
might say. "
Clint G. Morton, senior vice
president and senior lender at
Farmers & Merchants Bank, a $140
million-asset community bank in
Miamisburg, Ohio, has also noticed a
slight drop in his bank's CRE lending
pipeline over the summer. " It's hard
to pinpoint, but I think it's potentially
a blend " of things, he says, citing a
normal summer slowdown, as well
as political apprehensions about the
stock market's potential to cool after
a long upward run.
He's not concerned, however, about
a major pullback. " We're not hearing
from our business owners and investors
of any grave concerns or fears, "
60 ICBA IndependentBanker November 2017
he says. " It's probably just more of a
'step back and pause, and watch and
see what happens' [approach]. I think
they're maybe just taking more of a
conservative approach. "
Through the first six months of
2017, Bay Bank, a $646 million-asset
community bank in Columbia, Md.,
has seen steady demand for commercial
real estate loan requests. Even so,
Jeff Plank, its commercial real estate
relationship manager, says clients tell
him it is harder to find deals. " I think
this could be a function of increased
competition for quality assets in
good submarkets, " he says. " I think
it could also be a function of a lack
of available inventory, as owners and
developers look to hold assets. "
Based on industry data and
conversations with other bankers,
Mac Wilcox, president and CEO
of $265 million-asset Savoy Bank,
based in Manhattan, says banks are
generally tightening up on loans
with a construction or material
renovation component because of the
additional risks involved. These risks
are associated with mounting supply
coupled with the potential for further
interest-rate hikes, he says.
The loan environment
also varies in different
markets. Local demand
is still strong in the south
Florida market where
TotalBank, a $3 billionasset
bank in Miami,
does most of its business.
Jay Pelham, president of
TotalBank, says his bank
is on track to have its
strongest year in terms of
overall loan production,
with a significant number
of new real estate deals
pending. Commercial real
estate lending has typically
accounted for almost
half of the bank's overall
production, he adds. TotalBank
has strong expertise
in multifamily lending, and
Pelham predicts that this
will continue to be a strong
Independent Banker - November 2017

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