Commercial and industrial lending in the United States fell from $1.45 trillion in July of 2009 to $1.23 trillion in July 2010. In that same time frame, commercial real estate lending fell from $1.69 trillion to almost $1.56 trillion.
The Federal Deposit Insurance Corp. says many banks in metropolitan Milwaukee have contracted their commercial and industrial (C&I) and commercial real estate lending (see related chart).
Despite that contraction, competition is increasing in the commercial lending field in southeastern Wisconsin, and that competition may help reopen the spigot of dollars available to businesses in the region.
Large banks such as PNC Bank and Harris Bank have moved into the metro Milwaukee area through acquisitions made in 2008. Both banks have hired experienced lenders from the Milwaukee market and are beginning to make commercial loans.
Also, other Milwaukee-based banks that have not historically done much commercial lending have moved into the field. Meanwhile, other community-based banks have continued to expand their commercial lending operations.
Banks, both large and small, see an opportunity in commercial lending in the Milwaukee marketplace.
“It’s always been intensively competitive in southeastern Wisconsin,” said Jay Mack, president and chief executive officer of Hartland-based Town Bank. “Some of the traditional strong players might have been hampered in Milwaukee – they’re more internally focused. There’s an opportunity to go in and get some market share. Some banks are coming out of this and are getting healthier – they’re rehiring and looking for impact players to help them grow their business. They’re getting aggressive again.”
Wisconsin’s two largest banks, Marshall & Ilsley Corp. and Associated Banc-Corp, were forced to spend the past year focusing much of their resources on healing their bottom lines, absorbing bad loans and trying to secure enough cash to begin repaying the federal government’s Troubled Asset Relief Program (TARP) funds. That has opened some windows of opportunities for smaller banks, according to Bob Hoepfner, vice president and commercial banking manager with Brookfield-based North Shore Bank.
“The closest thing to a dominant player (in this market) is M&I, historically,” Hoepfner said. “But if you compare us to a lot of different states or regions, there isn’t that huge dominant presence. It’s fractional. With some of the challenges that banks are facing, if there was a time to grow in a state like Wisconsin, now is the time to steal some market share.”
James Popp, Wisconsin and Minnesota market president for JPMorgan Chase Bank, said the stability and conservative nature of the Milwaukee business community is likely what attracted banks such as PNC and Harris.
“Milwaukee is a solid and stable commercial banking market,” Popp said. “We’re not Silicon Valley, but we’re also not Detroit. That’s why banks are moving here and why others are expanding their footprint, so they can compete for those good, stable businesses. It’s absolutely becoming more competitive.”
David Baumgarten, president of Brown Deer-based Bank Mutual Corp., also sees opportunities to gain market share in commercial lending.
“There have been surveys of attitudes of CEOs and chief financial officers of middle market companies (that say) there has never been a better time where more business owners are dissatisfied with the level of service they’re getting from their banks,” Baumgarten said. “It’s not necessarily that banks are doing a bad job. This is a difficult economy and regulatory environment.”
New big players
Chicago-based Harris Bank, which has more than 25 branch locations in Wisconsin, believes its prospects are even better than when the bank moved into the state in 2008 through its acquisition of Ozaukee Bank and Merchants and Manufacturers Bancorp, said Tom Bolger, head of commercial banking. Harris also bought Rockford-based Amcore Bank, which had at least 12 branches in Wisconsin, this April.
“Part of it is we’re a very strong, stable company,” Bolger said. “A lot of banks are still inwardly focused. They have loan problems. They’re raising capital. And we think that is creating issues with some of the relationships that some business customers have with their banks.”
Harris’ purchase of Ozaukee Bank and Merchants and Manufacturers Bancorp came with a substantial commercial real estate portfolio. Now, the bank is focusing much more on commercial and industrial (C&I) lending, Bolger said. The bank declined to release specific numbers on its Wisconsin commercial portfolio for this report. However, Bolger said its portfolio in the state has increased this year and will continue to rise.
“We’ve seen through both our increased calling and the attitude of our commercial customers a willingness to entertain talks with new banks and some positive momentum,” he said. “Our portfolio is growing and we have a healthy pipeline with transactions that we have proposed and are working to close.”
Harris Bank has 15 commercial bankers in Wisconsin that target the middle market – companies with $5 million to $15 million in annual revenues. It also has another five bankers who handle the upper end of the market, Bolger said. The bank is still building its Wisconsin commercial lending team, but will add lenders at a pace that matches the growth of its commercial portfolio.
Bolger has seen a rise in competition among banks in southeastern Wisconsin, largely because some banks are not lending as aggressively as they once were.
“Certain banks are more willing to be in the market and do more business,” he said. “There are a number of institutions that are challenged with credit and regulatory issues. Clearly, there are banks both large and community-based that are more active in their calling efforts than they were 18 months ago.”
Pittsburgh-based PNC entered the Milwaukee marketplace through its Dec. 31, 2008, acquisition of National City. PNC Wisconsin regional president Beth Wnuk said the company has made a $50 million, five-year commitment for capital investment in metro Milwaukee, part of its goal to become one of the top three banks in this market. The bank has about 25 branches in southeastern Wisconsin.
Earlier this year, PNC hired Jim McMullen as senior vice president and head of commercial banking in Wisconsin, and Jim Baka as senior vice president of corporate banking. McMullen formerly worked at Town Bank, while Baka was previously senior vice president of finance, strategic planning and corporate development at Alto Shaam in Menomonee Falls.
“This is a great time to be a growing company in Wisconsin, and we at PNC see a great deal of opportunity here,” Wnuk said.
Bank Mutual is all in
While some large out-of-town banks have moved into metro Milwaukee in recent years, other local banks have moved into commercial lending, even though they have not historically played in that market.
Bank Mutual, which has historically focused on retail banking, certificates of deposits and mortgages, expanded its commercial lending practice this year by hiring Baumgarten as president. Baumgarten was formerly president of the southeast region with Green Bay-based Associated Bank.
Bank Mutual’s commercial and industrial lending portfolio expanded from $50.3 million on March 31, 2009, to $55.2 million on March 31, 2010. While it contracted to $44.5 million by June 31, Baumgarten said it will expand significantly in 2011.
“I’m not expecting the numbers to pop until the second or third quarter of next year,” he said. “By the time we hit the first quarter of 2011, we should start seeing those numbers grow. I am told that our pipeline looks as strong today as it has been in the last 12 months.”
Baumgarten said Bank Mutual’s lack of a commercial lending track record may help it in today’s marketplace, because customers have not had a chance to form a negative perception of it.
“There are institutions that have a negative image today,” he said. “One of our early initiatives is to enhance the image of the bank to the point where if someone is thinking about changing banks, they say, ‘I’ve got to talk to Bank Mutual.'”
Bank Mutual now has 16 commercial bankers, and the bank plans to double its commercial lending team over the next 12 months, Baumgarten said. Bank Mutual will also introduce new products to serve the middle commercial market by the end of the third quarter of this year.
Bank Mutual has a strong capital position because of its conservative investments, said Michael Crowley, chief executive officer of the bank and its holding company. The bank plans to use that strong capital position to win some new commercial lending relationships, Crowley said.
“If we’re in hot competition, I think we’ll be able to offer some pricing advantages for AAA type clients,” Crowley said.
Bank Mutual has historically served the small business market. The bank will continue to serve that marketplace while it works to carve out space in the middle market, Crowley said. The bank is not just looking for commercial and industrial and real estate loans. It hopes to help fund mergers and acquisitions and other financial transactions as well, he said.
“We want to open our doors to the middle market, which we’ve never pursued before,” Crowley said. “We need relationship managers who are used to that atmosphere. Dave (Baumgarten) is preparing to implement the plan that will add that asset to our lineup.”
Community banks
Other Milwaukee-based banks have continued to grow their presence in the commercial banking market over the past 24 months.
Hartland-based Town Bank opened a small commercial lending office in downtown Milwaukee early last summer. That office started with one commercial lender – Kevin Leissring. Today, four commercial bankers are based in that office. Town Bank plans to add three to five commercial bankers at its downtown Milwaukee location and other branch offices over the next year, Mack said.
“The decision to open that office in downtown Milwaukee was in recognition of the opportunities (in the market),” Mack said. “That’s still where the major centers of influence are.”
Town Bank, like many other commercial lenders in metro Milwaukee, is emphasizing C&I lending while pulling away from most commercial real estate-related lending, Mack said.
“There are not as many opportunities in commercial real estate lending, and there is a lot of regulatory pressure in commercial real estate lending today,” he said. “We decided to put our resources into C&I lending over the next several years. That’s where the opportunities are coming from.”
West Bend-based Commerce State Bank has continued to expand its commercial lending over the past 24 months. It has grown both its C&I and commercial real estate loan portfolios.
Although its growth has slowed over the last two years, it is seeing more potential new clients today because of some of the turbulence in the commercial banking industry in metro Milwaukee, said CEO Joe Fazio.
“There have been opportunities that have come to us because of a change in ownership in other banks and clients want to find a community-oriented relationship with their banker,” Fazio said. “We’ve picked up class A clients and we were able to bring them on because of changes in their (previous) banks.”
Middle market players
North Shore Bank’s C&I loan portfolio contracted earlier this year, but the bank believes it will reach its target of growing its C&I portfolio by $13 million for the fiscal year, which ends in September, Hoepfner said.
“On the C&I side, we’ve had some runoff, but some of that is desirable,” he said. “On the whole today, we’re up about $9 million from the beginning of the fiscal year.”
North Shore, like many of the other local lenders, hasn’t focused on one specific industry in its commercial lending. The bank is now lending to commercial customers as diverse as machine shops, electronic circuit board manufacturers and service businesses, as long as they do not deal with residential construction, Hoepfner said.
The bank has added two new commercial lenders in the last six months.
North Shore’s commercial real estate loan portfolio also shrunk earlier this year. Hoepfner said the bank has $25 million to $30 million of commercial real estate loans in its pipeline that it hopes to close before the end of the year.
“Demand has been strong on that side. A lot of what we’re seeing is apartment deals and commercial warehouse deals,” he said. “Most of it is refinancing. We’re picking up deals from other institutions that are looking to solidify their capital base.”
Demand for both C&I and commercial real estate loans has remained steady at Milwaukee-based Park Bank, said Dave Werner, president of the bank. Park Bank is focusing primarily on C&I lending today.
The bank’s C&I portfolio of $252 million as of June 31 is one of the larger portfolios in the metro area, but it has contracted slightly over the last 18 months because of lower demand, Werner said.
“In a lot of cases, businesses are not using their lines of credit as actively today,” Werner said. “Their revenues are lower today. At the same time, they’re amortizing off equipment and terms loans and not buying new equipment aggressively.”
The regional banks
Green Bay-based Associated Bank, which has a large corporate, retail and commercial lending presence in metro Milwaukee, was largely internally focused over the last year, said Lou Banach, director of commercial lending, southeastern Wisconsin with the bank.
Banach joined Associated this spring. The bank has also added new commercial lenders in metro Milwaukee, Chicago and Minneapolis, and will expand lending later this year and next year, Banach said.
“We’re open for business and having constant dialogue (about that) in all levels of our organization, and being out in the marketplace, identifying companies we want to do business with,” Banach said. “Our plan is to grow the bank as Phil (Flynn, president and CEO of the bank) talked about. Part of that is making those connections and having those dialogues.”
Earlier this year, Flynn told BizTimes Milwaukee that Associated expects to return to profitability later this year or in early 2011, and that the bank wants to expand its commercial lending in Milwaukee, Chicago and Minneapolis.
“With the capital we have now, with the liquidity the bank has now, we’re in a great position to lend money,” Flynn said.
The competitive commercial lending market in metro Milwaukee will keep borrowing rates stable, Banach said.
“The nature of competition will drive good deals for borrowers,” he said. “That’s where we’ve got to align ourselves with good management teams and bet on them.”
Although its C&I and commercial real estate loan portfolios have contracted in the last 18 months, Milwaukee-based M&I Bank’s appetite for commercial lending has not changed, said Ann Benschoter, executive vice president of commercial lending with the bank.
“There’s just not a lot of demand,” she said. “The big word out there is uncertainty in the economy and (customers’) businesses. They have deferred capital expenditures and really managed down their inventories and receivables so their working capital needs are not as large.”
M&I’s position in the Milwaukee commercial banking landscape is secure, Benschoter said, and the bank is not planning any significant changes.
“Many of our bankers have been in place for a long time. We’re a strong team and a dominant player in the marketplace,” she said. “There’s no expansion on the horizon.”
Chase now sees more opportunities in lending to the mergers and acquisition marketplace in Wisconsin in the future, Popp said, because other lenders have “pulled their horns in” over the last 18 months.
“The amount of senior debt as part of the capital structure has grown, and there should be more opportunities to put deals together,” Popp said. “Some of the financial and deal structures that were put in place in the depth of the (financial) crisis are being reworked and there are opportunities for banks to do more business there.”
