Q&A talks about the commercial lending environment with People’s United Bank executives Marjan Murray, executive vice president, commercial real estate; Jack Bundschuh, executive vice president, commercial and industrial; Jeff Tengel, senior executive vice president, commercial.
Q: People’s United Bank saw a 5 percent annualized increase in its $27 billion loan portfolio during the first quarter compared to the end of the fourth quarter 2014, with most of that growth coming from commercial loans. Commercial lending nationwide is on the upswing. What drove commercial loan demand in the first quarter, and do you expect the trend to continue the rest of this year?
Tengel: While the first quarter is typically a seasonally slower period, we achieved solid annualized loan growth of $337 million, marking the 18th consecutive quarter of loan growth for People’s United.
As in previous quarters, growth was well-balanced from a product and geographic perspective. Construction & Industrial (C&I) contributed $240 million of the total originated loan growth while commercial real estate contributed $118 million. Within C&I, we experienced particular strength in our mortgage warehouse lending business.
Q: Which commercial borrowers (small, midsize, or large companies) are driving most of the loan demand? Is there a particular industry most in need of credit? What are commercial borrowers using the money for?
Murray: In Connecticut commercial real estate (CRE), People’s United is a solid middle-market lender. The market exhibits continued loan demand, particularly in multi-family housing with funds raised going toward additional acquisitions, construction and refinances.
Bundschuh: We have seen improving loan demand from both small and large companies and spread across market segments from service to manufacturing to education and health care. As the economy continues to rebound, companies are more willing to invest in expansion, whether through acquisition or capital investment.
Q: How has the commercial lending environment changed today compared to 5 or 6 years ago? Have credit/underwriting standards shifted?
Murray: With CRE there is a lot of liquidity in the market, not only from banks, but from non-bank lenders like insurance and commercial mortgage-backed securities lenders. Spreads are tightening and lenders are getting creative, while maintaining standards.
Bundschuh: The competition for quality loan opportunities has been fierce, as both banks and non-banks seek to deploy funds. The challenge to book quality loans at reasonable spreads in this environment requires differentiation. Another very significant challenge in the current lending environment is the increased amount of oversight on the part of regulators.
Q: How is the threat of higher interest rates impacting companies’ decisions to take on or not take on debt?
Bundschuh: We have been in an ultra-low rate environment for several years now. Still, companies have been very cautious about taking on additional debt. As business confidence returns and more companies become optimistic about their growth prospects, it is an optimum time to lock in financing at historically low rates.
Murray: A lot of borrowers are looking to fix rates. We offer them the financial instruments that allow them to lock in the rate for the long term.
Q: How does the commercial lending environment in Connecticut compare to other markets People’s United does business in?
Tengel: We continue to see steady growth across our footprint, with considerable strength in the New York and Boston markets where we continue to expand. The amount of activity and size of the market provide additional opportunities, despite significant competition.
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