Once American State Bancshares completed its acquisition of Rose Hill Bank in November 2011, one of the new management team’s priorities was to build the bank’s commercial lending business.
It appears that the effort has paid off.
The $250 million, Butler County-based bank posted one of the bigger gains in commercial and industrial and commercial real estate loan growth last year when measured as one of the 10 Kansas-based banks with the most Wichita deposits.
That’s according to The Eagle’s analysis of loan data between 2012 and 2013 from the Federal Deposit Insurance Corp., released last week. The Eagle looked at 10 banks with headquarters in Kansas that had the most deposits in the Wichita area, according to the latest FDIC Deposit Market Share Report for the year ended June 30, 2013.
The analysis showed that half of the 10 banks increased their commercial and industrial loan portfolios in 2013, while eight of 10 increased their commercial real estate loans in the same period.
Rose Hill Bank’s commercial and industrial loan portfolio grew by 26 percent to $21.7 million, while its commercial real estate portfolio increased 8.1 percent to $50.9 million in 2013.
“That’s not by accident,” said Rose Hill president Roger Kepley. “That was part of our strategic vision since we acquired the bank.”
The analysis of the banks’ portfolios showed that the increases in commercial and industrial loans varied from 2 percent at Emprise Bank to double digits at Rose Hill. In the area of commercial real estate loans, growth ranged from 1.4 percent at Fidelity Bank to as much as 72 percent at Capitol Federal.
Some banks saw year-over-year declines in their commercial portfolios. Intrust Bank saw a 1.3 percent decline in its commercial and industrial loans, while Midland National Bank in Newton recorded a 36 percent decline. Midland also had the highest decline among the banks’ commercial real estate loan portfolios, 23 percent, while Equity Bank had the smallest, at 6.5 percent.
Ron Lang, president of the $134.7 million-asset Midland, said the drop in commercial and industrial loans was partly caused by the payoff of a large loan by a company that was acquired. He also said many of Midland’s other commercial customers did not tap their lines of credit in 2013, and demand was generally lackluster for new commercial and industrial loans.
As for Midland’s commercial real estate loan portfolio, Lang said his bank lost three customers to competitors that offered to refinance their loans at an interest rate “that we were unable to compete with.”
“Some banks are extremely aggressive in their pricing,” he said. “There is tremendous competition for good loans.”
Kepley said his bank’s loan growth last year was the result of building up a commercial lending team of about half a dozen seasoned lenders. The initiative started about two years ago.
“It takes awhile to get all the people in place, the systems in place,” Kepley said. “It’s not something (where) you click your fingers.”
Kepley said Rose Hill had a lot of consumer banking customers who also were business owners, but had not bridged those relationships into new commercial business for the bank.
“(It) was a recognition of opportunity,” he said.
Rose Hill was not the only bank to see substantial growth in both areas of commercial lending.
First Bank of Newton recorded a 13 percent gain in commercial and industrial loans and an 11 percent increase in commercial real estate loans.
President Ray Penner said such growth did not come easy for the $162.4 million bank. “Most of the time it is tough to come by,” Penner said. “Any good deal is chased by everybody.”
So, he said, a bank cuts its margins to get the loan business or tries to use its relationship with the potential borrower as the key to getting the loan deal.
“There is something to say about (the value of) a relationship, although I would confess to you that allegiance is not what it was 30 years ago,” Penner said.
Like Rose Hill, Fidelity Bank attributed the work of its commercial lending team led by Jeff Ronen as one of the drivers of its 12 percent increase in commercial and industrial loans.
“We (also) think we are seeing some of the fruits of our Bravely Onward campaign,” said Tim Nelson, executive vice president of the $1.5 billion bank.
Nelson said the bank added some “significant manufacturing, machine-shop-type customers” last year as well.
None of the 10 banks topped Capitol Federal’s 72 percent gain in commercial real estate. But Rick Jackson, Capitol Federal’s chief lending officer, said the increase was not the result of a conscious effort by the Topeka-based, $9.1 billion-based thrift to increase that part of its business. In fact, Capitol Federal doesn’t even make commercial and industrial loans, choosing instead to keep with its consumer focused, savings-and-loans roots, making home loans.
“Ninety-five percent of what we’re doing is residential, one-to-four family (mortgage loans),” Jackson said. “That’s our level of expertise. We’ve just stayed within that business model.”
The yearly gain in Capitol Federal’s commercial real estate portfolio can be attributed to one project, he said, which was a participation loan for the construction of a hotel. “We’ve always had a small book of business (in commercial real estate loans) relative to our overall book of business, but it’s not anything we’re going after aggressively,” Jackson said.
As for 2014, bankers’ expectations for loan growth are mixed.
Penner said it’s not yet clear to him.
“I think it all depends on what happens with the larger economy,” he said.
Midland’s Lang said he’s starting to see more of his commercial customers using their lines of credit.
Fidelity’s Nelson said his bank has “had a good first quarter. We’re forecasting (commercial loan) production for ’14 to be slightly above ’13.”
And Rose Hill’s Kepley hopes his commercial lending team’s work in 2013 will be bested in 2014.
“Hopefully this is just the beginning of where we want to continue to head,” he said.