VOLUME 31, NUMBER 49 WWW.RBJDAILY.COM MARCH 4, …

[Pages:2]VOLUME 31, NUMBER 49

WWW.

MARCH 4, 2016

Community bankers confident in lending market

Decline in unemployment and continued downtown development spur optimism

By SHEILA LIVADAS

Heartened by various economic indicators, Rochester-area bankers are optimistic about commercial lending's outlook in 2016. Some even expect to see growth across all market segments.

"I think things look pretty positive right now," says Philip Pecora, president and CEO of Genesee Regional Bank. "The economy--although not going gangbusters, it's fairly stable. ... Our clients are doing well in general, and they are making some investments, so we see that translating to our prospective clients as well."

Though commercial clients now have various capital sources to tap--including online lenders--local community banks are holding their own.

"I think a lot of the companies and small businesses out there realize and recognize that the community banks are really trying to work with them and work for them," says John Witkowski, president and CEO of the Albany-based Independent Bankers Association of New York State Inc.

Various signs point to area f inancial institutions doing well with commercial lending this year. Topping the list is the declining unemployment rate.

Rochester's jobless rate was 4.6 percent in December, down from 5.3 percent a year ago, not seasonally adjusted, according to the state Department of Labor. Privatesector jobs have increased by 5,600, or 1.2 percent, since December 2014.

Statewide, the seasonally adjusted unemployment rate fell to 4.8 percent in December, its lowest level since November 2007.

Real gross domestic product--a crucial indicator that triggers the lowering of the federal funds rate when GDP growth is stagnant or negative, making it more difficult for banks to acquire capital for loans--increased at an annual rate of 0.7 percent in the fourth quarter of 2015, ac-

Photo by Kimberly McKinzie

Gary Babbitt, executive vice president and chief lending officer at Canandaigua National Bank & Trust Co., says the bank expects to grow commercial outstandings by about 5 to 8 percent this year.

cording to an advance estimate from the U.S. Department of Commerce's Bureau of Economic Analysis.

Ongoing development downtown also is helping bankers feel confident about their commercial lending prospects. Rochester's selection as the headquarters site for the $600 million American Institute for Manufacturing Integrated Photonics and activity at high-tech incubators in the region bode well for loan activity beyond 2016, Pecora says.

The presidential election in November "may cause a little bit of a pause in terms of what people are doing," Pecora adds. "But ... (in) our specific economy in Rochester, there's a lot of positives going on."

Gary Babbitt, executive vice president and chief lending officer at Canandaigua National Bank & Trust Co., also expects local development to spark lending.

"Certainly, Midtown Tower, Chase Tow-

er, some of the other downtown projects-- and, of course, the Pinnacle North project on Canandaigua Lake--should all help with job creation and more activity for small businesses," he says.

"Our outlook for 2016 is quite positive," Babbitt adds. "We expect to grow our commercial outstandings by about 5 to 8 percent this year. That would be consistent with last year's 5 percent growth and also our 10-year average growth of around 6 percent."

CNB had just over $1.8 billion in its 2015 loan portfolio, 50 percent of which were commercial loans. The loan portfolio totaled $1.7 billion in 2014, with 50 percent in the commercial loan category.

While CNB does not plan to roll out any new services aimed at commercial clients this year, "we continually evaluate and tweak our delivery systems to make sure we're meeting the needs of both our large

Reprinted with permission of the Rochester Business Journal.

and small customers," Babbitt says. The bank also recently added staff to its business banking unit.

He adds: "I'd say the local market for quality commercial loans is extremely competitive. Rates remain low, banks that are competing for the business are all on sound financial footing, and we're seeing some new players entering the market as well."

Among other factors poised to shape the local commercial lending market is the proposed acquisition of First Niagara Financial Group Inc., the holding company for First Niagara Bank, by KeyCorp in a cash-and-stock transaction valued at close to $4.1 billion. The acquisition would make KeyCorp a leading bank in Upstate New York, with a strong market presence in Buffalo, Albany, Syracuse and Rochester.

Smaller lenders may wind up benefiting from the deal, Witkowski says.

"Obviously, there's going to be some overlap," he says. "There's going to be some branches that have to be spun off, which also gives an opportunity for some of the smaller community banks ... to expand their footprint."

Pecora agrees that the deal looks to be a boon for community banks.

"As banks get larger, their reach gets broader, and it's just more difficult for them to make lending decisions on the smaller

scale," he says. The deal, however, could be headed for

a roadblock, given Gov. Andrew Cuomo's request last month that federal officials block the proposed merger.

With more people leading a project-toproject work life in order to satisfy their interest in flexibility or to just make ends meet, Genesee Co-op Federal Credit Union is seeing steady demand for microloans.

"For a lot of our members, the economy is not great," says Melissa Marquez, CEO of Genesee Co-op FCU, adding that many of its borrowers both work full time and moonlight.

Typical business loan requests at the credit union tend to be under $25,000, with some as little as $5,000.

Partnering with the First Unitarian Church of Rochester has connected Genesee Co-op FCU with local entrepreneurs, and fundraising proceeds the church deposits at the credit union guarantee some of the microenterprise loans.

"The other part that is really important is (the church's congregants) will work with the entrepreneur through a mentorship program" on marketing, bookkeeping and other challenges microbusinesses face, Marquez says.

Slated to debut this year, mobile banking and remote deposit capture will help the credit union stay competitive in the

commercial lending arena, Marquez adds. Perhaps the credit union's most valuable

point of differentiation is its tradition of serving artists, which it has promoted by putting local artwork on its debit cards and hosting art exhibits.

"So we have a unique comfort level" with borrowers who have more than one income source, Marquez says.

Going hand-in-hand with the freelance economy is the emergence of online lenders. Atlanta-based Kabbage Inc., for instance, offers business lines of credit from $2,000 to $100,000 that small businesses can borrow against. Borrowers have six or 12 months to pay back the money--in monthly installments totaling one-sixth or one-twelfth, respectively, of the loan amount--and are responsible for a monthly fee ranging from 1.5 percent to 12 percent.

Last year, Forbes named Kabbage one of the nation's most promising companies. The startup has extended its reach to consumers through the launch of Karrot, an online platform offering personal loans up to $35,000, with 36- or 60-month terms.

Yet as of now, local banks seem unfazed by alternative lenders.

"A lot of the commercial customers realize, it's (about) relationships," Witkowski says.

Sheila Livadas is a Rochester-area freelance writer.

Reprinted with permission of the Rochester Business Journal.

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