Competition Drives Commercial Market

The recent slowdown in the Northwest Arkansas housing market hasn’t put the brakes on competition among the area’s lenders.
While many banks restrained or reduced their residential loans in 2006, construction and land development loans and commercial real estate loans trended upward in some cases dramatically across the board.
From startups like Legacy National Bank of Springdale to established leaders like Bentonville-based Arvest Bank Group Inc., commercial and construction loans were the preferred method of growth last year.
Refinancing commercial loans has slowed with no movement in rates since June 2006, but below prime loans and nonrecourse notes offered by national commercial investment banks like PNC, J.P. Morgan Chase, Countrywide and Lehman Brothers are becoming more prevalent in the area. For the first time since 1998, Arvest Bank’s residential lending declined year-over-year (down 0.2 percent) while its construction and land development loans jumped 40 percent. For the first time, Arvest’s commercial real estate portfolio was larger than its residential with 52 percent of its $4.54 billion in real estate loans in the commercial and CLD category.
ANB Financial NA of Bentonville increased its CLD loans 142 percent in 2006 while decreasing its residential loans by 6.3 percent.
Legacy increased CLD loans 185 percent, commercial real estate loans 131 percent and commercial and industrial loans 201 percent.
Regions Bank of Birmingham, Ala., with 12 offices in Northwest Arkansas, has made commercial lending the primary way to grow its loan portfolio, customer relationship manager and vice-president Trevor Dorsey said.
Regions is bundling investment, insurance and banking services under one roof, Dorsey said, following another market trend set by bigger banks.
“The market is getting so competitive,” he said. “You want to be able to serve all a customer’s needs.”
Minimizing risk sometimes takes a backseat when a bank is trying to grow, and speculative development deals are a double-edged sword. More established banks avoid putting all their eggs in CLD notes.
Below prime rate loans are attractive to banks willing — and able — to sacrifice some spread on the cost of their money.
The prime rate of 8.25 percent hasn’t moved since last summer, but banks like Regions, through its capital markets division, can offer rates as low as 6.75 percent to 7 percent on a commercial loan.
Arvest and Bank of America are also players in the below prime market with their sizable assets, but Eileen Jennings, a commercial loan officer for Arvest Bank-Fayetteville, said any bank could offer a below prime rate under the right circumstance.
“If you had someone come for a $1 million loan and made $200,000 to $300,000 in deposits, you can get more skinny on the rate,” she said. “But it’s hard to get aggressive if they’re not going to move deposits.”
One risk no local banks are taking yet is the nonrecourse loan, which allows a borrower to get funding without a personal guarantee. Similar to home mortgages bundled and sold to investors in the secondary market, nonrecourse loans are a good fit for income-producing properties like apartment complexes, strip malls and office space.
“They are able to offer incredibly cheap rates,” Jennings said. “But there are very stiff penalties and high application fees. They are not loans to go into lightly.”