When Duchesne Academy began its $10 million renovation and construction project, the economy in Omaha and the Midlands was fine. There hadn't been a near financial meltdown, people hadn't lost jobs en masse and many businesses were normally borrowing money and investing in new equipment and facilities.
But by mid-2008, when the final portion of the private school's construction — including the addition of a new auditorium entrance and lobby — was set to begin, the Great Recession had set in. School leaders delayed the project.
In early 2011, the all-girls Catholic school finally approached its donors and was approved for a roughly $2 million commercial loan by Omaha State Bank. The construction work is expected to be completed in November.
Midlands bankers are reporting a mix — some see rising activity while others say demand is flat when it comes to commercial lending. Several reported that business managers remain wary and uncertain of the global and domestic economic climate. Additionally, rather than taking out new loans, many businesses are opting to refinance existing debt because of low interest rates.
“The lockup you hear about in corporate America, we're not immune to that in Omaha,” said Charlie Boone, Omaha State Bank's senior vice president in charge of commercial banking. “There's a degree of paralysis there because of what's going on in Washington. Business owners aren't pulling out their checkbooks to invest.”
Still, Omaha State Bank also recently financed the $15 million Victory Apartments redevelopment of six stories into veterans affairs housing and office space at 819 Dorcas St., and $6.5 million for Omaha Steel Casting's new facility in Wahoo, Neb., which the bank worked with the company on for nearly four years.
“There are commercial businesses that don't have any issues and are starting to expand very conservatively,” Boone said. “These are big projects. We'd love to do 10 more of these.”
The bankers interviewed remain mostly positive that loan activity will fully rebound once there is more clarity surrounding the results of the November presidential election and the fate of soon-to-expire tax cuts and looming health care changes.
According to bankers and economists, commercial banks in Nebraska and Iowa are eager and have the capital resources to lend and are working hard to seek out deals and projects.
Through 2012, American National Bank, which has 32 offices in Nebraska and Iowa, has seen more activity and higher loan volumes compared to a year ago. The growth, said Steve Ritzman, president and CEO,has been bolstered by “robust” commericial and industrial lending, which includes financing for new equipment, working capital and other expenditures.
Over the last year, C&I loans have increased twice as much as American National's real estate portfolio, Ritzman said, which has been paced primarily by refinancing deals.
“Our pipeline of prospects and new business is really pretty strong over the next nine months,” Ritzman said. “Beyond that, we're going to continue to see interest rates at a low level, so businesses will still consider refinancing.”
At Mutual of Omaha Bank, launched in 2007, growth has slowed considerably. During its first four years, the bank saw its loan portfolio grow by between 20 percent and 25 percent annually, said Mike Homa, Mutual of Omaha Bank's state president for Nebraska. This year, that growth has been closer to 8 percent to 10 percent.
“Demand is ... it's pretty flat right now,” Homa said. “We're really not seeing the demand from the business community for loans like even when we were deep into the recession.”
In Omaha, Kansas City, Mo.-based UMB Bank has experienced steady growth, especially in the C&I loans that account for the majority of the loans it writes, said Joel Falk, president of the bank's Omaha branch.
The bank is adding bankers and advisers and is “very optimistic” about its Omaha customer base — primarily manufacturers and medical and health firms — adding to its loan volumes in coming years, Falk said.
At Omaha-based First National Bank, there has been a “measured, but steady” increase in lending, said Steven Knapp, senior vice president of First National's corporate lending and global banking group. The bank, which expects year-over-year growth of between 2 percent and 4 percent this year, has seen larger increases among agribusiness customers than commercial real estate or C&I lending, Knapp said.
The good news, he said, is that “it's not going backward.”
According to data from the Federal Deposit Insurance Corporation, the dollar value of commercial real estate and commercial and industrial loans held by banks in Nebraska and Iowa are on a steady, positive path but are growing at a slower rate than the nationwide figures over the last year.
As of June, commercial banks in Nebraska reported having $33.9 billion in business loans on their books, which was 4.3 percent higher than a year ago, and 40.6 percent higher than before the recession in June 2007. Iowa banks held $39.3 billion in commercial loans, an increase of roughly 2 percent from last year and about 11 percent compared to 2007.
Those figures illustrate a willingness from at least some Midlands businesses to expand their operations and add jobs, especially industrial firms in manufacturing and warehousing, said Tyler Case, an associate economist for Moody's Analytics.
Nationally, commercial banks loans increased 4.7 percent from June 2011 to June 2012, and are up 9.3 percent since 2007.
“At least it's growth,” said Michael Dahir, chairman and CEO of Omaha State Bank, which is known as an aggressive commercial lender. The bank in April agreed to an order and monitoring by federal regulators but expects the order to be lifted this fall.
Another measure by the FDIC, the percentage of banks' commercial loans versus their total assets, shows that business loan growth has declined in Nebraska from 2010 to 2012, falling from 70 percent of total assets to 65 percent.
In Iowa, the commercial loan ratio began to fall in 2007, near the start of the Great Recession. Over that span, the percentage of business loans held at Iowa commercial banks fell from about 70 percent of total assets to just over 61 percent in June, according to the FDIC data.
Case said those figures illustrate both the good and bad of commercial lending. Loans can come off of a bank's books for good or bad reasons — a payoff or a default, for example — but the FDIC figures do show that loan volumes have not rebounded fully.
“If you're looking from 2008 to current time, you're really looking at a big recession, where nobody wants to make or take loans,” Case said. “And then you have a recovery that's been anemic, with pretty tight (lending) standards compared to past recoveries.”
Historically, after major recessions, banks have been able to ease their lending standards to accept more risky deals in order to boost their profits and spur economic growth.
But because of the financial crisis and resulting tighter regulations and capital requirements on banks, even small and regional banks aren't changing their standards for determining who is creditworthy.
“For most banks in Nebraska, underwriting didn't soften before the crisis and it hasn't gotten harder,” said Clark Lehr, Nebraska Bankers Association chairman and president and CEO of First Nebraska Bank in Columbus.
The decision to take a conservative approach appears, for now, to have been the right decision for Duchesne, said Sheila Haggas, who has served as head of school since 1995. Despite the delay, the school is set to host an alumni conference for graduates of all Sacred Heart schools — a network of independent Catholic schools — in April 2013, after all of its construction and renovations are complete.
“When we looked at the calendar, we said, ‘let's jump in and try to do this.'” Haggas said. “Being able to borrow the money made it possible.”
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