Regional Banks Are Safe. (Just Ask One).
Marketing doesn’t operate in a vacuum. We take a comprehensive approach to supporting our clients that includes researching and monitoring the wider realities of doing business. Commercial banking is critical to sustained growth in any industry, with regional banks financing small and mid-sized business developments across the country.
In the wake of three regional bank failures last spring and months of questions about the state of commercial lending, we reached out to Jeff Socia, Vice President of Commercial Lending at First Community Bank, to get an inside look at commercial lending.
Our B2B Marketing aficionado, Cody Sovis, threw a lot at Jeff in our interview, ranging from the accelerated trend toward bank consolidation, changes in commercial lending standards and the values behind relationship-based lending.
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The State of Commercial Lending Right Now
Jeff’s responses have been lightly edited for brevity.
Tell us a bit about what you do. What’s your role, and what kind of companies do you work with?
My title is VP of Commercial Lending. At the end of the day, we marry business owners and investors with the funds needed to invest in their businesses. Whether it be a line of credit for working capital or a loan to purchase investment real estate or maybe someone needs new equipment to expand their business, we evaluate each project and provide relationship-based lending to local and regional businesses.
First Republic. Signature Bank. Silicon Valley Bank. Were those failures symptoms of a bigger disease in the banking world, or were they just institutions that made bad bets?
The latter. Without getting too technical, they invested in long-term US Treasuries. When rates started trending up, the values of those investments fell. That left banks like SVB and others with millions of dollars of unrealized losses. That is not an investment strategy that our bank has.
How could those banks have avoided being stuck with so much bond exposure?
Government bonds are relatively safe investments, but weighting a balance sheet that heavily carries certain risks. With the Fed having raised interest rates for 15 consecutive months, the cost of borrowing went from near-zero rates to the highest mark in decades.
How are regional banks different from the giants? Do they serve different-sized businesses?
We do. I’m not going to finance Amazon’s next project, but what I am going to do is help what most people consider your local business. That isn’t to say local businesses can’t and won’t become the next Amazon.
I have to ask, but you don’t have to answer. Did you guys see deposits walk out the door this year? If so, what were those customers’ concerns?
We didn’t. At the end of the day, we saw our deposits slowly grow. For the most part, it is about customer education. There are ways to keep your deposits safe above the FDIC limit that most people are familiar with.
Has your organization changed its commercial lending standards over the past six months? Twelve months?
We have always been a relationship-based lender. That has not changed. That means that we evaluate every project and client and make decisions based on realities, not some proprietary formula.
What are you looking at when an entrepreneur or an existing small business owner walks in?
An old adage in lending is that you are looking at the five Cs: Character. Capacity, or ability to repay. Collateral. Capital. Conditions, or what do they plan on doing with the money. That hasn’t changed, and we’ve found that businesses that check all these boxes are sound investments for our bank and contribute a lot to the community.
What should prospective franchise owners/operators know?
Make sure you do your homework on the franchise/business you choose. Do you agree with the business model? Do you think you can bring something to the table in the market that you want to serve? Is there a need for that type of business?
In 1950, there were 13,336 FDIC banks (including S&Ls). There are 4,135 banks in the US. What do small businesses and their communities lose as the industry is more and more consolidated?
Choice. Options. There are still plenty of banks, especially in our market, which will fit a client’s needs.
Two banks (JPMorgan Chase and BoA) hold 26% of all US banking assets. The top 13 biggest banks hold 60%. What does that say about the industry? What do you think that means for a bank like yours?
We have an opportunity to cut a niche that the big banks don’t serve. We’ve seen time and time again that size and scale aren’t always guarantees of success or business smarts, and it may mean those national banks are less likely to put their clients first.
Let’s talk tech. How has your bank moved to provide digital tools to make mobile/online banking more accessible for customers?
We are very proud of our technology. Our app is second to none and it’s something we’re constantly evaluating and improving. If you like to do your banking this way, give us a shot; you won’t be disappointed.
Ten years ago, 39% of Americans had access to online banking. Today, it’s 66%. How has that changed the way you work? (Anecdote: As a young college student in 2013, I switched from a local credit union to Chase specifically because Chase had an app.)
Back then, it was only the large institutions that could functionally provide services like that for the average customer. Like anything else, the advancement in technology has made it accessible for banks, like ours, to offer those services. Like I said, check out our app. You’ll want to make that switch. Because now, not only will we have what you are looking for, as far as technology is concerned, but you also have the ability to “know” your local lender personally. Maybe even ride bikes with him. (Editor’s note: Jeff and Cody have ridden bikes together for nearly a decade.)
I have to ask about REITs. Commercial real estate is having a lot of trouble – have you noticed a change in what sort of loans customers are looking for? Is property ownership still a part of business plans? Here in northern Michigan, for example, there are lots of listings of non-housing commercial developments.
The commercial real estate market is still very strong in our market. There are definitely markets nationwide that can’t say that, but we still have an active market in northern Michigan. It’s just different than it was last year or five years ago. That’s likely due to a combination of remote work and interest rates, along with changes in development opportunities thanks to rezoning or economic forecasting in the region.
What does a 5-5.25% Fed funds rate mean to your bank? To your customers?
Higher interest rates on money being borrowed; it costs more to borrow money, which can and should influence business decision making. But on the flip side, it does mean higher interest rates on deposits, and that’s something more businesses are leveraging.
How long do you see the Fed funds rate over, say, 4%?
That’s well above my pay grade!
What should business owners know about financing right now? What’s your number one piece of advice to anyone looking to work with a bank in the next six months?
Your local banker is your friend. Our goals are the same as yours. We want you to succeed with your investment. We don’t want to work with you on this one transaction. We want to work with you long-term as you grow. If your lender isn’t asking what your next step is or what your long-term goals are, find a new lender.
Marketing Services You Can Bank On
Oneupweb has helped regional and local banks grow with digital marketing services for over 25 years. Our fully integrated team leverages experience and creative strategies to introduce customers to new financial products. See what effective marketing can do for your organization. Get in touch today or call 231-922-9977 to get started!
First Community Bank is a Michigan-based bank with locations in Traverse City, Cheboygan, Petoskey and Grand Rapids. This interview is not meant as financial advice. If you have questions about commercial lending, contact First Community Bank.
