Swimming Against the Commercial Lending Tide

NJBIZ, Sep 1, 2008 by Daks, Martin C

NJBIZ: Has Provident Bank traditionally been heavily involved in the commercial lending market?

Blum: Historically, no. We've traditionally focused on the consumer segment.

NJBIZ: What prompted the expansion into the commercial segment?

Blum: We reviewed our strategic plan and decided to increase our presence in the commercial loan segment.

NJBIZ: Anecdotal evidence and Federal Reserve numbers suggest that many banks are retreating from commercial lending. Aren't you going against the conventional wisdom?

Blum: We've engaged in some commercial activity for about 10 years, but saw an opportunity to increase our activity because a lot of larger banks are pulling back. Many of them are doing so because of liquidity issues. But we never got involved in subprime loans and other high-risk activity. Instead, we kept to reasonable loan-tovalue ratios and stuck to conservative guidelines.

NJBIZ: Where are you getting your new commercial-loan customers from?

Blum: We're reaching some businesses through word-of-mouth or by networking. Some were with larger banks, but felt they were being ignored and decided to look for a responsive, locally based bank.

NJBIZ: As many banks cut back their commercial exposure, some business owners complain that their lines of credit have been curtailed or even eliminated. If a company meets your underwriting and other standards, can it get a line of credit and other services at your institution?

Blum: We offer a full array of financial products, including term loans, lines of credit and a full suite of payroll and other services.

NJBIZ: What about asset-based lending services?

Blum: Not at this time. We believe there's too much risk associated with that, especially in this environment.

NJBIZ: Banks make money primarily by making loans, so it generally makes sense for a financial institution to expand its lending capability. But are you concerned about falling into the same kind of liquidity crunch from bad loans that some other banks are now facing?

Blum: There is always some concern, but you balance that by maintaining prudent underwriting standards and by getting a higher yield. We extend commercial loans on a selective basis. For example, our focus is on the non-residential commercial segment. Also, while we may consider a loan for retail [construction], we would generally keep away from the office segment right now, because of the softness ofthat market. Each company has its own circumstances, which we consider while maintaining our conservative underwriting standards.

NJBIZ: Are you focusing on small business, large ones or both?

Blum: Our lending group has two components: business banking, which we define as a company that has up to $7.5 million in annual sales; and larger, middle-market companies, which have annual sales of up to $100 million. Each, of course, has different lending needs. And the larger companies typically require more sophisticated cash-management services.

NJBIZ: What kinds of cash-management services?

Blum: They include online services, account reconciliation, sweep accounts [at the end of each business day amounts that exceed a certain level are temporarily transferred into a money-market fund or other higher- interest earning investment] and payroll services.

NJBIZ: Who are your competitors?

Blum: Until about two years ago I would have said that just about everyone was a competitor. Now [with the pullback in lending among many institutions], I'd say it is mainly other community banks and some larger regional banks.

NJBIZ: You worked with a larger bank before joining Provident in December 2001. Why did you move to a community bank?

Blum: I saw more opportunity with Provident.

NJBIZ: As a publicly held company, do you face stockholder pressure to quickly hike earnings by relaxing lending standards?

Blum: All companies are under that kind of growth pressure, but we stayed the course. We've looked for consistent growth. And I think we've done it the right way.