Tag Archives: Kevin Halloran

A Guide to Applying for a Bank Loan

Are Arizona banks lending?

Are they or aren’t they?

Banks can only stay in business by making loans, not turning away customers who want to borrow money. So why does the public believe that banks aren’t lending?

“The truth of the matter is that when things were really bad a few years ago, banks weren’t lending,” said Robert Sarver, CEO of Western Alliance Bancorporation. “The banking business, not unlike other businesses, tend to react and overreact and sometime we react too much when times are good and we lend too much money on too liberal terms, and when times are tough, we don’t lend enough money and are too conservative.”

Banks are a business — a unique kind of business — that is under significant pressure to make a profit like any other like any other business. A typical bank, in healthy years, should earn a return on assets (ROA) of 1.1 percent to 1.5 percent. That translates into an return on equity (ROE), because of leverage, of anywhere between 8 percent and 18 percent, similar to most other businesses.

A bank makes its money by investing deposits into either securities or loans, both of which earn a return. Typically, loans earn more than securities and both earn more than what banks pay out to depositors. Although loans earn more, they come with a credit loss rate that a securities portfolio generally does not have. In 2009, in the depths of the economic crisis, a typical bank had a loan loss rate of 1.73 percent on its loan portfolio, which ate into the profitability of the bank. So what does a bank to do when it incurs such high loss rates in its loan portfolio? It invests in fewer loans.

But that is changing. Banks have increased their lending for four of the last five quarters, but Federal Deposit Insurance Corporation (FDIC) acting chairman Martin Gruenberg, is still taking a ”wait and see if the trend toward increased lending can be sustained” approach.

“Banks are lending today, and most banks have excess liquidity that they would prefer to put out in loans,” said Keith Maio, president and Chief Executive Officer of National Bank of Arizona. “Those that feel that banks aren’t lending are likely those who have had their credit compromised in recent years. Loan demand is down from consumers and businesses particularly, since the recession. The recession has caused many personal borrowers to be more conservative in their approach to leverage. Businesses tend to increase borrowing when their revenues are increasing and they need to finance that growth.”

Sarver said that banks do want to lend, “but unfortunately there is a lot of regulation in our industry, which to a certain degree has stifled long-term growth because our capital requirements have almost doubled over the last five years, so that’s been another barrier to banks lending money.”

As an outgrowth of those regulatory changes, lending standards have tightened in certain consumer loan categories like mortgages, experts said. But while mortgage rules have changed, lending standards for business haven’t seen dramatic shifts.

“Commercial lending standards for owner-occupied real estate and commercial and industrial loans have not changed much,” said Kevin Sellers, executive vice president with First Fidelity Bank in Arizona. “For investment property loans, banks are requiring owners to maintain more equity capital in the properties and higher net operating income relative to the property debt service.”

According to Adam White, senior vice president of credit administration at Biltmore Bank of Arizona, bankers have always used the “Five C’s of Credit” to determine if a business is credit worthy.  Those included:
1. Cash flow – history of positive cash flows and probability of recurring
2. Collateral – adequate collateral support
3. Capital – adequate capital to support normal business operations
4. Conditions – what’s affecting the business
5. Character – who are the people behind the business

“In today’s environment, banks emphasize ALL five elements,” White said, “whereas in the past too much reliance may have been placed upon appreciating collateral values under unsustainable market conditions.”

Kevin Halloran, Arizona state president of Mutual of Omaha Bank, said that while there have been shifts in the requirements banks are setting for lending, he sees the industry taking steps toward normalcy.

“I believe lending standards have returned to the original norm,” he said. “In the early to mid-2000s, the banking industry required only limited borrower documentation relating to income and other basic information for residential loans. Now, the industry is requesting proper information to make sound decisions.”

On the business lending side of the equation, “lending standards over the past 10 months have loosened in both pricing and structure for both large and small companies,” Halloran said.

And while some banks have pulled back lending activity, it’s definitely not the case at many Arizona banks.

“Loans at our company have grown 8 percent this year and in discussions with my colleagues at other financial institutions in the Valley, they are experiencing similar results,” said Dave Ralston, chairman and CEO of Bank of Arizona. “Loans are the lifeblood of a bank and at Bank of Arizona. loan growth is our number one priority.  We are seeing increasing demand from credit-worthy consumers and businesses in the Valley.”

Halloran echoed Ralston’s observations.

“Over the past three years, we have completed more than $500 million in new loans in Arizona,” Halloran said. “That includes commercial loans and commercial real estate financing across multiple industries, as well as private banking loans and residential mortgages. Our local commercial banking group has provided local businesses with working capital, revolving lines of credit, equipment loans, owner-occupied loans and merger and acquisition loans. Our commercial real estate group has provided loans in industrial, multi-family, senior and student housing, charter schools and multiple other real estate segments. So we have been – and will continue to be – a very active lender.”

A positive result in the changes in lending banks have been forced to examine in the wake of the Recession is that bank have learned lessons that will create a stronger business model for the industry.

“Banks need to consistently monitor their concentrations in all lending sectors and understand they can only provide so much capital to any one industry,” Halloran said. “Arizona’s population grew so much over the past decade that it resulted in a substantial need for real estate lending. The concentration Arizona banks had in real estate negatively affected all Arizona banks.  In the future, I believe all banks will be better at managing their overall balance sheet risk as a percentage of capital.”

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Mutual of Omaha Buys Mortgages to Support Habitat Mission

A growing number of families in central Arizona now have access to affordable housing, thanks in part to a unique arrangement between Habitat for Humanity Central Arizona (HFHCAZ) and Mutual of Omaha Bank.

Mutual of Omaha Bank recently purchased more than two dozen non-interest bearing mortgages originated by Habitat for Humanity, totaling approximately $740,000. HFHCAZ has been able to immediately use the funds as capital, investing the money to help further its mission to build, renovate and repair affordable homes in partnership with families in need.

In total, Mutual of Omaha Bank has purchased nearly 250 mortgages and contributed nearly $8.1 million in capital to HFHCAZ since 2009. HFHCAZ has used that funding to provide adequate shelter to more than 500 low income families throughout central Arizona. The nonprofit organization also has invested in new land, new developments, new Re-stores and new home repair programs.

“During one of the worst recessions in history, Habitat for Humanity Central Arizona has been able to grow and triple our volume, serving hundreds of families, thanks in large part to Mutual of Omaha Bank’s support,” said Roger Schwierjohn, president and CEO of HFHCAZ. “Surviving this economic downturn and housing crisis would’ve been even more challenging without access to this important capital. Today, Habitat for Humanity Central Arizona is a much stronger and more vibrant organization because of Mutual of Omaha Bank.”

As part of its mission to provide affordable housing for low income families, HFHCAZ works to keep costs low with volunteer labor and donated materials. Once a home is built, HFHCAZ then sells the home to the new owner by asking for a minimal down payment and offering a zero-interest mortgage.

By acquiring the mortgages, Mutual of Omaha Bank has provided HFHCAZ immediate access to capital, while ensuring the mortgages are serviced by a local nonprofit that specializes in mortgage lending.

“With Habitat’s significant presence in the Valley, we saw this as a great opportunity partner with a solid nonprofit organization who invests in the local community,” said Kevin Halloran, Arizona state president for Mutual of Omaha Bank. “We are well-positioned to support and service these mortgages and are proud to help such a great non-profit like Habitat.”

For more information about Habitat for Humanity Central Arizona, visit http://www.habitatcaz.org or contact Roger Schwierjohn at (623) 583-2417.