Unlocking the Loan Puzzle – WSJ.com

ALBANY, N.Y.—Schuyler Tilly, a banker at First Niagara Financial Group, sits at a long office table and spreads out documents outlining the terms of a $1 million line of credit he just extended to local businessman John Stevens.

Jamie Goldenberg for the Wall Street Journal

Schuyler Tilly, a loan officer at First Niagara Financial Group, meets with vice president/relationship manager Jerilee Beaudoin in his office.



“I don’t think there are going to be any surprises here,” Mr. Tilly tells Mr. Stevens, who runs a wireless-engineering company.

The loan will replace Mr. Stevens’s existing relationship with Bank of America Corp. “The way that someone like me survives is by grabbing accounts from someone else,” says Mr. Tilly, who runs First Niagara’s small-business lending in the Albany region.

The fallout from the financial crisis has presented a puzzle. Banks say they want to lend but there is little loan demand. Borrowers say they can’t get one.

Mr. Tilly’s experiences provide a clue as to how both statements could be true. The pie of small-business lending is shrinking, but bankers such as Mr. Tilly are busy stealing other banks’ pieces of it, expanding their own loan portfolios. He and his team of four business bankers troll for customers of rivals such as Bank of America, of Charlotte, N.C., and KeyCorp, of Cleveland. Indeed, the line of credit extended to Mr. Stevens won’t increase the amount of money going to credit-starved small businesses because it previously belonged to another bank.

But, like most banks, Mr. Tilly has less luck getting new qualified customers with fresh loan requests. Healthy small businesses don’t want to take on new debt—the lack of demand banks that are talking about. Troubled small businesses are discovering that banks are too traumatized by risk to extend them credit—the dearth of lending piquing small businesses.

Small-business lending by U.S. banks—or loans of less than $1 million—fell 6.2% to $652.2 billion in 2010 from a year earlier, according to a February study by the U.S. Small Business Administration’s Office of Advocacy.

There is “very little to no organic growth in the portfolio,” says Mr. Tilly, a stocky Cincinnati native.


First Niagara, the 29th-largest U.S. bank, with $21 billion in assets and $13.1 billion in deposits, has money to lend. On Friday, the Buffalo, N.Y., bank completed its purchase of New Alliance Bancshares Inc., a Connecticut lender with $9 billion in assets and $5 billion in deposits. Not including New Alliance, First Niagara’s loan portfolio was $10.5 billion at the end of 2010, up more than 40% from a year ago. Of that, 14% are the type of small-business loans Mr. Tilly extends to customers.

The portfolio Mr. Tilly oversees rose to $155 million last year from $125 million in 2009—with most of the increase coming from clients of other banks. He hopes to add another $17 million in loans this year.

It won’t be easy. Though the Albany region’s unemployment rate of 7.8% is lower than the national rate of 8.8% and its housing market didn’t suffer a Florida-style boom and bust, the region’s business owners are bracing for tough times. State lawmakers have approved a budget that cuts spending about 2%, which will ripple through the capital district Mr. Tilly covers.

He hopes that a new semiconductor-making plant being built in nearby Malta and a planned battery plant in Schenectady will stimulate loan demand. When the economy rebounds, perhaps existing customers will ask for new loans. “We have brought in so many new customers that when the economy finally turns, we will get that organic growth,” he says.

Still, low-risk borrowers needing new loans now are few and far between. Over the course of two days, Mr. Tilly met with six clients, including the local head of Habitat for Humanity, a general contractor, the president of a packaging company and a maker of finishes for boats.

His questions to them are brief and focused: What is the client’s business outlook for the rest of the year? Are the financial reports up to date? Who audits the client’s books? He intercepts their answers with a steady stream of clipped acknowledgment. “Yep. OK. Right. All right. Nice,” he says.

Of the six clients, five were poached from other banks. Only one needs a new small-business loan. Real-estate investor Tom Julien, who already received a First Niagara loan for another project, wants new financing to purchase a rental building.

At a table in a musty café in downtown Albany, Mr. Tilly squints through a rain-spattered window to see the brick apartment building across the street that Mr. Julien wants to buy. “Are you at 100% [occupancy] in your other units?” he asks Mr. Julien, still eyeing the building.

“I rarely have rentals that are empty,” Mr. Julien says.

Over a cup of Turkish coffee, Mr. Tilly peppers his client with more questions and then walks with him to look at a brownstone Mr. Julien recently renovated with First Niagara financing.

“We love multifamily properties,” Mr. Tilly says, heading to his black Lexus sport-utility vehicle. “It’s probably our least-risky asset class.”

Good article.