Local bankers bullish on Chattanooga market in 2017

Local bankers bullish on Chattanooga market in 2017

Despite uptick in rates, loan demand remains strong

April 4th, 2017 by Dave Flessner in Business Around the Region
Photographed in his office in downtown Chattanooga, Jim Vaughn is Chattanooga market president and leader of the commercial banking team at SunTrust.

Photographed in his office in downtown Chattanooga, Jim...

Photo by John Rawlston /Times Free Press.

Miller Welborn (CQ), general partner of the Chattanooga Renaissance Fund, is photographed at Lamp Post in the Loveman's building in downtown Chattanooga.

Miller Welborn (CQ), general partner of the Chattanooga...

Photo by John Rawlston /Times Free Press.

Despite an uptick in borrowing rates, most local business owners appear optimistic about 2017 and are looking for ways to boost their revenues amid a growing economy.

Chattanooga bankers said business loan demand is continuing to grow, even though Federal Reserve data released last month showed a slowdown in lending in many U.S. markets.

The annual business pulse survey by SunTrust Banks showed 75 percent of small and middle market companies in the Southeast (those with revenues from $2 million to $150 million) rated their business outlook as strong and more than a third of respondents plan to introduce a new product or service this year.

"In Chattanooga, we are mirroring those trends and we're very bullish on 2017 for both small and middle markets," said Jim Vaughn, market president for SunTrust Bank in Chattanooga. "There's definitely an uptick in tourism and hospitality as well as an influx of activity downtown in Chattanooga."

Decision-makers representing more than 500 small and mid-size businesses participated in the SunTrust business survey last month, and most said they are able to secure capital for business startup and expansions.

"This year, business leaders are feeling very prepared to take advantage of growth opportunities," said Allison Dukes, the commercial and business banking executive at SunTrust. "Three out of four (of the business respondents in the SunTrust survey) have a goal-setting process linked to long-term growth strategies and are comfortable that they will achieve their goals."

Over the past four years, most businesses in the small- and mid-sized markets have taken incremental steps toward growing their companies, including more hiring, business mergers and steps to improve cash flow. With the prospect of fewer regulations and a drop in tax rates for small- and mid-sized businesses, Vaughn said more businesses are looking to expand operations this year.

Although economic growth is far below the usual pace in post World War II recoveries in Chattanooga, the economy continues to expand, albeit at a more timid pace, for one of the longest economic growth periods ever in the United States. Chattanooga's jobless rate remains above tbe U.S. average, but that is due primarily to the influx of workers coming into the labor market after the end of the 2009-2010 recession.

"Business owners are starting to take off the shelf some of the new products and expansion ideas that they have had in the past and are now moving ahead with them," said Miller Welborn, chairman of SmartBank in Chattanooga. "The election and lead up to the election last year may have caused some people to wait to see the outcome, but we see a real optimism from most of our clients about this year."

The Federal Reserve Bank has raised interest rates twice in the past six months and has signaled its intent to make further rate hikes this year.

But Doug Williams, CEO of Atlantic Capital Bank, doesn't expect such rate hikes will reverse what is now one of the longest economic recoveries.

"The economy is very resilient and the Federal Reserve has recognized that with successive rate increases in each of the past two quarters for the first time in over eight years," Williams said. "I think the economy is expanding at a moderate pace and is likely to continue at that pace for the foreseeable future.

"We're seeing loan demand grow and I think the economy can easily absorb this modest interest rate increases," Williams said.

Chattanooga is projected to grow faster in economic and population rates than the U.S. as a whole, Williams said.

Business owners are buoyed by the prospects of lower taxes, less government regulation and more stimulus spending. Although Washington, D.C., may not deliver on all of Trump's promises, just limiting the growth in new regulations and taxes is giving more optimism to many business owners.

Kenny Dyer, head of commercial lending for Pinnacle Bank (formerly CapitalMark) said Chattanooga has been aided by big business growth from companies like Volkswagen and Wacker Chemie, which have invested more than $4 billion in Southeast Tennessee in the past decade. But the region is also benefiting by small business growth in the new downtown Innovation District and in the growing tourism industry.

"We've been very active in commercial real estate financing in Chattanooga and outlying areas and we love to see the growth that is going on," Dyer said.

Chattanooga is becoming a more urban town with more people living and working downtown and more than $1 billion of new projects either completed, under construction or on the drawing board to add to Chattanooga's downtown skyline.

But as companies shift more workers to at-home positions or in open office environments, often built in former warehouses, demand for new commercial office space is limited. The shift toward online retailing and e-commerce is also cutting into the demand for new brick-and-mortar retail stores.

"Chattanooga has been fortunate in that we have not had the booms and the busts of other markets," Dyer said. "But with the current boom of new apartment, hotel and other projects planned downtown, we may see a bit of a pause in so many new projects being announced in the future, at least until we see how many of the current projects actually get completed and leased."

The River City Co., the downtown development agency in Chattanooga, said downtown Chattanooga has either completed, started or announced plans for $1 billion in new central city projects in the past three years, including 2,649 apartment units, 274 townhomes or condos, 1,461 student beds for college students and 698,035 square feet of commercial space.

Bankers insist they are not returning to the pre-recession ways of freely lending to so many borrowers for many residential and business projects. More equity and collateral is required and credit ratings for borrowers must be better than in the past.

"Even though we've had some nice growth in Chattanooga, we're not Nashville or Atlanta (two of the faster growing markets in the U.S.)," Dyer said. "But we are positioned to grow in the future."

Already, Chattanooga's biggest bank, First Tennessee, has boosted its size and profits to record highs.

In the past year, First Tennessee has increased its local profits by 23 percent, expanded commercial loans by 14 percent, and added 13 percent more deposits. Such gains have come while four local banks changed names after merging with other regional banking firms (Pinnacle, Atlantic Capital, FirstBank and SmartBank) and at least one other bank, Reliant of Nashville, said it will soon enter the Chattanooga market, which already has 27 commercial banks.

"We enjoy a robust relationship with Chattanooga that has been built over the last 41 years (since First Tennessee took over the failed Hamilton National Bank in 1976)," said Jeff Jackson, who just completed his first year as market president of First Tennessee in Chattanooga. "We know that other financial institutions will come into Chattanooga, but we also know our customers and they know us."

Contact Dave Flessner at dflessner@timesfreepress.com or at 423-757-6340.