Phil Bond: Commercial loan market thriving despite uncertain economy

F&M Bank’s chief credit officer offers insight into the current state of commercial lending

Q: Describe the commercial lending landscape for the first half of 2022.
A. The demand for commercial loans has increased. Businesses that closed during the pandemic were able to rebound last year, leading to the highest number of new business applications ever filed in 2021, according to the Census Bureau. Commercial real estate loans, construction and land development loans, and apartment loans also increased year over year. I expect in the second half of 2022 commercial lending will stabilize.

Q: What was the impact of the Federal Reserve’s 0.75% rate hike, the biggest increase we’ve seen in nearly 30 years?

A. The short answer: it’s more expensive to borrow money; however, it is much more complicated than that. CRE owners selling or refinancing properties are experiencing the highest valuations ever. Despite recession fears, homeowners still have maturing loans and are considering cashing out their properties while values ​​are still high. Many believe that in the event of a recession, rates will have to fall again, so they opt for shorter-term fixed rates which are relatively attractive.

Q: Are there any new trends for commercial real estate?

A. A trend we have seen recently is an increase in buying transactions through 1031 exchanges. Landlords are being offered record prices by large institutional buyers, including real estate funds seeking commercial space (eg retail, distribution, etc.). Sellers jump at these opportunities but then have to find another property due to the tax implications of the initial sale. F&M relationship managers are skilled in developing tailored cash flows and structures for 1031 exchanges.

A. Supply chain issues continue to affect build-from-scratch developers and landlords looking to make tenant improvements. However, this should correct itself over time.

Q: Does F&M Bank still lend?

A: Yes, our relationship managers are busy processing business loan applications. Unlike other banks whose pricing is tied to the 10-year Treasury note, F&M tailors its pricing to the overall relationship, which tends to be better priced in a rising rate environment. Except in rare cases, we do not sell or participate in our commercial loans in the secondary market. When a commercial loan customer enters into a relationship with F&M, we’re in it for the long haul. F&M always lends and is ready to get creative.


Phil Bond, executive vice president and chief credit officer at Farmers & Merchants Bank, a 115-year-old regional bank based in Long Beach. For more information, visit All loans are subject to co-credit approval. • NMLS #537388 • FDIC Member

Priscilla C. Carnegie