Is commercial lending back in Orange County?
David Ritchie of San Francisco-based Wells Fargo & Co. is ready to herald a return.
Kevin Dunigan, the OC regional manager for Los Angeles-based City National Bank, is more qualified. He says business lending isn’t back to pre-recession levels but is rising.
Costa Mesa-based Pacific Mercantile Bank Chief Executive Ray Dellerba, who runs the county’s largest homegrown bank, calls the lending landscape sporadic at best.
The range of views is part of the lending story here.
Many banks feel good enough about the overall economy and local prospects to open the spigot on business loans—but caution lingers in the wake of the recent recession.
The latest loan figures point to a comeback. Several bigger banks, in terms of operations here, saw local lending in the last quarter reach levels on par with late 2007, the last pre-recession benchmark.
Bank of America Corp. “is definitely expecting an uptick in credit funding this year,” said Craig Hirson, a market executive in the Costa Mesa office of BofA’s Orange County business banking division.
The Charlotte, N.C.-based bank sees local business lending up 10% in January from a year earlier, Hirson said. Also expected: a 40% jump in local credit lines in the current quarter from a year ago.
“This increase is being driven by demand, rates inching up, and owners reinvesting dollars into the business such as new equipment purchases,” Hirson said.
The anticipated hike in business lending is a clear switch for BofA, which recorded $194.8 billion nationally in commercial loans in the December quarter, down 2% from the prior period.
That marked the eighth-straight quarter of bankwide declines in commercial lending “as a result of charge-offs and lack of demand,” according to the bank.
The return to increased lending in Orange County has been helped by BofA’s 2009 acquisition of New York-based Merrill Lynch & Co.
BofA’s financial advisory arm now manages more than $25 billion in local money, believed to be tops in the industry here. The unit has helped crossmarket clients to the bank’s commercial side.
Wells Fargo also is seeing commercial lending show signs of a comeback. The bank topped $317.9 billion in commercial loans nationwide in the fourth quarter. That trailed the year-earlier total but was a 10% gain from the prior quarter.
“We have to show a willingness to lend,” said Ritchie, who heads up Wells’ commercial banking for Orange County and north San Diego.
Ritchie said several OC industries—building materials and medical device makers, among them—are spurring loan demand as business improves. That’s a marked difference from the last couple of years, when many companies held off on hiring and expansion plans to focus on paying down debt.
“Companies are starting to hire people and improve the top line,” Ritchie said.
Wells also is eyeing the local technology sector for borrowers. The bank expanded its technology group from the Bay Area to Southern California four years ago, and continues to target OC’s cast of emerging companies.
“There’s not many banks that play into pre-profit venture-backed (companies),” said Tim Sandel, senior vice president for Wells’ Southern California Technology Group in Irvine.
Steady gains also can be seen at City National, which has increased commercial loans for three consecutive quarters. The December quarter saw lending top $4.5 billion, up 3.2% from the prior quarter. That was down about 4% from a year earlier but more than 18% ahead of 2007, just before the onset of the recession.
Dunigan said recent gains have come as more prospective loan customers have become better risks.
“There was just so much uncertainty during the downturn. Many businesses just didn’t feel comfortable leveraging themselves anymore,” he said.
Small Business Boost
Small Business Administration funding has been a big boost at City National, which doubled small business lending in 2010.
“We’re starting to see a lot of the smaller companies that maybe weren’t treated as well by their bank in the downturn,” Dunigan said. “Small business is one of the sectors that will come back the quickest.”
Consults Group International in Tustin took its business to City National last year, securing a $500,000 line of credit and transferring a mortgage loan.
Consults Group is a global outsourcing firm that provides marketing and printing services for businesses in the U.S. and elsewhere. Clients have included Nissan Motor Co., Sprint Nextel Corp. and its Ir-vine-based prepaid unit Boost Worldwide Inc.
The loan helped the company’s cash flow and gave it room to extend credit lines to customers.
“We’ve expanded ever since we had that line of credit,” Chief Executive Goody Takashima said.
New York-based JPMorgan Chase & Co. in 2010 posted a record year in commercial banking, which accounted for $530 million in net income.
Chase has been stepping up operations here since entering California with its 2008 acquisition of Washington Mutual Inc.
The bank has hired more than 250 business bankers in California in the past year and plans to continue its push for growth as the economy recovers.
“This year we’re continuing to expand, and a lot of that has to do with demand,” said Brenda Ervine, a Chase area manager for business banking in OC.
Ervine said improvements in the local economy have set the stage.
“Companies are getting smarter,” she said. “They’ve even looked internally on how to save money and the economy seems to be improving.”
Minneapolis-based US Bank’s local business banking group grew loans by 22% last year.
Bill Cave, US Bank’s market president for Orange County, said loan growth has come across the board with existing customers.
“In the last quarter we’ve seen an uptick of core clients beginning to utilize their lines to some degree,” he said. “We are seeing some signs of movement—not great, but some signs.”
US Bank has expanded here following some sizable acquisitions in Southern California. US Bank acquired the assets of Los Angeles-based California National Bank in 2009. California National had $7.8 billion in assets and 10 of its 30 branches were local.
Cautious on Construction
At Pacific Mercantile, which traditionally has targeted real estate developers and construction companies, Dellerba offers a bit of bearish caution.
Loan demand still is down and only a few sectors are growing fast enough to warrant bigger or new lines of credit, he said, citing technology-related companies and the medical device industry as standouts.
“You don’t see the office industry in big demand,” said Dellerba, who’s guiding Pacific Mercantile through regulatory scrutiny. “There’s really no construction. Housing starts are way down. We don’t see our commercial lines expanding, but the companies we’re banking with are coming back pretty strong.”
