VERNON AGUIRRE
Regional executive, Popular Community Bank, Anaheim
In the business banking area, we’re seeing the first-quarter cycle, in which there’s very little activity. But we’re gearing up for some serious borrowings for the second quarter. Just based on the conversations with our customers and tax documents, customers not only want to renew, but increase their lines of credit. We’re seeing that primarily in the manufacturing industry. More of our clients that are manufacturers discuss their credit needs with us. We’re excited about this because clearly it’s an area that creates jobs.
Regarding Small Business Administration programs, there is demand for them, but not quite as strong as it had been. It might be that people have a lot of cash and don’t necessarily have to take advantage of SBA programs, which require less capital. Companies have stored capital, and they have been in a position to not need the SBA. They’ve been preserving cash, not buying equipment and not hiring people.
Our bank has about $500 million in access capital, and we’re trying to put it to work as fast as we can. Financing gas stations is an area unique to our bank, and this has been one of the areas that have shown a lot of growth for us. The other area is multifamily apartment complexes. We’re seeing rent moving up, lower vacancies, and there’s a demand for construction for apartment complexes.
We also are in contact with the small, community banks across the country with capital issues. We’re buying loans from these banks, giving them liquidity.
What we continue to see in Orange County is a pickup in commercial real estate. We’ve set up a group to do nothing but commercial real estate, with a target to lend out $200 million. Most of the lending will be in Orange County, and some in Los Angeles and San Diego.
SCOTT CONNELLA
Executive vice president of Southern California commercial lending, Union Bank
I think there are more commercial borrowers that meet the banks’ lending criteria today than during the downturn. There are a couple of reasons.
First, in 2008-2009, many businesses experienced a decline in revenues, and at that point it was very difficult to forecast what was ahead. Today, most companies have reduced expenses to align with revenues and are coming off a couple years of profitability. The interest rate environment appears stable for at least the next couple of years, and business owners are beginning to invest again in the form of capital expenditures for plants and equipment. As a result of these positive trends, more borrowers qualify for financing.
Second, there are more lenders seeking commercial loans. Union Bank is very well capitalized, and as a result we were able to continue to lend throughout the downturn. At this point in the cycle, we are seeing many banks easing their underwriting standards as they return to the market and seek to regain market share.
This is evidenced by both an increase in average leverage ratios as well as pricing compression.
PATRICK DAVERN
Senior vice president, regional manager of Orange County, California Bank & Trust
We are seeing more demand from small businesses for working capital lines of credit to finance growth in accounts receivable as their businesses start to expand again.
Many of our business clients now are financing capital expenditures. In the downturn, many businesses delayed replacing equipment such as machinery and trucks. We are seeing an increased demand to retire older assets and replace with more efficient equipment.
Also, trade finance is in need, as many businesses in our area are exporting goods.
FRED HELMS
Senior vice president, division manager, U.S. Bank-Newport Beach
We have seen the local Orange County economy start to turn around. Companies have re-trenched and have increased their generation of profits. Whereas companies’ revenue growths have been modest, their cash flows have improved significantly. What is interesting is that companies that are generating more cash flow and increasing their liquidity are generally using it to pay down debt and de-lever themselves. Therefore, the demand for senior debt is actually declining slightly. At the same time, banks are healthier and, in general, wanting to lend more money. Therefore the supply and access to capital has improved. With the decline in demand and the increase in supply, we are experiencing a very competitive market for lending capital to companies. Rates and spreads are lower, but underwriting standards remain consistent. U.S. Bank in the last two years has grown significantly here in Orange County. We have over 1,000 employees in Orange County, up from a couple of hundred two years ago. U.S. Bank Commercial Banking’s loans outstanding have organically grown by over 30% in the last two years. Three years ago, U.S. Bank was the 16th largest bank in California; today we are fourth. The growth in market share has been fueled by adding one relationship at a time, building deep relationships with our clients and becoming their “trusted advisor,” helping them through the difficult times.
CRAIG HIRSON
Business banking executive for Orange County, Bank of America
Banks have had tough times for many different reasons over the last couple of years. We really focused in lending more into the business community. Bank of America has worked on streamlining our process so we can get capital out faster and get it into the right hands.
We worked hard in the fourth quarter to make sure we get ahead in 2012. We were talking to CPAs, attorneys, business owners, and a lot of them were optimistic. And it’s starting to show in the first quarter in the amount of new credit requests.
Of course, people are cautious, but clients who were capable and strong throughout the past three or four years are now looking at strategic plays, be it acquisition of small companies or entering new markets here and internationally.
When you start seeing those increases, there’s probably more demand from consumers. It’s been a nice growth in a soft economy.
Requests coming to us have been less about the credit quality or worthiness of our clients. It’s been more about their appetite to take on credit in expansion.
They are slightly less conservative and taking the chance for expansion, after a lot of wait-and-see in the past three years.
We feel that there’s been a shift in the decision maker’s mindset about where businesses are going in the next couple of years. As a result, we’ve seen increases in requests for credit, in commercial real estate, equipment and working capital needs.
Regarding Orange County business banking for this quarter, we had significant growth in new credit for the first quarter year over year. The last four or five years, we were doing commercial real estate-types of loans, but we’re seeing more of a mix of working capital and equipment now. We’re seeing more focus on day-to-day business now.
PAUL KAUFMAN
Chief executive officer, middle market banking, Chase Bank
While business owners have been cautious over the last couple of years, we have seen customers taking advantage of the low interest rate environment to bolster their business by purchasing long-term assets, such as equipment and real estate.
Through the tough economic cycle, Chase continued to lend. Small-business lending has grown year over year since 2009, up to $17 billion nationally in 2011, of which 28%, or $4.7 billion, was lent in California.
SCOTT KAVANAUGH
Chairman and chief executive officer, First Foundation Bank
As banks have continued to reduce problematic assets, small-business lending has grown. Competition has ramped significantly, while the qualified borrower pool remains smaller than it was prior to the economic downturn in 2008. Commercial-lending clients remain focused on cost cutting and profitability, and they are cautiously seeking growth. Although optimistic, our clients are still concerned about the global economic climate and high debt levels.
First Foundation remains committed to lending to the surrounding business community. Our client base has largely been manufacturing and business professionals such as doctors, certified public accountants, attorneys and real estate investors.
PAUL O’MARA
Regional vice president—Irvine, Wells Fargo
PATTY JUAREZ
Regional vice president—Anaheim, Wells Fargo
While there may have been some scrutiny towards bankers for not lending during the downturn, commercial banking has always been a core business for Wells Fargo, and we remained consistent in our lending practices throughout the cycle. Commercial-banking lending opportunities are better now than they were a year ago, and will hopefully be even better a year from now.
Middle-market companies cut costs through the downturn, and their balance sheets are strong. They are making money, and with their healthy balance sheets, are looking at mergers and acquisitions, and technology/capital investments into their businesses, which is driving loan demand.
We also are ready and able to do business with creditworthy companies that are looking for a new banking partner. The shift we’re seeing on the part of mid-sized companies toward a dependable banking relationship to see them through good and bad times is allowing Wells Fargo to acquire market share by building better relationships with prospective clients and existing customers. We are taking advantage of the dislocation in the market and stepping on the gas pedal to make additional good loans as competitors pull back.
