Some industries anticipate changes in business regulations as a result of the November elections and President Donald Trump’s promises of changes that could help spur business activity. The Business Journal asked some locally based bankers which Orange County sectors they think could bring increased demand for loans and banking services this year.
Edited excerpts of their responses follow.
Ben Alvarado
Southern California Regional President
Wells Fargo Bank
Over the past few years, Orange County has shown solid economic growth, slowly but steadily emerging from the recession. Currently, with the election behind us, we are seeing confidence like we haven’t seen in years. Consumer and business confidence is higher than before the recession. On top of that, the Dow Jones broke its record at the 20,000 mark. With an administration promised to focus on the economy with lower business regulations and taxes, the United States, California and specifically Orange County is poised for a growth spurt.
In our last quarterly Wells Fargo Gallup Small Business Index, almost half, 44%, of small-business owners surveyed said they expect credit will be somewhat or very easy to obtain in the next 12 months. This number is up 37% from last summer. It represents the highest reading on this measure since 2008. Fourteen percent of small-business owners said they were planning on seeking credit, up slightly from 11% last summer.
This business and economic sentiment is consistent in the Orange County business community. Additional loans and business activity will continue in our region’s strongest sectors, which include professional technical services, education, healthcare, aerospace, research and development, leisure and hospitality. These sectors will lead business banking and will result in a vibrant loan portfolio across the banking industry. We are looking to see businesses leaders continue to express their confidence through the purchase of buildings, equipment and business loans. Although the trend for interest rates is increasing, they will remain low enough so that loan rates are still attractive to business leaders.
For the past several years, Wells Fargo has led both the middle market and small-business lending environment in Orange County. Wells Fargo’s Small Business Administration portfolio has been number one in loan value, and we are proud to say that we are now ranked number one in volume. Through new technology and loan products in the small-business market, we were able to open up very small and micro loans to small-business customers. The two products that have helped us with our growth are called the FastFlex and Advantage loans. We will have another small-business product rolling out this year that will help our customers achieve their small-business financial goals.
The outlook for 2017 is excellent, and I wish each of you in our vibrant business economy much prosperity this year and in the years to come.
Roger Ballard
Chief Executive
NuVision Federal Credit Union
NuVision has always had a solid member base in car and home loans, and that was a continuing trend in 2016. Our loan growth last year was over 13%. In general, most credit unions fared well.
NuVision saw an uptick in car loans and mortgages. That can be attributed to the stable nature of the job market in Orange County—under 4% unemployment, lower than the national average.
Our credit union has seen a rise in consumer confidence, and of course we hope that will continue throughout 2017.
Rocky Bandzeladze
Regional Manager, Senior Vice President
California Bank & Trust
We are seeing increased demand for credit from the manufacturing sector in Orange County. Most of the manufacturing companies we work with need working capital loans. This is good news, as it indicates these companies are now growing and forecasting further growth.
There is also considerable demand for credit to purchase new buildings. This was triggered in part by the perception that rates would increase in the near future and it would be beneficial to take advantage of the current low rate environment. Also, it is a good sign, as businesses are continuing to invest.
Equally important, we experienced a bigger demand than ever before for businesses looking for bankers who understand how to navigate through their current financial needs and who can become a strategic partner for their future growth and future financial needs. This is where our CB&T team truly shines in the market place. Our bankers can help a business with all business and personal financing needs from A to Z.
Richard Cabrera
EVP Corporate Banking
Umpqua Bank
At Umpqua Bank, we are seeing strong loan demand in the technology, hospitality, specialty finance and real estate-related industries.
Our traditional lending to manufacturers and distributors, whose financing needs include working capital and term financing for capital assets, has also increased due to growth in the regional economy.
Orange County’s workforce is highly educated, skilled and innovative and attracts both executives and entrepreneurs. The mix of large corporates and smaller privately owned businesses that provide support has created balance in the local economy that creates a foundation for future growth, as well as stability.
David DePillo
President
First Foundation Bank
There is continued strong demand in the residential mortgage market, especially jumbo and super jumbo housing, even in light of rising interest rates as the market continues to show appreciation and strengthening, and demand is at its all-time high.
Commercial and small-business lending demand has shown steady improvement and continues to show positive credit fundamentals, although it is and continues to be in a hyper-competitive environment.
We continue to see strong demand for multifamily housing in all areas of Orange County, especially North County, where the densest populations are. Our expectation is that multifamily lending will continue to remain consistent with prior periods, even in light of recent increases in interest rates.
Steve Gardner
Chairman, Chief Executive
Pacific Premier Bank
Our increase in activity is not isolated to OC, it’s throughout our markets. We have seen some small and middle-market clients requesting increases in their lines of credit, and new equipment financing pipelines rising as clients plan to expand their business in 2017. We’re also experiencing a greater demand from construction-related industries and businesses. Contractors across all business lines are seeing more volume and are looking for help to take on architectural and design work, interior furnishing, and other ancillary businesses specifically related to the growth in construction projects.
Dave Gunderson
Chief Executive
Credit Union of Southern California
Credit Union of Southern California saw strong loan growth of 17% last year. We believe this growth is due in part to our passion to build better lives. Our bottom line is to find a way, not get in the way. And with household debt as a percent of take-home pay at its lowest level since 2002, modest market rate increases, plus further labor market improvements and income gains, we expect 2017 loan demand to be strong.
Two areas we expect to see large growth in the coming year are in unsecured and auto lending.
Recently released data from the Bureau of Economic Analysis makes it clear: People have been holding onto their ‘stuff’ longer than in the past. The average age of consumer durable goods now sits just a tick under post-World War II highs.
Durable goods tend to be big-ticket items, such as cars, appliances, furniture, household fixtures, carpeting, and video/audio equipment, including personal computers. Because durable goods are pricey, they tend to be purchased on credit.
According to the U.S. Department of Transportation, the average age of cars and light trucks will hit 11.7 years in 2017, an all-time high. And with a large number of cars coming off lease in the coming year, we expect to see downward pressure on used-car prices. This will help more members afford used autos.
Jeff Harper
Chief Lending Officer
Orange County’s Credit Union
There are several strong areas in loan demand we are expecting to see this year:
The first is equity loan demand. This is due to most consumers taking advantage of the low interest rate environment these last years by refinancing their first mortgage. Due to this, when consumers are seeking to take cash out of their home’s equity, they will not want to interrupt the payment savings they have gained on their low interest rate first mortgage. Instead, they will turn to a home equity loan product to access their equity.
The second is home purchase loan demand. For our 2016 mortgage production—purchase and refinance—the top five property locations financed were Anaheim, Santa Ana, Orange, Irvine, and Mission Viejo. Although interest rates have increased, rates from a historical perspective remain low. Consumers have again gained confidence in the housing market as they have seen housing prices rebound since the housing bubble of 2007. Due to this, home sales are forecasted to increase this year. The Mortgage Bankers Association’s December Mortgage Finance Forecast is showing a 10% increase in purchase mortgage originations this year over 2016.
There is still strong loan demand for commercial real estate loans and multifamily loans this year. For two reasons, Orange County’s Credit Union remains competitive with its commercial real estate and multifamily rates and terms. Second, CRE and multifamily loans mature every five to 10 years; 2017 will bring a massive influx of maturing loans to the market for a refinance. We will be trying to get our piece of the pie.
Finally, although we are expecting a gradual softening of the auto market, aging vehicles, advances in technology and safety features, and consumer concerns over rising rates will continue to drive demand for new autos this year.
