A healthier economy, a greater desire by businesses to take on debt and a renewed willingness by banks to approve loans are combining to drive up the volume of commercial and industrial lending by community banks in the central San Joaquin Valley.
For some of the region’s smaller banks, the pace of recovery since mid-2009 — dubbed by economists as the end of the Great Recession — has been explosive, with some institutions’ business-loan portfolios growing to more than 200% of what they were in 2009. For others, 2014 marked something of a turnaround as they and their commercial/industrial customers labor to regain their pre-recession economic vigor.
“I think it’s a combination of banks healing up and borrowers healing up,” said Lee Reed, executive vice president and chief credit officer at Fresno First Bank.
“As the economy has picked up, banks have opened up the credit spigot again and started lending more,” Reed added. “There’s a lot of pent-up demand from a lot of businesses” as they seek opportunities to expand.
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In 2009, Fresno First’s portfolio of commercial/industrial loans was about $18.8 million. By the end of 2013, it was $45.7 million, and the value had grown to more than $58.6 million by the end of last year — a whopping five-year increase of 211%. Loans backed by commercial and industrial real estate also were much higher last year than in 2009, growing from about $15.5 million to $56.2 million.
Reed credited participation in Small Business Administration loan-guarantee programs for a good chunk of his bank’s increased lending. Such federal guarantees act as a safety net for the bank. “It allows us to say, ‘Here’s a company that survived the recession,’ or ‘Here’s a company that’s just getting started,’ and help them early on, earlier than we otherwise would be able to,” he said.
At another Fresno-based bank, Premier Valley Bank, commercial lending was only 10.8% greater at the end of 2014 than it was in mid-2009. But 2014 provided a surge of more than $13 million — or 27% in a single year.
“Last year was more firm than 2013, and 2013 was a little better than 2012, and so on,” said Premier Valley president/CEO J. Mike McGowan. “We’re starting to recover a little more now — not as fast as some other parts of the state, but better.”
“Remember that things were really tough in 2009,” he added. “There just wasn’t a great willingness by businesses to take on debt. Borrowers weren’t borrowing, and those who used to be qualified (for loans) were no longer qualified” according to their battered balance sheets. Now, McGowan said, “we’re looking at the same borrower with the same assets, but the value of their assets is up now.”
Not only are businesses’ balance sheets regaining their appeal to bankers as the recovery continues to take hold, “there’s more confidence among businesses, too,” McGowan said. “They’re going ahead with expansion plans, or going ahead and buying a building or stocking up on inventory.”
At the Valley’s largest community bank, Porterville-based Bank of the Sierra, the commercial loan portfolio declined by about 25% between 2009 and 2013, falling to about $100 million. But as with the other banks, 2014 showed marked improvement, president/CEO Kevin McPhaill said.
“During the recession, there was a lot of pressure and stress on loan portfolios, and banks did a lot of culling” to get foreclosed properties off their books, McPhaill said. At the same time, a considerable number of would-be borrowers chose to use what cash they had to pay off loans rather than investing in a roller-coaster stock market.
In 2014, Bank of the Sierra’s commercial portfolio regained some ground, growing to $109.4 million. “We’d seen that some folks were pulling back, but now what you see is people coming back into the market to borrow. … They have more equity in their property and their cash flow is stronger, and a lot of them were sitting on the sidelines before,” McPhaill said. “Through the last half of 2014 and running into this year, things are looking better (and) we’re very optimistic.”