Candid Credit
Discussion Series - Part VII
Commercial and Industrial Lending Opportunities
Commercial and Industrial (C&I) loans are the staple product offered by many successful
business banking institutions, including Pacific Continental Bank. A C&I loan offers the
benefit of an open line of credit by which the borrower can draw up or down depending on
collateral availability and line constraints.
Executive Vice President and Chief Credit Officer Casey Hogan is well versed in the topic
of C&I lending and how it relates to Pacific Continental Bank. To gain some of his expert
knowledge, we asked Casey to answer the following questions.
Casey Hogan
Executive Vice President and
Chief Credit Officer
Pacific Continental Bank
We view
“good ideas”
and business
endeavors as
an essential
part of how
we work with
community
businesses.
What is the significance of Commercial and Industrial (C&I) lending to Pacific Continental
Bank?
CH: As a business bank, C&I loans make up a significant portion of our loan portfolio
(about 33%). This figure would be more if you include owner-occupied loans, but for
the purpose of this discussion we’ll stick with the hard figure, which represents loans to
individually-owned businesses, corporations, commercial enterprises or partnerships.
Pacific Continental invests significantly more in C&I lending than most banks in the
nation, as the national average portfolio for C&I lending is approximately 18%. This
is a good thing for borrowers who come to us with this need because we truly have the
expertise needed to offer C&I lending options to our clients – many of whom use these
loans for purchasing equipment, expanding their business, paying for operating expenses
of the business or for an acquisition.
Is now a good time to be a business that needs a C&I loan?
CH: Yes, it is a good time for businesses that need a C&I loan. This is because the banking
industry, as a whole, is looking to invest in commercial and industrial loans as an alternative
to commercial real estate loans, where demand has slowed down considerably through
this market correction. We are fortunate at Pacific Continental Bank because before the
real estate market declined, we were already heavily invested in C&I lending.
How does Pacific Continental view “good ideas” from a business owner? For example,
an established business owner decides they want to start a brand new business. Is Pacific
Continental looking at these opportunities?
CH: We definitely want businesses to come to us with their ideas. We view “good ideas”
and business endeavors as an essential part of how we work with community businesses.
We ask all business owners and organizations that come to us with a new business proposal
to make sure their credit history is viable, and also that the plan they are presenting is able
to be accomplished in a realistic manner and time frame. Unfortunately, not all ideas that
come through our doors will be approved. That said, we will look at each business that
comes to us with an open mind and willingness on our end to lend.
Candid Credit Discussion CONTINUED ON NEXT PAGE >
Candid Credit Discussion CONTINUED FROM FRONT PAGE >
Going forward in the next two to three years, what is Pacific Continental’s position
on C&I lending? Does a business have to have stellar credit? What about average
credit?
CH: We would like to see our C&I lending portfolio continue to grow in the
next few years. As far as credit score is concerned, the borrower needs to have
a willingness and ability to repay the loan that is backed up by their financial
reputation and business history.
However, if the history of sustainable cash flow has not been established at
the level needed to approve a loan, our bankers will do their best to provide
as many options as possible to help the business succeed in their loan request.
For example, utilizing the Small Business Administration (SBA) program or
obtaining an additional guarantor.
With the recent regulations and changes from the government over the past couple
of years, are there concerns about what government regulations may come next?
CH: Yes, we are paying close attention to the regulatory changes that are being
enacted as a part of the Dodd-Frank Act and other legislation, and we have
concerns about what these changes will entail.
The hardest part for any bank right now, but particularly community banks,
is not knowing what the regulatory changes will be and the potential impact to
the bank and our clients. We want to plan ahead, but until there is more clarity
on where and what regulations will change, we are essentially participating in a
guessing game.
There are some who have the impression that C&I lending carries a higher level of
risk than real estate and other secured loans. Is this true?
CH: In the last four years, due to the decline of the real estate market, C&I
lending has become more and more prominent. To answer the question, C&I
lending can be more risky than other forms of loans – if these loans are not
underwritten and managed correctly. The financial institution that backs these
types of loans needs to have processes in place, as well as qualified and trained
lending personnel to back them up.
Pacific Continental, as I mentioned before, has been heavily invested in C&I
lending since well before the real estate market adjusted in 2008, and we manage
these loans with the utmost care and consideration. Unfortunately, many
financial institutions that were previously heavily invested in real estate lending
are now looking to compensate by originating C&I loans, and these institutions
are often not utilizing the correct management practices needed to structure
and monitor these types of loans. Businesses looking to obtain a C&I loan
should make sure that the institution they are borrowing from has qualified
lenders in place and a history of successfully managing these loans before
entering into a relationship with them. The bank and banker involved should
be viewed as a resource, not just a source of capital.
Call us at:
Greater Eugene Area
541-686-8685
Greater Portland Area
503-350-1205
360-695-3204
Greater Seattle Area
206-676-8880
425-688-3793
253-552-4800
Or toll-free
877-231-2265
Visit us online at:
therightbank.com
Email us at:
[email protected]
February 2012
877-231-2265
therightbank.com