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Banks Still Lending, But Easing Up on Easy Credit Terms

No doubt about it, banks are much tighter these days with their money, but most are still lending.

“All of us are making as many loans as we can,” said Hans Ganz, chief executive at Pacific Trust Bank, a Chula Vista-based savings bank with about $850 million in assets.

“If you want a real estate loan today, there’s no problem getting it. But you’re no longer going to get it without putting any money down or no verification of your income.”

Pacific Trust Bank and most other community banks didn’t make subprime mortgage loans and thus avoided problems associated with that meltdown.

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But they did make construction development and small-business loans, and these borrowers are certainly affected by the pronounced slowdown in the economy.

Ron Carlson, president at 1st Pacific Bank of California, which has nine local offices, said his bank is being far more careful about the construction loans it makes, and getting a land development loan from his bank would be a rarity.

“We probably wouldn’t make a land loan unless we had a strong relationship with the borrower, and it was for an amount that was a modest loan-to-value ratio,” Carlson said.

While the bank is still making loans for working capital, there’s been a noticeable drop in demand because businesses are not doing as well as last year, and aren’t seeking to expand their operations, Carlson said.


Prudent About Loans

As the credit crunch escalated last month, many of the largest banks stopped lending to each other because there was distrust over what other banks’ balance sheets really looked like, and whether these banks could repay loans , even those made on an overnight basis, bankers said.

“They didn’t trust each other,” Ganz said. “These were banks that knew that their books were in good shape, but they weren’t too sure that the other guys’ were.”

As larger banks horded cash, that filtered down to other markets such as commercial paper, where larger companies issue short-term notes. To attract investors, these companies and other borrowers had to pay steeper interest rates.

Some local banks that have seen much higher increases in their problem loans show reduced lending this year.

La Jolla-based Imperial Capital Bank, with $4 billion in total assets, reported loan originations for the third quarter were $102.5 million, or less than one-third of the $340 million in new loans for the like quarter of 2007.

For the nine months, Imperial Capital Bank made $278 million in new loans, compared to $1 billion made for the same period of 2007, the bank reported.


Flip Side Of Lending Coin

“There is no loan demand today,” said Tim Doyle, chief financial officer at Imperial Capital. “Most real estate investors are looking to see where the bottom of the market will be.”

Imperial Capital held $203.5 million in nonperforming assets as of the end of September, or 4.96 percent of total assets. That compared to $59.1 million, or 1.66 percent, in nonperforming assets for the like quarter of 2007. Most banks attempt to keep nonperforming loans below 1 percent.

On the other side of the lending equation are banks such as San Francisco-based Wells Fargo Bank, which was so well-capitalized that it purchased Charlotte, N.C.-based Wachovia Bank for $11.7 billion earlier this month in a deal that did not require government assistance.

Tom Wornham, regional manager for Wells Fargo’s wholesale lending group, said this year his unit has had the strongest pipeline of new deals in the last decade.

The companies that Wornham’s unit sees are those with annual revenue between $20 million to $1 billion, and most have been borrowing from the bank for about 15 years, he said.

While some banks have had to curtail lending activity, “that doesn’t happen to be true in my world,” Wornham said.

However, the credit crunch has pushed up the cost of capital, which is causing a hike in borrowing costs, he said.

“Will it stay like this forever? No. There is going to be an ebb and flow for a while.”

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