Lenders are cultivating new niches to counter weak loan growth

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Emerging from the pandemic, many consumers and businesses have cash and do not yet need loans. Result: growth is difficult to generate.

But some banks are differentiating themselves by emphasizing unique lending areas, expanding into arenas where loan demand is strong early in the recovery from the pandemic.

“It’s always a very difficult market for loan growth,” said Michael Jamesson, director of banking consultancy firm Jamesson Associates. “There is a ton of money in the system and few traditional loan applications. But if you have expertise in an exceptional niche, you might be one of the few to not only talk about loan growth, but show it.

Wintrust Financial in Rosemont, Illinois, is one example. Excluding Paycheck Protection Program loans – the government-backed small business loans that are coming off the books of banks this year – the bank saw loan growth of $ 1.2 billion in the second quarter, or 15% on an annualized basis.

The bank’s $ 47.6 billion First Insurance Funding, which funds commercial insurance premiums, increased $ 563 million between the first quarters and the second, accounting for more than a third of overall growth. The unit attracted new clients amid what Richard Murphy, Wintrust vice president and chief loan officer, called a growing interest in premium finance due to the ultra-low interest rate. These borrowers take out loans to pay the premiums on a policy.

Additionally, the bank’s Life Finance division, which funds life insurance premiums, was up $ 248 million from the first quarter. Wintrust’s business has grown by around $ 1 billion over the past year, in part due to an increased number of clients taking advantage of low rates to develop life insurance as part of estate planning.

“We feel pretty comfortable right now that the momentum will continue at least until the end of the year” in the niche business, Murphy said on an earnings call last week.

For comparison, commercial real estate loans are a bread and butter business for Wintrust and for most regions and community banks, increased $ 134 million from the first quarter.

Wintrust expects that as consumers and businesses work with the available savings accumulated during the pandemic, they will start borrowing more later this year and next. In the meantime, specialized loans can offset the slump in traditional industries and stimulate short-term growth.

Signature Bank in New York paints a similar picture. Signature’s fund banking division, with $ 96.9 billion in assets, which provides funding to the private equity industry, spurred the bank’s growth in the second quarter. Signature’s non-PPP loans rose to a record $ 3.92 billion from the previous quarter to $ 52.2 billion.

The balances of the banking funds division increased 33% from the previous quarter and doubled from the previous year to $ 16.2 billion; they now represent almost a third of total loans. Stephens analyst Matt Breese called the fund banking unit “critical” to Signature’s growth in an otherwise stagnant lending environment.

Signature President and CEO Joseph DePaolo said in an earnings call that the fund’s banking activity was largely “new” in recent quarters and was the main driver of growth in funds. second quarter bank loans.

PacWest Bancorp in Beverly Hills, Calif., Said its lending was up about 5% from the previous quarter, excluding P3s, boosted by a 17% jump in its venture banking division, which specializes in loans to individuals. entrepreneurs in California’s burgeoning tech sector. These loans represent almost a tenth of the bank’s total portfolio.

In a earnings release, the CEO of the $ 34.9 billion asset bank, Matt Wagner, called the growth of the venture capital bank “remarkable” and vital to second quarter results.

“Not all banks can carve these kinds of niches,” Jamesson said. “Smaller community banks may not have the resources and might see it as risky. But if you can swing it, that’s definitely a plus right now.

Total US loans and leases at the end of the second quarter in the US were essentially flat from the previous quarter, at around $ 10.35 trillion, according to the Federal Reserve. Consumer credit grew on the back of higher credit card spending. Corn global demand stays light.

“The industry as a whole faces a tough growth outlook,” said Jared Shaw, analyst at Wells Fargo.

Certainly more banks are further acquisitions to obtain new loans, lend talent and access new markets. Bank mergers and acquisitions accelerated this year after a hiatus imposed by the pandemic in 2020. Others are recruitment of banking teams away from competitors in the hope of expanding into growing markets.

BankUnited’s $ 35.7 billion assets in Miami Lakes, Florida, hired six bankers during the second quarter to help stimulate loan expansion, and she plans to hire more in new eastern markets. “We are looking for talent every day,” COO Thomas Cornish said on an earnings call last week.

Bankers say the expected economic growth in 2021 – thanks to coronavirus vaccines unleashing pent-up demand – is expected to result in greater use of credit by consumers and businesses to finance purchases and investments. Yet a sustained recovery in borrowing remains elusive for now, while mergers and acquisitions and entering new markets take time – and are not for all banks. This reality makes creative organic growth important.

“I think you’ll see more regions, in particular, going down” the niche lending route, ”Jamesson said.


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