Small banks turn their backs on loan growth

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Community banks are seeing loan growth increase as businesses seek to expand to cope with increased consumer spending.

That’s the message from a growing number of community banks reporting their third quarter earnings this month. After a year of gloom, more and more small lenders are reporting a strong demand for real estate loans to businesses and businesses. Many are also reporting robust pipelines that suggest stable loan demand through 2022.

If more banks reported similar results, that would mark an inflection point that lenders would exceed low demand pandemic and into a new era of strength. Banks are teeming with deposits – the result of high savings linked to the pandemic – and well equipped to fund loan growth.

“The taste we’re getting from banks in this first wave of profits is that more markets are opening up, companies are responding and loan growth is starting to follow,” said Robert Bolton, chairman of Iron Bay Capital, which invests in community banks. . “The enthusiasm we hear from leadership teams about their ability to grow organically, I think, is real. “

Growth is not broad-based, however, and overall lending volumes may only increase slightly for the quarter, Bolton said. “But we are seeing clear positive signs very early on that we haven’t seen in the last quarter or for some time,” he said.

For banks with less than $ 10 billion in assets, second-quarter commercial and industrial loans were down 13.7 percent from a year earlier and 10.1 percent from the previous quarter, according to the Federal Deposit Insurance Corp. data

National Bank Holdings in Denver, for its part, said it generated a record quarterly loan amount of $ 413 million in the third quarter, led by commercial loans of $ 302 million and fueled by demand on a footprint that s’ spans Colorado and four neighboring states to the west.

The $ 7.1 billion asset bank said total loans ended the quarter at $ 4.4 billion, up $ 121 million from the previous quarter after loan repayments and repayments. Excluding Paycheck Protection Program loans, which roll off banks’ books in the second half of this year, total loans increased $ 174 million, or 16.5% on an annualized basis.

“As we look ahead, we are very pleased with the high level of business activity in our markets and the potential for future growth of our company,” National CEO Tim Laney said on a conference call the last week. He added that loan pipelines have the potential for steady growth until 2022.

SmartFinancial’s $ 4.4 billion asset tells a similar story from its headquarters in Knoxville, Tennessee.

It increased total third-quarter loans by about 7 percent from the previous quarter to $ 2.65 billion, with advances being fueled in part by its September acquisition of Sevier County Bancshares and in part by new demand from commercial borrowers. The bank announced a 9% annualized quarter-over-quarter increase in organic lending. He expects that figure to hit “mid-teens” in the coming quarters.

“We’re seeing a good balance in all of our markets,” President and CEO Billy Carroll said of the loan application. “We are very optimistic about our position. “

Banks across the country are reporting a similar momentum.

The $ 5 billion-asset Mercantile Bank in Grand Rapids, Mich., Said its commercial lending growth after PPP lending was cut to $ 162 million, a rate of 25% annualized growth from the second quarter.

Orrstown Financial Services in Shippensburg, Pa., Said third-quarter commercial loan growth, excluding P3s, was $ 98.2 million, or 33% on an annualized basis. The bank with assets of $ 2.9 billion said in its earnings release that business loan production “remains robust and is expected to continue at a strong pace.”

Pacific Premier Bancorp in Irvine, Calif., Recorded total annualized loan growth of 11.5% from the prior quarter. The $ 21 billion asset bank ended the third quarter with $ 14 billion in outstanding loans, with growth driven by both CRE and C&I loan gains.

“Our new commercial pipelines remain healthy, and we expect to contribute to strong organic growth,” said Steven Gardner, president and CEO of Pacific Premier, in a statement reporting the results.

S&P Global Economics predicts US economic growth for 2021 and 2022 to reach 5.7% and 4.1%, respectively, driven by consumer spending and investment by business owners in hiring and new materials to answer the question.

Americans increased their spending in September, signaling growing demand ahead of the holiday shopping season. Sales at retail stores, restaurants and e-commerce sites increased 13.9% from a year earlier, according to the US Department of Commerce.

But potential headwinds are looming.

Consumer inflation in September rose 5.4% from a year earlier, meaning prices are skyrocketing and could reduce demand if high costs persist. Inflation is linked to supply constraints imposed by the pandemic, and these pressures could weigh on the ability of businesses to meet demand.

Tom Broughton, chairman and CEO of ServisFirst Bancshares in Birmingham, Ala., Noted that customer “low inventories” and “persistent supply chain issues” were wild cards that could make loan growth uneven. .

But he said current demand and pipelines are strengthening. ServisFirst’s assets of $ 14.6 billion reported total third-quarter lending increased $ 163 million from the previous quarter, or 8% on an annualized basis. Excluding PPP, loans increased by $ 370 million, or 18% on an annualized basis.

Business expansion and more commercial real estate projects that were put on hold during the height of the pandemic are back in the spotlight, fueling continued demand, Broughton said on an earnings call.

Bolton of Iron Bay said he heard echoes of this sentiment in his conversations with bank executives.

“We are pleasantly surprised with the quality of earnings so far,” said Bolton. “People are already reinvesting in their businesses – and working with their banks to do it – and once we get over these supply chain issues, I think we’ll be back to some form of normalcy and general growth.”


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