Enthusiasm about commercial credit spreads among bank chiefs

The cautious commercial lending optimism that characterized the outlook for many bankers in the fall is giving way to a full-throated cheerleader this month, as a long list of institutions report strong loan growth in the fourth quarter and booming pipelines.

Robert Kaminski, president and CEO of Mercantile Bank in Grand Rapids, Michigan, called his company’s $5.3 billion business lending results “nothing short of stellar” during a a conference call with analysts on Tuesday. Two days later, Greg Carmichael, president and CEO of Fifth Third Bancorp, a $211.1 billion asset in Cincinnati, highlighted record commercial loan production totaling $8.2 billion, which he said was more than 50% higher than the third quarter figure.

This scenario played out again on Huntington Bancshares, a 174 billion dollar asset, which published its fourth quarter results on Friday. The Columbus, Ohio company reported a profit attributable to common shareholders of $377 million, fueled in large part by commercial loan growth that exceeded 4% on a linked quarterly basis. Huntington also carries an exceptionally full pipeline through 2022, indicating continued momentum, Chairman and CEO Stephen Steinour said.

“Normally the end of the year is like a period of cleaning and it takes a month or two to regenerate,” Steinour said on Friday. “We don’t have that now.”

“Commercial lending should fuel balance sheet growth over the coming year,” he added.

Fifth Third’s Greg Carmichael (far left) said commercial loan origination increased more than 50% between the third and fourth quarters; Stephen Steinour (centre) in Huntington said ‘we have the economy behind us, [and] interest rates rise” offering an upbeat forecast; Mercantile’s Robert Kaminski called his firm’s fourth-quarter business lending results “nothing short of stellar.”

According to Steinour, Huntington, who reported commercial loans totaling $61.6 billion as of December 31, benefited from a renewed desire to spend by companies which had been sparing their resources for two years. These looser purse strings were on full display Friday as the Fortune 500 Intel has announced plans to build two computer chip factories near Columbus at an estimated cost of $20 billion.

“It will be a huge job creator,” Steinour said, adding that the activity would boost housing, transportation and small businesses.

“I think that’s a bit of a game-changer for us,” Steinour added on a conference call with analysts. “We’re going to have over 10,000 construction jobs on this site and the roadway and water expansion. Eventually, there will be 3,000 high-paying jobs in the factory itself with Intel alone.

While Mercantile couldn’t report anything as dramatic around its Grand Rapids headquarters, it saw its prospects bright enough to issue $75 million in subordinated notes to “support the strong loan growth we expect,” a Kaminski said on a conference call. .

Mercantile also suspended its share buyback program to funnel even more capital into lending.

The company ended 2021 with core commercial loans totaling $2.91 billion, up 7% from the third quarter and 20% year-over-year.

With the rise of commercial lending, it’s natural to see credit quality as a potential concern, but Steinour said he didn’t detect any signs of trouble.

“We are large indirect auto lenders [and] we made recoveries for the year – net recoveries,” Steinour said, adding that he had never before seen indirect auto recoveries exceed charge-offs for a full year.

As of December 31, Huntington reported $716 million in outstanding loans, compared to $977 million on June 30, just after closing its acquisition of TCF Financial. Quarterly net write-offs of $34 million represented 0.12% of average total loans.

Like other CEOs, Steinour said some weakening from the current exceptionally high credit quality levels is inevitable. He just doesn’t think an easing trend is imminent.

“Personally, I don’t think 2022 is the year of getting back to the norm,” Steinour said. “I think that continues for a while.”

Huntington forecasts average loan growth in the high single digit range for the year, which could translate to nearly $10 billion in portfolio growth. Steinour, for his part, is confident that the company will hit its mark.

“This is a moment of significant growth for us,” Steinour said. “We have the economy behind us, [and] interest rates rise. There is a lot of room for maneuver ahead of us.

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