Regional banks see signs of life in commercial lending

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Three regional banks based in different parts of the country reported encouraging trends in business lending this week – an indication that persistent supply chain problems are being offset by other factors driving demand for commercial loans.

Fifth Third Bancorp in Cincinnati, Synovus Financial in Columbus, Ga., And Zions Bancorporation in Salt Lake City all recorded quarter-over-quarter increases in major business loan categories after excluding loans made in the under the Paycheque Protection Program.

The improvements were generally modest, but they fit into a larger picture of the incremental gains in business lending. Commercial loan volumes have generally been low during the pandemic as many business owners have hesitated to increase their debt load.

Synovus CEO Kevin Blair (left) and Fifth Third CEO Greg Carmichael both said on Tuesday their banks had a boost in commercial lending heading into the fourth quarter.

But across the industry, the eight-week moving average of commercial and industrial loan growth, excluding PPP loans, has been positive over the past 18 weeks, Piper Sandler analysts wrote in a published research note. Monday.

Recent weekly data suggests that “this closely watched segment of bank lending has bottomed out and is starting to head for a much-hoped-for rebound,” analysts wrote.

This optimistic sentiment dovetailed with messages from Fifth Third CEO Greg Carmichael and his counterparts at Synovus and Zions.

“We’re starting to see, once again, good momentum there,” Carmichael told analysts on Tuesday.

During the third quarter, Fifth Third saw a 5% increase in commercial loan production compared to the second quarter, making July-September its strongest period since late 2019.

Fifth Third said it has added 419 new business customers so far this year, which is more than it has seen in 2018 and 2019. The $ 207.7 billion asset bank operates primarily in the Midwest and the South East.

Compared to the second quarter, commercial and industrial loans, which make up the majority of Fifth Third’s commercial loan portfolio, increased 1% and increased 4% after excluding the impact of Paycheck Protection loans. They remained well below last year’s levels.

Fifth Third expects the recent recovery to continue in the coming months, although labor and supply chain shortages are a “wildcard,” President Timothy Spence said.

Some hotels, faced with a tight job market, now only clean rooms when guests leave, he said. Meanwhile, an electronics customer had “nothing but holes in the walls” because they couldn’t get enough parts to fill orders and replenish their inventory.

While these factors have discouraged companies from tapping their available lines of credit, executives at Fifth Third still expect a slight increase in the last three months of 2021 – and further improvement if the chain’s shortages supply diminish.

Borrowing companies have been less likely to tap their available lines of credit, but Fifth Third is seeing increased demand from mid-market companies, executives said.

Two catalysts are increased interest in mergers and increased capital spending, driven in part by companies looking to replace manual processes with equipment and automation, Spence said.

At Synovus, business loans surged in the third quarter and robust pipelines indicate continued strong growth, executives said. Excluding PPP loans, which are flowing off bank balance sheets as borrowers apologize under the federal pandemic program, commercial and industrial loans have increased sequentially by $ 602 million.

Kevin Blair, president and chief executive officer of the bank, said strong commercial loan production more than made up for consistently high levels of loan repayments and repayments.

“Loan growth was extremely strong for the quarter, with production of funded commercial loans increasing nearly 70% from the prior quarter,” Blair said Tuesday on a call to discuss third quarter results. “We expect this momentum to continue into the fourth quarter as commercial pipelines remain strong.”

At the $ 55.5 billion asset bank, which operates across much of the Southeastern United States, growth has been widespread. Strong demand for C&I loans has spanned almost every industry, from insurance and healthcare to construction and manufacturing, according to Blair. Lending pipelines are up 20% since the start of 2021, he said.

“So we’re very confident in the production side of the equation,” Blair said.

The increase in lending volumes helped offset persistent headwinds imposed by low interest rates. Net interest income increased 1% from the prior quarter to $ 385 million.

Zions, which operates in Texas and much of the West, improved its outlook for lending growth to “moderately increasing” after seeing a slight increase in commercial lending. Excluding PPP loans, its lending increased $ 661 million, or 1.4%, from the prior quarter.

The increase was in part attributable to the strength of commercial construction loans and commercial loans to homeowners. The bank announced special promotional rates in the latter sector.

“This has given all of our bankers something really exciting to discuss during quite a difficult time,” said Scott McLean, President and COO of Zions.

Zions is also seeing an increase in larger commercial loans and syndicated deals, although company executives have said they will firmly maintain internal limits on syndicated loans rather than increase the bank’s risk appetite. .

Some large banks also reported improvement in commercial lending during the third quarter. PNC Financial Services Group said last week that its commercial and industrial loans were 9.4% higher in the third quarter compared to the same period last year. Wells Fargo reported that C&I loans at the end of the quarter were up 1.7% from a year earlier.


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