Community banks are seeing loan growth rise, as businesses seek to expand to meet a surge in consumer spending.
That’s the message from a growing number of community banks reporting third-quarter earnings this month. After a year of sluggishness, more small lenders are reporting solid demand for business and commercial real estate loans. Many also report robust pipelines that suggest steady loan demand into 2022.
If more banks report similar results, it would mark an inflection point at which lenders move past the
“The taste we are getting from banks in this first wave of earnings is that more markets are opening up, businesses are responding, and loan growth is starting to follow,” said Robert Bolton, president of Iron Bay Capital, which invests in community banks. “The enthusiasm we’re hearing from management teams about their ability to grow organically, I think, is real.”
However, growth is not across the board and overall lending volumes may only inch ahead for the quarter, Bolton said. “But we are seeing some clearly positive signs early that we hadn’t seen last quarter or for some time,” he said.
For banks with under $10 billion of assets, second quarter commercial and industrial loans were down 13.7% from a year earlier and down 10.1% from the prior quarter, according to Federal Deposit Insurance Corp. data.
National Bank Holdings in Denver, for one, said it generated record quarterly loan originations of $413 million in the third quarter, led by commercial loans of $302 million and fueled by demand across a footprint that spans Colorado and four neighboring western states.
The $7.1 billion-asset bank said total loans ended the quarter at $4.4 billion, up $121 million over the prior quarter after loan paydowns and payoffs. Excluding Paycheck Protection Program loans, which are rolling off banks’ books in the second half of this year, total loans increased $174 million, or 16.5% annualized.
“As we look ahead, we feel very good about the high level of business activity in our markets and our company's potential for future growth,” National CEO Tim Laney said on an earnings call last week. He added that loan pipelines hold potential for steady growth into 2022.
The $4.4 billion-asset SmartFinancial tells a similar story from its headquarters in Knoxville, Tennessee.
It grew total third-quarter loans by about 7% from the prior quarter, to $2.65 billion, with advances fueled in part by its acquisition in September of
“We're seeing great balance throughout all of our markets,” President and CEO Billy Carroll said of loan demand. “We're very bullish on where we stand.”
Banks across the country are reporting similar momentum.
The $5 billion-asset Mercantile Bank in Grand Rapids, Michigan, said its commercial loan growth, after stripping out PPP credits, reached $162 million, representing a 25% annualized growth rate when compared to the second quarter.
Orrstown Financial Services in Shippensburg, Pennsylvania, said third-quarter commercial loan growth, excluding PPP, was $98.2 million, or 33% annualized. The $2.9 billion-asset bank said in its earnings release that business loan production “remains robust and is expected to continue at a solid pace.”
Pacific Premier Bancorp in Irvine, California, reported 11.5% annualized total loan growth from the prior quarter. The $21 billion-asset bank finished the third quarter with $14 billion of loan balances, with growth driven by both CRE and C&I lending gains.
“Our new business pipelines remain healthy, which we anticipate contributing to solid organic growth,” Pacific Premier Chairman and CEO Steven Gardner said in a release reporting results.
S&P Global Economics forecast U.S. economic growth for 2021 and 2022 to reach 5.7% and 4.1%, respectively, driven by consumer spending and business owners’ investments in hiring and new materials to meet demand.
Americans increased spending in September, signaling mounting demand ahead of the holiday shopping season. Sales at retail stores, restaurants and e-commerce sites rose 13.9% from a year earlier, according to the U.S. Commerce Department.
But potential headwinds loom.
Consumer inflation in September increased 5.4% from a year earlier, meaning prices are spiking and could taper demand if elevated costs endure. Inflation is linked to supply constraints imposed by the pandemic, and those pressures could weigh on companies’ ability to meet demand.
Tom Broughton, chairman and CEO of ServisFirst Bancshares in Birmingham, Alabama, noted clients’ “low inventories” and “supply chain issues that continue” as wildcards that could make loan growth uneven.
But he said current demand and pipelines are strengthening. The $14.6 billion-asset ServisFirst reported that third-quarter total loans grew $163 million from the prior quarter, or 8% annualized. Excluding PPP, loans grew by $370 million, or 18% annualized.
Business expansion and more commercial real estate projects that were put on hold during the height of the pandemic are back on the front burner, fueling ongoing demand, Broughton said during an earnings call.
Iron Bay’s Bolton said he hears echoes of that sentiment in his conversations with bank executives.
“We’re pleasantly surprised with the quality of earnings so far,” Bolton said. “People already are reinvesting back into their businesses — and working with their banks to do so — and once we get past these supply chain issues, I think we’ll get back to a form of normalcy and broad growth.”
