What slowdown?
Many industry observers, convinced that loan growth would decelerate this year, had been peppering bankers in recent months with questions
First-quarter results, so far, have shown no signs of a letdown. To the contrary, banks such as Synovus Financial, Wintrust Financial and Webster Financial have reported year-over-year loan growth of 8% or higher.
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Industry observers, as a result, are starting to focus more on the quality of the loans being booked and how bankers are managing risk.
"There has been loosening credit, but the question is how banks are reacting to it," Chris Marinac, an analyst at FIG Partners, said. "You have certain institutions that are willing to be aggressive and banks need to pick their spots on where they are willing to lend."
For now, the consensus is that most banks are successfully balancing the need to add loans with taking on risk, largely by diversifying their portfolios to avoid dangerous loan concentrations.
Synovus, of Columbus, Ga., continued to de-emphasize commercial real estate lending by pushing heavily into consumer mortgages and commercial-and-industrial lending. As a result, total loans rose 8% from a year earlier, the company's biggest such increase since mid-2007.
The $29 billion-asset Synovus was pleased to report "balanced" growth that reflected an ongoing effort to hire lending teams from competitors, Kessel Stelling, the company's chairman and chief executive, said during a conference call Tuesday.
"We're actively recruiting," Stelling said. "We've got a great story to tell … so we've been able to add talent. We do think this could lead to additional growth opportunities."
Synovus took advantage of strengthening economies in the Southeast such as Atlanta; Birmingham, Ala.; Tampa, Fla.; and Memphis, Tenn., Stelling said. At the same time, the company was pleased with its performance in smaller markets such as Montgomery, Ala.
Banks such as Synovus could ride this momentum for the rest of this year, said Brad Milsaps, an analyst at Sandler O'Neill. Many executives who had been predicting good loan pipelines didn't back off predictions in recent calls, he said.
Chemical Financial in Midland, Mich., is one of the companies. Chemical said that the $96 million in loans it booked during the first quarter — largely consisting of commercial real estate loans and mortgages — surpassed expectations.
"Historically, the first quarter has been among our weakest quarters for organic loan growth, so we are encouraged by this solid start," David Ramaker, the $9.3 billion-asset Chemical's chairman, president and chief executive, said during a Monday conference call.
"Things seemed to ramp-up for us pretty well" in terms of loan demand, Ramaker said, adding that his company still has "some pent-up things that are in the pipeline that have been approved and we just haven't closed yet."
Mercantile Bank in Grand Rapids, Mich., also has a strong pipeline of about $200 million in commercial loans lined up, Robert Kaminski, the $2.9 billion-asset company's chief operating officer, said during a conference call Tuesday. Total loans increased by 7% from a year earlier, to $2.3 billion.
"We continue to get new opportunities every week," Kaminski said. "It should provide solid growth through the rest of the year."
Webster Financial in Waterbury, Conn., also touted a record commercial loan demand after reporting an 11% increase in total loans from a year earlier. The $25 billion-asset company had nearly $16 billion in loans at March 31.
"I think you'll see robust growth as that pipeline converts over the next two quarters," John Ciulla, Webster's president, said during a conference call Tuesday.
Continued loan growth has spurred questions about credit quality. In December, federal regulators
While asset quality remains an area to watch, several analysts said they believe the rate of loan growth still seems reasonable from a risk perspective. Many management teams have also taken steps to limit concentrations in recent years.
There are certainly exceptions, including Bank of the Ozarks in Little Rock, Ark., which has long focused on commercial real estate lending. Still, the $11 billion-asset company's management team has displayed an ability to manage risk in that portfolio, Marinac said.
Bank of the Ozarks focuses on loans with low leverage, George Gleason, the company's chairman and chief executive, said during its quarterly conference call. At Dec. 31, most of the company's construction loans had an average loan-to-cost of 50%.
Synovus has also been willing to turn down deals, especially in construction, management said during its call. Executives are also monitoring the growth of rents versus wages to detect whether any markets are overheating. Management also vowed to cap commercial real estate loans at 35% of total loans.
While things are chugging along nicely now, there is always the potential of a temporary slowdown tied to things such as the presidential election or other unforeseen factors, Marinac said.
"Where do we go from here?" Marinac said. "The election could be a distraction for businesses that maybe don't want to take on additional commitments. There's still the potential for C&I loans to slow and I worry about that."
