Three regional banks based in different parts of the country reported encouraging trends in corporate lending this week – an indication that ongoing supply chain problems are being offset by other factors that are driving demand for business loans.
Fifth Third Bancorp in Cincinnati, Synovus Financial in Columbus, Georgia, and Zions Bancorporation in Salt Lake City all saw quarterly increases in major corporate credit categories after exiting the Paycheck Protection Program.
The improvements were generally modest but fit a broader picture of incremental gains in corporate lending. Business loan volumes were generally weak during the pandemic, as many business owners shied away from increasing their debt levels.
But across the industry, the eight-week moving average for commercial and industrial loan growth, excluding PPP loans, has been positive for the past 18 weeks, analysts at Piper Sandler wrote in a research note released Monday.
The latest weekly data suggests that “this closely watched segment of bank lending has bottomed out and is starting to move towards a hoped-for recovery,” the analysts wrote.
This optimistic mood coincided with the messages of Fifth Third Chairman and CEO Greg Carmichael and his colleagues at Synovus and Zions.
“We’re seeing good momentum out there once again,” Carmichael told analysts on Tuesday.
In the third quarter, Fifth Third saw commercial loan production grow 5% compared to the second quarter, making July through September the strongest period since late 2019.
Fifth Third said it had added 419 new business customers so far this year, more than in 2018 and 2019. The $ 207.7 billion asset bank operates primarily in the Midwest and Southeast.
Compared to the second quarter, commercial and industrial loans, which make up the bulk of Fifth Third’s commercial loan book, rose 1% and increased 4% if the impact of the paycheck protection loan is excluded. They remained well below the level of the previous year.
Fifth Third expects the recent recovery to continue in the coming months, although labor and supply chain shortages will be a “wild card,” said President Timothy Spence.
Some hotels, facing a tight labor market, only clean rooms when guests leave, he said. Meanwhile, one electronics customer “just had holes in the walls” because they couldn’t get enough parts to fill orders and rebuild their inventory.
While these factors have kept companies from drawing on their available lines of credit, Fifth Third executives still expect a slight spike in the final three months of 2021 – and further improvement as the supply chain tightness subsides.
Corporate borrowers are less likely to have reached their available lines of credit, but Fifth Third is seeing greater demand from midsize businesses, executives said.
Two catalysts are increased interest in mergers and an increase in capital spending, driven in part by companies looking to replace manual processes with equipment and automation, Spence said.
At Synovus, corporate lending skyrocketed in the third quarter and its robust pipelines suggest continued strong growth, executives said. Excluding PPP lending off banks’ balance sheets as borrowers seek forgiveness under the federal pandemic relief program, commercial and industrial lending increased sequentially by $ 602 million.
Kevin Blair, president and CEO of the bank, said heavy commercial loan production more than made up for still high loan repayments and repayments.
“Loan growth was extremely strong in the quarter as the production of financed commercial loans increased nearly 70% compared to the previous quarter,” Blair said on a call Tuesday to discuss third quarter results. “We expect this momentum to continue in the fourth quarter as the commercial pipelines remain robust.”
Growth was broad-based at the $ 55.5 billion asset bank, which operates across much of the southeastern United States. Blair said the strong demand for C&I credit spanned almost every sector from insurance and healthcare to construction and manufacturing. Credit pipelines have increased 20% since early 2021, he said.
“So we’re very confident about the production side of the equation,” said Blair.
The higher loan volume helped offset the nagging headwinds from low interest rates. Net interest income increased 1% from the previous quarter to $ 385 million.
Zions, which operates in Texas and much of the west, has upgraded its credit growth outlook to “moderately increasing” after seeing a surge in commercial credit. After excluding PPP loans, loans increased $ 661 million, or 1.4%, from the previous quarter.
The increase was partly due to the strength of commercial home loans and owner-occupied commercial loans. In the latter area, the bank advertises special conditions.
“It has given all of our bankers something really exciting to talk about in a rather challenging time,” said Scott McLean, president and chief operating officer of Zions.
Zions is also seeing an increase in larger commercial loans and syndicated deals, despite the company’s executives saying they would stick to internal syndicated loan limits rather than increasing the bank’s risk appetite.
Some big banks also reported an improvement in commercial lending in the third quarter. PNC Financial Services Group announced last week that its commercial and industrial loans were 9.4% higher in the third quarter than in the same period last year. Wells Fargo reported that C&I loans at the end of the quarter were 1.7% higher than last year.