Local Banks, Like Giant Rivals, Find Loan Growth Elusive

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Regional banks are struggling to solve the same lending conundrum as their bigger competitors: Despite the economic rebound, loan growth remains hard to find.

The five largest U.S. regional banks all reported a drop in total loans for the first quarter compared with a year earlier, with Pittsburgh-based PNC Financial Services Group Inc. posting the biggest decline, at 10%, according to data compiled by Bloomberg. At JPMorgan Chase & Co., the nation’s biggest bank, loans fell 3.6%, according to company filings.

Loan growth has “been pretty elusive for the industry in the pandemic, and with all the stimulus that’s out there, individuals and companies are pretty flush with liquidity,” Regions Financial Corp. Chief Financial Officer David Turner said in a phone interview. “Nobody knows” exactly when it will bounce back, said Turner, whose bank is based in Birmingham, Alabama.

One way smaller banks are meeting the challenge: mergers. A raft of regional banks have combined in recent months to help grapple with weak loan demand as well as low interest rates and the need to boost technology spending. Pressure is coming from JPMorgan and the nation’s other top lenders, which are moving into new states and spending billions annually on digital offerings.

Among the most-recent tie-ups, New York Community Bancorp said Monday it agreed to buy Michigan’s Flagstar Bancorp Inc. for $2.54 billion. That deal followed by a week Webster Financial Corp.’s announcement of its intent to purchase Pearl River, New York-based Sterling Bancorp in an all-stock transaction that valued the target at $5.14 billion.

Even with the slow growth in their lending businesses, regional banks were able to boost earnings in the first quarter, buoyed like their bigger counterparts by the speed of the economic recovery and the ability to release reserves they had previously set aside for bad loans.

The KBW Bank Index was up 0.5% at 11:23 a.m. in New York. It’s gained almost 28% since the start of the year.

“As we head into the second half, we will have a snap-backed economy,” Truist Financial Corp. Chief Executive Officer Kelly King told analysts on an earnings call. He voiced optimism about the pandemic’s trajectory, pointing to the speed of vaccination efforts and metrics used to track the virus.

But M&T Bank Corp. CEO Rene Jones said the recovery will probably be “very, very uneven” due to the pandemic’s disparate impact across different sectors of the economy. Businesses dependent on low-wage workers, such as theaters and restaurants, were hit particularly hard, for example.

Despite the robust recovery, those are the areas “that will really be indicative of the health -- the real underlying health -- of our economy and neighborhoods and our communities,” Jones said in a phone interview.

U.S. Bancorp CFO Terry Dolan said in a phone interview that he sees loan growth making its return in the second half, and he’s bullish about economic and business prospects for the rest of the year. U.S. Bancorp, based in Minneapolis, is the nation’s biggest regional bank by assets.

©2021 Bloomberg L.P.

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