Smaller banks have sharply stepped up lending for commercial real estate development and business expansion, an important sign that the economy is shedding the last vestiges of the Great Recession.
These loans underwritten by smaller banks — regional banks with assets below $50 billion and community banks with assets below $10 billion — are growing almost twice as fast as those underwritten by the biggest banks.
The growth “is proof positive that the economy is off and running,” said Mark Zandi, chief economist for forecaster Moody’s Analytics. “The fact loan growth is strong at small banks indicates that small businesses are kicking into gear.”
Over the last three quarters for which data is available, regional banks boast double-digit growth in the broad category that regulators call commercial and industrial loans. From last April through December, regional banks averaged 24.55 percent growth in these loans.
That’s about twice the growth rate for the nation’s big banks, whose lending in these categories has tapered off since 2012.
Regional banks are also seeing strong growth in the category of commercial real estate, which encompasses malls, stores, warehouses and development projects. They saw 22.54 percent growth for commercial real estate loans over the final months of 2014.
Community banks, by definition smaller, are also seeing the best loan growth since the recession’s end. For the final nine months of last year they averaged 6.07 percent growth in loans for business expansion and 5.48 percent growth in commercial real estate loans.
“Most of what we are seeing being put on the books now is good quality,” said Bryan Kennedy, president of Park Sterling Bank in Charlotte, N.C. “We’ve seen many companies whose sales levels might not be back to pre-recession levels, but they are now more profitable and more efficient, making more money on less business.”
In California, for example, Fresno First Bank has seen its commercial lending increase by more than 20 percent since 2009.
Regional and smaller banks based in the South Sound have reported similar positive results in their commercial and industrial loan portfolios.
Where Tacoma’s Columbia Bank reported C&I loans at $531.48 million in June 2009, the total had risen to $975.89 million by the end of 2013, and $1.236 billion at the end of 2014.
Heritage Bank, based in Olympia, reported $99.63 million in C&I for June 2009, and the total rose to $225.85 million by the end of end of 2013 and $339.81 million a year later.
Fife Commercial Bank reported C&I at $11.79 million at the end of 2009 and $8.75 million at the end of 2013. This was followed by a minimal increase to $8.76 million at the end of 2014.
The decline at Fife Commercial is partly because of the success of clients, said President and CEO Jim Davis last week.
“Clients are not into their lines of credit like they used to be,” he said. “They’re paying it down. They make money, and they need to borrow less.”
Davis also credits more stringent underwriting standards. “We look at them harder,” he said.
At Commencement Bank, based in downtown Tacoma, the 2009 figure hit $36.69 million at the end of 2009 and increased to $46.73 million in 2013. It opped to $40.89 million by the end of 2014.
The decrease at Commencement was explained last week by CFO Jennifer Nino, who said, as with the response from Fife Commercial, “The majority of loans in this category are lines of credit,and as our customers have become more profitable due to the improvement in the economy, they have been paying down (their credit lines).”
Unlike with mortgage lending, most commercial loans stay on the banks’ books. That means the banks have skin in the game and a finger on the economy’s pulse.
“Once we close a loan, commercial loan borrowers are constantly required to give us their financial information into the future, at least on an annual basis,” said Lee Reed, Fresno First’s executive vice president and chief credit officer.
In Walla Walla, business has returned to previous levels for Banner Bank.
“Our assets were comparable at year-end 2014 as they were at year-end 2009, at more than $4.7 billion,” said Dianne Larson, senior vice president of marketing. Earnings in each of the past three years “surpassed pre-crisis levels,” she added.
About 58 percent of Banner’s loans last year were for either commercial real estate lending – acquiring or developing a property for business – or commercial lending to companies that were expanding operations or product lines. That beat the 2009 figure of 51 percent.
Lending for residential mortgages remains ho-hum nationwide, so banks are turning to companies that are looking to expand or retool in a growing economy, where hiring has averaged well over 200,000 a month in the past year. It’s all made commercial real estate attractive again.