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Nonperforming assets spiked at several community banks in the second quarter, showing that bankers must remain mindful of the risks still embedded in their loan portfolios.
July 27 -
A reluctance by community bankers to engage in a price war with bigger banks over commercial and industrial loans has allowed less-competitive commercial real estate lending to slowly make a comeback.
August 1
Large banks control the lion's share of the industry's total outstanding loans, but smaller banks are adding loans at a faster clip, according to a new report from Keefe, Bruyette & Woods.
Analyzing earnings reports of publicly traded banks and thrifts, KBW found that total loans at small- and mid-cap banks rose 2% in the second quarter from the prior quarter, while loans at large cap banks climbed 1.4%. When compared with the same quarter in 2011, total loans increased 6.5% at small- and mid-cap banks and 4.3% at large banks.
Overall, total loans and leases increased 1.5% in the second quarter from the prior quarter, to nearly $5.3 trillion, and rose 4.6% over the same period in 2011. It marked the fifth straight quarter that total loans increased from the prior quarter, following four straight quarterly declines.
Second-quarter gains were driven largely by increased commercial and consumer lending, which more than offset sharp declines in construction and home-equity lending.
KBW defines large-cap banks as the 24 largest banks in its coverage universe, excluding State Street (STT), Bank of New York Mellon (BK) and Northern Trust (NTRS), which are primarily custody banks, according to Melissa Roberts, a KBW analyst and the report's co-author. Small- mid-cap banks are all the remaining banks and thrifts in KBW's coverage area.
Though smaller banks are growing loans more quickly than their larger competitors, they still lag far behind in overall market share. Large banks control $4.5 trillion of loans, or 86% of all the outstanding loans among banks it covers, and are particularly dominant in commercial and industrial lending, the most coveted of all loan categories.
Year over year, large banks increased their total C&I loans by 17.5%, compared to 13.1% at smaller banks, KBW found. C&I loans now make up almost 20% of banks' loan portfolios, up from 17.7% in last year's second quarter.
Small banks did add more C&I loans in the second quarter, however, increasing their total by 4.7% from the prior quarter, compared to a 3.1% increase at larger banks. Percentagewise, they also posted larger quarterly gains in consumer loans, one-to-four family loans and commercial real estate and multi-family loans.
With the housing market still slumping, banks of all sizes continued to scale back their construction lending. Total construction loans outstanding fell 5.3% from the prior quarter and nearly 21% year over year, to $116 billion, KBW's research found. Construction and land development loans now make up just 2.2% of banks' overall loan portfolios, down from 2.9% in last year's second quarter and more than 5% from three years ago.
