Worried that the stock market's collapse, China's currency situation and the Fed's extended break from rate hikes will suppress banks' loan growth? Fear not.
At least five regional banks on Thursday discarded those concerns and forecast loan growth for the rest of this year.
Executives at BB&T in Winston-Salem, N.C., the largest bank to report fourth-quarter earnings on Thursday, projected confidence in their ability to book more loans this year, forecasting an increase of 3% to 4% compared to 2015 when factoring in acquisitions. Kelly King, chairman and chief executive, said fears about the economy were overblown.
"There's been a lot written and said over the last few weeks about the issues in the stock market," King said during a conference call to discuss earnings. "We believe there's a lot of overreaction going on. We don't see any fundamental structural change between the first part of December and the first part of January."
The $210 billion-asset BB&T also projected net interest income from organic growth could rise by $150 million to $200 million from 2015 to 2016. Still, King cautioned that volatility is likely in the coming months.
"While we don't think the economy's tanking, we don't think it is going to be super robust, either," King said.
Huntington Bancshares in Columbus, Ohio, provided equal cause for optimism. After a quarter in which the $71 billion-asset company recorded a 5.6% increase in total loans, to $50.3 billion, Chairman and CEO Steve Steinour said 2016 could include more of the same.
"We're feeling really good about the year we just had and the year we're coming into," Steinour said in an interview.
Steinour declined to provide estimates for loan growth in 2016, but said the bank's pipeline for auto and commercial loans remains strong and that there has been "robust demand" for mortgages.
A prime reason for Steinour's sunny view is the economic situation in Huntington's Midwestern footprint. The unemployment rate in its home state of Ohio was a seasonally adjusted 4.5% in November, according to the U.S. Labor Department. Indiana, where Huntington has 49 branches, reported 4.4% unemployment.
"When I was in college, in economics class 5% was considered full employment," Steinour said.
Signature Bank in New York posted a fifth straight year of double-digit loan growth in 2015, and in a conference call with analysts, Chief Executive Joseph DePaolo said he expects that pace to continue in 2016 and beyond.
The $33.5 billion-asset bank has thrived by recruiting teams of lenders from rival institutions, and DePaolo said it expects to add several more teams this quarter to further drive loan and deposit growth.
"We're fairly consistent in our message that we believe we're going to grow [loans] between $4 billion and $6 billion" a year, DePaolo said, adding the bank has already closed one loan for $135 million this quarter and has another $100 million loan in its pipeline.
Like Signature, Webster Financial in Waterbury, Conn., reported double-digit loan growth in the quarter, and it's counting on its recent expansion in the Boston area to help keep the momentum going.
The $24.7 billion-asset Webster recently completed the purchase of 17 Boston-area branches from Citigroup to go along with a flagship branch it opened in downtown Boston six years ago.
"We see Boston as a $1.5 billion deposit opportunity in the next five years, including about $500 million in the market today, as well as an important source of loans and assets under management," James Smith, Webster's chairman and CEO, told analysts Thursday. "All business units will benefit from the expansion."
Analysts said bankers are not being overly confident.
"Modest loan growth is achievable, despite some global economic headwinds and investor uncertainty," said John Mackerey, an analyst at DBRS. "Consumer portfolios are expected to grow given improved unemployment rates, and low gas prices add buying power and confidence."
Growth's Companion: Credit Risks
Huntington's fourth-quarter results did contain a bucket of cold water, however. Its loan-loss provision swelled to $36.5 million from $2.5 million, compared with a year earlier. Steinour blamed the rise on the size of the 2014 provision, which he described as "ridiculously low in some respects."
But the increase still raised concerns with at least one analyst. Geoffrey Elliott, an analyst at Autonomous Research, during the conference call asked Steinour to reconcile his optimistic tone about the economy with the other signals that he is "incrementally more cautious on credit."
"We are paying attention to the warning signs and clearly, you know, the energy and commodities businesses are quite volatile and that goes into our thinking," Steinour responded.
BB&T's management also raised concerns, namely that some of its rivals may be getting too aggressive in soliciting business in certain lending categories. Competition for commercial real estate loans remains fierce, with spreads deteriorating and most lenders underwriting loans based on low capitalization rates. In multifamily lending, there are more instances where a loan is likely over-financed, even when it seems to have a lot of equity involved, executives said.
"We'll be careful with CRE," Ricky Brown, BB&T's president, said during the call. "We've got to be careful with pricing. We've got to be careful with risk."
Executives at the $95.1 billion-asset KeyCorp in Cleveland, who predicted mid-single digit growth in its overall loans for 2016, were also concerned about commercial real estate lending, and multifamily lending in cities like Houston, Boston, Denver and Seattle. KeyCorp looks at criteria such as rent-to-wage ratios and the affordability of apartment buildings, Chris Gorman, president of its corporate bank, said during a conference call.
Signature's loan portfolio is heavily weighted toward commercial real estate and several analysts asked if the bank expected to pull back given regulators' concerns that banks are weakening their underwriting standards in order to win business.
But its CEO, DePaolo, noted that the bank does very little construction lending and that the bulk of its multifamily lending — a particular area of concern for regulators — is in New York, where vacancy rates are extremely low.
"We feel we're in better shape than if we were lending to multi-family in Houston," he said.
Webster executives also shrugged off concerns about overexposure to commercial real estate.
"If you look at the profile of our commercial real estate portfolio under any metric, whether it be [loan-to-value] whether it be proceeds, the way we are underwriting and sensitizing our underwriting, we are not stretching the bounds," Smith said. "When you have to do that to compete in the market, that is when you start to raise the red flags."
Regarding auto lending, the $141 billion-asset Fifth Third Bancorp in Cincinnati was less upbeat than Huntington. Fifth Third plans to decrease its exposure to auto loans, even as competitors quickly grow their portfolios. The company decreased its auto book by 3% in the fourth quarter and it plans to continue shrinking it in 2016, Chief Executive Greg Carmichael said in an interview.
"If you look at margins in that business right now, they're not very attractive to us," Carmichael said. "There are better places where we could put our capital."
Instead, Fifth Third is likely to shift its focus more to commercial lending. Fifth Third projects that its total loan book will grow by about 3% this year, and its commercial loan book by 3%. That is after loans grew 3% in the fourth quarter to $93.5 billion, compared with the prior-year period.