One company does not a trend make - or break - but Fifth Third Bancorp's disclosure that the demand and credit quality of its commercial lending business are improving has made it possible to at least wonder if the market segment is starting to recover.
In an 8-K filing with the Securities and Exchange Commission on Friday, the Cincinnati company said that it expects net chargeoffs to drop and loan growth to pick up this quarter.
"Management expects high single-digit percentage growth in net interest income" this quarter, Fifth Third said in its filing. "Total loans and leases are expected to post high single-digit percentage growth" from a year earlier.
The news builds on evidence from Fifth Third's first-quarter results. Overall loan and lease demand "improved modestly," and direct installment loan originations rose 66.7% from last year and 15.4% from the fourth quarter.
At that time George Schaefer, Fifth Third's president and chief executive officer, said that credit quality was starting to stabilize, and he expressed optimism for this year's outlook.
Now that the company's commercial lending turnaround seems to be holding, analysts are debating whether it hints at something broader or, as Lori Appelbaum says, points only to a company-specific gain.
"Commercial loan demand at the other Midwest banks remains weak," the Goldman Sachs Group Inc. analyst wrote in a research note published Friday.
The filing may reflect an increase in loan market share, she wrote. However, "it seems as though the second quarter is going to be pretty good overall for the sector."
The Federal Reserve's latest senior loan officer survey, which was released in late April, found that loan demand was starting to improve in several regions of the country, but much of the demand remained concentrated in consumer and real estate borrowing. Chicago bankers reported that, even though the local economy appears to be picking up, it has not spurred borrowing by local businesses.
"Almost all Federal Reserve Districts reported signs of improvement or actual increases in economic activity since the last survey," but "demand for bank loans was little changed in most districts," the Fed said.
Jennifer A. Thompson, an analyst at Putnam Lovell Securities Inc., seemed more inclined to take Fifth Third's filing as a sign of a regional rebound. In a research note published after the filing, she wrote that it "has positive implications for the Midwest-focused superregional banks such as Bank One, Comerica, Huntington, National City, KeyCorp, and U.S. Bancorp."
Fifth Third said it expected chargeoffs to fall 9 basis points from the first quarter, to "the mid 40 basis point level," according to the filing. It expects nonperforming assets to be in the range of 0.55% to 0.6% of loans, compared with 0.57% in the first quarter.
While the overall market continued its descent Friday, shares of large-cap banking companies were on the rise. Fifth Third rose 0.88%, while Bank of America Corp. climbed 1.75% and Bank One Corp. rose 2.73%.
The American Banker index of 225 banks rose 1% for the day but fell 5.3% for the week. The Standard & Poor's 500 fell 0.16%.
Meanwhile, Lauren R. Lieberman, an analyst at Credit Suisse First Boston Corp., on Friday initiated coverage of Sky Financial Group Inc., Southwest Bancorp of Texas Inc., and Hudson United Bancorp with a "buy" rating for each. She also started coverage of Commerce Bancorp Inc. of Cherry Hill, N.J., and Greater Bay Bancorp with "hold" ratings.
"The small-cap banks that differentiate themselves in what is largely a commodity business will succeed in any environment over the longer term," Ms. Lieberman wrote in her research report. Those with a high-touch customer orientation and a strong focus on deposits "will remain the winners," she wrote.
Also on Friday, Christopher Marinac of SunTrust Robinson Humphrey initiated coverage of Mellon Financial Corp. with a "buy" rating.
In his report, he wrote that the company has stronger operating momentum than its competitors. "While investors have questioned secular growth rates of trust/securities processors, processing is an oligopoly with high barriers to entry and outsourcing trend among investment managers remains quite visible."
