Regions Financial (RF) is upbeat about its lending prospects and an anticipated turnaround after several years of negative loan growth. But other banks, including BB&T (BBT) and U.S. Bancorp (USB), are less sanguine, with executives pointing to signs of slower loan growth in the first quarter.
Regions, based in Birmingham, Ala., is poised for positive single-digit growth in credit cards, indirect auto lending and commercial and industrial lending to upper middle market companies, chief financial officer David Turner said Wednesday. A key driver for Regions is the deliberate and dramatic shrinkage of its $1 billion investor real estate portfolio, including $400 million in non-performing loans, the bulk of which is expected to run off in the first half.
"Having been through a radical restructuring, we're now on offense," Turner said at a Citi investor conference in Boston. "We are cautiously optimistic on the outlook for loan growth, though a lot of it hinges on what goes on in Washington."
Capital One Financial (COF) chief financial officer Gary Perlin was dismissive about the ability of regional banks to compete in credit card lending when asked about their prospects at the same conference.
"The card business is a very mature one now," Perlin told an audience of analysts. "There are five or six players that represent the vast majority of the outstandings [outstanding card balances]. That's where we tend to have the most competition."
"We can certainly understand why some regional players, looking for loans where they haven't been able to get them before, are looking in some ways to get back into the card business, the auto lending business, and so forth," Perlin continued.
"We do feel they'll have some pretty big challenges … in terms of scale," he added. "Not just operating scale, but also branch scale. They'll pretty much be limited to their own customers. And not having the information scale to play across the credit spectrum."
Loan growth is clearly the topic du jour as competition heats up for commercial and industrial loans, raising concerns that the industry will loosen underwriting standards.
BB&T chief Kelly King and U.S. Bancorp (USB) CEO Richard Davis on Tuesday blamed sluggish loan growth on Washington's continued failure to resolve its budget issues.
"Loan growth is challenging now," King said. "Clearly the loan growth outlook for the first quarter has slowed and some of that is seasonal."
"The market is very skittish," he continued. "The fiscal cliff and all the discussions going on in Washington today around sequestration and budget talks are frankly just leaving the business community very unsure, very uncertain. They're not making the investment decisions they would like to make."
Once BB&T gets past first-quarter "headwinds," growth could rise to the 2% to 4% range, King predicted. He expressed optimism about banks' long-term growth prospects and the potential for a dramatic economic rebound.
"When we do finally resolve some of these issues, I personally believe there is huge pent-up demand, and we could see a really big boom in growth for the next several years," he said.
Davis said mortgage revenues are expected to decline 15% in the first quarter from the fourth quarter. He also cited "uncertainty by the government" for curtailing some loan activity and increasing competition.
"There are more people in the marketplace and they're not acting entirely rational, so we all have to end up being more competitive and that means we have to sacrifice margin," Davis said.
The $121 billion-asset Regions might be considered an outlier because of its concentration in the Southeast, which got hit hard by soured loans to home builders and small real estate developers in Florida and Georgia.
"The bank is much more selective in terms of the credit risk profile we will take on," Turner said. "By far the worst asset class we had was raw land lending. We understand concentration limits like we never did before. We're not putting too many eggs in one basket."
Regions cut nonperforming loans 57% to $1.9 billion between 2009 and end of the first quarter. Chargeoffs fell 74% between 2009 and the end of 2012 to $180 million. The company is now retaining 15-year mortgages to benefit from net interest income and also is focused on its 350,000 underbanked customers, many of whom use payday loans.
One group of customers still sitting on the sidelines: small businesses.
"Small businesses really aren't demanding credit today; they just don't want to take the risk," Turner said.
Pricing pressure is "intense" for large corporate institutional clients while lower to middle market clients are where the bank "can make money," added John Asbury, Regions' head of business services.
"What we really want is for the small business customers to start borrowing because they are less pricing competitive," Asbury said.