Analyst notes
The Federal Reserve's most recent senior loan officer opinion survey on bank lending practices indicated a negative shift, with banks reporting tightened underwriting standards and weakened demand for commercial and industrial loans, according to analysts.
The survey addressed changes in the standards on and demand for bank loans to businesses and households during the first quarter. Responses were received from 70 domestic banks and 19 US branches and agencies of foreign banks.
Respondents reported, on balance, tighter lending standards for commercial and industrial (C&I) loans and credit card loans. Their standards were tighter or basically unchanged for commercial real estate (CRE) loans and basically unchanged for residential real estate (RRE) loans, home equity lines of credit (HELOCs) and auto.
Loan demand was weaker for C&I, credit card and most categories of RRE. Demand was weaker or basically unchanged for CRE, stronger for HELOCs, and basically unchanged for auto loans.
The survey likely reflects tariff overhangs, Hovde Group analyst Brendan Nosal said, noting that the Fed's H.8 data indicates better actual loan growth, while the survey reported a deterioration in demand and tightened standards.
"This more or less aligns [with] recent [management] commentary that pipelines are good for now, but all bets are off for the back half of '25. Hopefully, trade conflict resolution helps to alleviate pressures," Nosal wrote in a note.
The tightening of commercial lending standards came after banks moderated the level of tightening for five consecutive quarters, D.A. Davidson analysts noted. Assuming the tariff situation is resolved over the next three months, the analysts do not see a new downturn in the credit cycle starting.
"During periods of tremendous uncertainty, we've seen temporary periods where banks will tighten underwriting standards, but it doesn't lead to major credit corrections," the D.A. Davidson analysts wrote.
Bank management teams continued to be "fairly positive" about their outlook for credit. Still, "it's something we are watching as we are still in the early stages of assessing tariff impact, shifting the credit focus from CRE to C&I," the D.A. Davidson analysts said.
The survey confirmed that trends softened in the first quarter, but it captured the past, Piper Sandler analyst R. Scott Siefers said.
"It fails to capture anything that has changed since trade commentary really ramped up & cooled," Siefers wrote. "Basically, this [survey] is too backward-looking to draw too many definitive conclusions about the future."
Now, the more important indicators will be how customers react to "apparent thaws in trade discussions," Siefers said.
The Piper Sandler analyst considers the survey more relevant for regional banks than universal banks, given that it focuses on lending sentiment. While banks started the year with subdued forecasts, "growth will need to inflect if banks are to meet their targets," he said.
The banks that need the biggest shift in momentum between now and the end of 2025 include Citizens Financial Group Inc., Comerica Inc., KeyCorp, PNC Financial Services Group Inc. and Regions Financial Corp., Siefers said. Meanwhile, the analyst sees the lending outlooks of Fifth Third Bancorp and Huntington Bancshares Inc. as "much better protected.
Assumed coverage
Piper Sandler analyst Stephen Scouten assumed coverage of Southern Pines, North Carolina-based First Bancorp with a rating of "neutral" and a price target of $48.
The analyst finds First Bancorp's directional trends and long-term outlook encouraging, considering the company's ability to expand its net interest margin in a down-rate backdrop. Also, First Bancorp's credit performance is consistent, and the company's organic growth is scalable, with the possibility of M&A, Scouten said.
"With an energetic management team in place and a renewed focus on organic production and operating leverage, we believe [First Bancorp] is well-positioned to sustain strong returns and build shareholder value over time," the analyst wrote in a note.
First Bancorp's common equity Tier 1 ratio increased 18 basis points quarter over quarter to 14.53% in the first quarter, Scouten noted. The company is open to M&A, specifically in South Carolina, Georgia, Tennessee and Virginia, but will focus on organic execution in the near term, the analyst said.
"Though opportunities for incremental M&A are not likely to be robust, the bank does hold an advantaged currency, and we expect them to remain opportunistic around deployment of that currency over time," Scouten wrote.
The analyst established an earnings per share estimate of $3.55 for 2025 and $3.65 for 2026. His "neutral" rating considered that First Bancorp shares are trading at a premium on a price-to-earnings basis, making incremental multiple expansion less likely compared to peers.
