End of PPP dents US community bank loan growth in Q2

With Paycheck Protection Program loans running off as borrowers apply for forgiveness, loan books shrank at many U.S. community banks in the second quarter.

The largest community banks, those with $3 billion to $10 billion in assets, reported a median 1.0% decline in total loans in the second quarter. PPP had been a tailwind for loan growth, but the program ended on May 31 and banks are now focused on processing forgiveness applications. With PPP loans excluded, gross loans grew by a median 1.7% for the group.

On the other hand, the smallest community banks, those with assets below $100 million and those with $100 million to $3 billion in assets, reported median increases in gross loans quarter over quarter, even when including PPP loans. That pushed the median for all community banks, or banks under $10 billion in assets, into positive territory at 0.2% growth from the first quarter.

By comparison, larger banks, those with more than $10 billion in assets, reported a median 1.1% decline in gross loans including PPP, but a 0.8% increase quarter over quarter when excluding PPP.

By region, community banks in the Southeast reported the highest median loan growth at 0.7% quarter over quarter with PPP loans included. The West was the only region to post a negative median for community banks with a 0.3% decline.

As PPP loans fade in importance, some banks are optimistic that a rebounding economy will boost other aspects of their loan portfolios in the second half of the year.

Live Oak Banking Co., one of the most active PPP lenders, reported $927.2 million in PPP loans at the end of June, equal to roughly 14% of its gross loans. While the bank reported negative loan growth when including PPP loans, Live Oak President Huntley Garriott said that core loans grew 10% quarter over quarter. "As we look at the franchise today, our loan pipeline continues to be near our all-time high even after the quarter we just came off," Garriott said, according to a transcript of Live Oak Bancshares Inc.'s second-quarter earnings call.