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Following Q1'18, analysts still waiting for small-bank loan growth

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Following Q1'18, analysts still waiting for small-bank loan growth

Following a sluggish 2018 first quarter, analysts are still waiting for renewed business optimism to translate into loan growth at the nation's small banks.

In a research note, Raymond James analyst Michael Rose wrote that, as expected, seasonality contributed to lower loan and revenue growth on a sequential basis, as well as lower net interest margins. While loan trends were generally mixed during the first quarter, he said full-year outlooks could be at risk if paydowns remain elevated, utilization rates fail to improve and pricing and structure competition remains high.

"While anecdotal commentary coming out of [first-quarter 2018] earnings calls have pointed to loan growth accelerating in the back half of the year given optimism from bank management teams, we recall a similar level of optimism at this time last year," Rose wrote.

FIG Partners analyst John Rodis said he does not feel like bankers at the financial institutions he covers changed their tone during the quarter. He said most of his banks should post mid-to high-single-digit loan growth for the year.

"Even if a company misses on loan growth for the quarter, realistically, they probably don't change their outlook all that much, just because of the typical seasonality," Rodis said in an interview. "We all talk about the benefits of lower taxes, and [if that] will that cause a meaningful change in loan demand. For the most part, banks have not seen that yet."

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Rodis pointed to Colorado as one of the most competitive markets in the U.S. For example, he noted Denver-based CoBiz Financial Inc., experienced a near 2% decline from the linked quarter due to a high level of paydowns.

"It's a market-by-market thing, but it doesn't seem like the competition is going away anytime soon," Rodis said.

Overall, banks in the West and mid-Atlantic regions posted the strongest median loan growth, with gross loans and leases up 1.2% from the linked quarter.

Commercial and industrial loans experienced the strongest growth during the quarter. Geographically, banks in the mid-Atlantic and Northeast regions experienced the strongest median C&I loan growth, up 1.5% and 1.4% respectively quarter over quarter. C&I loan growth continued to outpace commercial real estate growth at banks with less than $1 billion in total assets, but the level of growth was weaker than that of the fourth quarter of 2017.

"C&I remains very competitive," Rodis said, adding some banks are cutting back on CRE lending as they approach regulatory thresholds. "Some banks can be a little bit more aggressive on CRE if they have the room to put it on their loan portfolio.

Median consumer loans sank 1.5% quarter over quarter at U.S. banks with $1 billion to $10 billion in total assets, 2.1% at U.S. banks with $100 million to $1 billion in total assets, and 2.4% among U.S. banks with less than $100 million in total assets. Median consumer loan growth was the weakest in the mid-Atlantic and the Midwest regions.

Rodis said a decline in consumer lending is normal during the first quarter as individuals begin paying down loans made during the holiday season.

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