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Banks divided between wait-and-see and full steam ahead

Banking Essentials Newsletter December Edition Part 2

Banking Essentials Newsletter - November Edition

University Essentials | COVID-19 Economic Outlook in Banking: Rates and Long-Term Expectations: Q&A with the Experts

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Banks divided between wait-and-see and full steam ahead

Kevin Dobbs isa senior reporter and columnist. The views and opinions expressed in this piecerepresent those of the author or his sources and not necessarily those of S&PGlobal Market Intelligence. Follow on Twitter @Kevin1Dobbs.

Whilethe industry awaits the Federal Reserve policymakers' next move on interest rates— as it has for years — some community banks areeffectively in wait-and-see mode, eager to see a return to normalization on ratesand more signs of economic vigor but dubious about pushing too hard for growth inthe meantime.

That helps explain why banks' overall loan growth has been modestfor several quarters. Mostrecently, an S&P Global Market Intelligence found that median loan growthamong banks under $10 billion in assets during the fourth quarter of last year was1.72%.

Yet there are several steadily expanding banks that prove strongergrowth is achievable in the current environment, and as such, these lenders standapart in the minds of many analysts.

"All they can control is what they can control, so they focuson what they can do best and are fighting for everything they can regardless ofwhat the Fed does or might do," James Bradshaw, an analyst at Bridge City Capital LLC, said in an interview.

Irvine, Calif.-based Pacific PremierBancorp Inc., for one, originated $252 million of new loans in the , for 7% sequentialgrowth, 4x the national median and culminating a year of consistent expansion. Itsadvances spanned its Southern California footprint and multiple business lines,including commercial-and-industrial, construction and Small Business Administrationlending.

PacificPremier has also been acquisitive, cinching an open-bank deal early in 2015 andanother one early this year. But the bank says what is key is building off of dealsto drive organic growth. In presentations,executives credit a lending culture aimed at high rates of contact with customersand prospective clients, as well as a relatively diverse product set for a communitylender, which helps it deepen connections with each customer.

Marketshare gains have resulted, driving high volume on the lending front and helpingto offset the downward impact on profitability imposed by low interest rates.

Despiteone rate increase late in 2015, Fed policymakers have since kept their benchmarkrate near historic lows, eyeing global economic uncertainty and a domestic energyslump. But some banks and analysts say many local economies, particularly in traditionalhigh-growth areas such as the West Coast, are generally on solid footing.

"It'sreally very strong," Bradshaw said of West Coast economic conditions, notablyin major metropolitan areas. Some are more robust than others, he said, "butalmost nothing is really weak right now."

Nationally,economic data has been uneven in recent months, with the manufacturing sector gettingbruised by slower export activity, and the energy sector beat up by prolonged lowoil prices. But the all-important jobs market continues to expand substantially,providing notable reason for optimism, analysts say. U.S. employers added , followinga gain of 245,000 the previous month, according tothe most recent federal estimates.

"While the jobs figure convinced the markets that we weren'tsliding into a recession, it also provided the Fed with sufficient cover to signalthat additional rate hikes in 2016 are still on the table," analyst Joe Gladue of Merion Capital Group said in a note.

But evenif the Fed does not act soon, more banks could join Pacific Premier and forge aheadwith more aggressive growth initiatives, analysts say. In a separate , Gladue pointed to Signature Bank as a prime example of one that has done this.

New York-basedSignature Bank, he noted, emphasizeshigh-touch, relationship banking with a single point of contact for its commercialcustomers, connecting lenders directly with executives.

"Thebusiness model needs few physical locations and no middle management, resultingin a very low cost, efficient organization," Gladue added.

This, coupled with regular recruiting of established private client bankingteams, has helped the company generate compound annual loan growth rates in excessof 35% over the last five years, he said.

"[W]esee this trend continuing," Gladue wrote.

Among privately owned lenders, 's is another casein point. It, too, employs a high-touch approach, winning business with consistentlystrong customer service, says Chairman and CEO J. Patrick Hickman. The Happy, Texas-based companyhas substantially boosted earnings over the last several years, using select open-bankand branch acquisitions to help it drive organic expansion.

Its total loans have doubled over the past five years, with about two-thirdsof that coming via organic means, Hickman said while speaking last week at the SNL FinancialCommunity BankersConference in suburban Dallas. While all community lenders tout service as theirhallmark, he said, not all successfully emphasize it every day, establishing itas the principal focus for every employee and winning recognition for it among customers.But it is paramount, he said.

"Weare growing the bank because people are choosing to do business with us," Hickman said.