The notion that Southeastern banks could set the pace for lending in coming months might come as a shock to bankers in other parts of the county.
The region, along with the Southwest and the West Coast, was hard hit by the implosion of the housing market, the financial crisis and numerous bank failures. Now, those regions are poised to become leaders for loan growth, industry experts said.
Improving borrower confidence, the hint of higher interest rates and changing demographics are all helping reverse the fortunes of the nation's once-dormant regions.
"There has been pent-up demand," said Scott Siefers, an analyst at Sandler O'Neill. "It feels like we've gone years and years without having corporations really expand or hire new people. Now we get a whiff of possibly a higher rate environment and managers might be looking to lock in more attractive financing."
Siefers recently wrote in a note to clients that, based on analysis and forecasts for 173 banks, the Southeast, Southwest and West Coast are "the clear pacesetters" for loan growth, while the Northeast could lag. Nationwide, the group predicted that loans should grow roughly 11% year-over-year in 2014 and 10% next year.
Sandler's forecast matches up well with what Banks Street Partners is starting to see, said Lee Burrows, Jr., chief executive of the Atlanta investment bank. Total loans and leases for Southeastern banks grew nearly 12% in the second quarter from a year earlier, according to his firm.
"Bankers in the Southeast are cautiously optimistic," Burrows said. "But, really, 2008 isn't that long ago and many still carry a lot of scars from those years. While there is some optimism, I don't think they feel anything like it is 2006 again."
"You can't paint every market with same brush," Burrows warned. Rather, a lending rebound can vary greatly by market, with urban areas such as Atlanta; Raleigh, N.C.; Nashville, Tenn.; Richmond, Va.; and Jacksonville, Fla., doing "extraordinarily well," he said. Rural areas, or those that rely heavily on tourism, are still struggling.
Loan demand in thriving regions has largely involved commercial, rather than retail, lending, industry experts said. This has included commercial-and-industrial, commercial real estate and multifamily loans. In the Southeast, one-to-four family residential construction loans have increased 26% from a year earlier, according to data from Banks Street.
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The West Coast has benefited from strong showings in technology, biotechnology and some aspects of manufacturing, said Steven Gardner, president and chief executive of Pacific Premier Bancorp. Real estate lending has also started to "contribute to the overall business activity rather than being a drag," he said.
"We've seen an uptick in demand and business activity," Gardner said. "Business owners are increasing lines of credit and are being more confident about investing in their companies."
Some banks are offering more extended terms or lighter covenants to originate more loans, which "hasn't reared its head yet as a problem but could potentially develop into something down the road," said David Ruffin, co-founder of Credit Risk Management. Ruffin said he has yet to see "signs of degradation of credit quality."
There are other reasons behind the comebacks in the Southeast, Southwest and West Coast, industry experts said. It partly stems from the cumulative effects of a slowly recovering economy, said Jeff Davis, managing director of the financial institutions group at Mercer Capital. With low yields in the bond market, more banks are increasingly "looking for reasons to say yes to borrowers," he said. The continued migration of people from the Northeast and the Midwest to the Sun Belt is another likely contributor.
Borrowers are also feeling more confident, and they are becoming increasingly more comfortable taking on debt, Wiley said. Business owners are sitting on a lot of cash that they have finally decided to invest, he said.
Overall lending should continue to improve, with banks that have been successful despite low interest rates continuing to find ways to make money.
"A lot of banks have positioned themselves for a raising rate scenario," Wiley said. "Our outlook is cautiously optimistic. Those with the capital and a good lending mentality are able to grow. Those that don't have the right people and process aren't doing well and will continue to falter or end up selling through increased M&A."
Jackie Stewart is a reporter for American Banker.
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