Consumer Loan Growth Bucks Trend at Some Banks

Consumer Loan Growth Bucks Trend at Some Banks

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During the last nine months of 2020, many Americans took advantage of government stimulus and forbearance on mortgage loans to pay down (or off) personal debt. As a result, from March 31, 2020 to March 31, 2021 the banking industry reported a 4.6% decline in loans to individuals. Credit Cards led the way with a drop of 12.8%. We’ll discuss that next week.

This week we are looking at what appears to be an anomaly. The 50 banks listed on page 7 each reported more than 200% growth (year over year) in consumer/personal loans. Some took advantage of low rate loans to pay off high interest rate credit cards, but that was not always the case. Let’s take a look.

It may seem odd that the first bank listed is a bank dedicated to business banking. It makes that very clear; it’s even in its name. 4-Star California Bank of Commerce, Walnut Creek, CA markets itself as a Bank Designed for Business, because it is. And that is precisely how it landed at the top of page 7.

At the end of March 2020, California Bank of Commerce had a mere $227,000 in loans outstanding to individuals. A year later, that number had jumped to $47.540 million. While that is a ridiculously high rate of growth, it still represents just 3.24% of the bank’s total loans.

The majority of California Bank of Commerce’s loans are, not surprisingly, Commercial & Industrial (C&I) followed by Commercial Real Estate (CRE). Combined, these represent over 92% of its total loans. These new personal loans were not for automobiles, credit cards or other revolving credit lines. Most likely they went to individuals who had existing business relationships with the bank.

5-Star Republic Bank of Arizona in Phoenix has a similar situation. While it is not strictly a business bank it certainly leans that way. At March 31, 2020, Republic Bank had $61,000 in loans outstanding to consumers. They were all in the form of revolving credit plans. By March of this year, revolving credit loans were down to $42,000 but they had new personal loans worth $7.617 million.

Consumer loans now represent 6.4% of total loans at Republic. That’s higher than its peer group average of 4.4%, but given that Arizona is only home to ten community banks, that’s not surprising.

Next we come to a community bank with a comparatively high (8.3%) amount of consumer loans, 3-Star Fourth Capital Bank, Nashville, TN. Fourth Capital Bank’s revolving credit plans to individuals increased from $20,000 to $656,000 and other personal loans grew from $565,000 to $21.486 million during the 12-month period.

Established in 2017 as Tennessee Bank & Trust, Fourth Capital Bank changed its name last June (2020) as it celebrated the opening of a new modern headquarter location in Downtown Nashville’s Peabody Plaza.

5-Star Guardian Savings Bank, Granite City, IL, conversely, has been around since 1919, almost as long as the Town of Granite City itself. To say it is a staple of this city of 30,000 would be a gross understatement.

With just $36.440 million in assets, Guardian pales in size compared to most of the other page 7 banks, but that hasn’t stopped it from providing 5-Star service to its customers. In fact, it has been rated 5-Stars since Bauer started rating banks over three decades ago.

Guardian’s loan composition looks nothing like the others we have highlighted here. Its focus is on consumers with 59.3% of its loan portfolio in single (1-4) family homes and 25.5% in consumer loans. Most of the rest goes to local farmers, although those loans dropped by a third during those 12-months (from $2.978 million to $1.990 million).

At March 31, 2020, Guardian’s loans to individuals totaled just $130,000. Of that, $73,000 was for auto loans. Auto loans grew from $73,000 to $89,000 over the course of the year as other loans to consumers grew from $57,000 to $4 million.

That’s a lot for a little bank, but with a Bauer’s adjusted capital ratio that exceeds 18% and a Texas Ratio below 1%, we can tell you it is underwriting them properly.

We hope others follow suit as consumer loan demand is reportedly picking up again. According to the Consumer Financial Protection Bureau (CFPB), inquiries for auto loan were up to pre-pandemic levels in January, new mortgage credit inquires have exceeded their pre-pandemic volume and revolving credit, which it says took the longest to recover, was back up to pre-pandemic levels in March.

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