We saw a glimmer of hope in the fourth quarter ’21 data that perhaps a resurgence of commercial and industrial (C&I) loan demand was on its way. Nearly a third of all U.S. banks increased their C&I loan portfolios during the quarter. And, according to the FDIC’s year-end Quarterly Banking Profile, C&I loans were up 3.2% ($70.8 billion) over third quarter.
In spite of that robust fourth quarter growth, though, Paycheck Protection Program (PPP) forgiveness combined with repayment of the same caused full year C&I loan balances to drop 5.2% (or $126.7 billion).
Four Big Banks have particularly large (over $100 billion) C&I loan portfolios. Three of them (5-Star Bank of America, 4-Star Wells Fargo and 4-Star PNC Bank) each reported positive gains both in the fourth quarter and for the year. The other, 5-Star JPMorgan Chase Bank, had a 3% increase in the 4th quarter but was down 4.7% for the year.
Another big bank, 4-Star CitiBank posted declines for both the quarter (6.3%) and the year (5.9%). It also witnessed a PPP decline from $3.4 billion to $846 million during 2021.
PPP notwithstanding, the 51 banks listed on page 7 each reported year-over-year organic C&I loan growth of 35% (or greater). In addition, C&I loans account for at least 25% of their respective loan portfolios. Each bank listed is also more than 5 years old (est. prior to 2017).
Of course, no two are the same, but let’s look at a couple to see how they did it. 5-Star Citizens First Bank, the Villages, FL was originally chartered in 1991 as First Bank of the Villages, Lady Lake, FL. The Villages as we know it today, did not take off until years later. The bank name was changed in 1998 and its headquarter location was moved in 2004 to its current home.
As the only bank that caters specifically to this affluent, golf-loving retirement region of Florida, Citizens First Bank and The Villages have grown in tandem, and neither show any signs of slowing down.
Don’t let the word “retirement” throw you off. There are plenty of businesses and start-ups to keep C&I lending growing for many years to come. Citizens First Bank nearly doubled its size in the past 5 years.
But let’s face it, most of the country is not like Florida. Case in point, Maxwell, Iowa is a small bedroom community in central Iowa, about 30 minutes outside of Des Moines. Originally built alongside a railroad in 1883, the town enjoyed healthy growth in its early years. A bank was needed to fund that growth and in 1943, the now 3-Star Maxwell State Bank was established to meet that need.
However, that growth is now in reverse. So the fact that Maxwell State Bank reported C&I lending growth of over 450% during 2021 is a bit curious. Here’s the scoop: Last September, a strategic partnership was formed whereby the business-to-business London Fintech company Baanx became the third largest shareholder of Maxwell State Bank. In addition to beefing up business lending (C&I lending at the bank represented 20% of Maxwell State Bank’s loan portfolio at June 30th and by the end of 2021 that was up to 38%), this new alliance is expected to focus heavily on crypto and cyber-security.
Next we turn our attention to a decidedly non-community bank 4-Star Signature Bank, NY, NY. From its website:
“We focus on serving the financial needs of privately owned businesses, their owners and senior managers – a group of clients who often find themselves underserved by the area’s larger financial institutions.”
That focus has served both the bank and its clients very well. Signature Bank was established just months before September 11th (2001) and has been there to help pick up the pieces of many calamities since. As of year-end 2021 data, Signature Bank is the 32nd largest U.S. bank by asset size, and the 12th largest C&I bank lender.
Page 7 concludes with two community banks, 4-Star Greenwoods State Bank, Lake Mills, WI (est. 1884) and 5-Star MVB Bank, Fairmont, WV (est. 1999). Community and business lending is not all these two banks have in common though. While still relying heavily on business lending, both banks have been moving loans away from embattled Commercial Real Estate (CRE) in favor of C&I.
Greenwoods State Bank saw its loan portfolio grow by about $76 million during 2021. During the year it was able to migrate a nice chunk from CRE (from 43% to 37.6%) to C&I (from 25.6% to 36.1%).
MVB Bank’s loan portfolio grew by over $400 million during 2021. CRE lending went from 39% of the total portfolio to 37% in 12 months while C&I grew from 30.7% to 34.4%. Some of that can be attributed to an increase of about $50 million in PPP during 2021.