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Out west, CRE spurs small bank lending

What do regulators have waiting in the wings?

SNL Financial, part of S&P Global Market Intelligence, is the premier provider of breaking news, financial data, and expert analysis on business sectors critical to the global economy. This article originally appeared on the subscriber side of SNL Financial's website. SNL Financial, part of S&P Global Market Intelligence, is the premier provider of breaking news, financial data, and expert analysis on business sectors critical to the global economy. This article originally appeared on the subscriber side of SNL Financial's website.

By Kate Garber and Mohammad Eazaz Khan, SNL Financial staff writers

Median linked-quarter loan growth for banks under $10 billion in assets was 0.65% nationwide. CRE loan growth was likewise 0.65%. Overall loan growth was highest in the West, driven by CRE lending.

Aaron Deer, an analyst at Sandler O'Neill & Partners, called CRE a "bread-and-butter product" for community banks. He noted that that many banks have grown more cautious about the multifamily space, and that commercial and industrial balances are typically weaker in the first quarter.

Amid the growth, Stephen Klein, a partner at Miller Nash Graham & Dunn LLP, said there is concern in the industry that regulators will impose limits on CRE concentrations.

In recent months, regulators have ramped up their focus on CRE. The Federal Reserve, OCC, and FDIC reminded banks in December 2015 of previously issued guidance on CRE, saying they will pay "special attention" to banks with higher concentrations in these loans.

Deer said that regulators are "mindful" of the clip at which CRE prices rose in the recent past, so they are prompting banks to be careful in managing those loans.

http://www.bankingexchange.com/images/Dev_SNL/51716_CommBanksMedianLoan.jpgClick on the image to enlarge it.

Median loan growth in the West was 1.82% during the first quarter, and CRE loans rose 2.21%. This was slightly higher than the 1.36% median growth in the Mid-Atlantic, where CRE loans climbed 2.13%.

Deer said the West has benefited from strong growth markets and high-performing economies. "The Western markets have had better than average loan growth for some time," he said. "Commercial real estate drove a big part of that."

Some banks in the West touted their solid CRE loan growth during first-quarter earnings calls and downplayed concerns about risks cropping up in their portfolios.

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Executives from Irvine, Calif.-based Opus Bank highlighted the performance of the multifamily lending platform amid record first-quarter loan origination volume.

"In spite of industry chatter about commercial and multifamily real estate, we have tremendous confidence in our ability to continue growing our leading multifamily lending platform," said co-president Michael Allison. "Multifamily lending on the West Coast remains a more favorable market environment than comparable East Coast ultra-competitive markets, which have experienced compressed pricing."

In Los Angeles, Preferred Bank Chairman and CEO Li Yu said that the $2.68 billion bank is "conscientiously" trying to manage its CRE lending as it grows. Yu said that conversations the bank has had with regulators indicate that the regulatory warnings about concentrations are a governmental reminder of a "guideline." He said that by no means is the government "trying to regulate us not to exceed that particular limitation."

"If you exceed that, you should intensify the procedure of your monitoring and your loan process," Yu added.

http://www.bankingexchange.com/images/Dev_SNL/51716_CommBanksLoanGrowthGeo.jpgClick on the image to enlarge it.

This article originally appeared on SNL Financial’s website under the title, "Out west, CRE spurs small bank lending"

SNL Financial

SNL Financial, now part of S&P Global Market Intelligence, is the premier provider of breaking news, financial data, and expert analysis on business sectors critical to the global economy: Banking, Insurance, Financial Services, Real Estate, Energy, Media & Communications and Metals & Mining. SNL's business intelligence service provides investment professionals, from leading Wall Street institutions to top corporate management, with access to an in-depth electronic database, available online and updated 24/7. This article originally appeared on the subscriber side of SNL Financial's website in slightly different form and appears on www.bankingexchange.com as part of a cooperative venture. Each week a selected SNL article will be brought to our readers. Click here to learn more about SNL Financial and to obtain a free trial subscription. 

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