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More Loan Applications Approved-- Driven By Residential Construction And C&I

By Tahir Ali and Salman Aleem Khan and Andrew Wolcott

SNL Financial

Community banks grew their loan books in the fourth quarter, led by gains in residential construction and commercial lending. Banks under $10 billion in assets made gains from the previous quarter in every region of the country except the Southeast, with the biggest advances in the Mid-Atlantic and in New England, according to an SNL Financial analysis.

Overall, the median loan growth in the fourth quarter was 0.78%, despite weakness in home equity and consumer lending. During the fourth quarter, the "brightest" lending cross section came from New England residential construction, registering a 6.65% median increase. The "gloomiest" came in the form of West agricultural lending, logging a 7.49% median decrease quarter over quarter.

Geographical loan growth is based on company headquarters.

Many of the quarter-over-quarter lending trends hold true for year-over-year comparisons as well. New England lending continued to enjoy outsized gains, as Southeast lending abated. Commercial lending continued to build while home equity and consumer lending subsided.

When viewing the community bank lending picture from an asset size perspective, a few unique trends emerge. Larger community banks have been more successful in growing loan balances. Commercial banks with total assets between $1 billion and $10 billion saw a 1.52% median increase in lending during the fourth quarter, while banks with less than $100 million in total assets saw a .29% median increase. The same trend when viewed on a year-over-year basis becomes even more pronounced. Commercial banks with total assets between $1 billion and $10 billion saw a 5.81% median increase in lending over the past year, while banks with less than $100 million in total assets saw a .79% median increase. When digging into the lending gap, one particular loan product jumps off the page. Commercial loan balances at larger community banks have seen outsized gains in comparison to the balances at smaller peers, registering a 3.21% median increase during the fourth quarter and a 7.06% median increase over the past year.

Comparing lending trends at the 10 largest U.S. commercial banks to community banks with total assets under $10 billion reveals interesting comparisons. Median loan balances at community banks have increased 0.78% quarter over quarter, while seven of the 10 largest U.S. commercial banks have grown loans above 1.00%. Specifically, the two largest commercial banks, JPMorgan Chase Bank NA and Bank of America NA, both registered 2.50%-plus quarter-over-quarter changes in loan balances. Over the past quarter and year, the 10 largest U.S. commercial banks saw broad gains in commercial and consumer lending. Despite overall strong loan growth, there was significant weakness in residential construction lending. While this was a strength of community banks during the quarter, large banks shrank their portfolios. Of note, Capital One NA grew their loan book 81% year over year, largely due to acquisitions. In November 2012, ING Bank FSB was consolidated into Capital One NA, the commercial bank subsidiary of Capital One Financial Corp. Capital One also acquired card and retail services from HSBC Holdings Plc in May of 2012. Additionally, PNC Bank NA, the commercial bank subsidiary of PNC Financial Services Group Inc. acquired RBC Bank (NYSE:USA), a former unit of Royal Bank of Canada on March 2, 2012.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.