Shares of Citizens Financial Group rose 2 cents a share Friday, when most U.S. stocks fell, after the Rhode Island-based owner of Citizens Bank of Pennsylvania reported that first-quarter profits reached $388 million, from $320 million last year, fueled by the Trump tax cuts.
But bank loans — a sign of economic growth — barely budged, at Citizens and most of its rivals, quarterly reports show.
"Sagging industry trends" saw Citizens loans rise just 2.4 percent, and fee income was weaker than expected, noted bank analyst R. Scott Siefers to clients of Sandler O'Neill & Partners, New York.
Beneficial Bancorp. and Bryn Mawr Bank Corp., which also reported profits Friday, also posted modest loan growth, not the strong lending typical of an economic expansion.
But stay turned, bankers say.
"We will see an acceleration in loan demand as the year goes by," predicted Citizens CEO Bruce Van Saun. He noted that corporate borrowers had rushed to lock in cheap rates by expanding their credits in 2015 and 2016 after the Federal Reserve announced plans to boost interest rates over the next few years.
After Trump was elected, borrowers felt better about business prospects, but still "hung back waiting for tax reform and excess regulation to be peeled back." Now that the president and the Republican Congress have delivered, "that bodes well for the economy. But it doesn't turn on a dime."
If corporate lending is slow, "family-owned, middle-market companies continue to invest in themselves," added Daniel Fitzpatrick, who heads Citizens in Pennsylvania. During the quarter, Citizens lent Holt Logistics Corp. $20 million to ship parts of some giant cranes up the Delaware River to install at Philadelphia's Packer Avenue terminal. And it provided expansion capital for Jerry Parsons' Communications Test Design Inc. (CTDI), which develops and repairs telecom equipment globally from its West Chester base. "These companies put Philadelphia on the map."
Looking ahead, Van Saun expects "a record level" of Citizens' business borrowers are going to buy other companies with their tax savings this year, now that "they have the confidence to go out and do deals… I think quarter two will be stronger than quarter one, and the second half will be stronger than the first half."
Will Citizens use its own tax gains to raise wages as Wells Fargo & Co. and Philadelphia-based Beneficial have pledged? Van Saun said Citizens has had to raise entry-level wages and those of others in metro markets like Philadelphia, but pay remains lower in its other East Coast and Midwestern markets "Our goal is to pay fairly," given local conditions.
Is Citizens facing tougher competition from smartphone-app-based, branchless lenders and from industry leader JPMorgan's plan to open branches in the Philadelphia and Boston markets?
Van Saun noted that Citibank spent millions in the 2000s, building its own new Northeast branch network, only to "turn tail and pull out" of Philadelphia and Wilmington in 2013. Van Saun says he reminds managers that Citizens will keep its clients, no matter the competition, if it offers attractive products and services.
While Citizens and other corporate-size lenders brace for new competition, Bryn Mawr Bancorp, one of the region's biggest independent banks, is in "the ideal position to mine the gap in the Philadelphia market" left by the disappearance of local lenders since the banking crisis 10 years ago, wrote analyst Matthew Schultheis to clients of Boenning & Scattergood, the West Conshohocken-based brokerage.
Bryn Mawr has been picking up clients disaffected by larger banks. Schultheis boosted his projections for Bryn Mawr's profits in 2018 and 2019 as it absorbs the former Royal Bank of America, the Narberth bank it bought last year.