February 9, 2017 / 8:40 PM / a year ago

Fitch: Rising Rates, Growth and M&A Key for U.S. Midtier Banks

(The following statement was released by the rating agency) CHICAGO, February 09 (Fitch) Pockets of loan growth for midtier banks have been very strong relative to the industry and other peer groups, according to a new report from Fitch Ratings on its U.S. Midtier Regional Bank peer group. In Fitch's view, this is potentially indicative of loosening credit standards or pricing to win business from larger banks, some of which have communicated low single-digit growth forecasts for 2017. Growth has been exceptionally outsized at BankUnited (BKU), UMB Financial Corp., Hilltop Holdings, Wintrust Financial Corp (inclusive of acquisitions) and First Republic Bank. "Some midtier banks have built out various verticals in order to diversify their loan portfolios, mainly through the hiring of front-line individuals at larger banks. We see particularly strong growth in multi-family mortgage, non-owner-occupied commercial real estate and construction and development, all asset classes that are experiencing stiff competition within the industry," said Bain Rumohr, Director, Fitch Ratings Fitch completed a peer review of the midtier regional bank peer group in January 2017 which includes 14 midtier banks. At that review, Fitch downgraded UMB Financial Corp.'s (UMBF) ratings and revised its Rating Outlook to Stable from Negative. At the same time, Fitch revised the Outlooks for BOK Financial Corp. (BOKF) to Stable from Negative and First Horizon Corp. (FHN) to Positive from Stable. The ratings of these two banks were affirmed. A rising interest rate environment could also have varying impacts on midtier U.S. banks. While some banks are better positioned for the rising interest rate environment according to rate sensitivity disclosures, there could be some divergence between disclosed rated sensitivity and actual results over the next 12-18 months for other banks. Banks that are best positioned include East West Bancorp, Inc (EWBC), Wintrust Financial Corp. (WTFC), and TCFC Financial Corp. (TCB). "While most of the midtier banks have attempted to position balance sheets to take advantage of rising rates, some banks may not fare as well as planned particularly if loan demand picks up and deposit competition intensifies due to larger banks' liquidity coverage ratio requirements, " added Rumohr. Asset quality has continued to improve nominally and nonperforming assets and net charge-offs (NCOs) are down year over year. Moreover, Fitch believes midtier banks within the peer group are appropriately capitalized relative to their ratings and liquidity levels remains strong. Given increased stock valuations following the 2016 presidential election, Fitch expects stronger firms may have increased appetite for M&A activity in 2017. Fitch expects M&A activity to be reasonable in size, in geography and within the banks' core competencies. The report, "US Banks: Periodic Midtier Regional Peer Review" is available at www.fitchratings.com or by clicking on the link. Contact: Bain Rumohr, CFA Director +1-312-368-3153 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 Joo-Yung Lee Managing Director, Financial Institutions +1-212-908-0560 Christopher Wolfe Managing Director, Financial Institutions +1 212 908-0771 . Media Relations: Hannah James, New York, Tel: + 1 646 582 4947, Email: hannah.james@fitchratings.com. Additional information is available at www.fitchratings.com Related Research U.S. Banks: Periodic Midtier Regional Peer Review here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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