Here is the macro-level summary:
Most Districts described loan demand as mixed or slightly improved since the last report. Consumer loan demand showed some improvement in the Cleveland, Richmond, and St. Louis Districts, but held steady or weakened in the New York, Atlanta, Dallas, and San Francisco Districts. Demand for residential mortgages (including new purchases and refinances) increased in Cleveland but held steady in New York, Richmond, St. Louis, and Kansas City. Contacts in the Philadelphia, Cleveland, Richmond, Atlanta, Chicago, Dallas, and San Francisco Districts noted a modest uptick in business loan demand. The increase in business loan demand in Cleveland was described as broad-based, including a pickup in construction loan requests for multi-family dwellings. Boston noted an improved lending environment for commercial real estate, and demand for commercial mortgages increased in New York and Dallas. Commercial and industrial loan activity increased in Richmond, Chicago, St. Louis, Dallas, and San Francisco, held steady in New York, and decreased in Kansas City. Outside of banking, Chicago and San Francisco indicated increased investment activity by hedge funds, venture capital firms, and other forms of private equity.
Credit standards were reported to be mixed but, on balance, a bit easier in recent weeks. New York, Cleveland, and Atlanta noted increased credit availability for automobile loans; Atlanta, Minneapolis and San Francisco indicated easier credit for some types of business loans. Boston reported some easing in commercial real estate lending, but New York reported tighter standards in that segment. Credit standards on home mortgage loans tightened somewhat in the St. Louis District. A number of Districts noted improvements in overall credit quality: specifically, Philadelphia, Cleveland, Richmond, Kansas City, Dallas, and San Francisco. New York indicated rising delinquency rates on consumer loans but declining rates on commercial loans and mortgages.
Overall, the macro level numbers are good. A majority of districts reported an increase in loan demand, and the demand appears across a variety of loan types: residential, construction and commercial and industrial. In addition, credit standards are easing across a variety of loan types.
Let's take a look at individual districts:
NY: Reports on loan demand were mixed: small to medium sized banks indicate a decrease in demand for consumer loans, an increase in demand for commercial mortgages, and no change in the demand for residential mortgages and commercial and industrial loans. Respondents indicate no change in credit standards for the household sector but a tightening of standards for commercial loans and especially commercial mortgages. Bankers report a decrease in spreads of loan rates over costs of funds for all loan categories--particularly on residential mortgages. There were also fairly widespread decreases in deposit rates. Finally, delinquency rates rose for consumer loans but decreased for commercial mortgages and, to a lesser extent, on commercial and industrial loans. Delinquency rates on residential mortgages were unchanged.
Philly: Third District banks contacted in May gave mixed reports on loan volume outstanding. Some posted increases in consumer and business loans, but others reported drops in these categories since the last Beige Book. On balance, total credit extended by banks in the region has been flat in recent weeks. Although some bankers have had recent increases in loan demand from small and medium businesses, most said demand for credit from this sector has been weak. "Loan demand hasn't moved at all," one said, even as competition among lenders has increased. Most of the banks surveyed in May indicated that credit quality has been improving, although some said the pace of improvement has been slow. Looking ahead, the general view among the region's bankers is that loan demand will move up slightly, at best, in the near future.
Cleveland: Demand for business loans was stable or grew at a modest pace. Industries driving loan demand were broad-based, with a few of our contacts noting a pick up in construction loan requests for multi-family dwellings. On the consumer side, demand for home equity lines of credit and vehicle purchases (direct and indirect) remains strong, while activity in other installment loan categories was weak. Interest rates for business and consumer credit were stable, but competitive. Half of our contacts noted an uptick in the residential mortgage market, with activity equally distributed between refinancing and new purchases. Overall core deposits continue to grow, especially in demand accounts. The credit quality of business and consumer applicants was characterized as steady or improving. Delinquency rates were stable or trending down across loan portfolios, with the exception of real estate. Staffing levels have shown little change during the past few weeks, and about half of our respondents said that they expect some selective hiring to occur during 2011.
Richmond: Lending activity posted modest but broad-based gains across the District over the last few months. Commercial and industrial lending expanded, especially for capital equipment and storage facilities. Several community bankers also cited increasing loan demand from small businesses. These borrowers had new orders from large manufacturers, who were subcontracting to keep up with demand. Consumers were starting to use credit cards again, according to several lenders, and were increasingly seeking financing for autos and home improvements. However, a contact at a large bank in North Carolina reported making very few home equity loans, and most bankers reported seeing little new mortgage lending activity. Most lenders cited improvement in their balance sheet quality, with delinquencies and charge-offs down markedly.
Atlanta: Businesses outside of the construction and real estate segments reported a slight improvement in credit availability. Banking contacts remarked that business loan demand had improved modestly, but new firms had difficulty qualifying for credit because of their inability to meet cash flow requirements. Bankers indicated that consumer loan demand remained flat as consumers continued to pay down equity and consolidate debt. Credit availability for auto loans continued to improve. Some firms continued to rely on cash reserves for capital expenditures and expansions. District banks also noted an increase in credit requests from agriculture customers.
Chicago: Credit conditions continued to improve in April and May. Corporate funding costs for a number of large firms in the District decreased, and contacts noted that liquidity in corporate credit markets remains ample. Banking contacts reported a slight increase in business loan demand. Although much of this continued to be refinancing of existing debt, contacts noted that they were starting to see more new commercial and industrial loans in the pipeline. Credit availability, however, remained an issue for some small business borrowers. A contact noted that larger banks have recently begun to return to small business lending, but that the loan capacity of community banks who have traditionally serviced this segment is still impaired. Outside of banking, conditions in the municipal bond market improved and there was an increase in investment activity by hedge funds, venture capital firms and other forms of private equity.
St. Louis: A survey of senior loan officers at a sample of large District banks indicates little variation in overall lending activity in the first quarter of 2011 relative to the fourth quarter of 2010. During this period, credit standards for commercial and industrial loans remained unchanged, while demand for these loans ranged from unchanged to moderately stronger. Credit standards for commercial real estate loans were unchanged, while demand ranged from unchanged to moderately weaker. Meanwhile, credit standards for consumer loans remained unchanged, while demand ranged from about the same to moderately stronger. Credit standards for residential mortgage loans ranged from unchanged to somewhat tighter, while demand ranged from moderately weaker to moderately stronger.
KC: Bankers reported generally stable loan demand, increased deposits, and improvements in loan quality. Overall loan demand was stable to slightly lower in some cases. Demand for commercial and residential real estate loans was generally unchanged, while demand for commercial and industrial loans and consumer installment loans decreased. Credit standards largely remained unchanged in all major loan categories. Deposits increased for the third straight survey. Bankers reported improvements in loan quality compared to a year ago, and the outlook for loan quality was more favorable. The majority of bankers expected bank employment to remain unchanged over the next year, citing low expected growth, cost constraints, and uncertainty about regulations and government policies as the major reasons restraining hiring plans.
Dallas: Financial firms reported steady overall loan demand. Large banks with a national footprint reported some pickup in commercial and industrial loan demand with increased corporate activity, and commercial real estate (CRE) activity has shown recent improvement as well. Regional banks noted that loan demand remains pretty flat, although optimism persists for pockets of homebuilding and some CRE lending across the state. Demand for auto and consumer loans declined. Contacts continue to note that loan pricing remains aggressive amidst a highly competitive lending landscape. Outlooks are generally positive in light of better outstanding loan quality and continued slow improvement in lending conditions.
SF: Reports from District banking contacts indicated that loan demand and overall credit quality rose modestly since the last reporting period. Businesses in some areas have exhibited a slight increase in their willingness to engage in expansionary capital spending, which caused demand for commercial and industrial loans to rise. Demand for consumer credit remained largely stable. Despite improvements in overall credit quality, lending standards remained relatively restrictive for many types of consumer and business loans. However, contacts reported that competition among lenders to extend credit to well-qualified small and medium-sized businesses has continued to intensify, placing downward pressure on rates and fees. Contacts also pointed to continued growth in venture capital financing activity, driven primarily by investments in the Internet and digital media sectors.
Notes in no order of importance:
-- NY and Philly accounted for the lions share of negative news; outside of these districts, the reports were generally better.
-- Credit quality is improving
-- Small business is still having problems acquiring credit
-- Alternate financing -- venture capital, private etc.. -- is increasing the role it plays.