Midsize lenders thrived in the third quarter. Can it last?

Big banks reported their third-quarter earnings last week, and some reported weaker-than-expected revenue from their trading desks and from advising mergers and acquisitions — two lines of business that have been volatile this year.

On Tuesday morning, midsize lenders like KeyCorp, Mercantile Bank, and Atlantic Union Bank — among other regional banks — turned in their reports. Regional banks don’t advise many big corporate deals or trade much the stock or bond market. But they do make plenty of loans — especially to midsize companies.

“It’s going to be the big health care companies in town, or it’s going to be large regional employers,” said Nate Tobik, founder of CompleteBankData.

Several regional banks have reported that loan demand from those kinds of companies has been strong lately. Tobik said that’s in part because companies borrowed a lot right after the pandemic, back when rates were low.

“Typically, commercial loans have a five-year reset period,” he said. “And so, that enormous bubble of initial financing that happened right after COVID is all coming up on its reset right now.”

That means borrowers are going to have to refinance those loans at much higher interest rates.

But Jeffrey Roach, chief economist with LPL Financial Research, said that many banks have been trying to keep their rates competitive to win over new customers.

“Which suggests that banks are willing to take on a little bit of that risk,” Roach said, “and seeing that the demand is stable, and the corporate sector is stable.”

Roach said that companies are feeling stable, because consumer demand has been stable.

“We have not seen an increase in unemployment,” he said. “So, we really haven’t seen pressure on the income side. Hence, you still see fairly healthy demand.”

But remember, these earnings reports only cover the third quarter of this year.

“It didn’t fully incorporate the effects of the Federal Reserve raising rates,” said Mayra Rodríguez Valladares, managing principal at MRV Associates, which advises lenders on risk. “If the Fed continues to raise rates — even if it doesn’t do so before the elections, let’s say it does so afterward, or in 2027 — you’re going to start to see loan demand going down.”

And then, Rodríguez Valladares said that banks might start getting pickier about the borrowers they want to lend to.