A sequential decline in Paycheck Protection Program loans led to slower median loan growth at U.S. community banks in the third quarter.

Median loan growth at U.S. community banks with less than $10 billion in assets slowed to 0.6%, from 6.8% in the second quarter. Excluding PPP loans, third-quarter median loan growth was also 0.6%, compared with a 0.1% decline in the previous quarter.

At the smallest community banks, those with less than $100 million in assets, gross loans including PPP loans grew a median 5 basis points in the third quarter. At community banks with between $100 million and $3 billion in assets, gross loans grew a median 0.7%, and at community banks with between $3 billion and $10 billion in assets, loans grew a median 0.8% quarter over quarter.

By comparison, at banks with more than $10 billion in assets, loans grew a median 1 basis point compared with the second quarter.

Community banks in the Southeast posted the highest median quarterly loan growth at 1.2%, while similarly sized banks in the Northeast posted the weakest growth at 0.1%.

Wilmington, N.C.-based Live Oak Banking Co., one of the nation's largest community banks with less than $10 billion in assets, reported that 28% of its total loan portfolio consisted of PPP loans as of Sept. 30.

During the company's third-quarter earnings conference call, Live Oak Chairman and CEO James Mahan said the U.S. Small Business Administration's subsidy helped drive the company's $966 million in third-quarter loan originations.

"Forty percent to 33% would probably be from the subsidy," he said. "We did almost 12,000 PPP loans totaling $1.8 billion, and that gave us many more looks than we would have had."