Commercial lending has continued to surge outside of the largest U.S. banks — growth that analysts attribute to the funding of hundreds of billions of dollars of federally backed small business loans under the government's coronavirus relief effort.

Excluding the 25 banks with the most assets, commercial and industrial lending increased by 10.7%, or $82 billion, during the week ended April 22, according to seasonally adjusted data in the Federal Reserve's most recent H.8 report on commercial banks operating in the U.S. That represents an acceleration from growth of 6.7%, or $48.18 billion, during the week ended April 15.

"The spike in the small bank trend likely reflects [Paycheck Protection Program] loan funding, a trend which we expect will continue to skew the data next week" because a second round of funding under the program is underway, Compass Point analyst David Rochester said in a May 1 note.

Loan growth in the first quarter had been driven by corporate line draws from large banks, but "there has been a shift in leadership to the small banks as small [and medium-sized] enterprises begin to receive payouts from the Paycheck Protection Program," analysts at Keefe Bruyette & Woods wrote in a May 3 note.

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The second round of the PPP launched on April 27, adding about $310 billion to the roughly $350 billion authorized in the first round in early April. Under the program, the government will convert loan amounts used on payroll and other expenses into grants.

The Small Business Administration reported that $175.74 billion of loans had been approved through May 1 in the second round so far, with a little more than half being originated by banks with more than $50 billion in assets, and the rest originated by smaller banks and nonbanks, including financial technology companies.

Among the 25 banks with the most assets, C&I lending increased 1.1%, or $16.82 billion, during the week ended April 22, compared with a decrease of 0.4%, or $6.16 billion the week prior. Rochester said he expects line draws to remain on balance sheets over the near term, but that healthy commercial borrowers will ultimately seek to repay the loans by issuing bonds in what "could represent a potential drag on C&I loan growth at the larger banks over time."

With the economy tanking because of the pandemic and efforts to control it, loan growth outside the PPP is hard to come by for many banks. Synovus Financial Corp. said during its first-quarter earnings report that the program will become its "primary engine for loan growth." On its first-quarter earnings call, BankUnited Inc. Chairman, President and CEO Rajinder Singh said, "You could rename BankUnited for the month of April as 'Bank of PPP.' That's like all we've been doing."

Across the industry, credit card loans extended a rapid contraction, declining 2%, or $15.66 billion, in the week ended April 22. Credit card balances have tumbled 8.5%, or $72.82 billion, since March 4, mirroring a collapse in consumer spending as COVID-19 and stay-at-home orders have put an end to most travel and dining in restaurants, and reverberated across a range of other activities. Year over year, card lending is down 4.1%, the largest drop since 2011, in the aftermath of the previous recession.

Deposit growth continued to be strong, although the 25 largest banks by assets posted a 1.4% increase in deposits in the week ended April 22, trailing an increase of 2.8% across the rest of the industry. Companies including BankUnited and Prosperity Bancshares Inc. have said that PPP funds that borrowers have not yet used have helped to boost deposit levels.

With much of the recent bank borrowing likely to be repaid relatively soon, and with clients maintaining large amounts of cash, banks have also continued to add to their liquidity. Across the industry, cash holdings, including reserves at the Fed, increased 17.4%, or $476.58 billion, from April 8 to April 22.