Tag Archives: BB&T

Commercial Loan Growth Slows in 1Q14…But Remains Key Lending Category for Leading U.S. Banks

EMI analysis of 14 leading U.S. banks found 7.4% y/y growth in commercial and industrial (C&I) loans in the first quarter of 2014, down from a 7.9% y/y growth rate in 4Q13. Though three banks (Capital One, Fifth Third and Regions) reported double-digit loan growth, only Capital One exceeded the 4Q13 y/y growth rate. Six of the 14 banks—including two of the top three commercial lenders: Wells Fargo and Chase—had lower y/y growth in 1Q14 vs. 4Q13.

In addition, as banks compete aggressively for commercial loans in the current low interest rate environment, yields continue to decline. Of the 13 banks providing C&I loan yield data, all reported double-digit y/y basis point declines. Banks with the largest y/y declines included Fifth Third (-55 bps to 3.35%) and KeyBank (down 49 bps to 3.29%).  For nine of the 13 banks, yields are now below 3.5%.

In spite of the slight decline in C&I loan growth rates, this loan category continues to propel overall bank loan growth. While the 14 banks generated total y/y loan growth of 2% in 1Q14, their non-commercial loan growth was just 0.4%.

The following are four quick tips for banks to maintain—and even accelerate—commercial loan growth:

  • Target specific geographic markets or vertical industry segments, where the bank already has—or can quickly develop—dedicated capabilities
  • Re-commit to the small business segment by providing services and support tailored to their unique characteristics and needs
  • Develop initiatives to increase commercial loan utilization rates (which continue to trail historic averages for many banks, although many banks did highlight recent growth in utilization rates)
  • Identify and dedicate resources to capture growth in particular loan categories (such as CRE), which have been ignored in recent years in the aftermath of the financial crisis

 

Five Branch Channel Trends

At the recent Barclays Global Financial Services conference, presentations by leading U.S. banks highlighted the extent to which they are adapting their branch networks, based on the need to reduce costs, leverage new technologies, and reflect changing customer behavior.  The following are five branch channel trends that emerged from the conference:

  1. Reduction in branch numbers.  Many of the larger banks are closing unprofitable branches.  Bank of America and SunTrust both reported 7% falls in their branch numbers over the past two years.  BB&T cut its branch network by 3%.  According to FDIC data, there was a net decline of 839 branches in the year to June 30, 2013.
  2. Emergence of new branch models.  Banks are no longer following a one-size-fits-all model for branches, and instead are deploying different types of metrics based on a range of factors, such as market characteristics, branch density and competitive strength. First Horizon is piloting a concierge branch model in Memphis, Nashville and Knoxville, featuring no teller rows and staffed by universal bankers.  The Fifth Third micro-branch format, which it expects to pilot in the coming months, has 2-3 staff in self-service, non-cash-handling branches.
  3. Flagship branches and lower density. PNC presented its new hub-and-spoke branch model, which features an all-purpose universal branch surrounded by cashless branches, ATMs and electronic channels.  This comes as PNC plans to close 200 branches in 2013.  Other banks that have recently opened flagship stores include Bank of America, Citibank and Umpqua Bank.
  4. Overhaul of branch staffing and training. As branches process fewer everyday transactions, and the role of the branch shifts towards sales and customer relationship management, banks are reducing teller numbers while deploying additional specialists in branches.  In the first 6 months of 2013, PNC reduced its teller headcount by 6%, while growing investment professionals by 17%.  Bank of America claimed that its specialist headcount has grown to 6,800, with half of these based in branches.  In addition, banks are training and supporting staff to enhance their selling capabilities.  SunTrust reported that investing in training and technology for front-line retail staff resulted in a 30% rise in sales productivity (sales per FTE per day).
  5. Branch as beachhead. City National discussed the establishment of a branch in New York City, far from its Californian retail banking footprint. This branch is designed to support the bank’s targeting of the entertainment industry.  And other banks have established beachhead branches outside of their retail banking footprint, both to build brand awareness as well as support the banks’ commercial banking and capital markets activities, which tend to have nationwide reach.  This week, BB&T announced that it is establishing a presence in Chicago.  Earlier this year, BBVA Compass announced the opening of loan-production offices (focusing on commercial banking and wealth management) in New York and Washington, D.C.  And in October 2012, BMO Harris opened a corporate banking office in Atlanta.

EMI expects there will additional changes to branch deployment, design and staffing to its role fundamentally shifts away from everyday transaction processing, and more towards selling, providing advice, as well as branding.

Commercial Lending Trends in U.S. Banks’ 3Q12 financials

A noteworthy trend among large U.S. banks’ 3Q11 financials has been the significant rise in commercial lending. This continues a trend that has been evident in recent quarters. Of course, the current strong growth follows significant declines in commercial lending in 2008 and 2009 in the wake of the financial crisis.

Some of these banks have boosted overall commercial loan growth rates by targeting specific industry sectors. Comerica generated overall commercial loan growth of 21%, but grew its energy loan portfolio by 62% and its tech and life sciences portfolio by 36%. Other banks are following the industry targeting trend. Huntington recently launched a new energy lending initiative, and Associated Bank established a Healthcare Industry Banking Group.

It is notable, however, that uncertainty regarding the Presidential election and the looming fiscal cliff led to an overall 22 bps decline in y/y commercial loan growth rates between 2Q12 and 3Q12 for the 14 banks in our study, from 13.52% to 13.33%.

Although growth rates are robust, loan utilization rates remain relatively low, which can again be attributed to the economic uncertainty as well as many larger companies being flush with cash. The relatively low utilization rates indicate that commercial loans growth could accelerate once again if and when fiscal issues are resolved and economic confidence increases. And some banks are already seeing improved utilization rates:

  • Comerica’s utilization rate was 48.2% in 3Q12, having hit a low of 44.2% in 1Q11.
  • Regions’ utilization rate grew from 39.8% in 4Q10 to 44.4% in 2Q12.

Even as banks grow commercial lending, charge-off rates continue to decline. EMI’s analysis of charge-off data from 11 leading banks found an average commercial loan charge-off rate of 0.25% in 3Q12, down 29 bps year-over-year, and 11 bps from the previous quarter.

Finally, both low interest rates and increased competition continue to exercise downward pressure on commercial loan yields. Our analysis of yield data from 13 leading U.S. banks found that the average yield in 3Q12 was 3.81%, down 35 bps y/y and 19 bps q/q.