Commercial loan growth momentum continues at leading U.S. banks

In spite of the continued economic uncertainty, U.S. banks continue to enjoy strong growth in commercial lending. A study of the 2Q12 financial results of 14 leading U.S. banks revealed that 11 grew average commercial loans by double-digit rates. In addition, 11 banks had higher year-over-year growth rates in 2Q12 than in 1Q12.

13 of the 14 banks reported growth in commercial loan portfolios between 1Q12 and 2Q12.

Looking at specific banks:

  • Commercial loan growth was led by PNC, although it should be recognized that PNC completed the acquisition of RBC Bank in 1Q12, which significantly skews the data.  PNC recorded above-average growth rates for financial services and health care loan portfolios.
  • U.S. Bank had the second-largest y/y growth rate, at 24%, led by a 52% rise in its specialized industries portfolio.
  • Comerica increased its average commercial loan portfolio 20% y/y, driven by a 46% rise in its specialty lending portfolio. (Over the past year, Comerica grew its energy loan portfolio by 68% and its tech and life sciences portfolio by 36%.)
  • KeyBank’s average commercial, financial and agricultural loan portfolio grew 19% y/y. KeyBank reported that its commercial loan utilization rate has been increasing in recent quarters, from 43.4% in 2Q11 and 46.9% in 1Q12 to 47.3% in 2Q12.
  • Chase grew commercial banking average loans 16% y/y, driven by a 42% rise in its corporate client banking loan portfolio (which covers clients with $500 million to $2 billion in annual revenue).
  • Bank of America was the only bank to report a quarterly decline in its average commercial loan portfolio (-2.7%). In addition, it had the second-lowest y/y growth rate (of 6.1%).

Most of the banks are reported improvements in commercial loan charge-off rates.  However, yields on commercial loans continue to fall. All 12 of the banks reporting commercial loan yield data had y/y declines, but it’s important to note that 4 of the 12 (PNC, Wells Fargo, BB&T and M&T) reported an increase in commercial loan yields between 1Q12 and 2Q12.

Strong growth in commercial lending by large U.S. banks

Much of the coverage of U.S. banks during the 4Q11 earning reporting period focused on their continued struggles to generate revenues, with some noninterest income categories under pressure. However, most of the big banks did show signs of growth in lending, with commercial lending at the forefront.

The table below looks at y/y and q/q changes in average non-CRE commercial loan portfolios for some of the leading U.S. banks.  Of the 12 large banks listed below, eight enjoyed double-digit average commercial loan growth over the past year.

In reporting quarterly financials, most banks indicated strong potential  for additional commercial lending growth in 2012, although most were at pains to point out that this is dependent on continued economic recovery and improving business confidence.

Of course, the strong growth in 2011 follows declines in loan portfolios in 2008 and 2009, and relatively anemic growth for many leading banks in 2010.  Due to acquisitions and changes in organizational structures, long-term comparisons are not always relevant, but in many cases, leading banks have a long way to go to build average commercial loan portfolios up to pre-financial crisis levels.  And banks also need to recognize that, while an improving economy, should boost overall commercial lending, they will need to make significant investments in marketing and sales to maintain and even build their share of the commercial loan market.