Leading U.S. Banks Continue Robust C&I Loan Growth

August 14, 2015

The leading U.S. banks reported a 10% y/y rise in average commercial and industrial (C&I) loans in 2Q15, based on an EMI analysis of the FFIEC call report data.

Interest income on C&I loans rose 5% y/y, indicating that downward pressure on commercial loan pricing persists. This is reflected in the following table, which shows consistent y/y declines in commercial loan yields. However, there are signs that yield are now stabilizing.

Most leading banks report that the commercial loan market is highly competitive. So, how are banks managing to grow their C&I loan portfolios at double-digit rates?

Banks are targeting specialty segments. Many leading banks reported that targeted vertical segments drove overall commercial loan growth in the second quarter. Comerica’s average technology and life sciences loans rose 20% y/y, compared to only 3% for total Comerica middle market loans. And while KeyBank grew its commercial, financial and agricultural loans by 12%, loans to the transportation sector grew by a hefty 42%. A bank’s selection of target segments depends on a number of factors, including segment size and growth, concentration of specific segments in their footprint; and the bank’s heritage in serving this segment. To more effectively build a presence in specific vertical markets, many banks are now creating dedicated teams that include industry experts. In addition, a number of banks are developing segment-specific content, which both establishes bank credibility and creates opportunities for prospect engagement.
There are signs of growth in commercial loan utilization. As the economy and business optimism improves, companies are more inclined to invest to grow their businesses. A number of banks are now reporting a slow-but-steady rise in commercial loan utilization. Regions reported a 97 basis point increase in line utilization during the quarter. Equally, Fifth Third’s commercial line utilization rose from 32% to 33% in the second quarter.
Banks are increasingly focused on optimizing commercial client lifetime value. As in consumer banking, banks are seeking to optimize relationships with commercial clients by taking a lifetime value approach and focusing not just on acquisition, but on all key stages of the relationship (including onboarding, retention and cross-sell). The effect of this approach for banks can be significant. Since the start of 2010, Huntington Bank has grown commercial relationships by 36%, but commercial relationship revenue by 72%. The percentage of Huntington’s commercial clients with 4+ services rose from 32.6% to 43.4% over the past three years. This long-term perspective may also help explain why yields on new commercial remain low. In discussing its quarterly financials, KeyBank claimed that “if we believe we have a client who wants a broad relationship and the credit metrics look good for us, we know that over time we can generate a profitable relationship, even if we are pressured a bit on the loan pricing.”

FDIC bank data shows continued C&I–and even some small business–loan growth

February 27, 2013

This week, the FDIC published end-4Q12 data for all U.S. banks showing that U.S. banks’ commercial and industrial (C&I) loan portfolios rose 12% in the year to end-4Q12. This marks the sixth consecutive quarter with double-digit y/y growth, although the rate of increase has fallen from a high of 16% in 2Q12.

Banks are increasingly looking to commercial lending as a way to grow their overall business, but they are concerned that the current growth rate can be sustained, in particular given the precarious nature of the U.S. economic recovery. The following chart shows that the strong growth rates over the past two years has resulted in C&I loan portfolios returning to levels seen just prior to the financial crisis.

The data also shows a market difference in C&I loan portfolio growth performance by different bank-asset classes, with larger banks significantly outperforming those with less than $1 billion in assets.

Although banks’ C&I loan portfolios have recovered strongly in recent years following the financial crisis, small business loan portfolio growth remains elusive. The FDIC started to report small business loan data in 1Q10, and since then small business loan portfolios have decreased by 10%. However, there are signs that this period of decline has finally bottomed out, with a y/y increase of 0.4% at the end of 2012.

As with their overall C&I loan portfolios, larger banks–led by banks with $1-$10 billion in assets–reported strongest small business loan portfolio growth, while community banks with less than $100 million in assets saw a 13% y/y decline in their small business loan portfolios.

Growth in middle market commercial lending

April 27, 2011

Recent articles in the Wall Street Journal and American Banker both discuss growth in U.S. banks’ commercial and industrial (C&I) lending. This growth in business lending has come at a time when banks are striving to find ways to catalyze revenue growth.

Banks’ first quarter financials shows particularly strong growth rates in lending to mid-sized commercial clients. The following table shows that for some leading U.S. banks (who break out C&I loan portfolio), middle market lending was stronger than overall C&I lending in the most recent quarter (the exception to this was at U.S. Bank).

Bank	4Q10-1Q11 Change in Average Loan Portfolio
Bank	Middle Market	C&I
Chase	+4.5%	+1.2%
Comerica	+0.8%	+0.1%
Key	+1.0%	-3.4%
U.S. Bank	+3.8%	+4.5%

In addition, banks reported growth in credit line utilization rates in 1Q11, in some cases for the first time in many quarters:

Bank of America reported that its middle market revolver utilization rate rose to 35%
Wells Fargo announced that its wholesale line utilization rate rose by 50 bps in the quarter to 33%
Chase middle market line utilization increased 100 bps in the quarter to 35%