Tag Archives: Huntington

Stellar Commercial Lending Growth for U.S. Banks

An analysis of leading U.S. banks’ first quarter 2012 financial results reveals strong growth across the board in average commercial loan balances. This growth is largely due to the economic recovery following the Great Recession. Of the 14 banks studied, 11 recorded double-digit year-on-year increases in their portfolios.

This growth momentum has been maintained in recent quarters, with all banks reporting growth in average commercial loans between 4Q11 and 1Q12, and five having quarterly growth rates of more than 5%. As with the y/y growth, quarterly growth rates were strongest for PNC (+11%, boosted by the acquisition of RBC Bank) and Key (+7%).

Bank are further boosted by the fact that most reported commercial loan charge-off rates declines over the past year. However, increased competition for commercial loans has led to most banks reporting declines in loan yields over the past year.  PNC’s yield on its commercial, financial industrial loans fell 53 basis points (bps) between 1Q11 and 1Q12.  Other banks with substantial declines in commercial loan yields during this period include SunTrust (-47 bps), U.S. Bank (-42 bps), KeyBank (-55 bps) and BB&T (-31 bps).

Banks expect that commercial loans will continue to grow over the next few quarter (barring an unexpected economic crisis) and are pursuing a number of approaches to grow their commercial franchises.

  • Targeting high-potential segments: A number of banks are focusing on particular industry segments. PNC’s overall commercial growth was driven by strong performance in lending to health care and financial services firms. Comerica’s energy portfolio grew by 62%, and its tech and life sciences portfolio increased by 38%. Banks are also targeting different business-size segments, such as middle markets (Chase grew its middle market loan portfolio 19% y/y).
  • Building commercial deposits and cross-selling commercial clients:  Capital One grew commercial deposits 15% y/y. And when banks bring in these new commercial deposit relationships, they then need to develop effective cross-sell programs. Huntington reported a 33% annualized increase in commercial deposits in 1Q12. It also claimed that 33% of commercial clients had 4+ products in 1Q12, up from 25% in 1Q11.
  • Encouraging commercial clients to increase line utilization. Line utilization declined significantly following the financial crisis, as businesses retrenched. Many banks reported that utilization rates remained relatively low in the most recent quarter, but some banks are seeing some improvement. Regions reported a 45 basis point increase in utilization.

Huntington on track to meet small business lending commitment

At the start of 2010, Huntington Bank committed to lend $4 billion over three years to small businesses in its footprint, joining leading banks like Chase, Bank of America and Wells Fargo in making specific small business lending commitments.

Huntington reported yesterday in a press release that it lent $1.1 billion to small businesses in 2010, with an acceleration in this lending in the second half of the year, which the bank attributed to an improving economy as well as the completion of its hiring of 150 additional business bankers.  Huntington claims to be on track to meet its three-year goal.

This press release follows news in recent weeks that Chase and Bank of America both met their 2010 small business lending commitments.  Wells Fargo fell short of its target, although it still grew small business lending by 15% in 2010, and reported strong growth in loan demand from small businesses in the second half of the year.

It should be noted that small business loan balances for many large banks continue to decline year-over-year, as charge-offs and paydowns outstrip origination.  However, we may be on the cusp of an inflection point , with declining charge-offs and increasing originations leading to overall growth in small business loan portfolios in the coming quarters.

The sales and marketing challenges for banks aiming to capture a share of the small business market include:

  • Positioning themselves as a financial partner to small businesses, providing both financial products and advice
  • Revisiting the small business product portfolio to ensure that it addresses the changing financial needs of small businesses
  • Developing offers and bundles to reflect banks’ renewed focus on relationship optimization
  • Ensuring that all service channels (branch, call center, Internet, mobile, social media, etc.) deliver a consistent customer experience
  • Recruiting, training and developing support tools for dedicated business bankers
  • Implementing programs and process for other branch personnel to sell to small businesses and/or refer them to business bankers