Loan Volume At Largest U.S. Banks Remains Healthy

The total amount of outstanding loans in the banking industry in a given period is often used as a benchmark to gauge the overall health of the economy. The reason for this is that a steady growth in demand for loans by individuals and companies indicates that they are optimistic about the future, and don’t anticipate problems in their ability to repay any debt they take on.

As the trend in the loan portfolio of the country’s biggest banking institutions should mirror that of the industry as a whole, one can get a pretty good picture of the prevailing economic environment by looking at whether outstanding loans have grown or shrunk over several quarters. In this article, which is a part of our continuing series on important operating metrics of the country’s largest commercial banks – JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), Citigroup (NYSE:C), Wells Fargo (NYSE:WFC) and U.S. Bancorp (NYSE:USB) – we detail the trend in these banks’ loans over the last three years.

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A commercial bank’s total loans include mortgages, auto loans, student loans, commercial loans and credit card loans. The table below captures the average size of each bank’s total loan portfolio for each of the last twelve quarters. The data has been compiled using figures reported by individual banks as part of their quarterly announcements and includes every type of loan handed out by the banks.

Notably, Bank of America has a larger loan portfolio than any of its competitors with an average of just under $930 billion in outstanding loans for the last quarter of 2013. The bank has reported a steady decline in total loans since the economic downturn of 2008 – something that is seen in the table until late 2012 – as a direct result of its efforts to cut costs and improve its operating focus under its sweeping reorganization plan dubbed Project New BAC. A chunk of the decline over the period comes from a reduction in Bank of America’s mortgage portfolio, which shrunk from roughly $450 billion in early 2010 to under $350 billion as of now. At the same time, a focus on its commercial lending business and the rising demand for cash by enterprises as the economy recovers has helped the bank raise the size of its commercial loans portfolio from under $250 billion to almost $350 billion over the three-year period shown above.

Wells Fargo comes in second with a loan portfolio of almost $820 billion. Not surprisingly, mortgages make up the largest portion of this figure – $324 billion for Q4 2013. The bank has been focused extensively on growing its mortgage business since the economic downturn and is the undisputed leader in the industry when it comes to mortgage originations and servicing. The bank leapfrogged to the second position in the list in early 2009 after it acquired Wachovia’s operations at the peak of the downturn. JPMorgan Chase’s loan portfolio is heavier on commercial lending than any other bank on this list, with these loans contributing almost 45% of its total loan portfolio. In fact, JPMorgan’s commercial loans have also seen the fastest growth over the period – jumping roughly 50% from the $215 billion figure in Q1 2011 to $316 billion now.

Citigroup stands out in that it has reported a near-constant loan portfolio size over the entire period, with the figure remaining between $630-$650 billion. The banking group also has a more equitable distribution of various loan types, with commercial loans, mortgages and credit card loans making up 33%, 27% and 22%, respectively, of its total outstanding loans. The bank’s considerable geographical presence explains the fluctuations in the portfolio size, as the dollar value of the loans changes with marked currency movements.

As a predominantly regional bank, U.S. Bancorp comes a distant fifth in the list with loans of $232 billion for the last quarter. But as the bank’s business model relies more heavily on traditional banking operations than any of the other competitors, U.S. Bancorp’s share price is also the most sensitive to changes in the size of its loan portfolio.

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