Q1 2015 U.S. Banking Review: Outstanding Commercial Loan Portfolio

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The Federal Reserve’s decision to maintain interest rates at record lows since the economic downturn of 2008 has ensured that the U.S. banking industry would see steady growth in total loan portfolios over recent years. While growing confidence in the economy has allowed loans to grow across categories, the biggest gainer has been the country’s commercial lending sector. Outstanding commercial and industrial loans by U.S. lenders are currently at a record high of $1.85 trillion. This represents a growth of more than 50% over the last five years – comfortably outpacing every other loan category over this period.

In this article, we detail the trends in the commercial banking portfolio of the country’s largest banks – JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), Citigroup (NYSE:C), Wells Fargo (NYSE:WFC) and U.S. Bancorp (NYSE:USB) – over the last three years, and also compare the proportion of commercial loans in their overall loan portfolios.

See the full Trefis analysis for Wells FargoJPMorganU.S. BancorpBank of AmericaCitigroup

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The table below highlights the proportion of loans held by all U.S. commercial banks at three specific periods: in October 2008 (when loan sizes were at their peak before the recession), in February 2010 (when loans were at the lowest level since the recession), and in April 2015 (the latest period for which data is available). The table uses historical data compiled by the Federal Reserve. [1] The figures in brackets are the percentage of the total loans falling in a particular category.

(in $ billions) Oct 2008 Feb 2010 Apr 2015
Residential Mortgages 2,103 (28.9%) 2,099 (32.1%) 2,050 (25.0%)
Commercial & Industrial 1,586 (21.8%) 1,223 (18.7%) 1,856 (22.7%)
Commercial Real Estate 1,721 (23.6%) 1,620 (24.8%) 1,655 (20.2%)
Credit Card 374 (5.1%) 318 (4.9%) 625 (7.6%)
Retail 486 (6.7%) 494 (7.6%) 587 (7.2%)
Other 1,017 (14.0%) 776 (11.9%) 1,414 (17.3%)
Total 7,287 6,530 8,187

It should be noted that credit card loans include unsecured revolving credit, while retail loans include auto loans, student loans and other secured consumer loans. Other loans are made up of loans to financial institutions as well as the lending of federal funds and reverse repurchase agreements.

As can be seen clearly, commercial and industrial loans have witnessed exceptional growth since February 2010 – swelling at an average annual growth rate of almost 9% over the last five years. The rapid growth has resulted in a sharp increase in the proportion of these loans for U.S. banks from under 19% to almost 23% now.

The notable increase in commercial lending activity over recent years stands out in particular in the loan portfolio of individual banks. The table below captures the average size of the commercial lending portfolio for each of the country’s largest banks. The data has been compiled using figures reported by individual banks as a part of their quarterly announcements.

Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Q3’13 Q4’13 Q1’14 Q2’14 Q3’14 Q4’14 Q1’15
Bank of America 275.5 280.3 282.4 298.0 315.7 330.1 340.1 347.9 345.6 346.2 343.9 342.3 343.0
JPMorgan 235.9 252.9 257.7 265.3 268.8 274.5 271.3 275.5 276.4 283.0 283.8 283.6 288.5
Wells Fargo 221.1 223.6 229.8 231.6 236.8 240.7 245.0 251.6 253.7 259.9 267.8 273.6 285.1
Citigroup 202.8 213.6 219.1 214.1 218.7 228.8 230.0 233.9 241.5 244.7 241.0 238.5 245.3
U.S. Bancorp 61.4 64.1 66.0 67.6 68.7 70.0 71.1 71.7 73.4 77.5 79.7 81.9 83.3

Notably, Bank of America has witnessed the most growth in the commercial lending sector over the last three years – a considerable achievement given that the bank had the largest portfolio of commercial loans at the beginning of the period. This has helped the diversified banking group maintain the largest portfolio of loans in the country despite huge run-offs in its mortgage loan portfolio. The importance of commercial loans to Bank of America’s business model is clear from the fact that these loans make up 39% of the total loans handed out by the bank.

It should be noted that Bank of America’s non-U.S. commercial loan portfolio averaged $83.6 billion over the first quarter of 2015. This represents just under one-fourth of the bank’s total commercial loan portfolio. With an outstanding commercial loan portfolio of almost $260 billion in the U.S., Bank of America has a strong 14% share of the $1.85 trillion industry.

JPMorgan and Wells Fargo come in at the second and third positions, respectively, with commercial loans of just under $290 billion on their books. The latter has seen stronger growth in this sector over recent years though, and is poised to get past JPMorgan in these rankings by the end of this year.  With a little more than $245 billion in outstanding commercial loans, Citigroup comes at the fourth spot in the list. However, the globally diversified banking group differs from its other peers due to the fact that a majority of its commercial lending portfolio is outside the U.S. Citigroup’s commercial loans portfolio in the U.S. was slightly larger than $100 billion at the end of Q1 2015 – making up just 45% of its total outstanding commercial loans.

While regional banking giant U.S. Bancorp has a substantially smaller loan book compared to its larger rivals, it still has a sizable share of the U.S. commercial lending market. Excluding non-U.S. commercial loans for each of these banks, we estimate that these five banks have a commercial lending portfolio in the U.S. of roughly $900 billion. This represents almost half of the total outstanding commercial loans in the country – highlighting the strong grip these banks have on the sector.

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Notes:
  1. Assets and Liabilities of Commercial Banks in the U.S. (H.8), Federal Reserve Website []