Q2 2015 U.S. Banking Review: Outstanding Commercial Loan Portfolio

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The growth in loans for U.S. banks over recent years has primarily been driven by a sharp increase in the number of commercial loans since 2010 – something we pointed out in detail as a part of our article last month. Growing confidence in the economy coupled with record low interest rates has boosted the outstanding commercial and industrial loan portfolio across U.S. lenders to a record $1.9 trillion. This represents an increase 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 September 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 Sep 2015
Residential Mortgages 2,103 (28.9%) 2,099 (32.1%) 2,055 (24.5%)
Commercial & Industrial 1,586 (21.8%) 1,223 (18.7%) 1,912 (22.8%)
Commercial Real Estate 1,721 (23.6%) 1,620 (24.8%) 1,717 (20.5%)
Credit Card 374 (5.1%) 318 (4.9%) 639 (7.6%)
Retail 486 (6.7%) 494 (7.6%) 600 (7.2%)
Other 1,017 (14.0%) 776 (11.9%) 1,466 (17.5%)
Total 7,287 6,530 8,391

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 evidenced by the chart above, commercial and industrial loans have witnessed exceptional growth since February 2010 – growing at an average annual rate of nearly 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 Q2’15
Bank of America 275.5 280.3 282.4 298.0 315.7 330.1 340.1 347.9 345.6 346.2 343.9 342.3 343.0 357.9
JPMorgan 235.9 252.9 257.7 265.3 268.8 274.5 271.3 275.5 276.4 283.0 283.8 283.6 288.5 292.9
Wells Fargo 221.1 223.6 229.8 231.6 236.8 240.7 245.0 251.6 253.7 259.9 267.8 273.6 285.1 289.0
Citigroup 202.8 213.6 219.1 214.1 218.7 228.8 230.0 233.9 241.5 244.7 241.0 238.5 245.3 247.2
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 85.0

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 already 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. It should be noted that Bank of America’s non-U.S. commercial loan portfolio averaged $87.6 billion over the second quarter of 2015. This represents less than 25% of the bank’s total commercial loan portfolio. With an outstanding commercial loan portfolio greater than $270 billion in the U.S., Bank of America enjoys a market share in excess of 14% in the $1.9-trillion industry.

In contrast, Citigroup stands out due to the fact that a majority of its commercial lending portfolio is outside the U.S. Citigroup’s commercial loan portfolio in the U.S. was around $111 billion at the end of Q2 2015 – making up less than 45% of its total outstanding commercial loans.

That said, the commercial lending business forms the largest part of the loan portfolio of all the banks detailed here except for Wells Fargo. Bank of America relies most heavily on commercial loans to drive its lending revenues, with these loans making up more than 40% of its total loan book. Commercial loans at Citigroup and JPMorgan constitute 39% and 38% of their respective loan portfolios, while U.S. Bancorp reports just under 35% of its total loans as being commercial and industrial loans.

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 well over $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 []