A Look At The Loan Portfolios Of The Largest U.S. Banks

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The banking industry has benefited from steady growth in loans over the last two years – something that has partially nullified the impact of rapidly declining net interest margins on top line figures for the banks. As the economy improves, individuals and companies have become more optimistic and have taken on more debt as they don’t anticipate problems in their ability to repay over the coming years. No doubt, the prevailing low interest rates have played a major part in the recovery of loan volumes since the recession.

But loans haven’t grown uniformly across U.S. banks, with some of them reporting 4-5% annual growth in outstanding loans in recent years while others have hardly reported any improvement in these figures. Also, for each bank the growth rate has varied considerably across the various loan categories. In this article, which is the first in our series on the loan portfolio of the country’s largest banks – JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), Citigroup (NYSE:C), Wells Fargo (NYSE:WFC), U.S. Bancorp (NYSE:USB) and Capital One (NYSE:COF) – we detail the trends in these banks’ loans over the last two years and also compare the proportion of different loan types in each of their loan portfolios.

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

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Loan Portfolios Have Strengthened In Recent Years

A commercial bank’s total loans include mortgages, credit card loans, retail consumer loans (such as auto loans and student loans), commercial & industrial loans and commercial real estate (CRE) loans. The table below captures the average size of each bank’s total loan portfolio in each of the last nine 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.

(in $ billions) Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Q3’13 Q4’13 Q1’14
Bank of America 913.72 899.50 888.86 893.17 906.26 914.23 923.98 929.78 919.48
Wells Fargo 768.58 768.22 776.73 787.21 798.07 800.24 804.78 816.67 823.79
JPMorgan Chase 715.55 725.25 723.08 725.61 725.12 727.50 723.54 729.62 730.31
Citigroup 647.01 646.24 653.84 649.57 643.06 642.37 645.45 659.35 658.71
U.S. Bancorp 210.16 214.07 216.93 220.27 222.42 225.19 229.36 232.79 235.86
Capital One 152.90 192.63 202.86 202.94 196.00 190.56 191.14 192.81 193.72

Notably, Bank of America has a larger loan portfolio than any of its competitors with an average of just under $920 billion in outstanding loans for the first quarter of 2014. The bank reported a steady decline in total loans since the economic downturn 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 came from a reduction in Bank of America’s mortgage portfolio, which shrunk from roughly $450 billion in early 2010 to just over $340 billion as of now. It was only in late 2012 that the trend reversed as a focus on its commercial lending business and the rising demand for cash by enterprises helped the bank raise the size of its commercial loans portfolio from under $250 billion in early 2011 to almost $350 billion in Q1 2014. The decline in Bank of America’s loan portfolio last quarter after increasing for five consecutive quarters can be explained by two factors: the seasonal nature of loans, which see more repayments in the first quarter compared to any quarter of the year, and the considerably slower rate of growth in mortgages for the period.

Wells Fargo comes in second with a loan portfolio of almost $825 billion. Not surprisingly, mortgages make up the largest portion of this figure – $324 billion for Q1 2014. 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.

With more than $730 billion in loans, JPMorgan Chase comes in at the third position, followed by Citigroup with loans worth $660 billion on its books. Notably, Citigroup stands out among these banks as having the least growth in its loan portfolio over the period shown here. In fact, the loan figure has fluctuated between $640-$660 billion – a result of the bank’s considerable geographical presence 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 just under $236 billion for the last quarter. Capital One, which grew its portfolio considerably in early 2012 due to its acquisitions of HSBC’s U.S. card business and ING Direct, is ranked sixth among these banks.

Focus On Loan Segments

While there is a considerable difference in total outstanding loans for each of these banks – ranging from well over $900 billion for Bank of America to less than $200 billion for Capital One – the relative importance of different loan categories to each bank’s business model is apparent from the chart below, which shows the proportion of mortgage, credit card, consumer, commercial and CRE loans in each bank’s portfolio in Q1 2014.

It should be noted that the chart above shows only the loan proportions, and so cannot be used to compare the absolute size of loans handed out across banks. This can be better understood by the fact that while Capital One is clearly seen as having a larger focus on credit cards compared to the other banks here, its actual credit card loan portfolio ($78 billion) is much smaller than that of Citigroup ($142 billion), JPMorgan ($123 billion) and Bank of America ($101 billion). We will include a side-by-side comparison of the actual size of each loan category for the banks in subsequent articles.

In percentage terms, the banks which show a clear focus on a particular loan segment are Wells Fargo (with mortgages forming almost 40% of its portfolio), Capital One (with a 40% contribution from credit card loans), JPMorgan and Citigroup (both of which have commercial loans making up 38% of their portfolio). Bank of America’s loan portfolio is different from the others because two segments – commercial loans (38%) and mortgage (37%) – make up three-quarters of the total size. But while the bank’s commercial loan portfolio has seen rapid growth over recent years, the mortgage portfolio consists of billions in faulty loans it acquired from Countrywide and has shrunk in size nearly every quarter since the economic downturn. Coming to U.S. Bancorp, commercial loans form a higher percentage (31%) of the banks’s portfolio compared to mortgages (29%) despite its aggressive growth in the mortgage industry in 2011-2012, when the demand for mortgage refinancing spiked.

With the demand for mortgages slowing down, their share of these banks’ portfolio can be expected to decline slightly over coming quarters. While commercial banks will most likely continue to grow at a steady rate, higher discretionary spending should drive a faster growth in card loans and consumer loans in the near future.

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