Q2 2015 U.S. Banking Review: Mortgage Portfolios
The mortgage industry witnessed a sizable uptick in activity over the second quarter of the year, with total origination volumes reaching the highest level in the last two years. In fact, $225 billion in fresh mortgages were originated over the period – making it the best quarter in this regard since Q4 2007. However, the higher level of activity did not help the size of outstanding mortgage loans on the balance sheet of U.S. banks because of high repayment rates. Repayment rates have risen over recent quarters as a direct result of substantially improved economic conditions, and have also been accompanied by a reduction in net loan charge-off rates for banks. A steady increase in home prices has also contributed to this trend.
It should be noted that U.S. banks have seen steady growth in their total loan portfolios over the last few years thanks to growing confidence in the economy and record low interest rates. The mortgage industry stands out here, as it is one loan category that has shrunk over the same period. In this article, we detail the trends in the residential mortgage portfolio 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) – over the last three years, and compare the proportion of mortgage loans in their overall loan portfolios.
See the full Trefis analysis for Wells Fargo | JPMorgan | U.S. Bancorp | Bank of America | Citigroup
The table below highlights the proportion of loans held by all U.S. commercial loans 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 at the beginning of 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 can be seen clearly, residential mortgages have inched lower over the years, as mortgage portfolios suffered significant charge-offs over the 2009-2011 period. Although mortgage originations reached peak levels in 2012, it must be remembered that the activity was largely targeted towards refinancing and not new mortgage originations. Since then, an overall weak level of activity in the industry coupled with strong repayment volumes have kept the total mortgage portfolio unchanged.
The table below captures the average size of the mortgage 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.
| (in $ billions) | 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 |
| Wells Fargo | 314.4 | 312.1 | 313.7 | 321.5 | 326.1 | 323.9 | 322.9 | 324.0 | 324.5 | 323.2 | 323.7 | 325.0 | 324.7 | 323.0 |
| Bank of America | 395.6 | 386.2 | 377.6 | 366.8 | 364.6 | 359.0 | 354.5 | 349.4 | 340.3 | 334.1 | 323.9 | 310.0 | 299.9 | 290.0 |
| JPMorgan | 225.1 | 218.2 | 211.3 | 204.5 | 199.9 | 195.0 | 191.4 | 189.0 | 186.8 | 185.5 | 184.7 | 185.4 | 190.3 | 199.8 |
| Citigroup | 189.3 | 183.2 | 181.7 | 178.7 | 174.3 | 165.8 | 161.9 | 162.2 | 161.4 | 160.3 | 158.7 | 152.2 | 145.9 | 140.0 |
| U.S. Bancorp | 59.9 | 60.7 | 61.9 | 63.5 | 64.8 | 65.9 | 67.7 | 68.9 | 69.4 | 69.4 | 69.8 | 69.7 | 68.8 | 68.5 |
The first thing that stands out here is that the only two banks that have seen an increase in their mortgage portfolio over recent years are the ones that have actively focused on the business since the economic downturn – Wells Fargo and U.S. Bancorp. Bank of America and Citigroup continue to run off more home loans than they hand out each quarter as they clear their balance sheets of legacy mortgages. Notably, JPMorgan has seen a sharp increase in its mortgage portfolio since Q4 2014 – highlighting a renewed focus in the industry by the country’s largest bank.
Comparing the importance of mortgage loans in the total loan portfolio of each of these banks shows that Wells Fargo relies most heavily on these loans to generate its revenues. Mortgages make up a little over 37% of Wells Fargo’s total loan base – something that is expected for the bank with the largest mortgage loan portfolio in the country. Mortgage loans constitute almost 33% of Bank of America’s loan portfolio – well below the peak level of 46% seen in late 2008. While mortgages have a 28% share of U.S. Bancorp’s loan book, the figure is just below 26% for JPMorgan and the lowest for Citigroup at 22%.
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- Assets and Liabilities of Commercial Banks in the U.S. (H.8), Federal Reserve Website [↩]