Following the recent recession, U.S. commercial bank loan portfolios have continued to expand. As of the third quarter of 2014, the total value of portfolios was $7.4 trillion, up from $6.5 trillion at the end of the third quarter of 2011. Which areas of lending and what banks are driving the expansion? A recent issue of Banking Insights, published by the Federal Reserve Bank of St. Louis, revealed the answers by analyzing call reports of all U.S. commercial banks.
First, it’s important to note how the $7.4 trillion breaks down among institutions and by loan type. Large Systemically Important Financial Institutions (SIFIs), those with more than $250 billion in assets, represent 45 percent of the total, while domestic SIFIs (assets between $50 billion and $250 billion) make up 25 percent. Community banks (under $10 billion in assets) and regional banks (between $10 and $50 billion) represent 21 percent and nine percent, respectively. Regarding loan type, retail loans (residential mortgages, HELOCs, consumer loans) represent 44 percent of the total loan portfolio. Commercial and industrial (C&I) and commercial real estate (CRE) loans comprise 22 percent and 20 percent, respectively. Agricultural lending represents two percent, and all other loan types represent the remaining 12 percent.
Regional banks had the most diversified portfolios, but community banks generally had higher concentrations in CRE and agriculture loans. In fact, community banks accounted for 44 percent of all CRE lending, and 78 percent of all agricultural lending.
While total lending expanded by over four percent between March 2012 and March 2013, the growth rate decelerated to less than four percent the following year. However, the annual growth rate returned to a positive trend in the second and third quarters of 2014. The report notes the increased growth has “come primarily from more robust C&I and CRE lending.”
In fact, C&I lending grew first following the recession. It achieved a double-digit annual growth rate between the fourth quarter of 2011 and fourth quarter of 2012, and continued to increase at approximately eight percent through the third quarter of 2014. This strong growth initially occurred at the largest institutions, but has since slowed. However, growth has picked up significantly at regional banks, where the growth rate has “topped 20 percent over the past two quarters of data, albeit from a very low base.”