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Which loan types are fueling bank growth?

February 17, 2015
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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.”

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The opposite occurred with CRE lending, as expansion didn’t exceed five percent until the beginning of 2014. Specifically, community banks achieved a five percent annual growth rate in the third quarter of 2014, after seeing total CRE loans fall from 2009 through the end of 2012. Regional banks are also seeing success as of late, with a 20+ percent growth rate in the second and third quarters of 2014.

While C&I, CRE and agricultural lending have all seen moderate growth as of late, retail continues to lag behind despite representing the highest portion of loan portfolios. According to the report, “Total retail lending has not rebounded as much as other categories, primarily because residential mortgage lending remains weak following the financial crisis.” Retail loans, as of the third quarter of 2014, totaled $3.2 trillion – the same level as 2010. Since they make up the highest portion of most portfolios, the lack of growth in retail lending “helps explain the moderate pace of credit expansion, despite easy monetary policy conditions.”

To continue the expansion, institutions will look to further increase lending in their current product lines and many will consider expanding into new product lines. When doing so, it is important to maintain prudent lending standards, avoid the common growing pains of expanding credit portfolios and enhance credit quality.

Access the full Banking Insights issue here.

About the Author


Raleigh, N.C.-based Sageworks, a leading provider of lending, credit risk, and portfolio risk software that enables banks and credit unions to efficiently grow and improve the borrower experience, was founded in 1998. Using its platform, Sageworks analyzed over 11.5 million loans, aggregated the corresponding loan data, and created the largest

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