Companies are starting to borrow more from their banks again. Second-quarter earnings from KeyCorp, Regions Financial and PNC show that the increase came from new loans, larger credit commitments and increased utilization of existing lines.
New loans and larger commitments drive growth
Key CorpCommercial and industrial loans at the end of the period increased by $2.1 billion, or 3%, from the first quarter, KeyBank’s parent company said. Average commercial loans rose 3.7%, including a 5% increase in conforming and consolidating loans.
This distinction is important: growth is not limited to companies relying more on the borrowing capacity they already had. Utilization of C&I lines of credit declined by approximately 50 basis points, to 31.1%, as clients gained access to larger commitments.
Financial regions We’ve seen a similar shift, with more texture behind the numbers. Average business loans increased 4% compared to the first quarter, led by growth in the energy and utilities, manufacturing, government and public sector lending and retail sectors. Utilization of existing credit lines rose 100 basis points to 33.5%, a CFO move Anil Chadha It’s called “positive” in a bank’s earnings call. Loan rates rose approximately 15% from a year earlier and maintained diversity across industries, markets and customer segments, the CEO said. John Turner Analysts said, while liabilities rose by 7%. More than half of the new lending was investment grade.
The majority of the growth came from new loan production and increased liabilities, Turner said. The increase also reflects the acquisition of new customers and expanded relationships with existing customers, along with more bridging loans linked to outstanding debt, Chadha added.
Turner also linked the rise in the use of lines of credit to continued business investment across the regions’ commercial client base.
PNC Financial Services Average business loans rose $13 billion, or 5%, from the first quarter, driven by new lending and increased use of existing lines of credit, he said.
Credit quality is stable
This borrowing has not been accompanied by a broader rise in credit problems.
In the regions, net amounts discounted fell to 42 basis points of average loans, from 54 basis points in the first quarter. The share of classified commercial loans fell to 5.01% from 5.15%, while non-performing loans fell to 0.67% of total loans from 0.71%.
PNC reported an 8% decline in total delinquent loans since March 31, led by commercial loans. Non-performing loans decreased by 10% to 0.55% of total loans, and the net annual discount rate fell to 25 basis points from 29 basis points.
Origin Bancorp, a smaller regional bank, showed the same pattern. Loans increased by 2.7% compared to the first quarter, while non-performing assets decreased by $9 million.
Deposits follow loans
Loan growth is only half the story. The other half is deposits.
Regional banks don’t just want to make a business loan and collect interest. They want the company’s checking account too, as well as the payment activity that comes with it.
About 91% of its business loans are made to customers who also use the bank for deposits, payments or capital markets services, KeyCorp management said on the bank’s earnings call. Among commercial deposits, 82% of balances are held in operational accounts, of which 96% come from holding clients. Average non-interest bearing deposits increased by 2.3% during the quarter.
Small business balances contributed just over 30% of the bank’s quarter-over-quarter growth in average non-interest-bearing deposits, Turner said. Regions also increased the share of customers using treasury management services from 57% to more than 66% over about five years, the bank said.
in Parent BancorpNon-interest bearing deposits increased by 9.6% compared to the first quarter, reaching 26% of total deposits. The bank said deposit account openings rose more than 36% year-on-year in the first half, including an 82% jump in June alone.
Asset Bank President and CEO Lance Hall Treasury management revenues are growing at an annual rate of about 15%, he said.
More than just a loan story
That’s what makes these earnings more than just a simple loan growth story. A company that borrows from a bank may also hold its operating cash there, manage payments through it, and use the same institution for payroll, receivables, and payables.
Across KeyCorp, Regions, PNC and Origin Bancorp, second-quarter results tell a consistent story: companies are borrowing more, and banks are taking over more of their day-to-day banking activity.
