Businesses Are Borrowing and Regional Banks Are Cashing In
Businesses are borrowing more from their banks again. Second-quarter earnings from KeyCorp, Regions Financial and PNC show the increase came through new loans, larger credit commitments and greater use of existing lines.
New Loans, Bigger Commitments Drive Growth
KeyCorp, the parent of KeyBank, said period-end commercial and industrial loans increased $2.1 billion, or 3%, from the first quarter. Average commercial loans rose 3.7%, including a 5% increase in C&I loans.
That distinction matters: the growth is not simply companies leaning harder on borrowing capacity they already had. Use of C&I credit lines actually fell about 50 basis points, to 31.1%, as customers gained access to larger commitments.
Regions Financial saw a similar shift, with more texture behind the numbers. Average business loans rose 4% from the first quarter, led by growth in power and utilities, manufacturing, government and public sector lending, and retail trade. Use of existing credit lines climbed 100 basis points, to 33.5%, a move CFO Anil Chadha called “positive” on the bank’s earnings call. Loan pipelines were up roughly 15% from a year earlier and stayed diversified across industries, markets and client segments, CEO John Turner told analysts, while commitments rose 7%. More than half of the new lending was investment grade.
Turner said the majority of the growth came from new loan production and increased commitments. Chadha added that the increase also reflected both new client acquisition and expanded relationships with existing customers, along with more bridge loans tied to maturing debt.
Turner also linked the rise in credit-line use to continued business investment across Regions’ commercial customer base.
PNC Financial Services said average commercial loans rose $13 billion, or 5%, from the first quarter, driven by both new lending and greater use of existing credit lines.
Credit Quality Holds Steady
That borrowing has not come with a broader rise in credit problems.
At Regions, net charge-offs fell to 42 basis points of average loans, from 54 basis points in the first quarter. The share of business loans rated criticized declined to 5.01% from 5.15%, while nonperforming loans fell to 0.67% of total loans from 0.71%.
PNC reported an 8% decline in total delinquencies from March 31, led by commercial loans. Nonperforming loans fell 10%, to 0.55% of total loans, and the annualized net charge-off rate declined to 25 basis points from 29 basis points.
Origin Bancorp, a smaller regional lender, showed the same pattern. Loans increased 2.7% from the first quarter, while nonperforming assets fell $9 million.
Deposits Follow the Loans
Loan growth is only half of the story. The other half is deposits.
Regional banks do not just want to make a business loan and collect the interest. They want the company’s checking account, too, along with the payment activity that comes with it.
KeyCorp’s management said on the bank’s earnings call that about 91% of its commercial loans are made to customers who also use the bank for deposits, payments or capital-markets services. Among commercial deposits, 82% of balances are held in operating accounts, and 96% come from customers that maintain one. Average noninterest-bearing deposits rose 2.3% during the quarter.
Turner said small business balances contributed just over 30% of the bank’s quarter-over-quarter growth in average noninterest-bearing deposits. Regions has also increased the share of customers using its treasury management services from 57% to more than 66% over roughly five years, the bank said.
At Origin Bancorp, noninterest-bearing deposits rose 9.6% from the first quarter, reaching 26% of total deposits. Deposit-account openings were up more than 36% year-over-year in the first half, the bank said, including an 82% jump in June alone.
Origin Bank President and CEO Lance Hall said treasury-management revenue was growing at an annualized rate of about 15%.
More Than a Loan Story
That is what makes these earnings more than a simple loan-growth story. A business that borrows from a bank may also keep its operating cash there, run payments through it, and use the same institution for payroll, receivables and payables.
Across KeyCorp, Regions, PNC and Origin Bancorp, the second-quarter results tell a consistent story: businesses are borrowing more, and banks are capturing more of their everyday banking activity.
