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Big Banks: Commercial Lending Losses Creep Up, Deposits Decline Slightly

bank earnings

The initial headlines and initial takes on big bank earnings may have focused on the state of the consumer, on card spending, especially.

But there’s data to be gleaned for the reports, too, and in the earnings supplements, for a read across to the state of commercial lending.

And, by extension, the state of Main Street small and medium-sized businesses (SMBs). Right now, the macro pressures in place seem manageable, but … of course, bear watching.

Beyond the confines of real estate lending, where leases have been pressured amid work from home and hybrid work environments, the reports show that, in general, firms are drawing down deposits, and loan losses are creeping up, through from low levels.

JPMorgan

JPMorgan Chase reported last Friday (Jan. 12) that corporate banking, which includes lending, saw net revenues gain 2%, excluding First Republic, but noted net interest income was lower, tied to lower balances. Company supplementals showed that revenues derived from Middle Market banking was 17% higher, in terms of revenues, than a year ago. Overall lending stood at $1.6 billion in the latest quarter, up 37% from last year, but down 2% sequentially. Business banking average deposits were down 4% year on year to around $1 trillion, and loans were down 5% to $19.5 billion. Business banking origination volumes were up 14% year on year but down 5% sequentially.

The net charge-off rate stood at 0.18% in the most recent quarter, was 0.21% ex the impact of First Republic, and was up from 0.06% a year ago.

Bank of America

Bank of America noted in its reports and remarks from the conference call with analysts that losses are trending toward normalized levels. CEO Brian Moynihan noted on the call with analysts that during the year the company added 2,500 new commercial and business banking clients last year, which was “more than twice what we added in 2022.” The bank has set its sights on growing more presence in global transaction services area and mid-market investment banking.

CFO Alastair Borthwick said during the call that there had been an increase in commercial borrowing. The company supplementals showed that commercial loans were $592 billion in the latest quarter, up from $587 billion last year. “The commercial growth reflects good demand overall and was muted only at quarter-end by companies paying down commercial balances as they finalized their year end financial positions,” he said on the call.

Loan growth is likely to be in the low single digit percentage points.   Nonperforming loans and leases stood at 0.47% of the Commercial book, up from 0.35% in the third quarter and 0.18% a year ago. The net charge-off rate, at 0.19% compares to the pre-pandemic average of 0.19%.

Wells Fargo

Wells reported in its fourth-quarter results that middle market banking revenues were 6% higher than a year ago. As disclosed in the supplementals, commercial and industrial loans were $191 billion, down 3% year on year. Total deposits in its commercial banking segment stood at $163.2 billion in the December quarter, down from $175 billion in the same period last year.

The read across is that businesses are finding at least some volatility in attaining financing they need for continued growth. Working down deposits means that they are seeking to deploy cash in other, higher yielding accounts, or are tapping into savings to keep funding operations. PYMNTS Intelligence data has found, headed into 2024, that nearly 34% of SMBs do not currently use credit but want to start doing so this year. The question is whether they’ll find an embrace among the marquee names in banking, or will have to tap alternative financing routes.