Initial headlines and initial views on the big banks' earnings may have focused on the consumer picture, particularly card spending.
But reports and revenue supplements also contain data that should be collected to understand the state of commercial lending.
And, by extension, the situation for Main Street small and medium-sized businesses (SMBs). For now, the macro pressures seem manageable, but of course, caution is required.
Beyond real estate lending, where remote and hybrid working environments have put lease commitments under pressure, the report shows that businesses in general are drawing down deposits and loan losses are gradually rising from low levels.
J.P. Morgan
JPMorgan Chase reported last Friday (Jan. 12) that its corporate banking net revenues, which include loans, increased 2% excluding First Republic, but noted that net interest income declined due to lower balances. According to the company's supplemental materials, revenues generated from middle market banking increased 17% year over year on a revenue basis. Total loans in the latest quarter were $1.6 billion, up 37% year over year but down 2% quarter over quarter. Average corporate banking deposits were down 4% year over year to about $1 trillion, while loans were down 5% to $19.5 billion. Corporate banking loan volume increased 14% year over year but down 5% quarter over quarter.
The net charge-off rate was 0.18% in the most recent quarter, or 0.21% excluding the impact of First Republic, up from 0.06% in the same period a year ago.
Bank of America
Bank of America noted in the report and in remarks on a conference call with analysts that losses are trending toward normal levels. CEO Brian Moynihan said on the call with analysts that the bank gained 2,500 new commercial and corporate banking clients last year, “more than double the number we'll add in 2022.” The bank is looking to grow its presence in global transaction services and mid-market investment banking.
Chief Financial Officer Alastair Borthwick said on a conference call that commercial borrowing increased. Commercial loans totaled $592 billion in the most recent quarter, up from $587 billion last year, according to a supplemental document. “Commercial loan growth reflects strong demand overall, and growth only slowed at the end of the quarter as companies made commercial loan repayments as they finalized their year-end financials,” he said on the call.
Loan growth is expected to remain in the low single digits. Non-performing loans and lease receivables were 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 was 0.19%, down from a pre-pandemic average of 0.19%.
Wells Fargo
In its fourth-quarter results, Wells reported that mid-market banking revenues increased 6% year over year. As disclosed in a supplemental report, commercial and industrial loans totaled $191 billion, down 3% year over year. Total commercial banking deposits were $163.2 billion in the December quarter, down from $175 billion in the same period a year ago.
Overall, we see businesses feeling at least some uncertainty about the financing they need for continued growth. Reducing deposits means businesses are shifting cash to other higher-yielding accounts or dipping into savings to keep their operations funded. Looking ahead to 2024, data from PYMNTS Intelligence shows that about 34% of small businesses aren't currently using credit but would like to start using it this year. The question is whether these businesses will be accepted by the big names in the banking industry or will they have to take alternative funding routes.
Read more: B2B, B2B payments, Bank of America, banking, banks, commercial payments, earnings, economy, JPMorgan Chase, lending, loans, Main Street, news, PYMNTS News, small business, Wells Fargo
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