US banks increase commercial and industrial lending in Q4'22

Commercial and industrial lending ticked higher in the fourth quarter of 2022.

The 1.2% sequential uptick in the fourth quarter of 2022 marked the fifth consecutive quarter of commercial and industrial, or C&I, loan growth, according to S&P Global Market Intelligence data.

On a year-over-year basis, U.S. banks' C&I loans grew 9.5% in the most recent quarter, slowing a bit from the 11.6% annual gain a quarter earlier.

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Biggest C&I lenders

Bank of America Corp. remained the top C&I lender with $329.38 billion in balances at the end of 2022. JPMorgan Chase & Co. was next with a loan balance of $203.11 billion, up 2.8% from a quarter earlier and 10.3% higher than a year ago.

Morgan Stanley booked the biggest year-over-year hike in C&I loans in the fourth quarter of 2022, up 296.5% to $19.67 billion. This reversed the 5.8% year-over-year drop in C&I loans that Morgan Stanley booked in the previous quarter. Regions Financial Corp. came up with the second-highest year-over-year jump in C&I loans for the period at 66.6% to $30.12 billion.

Delinquencies

Overall, the delinquency ratio for C&I loans dipped by 9 basis points year over year to 1.04% for all U.S. banks in the fourth quarter of 2022.

Of the top 25 C&I lenders, 15 had lower delinquency ratios compared to the previous year.

TD Group US Holdings LLC saw the largest year-over-year drop in its delinquency ratio among the top 25 at negative 153 basis points, followed by Goldman Sachs Group Inc. with negative 136.

Looking ahead

The interest rate environment has caused some headwinds for lending overall, but some lenders expressed optimism for growth opportunities in C&I.

"We are seeing a nice pipeline around C&I," Seacoast Banking Corporation of Florida President and CEO Charles Shaffer said on the company's earnings call in January. Shaffer noted that his company is seeing less activity around commercial real estate and residential lending, but he sounded more optimistic about C&I lending.

During First Foundation Inc.'s latest quarterly earnings call, President and CEO Scott Kavanaugh noted that his company hopes to continue growing its loan portfolio throughout the year, focusing more on C&I. Kavanaugh said it would be prudent to shy away from lending on more fixed-rate assets, such as multifamily, until the company gets more clarity on the Federal Reserve's plans for interest rates.

Kavanaugh said the increase in C&I loans — which tend to have a yield of 8% to 8.5% — can help offset some net interest margin pressure while the loan portfolio's older, lower-rate multifamily loans turn over, which typically happens in less than three years.

In a company presentation in February, JPMorgan CFO Jeremy Barnum said he sees a "pretty robust" demand coming from the larger corporates, while smaller corporates are "a little bit more gun shy," exhibiting "a little bit less demand."

Regions Financial CFO David Jackson Turner said he sees somewhat the same thing, although he anticipates a slowdown in loan growth in line with the general economy slowing.

"I think our growth opportunities will manifest itself in the corporate banking group, commercial and corporate banking as line utilization likely goes up a bit," Turner said at the company's most recent earnings call.