PNC Financial Services Group reported solid gains in new business borrowing during the fourth quarter and is forecasting a busy year ahead.
The Pittsburgh company said Tuesday that total loans for the fourth quarter increased 18% from a year earlier to $288 billion. While the results were buoyed by the acquisition of BBVA USA, the U.S. unit of Spanish banking giant Banco Bilbao Vizcaya Argentaria, Chairman and CEO William Demchak said the trends are moving in the right direction.
“We saw decent underlying loan growth trends and some uptick in utilization rates, which is very encouraging,” Demchak said on the bank’s fourth-quarter earnings call Tuesday. Company executives expect total loans to increase by around 5% in 2022.
Banks have been waiting for signals that businesses in particular are ready to borrow again following many quarters of lackluster demand. A rush of government stimulus payments and programs hustling cash into business owners’ hands had largely suppressed loan demand for much of the coronavirus pandemic.
“We see a continuation of what we started to see in the fourth quarter, which was some expanded utilization in the commercial book, picking up through 2022,” Robert Reilly, the chief financial officer at the $560 billion-asset PNC said on Tuesday’s call.
Wells Fargo and other large banks
Banks flush with deposits in part from the government stimulus programs have been eager to put the money to work in the form of new lending. Demchak said Tuesday that even though loan demand is picking up, businesses will likely be storing the new funds into accounts, keeping deposits elevated for “the next several years.”.
A return of loan demand could spell new complications for how large banks operate under the Current Expected Credit Losses accounting standards put in place last year, Reilly said. He indicated PNC could add to its reserves held for potential loan losses after a year of aggressively releasing reserves when anticipated pandemic-related losses never materialized. Reserve releases helped to prop up banks’ earnings in late 2020 and much of 2021.
“Academically speaking, [banks] will get to the point where we will need to grow reserves in concert…bigger loan balances,” Reilly said.
PNC recaptured $327 million in loan loss reserves in the fourth quarter. Still, net income for the bank declined 10% year-over-year to $1.3 billion for the period in part because of a 6% increase in expenses tied to finalizing the BBVA merger and higher wages paid to employees.
