Sluggish Loan Growth Bodes Poorly for 2Q Reports: Interactive Graphic

Growth in business loans continued to outpace other categories in the second quarter but failed to rebound to the blistering rate that prevailed through most of 2011 and 2012, preliminary data shows.

Bankers sought to explain a lackluster first quarter in commercial and industrial lending by pointing to the possibility that corporations had borrowed earlier than they would have otherwise to pay for dividends before a tax hike at the end of last year. If levels at June 19, the most recent date available, held through the rest of the month, however, C&I balances grew at an annual rate of 6.3% in the second quarter, or roughly in line with the 5.4% growth in the first three months of the year.

The data serves as a dreary prelude to the results banks will report for the second quarter when earnings season kicks off next week

Growth in seasonally adjusted C&I balances fell 3.5 percentage points to 5.5%. (The following graphic shows volume data for major balance sheet categories; interactive controls are described in the captions. Text continues below.)

Annual growth rates in seasonally adjusted C&I balances had held above 10% from the second quarter of 2011 through the fourth quarter last year, peaking at 18% in the first quarter of 2012.

Annual growth in seasonally adjusted total loans increased 0.6 percentage points from the first quarter to 2.7% in the second quarter. Both figures are below the quarterly median of 3.8% since total loans started growing again in the second quarter of 2011.

Subdued growth in loans would echo soft readings on the broader economy. Barclays’ tracking estimate for growth in GDP in the second quarter, which is based on a range of supplemental reports, was 1% as of July 3, down from 1.8% for the first quarter.

Last month, Wells Fargo (WFC) Chief Financial Officer Timothy Sloan told investors that the Federal Reserve data shown here had indeed been “a little bit disappointing.” In part, he blamed cautious consumers who want to “repay debt and to be more fiscally sound, which is a good phenomenon over time, even if, in the short term, it affects loan volume.”

Wells Fargo continues “to believe that we can grow at a multiple of whatever the underlying industry is growing,” Sloan said.

The typical bank portfolio does not move as sharply as industrywide balances. The median annualized quarter-over-quarter C&I growth rate for about 6,500 institutions ranged from a contraction of about 5% to an increase of about 4% since late 2008, according to data from SNL Financial. That compares with aggregate rates ranging from a contraction of more than 20% to growth of about 20%.

Seasonally adjusted commercial real estate loans were on course to notch their fourth consecutive quarterly expansion at an annual rate of increase of about 2% in the second quarter. SunTrust (STI) CFO Aleem Gillani told investors last month that his company’s focus in this sector had for years been “concentrated almost exclusively on maximizing the recovery of distressed assets,” but that now it is ready for growth.

On the liability side of the ledger, industrywide seasonally adjusted total deposits were on track to post their first decline in years at an annual rate of contraction of 1.2%, perhaps reflecting a shift into money market funds after the rise in Treasury rates.