Regional Banks Capitalize on Business Investment Boom

KeyCorp, Regions Financial, and PNC reported robust second-quarter earnings driven by increased commercial lending activity. Companies are not only borrowing more but also expanding relationships with their banks.

Lending Activity Accelerates

Across the board, regional lenders saw significant growth in new loans:

• KeyCorp: Commercial and industrial (C&I) loans grew $2.1 billion (3%) from Q1, with average C&I loans up 5%.
• Regions Financial: Average business loans rose 4%, particularly strong in power/utilities, manufacturing, and government sectors.
• PNC Financial: Commercial loans jumped $13 billion (5%) from Q1.

What’s notable is that this growth stems primarily from new lending rather than companies simply utilizing existing credit lines. Credit line usage actually declined slightly at KeyCorp while rising modestly at Regions, indicating genuine demand for additional capital.

Credit Quality Remains Stable

Importantly, this lending expansion hasn’t been accompanied by increased risk:

• Regions: Net charge-offs fell to 42 basis points of average loans, from 54 basis points in Q1.
• PNC: Total delinquencies declined 8%, with nonperforming loans falling to 0.55% of total loans.

This suggests that businesses are using these funds for productive investments rather than covering operational shortfalls.

Deposits Follow Lending Growth

Banks benefit not just from interest income but also from capturing a company’s entire financial relationship:

• KeyCorp: 91% of commercial loans go to customers who use other bank services like deposits and payments.
• Regions: Expanded treasury management services now used by over 66% of commercial clients.
• Origin Bancorp: Noninterest-bearing deposits rose 9.6%, with deposit account openings up 36% year-over-year.

This “more than a loan story” demonstrates how regional banks are deepening relationships with businesses, becoming essential financial partners rather than just lenders of last resort.