US regional banks join bigger peers in signaling resilient economy as lending holds firm

By Pritam Biswas, Arasu Kannagi Basil and Prakhar Srivastava

Oct 16 (Reuters) - A clutch of US regional banks reported strong third-quarter earnings this week, powered by robust loan demand from businesses, adding to signs that the economy remained resilient despite rising borrowing costs.

Earlier in the week, the biggest US banks such as JPMorgan Chase JPM.N, Bank of America BAC.N, Wells Fargo WFC.N and Citigroup C.N also reported higher loan balances, even as weakness in the capital markets hit their investment banking revenue.

People have accepted global uncertainty as the new normal and are pushing forward with operations, PNC Financial PNC.N CEO William Demchak said.

"The clouds are as dark as they ever were, but the economy's still strong. People are investing into it," Demchak added.

PNC led the regional banks' loan growth at 14.2% in the third quarter, followed by U.S. Bancorp USB.N at 8%, M&T Bank MTB.N at 5.5% and Citizens Financial CFG.N at 5.29%.

The robust borrowing activity defied rising expectations that still-high inflation fueled by the Iran war and the Federal Reserve's September interest rate hike could chill corporate capital expenditures and dampen borrowing appetite.

Top regional banking executives said loan pipelines remained strong and they had not seen any slowdown yet in demand.

Citizens Financial said loan demand actually started to pick up in the last couple of weeks as the bank entered the fourth quarter.

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AI CATALYST?

Banking executives said they were looking to understand how much of the loan growth was linked to the massive AI-related spending when pressed by analysts during post-earnings sessions.

"This whole AI ecosystem build-out is kind of full-on. It's a very strong dynamic, and that kind of cascades into a lot of the supply ecosystem," Citizens Financial CEO Bruce Van Saun said.

"Even with higher rates, the kind of desire to get the compute power in place, the players aren't really batting an eyelash," he added.

PNC, which does not have a large data-center finance business, said there is an impact from the AI spending boom on tangential sectors like heavy equipment, transportation and energy.

"If the capex broadly slows down related to AI, do we think, even though we don't lend directly to that, it would slower loan growth? Yes, I do," PNC's Demchak said.

Some regional banks downplayed the AI dependency and emphasized broad-based commercial and industrial loan growth.

U.S. Bancorp CFO John Stern said loan growth was robust even outside AI-adjacent sectors, highlighting areas like retail, food and beverage, and insurance.

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