The NFIB recently published first-quarter 2012 data on U.S. commercial banks, which shows strong growth in commercial and industrial (C&I) lending, but continued decline in small business loan portfolios.
Overall, C&I loan portfolios at the end of 1Q 2012 were up 15% year-over-year (y/y). The growth was driven by the larger banks; banks with more than $1 billion in assets grew C&I loan portfolios rose 20%, while banks with less than $1 billion in assets increased C&I loans by just 2%. Most of the leading U.S. banks reported C&I loan growth rates of 20%+. American Express grew C&I loans 13%, indicating that its spend-centric approach is beginning to stimulate growth in business card outstandings. C&I growth was 2% between 4Q11 and 1Q12.
Small business loan portfolios (defined as C&I loans of less than $1 million) continued to decline, falling 1.6% y/y. However, banks with more than $10 billion in assets grew small business loans by 4.6%, indicating that these banks have increased their share of small business loans. However, the smaller community banks (with less than $100 million in assets) were the only bank-asset category to grow small business loans between end-4Q11 and end-1Q12.
Our analysis also looked at loan intensity–C&I and small business loans’ share of overall bank loan portfolios. As expected, the larger banks have a higher C&I loan intensity, with this ratio declining steadily for smaller bank-asset categories.
For small business loan intensity, we see the opposite trend. Smaller banks tend to have highest ratio of small business loans to total net loans, underscoring the importance of small business relationships to community banks.
A number of financial institutions are celebrating National Small Business Week (which is running between May 21 and May 25) to target the small business market. To connect with this audience, these firms are using an array of approaches, including making limited-time offers, publishing small business-related surveys, as well as providing support tools.
- Special offers:
- Wells Fargo has extended National Small Business Week into its own Small Business Appreciation Month, and is promoting a series of Appreciation Offers to small businesses, with total savings of up to $400.
- Like Wells Fargo, BBVA Compass has designated May as Small Business Appreciation Month and is both promoting special offers on a range of products and services, as well as providing free business and economic monthly reports.
- RBS Citizens is promoting bonuses of up to $450 to small businesses who sign up for a range of services.
- Small business surveys: a number of banks are aiming to generate publicity and position themselves as a voice for small business by publishing surveys that focus on small business optimism, perceptions and challenges.
- Small business support tools: Banks are providing an array of information, advice and networking tools to small businesses, designed to position banks as trusted small business advisors and partners. These support tools tend to be provided through dedicated online sites or in physical locations (such as in-branch webinars).
With the economy slowly recovering, and with small business charge-offs (which had accelerated during the financial crisis) now seen as returned to more normalized levels, more banks will be seeking to rebuild small business franchises. So we should expect to see more small business offers, messaging and support tools in the coming months.
The latest quarterly regulatory filings from some of the leading U.S. credit card issuers reveal that outstandings held by cardholders with higher FICO scores are accounting for an increasing share of total credit card portfolios. Over the past year, there has been ample evidence of issuers targeting more affluent consumers with new products and aggressive offers, while continuing to maintain high underwriting standards.
Although these issuers do not use the same FICO-score categories, the following charts show that all issuers reported continued declines in outstandings held by cardholders with lower FICOs (below 660), while oustandings for cardholders with higher FICOs either had smaller declines or in fact grew over the past year.
- Chase: Overall, there was no change in Chase end-of-period (EOP) credit card outstandings between 1Q11 and 1Q12. However, cardholders with FICOs of 660+ (which accounted for 82% of total outstandings in 1Q12) rose 4%, while outstandings with FICOs below 660 fell by 15%.
- Discover uses the same FICO categorization as Chase. It reported a 4% total rise in EOP card outstandings between 1Q11 and 1Q12. FICOs of 660+ rose 10%, while FICOs <660 fell 18%. FICOs of 660+ accounted for 81% of total Discover credit card outstandings at the end of 1Q12, just below the rate for Chase.
- Bank of America uses different FICO categories, with a cut-off point at 620. Total outstandings fell 10% y/y to the end of 1Q12, but the decline in FICOs below 620 (-41%) was much higher than that for FICOs of 620+ (-6%). FICOs of 620+ now account for 92% of total outstandings, compared to 88% in 1Q11.
- Like Bank of America, Citibank’s total EOP U.S. credit card outstandings fell y/y (by 4%), and there were declines in all FICO categories, but again higher FICOs reported lower declines. At Citi, FICOs of 620+ now represent 91% of total outstandings, up from 85% at the end of 1Q11.
- Unlike other issuers, Wells Fargo provides a wide range of FICO categories, which have been summarized into three categories below. Total Wells Fargo credit card outstandings rose 4% y/y, but there was an 11% decline among sub-prime FICOs below 600. For FICOs of 760+, outstandings rose 16% and now represent 25% of outstandings, up from 23% in 1Q11.