Author Archives: mronan

Large banks continue to dominate U.S. commercial lending

EMI analysis of the latest FDIC U.S. bank data for the first quarter of 2013 reveals a number of interesting trends in commercial and industrial (C&I) and small business lending:

  • U.S. banks’ C&I loan portfolios continued to grow at double-digit rates year-on-year (y/y) in 1Q13, rising 12%, the same rate of increase as in 4Q12.  Commercial loan growth continues to outpace overall loan growth of 4% y/y.  Small business loan portfolios (defined as C&I loans with values of less than $1 million) are finally showing signs of life, rising 2% y/y.  This follows a 0.4% y/y increase in 4Q12, which was the first such increase in years, as reported in a February 2013 EMI blog post.
  • Large banks dominate C&I lending.  Of the 6,500 banks in the U.S., just 17 have more than $100 billion in assets.  But these 17 banks account for 57% of total loans and 60% of C&I loans.  In addition, the large banks (with assets of more than $1 billion) are reporting stronger growth in their C&I loan portfolios than their smaller counterparts.

  • Among the top 20 C&I loan portfolios, banks reporting above-average growth include:
    • HSBC Bank USA (+27%)
    • Bank of America (+22%): representing a significant growth rate for the bank, which has trailed other leading national banks for loan growth in recent years.  The bank reported in the Financial Times in February 2013 that it was increasing investment in its commercial bank, including the addition of 50 bankers as a first step.
    • Sovereign Bank (+21%)
    • Fifth Third (+17%): benefiting from a focus on specific vertical markets, including the establishment of a new energy lending unit in late 2012.  (See an EMI blog post from February 2013 on driving commercial loan growth through vertical industry targeting.)
    • BB&T (+17%)
    • KeyBank (+16%)
  • Turning to small business loans, smaller banks with less than $1 billion in assets have a greater share of this market, accounting for 23% of all small business loans (compared to 11% of total loans).  However, these banks trail the larger banks in terms of small business loan growth, and will need to reposition themselves (in areas like personal service and local presence) to capture a good share of any continued recovery in small business lending.

  • The 20 banks with the largest small business loan portfolios grew their small business lending 4% y/y in 1Q13.  Banks with above-average growth included:
    • Ally (+44%)
    • Wintrust (+14%)
    • Huntington (+11%): has focused internal resources by making business loan commitments, as well as deploying additional small business bankers.
    • TCF Bank (+11%)
    • American Express (+9%): built on small business card lending.

See a recent EMI blog for examples of banks that are effectively marketing to their commercial banking clients and prospects.

Growth Remains Elusive For Leading U.S. Credit Card Issuers

EMI analysis of the largest credit card issuer financial results for 1Q13 reveals the following trends:

  • Outstandings (11 issuers reporting, analysis excludes Capital One, which acquired the HSBC card portfolio in 2012, so its growth rate would skew the data): A weighted average of 11 leading credit cards issuers shows that average credit card outstandings fell 2% year-over-year (y/y) in 1Q13. The three largest issuers – Chase, Bank of America and Citi – all reported y/y declines.  However, outstandings growth came from Wells Fargo (who reported that credit card penetration of retail banking households rose from 30% in 1Q12 to 34% in 1Q13), regional banks with relatively small portfolios (e.g., PNC, SunTrust and Fifth Third), as well as “monolines” (American Express and Discover). These outstandings trends bear out the industry predictions we made in a blog at the start of 2013.

  • Volumes (8 issuers reporting): leading issuers grew credit card volume 6% y/y in 1Q13, which is relatively consistent with recent quarters. However, growth rates have moderated from the 2010-2011 levels, when issuers were overwhelming focused on building volumes. Wells Fargo led the way with a 14% volume growth rate, driven by an 18% rise in new consumer credit card accounts.
  • Revenues and expenses (5 issuers reporting): Revenues rose 2% y/y, led by Discover (+11%) and American Express (+5%). The lack of outstandings growth means that net interest income remains relatively anemic, with a rise of 1% y/y.  Noninterest income grew 5%, with relatively healthy growth rates from American Express, Discover and Bank of America. Noninterest expenses fell 1%, with both Chase and Bank of America reporting significant declines (reductions of 8% and 7%, respectively). Provisions for loan losses rose 5%, albeit from very low levels in 1Q12.
  • Charge-off rates (11 issuers reporting): The weighted average charge-off rate for these 11 issuers was 3.62%, down 65 basis points (bps) y/y, but up 5 bps q/q. 10 issuers reported charge-off rate y/y declines.  The exception was Capital One, which acquired the HSBC credit card portfolio (with a higher charge-off rate) in 2012.  Compared to 4Q12, 10 issuers reported charge-off rate increases and the other two were unchanged, indicating that the era of charge-off rate declines may be coming to an end.
  • 30+ day delinquency rates (8 issuers reporting): 7 of the 8 issuers providing 30+ day delinquency rate data reported y/y declines. As with the charge-off rate, the exception is Capital One. Interestingly, 7 of the 8 issuers reported q/q declines.  The exception was American Express, whose 30+ day delinquency rate was unchanged.  So, while the period of charge-off rate declines may be ending, the continued decline in delinquency rates will moderate charge-off rate increases.

U.S. Banks Maintain Commercial Lending Momentum in 1Q13

EMI analysis of recently-published financial results for 14 leading U.S. banks revealed that that strong growth in commercial and industrial (C&I) loan portfolios continued in the most recent quarter. These banks grew their C&I loan portfolios by an average of 12% y/y, which was the same growth rate as in 4Q12, and up from an 11% portfolio growth rate in 1Q12.

Strongest growth was reported by regional banks like PNC (boosted by the acquisition of RBC Bank), KeyBank, Fifth Third and Huntington, as well as Capital One. However, it is worth noting that 9 of the 14 banks reported lower C&I loan y/y growth rates in 1Q13 vs. 1Q12. The overall growth rate increased from 11% to 12% during this period, as Bank of America (which has the largest C&I loan portfolio) increased its C&I loan y/y growth from a paltry 2% in 1Q12 to a more robust 8% in 1Q13.

The bar chart below shows that gap between C&I and overall average loan portfolio growth rates, with 12 of the 14 banks reporting higher C&I loan growth. The bank with the largest gap was Chase, which grew average commercial banking loans by 13.7% y/y, while its overall loan portfolio only grew by 1.3%. The two exceptions were Capital One (whose non-C&I growth was boosted by some recent acquisitions) and BB&T. In fact, three banks (Regions, SunTrust and Bank of America) reported declines in their total loan portfolios between 1Q12 and 1Q13, even though C&I loan portfolios rose by high single-digit rates.

C&I loan charge-off rates continue to improve, with an average rate of 0.22% in 1Q13, down 19 basis points (bps) y/y and a reduction of 7 bps from the previous quarter. However, there is evidence that competition for C&I loans continues to increase, with an average yield of 3.63% in 1Q13, which represents declines of 40 bps y/y and 9 bps q/q. A recent EMI blog identified a number of banks that are leveraging innovative marketing approaches to differentiate from competitors in this increasingly competitive space.