Author Archives: mronan

Small business lending trends from banks’ 1Q11 financials

Most banks do not break out small business lending data in any greater detail in their quarterly financials, but Bank of America and Chase both provided some interesting (and contrasting) small business lending-related metrics when they published their first quarter 2011 results last week:

  • Chase grew business banking originations 57% y/y, to $1.4 billion.  In addition, end-of-period business banking loans rose for the second consecutive quarter, to $17.0 billion.  In presenting the quarterly financials, JPMorgan Chase CEO Jamie Dimon claims that the bank is starting to see real small business loan demand
  • Bank of America’s small business loan charge-off rate fell for the sixth consecutive quarter, declining 45 bps from 4Q10 to 8.68% (this is the lowest rate since 1Q08).  However, its small business loan portfolio continued to decline, falling 2.8% in the quarter to $14.3 billion at the end of 1Q11 (although the rate of decline is falling)

So while Bank of America remains focused on getting credit quality under control, Chase has forged ahead and is growing its small business franchise.  As other national and regional banks publish their quarterly financials over the next week, it will be interesting if any other bank has started to grow its small business loan portfolio.

Growth top of the agenda in banks’ upcoming quarterly financials

Since the onset of the financial crisis in the second half of 2008, much of the coverage of banks’ quarterly financials has focused on the quality of their loan books. With key credit quality metrics starting to come under control, banks have reported profitability growth in recent quarters, with much of the profitability coming from lower provisions for loan losses.  With credit quality metrics starting to return to normalized levels, the focus of attention is now starting to shift towards revenue generation (both net interest income and noninterest income).

Net interest income of course is dependent on loan growth, as well as the net interest margin.  For many banks, the net interest margin has risen in recent quarters, as the deposit mix has shifted to non-interest and low-interest deposits.  However, banks now also need to show evidence that of growth in their loan portfolios.   Leading bank card issuers have indicated that credit card outstandings will grow in 2011.  In recent quarters, banks have reported significant growth in small business loan originations (although overall small business loan portfolios continue to shrink).   And banks are indicating growth in other lending categories, such as auto lending.  So, for 1Q11 financials, industry experts will be looking closely at banks’ loan portfolio details to find evidence of loan growth.  They will also be listening closely to bank executive statements on the prospects for loan growth for the remainder of 2011.

Industry observes will also be looking at noninterest revenue closely, focusing on overall revenue growth, composition of noninterest revenue and statements by bank executives on their plans to accelerate noninterest revenue growth in the coming quarters.

Internet is now Bank of America’s largest credit card account production channel

Bank of America’s Full Year 2010 Investor Factbook revealed some interesting trends in various channel’s share of credit card account production

  • eCommerce channel accounted for 36% of the bank’s credit card account production in 2010, up significantly from 15% in 2008
  • Bank branch network share fell from 25% to 21% (note that Bank of America was at the forefront in the mid 2000’s in driving credit card sales through branches)
  • Direct mail share rose from 20% to 21%, stemming steady declines in its share of account production in recent years

The findings underscore the growing importance of the Internet as a sales channel.  However, what the Bank of America data does not reflect is the fact that consumers now tend to use multiple channels before making an acquisition.  For example, a consumer could receive a credit card offer in the mail, but submit their application via the Internet.  Therefore, bank credit card issuers need to ensure that these key channels (Internet, branch and DM) are all in synch to optimize sales effectiveness.