Tag Archives: Capital One

Tentative Recovery in U.S. Credit Card Lending Continues in 1Q13

EMI’s analysis of recently-published U.S. bank data by the FDIC reveals that credit card outstandings rose 1.6% y/y to the end of 1Q13.  Outstandings have been recovering in recent quarters, following a protracted period of declines as a result of the 2008 financial crisis.  In addition, net credit card charge-offs continue to decline, falling 12% y/y in 1Q13.

Our analysis also finds that:

  • 1,238 U.S. banks (19% of the total) have card assets, with 6% of banks having more than $1 million in card assets.  55 banks have more than $100 million in outstandings, with just 23 banks holding more than $1 billion in credit card loans.
    • Of the 55% with more than $100 million in assets, 31(56%) reported increases in their credit card loan portfolios between end-1Q12 and end-1Q13
  • The three largest credit card issuers–Citibank, Chase and Bank of America–all continued to report credit card loan declines, as they continue to deleverage.  The cumulative decline for these three issuers was 5%.
  • The former “monolines”–American Express, Discover and Capital One–all increased outstandings.  Capital One reported a 44% increase, largely due to the acquisition of the HSBC card portfolio.  American Express grew credit card loans 6%, with Discover’s outstandings rising by 7%.
  • Many regional banks continued to increase credit card lending, albeit from significantly lower bases than their national bank counterparts.

These trends in credit card outstandings–slow overall growth, declines among the big three issuers, growth for monolines and regional banks–are consistent with industry predictions that EMI published in a blog earlier this year.

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.