Tag Archives: Fifth Third

How Did U.S. Credit Card Issuers Perform in 4Q12?

Over the past week, leading U.S. credit card issuers have been publishing their 4Q12 and full-year 2012 results.  After we reviewed these financials, we detected the following trends, which are largely consistent with our recent blog on top credit card trends for 2013.

  • Outstandings: The top three issuers continue to report y/y declines in average outstandings, while traditional monolines and regional banks are driving growth. Both Wells Fargo and regional banks focus on cross-selling credit cards to their existing customer base. Wells Fargo reported that credit card penetration of retail banking households rose from 27% in 1Q11 to 33% to 4Q12. Bank of America indicated in its 4Q12 earnings call that it would be focusing on marketing credit cards through the franchise.

  • Volume: Most leading issuers reported strong y/y growth in volume in 4Q12. However, there is evidence that this growth rate is slowing down. American Express‘ 8% y/y growth in 4Q12 was down from 12% in 1Q12. And during the same period, Chase y/y volume growth fell from 12% to 9%.

  • Charge-off and delinquency rates: Charge-off and delinquency rates continue to trend downwards. Of the 11 issuers studied by EMI,
    • Only Capital One reported a y/y rise in its charge-off rate, and this was due to the acquisition of the HSBC card portfolio.
    • 6 of the 11 reported linked-quarter declines in the charge-off rate. 9 of the 11 have rates below 4%, with two issuers (American Express and Discover) reporting 4Q12 charge-off rates of below 3%. Even Bank of America (which is one of the two issuers with a rate above 4%) reported that its charge-off rate is at its lowest level since 2006. In many cases, charge-off rates are now below historic norms, which points to a fundamental change in consumer attitudes to carrying credit card debt.
    • Delinquency rates also declined y/y, although some issuers did reported linked-quarter increases, driven perhaps by both seasonality, as well as some upward movement as issuers start to pursue loan growth.

Market-Specific Metrics Inform Bank Branch Network Investments

The emergence of virtual channels, the need to cut costs and speculation of more industry consolidation are all spurring banks to reconsider their branch networks.  Recently, EMI Strategic Marketing Inc. published blogs on the changing role of the branch, as well as trends in branch numbers for leading U.S. banks.

Banks have reiterated their commitment to the branch channel, but many are unlikely to maintain branch numbers at current levels.  Bank decisions of branch numbers and deployments are increasingly based on an analysis to the bank’s relative strengths in different markets.  Is the bank’s branch network spread too thinly, with few branches and low deposit shares in many markets?  Does it have critical mass in terms of branch numbers and/or deposit share in particular market? If it does not have sufficient scale at present, should it expand its branch network organically or through acquisition? Or should it leave some markets?

EMI Strategic Marketing Inc. analyzed end-2Q11 FDIC data on the branch footprint of the top 15 retail banks. (Note: this does not include M&A activity over the past year, such as PNC’s acquisition of RBC Bank.)  We focused on the number of metropolitan statistical areas (MSAs) where these banks had branches, branch concentration levels, and market strength indicators.

  • The banks with the most extensive branch networks are Bank of America and Wells Fargo, who both have branches in more than 200 MSA markets.
  • Regional banks naturally have a more concentrated branch presence.  RBS Citizens, PNC and M&T all have more than 60% of their branches in 10 markets.
    • RBS Citizens has top-three share in only 14% of the 49 markets where it has a physical presence.  Recent speculation indicates it may sell off its branch network in Illinois and Michigan.  The bank has branches in seven MSAs in these two states, but does not have a top-three deposit share in any of these markets.
  • Market strength: Wells Fargo has a top-three deposit share in 70% of its MSAs.   Four other banks (M&T, Bank of America, SunTrust and PNC) are ranked in the top three in more than 40% of their markets.
  • In late 2010, Citigroup announced that it would be concentrating on 16 U.S. metro markets.  This helps to explain why 61% of Citibank’s branches are in just 10 MSAs.  On the other hand, it has five or fewer branches in more than half of its markets.  Given its stated objective to concentrate its efforts on about 15 metro markets, we can expect Citibank to leave many of these markets where it has a token presence.  However, it will be aiming to significantly grow share in its target markets.
  • Capital One, which has built a retail branch presence in recent years through acquisition, has 84% of its branches in just 10 MSAs. (In fact, 57% of Capital One branches are in just two MSAs: Washington-Arlington-Alexandria, DC-VA-MD-WV and New York-Northern New Jersey-Long Island, NY-NJ-PA.)

Commercial loan growth momentum continues at leading U.S. banks

In spite of the continued economic uncertainty, U.S. banks continue to enjoy strong growth in commercial lending. A study of the 2Q12 financial results of 14 leading U.S. banks revealed that 11 grew average commercial loans by double-digit rates. In addition, 11 banks had higher year-over-year growth rates in 2Q12 than in 1Q12.

13 of the 14 banks reported growth in commercial loan portfolios between 1Q12 and 2Q12.

Looking at specific banks:

  • Commercial loan growth was led by PNC, although it should be recognized that PNC completed the acquisition of RBC Bank in 1Q12, which significantly skews the data.  PNC recorded above-average growth rates for financial services and health care loan portfolios.
  • U.S. Bank had the second-largest y/y growth rate, at 24%, led by a 52% rise in its specialized industries portfolio.
  • Comerica increased its average commercial loan portfolio 20% y/y, driven by a 46% rise in its specialty lending portfolio. (Over the past year, Comerica grew its energy loan portfolio by 68% and its tech and life sciences portfolio by 36%.)
  • KeyBank’s average commercial, financial and agricultural loan portfolio grew 19% y/y. KeyBank reported that its commercial loan utilization rate has been increasing in recent quarters, from 43.4% in 2Q11 and 46.9% in 1Q12 to 47.3% in 2Q12.
  • Chase grew commercial banking average loans 16% y/y, driven by a 42% rise in its corporate client banking loan portfolio (which covers clients with $500 million to $2 billion in annual revenue).
  • Bank of America was the only bank to report a quarterly decline in its average commercial loan portfolio (-2.7%). In addition, it had the second-lowest y/y growth rate (of 6.1%).

Most of the banks are reported improvements in commercial loan charge-off rates.  However, yields on commercial loans continue to fall. All 12 of the banks reporting commercial loan yield data had y/y declines, but it’s important to note that 4 of the 12 (PNC, Wells Fargo, BB&T and M&T) reported an increase in commercial loan yields between 1Q12 and 2Q12.