Tag Archives: keybank

Leading U.S. Banks Continue Robust C&I Loan Growth

The leading U.S. banks reported a 10% y/y rise in average commercial and industrial (C&I) loans in 2Q15, based on an EMI analysis of the FFIEC call report data.

leading_banks_C&I_loans_2Q14-2Q15

Interest income on C&I loans rose 5% y/y, indicating that downward pressure on commercial loan pricing persists.  This is reflected in the following table, which shows consistent y/y declines in commercial loan yields.  However, there are signs that yield are now stabilizing.

commercial_loan_yield_2Q15

Most leading banks report that the commercial loan market is highly competitive.  So, how are banks managing to grow their C&I loan portfolios at double-digit rates?

  • Banks are targeting specialty segments.  Many leading banks reported that targeted vertical segments drove overall commercial loan growth in the second quarter.  Comerica’s average technology and life sciences loans rose 20% y/y, compared to only 3% for total Comerica middle market loans.  And while KeyBank grew its commercial, financial and agricultural loans by 12%, loans to the transportation sector grew by a hefty 42%. A bank’s selection of target segments depends on a number of factors, including segment size and growth, concentration of specific segments in their footprint; and the bank’s heritage in serving this segment.  To more effectively build a presence in specific vertical markets, many banks are now creating dedicated teams that include industry experts.  In addition, a number of banks are developing segment-specific content, which both establishes bank credibility and creates opportunities for prospect engagement.
  • There are signs of growth in commercial loan utilization.  As the economy and business optimism improves, companies are more inclined to invest to grow their businesses.  A number of banks are now reporting a slow-but-steady rise in commercial loan utilization.  Regions reported a 97 basis point increase in line utilization during the quarter. Equally, Fifth Third’s commercial line utilization rose from 32% to 33% in the second quarter.
  • Banks are increasingly focused on optimizing commercial client lifetime value.  As in consumer banking, banks are seeking to optimize relationships with commercial clients by taking a lifetime value approach and focusing not just on acquisition, but on all key stages of the relationship (including onboarding, retention and cross-sell).  The effect of this approach for banks can be significant.  Since the start of 2010, Huntington Bank has grown commercial relationships by 36%, but commercial relationship revenue by 72%. The percentage of Huntington’s commercial clients with 4+ services rose from 32.6% to 43.4% over the past three years.  This long-term perspective may also help explain why yields on new commercial remain low.  In discussing its quarterly financials, KeyBank claimed that “if we believe we have a client who wants a broad relationship and the credit metrics look good for us, we know that over time we can generate a profitable relationship, even if we are pressured a bit on the loan pricing.”

 

 

5 channel takeaways from 1Q15 U.S. bank financials

The quarterly reports of the leading U.S. banks revealed a number of important channel trends:

  1. Mobile banking is continuing its strong growth.  Three of the leading U.S. banks provided quarterly updates on active mobile banking users, and each reported double-digit y/y growth in 1Q15: Chase +22% to 20.0 million; Bank of America +13% to 16.9 million; and Wells Fargo +19% to 14.9 million.  According to eMarketer, more than half of adult mobile phone users are expected to use mobile banking in 2015.
  2. Consumers are transitioning to self-service channels for a growing range of transactions.  PNC reported that 50% of its consumer customers used non-branch channels for a majority of their banking transactions in the first quarter of 2015, up 7 percentage points y/y.  PNC also reported that the non-branch (ATM and mobile) channel share of deposit transactions doubled from 20% in 1Q13 to 40% in 1Q15.
  3. Many banks are slowly shrinking their branch networks.  Leading banks who reported significant branch reductions in the most recent quarter include: Citibank (down 61 during the quarter, as its pursued its strategy of consolidating its presence in 7 U.S. markets), PNC (-37 branches), Regions (-33) and Chase (-31 ).  Although Bank of America has closed more than 800 branches over the past three years, the net branch decline fell to 20 in the first quarter of 2015.
  4. Some banks are growing branch numbers…and in-branch sales staff.  In spite of the general perception that the branch channel is in the process of terminal decline, some banks are in fact acquiring or opening branches in order to capture growth opportunities.  Huntington Bank reported the addition of 43 new in-store branches in Michigan.  And even though Bank of America reduced branch numbers by 260 over the past year, it grew sales specialists by 5%.
  5. Banks remain committed to the branch network as consumers use multiple banking channels.  While electronic self-service channels have a dominant share of everyday banking transactions, branches still play a key role in areas like new account generation, customer relationship management (including cross-sell), and branding.  Wells Fargo claims that its most loyal customers are not those who have the most products, but rather those who use the most channels most often.  It reported that mobile banking sessions rose 38% in 2014, while branch visits remained steady.

Five Strategies to Adapt Bank Branches to The New Normal

There is a wealth of evidence that consumers are using online and mobile channels as the primary channels for their everyday banking needs:

  • Having reached critical mass in online banking penetration, the largest U.S. banks continue to report strong growth in active mobile banking customers (Chase +23% y/y to 17.2 million; Bank of America up 17% to 15.5 million; and Wells Fargo +22% to 13.1 million)
  • Regional bank customers are also growing their usage of non-branch channels.  45% of PNC customers use non-branch channels for a majority of banking transactions.  Fifth Third reports that ATM and mobile channels’ share of deposit volume rose from 12% to 31% over the past two years. KeyBank claims that online and mobile transactions are growing by 9% annually, while branch transactions are declining by 3%.

The rise of self-service channels for everyday banking transactions is leading banks to re-assess their investment in their branch networks.  For example, banks are changing traditional assumptions as to what constitutes optimal branch density within markets.  In a recent presentation, KeyBank claimed that branch density is now less relevant as long as a bank can pair branches with a good mobile offering. In addition, in a low-revenue-growth environment, banks are under pressure to cut costs in order to meet earnings expectations. As a result of these factors, banks are cutting branch numbers.

  • Bank of America is expected to cut branches to below 5,000 by the end of 2014, compared to more than 5,700 in the second quarter of 2011.  It recently announced the sale of branch clusters in North Carolina and Michigan.
  • Over the past six months Citibank sold all of its branches in Texas, as it focuses its energies on a select number of large metro markets.
  • KeyBank has closed or sold 8% of its branches over the past two years, and plans to cut its network further, by about 2-3% per year.

However, banks remain strongly committed to their branch networks.  This is largely due to the fact that consumers continue to value the branch channel, even if usage has declined.  A recent ABA survey found that 21% of consumers named the branch as their preferred banking channel, up from 18% in 2013. In addition, banks recognize the benefits in encouraging customers to use multiple channels.  Wells Fargo found that customers using its stores as well as online and mobile channels have a 70% higher purchase rate than customers who only use online and mobile. With in this mind, the following are five branch strategies that banks should follow, with examples of banks that have already implemented these approaches:

  1. Deploy new branch formats.  Given lower traffic and transaction volumes in branches, banks should launch branch prototypes with smaller footprints, so that they can maintain their physical presence, but at a lower cost.
    • PNC has converted 200 of its branches to a smaller format, with 100 more to follow by the end of 2014.
  2. Launch flagship branches in selected markets.  With changing ideas around branch density, bank can consolidate multiple branches into a large flagship store.  These flagship stores act as a brand beacon for the bank in specific markets, as well as providing space for the bank to showcase new innovations
  3. Reconfigure branch staff.  As branch activity is switching from transaction processing to sales and advice, and branches switch to smaller format, bank can reduce the average number of staff per branch, but should also change the functional balance, with fewer tellers and more sales specialists.
    • In the 18 months to June 2014, Fifth Third cut 22% of its branch service staff, but increased sales staff by 6%.
    • Over the past year, PNC has grown its number of investment professionals in branches by 4%.
  4. Incorporate technology into branches. As consumers become more accustomed with using technology for their everyday financial needs, banks should showcase customer-facing technology in branches.  This can enhance the user experience and capture sales opportunities
    • Regions is installing two-way video to enable customers communicate directly with bankers via an ATM.
  5. Open branches outside of footprint.  As having a critical mass of branches in a market is no longer a prerequisite for success, banks can open branches beyond their traditional retail footprint, to target specific consumer or business clusters.
    • City National has established branches in New York City, Atlanta and Nashville, dedicated to targeting entertainment firms that are clustered within these markets.