Tag Archives: U.S. Bank

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.

Commercial Lending Trends in U.S. Banks’ 3Q12 financials

A noteworthy trend among large U.S. banks’ 3Q11 financials has been the significant rise in commercial lending. This continues a trend that has been evident in recent quarters. Of course, the current strong growth follows significant declines in commercial lending in 2008 and 2009 in the wake of the financial crisis.

Some of these banks have boosted overall commercial loan growth rates by targeting specific industry sectors. Comerica generated overall commercial loan growth of 21%, but grew its energy loan portfolio by 62% and its tech and life sciences portfolio by 36%. Other banks are following the industry targeting trend. Huntington recently launched a new energy lending initiative, and Associated Bank established a Healthcare Industry Banking Group.

It is notable, however, that uncertainty regarding the Presidential election and the looming fiscal cliff led to an overall 22 bps decline in y/y commercial loan growth rates between 2Q12 and 3Q12 for the 14 banks in our study, from 13.52% to 13.33%.

Although growth rates are robust, loan utilization rates remain relatively low, which can again be attributed to the economic uncertainty as well as many larger companies being flush with cash. The relatively low utilization rates indicate that commercial loans growth could accelerate once again if and when fiscal issues are resolved and economic confidence increases. And some banks are already seeing improved utilization rates:

  • Comerica’s utilization rate was 48.2% in 3Q12, having hit a low of 44.2% in 1Q11.
  • Regions’ utilization rate grew from 39.8% in 4Q10 to 44.4% in 2Q12.

Even as banks grow commercial lending, charge-off rates continue to decline. EMI’s analysis of charge-off data from 11 leading banks found an average commercial loan charge-off rate of 0.25% in 3Q12, down 29 bps year-over-year, and 11 bps from the previous quarter.

Finally, both low interest rates and increased competition continue to exercise downward pressure on commercial loan yields. Our analysis of yield data from 13 leading U.S. banks found that the average yield in 3Q12 was 3.81%, down 35 bps y/y and 19 bps q/q.

Continued improvement in credit quality metrics for leading bank card issuers

All of the leading bank card issuers reported continued improvement in key credit quality metrics for their credit card portfolios in 1Q11, as seen in the following charts.

As a result of these improvement, banks have slashed their provision for credit losses, which has significant boosted profitability.

However, banks’ credit card outstandings are continuing to decline.  In reporting financials, a number of banks reported that they expect outstandings to grow in the second half of the year, and in arecent months, we have seen signs of more aggressive acquisition activity (such as growing direct mail volume and re-appearance of lengthly 0% balance transfer offers).  However, banks will certainly be very cautious in their efforts to grow lending in the coming quarters, as they seek to avoid any repitition of the over-exhuberant lending climate taht prevailed in the middle of the last decade.