Banks, Credit Unions Rewarded by Credit Card Push

Give the people what they want.

Consumers have a big appetite for credit cards, and banks are happy to oblige. Making good on plans from a year ago, banks have introduced new cards or ramped up marketing efforts for stale card programs. The effort has paid off in surging credit card portfolios.

Credit unions, too, are reporting huge spikes in credit card balances.

At a time when sources of growth are hard to find, bank executives sound giddy about credit cards' potential.

Credit cards are "one of our biggest opportunities," John Stumpf, the chairman and chief executive of Wells Fargo, said during a conference call this summer. "We are just passionate about helping our retail customers understand the value of having a Wells Fargo card."

It is easy to understand Stumpf's excitement. Several banks reported significant jumps in credit card balances in the second quarter. The $91 billion-asset M&T Bank in Buffalo, N.Y., said credit cards rose 18% from a year earlier, to $324 million. Credit cards at the $175 billion-asset SunTrust Banks in Atlanta rose 17%, to $749 million.

The $64 billion-asset Huntington Bancshares, in Columbus, Ohio, began issuing its own cards last year and reported total credit-card loans of $84 million, as of June 30. The $26 billion-asset Associated Banc-Corp, in Green Bay, Wis., also increased its exposure to the credit-card sector in July, when it acquired $100 million in credit card receivables tied to its customers.

Some banks have seen a marked improvement by ditching referral arrangements and issuing cards themselves.

"We didn't get a lot of financial benefit from that, and we didn't have much say over the program," Jamie Sweeney, senior project manager in charge of credit cards at $5.8 billion-asset Pinnacle Financial Partners, said Tuesday.

Pinnacle launched its own MasterCard program in 2012 and has seen the business soar. Pinnacle's credit-card balance grew 75% to about $2.5 million at the end of the second quarter. Pinnacle's executives have encouraged frontline staff members to push plastic hard.

"The key tactic is to get cards in the hands of clients and encourage clients to use them, which our consumer bankers are all about doing," Harold Carpenter, Pinnacle's chief financial officer, said during a July 16 conference call.

The Nashville, Tenn., bank's management previously felt it was too small to do its own credit cards, Sweeney said. Once it reached a larger asset size, the timing seemed right.

"We do all the underwriting and client servicing," Sweeney said. "It's really hard to get started when you are smaller because you've got to negotiate a contract with the processor, write your own disclosures and build out your own application platform.

More banks are using analytical software to monitor consumers' online behavior to craft better sales pitches to potential customers, said David Wallace, global financial services marketing manager at SAS Institute in Cary, N.C. It's a big improvement over the old "spray-and-pay" system of sending credit-card offers to the mass population through the mail, he said.

"Banks were spending a lot on marketing and not getting a good return," Wallace said. "Now they are targeting the right customers."

Much of the growth in credit cards is simply a function of consumers having more money to spend, said Jim Blaine, president of State Employees' Credit Union in Raleigh, N.C. Teachers employed by North Carolina state schools received an average raise of 7% this year, their first raise in several years, he noted.

"Maybe the recession is over and people are starting to feel better" about their job situations, Blaine said.

SECU had been "ultraconservative" in its credit card business for years, Blaine said. In the past year, the $29 billion-asset institution introduced a card with a 7.75% interest rate, and a late fee of $5, to lure customers. The tactic has seemed to work, as SECU's credit card balance grew by 47%, to about $393 million, in the second quarter.

Other credit unions have seen big growth rates, too. The $60 billion-asset Navy Federal Credit Union grew its already sizable credit card portfolio by 17.5% to $8.6 billion in the second quarter.

Golden 1 Credit Union, an $8.5 billion-asset institution in Sacramento, Calif., in the past year started a new marketing campaign and consolidated two credit card products, said spokesman Scott Ingram. Its second-quarter credit card balance grew by about 22%, to $286 million. Higher credit card balances helps the credit union diversify its balance sheet, he said.

"They help offset lower-rate lending products [and] raise the overall yield on our loan portfolio," Ingram said.

Credit card balances have grown at some banks, but more consumers have been paying their monthly statements in full, which crimps fee income. While that may not be the best result in the short term, it bodes well for lending in the coming years, Grayson Hall, the chairman and CEO at Regions Financial, said during a conference call to discuss second-quarter results.

"Spending is up strong double digits" in both credit cards and debit cards, Hall said. "But balances on the credit side continue to be modest."

The $119 billion-asset Regions, in Birmingham, Ala., increased its credit card balances by 9.8%, to about $945 million.

Consumers' economic situation "appears to be getting stronger and the financial discipline around those customers appears to be better as a result," Hall said. "I actually think that's good news. … It bodes well for when deposit-gathering franchises become valuable again."