Hard to believe, but it's true. Only 6 (Big) banks hold 50% of all industry loans to consumers.

While 50 banks hold a full 90%. That means that just 10% of consumer loans were extended by the other 4,500 plus U.S. banks.

A list of the 50 banks that hold the 90% can be found on page 5 of this week's  issue of Jumbo Rate News in descending order of consumer loans outstanding so the six that hold 50% are on top.

Six Banks Hold 50% of Industry Loans to Consumers

With over $1 trillion in consumer loans combined, six U.S. banks hold  half of the banking industry’s total $2 trillion in consumer loans.  What’s more, with a combined $1.862 trillion in consumer loans outstanding, the 50 banks listed on page 5 hold 90% of all bank loans to consumers.

These 50 banks must be especially thankful that U.S. consumers love to spend. Also, that consumer credit quality is holding up pretty well. Charge-offs and delinquencies have risen of late, but primarily remain in-line with what we saw pre-pandemic.

It will come as no surprise that four of the top six consumer bank lenders are also the four largest banks in the country. The nation’s largest bank, 5-Star JPMorgan Chase Bank, Columbus OH, takes the #1 slot with 12.5% of the total.  The second highest consumer lender, however, is only the 9th largest by assets. 5-Star Capital One Bank, N.A., McLean, VA, is the only other bank with more than $200 billion in consumer loans. It holds 10% of the industry total.

At September 30, 2022, immediately before the two Capital One Banks merged, Capital One Bank USA N.A., the smaller affiliate with $127.6 billion in assets, reported consumer loans of $93.339 billion—all of which were credit card loans. At the same time, Capital One Bank N.A. (the survivor) reported total assets of $392 billion, which included just $96.398 billion in consumer loans. Only about 8.5% of the larger affiliate’s loans were credit card loans.

What we had were two very different banks, with very different business models, but the same parent. Not long after the two banks were merged, the parent, Capital One Financial, announced it would trim 1,100 tech jobs to increase efficiency (JRN 40:06).

It worked. Prior to the merger, Capital One Bank N.A. had an efficiency ratio of 73%. A year later, at Sept. 30, 2023, its efficiency ratio was down to 52.64%. Its capital ratios also looked better and Capital One Bank N.A. gained a star in the process - going from 4 to 5-Stars.

Capital One is still heavily weighted with consumer loans (65.8% of total loans). While its 110.9% consumer loan growth (reported on page 5) is skewed by the merger, there are  only 34 banks with a higher percentage of their loans in that one “Consumer Loan” basket than Capital One. Even so, Capital One is much more well-rounded than it was a year ago. Capital One has turned itself into a lean, green, lending machine.

Its earnings release on Thursday indicates continued growth in credit card loans but a drop in auto and other consumer loans. It also made a big provision for credit losses, which were already close to 300% of delinquent loans at the end of the third quarter. Planning for “what if?”.

4-Star Bank of America has 9% of industry consumer loans and 4-Star CitiBank carries 7%. 4-Star Discover Bank and 4-Star Wells Fargo round out the top six with 5.6% and 5.3%, respectively. These six banks hold 50% of the U.S. bank consumer loans.

Credit card loans represent about half of that consumer debt. As you can see, some of the page 5 banks have little or no credit card debt at all. 4-Star Sallie Mae Bank, UT, for example, has no credit card loans. Virtually all of Sallie Mae’s loan portfolio, as you might expect, is made up of student loans.

You can tell simply from the star ratings that delinquencies are not an issue for  most of these banks, but there are a few. 3½-Star Merrick Bank, UT, 3½-Star Comenity Capital Bank, UT and 3½-Star Comenity Bank, DE are three such banks. However, and as always, there’s more to the story.

Established in 1997, Merrick Bank has made a name for itself helping those looking to build (or rebuild) their credit. With nearly 3 million cardholders, there are likely to be some bad apples in the bunch… and there are. But, Merrick Bank has a much higher capital cushion than its peers. Its leverage capital ratio (CR) is 21.67%. That being the case, even though it reports more than 5% of its loans as past due, its Bauer’s Adjusted CR is still over 18%. And, in a worst case scenario, Merrick Bank is well-reserved. It has enough in reserves to cover three and a half times what it reported as delinquent at September 30th.

The other two, Comenity Bank and Comenity Capital Bank, both part of Bread Financial Holdings, are in a similar situation. All, or substantially all, of their loans are to consumers, and yes, some of those loan are delinquent. Similarities with Merrick Bank include high capital cushions and plenty of reserves. Both Comenity banks have more than 300% of delinquent loans reserved for loan losses. Unlike Merrick Bank, however, Comenty Bank and Comenity Capital Bank are reporting slightly higher delinquency-to-asset ratios now than they did before the pandemic.

This is not a concern, at least not yet. But it is something we will be watching closely. Industrywide, loans to consumers increased 4.8% during the 12 months ending September 30, 2023. Credit card loans increased 12.7%. Are we going back to pre-pandemic norms or are U.S. consumers struggling to make ends meet? Only time will tell for sure, but the fact that noncurrent loans increased by 17.6% during that same period is concerning.