Wells Posts Big Q2 Credit Card Gains – But Why?

Wells Fargo & Co. late last week reported a 10 percent rise in credit card balances as the financial institution looked to deepen its relationship with customers through card and other account growth.

In reporting the company’s second quarter earnings, John Stumpf, Wells chairman, president and CEO, noted that in addition to the double-digit boost in card balances, to $2.4 billion, the issuer also saw its number of new card accounts rise by 4 percent.

“Our growth rate has been above the industry average, reflecting new account growth, product enhancements, and increased usage among our existing customers,” he told analysts during an earnings conference call.

Deposit growth also remained strong, with average deposits for the quarter growing $91.7 billion, or 9%, year over year, to $1.1 trillion, and the bank benefited from strong growth in both commercial and consumer balances, Stumpf said.

Average deposit costs declined to 10 basis points in the quarter, down a basis point from the previous quarter and down 4 basis points from a year earlier, as the number of primary consumer checking customers grew 4.6% from a year earlier. “Our ability to grow primary customers is important to our results because these customers have more interactions with us, have higher cross-sell, and are more than twice as profitable as non-primary customers,” Stumpf said.

Commenting on the difficulty getting new cardholders to use their cards, Stumpf called the challenge “one of our biggest opportunities in the company.”

“ We are just passionate about helping our retail customers understand the value of having a Wells Fargo card, and not only in their wallet, but top-of-wallet,” he said.

Wells identified some areas that it was underserving, especially among affluent and emerging-affluent customers, Stumpf said. “And our partnership with American Express is off to a very good start; obviously we do a lot of things with Visa, and MasterCard, (also important partners of ours,” he said.

Internal sales also are a key driver behind card-issuance growth and building card usage, Stumpf indicated. “We can sell a card to a customer at a fraction of the cost of someone else from the outside; we know these people better, and we can give them better products,” he aid. “We have a lot of exciting benefits that we’re giving as part of the card offering.”

When Wells merged with Wachovia a little more than five years ago, Wachovia already had sold its card business off, so the bank’s penetration of cards within its customer base was 22 percent. Today, it’s at 39 percent, Stumpf said. In the first quarter, the bank cited 38 percent credit card penetration among its retail banking households, up from 34.1 percent a year earlier. Penetration in the second quarter of 2013 was 34.9 percent.

“I always tell our people: Do you know how many of our consumers have credit cards? They all do. In fact, they have more than one card,” he said on the call. “Now, I don’t know that we can get to 100%, but we are marching smartly up the line.”

And it’s not only about the number of plastic cards Wells has outstanding, Stumpf noted. It’s also the ones that are being used.

“I am thrilled with what we are doing,” he said. “We still have a lot more work to do, (and it’s) a big opportunity for us.”

Commenting on other growth areas, John Shrewsberry, Wells senior executive vice president and chief financial officer, cited merchant card programs, such as the Dillard’s portfolio where it acquired the receivables and management of the card program. “There is more opportunity there,” he said.

During the quarter, credit card net charge-offs for the period ended June 30 totaled $211 million, or 3.2 percent of average loans, according to the bank’s earning announcement.

Business Direct credit card, lines of credit and loan-product solutions (primarily under $100,000 sold through our retail banking stores) were up 22 percent from the prior year, the company said. Card fees totaled $847 million, up 4 percent. Card loans 90 or more days past due totaled $266 million, up slightly from a year earlier.

Merchant transaction-processing fees totaled $183 million, up 5 percent from a year earlier, Wells said.

Wells also reported 24.1 million active online customers, up 6 percent year over year. There were 13.1 million active mobile customers, up 22 percent.

As a company, Wells reported net income of $5.7 billion, 3.6 percent from $5.5 billion a year earlier. Revenue was $21.1 billion, up 2.4 percent from $20.6 billion.