Q2 2013: U.S. Credit Card Issuer Performance Snapshot
The trends for the second quarter of 2013 are consistent with the first quarter of the year. The nation’s largest credit card issuers reported strong profits despite relatively stagnant quarter-over-quarter asset growth. Purchase volume showed close to a 10% increase on both a year-over-year and quarter-over-quarter basis. However, most issuers remain cautious from both a credit quality and regulatory perspective as it relates to targeting lower ends of the risk spectrum.
- Receivables Are Relatively Flat: Quarterly loan growth was once again flat, while receivables decreased by 2.2% on a year-over-year basis. Capital One reported the largest decline in receivables, but it is primarily attributable to the accounting treatment associated with the pending sale of the Best Buy portfolio to Citi. Consistent with the first quarter of 2013, American Express, Discover, and Wells Fargo all posted quarter-over-quarter and year-over-year loan increases, while the nation’s largest issuers – Chase, Citi, Bank of America, and Capital One – all experienced year-over-year decreases.
- Attractive Returns Continue: Issuer returns as measured by ROA increased by 89 basis points on a year-over-year basis and declined only slightly on a quarterly basis. If Capital One was excluded from our analysis (due to one-time expenses related to the HSBC acquisition in Q2 2012), industry returns would have increased by 27 basis points year-over-year. While receivables and revenue growth challenges are widespread, the card industry continues to benefit from a benign credit quality environment and low funding costs. With the Federal Reserve signaling possible “tapering” actions on monetary policy, continued soft demand for credit card loans will become more problematic.
- Continued Growth in Purchase Volume: Purchase volume increased by 9.9% on a year-over-year basis and 10.3% quarter-over-quarter. Purchase volume increases were ubiquitous for all of the issuers in our peer group. Industry purchase volumes are now at parity inflation adjusted pre-recession levels.
- Loss Rates Plateau: Loss rates decreased by 11 basis points quarter-over-quarter and, consistent with prior recent prior quarters, 85 basis points year-over-year. The protracted improvement in loss rates is being driven by issuer targeting and underwriting strategies and the fact that household balance sheets have improved dramatically since the height of the recession with household debt to income ratios now at their lowest point in over three decades.
Source: Issuer quarterly reports and First Annapolis analysis.
1 Includes income from acquiring business and private label receivables and volume. Restated from previous quarter which included income from auto and student lending.
2 Earnings restated in 1Q 2013, historical figures adjusted to conform to new reporting methodology. Purchase volume includes cash advances.
3 Receivables, purchase volume, and net loss rates are for U.S. consumer cards. After-tax ROA restated to reflect “Consumer Lending” only; which now includes Dealer Financial Services. Period amounts have been reclassified to conform to current period presentation.
4 U.S. card business, small business, installment loans only. Purchase volume excludes cash advances. 2Q12 Results include the impact of May 1, 2012 closing of HSBC transaction resulting in approx $28.2 billion in receivables at closing.
5 Receivables and charge-offs are for U.S. Cardmember Lending business only. Purchase volume is for U.S. Card Services segment, consumer and small business. Average earning assets is defined as all cardmember receivables (charge) and loans (revolving credit).
6 Includes U.S. domestic receivables and purchase volumes only. Restated: ROA reflective of Direct Banking segment (80+% credit card) and implied U.S. Cards tax rate of ~40%. ROA denominator estimated from total loans ended totals.
7 Wells Fargo began reporting purchase volume in 4Q 2013.
8 After Tax ROA reflects Payment Services line of business income and average loans.
9 After Tax ROA excludes Wells Fargo as credit specific income not reported. Reflects any previous quarter restatements and includes addition of U.S. Bank.
For more information, please contact James Watts, Senior Consultant specializing in Credit Card Issuing, firstname.lastname@example.org.
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