5 takeaways from leading credit card issuer 1Q15 financials

An analysis by EMI of the latest quarterly financials from the leading U.S. credit card issuers revealed the following trends:

  • Growth in average outstandings.  Of the 13 leading issuers studied, 11 reported y/y increases in average outstandings.
    • The two exceptions were Bank of America and Citi, two of the top four issuers and this continues a longstanding pattern
    • Capital One—another top four issuer— reported a strong growth rate of 7%, driven by origination programs and line increases.  However, it should be noted that Capital One retains some of the credit card monoline heritage, with card loans accounting for 40% of its total loan book.
    • Strongest growth was reported by SunTrust, although it should be noted that this comes from a low base, with average card loans accounting for just 0.7% of SunTrust’s total loans, a percentage that is significantly lower than its regional bank peers.  It is also worth noting that SunTrust’s credit card yield was below 10% in 1Q15, lower than regional bank peers like Fifth Third (10.22%) and Regions (11.73%), as well as larger issuers like U.S. Bank (10.81%) and Wells Fargo (11.78%).
    • Wells Fargo also reported very strong y/y loan growth of 16%, although this included the acquisition of the Dillard’s private-label portfolio.  Its credit card penetration of retail bank households rose nearly four percentage points y/y to 41.8%, although the rise in penetration slowed sharply in the most recent quarter, increasing just 28 percentage points.


  • Outstandings starting to come into line with volume.  Since the 2008 financial crisis, the card industry has focused more on increasing cardholder purchase volume rather than outstandings.  As you see in the following chart, volume growth continues to outstrip outstandings growth.
    • Of the 7 issuers below reporting y/y changes in both volume and outstandings, only American Express and Discover reported higher growth rates for outstandings than volume.
    • Ideally, issuers would like outstandings and volume to grow at similar rates; American Express and Wells Fargo were most effective at achieving this in the most recent quarter.
    • Some issuers reported that lower gas prices had a depressing effect on volume growth.


  • Charge-offs remain at historic lows. 12 of 13 issuers reported credit card net charge-off rates below 4% in 1Q15, with 5 issuers below 3%.  In addition, 10 of the 13 issuers reported y/y declines in charge-off rates.  Although most issuers reported growth in charge-off rates between 4Q14 and 1Q15, this is a normal seasonal pattern, and there is little sign of significant upward movement in charge-off rates.  Some issuers are revising downward their future charge-off rate expectations: Capital One reported that its rate may fall to the low 3% range in 3Q15 (although it does expect rates to rise in 4Q15 and 2016). And Chase expects that its full-year 2015 net charge-off rate will be less than 2.5%.


  • Delinquency rates continue to fall.  Of the 8 issuers who reported 30+ day delinquency rates, all reported y/y declines.  This indicates that there is little upward pressure on charge-off rates, as delinquencies tend to be leading indicators of future charge-offs.
  • Signs of revenue growth. in recent years, issuers have reported low/no revenue growth and have instead generated profits from low provisions for loan losses.  As issuers have now begun to target outstandings growth, revenues have started to increase.  Of the 6 leading issuers providing credit card revenue data in 1Q15, 5 reported y/y growth.  In addition, 4 of these 5 issuers reported growth in both net interest and noninterest income.


Top Credit Card Issuers’ 4Q13 Financials: Takeaways and Implications

A scan of 4Q13 and full-year 2013 financials for 13 leading U.S. credit card issuers revealed the following trends in outstandings, volume and credit quality:


Average outstandings continued to decline y/y for the top 4 issuers, but rose in other issuer categories:

  • Although outstandings for the largest issuers continue to decline, there is evidence that these issuers are now at a inflection point, where growth in new vintages is starting to exceed declines in run-off portfolios.  Chase claimed that it reached this inflection point in the second quarter of 2013, and expects to generate moderate outstandings growth this year.  Bank of America is pointing to strong growth in account production, with 1 million new accounts opened in each of the past two quarters.
  • Discover and American Express both increased outstandings by 4% y/y; this led to net interest income growth, of 10% and 8%, respectively.
  • Wells Fargo grew average outstandings 8%, as it grew new accounts by 29% y/y .  Credit card penetration of Wells Fargo retail banking households rose from 27% in 1Q11 to 37% in 4Q13.

As there is growing consensus that the economy will grow robustly in 2014, improved consumer confidence should translate into increased credit appetite, which issuers will look to meet with targeted campaigns and pricing (on introductory rates rather than go-to APRs).  In addition, in recent years, issuers have focused on higher FICOs (which we discussed in a recent blog), but now may look to develop campaigns, product and pricing for other segments.


The 7 issuers reporting annual volume data generated an increase of 8% between 2012 and 2013.  Growth in volume continues to outstrip outstandings, as debt-wary consumers continue to see the credit card as more of a payment than a borrowing tool.

  • In general, issuers grew volume from a combination of new account production and increased existing cardholder spending.
  • American Express’ 9% growth was boosted by a 12% increase in small business spending, marking the fourth consecutive quarter of double-digit growth.

In 2014, issuers will be looking to benefit from growth in consumer spending as the economic recovery takes shape, so we should expect a continuation of tiered earnings in rewards programs, as well as communications and offers targeted at key stages of the cardholder life cycle (card acquisition, activation, retention and ongoing card usage).

Credit Quality

Charge-off rates for many issuers are at or below historic lows, with all issuers reporting 4Q13 rates below 4%.

  • In the aftermath of the financial crisis, some of the leading issuers experienced huge spikes in their charge-off rates.  The charge-off rate for Bank of America’s U.S. Card unit rose to more than 14% in the third quarter of 2009, while the rate for Citigroup’s Citi-Branded Cards-North America unit peaked at 10.78% in 2Q10.  The chart above shows that charge-off rates for these issuers have returned to normal levels.
  • Low charge-off rates—and the expectation that these rates will remain low—enable issuers to maintain reduced loan loss provisions.  This in turn boosts profitability even as issuers struggle to grow revenues.  Some of the leading issuers reported strong y/y declines in provisions in 4Q13, including Chase (-46%) and American Express (-27%).

As issuers push for outstandings growth in 2014, the expectation is that charge-off rates will rise.  However, there are indications that rises in charge-off rates will be moderate.  30+ day delinquency rates (leading indicator for charge-off rates) continue to fall.  In addition, the credit card sector has changed fundamentally in recent years; neither consumers nor issuers see credit cards want to return to the borrowing/lending culture that pertained prior to the financial crisis.

Quarterly Card Issuer Financials Reveal Positive (and some Negative) Trends

All of the main U.S. credit card issuers have now reported second quarter 2011 financials, which reveal some interesting trends:

Volumes: In recent quarters, card purchase volumes have grown significantly as issuers have focused attention on positioning cards as spending rather than lending tools. Most issuers continued to grow volumes in 2Q12, although in some cases, the rate of growth was lower than in recent quarters. Wells Fargo (+15%), U.S. Bank (+13%), Chase (+12%) and Capital One (+11%, excluding the impact of the HSBC portfolio acquisition) all reported double-digit year-on-year spending increases. American Express, which has typically led the industry in volume growth, reported a y/y rise in spending of 9%, down from 12% in 1Q12. And both Bank of America and Citibank reported no growth in purchase volumes. Issuers will continue to push volume growth in the coming quarters, as they continue to seek to take payments share from cash and checks.

Outstandings: In recent years, issuers reacted to the financial crisis by significantly deleveraging their credit card portfolios. Now there are signs that this process has bottomed out and a number of issuers are growing outstandings. The largest portfolios continue to decline, with Bank of America (-10%), Citibank (-3%) and Chase (-1%) all reporting year-on-year declines in end-of-period outstandings. On the other hand, banks with smaller portfolios reported y/y growth, including SunTrust (+39%), PNC (+10%), Wells Fargo (+7%), U.S. Bank and Fifth Third (both +5%). In addition, American Express (+5%) and Discover (+4%) both grew outstandings. The prospects for outstandings growth in the industry in general in the quarters will be dependent on general economic conditions, as well as the extent to which issuers want to push loan growth in order to grow revenues.

Charge-Off and Delinquency Rates: As issuers reduced outstandings following the financial crisis in 2008, they also set about tackling charge-offs, which spiked spectacularly in 2008 and 2009. Charge-off rates have declined significantly over the past two years, and in many cases are now below normalized levels. There has been a widespread expectation in recent quarters that the sharp declines in charge-off rates would bottom out; however, the most recent quarter continued the pattern of charge-off rate declines. All of the main issuers reduced charge-off rates by more than 100 bps y/y, and only one main issuer (U.S. Bank) reported a q/q increase in its charge-off rate. American Express, Discover and Capital One reported charge-off rates below 3% in 2Q12. Bank of America remains the issuer with the highest charge-off rate (at 5.27% in 2Q12), but it is notable that this rate is down from levels of more than 14% in 2009. There is an expectation that charge-offs will continue to decline in the coming quarter, given that delinquency rates (which are an indicator of future charge-offs) are also continuing to decline. Some issuers are anticipating that credit quality indices will bottom out or even grow, in particular if the issuers relax underwriting standards to grow outstandings. So, a number of leading issuers are increasing their provision for loan losses.

Revenue: This remains the big negative for issuers, with downward pressure on both net interest income (for those issuers who are continuing to experience outstandings declines) and noninterest income (from the ongoing impact of the CARD Act, which makes it more difficult to generate fee income). Issuers with lower outstandings (Bank of America, Citibank and Chase) reported revenue declines, but issuers who grew outstandings in 2Q12 managed to grow revenues. American Express increased revenue 5%, with net interest income rising 6%. Discover grew total revenues 6%, with a 4% decline in noninterest income more than offset by a 10% growth in net interest income. Prospects for revenue growth in the coming quarters will be very much dependent on the ability to grow outstandings, given the limited scope for generating fee income.