Q3 2012: U.S. Credit Card Issuer Performance Snapshot

Navigator Edition: November 2012
By: James Watts

The weighted average industry loss rate continued to decline in the third quarter of 2012 and is now approaching the lowest level since the beginning of 2006.  Purchase volumes increased compared to both the prior year and, for the sixth consecutive period, the prior quarter.  Receivables growth continues to be the central challenge for the industry as a whole.

  1. Stagnant Receivables Levels: Similar to the second quarter of 2012, industry receivables remained relatively flat from the first quarter, and US issuers in our composite, excluding Capital One, recorded a decrease of 2.0% over the prior year.  The largest issuers in the country, J.P. Morgan Chase, Citigroup, and Bank of America posted the largest annual declines at 2.0%, 3.7%, and 9.4%, respectively.  Bank of America’s receivables decline appears to be on the path to stabilization as the issuer recorded a quarter over quarter decrease of 1.2%, the smallest this year.
  2. Improved Returns: Issuer returns improved compared to the second quarter; however, profitability is down 14 bps year over year.   As measured by our composite, the industry posted an after-tax return on assets of 3.57% for the quarter (annualized), up 31 bps from the same period last year (note: the exclusion of Capital One from this calculation caused disparity versus our last publication).  Profitability figures this quarter are, in nearly all cases, not influenced by reserve modifications, which boosted returns over the past several quarters.  Every issuer except for Chase and American Express, which recorded only modest decreases, recorded a quarter over quarter increase in after-tax ROA.
  3. Rise in Purchase Volume Normalizing: Issuer purchase volumes rose once again for the fifth time in the last six quarters (on a quarter over quarter basis); however, increases appear to be stabilizing as the third quarter saw a quarter over quarter increase of 0.6% and a year over year increase of 5.4%. This trend applies to nearly every issuer on both a quarter over quarter and year over year basis.  Chase and American Express continue to outpace the industry with an intense focus on enhanced cardholder value propositions and new product innovation.
  4. Continued Improvement in Loss Rates: Industry-wide loss rates continued the trend of improvement, nearly universally, declining 136 bps on a year-over-year basis.  This trend is unlikely to continue as rates approach historic lows and issuers seek loan growth which may require moving down the risk spectrum.


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 Restated splitting between Citi branded North American and Citi Retail Services beginning 1Q 2012.  Purchase volume includes cash advances.
3 Receivables, purchase volume, and net loss rates are for U.S. consumer cards.  After-tax ROA restated to include “Card Services” only; U.S. consumer and business services.  Period amounts reclassified to conform to current period presentation.
4 U.S. card business, small business, installment loans only. Purchase volume excludes cash advances. Post-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.
6 Includes US domestic receivables and purchase volumes only. ROA includes merchant services and implied U.S. Cards tax rate of ~40%.
7 After Tax ROA reflects Payment Services line of business income and average loans.
8 After Tax ROA and purchase volume totals exclude Wells Fargo.  Credit specific income not reported.
9 Industry change calculation excludes Capital One due accounting changes and the addition of assets tied to the HSBC acquisition.

For more information, please contact James Watts, Senior Consultant specializing in Credit Card Issuing, james.watts@firstannapolis.com

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