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Board of Governors of the Federal Reserve System
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Report to the Congress on the Profitability of Credit
Card Operations of Depository Institutions

Call Report Data

Every insured commercial bank files a Call Report each quarter with its federal supervisory agency.  The Call Report provides a comprehensive balance sheet and income statement for each bank; however, it does not allocate all expenses or attribute all revenues to specific product lines, such as credit cards.  Nevertheless, the data may be used to assess the profitability of credit card activities by analyzing the earnings of those banks established primarily to issue and service credit card accounts.  These specialized or mono-lined banks are referred to here as "credit card banks."

For purposes of this report, credit card banks are defined by two criteria: (1) the bulk of their assets are loans to individuals (consumer lending), and (2) 90 percent or more of their consumer lending involves credit cards or related plans.  Given this definition, it can reasonably be assumed that the profitability of these banks primarily reflects returns from their credit card operations.

The first credit card banks were chartered in the early 1980s; few were in operation prior to the mid‑1980s.  To provide a more reliable picture of the year‑to‑year changes in the profitability of the credit card operations of card issuers, this report limits its focus to credit card banks having at least $200 million in assets.  Most of these institutions have been in continuous operation for several years, particularly those with assets exceeding $1 billion, and are well beyond the initial phase of their operations.

As of December 31, 2013, 14 banks with assets exceeding $200 million met the definition of a credit card bank.  At that time, these banks accounted for nearly 60 percent of outstanding credit card balances on the books of commercial banks or in pools underlying securities backed by credit card balances. 

Tracking credit card profitability over time is complicated.  Accounting rule changes implemented in 2010 require banking institutions to consolidate onto their Call Reports some previously off-balance sheet items (such as credit card-backed securities).  To the extent that previously off-balance sheet assets have a different rate of return than on-balance sheet assets, profitability measures based on Call Report data in 2010 and after are not necessarily comparable to those prior to 2010.

In 2013, credit card banks with assets in excess of $200 million reported net earnings before taxes and extraordinary items of 5.20 percent of assets excluding securities (Table 1). The level of earnings in 2013 is higher than in 2012 when credit card banks as a group experienced net earnings of 4.80 percent.  The 2013 rate of return is also higher than the average rate of return over the 2001-2013 timeframe which is estimated to be 4.32 percent, although not as high as levels reached in several of the years prior to the recent recession.

Table 1. Return on assets, large U.S. credit card banks, 2001-2013
Year Return excluding securitized assets
2001 4.83
2002 6.06
2003 6.73
2004 6.3
2005 4.4
2006 7.65
2007 5.08
2008 2.6
2009 -5.33
2010 2.41
2011 5.37
2012 4.8
2013 5.20

Note: Credit card banks are commercial banks with average assets greater than or equal to 200 million dollars with minimum 50 percent of assets in consumer lending and 90 percent of consumer lending in the form of revolving credit. Profitability of credit card banks is measured as net pre-tax income as a percentage of average quarterly assets.
Source: Reports of Condition and Income, 2001-2013.

Earnings for credit card issuers in 2013 reflect, in part, continuing improvement in credit quality which had deteriorated as a consequence of the recent recession.  Delinquency rates on credit cards increased from nearly 4 percent at the beginning of 2007, to a peak of 6.8 percent in mid-2009, before falling back to about 4.2 percent at the end of 2010 and down to 2.4 percent at the end of 2013.3 Charge-offs on credit cards increased sharply in 2009 and into the first portion of 2010 in response to mounting delinquencies and defaults, but receded sharply in the second half of 2010 and has continued to fall since then.  As defaults mounted during the recent recession, credit card issuers set aside a large amount of reserves to cover anticipated losses.  By the end of 2013, the charge-off rate on credit cards at 3.22 percent was less than 30 percent of the rate experienced at its peak in mid-2010.4 Consistent with declining delinquency rates and charge-offs, issuers reduced provisioning for future losses boosting earnings in 2013.    

Although profitability for the large credit card banks has risen and fallen over the years, credit card earnings have been almost always higher than returns on all commercial bank activities.5Earnings patterns for 2013 were consistent with historical experience:  For all commercial banks, the average return on all assets, before taxes and extraordinary items was 1.52 percent in 2013 compared to 5.20 percent for the large credit card banks.6

One difficulty that arises in assessing changes in the profitability of credit card activities over time is that the sample of credit card banks changes somewhat from one year to the next primarily because of mergers and acquisitions.  Thus, overall changes in profit rates from year to year reflect both real changes in activity and changes in the sample.  To evaluate the effects of sample changes, the profitability of the specific banks included in the sample each year was also examined for the prior year.  Excluding from the 2012 sample the one credit card bank that dropped out of the ongoing sample for the analysis of 2013 activity, results indicate that 2012 profitability would have been lower by about 22 basis points.


3. Refer to Federal Reserve Statistical Release, "Charge-Off and Delinquency Rates on Loans and Leases at Commercial Banks," Charge-Off and Delinquency Rates on Loans and Leases at Commercial Banks. Return to text

4. Refer to Charge-Off and Delinquency Rates on Loans and Leases at Commercial Banks. Return to text

5. This report focuses on the profitability of large credit card banks, although many other banks engage in credit card lending without specializing in this activity.  The profitability of the credit card activities of these other banks is difficult to discern. The cost structures, pricing behavior and cardholder profiles, and consequently the profitability of these diversified institutions may differ from that of the large, specialized card issuers considered in this report.

In preparing many of the older annual reports on credit card profitability, information from the Federal Reserve’s Functional Cost Analysis (FCA) Program was used to measure the profitability of the credit card activities of smaller credit card issuers.  These data tended to show credit card activities were less profitable for smaller issuers than for larger ones.  The FCA program was discontinued in the year 2000.  For further discussion, see Glenn B. Canner and Charles A. Luckett, Developments in the Pricing of Credit Card Services, Federal Reserve Bulletin, vol. 78, no. 9 (September 1992), pp. 652-666. Return to text

6. Returns for all commercial banks are derived from the Reports of Condition and Income. Return to text

Last update: June 13, 2014

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