Introduction

Credit Card Charge-Offs Continue to Rise

Credit Card Charge-Offs Continue to Rise

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Credit card balances at the nation’s banks jumped an astronomical 75.6% between the second quarter 2009 and the second quarter 2010. Much of that was by necessity as the unemployment rate ballooned. Consumers attempted to tighten their belts as soon as they were able, but that only lasted two years before credit card balances began to grow again.

The pace has accelerated in the past 24 months. Balance grew 6.4% from June 30, 2015 to June 30, 2016, and rose another 4.5% in the most recent 12 month period.

Credit Card Balances Rising

Unfortunately, the quality of credit card loans is  deteriorating. (See chart on page 2.)  While nonperformers are still far below the levels of 2008 thru 2011, they are on the rise. While charge-offs in most loan categories are going down, credit card charge-offs  had their 7th consecutive year-over-year  increase at June 30th.

Granted, they improved continually through 2015, but are now at very similar levels to 2013, as are loans 90 days or more past due. Credit card loans 30-89 days past due, which are a precursor to the other groups, are well above 2013 levels.

Industrywide, the average credit card charge-off rate is 3.66%. Banks with assets between $100 million and $1 billion have the highest average net year-to-date charge-off rate at 6.13%. Banks with assets less than $100 million have the lowest at 3.16%. There are banks at every asset level that are reporting much lower than the average levels. These banks exercise much more prudence in their underwriting, and it shows.

Underperforming Credit Card Loans

The community banks listed on page 7 can be counted among them. Each has greater than $500,000 in credit card loans outstanding as of June 30, 2017; each reported a year-over-year increase in the dollar volume of credit card loans outstanding; and each reported a decrease in credit card delinquencies from a year earlier. We commend them.

The majority of the banks on the list are very well rated, but you may be wondering how 2-Star American Bank North, Nashwauk, MN made the grade. We asked ourselves the same thing. Should a 2-Star rated bank be included on a list like this? In this case we decided, the answer was yes.

American Bank of the North has been operating under an FDIC Cease and Desist Agreement since May of 2011. Part of that agreement called for the charge-off and reduction of “Adversely Classified Assets”. It also addressed the need to improve the bank’s underwriting and loan policies. During the six years since the agreement was signed, the bank has made great strides on both counts and, even though the Enforcement Action keeps it rated 2–Stars and therefore relegated to Bauer’s Troubled and Problematic Bank Report, we do believe it is worthy of this list.