Credit Card Debt Lessens as Quality Improves

Paying Down Credit Card Debt

Credit Card Debt Lessens as Quality Improves

Button to Download the Current issue of Jumbo Rate News nowIt’s nice to have something positive to report. U.S. banks have been reporting a steep decline in credit card usage since the end of 2019 (see below). Not only that, but as you will see, the quality of those credit card loans has also shown significant improvement.

Not pictured, but equally impressive, is that net charge-offs of credit card loans decreased by $3.3 billion or 40% between June 2020 and June 2021. Only 40 banks currently report credit cards delinquent 90 days or more past due greater then 2.25% (the number we used when we last reported on credit card quality (JRN 38:05) in February).

At that time several banks had  double-digit delinquent credit card loans. Today, only bank one has that dubious distinction. 5-Star First Bank of Alabama reported 16.5% of its credit card loans as delinquent 90 days or more at June 30th. The good news is that only a tiny fraction of First Bank of Alabama’s loans are credit cards. Its overall delinquency to asset ratio is 1.5%.

Community banks play a small role in credit card lending with less than $2 billion of the $792 billion total reported. However, they did report a 4.5% increase from a year ago.

Of those: 1.57% are reported as 30-89 days past due; 0.68% are 90 days or more past due and 4% were charged-off in the first half of 2021.

On Page 7 of this week’s issue, we have listed the 50 banks with the highest dollar volume of outstanding credit card loans as of June 30, 2021. There are 11 highlighted in yellow that are categorized by the FDIC as specializing in credit cards.

The nation’s four largest banks are also among the largest credit card issuers (5-Star JPMorgan Chase, 4-Star CitiBank, 5-Star Bank of America and 4-Star Wells Fargo). Each of these four banks saw their credit card loans drop between June 30, 2020 and June 30, 2021. JPMorgan Chase reported the smallest decrease of just 0.6% while Bank of America had the deepest at 10.3%.

Even many of the specialized credit card banks saw decreases in volume. Bucking that trend were 5-Star American Express NB with an 8.2% year-over-year increase and 5-Star Synchrony Bank with an increase of 1.0%. Loan quality is very good at both of these banks.

The credit card specialization bank with the most questionable loan portfolio is 4-Star Merrick Bank with 2.2% of its credit card loans delinquent. That’s a big improvement over 4% a year ago, though. To its merit, Merrick is operating on the side of caution. It is NOT one of the banks pulling back its loan loss reserves. In fact, Merrick’s reserves to delinquency rate is over 600%. That, combined with its high capital levels, helped put this bank on Bauer’s Recommended List (i.e. banks rated 5-Stars or 4-Stars).

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