Card Yield Sinks for Top 4 After Record 2019

Card yield, as an average for the nation’s Top 4 credit card issuers, reversed course in the fourth-quarter after posting new records throughout 2019 All of the issuers, except Chase, posted significantly lower yields in the fourth-quarter from the prior quarter. However, this is fifth consecutive quarter wherein all of the Top 4 exceeded 10%.

The U.S. Top 4 Issuers (Chase [JPM], Capital One [COF], Bank of America [BAC], Citibank [C]) credit card yield dipped 28 basis points (bps) sequentially at 12.02% and down 8 bps year-on-year (YOY) for the fourth-quarter (4Q/19), compared to 12.30% for the prior quarter, and 12.10% for 4Q/18, according to CardData and PYRPTS.

Card Yield Analysis

Citibank and Bank of America joined the double-digit yield club in the third-quarter of last year and hit individual records in the first-quarter of 2019.

For 4Q/19 the sequential decrease ranged from 23 bps for Citibank and Bank of America to 83 bps for Capital One. Nonetheless sub-prime card specialist, COF, with 32% of its U.S. credit card portfolio carrying FICO scores of 660 or below, leads the peer group with a yield of 14.91%. BAC reported the lowest yield ratio of 10.69% for 4Q/19, based on current analysis of RAM Research and CardWeb.

While there are slight variations in the reported yield data definition reported by issuers, the average timeline and trend-line are meaningful. Historically yields for the fourth-quarter decline 20 bps, compared to the third-quarter, as the denominator changes, notes Robert McKinley, Senior Analyst for CardFlash and CardTrak.

Credit Card ROA

Credit card ROA (pre-tax return on assets) for 2019 is estimated to rise to 4.80%, compared to 4.60% for the prior year, and compared to 4.45% for 2017. In 1987 pre-tax ROA peaked at 5.00% and bottomed at 1.50% in 2009.

According to R.K. Hammer, credit card portfolio evaluation and sales experts, total revenue increased 10 bps (basis points) to 17.90% for 2019, compared to 17.80% for 2018. Operating expense declined 10 bps YOY (year-on-year) to 6.90%, while charge-offs remained steady at 4.00%. Hammer projects cost-of-funds rose 10 bps to 2.30% for 2019.

Professor Cardworthy noted the rising costs of reward programs, account acquisitions and general marketing has become a drag on profits in late 2019 and likely to continue through 2020.

Chase [JPM] Yield Metric

For 4Q/19, Chase’s yield of 11.59% dropped 19 bps sequentially, but up 2 bps YOY. Chase’s U.S. credit card yield for 3Q/19 was 11.40% and 11.57% for 4Q/18. In 2015 Chase posted a yield of 12.54% for the fourth-quarter. Over the past five-years, Chase yield peaked at 12.54% in 4Q/15. The Chase yield represents total net revenue (non-interest revenue + net interest income) as percentage of average loans.

Capital One [COF] Yield Metric

For 4Q/19, Capital One’s yield of 14.91% nosedived 83 bps sequentially, and down 67 bps YOY. Capital One’s U.S. credit card yield for 3Q/19 was a revised 15.74% and 15.58% for 4Q/18. In 2015, Capital One posted a yield of 14.31% for the fourth-quarter. Over the past five-years, Capital One reached a peak of 15.73% in 3Q/18. Capital One yield represents the average yield on credit card loans held for investment.

Bank of America [BAC] Yield Metric

For 4Q/19, Bank of America’s U.S. credit card yield of 10.63% was down 23 bps sequentially, and down 17 bps YOY. Bank of America’s U.S. credit card yield for 3Q/19 was 10.85% and 10.49% for 4Q/18. In 2015, Bank of America posted a yield of 9.15% for the fourth-quarter. Over the past five-years, Bank of America reached a peak of 10.85% in the third-quarter of 2019. Bank of America’s yield represents gross interest yield.

Citibank [C] Yield Metric

For 4Q/19, Citibank’s U.S. bank credit card yield, excluding U.S. retail credit cards, of 10.96% was down 23 bps sequentially, and up 22 bps YOY. Citibank’s U.S. credit card yield for 3Q/19 was 11.19% and 10.74% for 4Q/18. In 2015, Citibank posted a yield of 10.31% for the fourth-quarter. Over the past five-years Citi reached a peak of 11.24% in the first-quarter of 2019. Citibank’s average yield is calculated as gross interest revenue earned divided by average loans.