Credit Card Profits Up in 2000

For the second consecutive year, the credit card industry experienced growth in profitability, a welcome change from the downward slide in profitability that characterized most of the 1990s. According to an annual survey by R.K. Hammer Investment Bankers (Thousand Oaks, CA) net income on credit card loans rose to 18.4% this past year, up from 17.9% in 1999 and 17.4% in 1998. Fee-based income gained relative to interest income as a percentage of total net income, rising from 24% in 1999 to 28% in 2000.

The industry average return on assets (ROA) before taxes was 3.6%, up from 3.1% in 1999 and equaling the industry ROA in 1995. Platinum cards generated the highest return at 4.0%, followed by gold cards (3.4%) and standard cards (2.6%). However, the ROA for all three categories was up from 1999.

Robert Hammer, chairman and CEO of R.K. Hammer told the American Banker that the performance of card portfolios in 2000 was remarkably strong. "Very few times have we seen a 50-60 basis point jump." According to Hammer, the improvement was due to several factors, including reduced reliance on teaser rates, a strong economy which boosted spending and eased chargeoffs, flat operating expenses, and a rise in fee-based income.