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Moody's: U.S. credit card charge-offs tick higher in February, but improvement likely to resume

Global Credit Research - 22 Mar 2011

New York, March 22, 2011 -- Charge-offs on U.S. credit cards ticked higher in February to 7.56%, up from 7.45% in January, according to Moody's Credit Card Index. Moody's expects the charge-off rate to resume its pace of steady declines, however, ultimately breaking below the 7% mark during the second quarter of 2011.

The charge-off rate measures those credit card account balances written off as uncollectible as an annualized percentage of total outstanding principal balance.

"Familiar seasonal patterns and the roll-through of elevated delinquencies in September influenced the charge-off rate this month and resulted in the slight uptick," said Jeffrey Hibbs, a Moody's Assistant Vice President and Analyst. "However the steady improvement in delinquency rate trends that has prevailed for the better part of the past year points to charge-off rates resuming their march lower in the coming months."

In February the delinquency rate index continued to fall, to 4.02%, its lowest level since August 2007 and the sixteenth consecutive month of decline.

The delinquency rate measures the proportion of account balances for which a monthly payment is more than 30 days late as a percent of total outstanding principal balance.

The early stage delinquency rate did tick one basis point higher in the month, increasing to 1.02%, but remains close to its lowest level since Moody's started accumulating reliable data on the metric in 2000.

Also in February, the payment rate took a seasonal dip to 19.21%, a 121 basis point drop in line with those that have taken place every February in the 22-year history of the Credit Card Index. In February, fewer days in the month, contracting receivable balances after the holidays, and anticipation of a tax refund traditionally reduce the payment rate.

The payment rate measures the average amount of principal that cardholders repay each month, as a percentage of total outstanding principal balance.

The yield index climbed in February by 79 basis points to 21.31%. The rise is probably also a seasonal effect, says Moody's, and yields are likely to decline over the course of 2011.

Yield is the annualized percentage of income, primarily finance charges and fees, collected during the month as a percent of total loans.

The increased yield pushed excess spread up to close to the all-time high set two months ago. Excess spread jumped 64 basis points to 10.75% during February.

Excess spread is a proxy for the profitability of a card program, and generally represents the yield (i.e., income) of a trust, less expenses such as charge-offs, coupon, and servicing.

The report, "Moody's: Credit Card Charge-offs Tick Higher in February, Expect Improving Trend to Resume," is available on moodys.com.

In addition, Moody's publishes a weekly summary of structured finance credit, ratings and methodologies, available to all registered users of our website, at www.moodys.com/SFQuickCheck.

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New York
Jeffrey Hibbs
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Luisa De Gaetano
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
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Moody's: U.S. credit card charge-offs tick higher in February, but improvement likely to resume
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