Synchrony Financial said more credit card borrowers fell behind on their payments last quarter, including those with higher credit scores who had previously been on track.
But executives at the Stamford, Connecticut-based company said Monday that's still within their expectation of a "normalization" in credit quality, with metrics gradually deteriorating after a long period of benign conditions earlier in the pandemic.
The company is finding a "very linear normalization of delinquencies," which started over a year ago with borrowers who had lower credit scores, Chief Financial Officer Brian Wenzel said. That trend has now spread to "the top end" of its borrower base, he added.
"We're not seeing an acceleration in normalization," Wenzel told analysts on an earnings call, adding that late payments and loan charge-offs from consumers unable to pay their cards are ticking up "on a path that we expect."
The $102 billion-asset Synchrony reported that 3.65% of its loans were at least 30 days past due in the fourth quarter, up by 1 percentage point from a year earlier but still below the 4.4% figure it reported at the end of 2019. Loan delinquencies fell sharply at Synchrony and other consumer lenders in 2020 and early 2021, thanks partly to consumers paying off debt with their elevated savings and government stimulus funds.
"Broadly, the consumer is still healthy. I think they still have savings," Synchrony CEO Brian Doubles told analysts during the call. But "clearly, there's uncertainty as we move throughout the year." Synchrony executives are monitoring the loan portfolio "very carefully," Doubles added.
Consumers spent heavily using their Synchrony credit cards last year and racked up $180 billion in purchases, a record figure for Synchrony and "reflecting robust consumer demand" across several product lines, Doubles said. The company has card and financing programs with companies such as Lowe's, Verizon, Ashley Furniture, Walgreens and PayPal.
That spending helped loans at Synchrony grow 14.5% year over year in the fourth quarter to $92.5 billion. Also contributing to its loan growth were somewhat lower payment rates, which led consumers to increase their credit card balances rather than pay off their cards.
The company expects consumer demand to continue, but likely slow "as excess consumer savings continue to decline," Wenzel said. Overall, it projects loan growth of 8% to 10% this year, a slower pace than last year.
The company's net charge-offs as a percentage of its loans rose to 3.5% during the fourth quarter, up from 2.4% a year earlier and continuing the steady increases it's been seeing. But the net charge-off rate remains below the more than 5% rate Synchrony recorded in 2019, and "well below our underwriting target of 5.5% to 6%," Doubles said.
The company's credit guidance "looks more like Chase than Discover," Autonomous Research analyst Brian Foran wrote in a note to clients. Discover last week
Synchrony's net earnings slipped to $577 million during the fourth quarter, down from $813 million a year earlier. The decline was partly due to an increase in Synchrony's provision for credit losses, which rose because of loan growth and an uptick in net charge-offs.
