April credit card delinquency falls as tax refunds hit, charge-offs rise (NYSE:COF)

Credit trends are continuing to normalize for the most part, with some improvement in delinquency rates due to tax refunds that hit last month, according to April credit card metrics disclosed by major issuers.

Net charge-offs for major issuers were a little higher than typical seasonality and loan balances increased slightly more than its seasonal pattern, said Baird analyst David George in a note to clients.

Of the eight credit card issuers tracked by Seeking Alpha, the average delinquency rate fell to 1.70% in April from 1.79% in March and 1.88% in February as seen in the table below; that’s up from 1.66% in April 2021.

The average net charge-off rate of 2.13% increased slightly from 2.10% in March, but is still below the 2.65% rate in April 2021.

April credit trends reflected a slight improvement due to the seasonality of tax refunds, said Jefferies analyst John Hecht. “We expect delinquencies, net charge-offs, and payment rates to continue orderly normalization on a go-forward basis,” he wrote in a note to clients.

“We expect credit trends and pay-downs to continue normalizing as loans grow and excess liquidity slowly wanes,” Baird’s George said. He’s Neutral-rated on Bank of America (NYSE:BAC), JPMorgan Chase (NYSE:JPM), Capital One Financial (NYSE:COF), and American Express (NYSE:AXP

Card issuer payment rates appeared to have peaked in December at ~38% and slipped to 36.9% for the five companies that Jefferies’ Hecht covers — American Express (AXP), Bread Financial (NYSE:BFH) (formerly Alliance Data Systems), Capital One (COF), Discover Financial (NYSE:DFS), and Synchrony Financial (NYSE:SYFU† The rate, though, is still well above the five-year average of ~23%.

Jefferies has Buy ratings on Synchrony (SYF), Discover (DFS), and Capital One (COF), with Hold ratings on American Express (AXP) and Bread Financial (BFH).

Company ticker Type April March February 3-month average
Capital One COF delinquency 2.18% 2.32% 2.51% 2.34%
charge off 2.19% 2.13% 2.19% 2.17%
American Express AXP delinquency 0.70% 0.80% 0.80% 0.77%
charge off 0.90% 0.80% 0.90% 0.87%
JPMorgan JPM delinquency 0.70% 0.71% 0.72% 0.71%
charge off 1.24% 1.09% 1.04% 1.12%
synchrony SYFU delinquency 2.70% 2.80% 2.90% 2.80%
adjusted charge off 2.70% 3.10% 2.80% 2.87%
Discover Financial DFS delinquency 1.73% 1.77% 1.79% 1.76%
charge off 2.02% 1.75% 2.02% 1.93%
Bread Financial BFH delinquency 3.90% 4.10% 4.40% 4.13%
charge off 5.20% 5.00% 4.80% 5.00%
Citigroup NYSE:C delinquency 0.82% 0.87% 0.85% 0.85%
charge off 1.36% 1.23% 1.12% 1.24%
Bank of America BAC delinquency 0.88% 0.93% 0.95% 0.92%
charge off 1.46% 1.38% 1.26% 1.37%
Avg. delinquency 1.70% 1.79% 1.88% 1.79%
Avg. charge off 2.13% 2.10% 2.02% 2.08%

Earlier in May, Affirm Holdings (AFRM) dropped stock as credit concerns dogged the Buy Now, Pay Later financing provider. But the stock quickly rebounded after its latest earnings and guidance buoyed investors’ spirits.

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