Synchrony Financial's credit card loan write-off rate rose sharply during the first quarter of the year to 4.49% from 2.73% during the same period a year earlier, while accounts that were at least 30 days past due rose to 3.81% from 2.78%.
As a result, Synchrony more than doubled its provision for credit losses during the quarter ended March 31 to $1.3 billion compared with $521 million it set aside a year ago for charge-offs, executives at the Stamford, Connecticut-based company said on Wednesday.
The increase also covers Synchrony's expanding base of loan receivables, which rose 15% to $91.1 billion during the quarter, Brian Doubles, Synchrony's chief executive officer, told analysts during a Wednesday conference call.
Credit cards comprised 94% of Synchrony's outstanding loans during the quarter, while consumer installment loan receivables and commercial credit products made up the remainder of the portfolio, with receivables for each of the other two sectors reaching $3.2 billion and $1.7 billion respectively.
As more consumers leaned on credit cards amid rising inflation, Synchrony's purchase volume reached a record $41.6 billion during the quarter, up 3% year-over-year. The increase came despite a 1% decrease in average active accounts, which totaled 69.5 million at the end of the quarter.
"Lower credit-grade borrowers are shopping somewhat less often," Doubles said.
On the other hand, consumers who have spent down their accumulated post-pandemic savings are beginning to revolve credit card balances again in key categories, according to Doubles.
Purchase volume in Synchrony's largest credit category of products for the home and auto sectors increased 6% during the quarter, while purchase volume in e-commerce channels rose 10%. Purchase volume in Synchrony's smaller but fast-growing health and wellness channels shot up 19% during the quarter.
"Health and wellness–where providers are shifting more costs to consumers–and the digital arena with e-commerce partners like Amazon, PayPal and eBay–are two areas where we're seeing the highest growth," said Brian Wenzel, chief financial officer, in an interview.
Synchrony's deposits during the first quarter increased 17% to $74.4 billion, accounting for 83% of Synchrony's loan funding, with inflows from Synchrony's own high-yield savings accounts and those it offers in partnership with PayPal. The company's ability to self-fund installment loans should continue to be a key competitive advantage in the current higher interest-rate environment, Wenzel said.
"The buy now/pay later explosion happened during the lowest credit-cost environment ever and now [the BNPL] fintechs have to operate at a very high cost of capital, so we see a real competitive advantage to partner with merchants," he said.
Synchrony's net earnings for the quarter were $601 million, down 35% from $932 million during the same period a year earlier, primarily due to rising costs. Expenses during the quarter rose by $80 million or 8%, for higher employee costs, technology investments and operational losses.
Synchrony's net interest income during the quarter rose 7% to $4.1 billion, helped by higher interest and loan fees.
"Synchrony continues to see strong demand, and capital levels and the deposit base remain robust," said analysts at Jefferies Research in a Wednesday note to investors.
