Credit card delinquencies dip, net charge-offs rise in muted February pattern (NYSE:COF)

Credit card lenders saw delinquencies drop off a tad in February, while net charge-offs continued to climb, according to data of eight companies compiled by Seeking Alpha.

The average delinquency rate of 3.20% increased from 3.24% in January and 2.59% in February 2023.

The average figure has climbed moderately higher than the 2.85% level in February 2020, before the pandemic shocked the U.S. economy. At four of the companies — American Express (NYSE:AXP), JPMorgan Chase (NYSE:JPM), Citigroup (NYSE:C), and Bank of America (NYSE:BAC) — delinquency rates remain below their pre-pandemic levels of February 2020.

Meanwhile, the average net charge-off rate of 4.44 increased from 4.21% in January and 3.24% in February 2023. That’s up from 3.83% in the before-times of February 2020.

Jefferies analyst John Hecht points out that the seasonal drop in February credit card deliquencies was weaker than normal, while net charge-offs (NCOs) rose a bit higher than normal.

“The Y/Y percentage change in DQs (delinquencies) improved -9 bps vs prior month, an important trend that needs to continue gathering momentum over the coming months in order for peak NCO cycle to manifest itself in 2H24 — a factor that many are planning on at this juncture,” said Jefferies analyst John Hecht in a note to clients.

Loan balances at the lenders that Hecht covers slipped 1.4%M/M to $480B, in line with February historical trends and up 10% Y/Y. “Issuers have tightened credit, given the current macro, and should expect much weaker loan growth in ’24,” he said.

The month’s payment rates also point to slower loan growth ahead.”

Payment rates are a leading indicator of loan growth, so we will monitor this metric closely,” Hecht wrote. “We expect prepayment rates to remain elevated in ’24 resulting in slower loan growth.”