Synchrony: card delinquencies edge down to 4.34% and charge-offs fall to 4.79% of loans

Synchrony Financial (NYSE: SYF), a large issuer of store and co-branded credit cards, said late payments and write-offs edged lower in the third quarter even as its profit fell, according to its earnings release.

Credit quality

Loans 30 or more days past due were 4.34% of period-end loan receivables, compared with 4.39% a year earlier. Loans 90 or more days past due were 2.06%, compared with 2.12%. Net charge-offs, the share of loans written off as uncollectible, were 4.79% of average loan receivables, compared with 5.16% a year earlier. The allowance for credit losses was 10.01% of receivables, compared with 10.09% in the second quarter and 10.35% a year earlier.

Chief Financial Officer Brian Wenzel said "delinquency trends [were] consistent with typical seasonality and net charge-offs declining to a seasonal low."

Spending

Purchase volume increased 8% to $49.7 billion. Synchrony said spending reached a record third-quarter level and rose "across credit cohorts and generations," with the fastest growth from Generation Z and Millennial customers. It said higher gas prices contributed to purchase volume growth of 9% in its Home & Auto platform and 13% in its Diversified & Value platform. Loan receivables rose 3% to $103.3 billion, and average active accounts were flat at 68.3 million.

Earnings

Net earnings were $892 million, or $2.68 per diluted share, compared with $1.1 billion, or $2.86, a year earlier, a decrease of $185 million, or 17%. The provision for credit losses rose 10% to $1.3 billion, mainly because Synchrony added $30 million to reserves, compared with a $152 million reserve release a year earlier. Net interest income rose 2% to $4.8 billion, and the net interest margin fell 12 basis points to 15.50%. Return on assets was 2.9%, down 70 basis points.

What to watch

Synchrony returned $1.2 billion of capital in the quarter and reported a common equity Tier 1 capital ratio of 12.9%. The Federal Reserve's consumer credit report showed revolving credit declining in August.