Synchrony gets boost from addition of PayPal loans

The addition of a $7.6 billion loan portfolio from PayPal Holdings propelled Synchrony Financial to 21% earnings growth in the third quarter.

Stamford, Conn.-based Synchrony reported 9% growth in net interest income, 11% growth in sales volume on its credit cards and 14% growth in loan receivables at the end of the quarter.

The card issuer attributed the improvements in all three metrics primarily to the addition of the PayPal Credit portfolio on July 2.

“We generated strong results this quarter, significantly expanding our relationship with PayPal with the acquisition of the PayPal Credit program, while also continuing to drive organic growth,” Synchrony CEO Margaret Keane said during a conference call Friday.

Under a deal announced 11 months ago, Synchrony became the exclusive issuer of PayPal Credit, which online shoppers use to finance purchases. Synchrony also agreed to buy the program’s existing book of loans, which amounted to nearly 10% of the credit card company’s loan portfolio. PayPal received approximately $6.9 billion in total consideration under the agreement.

For Synchrony, the PayPal deal has helped to offset the more recent sting of losing the right to issue Walmart credit cards. In July, Walmart announced that Capital One Financial would become the exclusive card issuer for the Bentonville, Ark.-based retail giant.

It is still unclear whether Synchrony will keep or sell an existing portfolio of approximately $10 billion in loans to Walmart customers. Keane said Friday that she expects to have clarity by the first quarter of 2019.

Keane also expressed confidence in Synchrony’s ability to renew its partnerships with other major retailers. The publicly traded credit card issuer extended its deals with JCPenney and Lowe’s during the third quarter. “Honestly I view Walmart as an outlier,” Keane said.

During the third quarter, Synchrony reported net earnings of $671 million, up from $555 million from the same period a year earlier.

The percentage of loans that were at least 30 days delinquent fell from 4.80% in the third quarter of 2017 to 4.59% in the same period a year later.

The provision for loan losses increased by $141 million to $1.45 billion, which Synchrony said was driven by the addition of the PayPal Credit portfolio.

Shares in Synchrony surged by 4.7% in midday trading Friday to $31.02.