- Key insights: Synchrony Financial beat Wall Street's estimates on earnings and revenue for the third quarter as delinquencies and net charge-offs declined.
- What's at stake: The payments industry has been looking for signs of faltering credit health as the nation's largest bank warned of a softening economy.
- Forward look: Synchrony intends to loosen the credit tightening actions it has taken in past quarters by as much as 30% through the end of the year.
Synchrony Financial plans to walk back recent credit tightening as delinquencies and charge-offs decline, suggesting that consumer credit health is holding strong even in the face of warnings of a softening economy.
"Credit for us is a source of strength," Synchrony Chief Financial Officer Brian Wenzel told American Banker. "Look at it both generationally and by credit grade, it's consistent, and we actually see a little bit more strength in the nonprime, believe it or not. Consumers are in a really good position as we head into holiday."
In the third quarter, net charge-offs, 30-day delinquencies and 90-day delinquencies posted year-over-year declines. Net charge-offs fell 90 basis points to 5.16% for the quarter ended Sept. 30; 30-day delinquencies dropped 37 basis points to 4.39%; and, 90-day delinquencies declined 21 basis points to 2.12%.
As a result, Synchrony plans to take "incremental actions in the fourth quarter that will widen the credit aperture," Wenzel said, noting that the lender already loosened credit in its health and wellness business.
"The actions that we will take in both the third and fourth quarter will unwind about 30% of those credit [tightening] actions," Wenzel said. "We still have quite a bit to go, but most certainly, we are taking measures to provide more work credit to consumers here in the fourth quarter."
The unwind will largely be centered on "customers we know," Wenzel said, and include credit line increases and more upgrades for existing customers from private label to co-brand.
Improved consumer credit health also drove a 39% year-over-year decrease in provisions for credit losses, which tallied $1.1 billion for the quarter. Purchase volume inched up 2% to $46 billion. Period-end loans landed at $100.2 billion, a decrease of 2%.
Still, Synchrony is watching for "
Keefe Bruyette and Woods analyst Sanjay Sakhrani said in a research note Wednesday morning that Synchrony posted "solid results when considering the hyper-focused environment for credit quality. Credit quality was better than our expectations, with [net charge-offs] and delinquencies better than expected (i.e., year-over-year decline accelerated in September) and the company releasing reserves as a result."
Synchrony earnings, by the numbers
Synchrony beat analysts estimates on earnings and revenue. Revenue hit $3.82 billion, mostly flat compared to the same reporting period last year and just edging out analysts' estimates of $3.8 billion, according to CapitalIQ. Net income tallied $1.1 billion, or $2.86 per diluted share, a 39.9% increase and ahead of analysts' expected $819.9 million, or $2.22 per diluted share.
Net interest income increased 2.4% to $4.7 billion, while net interest margin increased 58 basis points to 15.6%.
Expenses increased 5.2% during the quarter to $1.2 billion, led by higher employee costs and increases in technology investments.
Synchrony's board also approved an increase in the company's share repurchase program, which nearly doubled from $1.1 billion to $2.1 billion through June 30, 2026.
