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Credit card issuer Synchrony Financial's profits surged 25% in the third quarter even as the always-spendy American consumer appeared to cut back on retail purchases.
Synchrony, which partners with retailers on store cards, said Wednesday its net earnings jumped to $789 million during the quarter, up from $628 million a year ago.
Though spending fell, Synchrony ended the quarter with more loans and was thus able to collect more interest revenues on those balances.
Cardholders at Synchrony spent less, bucking a general trend since the COVID-19 pandemic of higher spending. Purchase volumes fell 4% to $45 billion during the quarter, though Synchrony also said its recent
The company still approved millions more cardholders, but the number of new accounts opened fell 18% to 4.7 million.
"While we continue to monitor consumer behavior and our portfolio performance closely, we are confident that the measures we've taken thus far to provide dynamic financial solutions to our customers – while also driving loyalty and sales for our partners – are driving progress toward our shared objectives," Chief Financial Officer Brian Wenzel said in a news release.
Diluted earnings of $1.94 per share beat the analysts' estimate of $1.80 per share, according to S&P Capital IQ data.
Even as spending dipped, Synchrony ended the quarter with more loans on its books. Loan receivables rose 4% from a year ago to $102.2 billion.
Higher loan volumes helped Synchrony earn more money off interest on cardholders' balances, outstripping the higher deposit costs last quarter stemming from its high-yield savings platform.
Net interest income rose to $4.6 billion during the quarter, up 5.7% from the year-ago quarter. Synchrony said the gains were driven by higher interest and fees on loans, although an increase in interest expenses from higher benchmark rates and interest-bearing liabilities weighed on the results.
The $119.2 billion-asset bank increased its provision for credit losses to $1.6 billion during the quarter, up by $109 million a year earlier. Higher net-charge offs drove up the figure.
Net charge-offs as a percent of average loans jumped to 6.06% during the quarter, up sharply from 4.6% a year ago. But they dipped from the 6.42% net charge-off figure in the second quarter.
Loan delinquencies also rose as more Synchrony customers fell behind on their credit card payments. The share of loans with late payments of 30 or more days rose to 4.78% during the quarter, up from 4.47% in the second quarter and 4.4% a year ago.
"Customers continued to engage across Synchrony's diversified portfolio, as the broad utility of our flexible financing solutions and compelling value propositions resonated amidst an inflationary environment," President and CEO Brian Doubles said in the news release.
The company said it either added or renewed partnerships with 15 merchants, including the guitar-maker Gibson and Dick's Sporting Goods. The latter partnership has spanned for more than 20 years, Synchrony said, and the renewal included major upgrades to member rewards.
Retailer share arrangements fell 7% to $914 million, reflecting higher net charge-offs.
