Strong loan growth sparked higher third-quarter earnings at Synchrony Financial, the credit-card issuer that was spun off from General Electric.
Stamford, Conn.-based Synchrony reported quarterly earnings of $604 million, up 5.2% from a year earlier. Earnings per share climbed 6% to 73 cents per share, beating the expectations of analysts by 6 cents.
Synchrony's loan receivables rose by 11% to $70.6 billion, as the firm's customers swiped their credit cards more frequently and also showed greater willingness to shoulder debt.
Several measures of Synchrony's credit quality worsened during the third quarter.
Loans that were at least 30 days past due increased from 4.02% of the company's quarter-end receivables to 4.26%. The net charge-off rate rose from 4.02% in the third quarter of last year to 4.38%. And the allowance for loan losses went up from 5.31% of loan receivables to 5.82%. Synchrony executives said Friday that the firm's loan performance is normalizing after a period of unusually strong credit trends.
"We would expect this normalization to happen gradually over time," Synchrony Chief Financial Officer Brian Doubles said during a conference call with analysts. "Overall, the credit environment remains favorable."
Synchrony, which completed its spinoff from GE in November, is one of the nation's biggest issuers of private-label credit cards. The company partners with large merchants such as Walmart, Amazon and Lowe's, as well as many smaller retailers.
Issuers of private-label credit cards have been growing their loan balances faster than the rest of the card industry. Last year, private-label card balances grew by 9%, compared with 5% for the entire industry, according to a recent report by the rating agency DBRS.
DBRS found that Synchrony and other private-label card issuers have been extending more credit to borrowers with subprime credit scores, but also concluded that risk appetites in the industry are lower than they were prior to the Great Recession.
Shares in Synchrony rose by 4% to $28.20 in midday trading Friday.