Synchrony Financial profit rises above expectations, but NII falls short

Synchrony Financial SYF,
Tuesday reported a second-quarter profit that rose well above expectations, boosted by a reserve release of nearly $900 million, while net interest income fell below forecasts. Shares of the consumer financial services company were still dormant in premarket trading. Net income rose to $1.23 billion, or $2.12 per share, from $37 million, or 6 cents per share, in the same period a year ago. The FactSet consensus for earnings per share was $1.39. Net interest income (NII) was down 2.5% to $3.31 billion, while the FactSet consensus was up to $3.47 billion as net interest margin growth lagged 25 basis points to 13.78% at the expectations of 14.01%. Purchase volume increased 35% to $42.1 billion, loan receivables increased $100 million to $78.4 billion and average active accounts grew 2% to 65.8 million. Loan loss provisions decreased 112%, driven by the release of the $878 million reserve and net amortization as a percentage of average loan receivables decreased from 5.35% to 3.57%. “However, customer payment rates remain high due to the impact of government stimulus and industry-wide forbearance measures,” said Chief Financial Officer Brian Wenzel. “While this hampered loan growth and yields, it supported the continued strength of credit performance and led to lower loan loss provisions.” The stock is up 29.1% to date, while the SPDR Financial Select Sector ETF XLF,
is up 19.1% and the S&P 500 SPX,
won 13.4%.