Analyst Note| Michael Miller |
No-moat-rated Synchrony Financial reported mixed second-quarter results as high repayment rates on its credit cards led to strong credit results but weak net interest income. The company comfortably beat the FactSet consensus EPS estimate of $1.39 with reported second-quarter EPS of $2.12. This equates to a return on tangible common equity of 46.3%. These results were driven by impressive credit results, with the net charge-off ratio reported as 3.57% for the quarter, well below the firm’s historical average. This led the company to record a $194 million provisioning benefit as it released $878 million in reserves. On the other hand, Synchrony’s top line missed the FactSet consensus estimate, with revenue of $2,395 million coming in below the expected $2,608 million as high repayment rates on the bank’s credit cards kept loan receivables and net interest margins low. Net interest income fell 2.5% from the year-ago period and 3.7% sequentially, pressuring revenue. The decrease was driven by repayment rates that were 2.8% higher than normal during the quarter.