While Synchrony Financial’s top line net interest income rose in the third-quarter over the year-earlier period, its average active accounts and new accounts declined, and its net earnings sank for the period.

Specifically, the financial services company’s net earnings fell 38% to $703 million for the quarter, even as net interest income climbed 7% to $3.9 billion on higher interest and fees for customer loans, according to a Synchrony press release Tuesday.

Nonetheless, Synchrony Chief Financial Officer Brian Wenzel argued in an interview that the consumer is proving to be resilient in the face of inflation at a four-decade-plus high.

Stamford, Connecticut-based Synchrony issues credit cards on behalf of retailers. During the most recent quarter, the company added or renewed services for the merchants Floor & Decor and Sono Bello, among others. 

According to Wenzel, consumers aren’t cutting back on spending as much as they are keeping a closer eye on their wallets, especially when it comes to discretionary items.

“They're managing their budgets,” Wenzel said in an interview. “They're getting Breyers (ice cream) instead of Ben and Jerry's.”

Thanks to the strong job market and rising wages, Synchrony hasn’t seen any changes in consumer behavior tied to inflation, according to Wenzel. The company has been benefiting from higher prices that boost consumer spending. Interest and fees rose 10% to $4.3 billion as loan receivables increased.

Despite Wenzel’s positive take on consumer behavior, the company substantially increased its provision for credit losses during the third quarter, driving it up to $929 million, from $25 million. It made that move as loan delinquencies rose over last year.

“People should have anticipated the inflationary pressures because the economy was flooded,” he said of the consumer’s position as the U.S. government injected stimulus money into the economy. 

Synchrony is prepared for changes that may arise, Wenzel said. “We have not had to take credit actions in order to ensure that the portfolio is performing as we expected,” he said. “We feel really good about our credit standards.’’

By Jonathan Berr on Oct 26, 2022
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