Analyst Note| Michael Miller |
No-moat-rated Synchrony Financial reported another quarter of strong bottom-line results, with recorded EPS of $2.01, though revenue growth was less impressive. Bottom-line results were driven by credit costs, which came in below our already-low expectations, as the bank’s net charge-off rate was 2.18%, a full 2.23% lower than last year. While we continue to expect credit costs to normalize over time, with Synchrony’s 30-day-plus delinquency rate at 2.42%, net charge-offs will likely remain below historical levels until at least the second half of next year. The company also released another $407 billion in reserves. While we believe that much of the reserve releases are behind us, with Synchrony’s allowance for bad loans still at 11.28%, there is some room for additional releases, especially if credit costs remain low.