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Synchrony's Q1 profit misses expectations on higher provisions tied to Ally deal

(Reuters) - Consumer banking firm Synchrony Financial's first-quarter profit missed expectations on Wednesday, as reserves tied to its acquisition of Ally Financial's point-of-sale financing unit drove provisions higher.

Synchrony bought the business in March, in order to expand beyond its core products such as private label and co-branded credit cards. But the company had to build reserves of $190 million for the loans it acquired as part of the deal, Synchrony said.

Point-of-sale financing allows customers to pay for purchases over a period of time. It is similar to buy now, pay later loans but is typically used to finance bigger purchases with longer repayment periods.

Shares of Synchrony fell 3.2% before the bell. They have gained 12% this year as of their last close, compared with a 9.3% gain in the S&P 500 financials index.

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In the quarter, net interest income - the difference between interest earned on loans and paid out on deposits - grew 9% to $4.41 billion, on the back of the Federal Reserve's rate hikes.

Profit more than doubled from last year. But excluding gains from the sale of its Pets Best pet insurance business, Synchrony earned $1.18 a share, lower than expectations of $1.35, according to LSEG.

Provisions for credit losses were $1.88 billion, higher than the $1.65 billion analysts had predicted.

The company returned $402 million of capital to shareholders via stock repurchases and dividends.

(Reporting by Niket Nishant in Bengaluru; Editing by Krishna Chandra Eluri)