Brian J. Wenzel
Executive Vice President, Chief Financial Officer at Synchrony Financial
Thanks, Brian, and good morning everyone. Synchrony's third quarter financial results reflected broad-based strength across our business, highlighted by a double-digit purchase volume increase and continued loan growth, a significant improvement in our net interest margin, historically low losses and delinquencies, and continued cost discipline. The combination of these results led to $1.1 billion in net earnings or $2 per diluted share, a return on average assets of 4.9% and a return on tangible common equity of 40.1%.
These results are a true testament to the power of Synchrony's unique business model, which builds on our deep domain expertise in consumer lending and leverages dynamic digital capabilities a little bit [Phonetic] through our comprehensive multi-product suite to reach and serve deep and diverse universe of partners and customers.
Looking at our third quarter performance in greater detail, beginning with purchase volume, which grew 16% compared to last year and 16% compared to 2019 excluding Walmart demonstrates clear broad-based strength in consumer demand. This is also reflected in our purchase volume per account, which increased 11% compared to last year. Dual card and co-branded cards accounted for 40% of the purchase volume in the third quarter and increased 29% from the prior year.
On a loan receivable basis, excluding the impact of the reclassification of the Gap portfolio to held for sale, dual and co-branded cards accounted for 24% of the portfolio and increased 4% from the prior year. Average active accounts increased 5% compared to last year and new accounts increased 17% totaling more than 6 million new accounts in the third quarter and over 17.5 million new accounts. year-to-date.
In late August, we reached an agreement for the sale of the Gap portfolio, which led to the reclassification of $3.5 billion of loan receivables to held for sale and therefore reduced our ending loan receivables balance. Excluding the impact of the reclassification, loan receivables would have increased by 2% versus the prior year as the period's strong purchase volume growth was largely offset by a persistently elevated payment rate.
Payment rate for the third quarter was approximately 200 basis points higher when compared to the last year. Interest and fees on loans increased 2% compared to last year, reflecting similar growth in average loan receivables. Net interest income was 6% higher than last year, primarily reflecting a decline in interest expense due to lower benchmark rates. RSAs were $1.3 billion in the third quarter and 6.38% of average receivables. The $367 million year-over-year increase primarily reflected the impact of the lower provision for credit losses and continued strong program performance including growth and improvement in net interest income.
To put this in context, remember that RSAs are designed to align interest between ourselves and each of our partners. This means driving growth in attractive risk-adjusted returns enhancing program profitability. This allows each partner to share the programs performance, so when profitability expands, our partners participate in that upside. Now when you think about the combined $1.4 billion year-over-year improvement in net interest income, net losses and the reserve change, we shared $367 million of that through the RSA.
Focusing on our credit performance, provision for losses was $25 million. Included in this quarter's provision was reserve release of $407 million which incorporated our continued strength in credit performance and we're optimistic macroeconomic environment and the impact of reclassifying our Gap portfolio loan receivables to held for sale. This resulted in a reserve reduction of approximately $247 million. Other income decreased $37 million, generally reflecting higher loyalty program costs from higher purchase volume during the quarter. Other expense decreased $106 million compared to the prior year. As you recall, last year we recognized an $89 million restructuring charge and we continue to see favorability from lower operational losses.
Moving to Slide 8 and our platform results. We saw a broad-based purchase volume growth across all five platforms, reflecting strong consumer demand. Our Home & Auto, Diversified & Value, Digital, and Health & Wellness platforms each experienced double-digit year-over-year growth in purchase volume.
The 10% year-over-year increase in Home & Auto was generally driven by strong retailer performance across almost all verticals while purchase volume in Diversified & Value increased 25% reflecting the continued return to in-person retail experiences. In Digital, the 21% increase was due to broad-based growth across our partners coupled with growth in our new programs with Verizon and Venmo. In Health & Wellness, the 10% growth in purchase volume primarily reflected consumers being more comfortable with the environment and undergoing planned procedures.
Meanwhile, purchase volume grew a more modest 2% in lifestyle reflecting broad-based growth across the platform, but having a tough comparable to last year's strong growth in power sports. Loan receivable growth trends by platform generally reflected modest growth rates versus the prior year as higher purchase volume was largely offset by elevated payment rates. The one exception being in our Diversified & Value platform which was impacted by store closures in 2020.
Average active account trends ranged on a platform basis up by as much as 10% in Diversified & Value and 7% in Digital while Home & Auto and Health & Wellness average active accounts were generally flat. The active account growth in Diversified & Value largely reflected the return to in-store retail experiences. Digital active accounts were up versus prior year due to greater engagement across our existing customer base as well as the impact of recent program launches. Interest and fee trends were generally improved across the platform with the exception of Diversified & Value, which was down due to lower receivables.
I'll move to Slide 9 to discuss net interest income and margin trends. The accumulated savings by consumers resulting from stimulus, forbearance and lower discretionary spending continue to impact the payment rates during the third quarter. Payment rates were approximately 260 basis points higher than our five-year historical average. That said, we've begun to see some signs of moderation in certain cohorts as payment rate was about 200 basis points higher year-over-year compared to almost 300 basis points higher year-over-year comparison in the second quarter.
We expect the payment rate to gradually normalize as consumer spending remains robust, excess savings have peaked and widespread forbearance dissipates. Interest and fees were up approximately 2% in the third quarter reflecting [Phonetic] average loan receivable growth. Net interest income increased 6% from last year reflecting the year-over-year improvement in interest and fees as well as lower interest expense for the period.
The net interest margin was 15.45% compared to last year's margin of 13.8%, a 165 basis point improvement year-over-year driven by the mix of interest earning assets and favorable interest bearing liabilities costs. More specifically, the mix of loan receivables as a percent of total earning assets increased by 550 basis points from 78.3% to 83.8% driven by lower liquidity held during the quarter. This accounted for 106 basis point increase in our net interest margin.
Interest bearing liabilities costs were 1.31%, a year-over-year improvement of 59 basis points primarily due to lower benchmark rates and funding mix. This provided a 51 basis point increase in our net interest margin. The loan receivables yield was 19.59%, a year-over-year improvement of 10 basis points. This resulted in an 8 basis point improvement in our net interest margin.
Next, I'll cover our key credit trends on Slide 10. First, let's discuss our delinquency trends where higher payment trends have continued to drive year-over-year improvements. Our 30-plus delinquency rate was 2.42% compared to 2.67% last year. Our 90 plus delinquency rate was 1.05% compared to 1.24% last year.
It should be noted that removing the impact of the Gap program from the third quarters of this year and last year, the 30-plus delinquency metric would have been down about 40 basis points versus 25 basis points and the 90 plus metric would be down about 25 basis points instead of 19 basis points. And in terms of our portfolio's loss performance, our net charge-off rate was 2.18% compared to 4.42% last year. This year-over-year improvement was primarily driven by strong delinquency trends we've experienced. Our allowance for credit losses as a percent of loan receivables was 11.28%.
Let's move to Slide 11 and discuss expenses. Overall expenses were down $106 million or 10% from last year to $961 million primarily reflecting the impact of the prior year's restructuring charge of $89 million and lower operational losses. The efficiency ratio for the third quarter was 38.7% compared to 39.7% last year. This metric remains elevated relative to our historical average due to lower revenue resulting from the impact of higher payment rate and lower average receivables. We continue to maintain a disciplined focus on cost containment while we make strategic investments in our business to deepen our competitive advantage and drive long-term value for shareholders.
Moving to Slide 12, given the reduction in loan receivables in 2020 and early 2021 coupled with the strength of our deposit platform, we continue to carry a higher level of liquidity. While we believe it's prudent to maintain a higher liquidity level during uncertain and volatile periods, we continue to actively manage our funding profile to mitigate excess liquidity and optimize our funding profile. As a result of this strategy, there was a shift in our funding mix during the third quarter.
Our deposits declined by $3.2 billion from last year and our securitized and unsecured funding sources declined by $3 billion. This resulted in deposits being 82% of our funding, compared to 80% last year with securitized and unsecured funding each comprising 9% of our funding sources at quarter-end. Total liquidity including undrawn credit facilities was $18.4 billion which equated to 20% of our total assets, down from 28% last year.
Before I provide detail on our capital position, it should be noted that we elected to take the benefit of the transition rules issued by the joint federal banking agencies, which has two primary benefits. First, it delays the effect of the CECL transition adjustment for an incremental two years. And second, it allows for a portion of the current period provisioning to be deferred and amortized with the transition adjustment. With this framework, we ended the quarter at 17.1% CET1 under the CECL transition rules, 130 basis points above last year's level of 15.8%. The Tier 1 capital ratio was 18% in the CECL transition rules compared to 16.7% last year.
The total capital ratio increased 120 basis points to 19.3% and the Tier 1 capital plus reserves ratio on a fully phased in basis decreased to 26.6% compared to 27.3% last year. During the quarter, we returned $1.4 billion to shareholders, which included $1.3 billion in share repurchases and $124 million in common stock dividends.
Our business generates strong returns and considerable capital resulting from our commitment to drive growth at appropriate risk-adjusted returns, the scalability of our technology platform and our ongoing cost discipline. We will continue to take the opportunistic approach to returning our excess capital to shareholders as our business performance and market conditions allow, subject to our capital plan and any regulatory restrictions.
Finally, let me focus on our outlook for the fourth quarter, which is summarized on Slide 13 of our presentation. While there are a number of external variables that are difficult to predict with precision, we generally expect the third quarter's key operating trends to be stable in the fourth quarter. Underpinning our forecast is a stable and improving macroeconomic environment and the pandemic continues to be largely in control.
We expect strong consumer demand through the holiday season to support continued strength in purchase volume. This strength, partially offset by continued elevation in payment rates should lead to a modest growth in receivables. Our net interest margin will likely be consistent with 3Q '21. Our provision for credit losses will continue to reflect the impact of asset growth, credit performance and macroeconomic factors as well as continued reserve reductions related to the Gap portfolio. As credit losses begin to normalize, we expect the RSA as a percent of average loan receivables to begin to moderate.
Lastly, turning to our operating expense, we expect the acceleration in purchase volume to contribute to a slight sequential increase in absolute dollars for the fourth quarter. That said, we continue to expect the full-year operating expenses to be down compared to 2020. As we close out the year and look forward to the future, we're excited about the opportunities we see to continue to drive strong financial results and shareholder value.
We are well positioned to execute on the strategy we laid out during our Investor Day and drive sustainable growth and attractive risk-adjusted returns simply by continuing to leverage our inherent core strengths, the breadth and depth of our business model, the scalability of our innovative digital capabilities and customer lifetime value expansion we drive through our diversified product suite and powerful value propositions. I'll now turn the call back over to Brian for his final thoughts.
