Business Overview

Synchrony Financial has established itself as a premier consumer financial services company, delivering a comprehensive and digitally-enabled product suite. With over a century of experience, Synchrony has carved out a unique niche in the industry, catering to a diverse spectrum of sectors including digital, health and wellness, retail, telecommunications, home, auto, outdoor, and pet.

Synchrony's origins can be traced back to 1932, when it was founded as GE Capital's retail finance business. Over the decades, the company has evolved and expanded its reach, establishing partnerships with a vast network of national, regional, and local businesses. In 2014, the company underwent a strategic transformation, separating from GE Capital and becoming an independent, publicly-traded entity under the name Synchrony Financial.

Today, Synchrony boasts an impressive portfolio of financing solutions, including credit cards, commercial credit products, and consumer installment loans. The company's success is underpinned by its ability to forge strong, collaborative relationships with its diverse array of partners, ranging from large retailers to healthcare providers and industry associations.

In the years following its spin-off, Synchrony faced several challenges. In 2016, the company was sued by the Consumer Financial Protection Bureau over alleged discriminatory credit card marketing practices. Synchrony ultimately settled the case in 2018 for $38.5 million, without admitting wrongdoing. Then in 2020, the COVID-19 pandemic disrupted the retail industry and led to a spike in credit losses for Synchrony's portfolio. The company responded by tightening underwriting standards and increasing its allowance for credit losses.

Despite these challenges, Synchrony has continued to grow and diversify its business. In 2019, the company acquired Pets Best, a provider of pet health insurance, to expand its presence in the fast-growing pet care financing market. Synchrony has also invested heavily in digital capabilities, including mobile wallets and its Synchrony Pay Later buy-now-pay-later solution, to meet the evolving needs of its customers and partners. Today, Synchrony serves approximately 70 million active accounts and has over $100 billion in loan receivables.

Financial Performance and Key Metrics

Synchrony's financial performance has been robust, showcasing its resilience and adaptability in the face of changing market dynamics. As of the latest reported quarter (Q4 2024), the company reported net earnings of $774 million, or $1.91 per diluted share, reflecting a return on average assets of 2.6% and a return on tangible common equity of 23%.

For the full year 2024, Synchrony generated net earnings of $3.5 billion, or $8.55 per diluted share, with a return on average assets of 2.9% and a return on tangible common equity of 27.5%. These impressive results were achieved despite the challenging macroeconomic environment and the company's proactive credit actions. The company also generated $182 billion in purchase volume in 2024, which was noted as their second highest level ever.

As of September 30, 2024, Synchrony reported $4.61 billion in net interest income for the third quarter, representing a 5.7% increase year-over-year. The provision for credit losses increased 7.3% to $1.60 billion. Purchase volume across the sales platforms decreased 4.3% to $44.98 billion, primarily driven by lower consumer spending and credit actions taken across the portfolio. Loan receivables increased 4.4% year-over-year to $102.2 billion, reflecting lower customer payment rates and the Ally Lending acquisition, partially offset by the lower purchase volume.

The company's allowance coverage ratio, or allowance for credit losses as a percentage of total loan receivables, increased to 10.79% at September 30, 2024, compared to 10.40% a year earlier, indicating a prudent approach to credit risk management.

Liquidity and Capital Strength

Synchrony's funding, liquidity, and capital position remain robust, providing a strong foundation for its operations and growth initiatives. As of Q4 2024, the company's deposits represented 84% of its total funding sources, with secured and unsecured debt accounting for the remaining 16%.

Synchrony's capital ratios reflect its sound financial footing. The company's common equity Tier 1 (CET1) ratio stood at 13.3% at the end of Q4 2024, well above the regulatory minimum. The Tier 1 capital ratio and total capital ratio were 14.5% and 16.5%, respectively, further reinforcing Synchrony's ability to withstand potential economic headwinds.

Looking ahead, Synchrony plans to maintain higher liquidity levels around 17% for the next few quarters to prioritize deposit customer relationships and pre-fund future growth.

Strategic Priorities and Growth Initiatives

Synchrony's strategic priorities are centered around driving sustainable growth, enhancing its digitally-enabled product suite, and deepening its partnerships with both existing and new clients. The company has successfully executed on these goals, as evidenced by its diversified partner base, which includes iconic brands such as Virgin, Gibson, and BRP, as well as innovative technology-oriented relationships like Adit Practice Management Software and ServiceTitan.

One of Synchrony's key growth areas is its health and wellness segment, which includes the CareCredit brand. The company has been actively expanding its CareCredit product, including the launch of the CareCredit dual card, which has seen a 16% growth in open accounts during 2024. Synchrony's strategic investments in digital capabilities have also been a major focus, with initiatives like the integration of Apple Pay and the continued expansion of its digital wallet strategy.

Synchrony operates through six sales platforms to provide its credit products and services:

1. Home Auto Platform: This platform provides comprehensive payments and financing solutions for home improvement, furniture, bedding, flooring, and appliance retailers, as well as automotive merchandise and services providers. Key partners include Ashley HomeStores, Floor Decor, Lowe's, Mattress Firm, Chevron, and Discount Tire.

2. Digital Platform: This platform caters to partners and merchants who primarily engage with consumers through digital channels. Key partners include PayPal (including the Venmo program), Amazon, eBay, Verizon, Qurate brands, and Fanatics.

3. Diversified Value Platform: This platform serves large retail partners who deliver everyday value to consumers shopping for daily needs or important life moments. The platform comprises five large retail partners: Belk, Fleet Farm, JCPenney, Sam's Club, and TJX Companies.

4. Health & Wellness Platform: This platform provides healthcare payments and financing solutions through a network of providers and health systems. It includes the CareCredit brand and partners like Walgreens.

5. Lifestyle Platform: This platform caters to partners and merchants offering merchandise in power sports, outdoor power equipment, and other industries such as sporting goods, apparel, jewelry, and music. Key partners include American Eagle, Dick's Sporting Goods, Guitar Center, Kawasaki, Pandora, Polaris, Suzuki, and Sweetwater.

6. Corp, Other: This segment includes activity and balances related to certain program agreements with retail partners and merchants that will not be renewed beyond their current expiration date, as well as certain programs that were previously terminated.

Risks and Challenges

While Synchrony has demonstrated resilience, the company faces a range of risks and challenges common to the consumer financing industry. These include macroeconomic uncertainties, regulatory changes, and evolving consumer preferences. The potential impact of the CFPB's proposed late fee rule remains a key concern, though Synchrony has proactively implemented various product, pricing, and policy changes to mitigate the potential effects.

Additionally, Synchrony's success is heavily dependent on its ability to maintain strong partnerships and continue delivering value to its diverse customer base. Any disruptions in these relationships or changes in consumer behavior could impact the company's growth trajectory.

Outlook and Conclusion

Synchrony's robust performance in 2024, marked by strong account growth, purchase volume, and profitability, positions the company well for the future. The company's focus on digital innovation, strategic partnerships, and prudent credit management have been instrumental in navigating the evolving market landscape.

Looking ahead, Synchrony's guidance for 2025 suggests continued growth, with expectations of low-single-digit growth in ending loan receivables, net revenue between $15.2 and $15.7 billion, and a portfolio net charge-off rate between 5.8% and 6.1%. The company also expects an efficiency ratio between 31.5% and 32.5%. Synchrony anticipates that their portfolio's 30-plus delinquency rate will continue improving and reach their long-term net charge-off target.

In terms of capital allocation, Synchrony has $600 million remaining in their share repurchase authorization and plans to complete that program, while also continuing to return capital to shareholders guided by their business performance and market conditions.

Overall, Synchrony Financial's deep industry expertise, diverse product offerings, and strategic execution have solidified its position as a leader in the consumer financing space. As the company continues to adapt and innovate, it remains well-poised to navigate the challenges and capitalize on the growth potential within the ever-evolving financial services landscape.