Company Overview and History

Synchrony Financial, a premier consumer financial services company, has carved out a unique position in the dynamic financial services industry. With a rich history spanning over two decades, Synchrony has demonstrated remarkable resilience, adaptability, and a relentless focus on delivering exceptional value to its diverse network of partners and customers.

Synchrony Financial's roots can be traced back to 1932 when it was established as the retail credit card division of General Electric. For over 90 years, the company has provided a range of credit products and financing solutions to consumers and businesses across the United States. In 2014, Synchrony Financial was spun off from GE and established as an independent, publicly-traded company, marking a major milestone in its history as it transitioned from being a subsidiary to operating as a standalone financial services provider.

In the years following its spin-off, Synchrony Financial focused on diversifying its partner relationships and product offerings. The company expanded its network of national and regional retailers, local merchants, manufacturers, buying groups, industry associations, and healthcare service providers that it provides private label, Dual Card, co-brand, and general purpose credit cards to. Synchrony also grew its portfolio of short-term and long-term installment loan products.

Challenges and Resilience

Throughout its long history, Synchrony has faced various challenges. In the late 2000s, the company weathered the impacts of the global financial crisis, which led to increased credit losses and a need to strengthen its risk management practices. More recently, Synchrony has navigated regulatory changes, such as the CFPB's rules around credit card late fees, which have required operational and strategic adjustments. Through these challenges, Synchrony has demonstrated resilience and an ability to adapt its business model to evolving market conditions.

Business Model and Partnerships

Synchrony's business model is anchored in its strong partnerships with industry-leading brands across diverse verticals, including home improvement, digital commerce, health and wellness, and lifestyle categories. This diversified portfolio has enabled the company to navigate various economic conditions, capitalizing on emerging trends and evolving consumer preferences. As of the latest reported quarter in 2024, Synchrony's loan receivables stood at $102.2 billion, reflecting a 4.4% year-over-year increase, driven by lower customer payment rates and the completion of the Ally Lending acquisition.

Financials

Financially, Synchrony has demonstrated resilience and prudent management. In the most recent quarter, the company reported net earnings of $789 million, or $1.94 per diluted share, reflecting a return on average assets of 2.6% and a return on tangible common equity of 24.3%. This performance was underpinned by a 6% year-over-year increase in net interest income, driven by growth in average loan receivables and higher loan yields, as well as lower retailer share arrangements.

For the third quarter of 2024, Synchrony reported revenue of $3.814 billion and operating cash flow of $2.763 billion. The company's free cash flow for the quarter also stood at $2.763 billion. These figures demonstrate Synchrony's strong financial performance and cash generation capabilities.

Credit Quality

Synchrony's credit quality metrics have been a key area of focus, with the company taking proactive measures to address evolving market dynamics. The 30-plus day delinquency rate stood at 4.78% at the end of the third quarter, up from 4.40% in the prior-year period but still within the company's targeted range. The net charge-off rate increased to 6.06% from 4.60% a year ago, primarily due to higher net charge-offs. Synchrony has remained vigilant in managing its credit exposure, implementing targeted credit actions and strategies to position its portfolio for long-term success.

The allowance for credit losses increased to $11.03 billion, or 10.79% of total loan receivables, as of September 30, 2024, reflecting the impact of the Ally Lending acquisition and current economic conditions.

Liquidity

The company's funding, liquidity, and capital position continue to provide a strong foundation for its operations. Deposits, which represented 84% of Synchrony's total funding sources at the end of the third quarter, grew by 1.4% compared to the prior year-end. The company's total liquid assets and undrawn credit facilities amounted to $22.4 billion, a $1.9 billion increase year-over-year, underscoring its financial flexibility.

As of September 30, 2024, Synchrony had $17.93 billion in cash and cash equivalents. Additionally, the company had $2.70 billion of undrawn capacity under its securitization financings, of which $2.20 billion was committed and $450 million was uncommitted. Synchrony also maintained $500 million of undrawn committed capacity under its unsecured revolving credit facility, further bolstering its liquidity position.

Capital Position

Synchrony's regulatory capital ratios remained well above the minimum requirements, with a Common Equity Tier 1 (CET1) ratio of 13.1% and a total capital ratio of 16.4% as of September 30, 2024. These robust capital levels, coupled with the company's ongoing disciplined capital management, allow Synchrony to navigate the evolving regulatory landscape and support its growth initiatives.

Future Outlook and Strategic Priorities

Looking ahead, Synchrony remains focused on executing its strategic priorities, which include driving sustainable risk-adjusted growth, enhancing its digital capabilities, and delivering innovative financing solutions to its diverse partner network and customer base. The company's guidance for the full year 2024 calls for fully diluted earnings per share between $8.45 and $8.55, reflecting the resilience of its business model and the effectiveness of its proactive measures.

For the fourth quarter of 2024, Synchrony expects a low single-digit decline in purchase volume and low single-digit growth in ending loan receivables compared to the previous year. Net interest income is anticipated to remain sequentially flat, as the impacts of product, pricing, and policy changes are offset by seasonally higher reversals. Other income is expected to remain consistent with third-quarter 2024 levels, while the provision for credit losses is projected to follow seasonal trends. Other expenses are forecasted to increase sequentially with seasonally higher growth.

The improvement in the full-year EPS outlook, approximately $0.80 from the midpoint of their prior guidance, is attributed to three key factors: the assumption that the late fee rule will not be implemented in 2024, the impact of product, pricing, and policy changes and the increase in related reserve for credit losses, and the strong performance of the core business.

Despite the challenges posed by the evolving consumer landscape, Synchrony has demonstrated its ability to adapt and thrive. The company's deep industry expertise, data-driven insights, and strong partner relationships have positioned it as a trusted and reliable financial services provider. As Synchrony navigates the future, investors can take comfort in the company's track record of weathering economic cycles and its commitment to delivering long-term value for its stakeholders.

Business Segments

Synchrony Financial operates through five primary sales platforms, each catering to different sectors of the consumer finance market:

Home Auto Platform

This platform provides comprehensive payments and financing solutions with integrated in-store and digital experiences through a broad network of partners and merchants providing home and automotive merchandise and services. Key partners include home improvement, furniture, bedding, flooring, and appliance/electronics retailers, as well as automotive merchandise and service providers. During the three and nine months ended September 30, 2024, the Home Auto platform had purchase volume of $11.36 billion and $34.37 billion, respectively. Interest and fees on loans for this segment increased 8.9% and 10.9% for the three and nine month periods, primarily driven by higher average loan receivables and higher benchmark rates, partially offset by lower purchase volume.

Digital Platform

The Digital platform provides comprehensive payments and financing solutions with integrated digital experiences through digital-focused partners and merchants. Key partners include digital payment solutions providers, online marketplaces, and digital-first brands and merchants. The Digital platform had purchase volume of $13.35 billion and $39.38 billion for the three and nine month periods, respectively. Interest and fees on loans increased 4.1% and 9.0% over the prior year periods, driven by higher average loan receivables, lower payment rates, and higher benchmark rates.

Diversified Value Platform

This platform serves large retail partners who deliver everyday value to consumers. Key partners include Belk, Fleet Farm, JCPenney, Sam's Club, and TJX Companies. Purchase volume for this segment was $14.99 billion and $44.35 billion for the three and nine month periods, respectively. Interest and fees on loans increased 3.5% and 7.8% compared to the prior year, primarily due to growth in average loan receivables, lower payment rates, and higher benchmark rates.

Health & Wellness Platform

The Health & Wellness platform provides healthcare payments and financing solutions, including the CareCredit brand, through a network of healthcare providers and health systems. Purchase volume was $3.87 billion and $11.94 billion for the three and nine month periods, with interest and fees on loans increasing 13.3% and 15.7%, respectively, driven by higher average loan receivables.

Lifestyle Platform

This segment provides payments and financing solutions for partners in industries such as apparel, specialty retail, outdoor, music, and luxury. Purchase volume was $1.41 billion and $4.18 billion for the three and nine month periods, with interest and fees on loans increasing 8.4% and 11.2%, respectively, due to growth in average loan receivables and higher benchmark rates.

The diversification across these platforms allows Synchrony to maintain a robust presence in various consumer finance sectors, mitigating risks associated with any single market segment and positioning the company for sustainable growth.