01—Abstract
Summary
Summary of the 10-K filed February 8, 2024. Cited figures are marked; the original filing is the authoritative source.
Synchrony Financial (SYF) reported net earnings of $2.2 billiona for 2023, down 25.8% from the prior year, primarily driven by a higher provision for credit losses and higher interest expense, partially offset by higher interest income and lower retailer share arrangements.
Net interest income rose 8.8% to $17.0 billionb. The provision for credit losses increased by $2.6 billion to $6.0 billion, and the net charge-off rate rose 187 basis points to 4.87%, while over-30 day delinquencies reached 4.74% of period-end loan receivables. Management expects net charge-offs to keep increasing in 2024 and anticipates a higher allowance and provision for credit losses in 2024.
Growth remained solid: purchase volume was $185.2 billionc, loan receivables grew 11.4% to $103.0 billion, and deposits increased 13.1% to $81.2 billion, representing 84% of total funding sources. Management expects interest income and loan receivables to increase in 2024, but flagged that a final CFPB rule reducing credit card late fees, if adopted and upheld, would significantly reduce interest income and late fee revenue in 2024. Capital returns continued, with $1.1 billion of common stock repurchased and $406 million of common dividends paid, and a $600 million repurchase authorization remaining at year-end.
The Basel III common equity Tier 1 ratio was 12.2%. Pending transactions include the sale of Pets Best, expected to yield an estimated gain of about $750 milliond net of tax, and the acquisition of Ally Lending, which had approximately $2.2 billion of loan receivables, both expected to close in the first quarter of 2024.
02—Key points
Key Highlights
- Net earnings fell 25.8% to $2.2 billion in 2023, driven by a $2.6 billion increase in the provision for credit losses to $6.0 billion and higher interest expense of $2.2 billion (up 144.0%).
- Net interest income rose 8.8% to $17.0 billion, with interest and fees on loans up 17.9%.
- Net charge-off rate rose 187 basis points to 4.87%; over-30 day delinquencies rose to 4.74% of period-end loan receivables from 3.65%.
- Loan receivables grew 11.4% to $103.0 billion and purchase volume reached $185.2 billion; active accounts totaled 73.5 million.
- Deposits grew 13.1% to $81.2 billion, providing 84% of total funding sources; the allowance coverage ratio was 10.26%.
- Management expects the CFPB's proposed credit card late fee rule, if finalized as proposed, to significantly reduce interest income in 2024; the company expects net charge-offs and provisions to rise in 2024.
- Returned capital through $1.1 billion of share repurchases and $406 million of common dividends in 2023; the common dividend was raised to $0.25 per quarter.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2023filed February 8, 2024Financial Statements
FY2023 against FY2022
| Line item | FY2023FY2022 | Change |
|---|---|---|
| Interest Expense | $3.71B$1.52B | +144.0% |
| Net Income | $2.24B$3.02B | −25.8% |
| EPS (Basic) | $5.21$6.19 | −15.8% |
| EPS (Diluted) | $5.19$6.15 | −15.6% |
| Shares Outstanding (Basic) | 421.20M480.40M | −12.3% |
| Shares Outstanding (Diluted) | 423.50M483.40M | −12.4% |
05—Questions
Frequently Asked Questions
Why did Synchrony's net earnings decline in 2023?
Net earnings fell 25.8% to $2.2 billion, primarily because the provision for credit losses increased by $2.6 billion to $6.0 billion, driven by higher net charge-offs and a higher reserve build, and because interest expense rose 144.0%. These effects were partially offset by higher interest income and lower retailer share arrangements, which decreased 15.5% to $3.7 billion.
What is the outlook for credit quality in 2024?
Management anticipates that moderating customer payment behavior will continue to affect credit metrics in 2024, most notably through an increase in net charge-offs, which are expected to trend toward its target underwriting range of 5.5%-6.0%. It also expects the allowance and provision for credit losses in 2024 to be higher than in 2023.
How could the CFPB late fee rule affect Synchrony?
The CFPB proposed lowering the safe harbor for credit card late fees from $30 to $8 and capping late fees at 25% of the minimum payment. Late fees within fees on loans totaled $2.7 billion in 2023. If a final rule is issued and survives legal challenges, management expects it to significantly reduce interest income in 2024, partly offset by mitigating strategies and lower retailer share payments.
What are the pending acquisition and sale?
Synchrony agreed in November 2023 to sell Pets Best, with an expected gain of approximately $750 million net of tax, and in January 2024 agreed to acquire Ally Financial's point of sale financing business, Ally Lending, which had approximately $2.2 billion of loan receivables at December 31, 2023. Both transactions are expected to close in the first quarter of 2024, subject to customary conditions and, for Pets Best, regulatory approval.
How strong is Synchrony's capital and liquidity position?
At December 31, 2023, the Basel III common equity Tier 1 ratio was 12.2%, reflecting the CECL regulatory capital transition adjustment. Liquid assets totaled $16.8 billion, up 18% from the prior year, and the company had $10.4 billion of available Federal Reserve discount window capacity. The company remained well-capitalized, with $600 million of share repurchase authorization remaining.
06—Continue