01—Abstract
Summary
Summary of the 10-Q filed April 25, 2024. Cited figures are marked; the original filing is the authoritative source.
Synchrony Financial's first-quarter 2024 Form 10-Q reports net earnings of $1.3 billiona ($1,293 million) versus $601 million a year earlier, driven primarily by an after-tax gain of $802 million on the sale of Pets Best, higher interest income and lower retailer share arrangements.
These gains were partially offset by a higher provision for credit losses of $1,884 millionb (up from $1,290 million) and higher interest expense. Loan receivables were $101.7 billion at March 31, 2024, up 11.6% from a year earlier but down 1.2% from December 31, 2023 on seasonality, and net charge-offs rose to 6.31% of average loan receivables from 4.49%. The allowance coverage ratio increased to 10.72%, and over-30 day delinquencies rose to 4.74% of period-end loan receivables.
Management stated that the CFPB's final rule lowering the credit card late fee safe harbor from $30 (adjusted to $41c) to $8 will adversely affect 2024 results and will have a material impact on net income for 2024 if it takes effect May 14, 2024, though the rule faces industry litigation and its outcome is uncertain. The company is implementing product, policy and pricing changes and expects a decrease in retailer share payments to partially offset the lost late fee income. Deposits of $83.6 billion represented 84% of total funding sources, and liquid assets rose to $21.9 billion.
Capital actions in the quarter included the acquisition of Ally Financial's point-of-sale lending business, Ally Lending, for $2.0 billiond cash, issuance of $500 million of Series B preferred stock, and repurchases of $300 million of common stock. In April 2024 the Board approved an incremental $1.0 billion repurchase program through June 30, 2025, bringing total authorization to $1.3 billion. Common equity Tier 1 capital ratio rose to 12.6% from 12.2%.
02—Key points
Key Highlights
- Net earnings rose to $1,293 million from $601 million, driven mainly by the $802 million after-tax gain on the sale of Pets Best.
- Net charge-off rate increased to 6.31% from 4.49%, and the provision for credit losses rose to $1,884 million from $1,290 million, including a $299 million reserve build.
- Over-30 day delinquencies rose to 4.74% of period-end loan receivables from 3.81% a year earlier, and the allowance coverage ratio increased to 10.72%.
- CFPB final rule cutting the credit card late fee safe harbor to $8 is expected to adversely affect 2024 results and would have a material impact on 2024 net income if effective May 14, 2024, subject to litigation.
- Completed the $2.0 billion Ally Lending acquisition in March 2024, adding $2.2 billion of unpaid principal balance in loan receivables.
- Issued $500 million of Series B 8.250% preferred stock in February 2024 and repurchased $300 million of common stock during the quarter.
- Board approved an incremental $1.0 billion share repurchase program in April 2024, bringing total authorization to $1.3 billion, and intends to maintain the $0.25 quarterly dividend.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2024filed April 25, 2024Financial Statements
Q1 FY2024 against Q1 FY2023
| Line item | Q1 FY2024Q1 FY2023 | Change |
|---|---|---|
| Interest Expense | $1.16B$735.00M | +58.2% |
| Net Income | $1.29B$601.00M | +115.1% |
| EPS (Basic) | $3.17$1.36 | +133.1% |
| EPS (Diluted) | $3.14$1.35 | +132.6% |
| Shares Outstanding (Basic) | 404.70M434.40M | −6.8% |
| Shares Outstanding (Diluted) | 408.20M437.20M | −6.6% |
05—Questions
Frequently Asked Questions
What drove the increase in Synchrony's net earnings this quarter?
Net earnings increased to $1,293 million from $601 million, primarily due to the after-tax gain of $802 million on the sale of Pets Best, higher interest income and lower retailer share arrangements. These were partially offset by a higher provision for credit losses and higher interest expense.
How will the CFPB late fee rule affect Synchrony?
The CFPB final rule lowers the credit card late fee safe harbor from $30 (adjusted to $41 for subsequent late payments) to $8. Management expects it will adversely affect 2024 results and, if effective May 14, 2024, would have a material impact on 2024 net income. The rule is being challenged in court, and its outcome is uncertain. Management is implementing product, policy and pricing changes and expects lower retailer share payments to partially offset the lost late fee income.
How is credit quality trending?
Net charge-offs were 6.31% of average loan receivables versus 4.49% a year earlier, and over-30 day delinquencies were 4.74% of period-end loan receivables versus 3.81%. The allowance for credit losses rose to $10.9 billion, a coverage ratio of 10.72%. Management expects net charge-offs to continue increasing in the first half of 2024.
What is Synchrony's funding and liquidity position?
Deposits totaled $83.6 billion at March 31, 2024, representing 84% of total funding sources. The liquidity portfolio held $21.9 billion of liquid assets, up from $16.8 billion at December 31, 2023. Additional sources included $10.8 billion of Federal Reserve discount window capacity, $2.5 billion of undrawn securitization capacity and $0.5 billion of undrawn revolving credit facility capacity.
What capital return actions did Synchrony take or announce?
During the quarter Synchrony repurchased $300 million of common stock and paid $102 million in common dividends at $0.25 per share. In April 2024 the Board approved an incremental $1.0 billion repurchase program through June 30, 2025, bringing total authorization to $1.3 billion. The company also issued $500 million of Series B preferred stock in February 2024.
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