01—Abstract
Summary
Summary of the 10-Q filed July 19, 2024. Cited figures are marked; the original filing is the authoritative source.
Synchrony Financial's Form 10-Q for the quarter ended June 30, 2024 reports net earnings of $643 milliona for the three months and $1.9 billion ($1,936 million) for the six months, compared with $569 million and $1.2 billion ($1,170 million) a year earlier.
The six-month increase was driven primarily by an after-tax gain of $802 millionb on the sale of Pets Best. Net interest income rose to $4.4 billion for the quarter (from $4.12 billion) and $8.8 billion for the six months, while the provision for credit losses increased to $1.69 billion for the quarter and $3.58 billion for the six months, mainly from higher net charge-offs. The net charge-off rate was 6.42% for the quarter, up from 4.75%, and over-30 day delinquencies rose to 4.47% of period-end loan receivables from 3.84%.
The filing states that the CFPB's final rule lowering the credit card late fee safe harbor to $8c is subject to a court injunction granted May 10, 2024, but the company expects the rule, if it takes effect in 2024, to have an adverse effect on 2024 results, and it is implementing product, policy and pricing changes to offset lost late fee income. Management expects purchase volume to be flat or decline by a low single digit percentage in the second half of 2024, with loan receivable growth moderating. Total loan receivables were $102.3 billion at June 30, 2024, including the Ally Lending acquisition completed in March 2024 for $2.0 billion in cash.
Deposits totaled $83.1 billiond, or 84% of total funding sources, and the company repurchased $600 million of common stock in the first half of 2024 while approving a new $1.0 billion share repurchase program. Capital and liquidity remained above regulatory well-capitalized thresholds, with a Basel III common equity Tier 1 ratio of 12.6% at June 30, 2024, up from 12.2% at December 31, 2023.
Liquid assets in the liquidity portfolio were $20.0 billion, compared with $16.8 billion at year-end 2023. The filing reports no material changes to risk factors from the 2023 Form 10-K and discloses a Rule 10b5-1 trading plan adopted by the CFO covering 74,698 company securities.
02—Key points
Key Highlights
- Net earnings rose to $643 million for Q2 2024 from $569 million, and to $1.9 billion for the six months from $1.2 billion, with the six-month period boosted by an after-tax gain of $802 million on the Pets Best sale.
- Provision for credit losses increased $308 million (22.3%) for Q2 and $902 million (33.7%) for the six months, driven by higher net charge-offs; the net charge-off rate rose to 6.42% from 4.75% in Q2.
- Over-30 day delinquencies rose to 4.47% of period-end loan receivables from 3.84% a year earlier, and the allowance coverage ratio increased to 10.74% from 10.34%.
- CFPB credit card late fee rule (safe harbor cut to $8) is enjoined as of May 10, 2024; management still expects an adverse 2024 effect if it takes effect and expects purchase volume to be flat or down low single digits in the second half of 2024.
- Loan receivables reached $102.3 billion at June 30, 2024, up 7.9% year over year, aided by the $2.0 billion Ally Lending acquisition completed in March 2024.
- Deposits of $83.1 billion funded 84% of total funding sources; the company repurchased $600 million of common stock in the first half and approved a new $1.0 billion repurchase program through June 30, 2025.
- Common equity Tier 1 capital ratio was 12.6% at June 30, 2024 (12.2% at December 31, 2023), and the company remained well-capitalized; liquid assets were $20.0 billion versus $16.8 billion at year-end 2023.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2024filed July 19, 2024Financial Statements
Q2 FY2024 against Q2 FY2023
| Line item | Q2 FY2024Q2 FY2023 | Change |
|---|---|---|
| Net Income | $643.00M$569.00M | +13.0% |
| EPS (Basic) | $1.56$1.32 | +18.2% |
| EPS (Diluted) | $1.55$1.32 | +17.4% |
| Shares Outstanding (Basic) | 399.30M422.70M | −5.5% |
| Shares Outstanding (Diluted) | 402.60M424.20M | −5.1% |
05—Questions
Frequently Asked Questions
What drove the large increase in six-month net earnings?
Six-month net earnings rose to $1.9 billion from $1.2 billion, primarily because of the after-tax gain of $802 million on the sale of the Pets Best subsidiary in March 2024, with the pre-tax gain of $1.1 billion recorded in Other income. Higher net interest income also contributed, partly offset by higher provisions for credit losses.
How significant is the CFPB late fee rule for Synchrony?
The filing says the final rule, when effective, will result in a significant reduction in interest and fees on loan receivables. A court injunction issued May 10, 2024 has stayed the rule, but management expects it, if effective in 2024, to adversely affect 2024 results and is implementing product, policy and pricing changes to offset the lost late fee income over time.
Why are credit losses rising?
Net charge-offs increased to $1.6 billion for Q2 2024 from $1.1 billion, with the net charge-off rate at 6.42% versus 4.75%. Over-30 day delinquencies were 4.47% of period-end loan receivables, up from 3.84%, which the filing attributes primarily to lower customer payment rates. The Ally Lending acquisition also added $180 million to the six-month reserve build.
What is the company's outlook for loan growth and spending?
Management expects purchase volume in the second half of 2024 to be flat or to decline by a low single digit percentage, due to lower consumer spending and credit actions taken on higher-risk accounts. It still anticipates loan receivables to increase for the rest of 2024, but expects the growth rate to moderate.
How is Synchrony funding its business and returning capital?
Deposits of $83.1 billion represented 84% of total funding sources at June 30, 2024. In the first half of 2024 the company repurchased $600 million of common stock and paid $202 million in common dividends at $0.25 per quarter, and it approved an incremental $1.0 billion share repurchase program in April 2024.
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