Synchrony Financial — FY 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing, not a standalone fourth-quarter report. Amounts are in U.S. dollars unless otherwise noted.
Business context
Synchrony is a U.S.-focused consumer finance company operating through Synchrony Bank. It offers private-label, dual and co-branded credit cards, installment loans and FDIC-insured deposits, primarily through retail, digital and healthcare partners. It reported one operating segment and five sales platforms. In 2023, purchase volume was $185.2 billion; year-end loan receivables were $103.0 billion and active accounts totaled 73.5 million.
Financial and operating metrics
| Metric | FY / year-end 2023 | Prior comparable period |
|---|---|---|
| Interest income | $20.7 billion | $17.1 billion in 2022 |
| Net interest income | $17.0 billion | $15.6 billion in 2022 |
| Net earnings | $2.24 billion; diluted EPS $5.19 | $3.02 billion; diluted EPS $6.15 in 2022 |
| Provision for credit losses | $6.0 billion | $3.4 billion in 2022 |
| Net interest margin | 15.15% | 15.63% in 2022 |
| Efficiency ratio | 34.9% | 37.2% in 2022 |
| Loan receivables | $103.0 billion at year-end | $92.5 billion at year-end 2022 |
| Net charge-off rate | 4.87% | 3.00% in 2022 |
| 30+ day delinquency rate | 4.74% at year-end | 3.65% at year-end 2022 |
| Allowance for credit losses | $10.6 billion; 10.26% of loans | $9.5 billion; 10.30% in 2022 |
Net interest income rose 8.8%, as higher loan balances and yields more than offset sharply higher funding costs. Interest expense rose 144% to $3.7 billion, and cost of funds increased to 4.10% from 1.92%. Other expense rose 9.7% to $4.8 billion. The filing does not present a conventional consolidated revenue subtotal; interest income was $20.7 billion and other income was $289 million.
Cash provided by operating activities was $8.6 billion; investing activities used $14.2 billion, primarily reflecting $14.9 billion of net loan growth; financing activities provided $9.6 billion. Year-end total assets were $117.5 billion, deposits $81.2 billion, total borrowings $16.0 billion, and equity $13.9 billion. Liquid assets were $16.8 billion. Additional disclosed capacity included $10.4 billion at the Federal Reserve discount window, $2.5 billion under securitization facilities and $0.5 billion under an unsecured revolver. The company’s Basel III CET1 ratio was 12.2%.
Material changes versus 2022
- Net earnings fell 25.8%, chiefly because credit-loss provision increased by $2.6 billion and interest expense rose by $2.2 billion; higher interest income and lower retailer share payments partly offset these pressures.
- Loan receivables grew 11.4%, reflecting lower customer payment rates and purchase-volume growth of 2.8%. Delinquencies and charge-offs increased as payment behavior moderated.
- Deposits grew 13.1% to $81.2 billion and funded 84% of total funding sources. Year-end liquid assets increased 18% to $16.8 billion.
- Common-stock repurchases were $1.1 billion, and common dividends paid were $406 million. The quarterly dividend increased to $0.25 beginning in the third quarter; $600 million of repurchase authorization remained at year-end.
- Other expense included $43 million of costs associated with a voluntary early-retirement program. The FDIC special assessment expense was $9 million in the fourth quarter.
Outlook, risks and unusual items
- Management expected loan receivables and interest income to increase in 2024, supported by payment-rate moderation, purchase growth and benchmark rates. It also expected provision for credit losses and allowance levels to exceed 2023, with net charge-offs trending toward a 5.5%–6.0% target underwriting range.
- Management expected funding costs and interest expense to continue increasing as funding reprices and loan growth requires more funding. It expected aggregate retailer-share payments to be broadly flat in 2024, subject to credit trends and program growth.
- The CFPB’s proposed credit-card late-fee rule could materially reduce fee income if finalized and upheld. Fees on loans, primarily late fees, were $2.7 billion in 2023. Management anticipated an adverse 2024 effect if the rule took effect, while noting the impact would depend on final terms, timing, litigation and mitigation efforts.
- Synchrony agreed to sell Pets Best, with closing expected in Q1 2024 and an estimated gain of approximately $750 million after tax, subject to closing valuation and conditions. It also agreed to acquire Ally Lending, whose year-end 2023 loan receivables were approximately $2.2 billion; closing was expected in Q1 2024.
- Key risks include worsening consumer credit conditions, interest-rate and deposit competition, concentration in major partners (the five largest programs generated 55% of interest and fees on loans), securitization and funding-market disruption, regulatory changes, and cyber or third-party technology events. New enhanced prudential standards apply following transition periods; proposed capital and long-term-debt rules could increase requirements or funding costs.
- The company reported that reasonably possible losses for legal and regulatory matters it could estimate were immaterial, while cautioning that outcomes remain uncertain and could affect a particular period. KPMG issued unqualified opinions on the financial statements and internal controls; management reported effective disclosure controls and internal control over financial reporting.
Important facts for investors to verify
- Whether delinquency and net charge-off rates continue rising toward management’s stated 5.5%–6.0% target, and whether the $10.6 billion allowance remains adequate.
- The final status, effective date and financial effects of the CFPB late-fee rule, including the effectiveness and costs of management’s mitigation actions.
- Deposit growth, deposit pricing and retention, funding costs, and the availability and terms of securitization and other liquidity sources.
- Performance and renewal terms of the five largest partner programs, including their concentration in interest and fees and loan balances.
- Completion and final financial and capital effects of the Pets Best sale and Ally Lending acquisition, as well as capital and shareholder-return capacity under evolving regulatory requirements.