Synchrony Profit Falls 8% as Credit Quality Improves, Growth Returns
Synchrony Financial reported second-quarter net earnings of $885 million, down 8% from a year earlier, even as purchase volume hit an all-time high of $49.8 billion.
Synchrony Financial (SYF) reported second-quarter net earnings of $885 million, or $2.59 a diluted share, down 8% from $967 million, or $2.50 a share, a year earlier.
The decline came despite improving credit trends and record spending on its store cards and other consumer-finance products, a divergence that traced back to how Synchrony built its loan-loss reserves. Purchase volume rose 8% to $49.8 billion, an all-time high, and average active accounts held flat at 68.3 million after several quarters of declines, which the company's chief executive described as an inflection back to growth.
Credit quality improved across the board. The net charge-off rate fell 27 basis points to 5.43% of average loan receivables, dropping below Synchrony's target range, while 30-day and 90-day delinquency rates each ticked down from a year earlier. Yet provision for credit losses rose 5% to $1.2 billion, because the reserve release that had cushioned results a year ago shrank to $163 million from $265 million in the prior-year quarter. The allowance for credit losses as a share of period-end loan receivables fell to 10.09% from 10.42% in the first quarter and 10.59% a year earlier, the third straight quarterly decline.
Net interest margin expanded 30 basis points to 15.08%, as lower benchmark rates cut the cost of interest-bearing liabilities, partially offset by lower yields on the liquidity portfolio and loan receivables. That margin gain was set against a 170-basis-point rise in the efficiency ratio to 35.8%, as other expense climbed 7% to $1.3 billion on higher operational losses and technology spending. Other income rose 16% to $137 million, aided by a one-time $30 million gain from the Visa B-2 share exchange, partially offset by higher loyalty costs. Retailer share arrangements, the payments Synchrony shares with its retail partners, rose 4% to $1.0 billion, which the chief financial officer tied to credit improvement flowing through to partners.
Loan receivables grew 2% to $102.2 billion, but growth diverged sharply by segment. Diversified & Value loans rose 6% and purchase volume in that segment climbed 12%, the fastest of any category. Digital followed with loan growth of 4% and purchase volume up 9%. Health & Wellness lagged, with loan receivables up just 1% and purchase volume growth of only 2%, as declining cosmetic spending offset gains in pet-related categories. Lifestyle was the only segment to contract, with loan receivables down 1% even as its purchase volume rose 6%.
Return on assets fell 30 basis points to 2.9%, return on equity dropped 170 basis points to 21.4%, and return on tangible common equity declined 150 basis points to 25.2%. Capital ratios also thinned: the CET1 ratio fell to 13.2% from 14.2% a year earlier, and the Tier 1 capital ratio slipped to 14.9% from 15.4%. Book value per share nonetheless rose 10% to $46.67, and tangible book value per share rose 8% to $42.01.
Synchrony returned $950 million to shareholders in the quarter, including $850 million in share buybacks and $100 million in dividends, leaving $5.7 billion in repurchase authorization as of June 30. The company also issued $500 million of preferred stock at a 7.25% dividend rate, pricing 100 basis points better than its previous resettable preferred offering in February 2024, while deposits grew 1% to $82.8 billion and now fund 83% of the balance sheet.