Synchrony Financial

Synchrony Financial is a consumer financial services company that offers a comprehensive suite of digitally-enabled credit products through partnerships with a diverse group of national and regional retailers, local merchants, manufacturers, buying groups, industry associations, and healthcare service providers. The company's business model is designed to align its interests with partners, generating increased sales and strengthening customer loyalty, while providing customers with instant credit access, discounts, and promotional offers. Synchrony differentiates itself through deep industry expertise, a long history in consumer lending, innovative digital capabilities, and a diverse product suite. The company operates through a single business segment, with profitability and expenses managed for the business as a whole. Substantially all revenue-generating activities are within the United States, organized across five sales platforms. Synchrony Bank, a wholly-owned subsidiary, is the primary vehicle for offering credit products and FDIC-insured deposit products, which serve as a stable and diversified low-cost funding source.

Synchrony's core business model revolves around generating revenue primarily from interest and fees on loan receivables, including merchant discounts from partners for promotional financing. The company offers private label, dual, co-brand, and general purpose credit cards, as well as short- and long-term installment loans. Primary customer segments include consumers making purchases from partners across various industries, and small to mid-sized commercial customers. The company leverages omnichannel technology and marketing capabilities to integrate product offerings seamlessly within partner distribution networks and directly through its own channels, enabling instant credit delivery and higher conversion rates. Approximately 60% of consumer revolving credit applications in 2025 were processed through a digital channel ¹.

The Home & Auto sales platform provides payments and financing solutions for home and automotive merchandise and services, including the Synchrony Car Care network and Synchrony HOME credit card. This platform accounted for $5.7 billion ², or 26% ³, of total interest and fees on loans for the year ended December 31, 2025. Key partners include Lowe's and Ashley HomeStores Inc. The Digital sales platform focuses on partners primarily engaging consumers through digital channels, such as Amazon and PayPal (including the Venmo program). Digital accounted for $6.4 billion ⁴, or 30% ⁵, of total interest and fees on loans in 2025. The Diversified & Value platform serves large retail partners offering everyday value, such as Sam's Club and JCPenney, and contributed $4.7 billion ⁶, or 22% ⁷, of total interest and fees on loans in 2025. In September 2025, Synchrony launched a new partnership with OnePay to become the exclusive issuer of a general purpose and private label credit card program at Walmart.

The Health & Wellness sales platform offers healthcare payments and financing solutions through a network of providers and retailers, including the CareCredit brand and partners like Walgreens. This platform generated $3.8 billion ⁸, or 17% ⁹, of total interest and fees on loans in 2025. The Lifestyle sales platform provides solutions for power sports, outdoor power equipment, sporting goods, apparel, jewelry, and music industries, with partners such as American Eagle and Polaris. Lifestyle accounted for $1.1 billion ¹⁰, or 5% ¹¹, of total interest and fees on loans in 2025. Corp, Other includes activity and balances from non-renewed or terminated program agreements and amounts related to changes in fair value of equity investments and realized gains or losses from business and investment sales.

For the fiscal year ended December 31, 2025, Synchrony Financial reported net earnings of $3.552 billion ¹², an increase of 1.5% ¹³ from the prior year. Total interest income was $22.601 billion ¹⁴, with total interest expense of $4.135 billion ¹⁵, resulting in net interest income of $18.466 billion ¹⁶. Retailer share arrangements amounted to $(4.005) billion ¹⁷, and the provision for credit losses was $5.225 billion ¹⁸. Other income totaled $520 million ¹⁹, while total other expense was $5.135 billion ²⁰. Diluted EPS for the year was $9.28 ²¹. At December 31, 2025, loan receivables were $103.808 billion ²², and the allowance for credit losses was $10.442 billion ²³. Total assets stood at $119.095 billion ²⁴, and total deposits were $81.144 billion ²⁵. Total borrowings were $15.182 billion ²⁶.

Compared to the year ended December 31, 2024, net earnings increased by $53 million ²⁷. Net interest income increased by $455 million ²⁸, or 2.5% ²⁹, driven by lower interest expense and a 0.5% ³⁰ increase in interest and fees on loans, partially offset by lower interest income on investment securities. The provision for credit losses decreased by $1.5 billion ³¹, primarily due to lower net charge-offs and a reserve release of $439 million ³² in 2025, compared to a reserve build of $313 million ³³ in 2024. Other income decreased by $1.001 billion ³⁴, mainly due to a $1.1 billion ³⁵ gain on the sale of Pets Best in the prior year. Retailer share arrangements increased by $598 million ³⁶, or 17.6% ³⁷. Loan receivables decreased by 0.9% ³⁸ to $103.8 billion ³⁹, reflecting higher payment rates, flat purchase volume, and lower average active accounts. The net charge-off rate decreased by 66 basis points ⁴⁰ to 5.65% ⁴¹.

During 2025, Synchrony acquired Versatile Credit, Inc., a multi-source financing platform, in October 2025. The company also expanded and diversified its portfolios with over 75 new or renewed partners, including new partnerships with OnePay for Walmart, Bob's Discount Furniture, RH, Texas A&M University Veterinary Medical Teaching Hospital, Dental Intelligence, and Toro. Program extensions included Amazon, American Eagle, Ashley HomeStores, Inc., Discount Tire, Gardner White, Home Furnishings Association, Polaris, and Regency Showrooms. Synchrony also expanded its existing Lowe's commercial program and announced the acquisition of Lowe's commercial co-branded credit card portfolio, with loan receivables of approximately $0.8 billion ⁴², expected to close in the first half of 2026. In October 2025, the company sold $0.2 billion ⁴³ of loan receivables associated with a Home & Auto partner program agreement.

Management anticipates that loan receivables will increase in 2026, driven by growth in both purchase volume and average active accounts, including contributions from new or recently launched programs. This growth is expected to be partially offset by the continued effects of elevated payment rates. Interest and fees on loans are also projected to increase, primarily reflecting the ongoing impact of product, pricing, and policy changes, alongside the growth in loan receivables. The magnitude of these increases will depend on factors such as customer payment rate trends, consumer spending behavior, and any changes in benchmark interest rates or regulatory/legislative developments affecting loan receivable yield.

Regarding asset quality, Synchrony expects its net charge-offs for the year ended December 31, 2026, to remain in line with its long-term target range of 5.5% to 6.0% ⁴⁴. This expectation follows an improvement in asset quality metrics in 2025, with the net charge-off rate decreasing by 66 basis points ⁴⁵ to 5.65% ⁴⁶ and both over-30 and over-90 day loan delinquencies decreasing by over 20 basis points ⁴⁷ compared to the prior year. The allowance coverage rate, which was 10.06% ⁴⁸ at December 31, 2025, is anticipated to remain consistent in 2026, reflecting these credit trends.

Management projects that both interest expense and the cost of funds will decrease in 2026. This is attributed to lower benchmark rates, including the repricing of certificates of deposit maturities. The extent of these decreases, however, will be contingent on further benchmark rate changes, competition for deposit product offerings, the growth rate of loan receivables, and the funding mix utilized to support that growth.

Retailer share arrangement payments to partners are expected to increase in 2026 compared to 2025. This anticipated increase reflects continued improvement in program performance and growth in loan receivables. In 2025, retailer share arrangements increased by 17.6% ⁴⁹ to $4.0 billion ⁵⁰, driven by lower net charge-offs and the impact of product, pricing, and policy changes.

Interchange revenues are expected to continue increasing in 2026 due to overall growth in Dual Card transactions outside partner locations and general purpose co-branded credit card transactions. This growth is partly fueled by existing and new loyalty programs with credit card partners. However, loyalty program costs are also expected to increase, driven by the continued growth in purchase volume related to existing and new loyalty programs, including those for private label credit cards which typically do not generate interchange fees. As a result, management expects loyalty program costs to exceed interchange revenues in 2026, a trend observed in 2025 where loyalty program costs of $(1.438) billion ⁵¹ exceeded interchange revenue of $1.067 billion ⁵².

Synchrony plans to continue deploying capital through both dividends and share repurchases, guided by business performance, market conditions, and regulatory restrictions. For the year ended December 31, 2025, the company repurchased $2.9 billion ⁵³ of common stock and paid cash dividends of $1.15 per common share ⁵⁴, totaling $427 million ⁵⁵. At December 31, 2025, a total share repurchase authorization of $1.2 billion ⁵⁶ remained under the 2025 program. The company's Basel III common equity Tier 1 ratio was 12.6% ⁵⁷ at December 31, 2025, and it expects to maintain capital ratios well in excess of minimum regulatory requirements.

The company expects its liquidity portfolio to remain sufficient to support all business objectives and meet regulatory requirements for the foreseeable future. At December 31, 2025, liquid assets were $16.6 billion ⁵⁸, representing 13.9% ⁵⁹ of total assets. The company also had an aggregate of $10.0 billion ⁶⁰ of available borrowing capacity through the Federal Reserve's discount window and $2.6 billion ⁶¹ of undrawn capacity on securitized financings, of which $2.1 billion ⁶² was committed and $450 million ⁶³ was uncommitted.

Synchrony Financial faces several material risks. Macroeconomic conditions, including inflation, interest rates, and potential economic downturns, can significantly impact consumer spending, payment behavior, and credit demand, potentially increasing delinquencies and charge-offs, as evidenced by an over-30 day delinquency rate of 8.25% ⁶⁴ during the 2009 financial crisis compared to 4.49% ⁶⁵ at December 31, 2025. The company's heavy concentration in U.S. consumer credit makes it particularly susceptible to these fluctuations and legislative changes, such as the CFPB's vacated final rule on credit card late fees, which could have reduced late fee income. Intense competition for partners from major financial institutions and fintech companies, and for customer usage from various payment options, including non-bank pay-over-time solutions like Affirm and Klarna, could adversely affect growth and profitability. Cyber-attacks and security breaches, including those leveraging generative artificial intelligence, pose a significant threat to sensitive customer information and business operations, potentially leading to legal and financial exposure, regulatory actions, and reputational damage. The failure of third-party vendors, such as Fiserv, which handles principal technology and processing services, could disrupt operations. The company's allowance for credit losses, which was $10.4 billion ⁶⁶ at December 31, 2025, may prove insufficient if economic conditions deteriorate or if models used for estimation are inaccurate. Changes in market interest rates could adversely affect net earnings, funding, and liquidity, as 47% ⁶⁷ of loan receivables are at floating rates. A reduction in credit ratings, currently BBB- ⁶⁸ by S&P for senior unsecured debt, could increase funding costs and restrict capital market access. Regulatory changes, including those from the Federal Reserve Board and CFPB, could impose stricter capital and liquidity requirements, limit dividend payments, and increase compliance costs. For instance, the 2026 supervisory stress test is the first in which Synchrony is required to participate, potentially leading to a new stress capital buffer in 2028.

Management's message to shareholders emphasizes a strong focus on maintaining liquidity and capital to support daily operations, business growth, credit ratings, and regulatory requirements. The company plans to continue deploying capital through both dividends and share repurchases, guided by business performance and market conditions, subject to regulatory restrictions. For the year ended December 31, 2025, the company repurchased $2.9 billion ⁶⁹ of common stock and declared and paid cash dividends of $1.15 per common share ⁷⁰, totaling $427 million ⁷¹. At December 31, 2025, a total share repurchase authorization of $1.2 billion ⁷² remained. Management expects loan receivables and interest and fees on loans to increase in 2026, driven by growth in purchase volume and average active accounts, including new and recently launched programs. Net charge-offs for 2026 are expected to remain within the long-term target range of 5.5% to 6.0% ⁷³.