Synchrony Financial (SYF) Q4 2025 Earnings Call Transcript
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Overview
The earnings call summary highlights strong financial metrics, strategic partnerships, and optimistic guidance. The company projects solid net revenue and interest margins, supported by resilient consumer spending and successful new programs like Walmart. Shareholder returns through significant repurchases and dividends add a positive sentiment. Although there are slight concerns about loss rates and capital ratios, the overall outlook remains optimistic. The Q&A session further reinforces positive sentiment with growth in receivables and new partnerships. Therefore, the stock price is likely to experience a positive movement over the next two weeks.
Key Financial Performance
Net Earnings (Q4 2025) $751 million or $2.04 per diluted share, including a $0.14 restructuring charge related to a voluntary employee early retirement program. This represents strong performance with a return on average assets of 2.5% and a return on tangible common equity of 21.8%.
Purchase Volume (Q4 2025) $49 billion, a fourth-quarter record and a year-over-year increase of 3%. Growth was driven by higher spend per account, enhanced product offerings, and refreshed value propositions.
Digital Platform Purchase Volume Increased 6% year-over-year, driven by higher spend per account and strong customer response to enhanced product offerings.
Diversified & Value Purchase Volume Grew 4% year-over-year, primarily reflecting the impact of partner expansion.
Health & Wellness Purchase Volume Grew 4% year-over-year, reflecting growth in Pet & Audiology, partially offset by lower spend in cosmetics.
Lifestyle Platform Purchase Volume Increased 3% year-over-year, reflecting higher broad-based spend per account, partially offset by lower average active accounts.
Home & Auto Purchase Volume Decreased 2% year-over-year, reflecting selective spend in home improvement and lower average active accounts, partially offset by strong growth in spend per account.
Dual and Co-Branded Cards Purchase Volume Accounted for 50% of total purchase volume in Q4 2025 and increased 16% year-over-year, driven by product upgrades, higher broad-based spend, and expanded utility.
Average Transaction Values Increased by about 30 basis points year-over-year, reflecting growth from non-prime and super prime customers.
Average Transaction Frequency Increased by about 3.7% year-over-year across all credit cohorts.
Ending Loan Receivables (Q4 2025) Decreased 1% year-over-year to $104 billion, reflecting higher payment rates, lower average active accounts, and lower purchase volume in the first half of the year.
Net Revenue (Q4 2025) $3.8 billion, flat year-over-year, as higher net interest income was offset by higher RSAs driven by program performance.
Net Interest Income (Q4 2025) Increased 4% year-over-year to $4.8 billion, driven by higher loan receivables yield, product, pricing, and policy changes (PPPCs), and lower interest-bearing liabilities cost.
Net Interest Margin (Q4 2025) Increased 82 basis points year-over-year to 15.83%, driven by higher loan receivables yield, lower liabilities cost, and a higher mix of loan receivables as a percentage of interest-earning assets.
Provision for Credit Losses (Q4 2025) Decreased $119 million year-over-year to $1.4 billion, driven by a $294 million decrease in net charge-offs, partially offset by a reserve build of $76 million.
Other Expense (Q4 2025) Increased 10% year-over-year to $1.4 billion, reflecting higher employee costs and technology investments.
Efficiency Ratio (Q4 2025) 36.9%, approximately 360 basis points higher year-over-year, driven by higher expenses and the impact of higher RSAs on net revenue.
30+ Delinquency Rate (Q4 2025) 4.49%, a decrease of 21 basis points year-over-year.
90+ Delinquency Rate (Q4 2025) 2.17%, a decrease of 23 basis points year-over-year.
Net Charge-Off Rate (Q4 2025) 5.37%, a decrease of 108 basis points year-over-year.
Allowance for Credit Losses (Q4 2025) 10.06% of loan receivables, a decrease of 38 basis points year-over-year.
Direct Deposits Grew by $2.9 billion year-over-year, while broker deposits decreased by $3.8 billion.
Capital Ratios (Q4 2025) CET1 ratio of 12.6%, Tier 1 capital ratio of 13.8%, and total capital ratio of 15.8%, each declined approximately 70 basis points year-over-year.
Shareholder Returns (Q4 2025) $1.1 billion returned to shareholders, including $952 million in share repurchases and $106 million in common stock dividends.
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Operating Highlights
Synchrony Pay Later: Now offered through more than 6,200 merchants, showing a 10% average increase in sales when combined with revolving products.
Digital Wallet Strategy: Doubled the number of unique provisioned accounts and digital wallet sales compared to last year, with a 400 basis point gain in dual and co-branded cards wallet penetration rate.
Versatile Acquisition: Expected to accelerate multisource financing strategy, enabling smarter financing options and seamless integrations across various points of sale.
Partnership Expansion: Added or renewed more than 25 partners in Q4, including Bob's Discount Furniture and Polaris, with a total of 75 partners added or renewed in 2025.
Health & Wellness Market: Entered into over 10 merchant and practice management platform partnerships, including Weave, supporting 35,000 small- and medium-sized practices.
Purchase Volume Growth: Achieved a record $49 billion in Q4 purchase volume, a 3% year-over-year increase, with digital platform purchase volume up 6%.
Efficiency Ratio: Fourth quarter efficiency ratio was 36.9%, reflecting higher expenses and RSA impacts.
Strategic Investments: Invested in products and digital capabilities to drive greater reach and deeper penetration, including AI search capability 'Joy Hunt' and Synchrony's Marketplace.
Capital Allocation: Returned $1.1 billion to shareholders in Q4 through share repurchases and dividends, with $3.3 billion returned for the full year.
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Risk or Challenges
Net Credit Restrictive Actions: The company has taken net credit restrictive actions between mid-2023 and early 2024, which could limit growth in loan receivables and purchase volume.
Elevated Payment Rates: Higher payment rates have been observed, which could reduce loan receivables and impact net interest income.
Lower Average Active Accounts: A decline in average active accounts has been noted, which could negatively affect purchase volume and overall financial performance.
Selective Customer Spend Behavior: Customers are exhibiting more selective spending behavior, which could impact purchase volume and revenue growth.
Regulatory and Legislative Risks: The outlook assumes no regulatory or legislative changes, indicating potential risks if such changes occur.
Macroeconomic Environment: The company's performance is tied to a stable macroeconomic environment, with risks if inflation rates or GDP growth deviate from expectations.
Funding Liabilities Costs: The company is exposed to risks related to funding liabilities costs, which could be affected by changes in benchmark rates.
Technology Investments and Employee Costs: Higher expenses due to technology investments and employee costs, including restructuring charges, could impact profitability.
Credit Performance Risks: While credit performance metrics are currently strong, any deterioration in delinquency or net charge-off rates could pose risks.
Portfolio Growth Assumptions: The company's growth assumptions depend on stable economic conditions and no additional broad-based credit refinements, which may not materialize.
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Guidance & Outlook
2026 Financial Projections: Synchrony expects net earnings per diluted share between $9.10 and $9.50 for the full year 2026. This includes the impact of growth-related initiatives like Walmart OnePay, Lowe's commercial co-brand, and Versatile credit, as well as investments in key technology initiatives.
Receivables Growth: Average active account and purchase volume growth are expected to drive mid-single-digit ending receivables growth in 2026, with growth accelerating in the second half of the year due to new programs and the transfer of the Lowe's commercial co-brand credit card program.
Net Charge-Off Rate: The portfolio net charge-off rate is expected to remain within the long-term target range of 5.5% to 6% in 2026.
Net Interest Income: Net interest income is expected to grow in 2026, driven by product, pricing, and policy changes (PPPCs) and reduced funding liabilities costs, partially offset by lower late fee incidents and the yield dilutive effect of new account growth.
RSAs (Retailer Share Arrangements): RSAs are expected to increase, reflecting stronger program performance, but remain within the target range of 4.0% to 4.5% of average receivables.
Expense Growth: Other expenses, excluding notable items from 2025, are expected to grow in line with loan receivables, reflecting continued investment in growth and innovation.
Macroeconomic Assumptions: Baseline assumptions for 2026 include no regulatory or legislative changes, stable macroeconomic conditions, 2% GDP growth, a year-end unemployment rate of 4.8%, a year-end Fed funds rate of 3.25%, and full-year deposit betas of approximately 65%.
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Shareholder Return Plan
Common Stock Dividends: During the fourth quarter, Synchrony returned $106 million in common stock dividends to shareholders. For the full year, the company returned $427 million in common stock dividends.
Share Repurchases: During the fourth quarter, Synchrony repurchased $952 million worth of shares. For the full year, the company repurchased $2.9 billion worth of shares.
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Key Q&A
Q:What are the building blocks for the mid-single-digit growth guide for receivables growth?
A:The building blocks include resilient consumer spending, strong credit performance, increased purchase volume (up 3% year-over-year), co-brand purchase volume growth (up 16% year-over-year), and contributions from Walmart (fastest-growing program launched), Health & Wellness, and Lowe's commercial program. Sequential improvements were seen in 4 out of 5 platforms.
Q:What are the views on the 10% APR caps and its potential impact?
A:Management believes that APR caps would not make credit more affordable but would eliminate credit for those who need it most, disproportionately impacting lower-income consumers and small- to medium-sized businesses. They argue it would harm merchants who depend on credit programs, with some relying on them for over 40% of their sales.
Q:Can you unpack the credit guide and its implications for losses?
A:The credit guide implies slight increases in losses due to early losses from new portfolios like Walmart and credit aperture changes made in late 2025. Delinquency performance remains strong, and unemployment assumptions in the model could influence net charge-offs. Management is cautious about macroeconomic developments.
Q:What is the outlook for net interest margin (NIM) and net interest income (NII)?
A:NII is expected to increase, with a bias for NIM to improve. Factors include benefits from PPPCs, lower rates, and elevated payment rates. However, headwinds like prime rate reductions and investment portfolio yields could offset some gains.
Q:How are PPPCs tracking relative to expectations?
A:PPPCs are slightly ahead of schedule due to elevated payment rates. The APR changes are developing as expected, and the paper statement fee line has stabilized. Growth from PPPCs will continue to bleed through gradually.
Q:What investments are being made related to growth, and what is the outlook for operating leverage?
A:Investments include reserves for asset growth, launch and conversion costs for new programs, marketing, staffing, AI, cloud infrastructure, and Health & Wellness. These investments are expected to yield positive operating leverage post-2026.
Q:What is the state of play for new programs and partnerships?
A:Management is optimistic about a strong pipeline across all platforms, including 75 new or renewed partners in 2025. Investments in technology, underwriting models, and integration capabilities are helping win new deals.
Q:What is the progress and impact of the Pay Later product?
A:Pay Later is performing well, attracting incremental accounts without cannibalizing private label or co-brand cards. It is part of a multiproduct strategy, with most loans in the 6-12 month range. While it contributes to growth, its smaller ticket size limits its impact on overall loan growth.
Q:What is the outlook for reserves and the ALLL ratio?
A:The ALLL ratio is approaching day 1 CECL levels. Management sees a potential downward bias in the reserve rate if the macro environment stabilizes, but growth in reserves will continue due to mid-single-digit loan growth.
Q:What is the impact of tax refunds on purchase volume and payment rates?
A:Tax refunds, expected to be significant, could boost purchase volume or lead to debt paydown. The impact will depend on consumer behavior, with higher-income consumers likely saving or paying down debt, and moderate-income consumers more likely to spend.
Q:What is the trajectory for mid-single-digit loan growth in 2026?
A:Growth is expected to accelerate in the back half of 2026, driven by purchase volume, average active growth, and contributions from new programs like Walmart and Lowe's.
Q:What is the status of the Walmart partnership?
A:The Walmart program is fully launched and performing well, with strong early results. It features a leading-edge tech experience and a strong value proposition, including 5% cash back for Walmart+ members. Management is optimistic about its long-term growth potential.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the exact impact of tax refunds on payment rates and purchase volume, as well as the precise contribution of the Pay Later product to overall loan growth. Additionally, they did not clarify the exact trajectory of the ALLL ratio beyond general trends.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Discount Furniture
Health Wellness
Home Auto
Lowe
Purchase volume
RSAs program
Versatile
Weave
account purchase
charge employee
ecosystem
employee retirement
experience access
financing option
focus credit
funding liability
home
improvement
merchant practice
momentum term
partner purchase
penetration
platform spend
point decline
practice platform
product market
reach
receivables yield
record increase
restructuring charge
retirement program
search
share restructuring
spend account
transaction frequency
vehicle
wallet
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The earnings call summary highlights strong financial metrics, strategic partnerships, and optimistic guidance. The company projects solid net revenue and interest margins, supported by resilient consumer spending and successful new programs like Walmart. Shareholder returns through significant repurchases and dividends add a positive sentiment. Although there are slight concerns about loss rates and capital ratios, the overall outlook remains optimistic. The Q&A session further reinforces positive sentiment with growth in receivables and new partnerships. Therefore, the stock price is likely to experience a positive movement over the next two weeks.
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SYF Slides
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