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Synchrony Financial (SYF) Q1 Earnings Miss on Elevated Expenses
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Synchrony Financial (SYF - Free Report) reported first-quarter 2023 adjusted earnings per share of $1.35, which missed the Zacks Consensus Estimate by 1.5% and our estimate of $1.36. Also, the bottom line plunged 23.7% year over year.
Net interest income improved 6.9% year over year to $4,051 million. It beat the consensus mark by a whisker and stood higher than our estimate of $3,885.4 million.
The quarterly results suffered from elevated benchmark rates, increased funding liabilities, higher expenses and lower average active accounts. Nevertheless, SYF’s performance received an impetus from robust purchase volume stemming from the solid contributions of its five sales platforms. An expanding loan receivables portfolio also contributed to the upside.
Synchrony Financial Price, Consensus and EPS Surprise
Other income of Synchrony Financial amounted to $65 million, which dropped 39.8% year over year in the first quarter. The decline was due to escalating loyalty costs and reduced investment gains/losses. The figure fell short of the Zacks Consensus Estimate of $77 million but beat our estimate of $54.3 million.
Total loan receivables of SYF grew 15% year over year to $91.1 billion and surpassed our estimate of $88.5 billion in the quarter under review.
Total deposits came in at $74.4 billion, which rose 17% year over year. Provision for credit losses more than doubled year over year to $1,290 million due to higher net charge-offs.
The purchase volume of Synchrony Financial advanced 3% year over year to $41,557 million in the first quarter. However, the figure lagged our estimate of $44,468.8 million.
Interest and fees on loans of $4,616 million improved 15.2% year over year and outpaced our estimate of $4,408.1 million. The figure benefited on the back of a growing average loan receivables portfolio. Net interest margin deteriorated 58 basis points (bps) year over year to 15.22%.
New accounts of $5.2 million slipped 7% year over year. Average active accounts dipped 1% year over year to 69.5 million in the first quarter.
Total other expenses of SYF amounted to $1,119 million, up 7.7% year over year due to increased employee costs, operational losses and technology investments. The efficiency ratio of 35% deteriorated 220 bps year over year in the quarter under review.
Individual Sales Platforms' Update
Home & Auto period-end loan receivables climbed 12% year over year to $29,733 million on the back of improved purchase volume and lower payment rates. These remain the mutual factors behind driving loan receivables growth on the remaining four sales platforms.
Purchase volume of $10,863 million advanced 6% year over year in the first quarter, attributable to solid commercial spending, and increased transaction values in Furniture and Home Specialty. Interest and fees on loans grew 13% year over year to $1,225 million, higher than our estimate of $1,195.9 million.
Digital period-end loan receivables of $24,944 million rose 18% year over year in the quarter under review. Purchase volume came in at $12,261 million, up 10% year over year on the back of growing average active accounts and solid customer engagement. Interest and fees on loans climbed 33% year over year to $1,363 million, beating our estimate of $1,277.3 million.
Diversified & Value period-end loan receivables grew 17% year over year to $17,702 million in the first quarter. Purchase volume of $13,439 million improved 16% year over year, attributable to solid out-of-partner spending, impressive retailer performance and penetration growth. Interest and fees on loans advanced 30% year over year to $1,070 million, higher than our estimate of $989.3 million.
Health & Wellness period-end loan receivables of $12,581 million rose 21% year over year in the quarter under review. Purchase volume climbed 19% year over year to $3,690 million on the back of strong active accounts growth and increased spending per active account. Interest and fees on loans of improved 19% year over year to $735 million, which outpaced our estimate of $734.9 million.
Lifestyle period-end loan receivables advanced 11% year over year to $5,971 million in the first quarter. Purchase volume of $1,302 million grew 9% year over year, thanks to higher transaction values in Outdoor and Luxury. Interest and fees on loans climbed 17% year over year to $223 million, higher than our estimate of $208.8 million.
Financial Position (as of Mar 31, 2023)
Synchrony Financial exited the first quarter with cash and equivalents of $15,303 million, which surged 45.2% year over year.
Total assets of $107.9 billion rose 13.2% year over year. Total borrowings advanced 11.8% year over year to $14,934 million.
Total equity of $13,193 million declined 1.7% year over year.
SYF’s balance sheet was consistently strong in the reported quarter, with a total liquidity of $21,728 million accounting for 20.2% of its total assets.
Return on assets of 2.3% deteriorated 170 bps year over year in the first quarter while return on equity contracted 930 bps year over year to 18.2% in the same time frame.
Capital Deployment
Synchrony Financial returned capital worth $500 million through share buybacks of $400 million and paid common stock dividends of $100 million in the first quarter. It had a leftover share buyback capacity of $300 million at the end of March 2023.
2023 Guidance
The company estimates loan receivables growth to be greater than 10% for this year while the earlier outlook expected the metric to be within 8-10%. In 2022, loan receivables registered 14.5% year-over-year growth.
Net interest margin is anticipated to be 15-15.25%, the mid-point of which suggests a 51-bps deterioration from the 2022 reported figure. Net charge-offs are projected to lie between 4.75-5%, which indicates an increase from the 2022 reported figure of 3.00%
Management expects quarterly operating expenses of $1,125 million for 2023.
Of the Finance sector players that have reported first-quarter results so far, the bottom-line results of JPMorgan Chase & Co. (JPM - Free Report) , Bank of America Corporation (BAC - Free Report) and Bank of New York Mellon Corporation (BK - Free Report) beat the respective Zacks Consensus Estimate.
JPMorgan delivered first-quarter 2023 adjusted earnings of $4.10 per share, which surpassed the Zacks Consensus Estimate of $3.41. Our estimate for earnings was $3.01 per share. Commercial Banking average loan balances were up 13% year over year. Further, debit and credit card sales volume increased 10%. Credit card loans of JPM were up 18% with persistently robust new account originations.
BofA’s first-quarter 2023 earnings of 94 cents per share surpassed the Zacks Consensus Estimate of 79 cents. The bottom line compared favorably with earnings of 80 cents in the prior-year quarter.
Backed by robust consumer spending, BAC’s consumer banking business acted as a tailwind, with revenues rising 21.5%. Also, combined credit and debit card spending rose 6%. Net income applicable to common shareholders grew 16% from the prior-year quarter to $7.66 billion.
BNY Mellon reported first-quarter 2023 adjusted earnings of $1.13 per share, which surpassed the Zacks Consensus Estimate of $1.09. The bottom line reflects a rise of 20.2% from the prior-year quarter. Our estimate for earnings was 91 cents.
Net income applicable to common shareholders (GAAP basis) was $905 million or $1.12 per share, up from $699 million or 86 cents per share recorded in the year-ago quarter. Total revenues of BK increased 11.1% year over year to $4.36 billion. The top line marginally surpassed the Zacks Consensus Estimate of $4.35 billion.
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Synchrony Financial (SYF) Q1 Earnings Miss on Elevated Expenses
Synchrony Financial (SYF - Free Report) reported first-quarter 2023 adjusted earnings per share of $1.35, which missed the Zacks Consensus Estimate by 1.5% and our estimate of $1.36. Also, the bottom line plunged 23.7% year over year.
Net interest income improved 6.9% year over year to $4,051 million. It beat the consensus mark by a whisker and stood higher than our estimate of $3,885.4 million.
The quarterly results suffered from elevated benchmark rates, increased funding liabilities, higher expenses and lower average active accounts. Nevertheless, SYF’s performance received an impetus from robust purchase volume stemming from the solid contributions of its five sales platforms. An expanding loan receivables portfolio also contributed to the upside.
Synchrony Financial Price, Consensus and EPS Surprise
Synchrony Financial price-consensus-eps-surprise-chart | Synchrony Financial Quote
Q1 Results in Detail
Other income of Synchrony Financial amounted to $65 million, which dropped 39.8% year over year in the first quarter. The decline was due to escalating loyalty costs and reduced investment gains/losses. The figure fell short of the Zacks Consensus Estimate of $77 million but beat our estimate of $54.3 million.
Total loan receivables of SYF grew 15% year over year to $91.1 billion and surpassed our estimate of $88.5 billion in the quarter under review.
Total deposits came in at $74.4 billion, which rose 17% year over year. Provision for credit losses more than doubled year over year to $1,290 million due to higher net charge-offs.
The purchase volume of Synchrony Financial advanced 3% year over year to $41,557 million in the first quarter. However, the figure lagged our estimate of $44,468.8 million.
Interest and fees on loans of $4,616 million improved 15.2% year over year and outpaced our estimate of $4,408.1 million. The figure benefited on the back of a growing average loan receivables portfolio. Net interest margin deteriorated 58 basis points (bps) year over year to 15.22%.
New accounts of $5.2 million slipped 7% year over year. Average active accounts dipped 1% year over year to 69.5 million in the first quarter.
Total other expenses of SYF amounted to $1,119 million, up 7.7% year over year due to increased employee costs, operational losses and technology investments. The efficiency ratio of 35% deteriorated 220 bps year over year in the quarter under review.
Individual Sales Platforms' Update
Home & Auto period-end loan receivables climbed 12% year over year to $29,733 million on the back of improved purchase volume and lower payment rates. These remain the mutual factors behind driving loan receivables growth on the remaining four sales platforms.
Purchase volume of $10,863 million advanced 6% year over year in the first quarter, attributable to solid commercial spending, and increased transaction values in Furniture and Home Specialty. Interest and fees on loans grew 13% year over year to $1,225 million, higher than our estimate of $1,195.9 million.
Digital period-end loan receivables of $24,944 million rose 18% year over year in the quarter under review. Purchase volume came in at $12,261 million, up 10% year over year on the back of growing average active accounts and solid customer engagement. Interest and fees on loans climbed 33% year over year to $1,363 million, beating our estimate of $1,277.3 million.
Diversified & Value period-end loan receivables grew 17% year over year to $17,702 million in the first quarter. Purchase volume of $13,439 million improved 16% year over year, attributable to solid out-of-partner spending, impressive retailer performance and penetration growth. Interest and fees on loans advanced 30% year over year to $1,070 million, higher than our estimate of $989.3 million.
Health & Wellness period-end loan receivables of $12,581 million rose 21% year over year in the quarter under review. Purchase volume climbed 19% year over year to $3,690 million on the back of strong active accounts growth and increased spending per active account. Interest and fees on loans of improved 19% year over year to $735 million, which outpaced our estimate of $734.9 million.
Lifestyle period-end loan receivables advanced 11% year over year to $5,971 million in the first quarter. Purchase volume of $1,302 million grew 9% year over year, thanks to higher transaction values in Outdoor and Luxury. Interest and fees on loans climbed 17% year over year to $223 million, higher than our estimate of $208.8 million.
Financial Position (as of Mar 31, 2023)
Synchrony Financial exited the first quarter with cash and equivalents of $15,303 million, which surged 45.2% year over year.
Total assets of $107.9 billion rose 13.2% year over year. Total borrowings advanced 11.8% year over year to $14,934 million.
Total equity of $13,193 million declined 1.7% year over year.
SYF’s balance sheet was consistently strong in the reported quarter, with a total liquidity of $21,728 million accounting for 20.2% of its total assets.
Return on assets of 2.3% deteriorated 170 bps year over year in the first quarter while return on equity contracted 930 bps year over year to 18.2% in the same time frame.
Capital Deployment
Synchrony Financial returned capital worth $500 million through share buybacks of $400 million and paid common stock dividends of $100 million in the first quarter. It had a leftover share buyback capacity of $300 million at the end of March 2023.
2023 Guidance
The company estimates loan receivables growth to be greater than 10% for this year while the earlier outlook expected the metric to be within 8-10%. In 2022, loan receivables registered 14.5% year-over-year growth.
Net interest margin is anticipated to be 15-15.25%, the mid-point of which suggests a 51-bps deterioration from the 2022 reported figure. Net charge-offs are projected to lie between 4.75-5%, which indicates an increase from the 2022 reported figure of 3.00%
Management expects quarterly operating expenses of $1,125 million for 2023.
Zacks Rank
Synchrony Financial currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other Finance Sector Releases
Of the Finance sector players that have reported first-quarter results so far, the bottom-line results of JPMorgan Chase & Co. (JPM - Free Report) , Bank of America Corporation (BAC - Free Report) and Bank of New York Mellon Corporation (BK - Free Report) beat the respective Zacks Consensus Estimate.
JPMorgan delivered first-quarter 2023 adjusted earnings of $4.10 per share, which surpassed the Zacks Consensus Estimate of $3.41. Our estimate for earnings was $3.01 per share. Commercial Banking average loan balances were up 13% year over year. Further, debit and credit card sales volume increased 10%. Credit card loans of JPM were up 18% with persistently robust new account originations.
BofA’s first-quarter 2023 earnings of 94 cents per share surpassed the Zacks Consensus Estimate of 79 cents. The bottom line compared favorably with earnings of 80 cents in the prior-year quarter.
Backed by robust consumer spending, BAC’s consumer banking business acted as a tailwind, with revenues rising 21.5%. Also, combined credit and debit card spending rose 6%. Net income applicable to common shareholders grew 16% from the prior-year quarter to $7.66 billion.
BNY Mellon reported first-quarter 2023 adjusted earnings of $1.13 per share, which surpassed the Zacks Consensus Estimate of $1.09. The bottom line reflects a rise of 20.2% from the prior-year quarter. Our estimate for earnings was 91 cents.
Net income applicable to common shareholders (GAAP basis) was $905 million or $1.12 per share, up from $699 million or 86 cents per share recorded in the year-ago quarter. Total revenues of BK increased 11.1% year over year to $4.36 billion. The top line marginally surpassed the Zacks Consensus Estimate of $4.35 billion.