Synchrony Financial Stock Sinks as Charge-Offs Surge

Synchrony Financial (SYF) shares tumbled 7% on Tuesday morning as the online bank's results missed estimates on increased credit expenses and weak net interest income. The financial firm reported fourth-quarter earnings per share (EPS) of $1.91, with revenue rising almost 4% year-over-year to $3.80 billion, both short of analysts' forecasts compiled by Visible Alpha. Net charge-offs as a percentage of total average loan receivables came in at 6.45%, 87 basis points (bps) above 2023, and 96 bps greater than the average of the fourth quarters in 2017 through 2019. Net interest income was up 3% to $4.59 billion, boosted by higher interest rates and loan fees, but analysts surveyed by Visible Alpha were looking for $4.61 billion.



The surge in net charge-offs can be attributed to several primary factors:

1. Moderation in customer payment rates: The company's monthly charge-off and delinquency statistics show that the 30+ delinquency rate remained flat year-over-year, but the net charge-off rate increased due to moderation in customer payment rates. This indicates that customers are struggling to keep up with their loan payments, leading to higher charge-offs.
2. Additional charge-off cycles: The increase in net charge-offs is also attributed to additional charge-off cycles. This means that the company is recognizing more loans as uncollectible, which contributes to the overall increase in charge-offs.
3. Credit actions: Synchrony Financial's CFO, Brian Wenzel, stated that the company's "credit actions between mid-2023 through early 2024 continued to impact our new account and purchase volume growth during the fourth quarter." These credit actions, which likely include tightening lending standards or reducing credit limits, can lead to higher charge-offs as customers with lower creditworthiness struggle to repay their loans.
4. Economic conditions: The surge in net charge-offs may also be a result of broader economic conditions. For example, rising interest rates and a potential economic slowdown can make it more difficult for borrowers to repay their loans, leading to higher charge-offs.

These factors impact Synchrony Financial's financial performance by increasing credit expenses and reducing net interest income. Higher charge-offs require the company to set aside more money for credit losses, which reduces net interest income. Additionally, the increase in charge-offs may indicate a higher risk profile for the company's loan portfolio, which could lead to further increases in credit expenses and a potential decline in the company's stock price.



In conclusion, Synchrony Financial's stock price sank as charge-offs surged, driven by moderation in customer payment rates, additional charge-off cycles, credit actions, and economic conditions. The increase in net charge-offs negatively impacts the company's financial performance by increasing credit expenses and reducing net interest income. To mitigate the impact of rising charge-offs and improve its credit portfolio quality, Synchrony Financial can implement strategic initiatives such as strengthening credit underwriting standards, improving customer engagement and communication, diversifying revenue streams, and investing in technology and data analytics.