ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023 OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
001-36560
(Commission File Number)
SYNCHRONY FINANCIAL
(Exact name of registrant as specified in its charter)
Delaware
51-0483352
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
777 Long Ridge Road
Stamford,
Connecticut
06902
(Address of principal executive offices)
(Zip Code)
(Registrant’s telephone number, including area code) (203) 585-2400
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common stock, par value $0.001 per share
SYF
New York Stock Exchange
Depositary Shares Each Representing a 1/40th Interest in a Share of 5.625% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A
SYFPrA
New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
Title of class
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐No☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the outstanding common equity of the registrant held by non-affiliates as of the last business day of the registrant’s most recently completed second fiscal quarter was $14,182,270,780,
The number of shares of the registrant’s common stock, par value $0.001 per share, outstanding as of February 2, 2024 was 406,843,602.
DOCUMENTS INCORPORATED BY REFERENCE
The definitive proxy statement relating to the registrant’s Annual Meeting of Stockholders, to be held June 11, 2024, is incorporated by reference into Part III to the extent described therein.
Synchrony Financial
Table of Contents
OUR ANNUAL REPORT ON FORM 10-K
To improve the readability of this document and better present both our financial results and how we manage our business, we present the content of our Annual Report on Form 10-K in the order listed in the table of contents below. See "Form 10-K Cross-Reference Index" on page 4 for a cross-reference index to the traditional U.S. Securities and Exchange Commission (SEC) Form 10-K format.
(a)Incorporated by reference to “Management”, “Election of Directors,” “Governance Principles,” “Code of Conduct” and “Committees of the Board of the Directors” in our definitive proxy statement for our 2024 Annual Meeting of Stockholders to be held on June 11, 2024, which will be filed within 120 days of the end our fiscal year ended December 31, 2023 (the “2024 Proxy Statement”).
(b)Incorporated by reference to “Compensation Discussion and Analysis,” “2023 Executive Compensation,” “Management Development and Compensation Committee Report” and “Management Development and Compensation Committee Interlocks and Insider Participation” and “CEO Pay Ratio” in the 2024 Proxy Statement.
(c)Incorporated by reference to “Beneficial Ownership” and “Equity Compensation Plan Information” in the 2024 Proxy Statement.
(d)Incorporated by reference to “Related Person Transactions,” “Election of Directors” and “Committees of the Board of Directors” in the 2024 Proxy Statement.
(e)Incorporated by reference to “Independent Auditor” in the 2024 Proxy Statement.
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Certain Defined Terms
Except as the context may otherwise require in this report, references to:
•“we,” “us,” “our” and the “Company” are to SYNCHRONY FINANCIAL and its subsidiaries;
•“Synchrony” are to SYNCHRONY FINANCIAL only;
•the “Bank” are to Synchrony Bank (a subsidiary of Synchrony);
•the “Board of Directors” or “Board” are to Synchrony’s board of directors;
•"CECL" are to the impairment model known as the Current Expected Credit Loss model, which is based on expected credit losses; and
•“VantageScore” are to a credit score developed by the three major credit reporting agencies which is used as a means of evaluating the likelihood that credit users will pay their obligations.
We provide a range of credit products through programs we have established with a diverse group of national and regional retailers, local merchants, manufacturers, buying groups, industry associations and healthcare service providers, which, in our business and in this report, we refer to as our “partners.” The terms of the programs all require cooperative efforts between us and our partners of varying natures and degrees to establish and operate the programs. Our use of the term “partners” to refer to these entities is not intended to, and does not, describe our legal relationship with them, imply that a legal partnership or other relationship exists between the parties or create any legal partnership or other relationship. Information with respect to partner “locations” in this report is given at December 31, 2023. “Open accounts” represents credit card or installment loan accounts that are not closed, blocked or more than 60 days delinquent.
Unless otherwise indicated, references to “loan receivables” do not include loan receivables held for sale.
For a description of certain other terms we use, including “active account” and “purchase volume,” see the notes to Management’s Discussion and Analysis—Results of Operations—Other Financial and Statistical Data.” There is no standard industry definition for many of these terms, and other companies may define them differently than we do.
“Synchrony” and its logos and other trademarks referred to in this report, including, CareCredit®, Quickscreen®, Dual Card™, Synchrony Car Care™ and SyPI™ belong to us. Solely for convenience, we refer to our trademarks in this report without the ™ and ® symbols, but such references are not intended to indicate that we will not assert, to the fullest extent under applicable law, our rights to our trademarks. Other service marks, trademarks and trade names referred to in this report are the property of their respective owners.
On our website at www.synchrony.com, we make available under the "Investors-SEC Filings" menu selection, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such reports or amendments are electronically filed with, or furnished to, the SEC. The SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements, and other information that we file electronically with the SEC.
Industry and Market Data
This report contains various historical and projected financial information concerning our industry and market. Some of this information is from industry publications and other third-party sources, and other information is from our own data and market research that we commission. All of this information involves a variety of assumptions, limitations and methodologies and is inherently subject to uncertainties, and therefore you are cautioned not to give undue weight to it. Although we believe that those industry publications and other third-party sources are reliable, we have not independently verified the accuracy or completeness of any of the data from those publications or sources.
Various statements in this Annual Report on Form 10-K may contain “forward-looking statements” as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by those sections. Forward-looking statements may be identified by words such as “expects,” “intends,” “anticipates,” “plans,” “believes,” “seeks,” “targets,” “outlook,” “estimates,” “will,” “should,” “may” or words of similar meaning, but these words are not the exclusive means of identifying forward-looking statements.
Forward-looking statements are based on management’s current expectations and assumptions, and are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, actual results could differ materially from those indicated in these forward-looking statements. Factors that could cause actual results to differ materially include global political, economic, business, competitive, market, regulatory and other factors and risks, such as: the impact of macroeconomic conditions and whether industry trends we have identified develop as anticipated; retaining existing partners and attracting new partners, concentration of our revenue in a small number of partners, and promotion and support of our products by our partners; cyber-attacks or other security incidents or breaches; disruptions in the operations of our and our outsourced partners' computer systems and data centers; the financial performance of our partners; the CFPB’s proposed rule on credit card late fees if adopted as proposed; the sufficiency of our allowance for credit losses and the accuracy of the assumptions or estimates used in preparing our financial statements, including those related to the CECL accounting guidance; higher borrowing costs and adverse financial market conditions impacting our funding and liquidity, and any reduction in our credit ratings; our ability to grow our deposits in the future; damage to our reputation; our ability to securitize our loan receivables, occurrence of an early amortization of our securitization facilities, loss of the right to service or subservice our securitized loan receivables, and lower payment rates on our securitized loan receivables; changes in market interest rates and the impact of any margin compression; effectiveness of our risk management processes and procedures; reliance on models which may be inaccurate or misinterpreted; our ability to manage our credit risk; our ability to offset increases in our costs in retailer share arrangements; competition in the consumer finance industry; our concentration in the U.S. consumer credit market; our ability to successfully develop and commercialize new or enhanced products and services; our ability to realize the value of acquisitions, dispositions and strategic investments; reductions in interchange fees; fraudulent activity; failure of third-parties to provide various services that are important to our operations; international risks and compliance and regulatory risks and costs associated with international operations; alleged infringement of intellectual property rights of others and our ability to protect our intellectual property; litigation and regulatory actions; our ability to attract, retain and motivate key officers and employees; tax legislation initiatives or challenges to our tax positions and/or interpretations, and state sales tax rules and regulations; regulation, supervision, examination and enforcement of our business by governmental authorities, the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and other legislative and regulatory developments and the impact of the Consumer Financial Protection Bureau’s (the “CFPB”) regulation of our business, including new requirements and constraints that Synchrony and the Bank will become subject to as a result of having $100 billion or more in total assets; impact of capital adequacy rules and liquidity requirements; restrictions that limit our ability to pay dividends and repurchase our common stock, and restrictions that limit the Bank’s ability to pay dividends to us; regulations relating to privacy, information security and data protection; use of third-party vendors and ongoing third-party business relationships; and failure to comply with anti-money laundering and anti-terrorism financing laws.
For the reasons described above, we caution you against relying on any forward-looking statements, which should also be read in conjunction with the other cautionary statements that are included in “Risk Factors Relating to Our Business” and “Risk Factors Relating to Regulation.” You should not consider any list of such factors to be an exhaustive statement of all of the risks, uncertainties, or potentially inaccurate assumptions that could cause our current expectations or beliefs to change. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except as otherwise may be required by law.
We are a premier consumer financial services company delivering one of the industry's most complete, digitally-enabled product suites. Our experience, expertise and scale encompass a broad spectrum of industries, including digital, health and wellness, retail, telecommunications, home, auto, outdoor, pet and more. We have an established and diverse group of national and regional retailers, local merchants, manufacturers, buying groups, industry associations and healthcare service providers, which we refer to as our “partners.” We connect our partners and consumers through our dynamic financial ecosystem and provide them with a diverse set of financing solutions and innovative digital capabilities to address their specific needs and deliver seamless, omnichannel experiences. We utilize a broad set of distribution channels, including mobile apps and websites, as well as online marketplaces and business management solutions like point-of-sale platforms. Our offerings include private label, dual, co-brand and general purpose credit cards, as well as short- and long-term installment loans and consumer banking products. During 2023, we financed $185.2 billion of purchase volume, and at December 31, 2023, we had $103.0 billion of loan receivables and 73.5 million active accounts.
Our business benefits from longstanding and collaborative relationships with our partners, including some of the nation’s leading retailers and manufacturers with well-known consumer brands, such as Lowe’s and Sam's Club and also leading digital partners, such as Amazon and PayPal. We believe our business model has been successful because it aligns our interests with those of our partners and provides substantial value to both our partners and our customers. Our partners promote our credit products because they generate increased sales and strengthen customer loyalty. Our customers benefit from instant access to credit, discounts, or other benefits such as cash back rewards, and promotional offers. We seek to differentiate ourselves through our deep industry expertise, our long history of consumer lending, our innovative digital capabilities and our diverse product suite. We have omni-channel (in-store, online and mobile) technology and marketing capabilities, which allow us to offer and deliver our credit products instantly to customers across multiple channels. We continue to invest in, and develop, our digital assets to ensure our partners are well positioned for the rapidly evolving environment.We have been able to demonstrate our digital capabilities by providing solutions that meet the needs of our partners and customers, with approximately 58% of our consumer revolving applications in 2023 processed through a digital channel.
We conduct our operations through a single business segment. Profitability and expenses, including funding costs, credit losses and operating expenses, are managed for the business as a whole. Substantially all of our revenue activities are within the United States. We primarily manage our credit products through five sales platforms (Home & Auto, Digital, Diversified & Value, Health & Wellness and Lifestyle). Those platforms are organized by the types of partners we work with, and are measured on interest and fees on loans, loan receivables, active accounts and other sales metrics.
We offer our credit products primarily through our wholly-owned subsidiary, the Bank. In addition, through the Bank, we offer, directly to retail, affinity relationships and commercial customers, a range of deposit products insured by the Federal Deposit Insurance Corporation (“FDIC”), including certificates of deposit, individual retirement accounts (“IRAs”), money market accounts, savings accounts and sweep and affinity deposits. We also take deposits at the Bank through third-party securities brokerage firms that offer our FDIC-insured deposit products to their customers. We have significantly expanded our online direct banking operations in recent years and our deposit base serves as a source of stable and diversified low cost funding for our credit activities. At December 31, 2023, we had $81.2 billion in deposits, which represented 84% of our total funding sources.
We offer our credit products through five sales platforms: Home & Auto, Digital, Diversified & Value, Health & Wellness and Lifestyle.
Set forth below is a summary of certain information relating to our sales platforms:
Home & Auto
Our Home & Auto sales platform provides comprehensive payments and financing solutions with integrated in-store and digital experiences through a broad network of partners and merchants providing home and automotive merchandise and services, as well as our Synchrony Car Care network and Synchrony HOME credit card offering. Home & Auto accounted for $5.3 billion, or 26%, of our total interest and fees on loans for the year ended December 31, 2023.
Home & Auto Partners
Our Home & Auto sales platform partners include a wide range of key retailers in the home improvement, furniture, bedding, flooring, appliance and electronics industry, such as Ashley HomeStores LTD, Floor & Decor, Lowe's, and Mattress Firm, as well as automotive merchandise and services, such as Chevron and Discount Tire. In addition, we also have program agreements with manufacturers, buying groups and industry associations, such as Generac, Nationwide Marketing Group and the Home Furnishings Association.
At December 31, 2023, the length of our relationship with each of our five largest partners was over 10 years, and in the case of Lowe's, 44 years.
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2023 Partner Agreements:
New partnerships:
• Big Brand Tire & Service
• LG Air Conditioning
• GreatWater 360 Auto Care
• Roto Rooter
• Installation Made Easy
Program extensions:
• CCA Global Partners
• Living Space
• CertainPath
• LoveSac
• Conn's
• Morris Furniture Company
• Haverty's Furniture
• Rheem
• Haynes
• York
• Horizon
Digital
Our Digital sales platform provides comprehensive payments and financing solutions with integrated digital experiences through partners and merchants who primarily engage with their consumers through digital channels. We enable our partners to deepen consumer engagement by embedding payments and financing solutions, delivering compelling value and rewards, and providing personalized offers within seamless experiences. We also work with our partners to extend digital relationships to in-person commerce. In addition to our partner products, we also offer a Synchrony-branded general purpose credit card. Digital accounted for $5.9 billion, or 30%, of our total interest and fees on loans for the year ended December 31, 2023.
Digital Partners
Our Digital sales platform includes key partners delivering digital payment solutions, such as PayPal, including our Venmo program, online marketplaces, such as Amazon and eBay, and digital-first brands and merchants, such as Verizon, the Qurate brands, and Fanatics.
The Digital sales platform has strong alignment with its partners through relationships that span decades, as well as through our more recent program launches with Verizon and Venmo. At December 31, 2023, the length of our relationship with each of our four largest partners was over 10 years, and in the case of PayPal, 19 years. The Digital sales platform has highly engaged customers and can continue to drive penetration and everyday use by expanding products, channels, and deeper user experience integrations.
Diversified & Value
Our Diversified & Value sales platform provides comprehensive payments and financing solutions with integrated in-store and digital experiences through large retail partners who deliver everyday value to consumers shopping for daily needs or important life moments. Diversified & Value accounted for $4.5 billion, or 23%, of our total interest and fees on loans for the year ended December 31, 2023.
Diversified & Value Partners
Our Diversified & Value sales platform is comprised of five large retail partners: Belk, Fleet Farm, JCPenney, Sam's Club and TJX Companies, Inc. Through strong partner alignment, competitive value propositions, and embedding our products in the digital experience, we can continue to drive penetration and everyday use.
At December 31, 2023, the length of our relationship with each of these five partners was over 10 years, and in the case of Sam’s Club, 30 years.
2023 Partner Agreements:
Program extensions:
• Belk
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Health & Wellness
Our Health & Wellness sales platform provides comprehensive healthcare payments and financing solutions, through a network of providers and health systems, for those seeking health and wellness care for themselves, their families and their pets, and includes our CareCredit brand, as well as partners such as Walgreens. Health & Wellness accounted for $3.2 billion, or 16%, of our total interest and fees on loans for the year ended December 31, 2023.
We offer customers a CareCredit-branded private label credit card that may be used across our network of CareCredit providers and our CareCredit Dual Card offering, access to installment loans in select providers, our Walgreens private label and Dual Card, along with complementary products such as Pets Best pet insurance. In November 2023, we entered into an agreement for the sale of Pets Best for consideration comprising a combination of cash and an equity interest in Independence Pet Holdings, Inc. The transaction is expected to close in the first quarter of 2024.
Health & Wellness Partners
The vast majority of our partners are individual and small groups of independent healthcare providers, which includes networks of healthcare practitioners that provide planned medical, elective and other procedures that generally are not fully covered by insurance. The remainder are primarily national and regional healthcare providers, such as Aspen Dental and Mars Petcare and health-focused retailers, such as Rite Aid and Walgreens. In addition, we also have over 160 relationships with professional and other associations (including the American Dental Association and the American Veterinary Medical Association), manufacturers and buying groups, which endorse and promote our credit products to their members.
At December 31, 2023, we had a network of Health & Wellness providers and health-focused retailers that collectively have over 270,000 locations. Excluding our program agreement with Walgreens, no single Health & Wellness partner accounted for more than 0.5% of our total interest and fees on loans for the year ended December 31, 2023. Accounts originated in dental practices accounted for 52% of Health & Wellness interest and fees on loans for the year ended December 31, 2023.
We believe our ability to attract new partners is aided by being able to provide partners access to our existing CareCredit accountholder base. During 2023 over 210,000 locations either processed a CareCredit application or made a sale on a CareCredit credit card, and our CareCredit provider locator averaged over 2.1 million views per month during the year ended December 31, 2023.
2023 Partner Agreements:
New partnerships:
• Albertsons Companies
• Marquee Dental Partners
• AmeriVet Veterinary Partners
• O'Brien Vet Group
• Destination Pet
• Sonova
• Hand & Stone
• Specialty 1 Partners
• Heart and Paw
• Valley Veterinary
Extensions:
• American Dental Association
• The Good Feet Store
• Academy of General Dentistry
• NVA
• The Aspen Group
• PetVet Care Centers
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Lifestyle
Lifestyle provides comprehensive payments and financing solutions with integrated in-store and digital experiences through partners and merchants who offer merchandise in power sports, outdoor power equipment, and other industries such as sporting goods, apparel, jewelry and music. We create customized credit programs for national and regional retailers, manufacturers, and industry associations. Credit extended in this platform, other than for our apparel and sporting goods retail partners, is primarily promotional financing. With our large retail partners, we continue to drive penetration and everyday use through strong partner alignment, competitive value propositions, and embedding our products in the digital experience. Lifestyle accounted for $1.0 billion, or 5%, of our total interest and fees on loans for the year ended December 31, 2023.
Lifestyle Partners
Our Lifestyle sales platform partners include a wide range of key retailers in the apparel, specialty retail, outdoor, music and luxury industry, such as American Eagle, Dick's Sporting Goods, Guitar Center, Kawasaki, Pandora, Polaris, Suzuki and Sweetwater.
At December 31, 2023, the length of our relationship with each of our five largest partners was over 10 years, and in the case of American Eagle, 27 years.
2023 Partner Agreements:
New partnerships:
• J.Crew
Program extensions:
• Club Champion
• Robbins Brothers
• Handi Quilter
• The Alliance of Independent Music Merchants
• JTV
• The Container Store
• Park West Gallery
• Vanderhall Motorworks
• Piaggio
Corp, Other
Corp, Other includes activity and balances related to certain program agreements with retail partners and merchants that will not be renewed beyond their current expiration date and certain programs that were previously terminated, which are not managed within the five sales platforms discussed above. Prior year activity in Corp, Other primarily includes amounts associated with the Gap Inc. and BP portfolios, which were both sold in the second quarter of 2022. Corp, Other also includes amounts related to changes in the fair value of equity investments and realized gains or losses associated with the sale of investments.
Our revenue we earn from our agreements with our partners primarily consists of interest and fees on our loan receivables, and in our program agreements that contain promotional financing, includes “merchant discounts,” which are fees paid to us by our partners in almost all cases to compensate us for all or part of the foregone interest income associated with promotional financing. We offer promotional financing across all five of our sales platforms.
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The types of promotional financing we offer includes deferred interest (interest accrues during a promotional period and becomes payable if the full purchase amount is not paid off during the promotional period), no interest (no interest on a promotional purchase) and reduced interest (interest is assessed monthly at a promotional interest rate during the promotional period). As a result, during the promotional period we do not generate interest income or generate it at a lower rate, although we continue to generate fee income relating to late fees on required minimum payments. For these promotional financing offerings, we generally partner with sellers of “big-ticket” products or services or large basket transactions (generally priced from $500 to $25,000+) to consumers where our financing products and industry expertise provide strong incremental value to our partners and their customers. In addition to our revolving products, we also offer secured installment loans for certain large purchases, primarily for power sports and outdoor power equipment, and also offer unsecured installment loans primarily in our Health and Wellness sales platform and through our other installment products, such as our Synchrony Pay in 4 product for short-term loans. We also promote our programs to sellers through direct marketing activities such as industry trade publications, trade shows and sales efforts by dedicated internal and external sales teams, leveraging our existing partner network or through endorsements through manufacturers and industry associations. Our broad array of point-of-sale technologies and quick enrollment process allow us to quickly and effectively integrate new partners and providers.
Our five largest programs based upon interest and fees on loans for the year ended December 31, 2023, were Amazon, JCPenney, Lowe’s, PayPal and Sam’s Club. These programs accounted in aggregate for 55% of our total interest and fees on loans for the year ended December 31, 2023, and 51% of loan receivables at December 31, 2023. Our programs with Lowe's, PayPal, which includes our Venmo program, and Sam's Club, each accounted for more than 10% of our total interest and fees on loans for the year ended December 31, 2023. The length of our relationship with each of our five largest partners is over 16 years, and in the case of Lowe's, 44 years. The current expiration dates for program agreements with our five largest partners range from 2026 through 2033.
Other income related to our program agreements primarily consists of interchange fees earned when our Dual Card or general purpose co-branded cards are used outside of our partners’ sales channels and fees paid to us by customers who purchase our Payment Security product, less costs incurred related to partner loyalty programs. In our Health & Wellness sales platform, Other income also includes commission fees earned by Pets Best.
Program Agreements
Our private label credit cards, Dual Cards and co-branded credit card programs for our retail and digital partners are typically governed by program agreements that are each negotiated separately with our partners. Although the terms of the agreements are partner-specific, and may be amended from time to time, under a typical program agreement, our partner agrees to support and promote the program to its customers, but we control credit criteria and issue products to customers who qualify under those criteria. We own the underlying accounts and all loan receivables generated under the program from the time of origination. Other key provisions in our program agreements include:
Term
Our program agreements typically have contract terms ranging from approximately three to ten years. Many program agreements have renewal clauses that provide for automatic renewal for one or more years until terminated by us or our partner. We typically seek to renew the program agreements well in advance of their termination dates. Some program agreements are subject to termination prior to the scheduled termination date by us or our partner for various reasons. See Termination below for additional information.
Exclusivity
Our program agreements are typically exclusive for the products we offer and limit our partners’ ability to originate or promote other private label or co-branded credit cards during the term of the agreement. The terms of our program agreements with national and regional retailers and manufacturers are typically similar to the terms of our program agreements in that we are the exclusive provider of financing for the products we offer, or in the case of some of our programs, may allow to have several primary lenders. Some program agreements, however, allow the merchant to use a second source lender after an application has been submitted to us and declined.
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Retailer Share Arrangements
Most of our program agreements with large retail and certain other partners contain retailer share arrangements that provide for payments to our partner if the economic performance of the program exceeds a contractually-defined threshold. Economic performance for the purposes of these arrangements is typically measured based on agreed upon program revenues (including interest income and certain other income) less agreed upon program expenses (including interest expense, provision for credit losses, retailer payments and operating expenses). We may also provide other economic benefits to our partners such as royalties on purchase volume or payments for new accounts, in some cases instead of retailer share arrangements (for example, on our co-branded credit cards). All of these arrangements align our interests and provide an additional incentive to our partners to promote our credit products.
Certain program agreements set forth the program’s economic terms, including the merchant discount applicable to each promotional finance offering. We typically do not pay fees to these partners pursuant to any retailer share arrangements, but in some cases we pay a sign-up fee to a partner or provide volume-based rebates on the merchant discount paid by the partner.
Other Economic Terms
In addition to the retailer share arrangements, the program agreements typically provide that the parties will develop a marketing plan to support the program, and they set the terms by which a joint marketing budget is funded, the basic terms of the rewards program linked to the use of our product (such as opportunities to receive double rewards points for purchases made on a product), and the allocation of costs related to the rewards program.
Termination
The program agreements set forth the circumstances in which a party may terminate the agreement prior to expiration. Our program agreements generally permit us and our partner to terminate the agreement prior to its scheduled termination date for various reasons, including if the other party materially breaches its obligations. Some program agreements also permit our partner to terminate the program if we fail to meet certain service levels or change certain key cardholder terms or our credit criteria, we fail to achieve certain approval rate targets with respect to approvals of new customers, we elect not to increase the program size when the outstanding loan receivables under the program reach certain thresholds, we are not adequately capitalized, certain force majeure events occur or certain changes in our ownership occur. Certain program agreements are also subject to early termination by a party if the other party has a material adverse change in its financial condition. Historically, these rights have not typically been triggered or exercised. Some of our program agreements provide that, upon termination or expiration, our partner may purchase or designate a third party to purchase the accounts and loan receivables generated with respect to its program at fair market value or a stated price, including all related customer data.
Buying Groups, Manufacturers and Industry Associations
The programs we have established with buying groups, manufacturers and industry associations, such as the Home Furnishings Association, Jewelers of America, Kawasaki, Polaris and Nationwide Marketing Group, are governed by program agreements under which we make our credit products available to their respective members or dealers. These arrangements may include sign-up fees and volume-based incentives paid by us to the groups and their members but these agreements generally do not require the members or dealers to offer our products to their customers. Under the terms of the program agreements, buying groups, manufacturers and industry associations generally agree to support and promote the respective programs.
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Synchrony-Branded Networks
Our Synchrony-branded networks are focused on specific industries, where we create either company-branded or company and partner-branded private label credit cards that are usable across all participating locations within the industry-specific network. For example, our Synchrony Car Care network, comprised of merchants selling automotive parts, repair services and tires, covers over one million locations across the United States, and cards issued may be dual branded with Synchrony Car Care and partners such as Chevron, Citgo, Napa, P66, Pep Boys or Summit Racing. Under the terms of these networks, we establish merchant discounts applicable to each financing offer. In addition, we also earn interchange fees through credit card transactions outside of the program network. The Synchrony Car Care network allows for expanded use outside of the program network at certain related merchants, such as gas stations. Similarly, the Synchrony HOME credit card is accepted at participating home-related partner locations nationwide. See Healthcare Provider Agreements for a discussion of our CareCredit branded network.
Dealer Agreements
For the programs we have established with manufacturers, buying groups, industry associations, industry specific programs and Synchrony-branded networks described above, we enter into individual agreements with the merchants and dealers that offer our credit products under these programs. These agreements generally are not exclusive and some parties who offer our financing products also offer financing from our competitors. Our agreements generally continue until terminated by either party, with termination typically available to either party at will upon 15 days’ written notice. Our dealer agreements set forth the economic terms associated with the program, including the fees charged to dealers to offer promotional financing, and in some cases, allow us to periodically change the fees we charge.
Healthcare Provider Agreements
We enter into provider agreements with individual healthcare providers who become part of our CareCredit network. These provider agreements are not exclusive and typically may be terminated at will upon 15 days’ notice. Multi-year agreements are in place for larger multi-location relationships across all markets. There are typically no retailer share arrangements with individual healthcare providers, national and regional healthcare providers and health-focused retailers in Health & Wellness.
We screen potential healthcare providers using a variety of criteria, including whether the potential provider specializes in one of our approved specialties, carries the appropriate licensing and certifications, and meets our underwriting criteria. We also screen potential partners for reputational issues. We work with professional and other associations, manufacturers, buying groups, industry associations and healthcare consultants to educate their constituents about the products and services we offer. We also approach individual healthcare service providers through direct mail, advertising, and at trade shows.
We work directly with our partners and providers to seamlessly integrate our product offerings through their distribution networks, communication channels and customer interactions to market to their existing and potential customers. We believe our presence at partners’ points of sale (both physical (in-store) and digital (online and mobile)), enables incremental purchases at our partners and providers, giving them greater conversion rates and higher overall sales. This dynamic also enables us to acquire new customer accounts at a discount compared to the traditional methods of acquiring new credit card customers.
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To acquire new customers, we collaborate and integrate with our partners and providers leveraging our marketing expertise to create programs promoting our products to creditworthy customers. Frequently, our partners and providers market the availability of credit as part of the advertising for their goods and services. Our marketing programs include marketing offers (e.g., 10% off the customer’s first purchase) and consumer communications delivered through a variety of channels, including in-store signage, online advertising, retailer website placement, associate communication, emails, text messages, direct mail campaigns, advertising circulars, and outside marketing via television, radio, print, digital marketing (search engine optimization, paid search and personalization), and product education. We also employ our proprietary Quickscreen acquisition method to make targeted pre-approved credit offers at the point-of-sale. Our Quickscreen technology allows us to process customer information obtained from our partners through our risk models such that when these customers seek to make payment for goods and services at our partners' points-of-sale, we can offer them credit instantly, if appropriate. Based on our experience, due to the personalized and immediate nature of the offer, Quickscreen significantly outperforms traditional direct-to-consumer channels, such as direct mail or email, in response rate and dollar spending.
Our customer engagement is driven by our Growth organization, which encompasses Synchrony’s marketing, data analytics, customer experience, product development, incubation, branding, go-to-market and commercialization teams in one cohesive group. This organizational structure helps Synchrony drive continued growth, execute its strategy more quickly and deliver the right capabilities to partners and customers through one of the industry’s most complete, digitally-enabled consumer financing and payments product suite.
Marketing and Data Analytics
Our marketing teams have expertise and experience in omnichannel strategy and planning and understand the best opportunities to reach and engage consumers with tailored and personalized strategies for our diverse product suite, including engaging with our existing over 73 million active accounts. These teams drive qualified traffic, attract new customers and increase sales conversions. These capabilities also help to increase product usage and drive value proposition reinforcement. Our partners leverage our teams' expertise in financial services marketing for both business to business and business to consumers, to complement their brand promotions.
After a customer obtains one of our products, our marketing programs encourage ongoing card usage by communicating the benefits of our products’ value propositions to deepen the relationship with the customer. Examples of such programs include promotional financing offers, cardholder events, product and partner discounts, product upgrades, dollar-off certificates, account holder sales, reward points and offers, new product announcements and previews, and other specific partner value offerings. These programs are executed through our partners’ and our own (direct-to-consumer) distribution channels. These activities targeted to existing customers have yielded high levels of re-use of our credit products. For example, during the year ended December 31, 2023, approximately 60% of purchase volume across our CareCredit network, resulted from repeat use at one or more providers.
We also maximize our unique access to data and customer touchpoints to identify audiences for credit acquisition and utilization, and to analyze behaviors that drive insights to fuel creative content and contextually relevant placements both on our digital properties as well as through a network of publishers and platforms.
Our analytics teams, utilizing a set of analytics tools and machine learning algorithms, help us expand and optimize customer relationships through the building of targeting tools and the deployment of detailed test-and-learn tracking of omnichannel marketing campaigns.
Product Development
We are focused on continuing to scale our multi-product offerings to our customers and partners. Our Products team oversees the development and delivery of new products and capabilities to enhance consumers' shopping journey and to anticipate the evolving needs of both consumers and retailers, while providing scalability of products across our sales platforms. This encompasses investing in a dedicated innovation team, who collaborate with our partners and prospective partners, to seek competitive advantage in the marketplace and provide opportunities for business growth.
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Our product suite includes Synchrony’s Pay Later solution, which was offered at an expanded number of partners during 2023. The Synchrony Pay Later solution can come in the form of a pay monthly product, as well as a pay in 4 product that charges no interest and fees, and requires the consumer to make four equal payments to pay off their purchase. Both of these products enhance our ability to execute our multi-product strategy – looking to identify the best product for the customer and our partners.
Digital and Mobile Capabilities
We also remain focused on investing in our digital and mobile capabilities, bringing to market new features, channels and experiences for our customers and enhancing our existing digital design and user experience. In 2023, approximately 58% of our consumers applied online and approximately 75% of our consumers with an outstanding balance on our credit products utilized a digital service channel, demonstrating the continued shift in consumer trends towards digital experiences.
Our approach continues to be focused on creating an exceptional digital experience through all aspects of the customer's journey, whether in-store or online. For example, by leveraging our tokenization platform, we are able to offer the ability to display single-use virtual cards within our installment products, such as our Synchrony Pay in 4 product, allowing for a seamless in-store experience that does not require any integration work from our partners. With our Pay with Synchrony app available within the Clover point-of-sale platform, we are able to offer an entirely digital experience to apply for a new card or installment loan, and complete the transaction all within the Clover experience. These digital capabilities offer a range of choices to our partners both in the products available to offer to customers, and in the flexibility provided by the ease of which these can be integrated.
In 2023 we also launched a website consolidation effort to create a more unified set of digital properties. The new property also includes an improved marketplace, where consumers can shop a broad set of Synchrony partner brands, login to service their accounts, and find credit card offers from Synchrony.
Loyalty Programs
We operate loyalty programs designed to generate incremental purchase volume per customer, while reinforcing the value of the card to the customer and strengthening customer loyalty. Many of the credit rewards loyalty programs we manage provide rewards points, which are redeemable for a variety of products or awards, or merchandise discounts earned by achieving a pre-set spending level on their private label credit card, Dual Card or general purpose co-branded credit card. Other programs include statement credit or cash back rewards. The rewards can be mailed to the cardholder, accessed digitally or may be immediately redeemable at the partner’s store. We continue to support and integrate into our partners’ loyalty programs which are offered to customers who utilize non-credit payment types such as cash, debit or check. These multi-tender loyalty programs allow our partners to market to an expanded customer base and allow us access to additional prospective cardholders.
Commercial Customers
In addition to our efforts to acquire consumer cardholders, we continue to focus on acquiring small to mid-sized commercial customers. We offer these customers private label credit cards and Dual Cards that are similar to our consumer offerings and our approach to acquiring these customers is consistent with our consumer strategies. We are also continuing to focus on marketing our commercial pay-in-full accounts receivable product that supports a wide range of business customers.
Through our sales platforms, we offer three principal types of credit products: credit cards, commercial credit products and consumer installment loans. We also offer our Payment Security program, which is a debt cancellation product.
The following table sets forth each credit product by type and indicates the percentage of our total loan receivables that are under standard terms only or pursuant to a promotional financing offer at December 31, 2023.
Promotional Offer
Credit Product
Standard Terms Only
Deferred Interest
Other Promotional
Total
Credit cards
59.5
%
19.3
%
15.4
%
94.2
%
Commercial credit products
1.7
—
0.1
1.8
Consumer installment loans
—
0.2
3.7
3.9
Other
0.1
—
—
0.1
Total
61.3
%
19.5
%
19.2
%
100.0
%
Credit Cards
Our credit card products are loans we extend through open-ended revolving credit card accounts. We offer the following principal types of credit cards:
Private Label Credit Cards
Private label credit cards are partner-branded credit cards (e.g., Lowe’s or Amazon) or program-branded credit cards (e.g., Synchrony Car Care or CareCredit) that are used primarily for the purchase of goods and services from the partner or within the program network. In addition, in some cases, cardholders may be permitted to access their credit card accounts for cash advances.
Credit under a private label credit card typically is extended either on standard terms only, which means accounts are assessed periodic interest charges using an agreed non-promotional fixed and/or variable interest rate, or pursuant to a promotional financing offer, involving deferred interest, no interest or reduced interest during a set promotional period. Promotional periods typically range between six and 60 months, but we may agree to longer terms with the partner. In almost all cases, we receive a merchant discount from our partners to compensate us for all or part of the foregone interest income associated with promotional financing. The terms of these promotions vary by partner, but generally the longer the deferred interest, reduced interest or interest-free period, the greater the partner’s merchant discount. Some offers permit customers to pay for a purchase in equal monthly payments with no interest or at a reduced interest rate, rather than deferring or delaying interest charges. For our deferred interest products, approximately 80% of customer transactions are typically paid off before interest is assessed. In Health & Wellness, standard rate financing generally applies to charges under $200.
We typically do not charge interchange or other fees to our partners when a customer uses a private label credit card to purchase our partners’ goods and services through our payment system.
Substantially all of our private label credit card business is in the United States.
Dual Cards and General Purpose Co-Branded Cards
Our patented Dual Cards are credit cards that function as private label credit cards when used to purchase goods and services from our partners, and as general purpose credit cards when used to make purchases from other retailers wherever cards from those card networks are accepted or for cash advance transactions. We currently issue Dual Cards for use on the MasterCard and Visa networks and we have the potential capability to issue Dual Cards for use on the American Express and Discover networks.
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We also offer general purpose co-branded credit cards that do not function as private label credit cards, as well as, a Synchrony-branded general purpose credit card.
Dual Cards and general purpose co-branded credit cards are offered across all of our sales platforms and credit is typically extended on standard terms only. At December 31, 2023, we offered either Dual Cards or general purpose co-branded credit cards through over 15 of our large partners, of which the majority are Dual Cards, as well as our CareCredit Dual Card. We intend to continue to increase the number of partner programs that offer Dual Cards or general purpose co-branded credit cards and seek to increase the portion of our loan receivables attributable to these products. Consumer Dual Cards and Co-branded cards totaled 26% of our total loan receivables portfolio at December 31, 2023.
Charges using a Dual Card or general purpose co-branded credit card generate interchange income for us in connection with purchases made by cardholders other than in-store or online from that partner.
Terms and Conditions
As a general matter, the financial terms and conditions governing our credit card products vary by program and product type and change over time, although we seek to standardize the non-financial provisions consistently across all products. The terms and conditions of our credit card products are governed by a cardholder agreement and applicable laws and regulations.
We assign each card account a credit limit when the account is initially opened. Thereafter, we may increase or decrease individual credit limits from time to time, at our discretion, based primarily on our evaluation of the customer’s creditworthiness and ability to pay.
For the vast majority of accounts, periodic interest charges are calculated using the daily balance method, which results in daily compounding of periodic interest charges, subject to, at times, a grace period on new purchases. Cash advances are not subject to a grace period, and some credit card programs do not provide a grace period for promotional purchases. In addition to periodic interest charges, we may impose other charges and fees on credit card accounts, including, as applicable and provided in the cardholder agreement, cash advance transaction fees and late fees where a customer has not paid at least the minimum payment due by the required due date.
Typically, each customer with an outstanding debit balance on their credit card account must make a minimum payment each month. A customer may pay the total amount due at any time without penalty. We also may enter into arrangements with delinquent customers to extend or otherwise change payment schedules and to waive interest charges and/or fees.
Commercial Credit Products
We offer private label cards and Dual Cards for commercial customers that are similar to our consumer offerings. We also offer a commercial pay-in-full accounts receivable product to a wide range of business customers.
Installment Loans
We originate secured installment loans to consumers (and a limited number of commercial customers) in the United States, primarily for power products in our Outdoor market (motorcycles, ATVs and lawn and garden). We also offer unsecured installment loans primarily in our Health and Wellness sales platform and through our various other installment products, such as our Synchrony Pay Later solutions, including pay monthly and pay in 4 products, for short-term loans. Installment loans are closed-end credit accounts where the customer pays down the outstanding balance in installments. The terms of our installment loans are governed by customer agreements and applicable laws and regulations.
Installment loans, other than our Synchrony Pay Later pay in 4 product are generally assessed periodic finance charges using fixed interest rates. In addition to periodic finance charges, we may impose other charges and fees on loan accounts, including late fees where a customer has not made the required payment by the required due date and returned payment fees.
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Payment Security Program
We offer our Payment Security program, which is a debt cancellation product, to our credit card customers via online, mobile and, on a limited basis, direct mail. Customers who choose to purchase this product are charged a monthly fee based on their ending balance on each billing statement. In return, the Bank will cancel all or a portion of a customer’s credit card balance in the event of certain qualifying life events.
Through the Bank, we offer our customers a range of FDIC-insured deposit products. The Bank obtains deposits directly from retail, affinity relationships and commercial customers ("direct deposits") or through third-party brokerage firms that offer our FDIC-insured deposit products to their customers ("brokered deposits"). At December 31, 2023, we had $81.2 billion in deposits, $67.0 billion of which were direct deposits and $14.2 billion of which were brokered deposits. At December 31, 2023, deposits represented 84% of our total funding sources. Retail customers accounted for the substantial majority of our direct deposits at December 31, 2023. During 2023, retail deposits were received from approximately 628,000 customers that had a total of approximately 1.3 million accounts. The Bank had a 86% retention rate on certificates of deposit balances up for renewal for the year ended December 31, 2023. FDIC insurance is provided for our deposit products up to applicable limits.
We continue to focus on expanding our online direct banking operations and our deposit base serves as a source of stable and diversified low-cost funding for our credit activities. Our online platform is highly scalable allowing us to expand without having to rely on a traditional “brick and mortar” branch network. We believe we are well-positioned to continue to benefit from the consumer preference for direct banking. According to the 2023 American Bankers Association survey, approximately 78% of customers primarily use direct channels (internet, mail, phone and mobile) to manage their bank accounts.
During 2023 we continued to make investments in our servicing and digital platforms to expand features available for self-service and improve the user experience. Our deposit products include certificates of deposit, IRAs, money market accounts and savings accounts. We market our deposit products through multiple channels including digital and print. Customers can apply for, fund, and service their deposit accounts online, mobile or via phone. We have dedicated banking representatives within our call centers to service deposit accounts. Fiserv, Inc. (“Fiserv”) provides the core banking platform for our online retail deposits including a customer-facing account opening and servicing platform. In addition, the Bank offers a PayPal-branded affinity deposit product through PayPal's mobile application and website.
To attract new deposits and retain existing ones, we may introduce new deposit products, enhancements to our existing products, and deliver new capabilities. This may include the introduction of transactional capabilities, additional digital servicing options, person-to-person payment features, new affinity relationships, and Synchrony-branded debit cards. Our focus on deposit-taking and related branding efforts will also enable us to offer other branded direct banking products more efficiently in the future.
We seek to differentiate our deposit product offerings from our competitors on the basis of brand, reputation, convenience, customer service and value. Our deposit products emphasize reliability, trust, security, convenience and attractive rates. Weoffer rewards to customers based on their tenure or balance amounts, including reduced fees, travel offers and concierge telephone support.
Credit risk management is a critical component of our management and growth strategy. Credit risk refers to the risk of loss arising from customer default when customers are unable or unwilling to meet their financial obligations to us. Our credit risk arising from credit products is generally highly diversified across approximately 122 million open accounts at December 31, 2023, without significant individual exposures. We manage credit risk primarily according to customer segments and product types.
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We have developed proprietary credit tools which we call Synchrony PRISM. Through Synchrony PRISM we leverage a broad spectrum of data to yield powerful, proprietary insights to enable a more holistic view of our applications and customers.
Customer Account Acquisition
We have developed programs to promote credit with each of our partners and apply a consistent underwriting approach using our Synchrony PRISM tools that have varying results across our client portfolios based on the underlying credit characteristics of their customer base and applicant pool. We originate credit accounts through several different channels, including in-store, mail, internet, mobile, telephone and pre-approved solicitations. In addition, we have, and may in the future, acquire accounts that were originated by third parties in connection with establishing programs with new partners.
Regardless of the channel, in making the initial credit approval decision to open a credit card or other account or otherwise grant credit, we follow a series of credit and fraud underwriting procedures. In most cases, when applications are made in-store or digitally, the process is fully automated and applicants are notified of our credit decision immediately. We obtain certain information provided by the applicant, leverage historical performance on other Synchrony accounts, where applicable, as well as partner data on the consumer, and obtain a credit bureau report from one of the major credit bureaus. The credit report information we obtain is electronically transmitted into industry scoring models and our proprietary scoring models developed to assess credit worthiness. The credit risk management team determines in advance the qualifying credit worthiness and initial credit line assignments for applicants for each portfolio and product type. We periodically analyze performance trends of accounts originated at different score levels as compared to projected performance and adjustments to the minimum credit worthiness or the opening credit limit to manage credit risk are made as necessary.
We also apply additional application screens based on various inputs, including credit bureau information, alternative data, our previous experience with the customer and information provided by our partner, to help identify additional factors, such as potential fraud and prior bankruptcies, before qualifying the application for approval. We compare applicants’ names against the Specially Designated Nationals list maintained by the Office of Foreign Assets Control of the U.S. Department of the Treasury (“OFAC”), as well as screens that account for adherence to USA PATRIOT Act of 2001 (the “Patriot Act”) and Credit Card Accountability Responsibility and Disclosure Act of 2009 (the “CARD Act”) requirements, including ability to pay requirements for our revolving products.
We also use pre-approved account solicitations for certain programs. Potential applicants are pre-screened using information provided by our partner or obtained from outside lists, and qualified individuals receive a pre-approved credit offer by mail or email.
Acquired Portfolio Evaluation
Our risk management team evaluates each portfolio that we acquire in connection with establishing programs with new partners to ensure the portfolio satisfies our credit risk guidelines. As part of this review, we receive data on the third-party accounts and loans, which allows us to assess the portfolio on the basis of certain core characteristics, such as historical performance of the assets and distributions of credit and loss information. In addition, we benchmark potential portfolio acquisitions against our existing programs to assess relative current and projected risks. Finally, our risk management team must approve the acquisition, taking into account the results of our risk assessment process. Once assets are migrated to our systems, our account management protocols will apply immediately as described below under “—Customer Account Management,” “—Credit Authorizations of Individual Transactions” and “—Collections.”
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Customer Account Management
We regularly assess the credit risk exposure of our customer accounts. This ongoing assessment includes information relating to the customer’s performance with respect to their account with us, as well as information from credit bureaus relating to the customer’s broader credit performance. To monitor and control the quality of our loan portfolio (including the portion of the portfolio originated by third parties), we use behavioral scoring models that we have developed to score each active account on its monthly cycle date. Proprietary risk models, together with the credit scores obtained on each active account no less than quarterly, are an integral part of our credit decision-making process. Depending on the duration of the customer’s account, usage, risk profile and other performance metrics, the account may be subject to a range of account actions, including limits on transaction authorization and increases or decreases in purchase and cash credit limits as applicable.
Credit Authorizations of Individual Transactions
Once an account is opened, subsequent transactions by customers with revolving cards (via physical purchase terminals or online methods) are subject to our credit authorization system. Each potential sales transaction is passed through our authorization system, which considers a variety of behavior and risk factors to determine whether the transaction should be approved or declined, and whether a credit limit adjustment is warranted.
Fraud Investigation
We provide follow up and research with respect to different types of fraud such as fraud rings, new account fraud and transactional fraud. We have developed proprietary fraud models to identify new account fraud and deployed tools that help identify transaction purchase behavior outside a customer’s established pattern. Our proprietary models are also complemented by externally sourced models and tools used across the industry to better identify fraud and protect our customers. We also are continuously implementing new and improved fraud and authentication technologies to prevent, detect and mitigate fraud.
Collections and Recovery
All monthly billing statements of accounts with past due amounts include a request for payment of these amounts. Collections personnel generally initiate contact with customers within 30 days after any portion of their balance becomes past due. The nature and the timing of the initial contact, typically a personal call, email, text message or letter, are determined by a review of the customer’s prior account activity and payment habits.
We re-evaluate our collection and recovery efforts and consider the implementation of other techniques, including internal collection activities, use of external vendors and the sale of debt to third-party buyers, as a customer becomes increasingly delinquent. We limit our exposure to delinquencies through controls within the transaction authorization processes, the imposition of credit limits and criteria-based account suspension and revocation processes. In certain situations, we may enter into arrangements to extend or otherwise change payment schedules, decrease interest rates and/or waive fees to aid customers experiencing financial difficulties in their efforts to become current on their obligations to us.
Customer service is an important feature of our relationship with our partners. We care for our customers, value their opinions and work hard to do what we can to resolve their concerns swiftly. Our customers can contact us via phone, mail, email, eService, eChat and social media. For certain programs, credit products and our deposit business, we assign dedicated toll-free customer service phone numbers. For other programs, customers access customer service through one general purpose toll-free customer service phone number.
We service all programs through our eight domestic geographic hubs and three off-shore call centers. We blend domestic and off-shore locations as an important part of our servicing strategy, to maintain service availability beyond normal work hours in the United States and to seek optimal costs.
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During the year ended December 31, 2023, we handled over 274 million inquiries. We attempt to resolve customer inquiries and concerns during the initial customer interaction. Given the nature of our business and the high volume of calls, we maintain several centers of excellence to ensure the quality of our customer service across all of our sites. Examples of these centers of excellence include back office, quality assurance, customer experience, training, workforce and capacity planning, surveillance and process control.
Our service delivery solutions organization oversees a number of services, including:
•personalization, fulfillment and delivery (mailing) of credit cards (more than 35 million cards in 2023);
•printing and mailing and eService delivery of credit card billing statements (more than 765 million paper and electronic statements in 2023);
•printing and delivery via mail or electronically of letter communications (more than 125 million in 2023); and
•payment processing (more than 710 million paper and electronic payments in 2023).
We utilize third-party providers for certain production services. Credit card statement printing, card personalization, letter production and mailing services are provided through outsourced services with Fiserv. Fiserv also produces our cards, statements and other mailings for deposit customers. We also utilize a third-party provider for our paper payment processing services. While these services are outsourced, we monitor and maintain oversight of these activities. Our digital channels also allow for our cardholders to receive statements and make payments electronically. We continue to encourage adoption of this option through regular communication with our customers.
We leverage information technology to deliver products and services that meet the needs of our customers and partners and enables us to operate our business efficiently. The integration of our technology with our partners is at the core of our value proposition, enabling, among other things, customers to “apply and buy” at the point of sale, and many of our partners to settle transactions directly with us without an interchange fee. A key part of our strategic focus is the continued development of innovative, efficient, flexible technology and operational platforms to support marketing, risk management, account acquisition and account management, customer service, and new product innovation and development. We believe that the continued investment in and development of these platforms is an important part of our efforts to increase our competitive capabilities, reduce costs, improve quality and provide faster, more flexible technology services. Therefore, we continuously review capabilities and develop or acquire systems, processes and competencies to meet our business needs.
As part of our continuous efforts to enhance our technological capabilities, we may either develop these capabilities internally or in partnership with third-party providers. Our internal approach involves deployment of cross-functional product teams, often in collaboration with our partners, focused on driving rapid delivery of in-house product innovation and development, and the commercialization of new products. In addition, at times we also partner with third-party providers to help us deliver systems and operational infrastructure based on strategies and, in some cases, architecture, designed by us. We leverage Fiserv for our credit card transaction processing and production and our retail banking operations.
For a discussion of data security related to our business see “Risks - Cybersecurity” of this Form 10-K Report.
We use a variety of methods, such as trademarks, patents, copyrights and trade secrets, to protect our intellectual property, including our brand, “Synchrony.” We also place appropriate restrictions on our proprietary information to control access and prevent unauthorized disclosures. Our brands are important assets, and we take steps to protect the value of these assets and our reputation.
At Synchrony, people power our business, and our success depends, in large part, on our ability to recruit, develop, motivate and retain employees with the skills to execute our long-term strategy. Over the past few years we transformed how we work, how we support our people and how we connect and engage, with a focus on being nimble and agile. We have also changed our overall approach to getting work done by adopting a “hub” model that will enable employees across all roles and levels to work from home when they want (or full-time) and visit a hub — e.g. a co-working space, Synchrony office, university space or other gathering spots — when they need to meet face-to-face. Physical hubs are now also used as cultural and innovation centers by hosting events, collaboration days, town halls, agile sprints, networking and other important business activities, allowing us to retain the human, personal connection of a traditional workplace while providing employees greater flexibility.
At Synchrony, we are so proud of the many new benefits and programs that we have created for our employees. But we believe we are never done. This is why we will continue to listen to our employees and adapt to their needs. Through ongoing, multichannel communications such as all-employee town halls where questions are submitted to our CEO and other senior leaders or through more targeted pulse surveys of our employee base, their feedback is included in our decision-making process. Synchrony partners with Great Place to Work® to conduct an annual employee engagement survey as well as smaller pulse surveys on a periodic basis. The results help us better understand what our employees think we’re doing right and identify areas for positive change. In 2023, 90% of Synchrony employees participated in our employee engagement survey globally and 95% of the participants responded, “Taking all things into account, I would say this is a great place to work”. In addition, 95% of participants told us the new way of working is providing the flexibility they need.
At December 31, 2023 we had over 20,000 full-time employees. At December 31, 2023, our global workforce was 61% female, 38% male and less than 1% non-binary, other or that did not list gender. In the United States, ethnicity of our workforce was 50% White, 19% Black, 17% Hispanic, 7% Asian, 4% two or more races, 1% Native American, less than 1% Native Hawaiian or Pacific Islander and 2% that did not list ethnicity.
Equity, diversity and inclusion are core to our corporate culture at Synchrony. We have over 11,500 employees participating in at least one of our eight Diversity Networks and have integrated diversity and inclusion into our long-term business strategy. To drive progress over the long term, we treat equity, diversity and inclusion as important business priorities, with (i) board-approved governance rules, imperatives, and accountability mechanisms to measure results and (ii) an annual incentive program that incorporates factors aligned with our enterprise goals surrounding inclusion and equity. We also have a senior-level committee led by our President and Chief Executive Officer, Chief Diversity Officer, and others, charged with developing an enterprise-wide strategy, using data to monitor progress, and providing reports to our board and employees across all areas of the business. We focus on hiring the most qualified candidate for each role and take thoughtful and deliberate actions to foster an authentic and impactful approach to diversity. We use data analytics to identify opportunities in our hiring and promotion processes and establish areas of focus on an annual basis. As a result, we continue to focus on the hiring, development, and progression of underrepresented minorities, with an emphasis on Black, Hispanic, Native and female talent. Among other actions, we have implemented a diverse candidate slate requirement for senior roles, and have a dedicated leadership development program designed to prepare diverse employees for advancement opportunities.
At Synchrony, we are focused on supporting and responding to employees' needs. We increased the minimum wage to $21 per hour for all hourly employees in the U.S. effective March 1, 2024, and conduct regular market pay analyses. We continue to provide total wellness benefits for all employees including generous time off and leave programs, diverse well-being coaches, financial counselors and fitness reimbursements. We also offer emergency backup childcare benefits for up to 60 days which includes enhanced childcare reimbursement where employees can use any caregiver.
Our business, including our relationships with our customers, is subject to regulation, supervision and examination under U.S. federal, state and foreign laws and regulations. These laws and regulations cover all aspects of our business, including lending and collection practices, treatment of our customers, safeguarding deposits, customer privacy and information security, capital structure, liquidity, dividends and other capital distributions, transactions with affiliates, and conduct and qualifications of personnel. Such laws and regulations directly and indirectly affect key drivers of our profitability, including, for example, capital and liquidity, product offerings, risk management, and costs of compliance.
As a savings and loan holding company and financial holding company, Synchrony is subject to regulation, supervision and examination by the Federal Reserve Board. As a large provider of consumer financial services, we are also subject to regulation, supervision and examination by the CFPB.
The Bank is a federally chartered savings association. As such, the Bank is subject to regulation, supervision and examination by the Office of the Comptroller of the Currency of the U.S. Treasury (the “OCC”), which is its primary regulator, and by the CFPB. In addition, the Bank, as an insured depository institution, is supervised by the FDIC. For a discussion of the specific regulations related to our business see “Regulation—Regulation Relating to Our Business” of this Form 10-K Report.
Our industry continues to be highly competitive. We compete for relationships with partners in connection with retaining existing or establishing new consumer credit programs. Our primary competitors for partners include major financial institutions such as American Express, Bread Financial, Capital One, JPMorgan Chase, Citibank, TD Bank and Wells Fargo, and to a lesser extent, financial technology companies, point-of-sale lending focused companies and potential partners’ own in-house financing capabilities. We compete for partners on the basis of a number of factors, including program financial and other terms, technological capabilities, underwriting capabilities, marketing expertise, service levels, product and service offerings (including incentive and loyalty programs), and integration, brand and reputation. In addition, some of our competitors for partners have a business model that allows for their partners to manage underwriting (e.g., new account approval), customer service and collections, and other core banking responsibilities that we retain.
We also compete for customer usage of our credit products. Consumer credit provided, and credit card payments made, using our cards constitute only a small percentage of overall consumer credit provided and credit card payments in the United States. Consumers have numerous financing and payment options available to them. As a form of payment, our products compete with cash, checks, debit cards, general purpose credit cards (Visa, MasterCard, American Express and Discover Card), various forms of consumer installment loans, other private-label card brands, and, to a certain extent, prepaid cards and all forms of electronic payment. In the future, we expect our products may face increased competitive pressure to the extent that our products are not, or do not continue to be, accepted in, or compatible with digital wallet technologies such as Apple Pay, Samsung Pay, Android Pay and other similar technologies. We may also face increased competition from current competitors or others who introduce or embrace disruptive technology that significantly changes the consumer credit and payment industry. We compete for customers and their usage of our products, and to minimize transfers to competitors of our customers’ outstanding balances, based on a number of factors, including pricing (interest rates and fees), product offerings, credit limits, incentives (including loyalty programs) and customer service. Some of our competitors provide a broader selection of services, including home and automobile loans and other consumer banking services, which may position them better among customers who prefer to use a single financial institution to meet all of their financial needs. In addition, some of our competitors are substantially larger than we are, may have substantially greater resources than we do or may offer a broader range of products and services than we do. Moreover, some of our competitors, including new and emerging competitors in the digital and mobile payments space, are not subject to the same regulatory requirements or legislative scrutiny to which we are subject. Non-bank providers of pay-over-time solutions, such as Affirm, Afterpay, Klarna and others, extend consumer credit-like offerings but do not face the same restrictions, such as capital requirements and other regulatory requirements, as banks which also could place us at a competitive disadvantage. In addition, some larger technology focused companies, e.g., Apple and Google, and larger retailers, e.g., Walmart and Target, are now offering financial products sometimes in collaboration with our competitors.
In our retail deposits business, we have acquisition and servicing capabilities similar to other direct banking competitors. We compete for deposits with traditional banks, including separately branded direct banking platforms of traditional banks, and other banks that have direct banking models similar to ours, such as Ally Financial, American Express, Barclays, Capital One 360, CIT, Citi, Citizens Bank, Discover, E-Trade and Marcus by Goldman Sachs. Competition among direct banks is intense because online banking provides customers the ability to rapidly deposit and withdraw funds and open and close accounts in favor of products and services offered by competitors. In addition, we compete for deposits with other consumer cash alternatives such as government money market funds offered by brokerages.
25
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report. For a discussion and analysis of our financial condition and results of operations comparing 2022 vs. 2021, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022 (our “2022 Form 10-K”). The discussion below contains forward-looking statements that are based upon current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations. See “Cautionary Note Regarding Forward-Looking Statements.”
Results of Operations for the Three Years Ended December 31, 2023
“Other expense” as a % of “NII, after RSA” plus “Other income”
26
Growth Metrics
Purchase volume
$ in billions
Loan receivables
$ in billions
Average active accounts
in millions
Interest and fees on loans
$ in millions
Asset Quality Metrics
30+ days past due
% of period-end loan receivables
Net charge-offs
% of average loan receivables including held for sale
27
90+ days past due
% of period-end loan receivables
Allowance for credit losses
% of period-end loan receivables
Capital and Liquidity
Capital ratios(a)
Common equity Tier 1 - Basel III
Liquidity
Liquid assets and undrawn credit facilities
$ in billions
_____________________
(a)Prior period amounts have been recast to reflect the change in presentation. See Note 2. Basis of Presentation and Summary of Significant Accounting Policies to our consolidated financial statements for additional information.
28
Highlights for the Year Ended December 31, 2023
Below are highlights of our performance for the year ended December 31, 2023 compared to the year ended December 31, 2022, as applicable, except as otherwise noted.
•Net earnings decreased 25.8% to $2.2 billion for the year ended December 31, 2023, primarily driven by increases in provision for credit losses and higher interest expense, partially offset by higher interest income and lower retailer share arrangements.
•Loan receivables increased 11.4% to $103.0 billion at December 31, 2023 compared to December 31, 2022, driven by lower customer payment rates and purchase volume growth.
•Net interest income increased 8.8% to $17.0 billion for the year ended December 31, 2023. Interest and fees on loans increased 17.9%, primarily driven by growth in average loan receivables and higher benchmark rates. Interest expense increased 144.0%, due to higher benchmark rates and higher funding liabilities.
•Retailer share arrangements decreased 15.5% to $3.7 billion for the year ended December 31, 2023, primarily due to higher net charge-offs as well as the impact of portfolios sold in the second quarter of 2022, partially offset by higher net interest income.
•Over-30 day loan delinquencies as a percentage of period-end loan receivables increased 109 basis points to 4.74% at December 31, 2023 from 3.65% at December 31, 2022. The net charge-off rate increased 187 basis points to 4.87% for the year ended December 31, 2023.
•Provision for credit losses increased by $2.6 billion to $6.0 billion, for the year ended December 31, 2023, primarily driven by higher net charge-offs and a higher reserve build in the current year. The increase in reserves for credit losses was $1.3 billion for the year ended December 31, 2023 primarily driven by growth in loan receivables. Our allowance coverage ratio (allowance for credit losses as a percentage of period-end loan receivables) decreased to 10.26% at December 31, 2023, as compared to 10.30% at December 31, 2022.
•Other expense increased by $421 million, or 9.7%, for the year ended December 31, 2023, primarily driven by increases in both employee and information processing costs, as well as higher operational losses.
•At December 31, 2023, deposits represented 84% of our total funding sources. Total deposits increased 13.1% to $81.2 billion at December 31, 2023, compared to December 31, 2022.
•During the year ended December 31, 2023, we declared and paid cash dividends on our Series A 5.625% non-cumulative preferred stock of $56.24 per share, or $42 million.
•During the year ended December 31, 2023, we repurchased $1.1 billion of our outstanding common stock, and declared and paid cash dividends of $0.96 per common share, or $406 million. In April 2023, we announced that our Board approved an incremental share repurchase authorization of $1.0 billion through June 2024 and increased our quarterly dividend to $0.25 per common share commencing in the third quarter of 2023. At December 31, 2023, we had a total share repurchase authorization of $600 million remaining. For more information, see “Capital—Dividend and Share Repurchases.”
•In November 2023, we entered into an agreement for the sale of Pets Best for consideration comprising a combination of cash and an equity interest in Independence Pet Holdings, Inc. The transaction is expected to close in the first quarter of 2024, subject to regulatory approval and other customary closing conditions, and is estimated to result in the recognition of a gain on sale, net of tax, of approximately $750 million. The gain amount to be recognized is subject to change based upon the carrying amount of net assets of Pets Best and the final valuation of consideration to be received at closing.
29
•In January 2024, we announced our agreement to acquire Ally Financial Inc.'s point of sale financing business, Ally Lending. The assets of Ally Lending at December 31, 2023 included approximately $2.2 billion of loan receivables. The transaction is expected to close in the first quarter of 2024, subject to the completion of customary closing conditions.
2023 Partner Agreements
During the year ended December 31, 2023, we continued to expand and diversify our portfolios with the addition or renewal of more than 60 partners, which included the following:
Home & Auto:
New partnerships:
• Big Brand Tire & Service
• LG Air Conditioning
• GreatWater 360 Auto Care
• Roto Rooter
• Installation Made Easy
Program extensions:
• CCA Global Partners
• Living Spaces
• CertainPath
• LoveSac
• Conn's
• Morris Furniture Company
• Haverty's Furniture
• Rheem
• Haynes
• York
• Horizon
Diversified & Value:
Program extensions:
• Belk
Health & Wellness:
New partnerships:
• Albertsons Companies
• Marquee Dental Partners
• AmeriVet Veterinary Partners
• O'Brien Vet Group
• Destination Pet
• Sonova
• Hand & Stone
• Specialty 1 Partners
• Heart and Paw
• Valley Veterinary
Extensions:
• American Dental Association
• The Good Feet Store
• Academy of General Dentistry
• NVA
• The Aspen Group
• PetVet Care Centers
Lifestyle:
New partnerships:
• J.Crew
Program extensions:
• Club Champion
• Robbins Brothers
• Handi Quilter
• The Alliance of Independent Music Merchants
• JTV
• The Container Store
• Park West Gallery
• Vanderhall Motorworks
• Piaggio
30
Summary Earnings
The following table sets forth our results of operations for the periods indicated.
Years ended December 31,
($ in millions)
2023
2022
2021
Interest income
$
20,710
$
17,146
$
15,271
Interest expense
3,711
1,521
1,032
Net interest income
16,999
15,625
14,239
Retailer share arrangements
(3,661)
(4,331)
(4,528)
Provision for credit losses
5,965
3,375
726
Net interest income, after retailer share arrangements and provision for credit losses
7,373
7,919
8,985
Other income
289
380
481
Other expense
4,758
4,337
3,963
Earnings before provision for income taxes
2,904
3,962
5,503
Provision for income taxes
666
946
1,282
Net earnings
$
2,238
$
3,016
$
4,221
Net earnings available to common stockholders
$
2,196
$
2,974
$
4,179
31
Other Financial and Statistical Data
The following table sets forth certain other financial and statistical data for the periods indicated.
At and for the years ended December 31 ($ in millions)
2023
2022
2021
Financial Position Data (Average):
Loan receivables, including held for sale
$
94,832
$
84,672
$
78,928
Total assets
$
109,819
$
98,152
$
94,114
Deposits
$
75,889
$
66,006
$
61,302
Borrowings
$
14,918
$
13,783
$
14,421
Total equity
$
13,669
$
13,372
$
13,723
Selected Performance Metrics:
Purchase volume(1)(2)
$
185,178
$
180,187
$
165,854
Home & Auto
$
47,410
$
47,288
$
42,848
Digital
$
55,051
$
51,394
$
44,701
Diversified & Value
$
61,227
$
56,666
$
46,998
Health & Wellness
$
15,565
$
13,569
$
11,715
Lifestyle
$
5,922
$
5,498
$
5,319
Corp, Other
$
3
$
5,772
$
14,273
Average active accounts (in thousands)(2)(3)
70,337
68,627
67,334
Net interest margin(4)
15.15
%
15.63
%
14.74
%
Net charge-offs
$
4,620
$
2,536
$
2,304
Net charge-offs as a % of average loan receivables, including held for sale
4.87
%
3.00
%
2.92
%
Allowance coverage ratio(5)
10.26
%
10.30
%
10.76
%
Return on assets(6)
2.0
%
3.1
%
4.5
%
Return on equity(7)
16.4
%
22.6
%
30.8
%
Equity to assets(8)
12.45
%
13.62
%
14.58
%
Other expense as a % of average loan receivables, including held for sale
5.02
%
5.12
%
5.02
%
Efficiency ratio(9)
34.9
%
37.2
%
38.9
%
Effective income tax rate
22.9
%
23.9
%
23.3
%
Selected Period End Data:
Loan receivables
$
102,988
$
92,470
$
80,740
Allowance for credit losses
$
10,571
$
9,527
$
8,688
30+ days past due as a % of period-end loan receivables(10)
4.74
%
3.65
%
2.62
%
90+ days past due as a % of period-end loan receivables(10)
2.28
%
1.69
%
1.17
%
Total active accounts (in thousands)(2)(3)
73,484
70,763
72,420
__________________
(1)Purchase volume, or net credit sales, represents the aggregate amount of charges incurred on credit cards or other credit product accounts less returns during the period.
(2)Includes activity and accounts associated with loan receivables held for sale.
(3)Active accounts represent credit card or installment loan accounts on which there has been a purchase, payment or outstanding balance in the current month.
(4)Net interest margin represents net interest income divided by average interest-earning assets.
(5)Allowance coverage ratio represents allowance for credit losses divided by total period-end loan receivables.
(6)Return on assets represents net earnings as a percentage of average total assets.
(7)Return on equity represents net earnings as a percentage of average total equity.
(8)Equity to assets represents average equity as a percentage of average total assets.
(9)Efficiency ratio represents (i) other expense, divided by (ii) sum of net interest income, plus other income, less retailer share arrangements.
(10)Based on customer statement-end balances extrapolated to the respective period-end date.
32
Average Balance Sheet
The following table sets forth information for the periods indicated regarding average balance sheet data, which are used in the discussion of interest income, interest expense and net interest income that follows.
2023
2022
2021
Years ended December 31 ($ in millions)
Average Balance
Interest Income / Expense
Average
Yield /
Rate(1)
Average Balance
Interest Income/ Expense
Average
Yield /
Rate(1)
Average Balance
Interest Income/ Expense
Average
Yield /
Rate(1)
Assets
Interest-earning assets:
Interest-earning cash and equivalents(2)
$
13,272
$
678
5.11
%
$
10,215
$
194
1.90
%
$
11,673
$
15
0.13
%
Securities available for sale
4,077
130
3.19
%
5,108
71
1.39
%
5,975
28
0.47
%
Loan receivables, including held for sale(3):
Credit cards
89,383
19,341
21.64
%
80,119
16,471
20.56
%
75,052
14,880
19.83
%
Consumer installment loans
3,501
401
11.45
%
2,834
287
10.13
%
2,460
241
9.80
%
Commercial credit products
1,826
150
8.21
%
1,642
117
7.13
%
1,359
103
7.58
%
Other
122
10
8.20
%
77
6
7.79
%
57
4
7.02
%
Total loan receivables, including held for sale
94,832
19,902
20.99
%
84,672
16,881
19.94
%
78,928
15,228
19.29
%
Total interest-earning assets
112,181
20,710
18.46
%
99,995
17,146
17.15
%
96,576
15,271
15.81
%
Non-interest-earning assets:
Cash and due from banks
962
1,472
1,597
Allowance for credit losses
(9,726)
(8,844)
(9,402)
Other assets
6,402
5,529
5,343
Total non-interest-earning assets
(2,362)
(1,843)
(2,462)
Total assets
$
109,819
$
98,152
$
94,114
Liabilities
Interest-bearing liabilities:
Interest-bearing deposit accounts
$
75,487
$
2,952
3.91
%
$
65,624
$
1,008
1.54
%
$
60,953
$
566
0.93
%
Borrowings of consolidated securitization entities
6,274
340
5.42
%
6,468
196
3.03
%
7,248
169
2.33
%
Senior and subordinated unsecured notes
8,644
419
4.85
%
7,315
317
4.33
%
7,173
297
4.14
%
Total interest-bearing liabilities
90,405
3,711
4.10
%
79,407
1,521
1.92
%
75,374
1,032
1.37
%
Non-interest-bearing liabilities:
Non-interest-bearing deposit accounts
402
382
349
Other liabilities
5,343
4,991
4,668
Total non-interest-bearing liabilities
5,745
5,373
5,017
Total liabilities
96,150
84,780
80,391
Equity
Total equity
13,669
13,372
13,723
Total liabilities and equity
$
109,819
$
98,152
$
94,114
Interest rate spread(4)
14.36
%
15.23
%
14.44
%
Net interest income
$
16,999
$
15,625
$
14,239
Net interest margin(5)
15.15
%
15.63
%
14.74
%
____________________
(1)Average yields/rates are based on total interest income/expense over average balances.
(2)Includes average restricted cash balances of $279 million, $558 million and $459 million for the years ended December 31, 2023, 2022 and 2021, respectively.
33
(3)Interest income on loan receivables includes fees on loans, which primarily consist of late fees on our credit products, of $2.7 billion, $2.7 billion and $2.3 billion for the years ended December 31, 2023, 2022 and 2021, respectively.
(4)Interest rate spread represents the difference between the yield on total interest-earning assets and the rate on total interest-bearing liabilities.
(5)Net interest margin represents net interest income divided by average total interest-earning assets.
The following table sets forth the amount of changes in interest income and interest expense due to changes in average volume and average yield/rate. Variances due to changes in both average volume and average yield/rate have been allocated between the average volume and average yield/rate variances on a consistent basis based upon the respective percentage changes in average volume and average yield/rate.
2023 vs. 2022
2022 vs. 2021
Increase (decrease) due to change in:
Increase (decrease) due to change in:
($ in millions)
Average Volume
Average Yield / Rate
Net Change
Average Volume
Average Yield / Rate
Net Change
Interest-earning assets:
Interest-earning cash and equivalents
$
73
$
411
$
484
$
(2)
$
181
$
179
Securities available for sale
(17)
76
59
(5)
48
43
Loan receivables, including held for sale:
Credit cards
1,974
896
2,870
1,030
561
1,591
Consumer installment loans
73
41
114
38
8
46
Commercial credit products
14
19
33
20
(6)
14
Other
4
—
4
2
—
2
Total loan receivables, including held for sale
2,065
956
3,021
1,090
563
1,653
Change in interest income from total interest-earning assets
$
2,121
$
1,443
$
3,564
$
1,083
$
792
$
1,875
Interest-bearing liabilities:
Interest-bearing deposit accounts
$
173
$
1,771
$
1,944
$
46
$
396
$
442
Borrowings of consolidated securitization entities
(6)
150
144
(20)
47
27
Senior and subordinated unsecured notes
62
40
102
6
14
20
Change in interest expense from total interest-bearing liabilities
229
1,961
2,190
32
457
489
Total change in net interest income
$
1,892
$
(518)
$
1,374
$
1,051
$
335
$
1,386
34
Business Trends and Conditions
We believe our business and results of operations will be impacted in the future by various trends and conditions, including the following:
•CFPB final rule on credit card late fees. In February 2023, the CFPB issued a notice of proposed rulemaking which, if adopted as proposed, would amend regulations to lower the safe harbor dollar amount for credit card late payment fees from the current $30 (adjusted to $41 for each subsequent late payment within the next six billing cycles) to $8 and to cap late fees at 25% of the minimum payment due.The proposed rule, if adopted and not successfully challenged through litigation, would result in a significant reduction of credit card late fees assessed by credit card issuers who utilize the safe harbor, including Synchrony. For the year ended December 31, 2023, interest income on loan receivables included fees on loans of $2.7 billion, which primarily consist of late fees on our credit products, net of reversals. To the extent that a final rule is issued with a compliance deadline in 2024, and if any legal challenges to the rule are unsuccessful, we would expect this to significantly reduce our interest income on loan receivables in 2024. While we cannot provide any assurance as to the precise timing and content of a final rule or the outcome of any litigation challenging the rule, we have identified a number of strategies that we have begun to implement or will look to implement to mitigate the effects of a significant reduction in our late fee income. In addition, the combined net effects of a rule issuance and our mitigating strategies would result in a decrease in payments to partners pursuant to our retailer share arrangements. While we believe that the alternate strategies we have identified would mitigate a decline in late fee income over time, we do expect the final rule, once effective, to have an adverse effect on our results of operations in 2024. The magnitude of the effects in 2024 from the final rule will be dependent upon the timing of issuance and content of the final rule, the outcome of any legal challenges to the rule and our ability to successfully implement the mitigating strategies we have identified. For a discussion of risks related to a CFPB final late fee rule, please see “—Risk Factors Relating to our Business—The CFPB’s proposed rule on credit card late fees, if adopted, could materially adversely affect our business and results of operations.”
•Growth in loan receivables and interest income. During 2023 we experienced purchase volume growth that reflected the continued strength of the consumer. Purchase volume for the year ended December 31, 2023 increased 2.8%. In addition, customer payments as a percentage of beginning-of-period loan receivables remain elevated compared to historical averages. However, we have continued to experience moderation in payment rates during 2023 that, in addition to the purchase volume growth discussed above, have contributed to increases in both loan receivables and interest income for the year ended December 31, 2023. We expect interest income and loan receivables to increase in 2024, primarily reflecting both the continued moderation of customer payment behavior and the impact of higher benchmark interest rates, as well as from purchase volume growth. The amount of the increases, however, will be dependent on various factors. These factors include the timing and extent of continued payment rate moderation and changes in benchmark interest rates. In addition, on January 19, 2024 we announced our agreement to acquire Ally Lending, whose assets at December 31, 2023 included approximately $2.2 billion of loan receivables. We expect to close this transaction, subject to customary closing conditions, in the first quarter of 2024. See above for potential additional impacts from the CFPB final rule on credit card late fees.
•Asset quality. As a result of the continued moderation of customer payment behavior, our delinquencies and net charge-offs have increased in 2023 compared to the prior year. Our over-30 day loan delinquencies as a percentage of period-end loan receivables increased to 4.74% at December 31, 2023 from 3.65% at December 31, 2022. Our net charge-off rate for the year ended December 31, 2023 increased by 187 basis points to 4.87%. We anticipate that the effects of moderating customer payment behavior will continue to impact our credit metrics in 2024, most notably in an increase in net charge-offs as they continue to trend towards our target underwriting range of 5.5%-6.0%. We have also experienced increases to both our allowance for credit losses and provision for credit losses during the year ended December 31, 2023 primarily attributable to the higher net charge-offs and growth in our loan receivables. Our allowance coverage ratio at December 31, 2023 was 10.26%. We anticipate that our allowance for credit losses and provision for credit losses in 2024 will be higher than the current year period primarily due to the anticipated increase in net charge-offs and growth in loan receivables.
35
•Funding costs. During 2023 benchmark interest rates increased significantly and our average funding liabilities have also increased to support the growth in our loan receivables. As a result, interest expense for the year ended December 31, 2023 increased by $2.2 billion or 144.0%, compared to the prior year, and our cost of funds increased by 218 basis points to 4.10%. While we expect there to be some benchmark interest rate cuts in 2024, we expect interest expense and our cost of funds to continue to increase, reflecting both the continuing impact of higher benchmark rates as our fixed rate funding reprices, as well as growth in our funding liabilities to support the expected growth in loan receivables. The amount of the increases however will be dependent on further benchmark rate changes, competition for our deposit product offerings and the extent of the growth in our loan receivables.
•Retailer share arrangement payments under our program agreements. Retailer share arrangements decreased 15.5% to $3.7 billion for the year ended December 31, 2023, primarily reflecting the impact of higher net charge-offs and the impact of portfolios sold in the second quarter of 2022, partially offset by higher net interest income. We believe that the payments we make to our partners under our retailer share arrangements, in the aggregate, in 2024 are likely to remain flat compared to the year ended December 31, 2023, primarily as a result of the impact of the expected credit trends discussed above offset by growth of the programs for which we have retailer share arrangements. The expected trend in retailer share arrangements will be dependent in part on the precise timing and extent of the anticipated credit trends discussed above. See Management’s Discussion and Analysis—Retailer Share Arrangements for additional information on these agreements. See above for potential additional impacts from the CFPB final rule on credit card late fees.
•Extended duration of our credit card program agreements. Our credit card program agreements typically have contract terms ranging from approximately five to ten years, and the length of our relationship with each of our five largest partners is over 16 years, and in the case of Lowe's, 44 years. We expect to continue to benefit from these and our other programs on a long-term basis.
The current expiration dates of our program agreements with our five largest partners range from 2026 through 2033. In addition, a total of 18 of our 25 largest program agreements have an expiration date in 2026 or beyond. These program agreements represented, in the aggregate, 94% of our interest and fees on loans for the year ended December 31, 2023 and 92% of our loan receivables at December 31, 2023 attributable to our 25 largest programs.
•Growth in interchange revenues and loyalty program costs. We believe that as a result of the overall growth in Dual Card and general purpose co-branded credit card transactions occurring outside of our credit card partners’ locations, interchange revenues will continue to increase. The expected growth in these transactions is driven, in part, by both existing and new loyalty programs with our credit card partners. In addition, we continue to offer and add new loyalty programs for our private label credit cards, for which we typically do not receive interchange fees. The growth in these existing and new loyalty programs will result in an increase in costs associated with these programs. For the year ended December 31, 2023, our loyalty program costs were partially offset by our interchange revenues, although the increase in loyalty program costs exceeded the increase in interchange revenues. Overall, we expect these trends for our loyalty program costs and interchange revenues to continue in 2024. These changes have been contemplated in our program agreements with our partners and are a component of the calculation of our payments due under our retailer share arrangements.
36
•Capital and liquidity levels. We continue to expect to maintain sufficient capital and liquidity resources to support our daily operations, our business growth, and our credit ratings as well as regulatory and compliance requirements in a cost effective and prudent manner through expected and unexpected market environments. During the year ended December 31, 2023, we declared and paid common stock dividends of $406 million and repurchased $1.1 billion of our outstanding common stock. We plan to continue to deploy capital through both dividends and share repurchases, subject to regulatory restrictions, as well as to support business growth. At December 31, 2023 we had $600 million remaining in share repurchase authorization. We continue to expect to maintain capital ratios well in excess of minimum regulatory requirements. At December 31, 2023, the Company had a Basel III common equity Tier 1 ratio of 12.2%, which reflects our election to defer the impact of CECL on our regulatory capital and the current year phase-in of 25% of the impact. The effects of CECL are being phased-in over a three-year transitional period through December 31, 2024 and will be fully phased-in beginning in the first quarter of 2025. As a result of the third year of the phase-in, our common equity Tier 1 ratio will be reduced by approximately 50 additional basis points in 2024. In addition, in the first quarter of 2024, we expect to close both the sale of Pets Best and the acquisition of Ally Lending. The net impact of these transactions to our regulatory capital will result in an increase to our common equity Tier 1 ratio.
We expect that our liquidity portfolio will continue to be sufficient to support all of our business objectives and to meet all regulatory requirements for the foreseeable future. At December 31, 2023 our liquid assets were $16.8 billion, an increase of 18% compared to the prior year, primarily as a result of deposit growth, and retention of excess cash flows from operations, partially offset by loan receivables growth and share repurchase activity.
Seasonality
We experience fluctuations in transaction volumes and the level of loan receivables as a result of higher seasonal consumer spending and payment patterns that typically result in an increase of loan receivables from August through a peak in late December, with reductions in loan receivables typically occurring over the first and second quarters of the following year as customers pay their balances down.
The seasonal impact to transaction volumes and the loan receivables balance typically results in fluctuations in our results of operations, delinquency metrics and the allowance for credit losses as a percentage of total loan receivables between quarterly periods. These fluctuations are generally most evident between the fourth quarter and the first quarter of the following year.
In addition to the seasonal variance in loan receivables discussed above, we also typically experience a seasonal increase in delinquency rates and delinquent loan receivables balances during the third and fourth quarters of each year due to lower customer payment rates, resulting in higher net charge-off rates in the first and second quarters. Our delinquency rates and delinquent loan receivables balances typically decrease during the subsequent first and second quarters as customers begin to pay down their loan balances and return to current status, resulting in lower net charge-off rates in the third and fourth quarters. Because customers who were delinquent during the fourth quarter of a calendar year have a higher probability of returning to current status when compared to customers who are delinquent at the end of each of our interim reporting periods, we expect that a higher proportion of delinquent accounts outstanding at an interim period end will result in charge-offs, as compared to delinquent accounts outstanding at a year end. Consistent with this historical experience, we generally experience a higher allowance for credit losses as a percentage of total loan receivables at the end of an interim period, as compared to the end of a calendar year. In addition, even in instances of improving credit metrics such as declining past due amounts, we may experience an increase in our allowance for credit losses at an interim period end compared to the prior year end, reflecting these same seasonal trends.
However, in addition to these seasonal trends, the elevated customer payment behavior we have experienced in recent years and more recently the subsequent moderation from these elevated levels, has also significantly impacted our key financial metrics and the fluctuations experienced between quarterly periods. The effects from these changes in customer payment behavior have resulted in either partial, or in some instances full, offset to the impact from the ongoing seasonal trends discussed above.
37
Interest Income
Interest income is comprised of interest and fees on loans, which includes merchant discounts provided by partners to compensate us in almost all cases for all or part of the promotional financing provided to their customers, and interest on cash and equivalents and investment securities. We include in interest and fees on loans any past due interest and fees deemed to be collectible. Direct loan origination costs on credit card loans are deferred and amortized on a straight-line basis over a one-year period and recorded in interest and fees on loans. For non-credit card receivables, direct loan origination costs are deferred and amortized over the life of the loan and recorded in interest and fees on loans.
We analyze interest income as a function of two principal components: average interest-earning assets and yield on average interest-earning assets. Key drivers of average interest-earning assets include:
•purchase volumes, which are influenced by a number of factors including macroeconomic conditions and consumer confidence generally, our partners’ sales and our ability to increase our share of those sales;
•payment rates, reflecting the extent to which customers maintain a credit balance;
•charge-offs, reflecting the receivables that are deemed not to be collectible;
•the size of our liquidity portfolio; and
•portfolio acquisitions when we enter into new partner relationships.
Key drivers of yield on average interest-earning assets include:
•pricing (contractual rates of interest, movement in prime rates, late fees and merchant discount rates);
•changes to our mix of loans (e.g., the number of loans bearing promotional rates as compared to standard rates);
•frequency of late fees incurred when account holders fail to make their minimum payment by the required due date;
•credit performance and accrual status of our loans, including reversals of interest and fees; and
•yield earned on our liquidity portfolio.
Interest income increased by $3.6 billion, or 20.8%, for the year ended December 31, 2023, primarily driven by the increase in interest and fees on loans of 17.9%. The increase in interest and fees on loans were primarily driven by growth in average loan receivables and higher benchmark rates, partially offset by the impact of portfolios sold in the second quarter of 2022.
Average interest-earning assets
Years ended December 31 ($ in millions)
2023
2022
Loan receivables, including held for sale
$
94,832
$
84,672
Liquidity portfolio and other
17,349
15,323
Total average interest-earning assets
$
112,181
$
99,995
Average loan receivables, including held for sale, increased 12.0% for the year ended December 31, 2023, primarily driven by moderation in customer payment rates and growth in purchase volume growth, partially offset by the impacts from portfolios sold in the second quarter of 2022. Purchase volume increased 2.8% for the year ended December 31, 2023.
38
Yield on average interest-earning assets
The yield on average interest-earning assets increased for the year ended December 31, 2023 primarily due to increases in the yield on average loan receivables. The increase in average loan receivables yield was 105 basis points to 20.99% for the year ended December 31, 2023.
Interest Expense
Interest expense is incurred on our interest-bearing liabilities, which consists of interest-bearing deposit accounts, borrowings of consolidated securitization entities and senior and subordinated unsecured notes.
Key drivers of interest expense include:
•the amounts outstanding of our deposits and borrowings;
•the interest rate environment and its effect on interest rates paid on our funding sources; and
•the changing mix in our funding sources.
Interest expense increased by $2.2 billion, or 144.0%, for the year ended December 31, 2023, primarily attributed to higher benchmark interest rates and higher funding liabilities. Our cost of funds increased to 4.10% for the year ended December 31, 2023 compared to 1.92% for the year ended December 31, 2022.
Average interest-bearing liabilities
Years ended December 31 ($ in millions)
2023
2022
Interest-bearing deposit accounts
$
75,487
$
65,624
Borrowings of consolidated securitization entities
6,274
6,468
Senior and subordinated unsecured notes
8,644
7,315
Total average interest-bearing liabilities
$
90,405
$
79,407
Net Interest Income
Net interest income represents the difference between interest income and interest expense.
Net interest income increased by $1.4 billion, or 8.8%, for the year ended December 31, 2023, resulting from the changes in interest income and interest expense discussed above.
39
Retailer Share Arrangements
Most of our program agreements with large retail and certain other partners contain retailer share arrangements that provide for payments to our partners if the economic performance of the program exceeds a contractually defined threshold. We also provide other economic benefits to our partners such as royalties on purchase volume or payments for new accounts, in some cases instead of retailer share arrangements (for example, on our co-branded credit cards). All of these arrangements are designed to align our interests and provide an additional incentive to our partners to promote our credit products. Although the retailer share arrangements vary by partner, these arrangements are generally structured to measure the economic performance of the program, based typically on agreed upon program revenues (including interest income and certain other income) less agreed upon program expenses (including interest expense, provision for credit losses, retailer payments and operating expenses), and share portions of this amount above a negotiated threshold. The threshold and economic performance of a program that are used to calculate payments to our partners may be based on, among other things, agreed upon measures of program expenses rather than our actual expenses, and therefore increases in our actual expenses (such as funding costs, higher provision for credit losses or operating expenses) may not necessarily result in reduced payments under our retailer share arrangements. These arrangements are typically designed to permit us to achieve an economic return before we are required to make payments to our partners based on the agreed contractually defined threshold. Our payments to partners pursuant to these retailer share arrangements are dependent upon the growth and performance, including credit trends, of the programs in which we have retailer share arrangements, as well as changes to the terms of certain program agreements that have been renegotiated in the past few years. See above in Business Trends and Conditions, for a discussion of our expected trends in retailer share arrangements for 2024.
We believe that our retailer share arrangements have been effective in helping us to grow our business by aligning our partners’ interests with ours. We also believe that the changes to the terms of certain program agreements in recent years will help us to grow our business by providing an additional incentive to the relevant partners to promote our credit products going forward. Payments to partners pursuant to these retailer share arrangements would generally decrease, and mitigate the impact on our profitability, in the event of declines in the performance of the programs or the occurrence of other unfavorable developments that impact the calculation of payments to our partners pursuant to our retailer share arrangements.
Retailer share arrangements decreased by $670 million, or 15.5%, for the year ended December 31, 2023, primarily due to higher net charge-offs and the impact of portfolios sold in the second quarter of 2022, partially offset by higher net interest income.
Provision for Credit Losses
Provision for credit losses is the expense related to maintaining the allowance for credit losses at an appropriate level to absorb the expected credit losses for the life of the loan balance as of the period end date. Provision for credit losses in each period is a function of net charge-offs (gross charge-offs net of recoveries) and the required level of the allowance for credit losses. Our process to determine our allowance for credit losses is based upon our estimate of expected credit losses for the life of the loan balance as of the period end date. See “Critical Accounting Estimates - Allowance for Credit Losses” and Note 2. Basis of Presentation and Summary of Significant Accounting Policies to our consolidated financial statements for additional information on our allowance for credit loss methodology.
Provision for credit losses increased by $2.6 billion to $6.0 billion, for the year ended December 31, 2023, primarily driven by higher net charge-offs and a higher reserve build in the current year. The increase in reserves for credit losses of $1.3 billion was primarily driven by growth in loan receivables, as compared to the prior year increase of $839 million.
Other Income
Years ended December 31 ($ in millions)
2023
2022
Interchange revenue
$
1,031
$
982
Protection product revenue
510
387
Loyalty programs
(1,370)
(1,257)
Other
118
268
Total other income
$
289
$
380
40
Interchange revenue
We earn interchange fees on Dual Card and other co-branded credit card transactions outside of our partners’ sales channels, generally based on a flat fee plus a percentage of the purchase amount. Interchange revenue has been, and is expected to continue to be, driven primarily by growth in our Dual Card and general purpose co-branded credit card products.
Interchange revenue increased by $49 million, or 5.0%, for the year ended December 31, 2023, driven by an increase in purchase volume outside of our retail partners' sales channels, partially offset by the impacts of portfolios sold in the second quarter of 2022.
Protection product revenue
We offer our Payment Security program, which is a debt cancellation product, to our credit card customers via online, mobile and, on a limited basis, direct mail. For customers who choose to purchase these products, we earn a monthly fee based on their account balance. In return, we will cancel all or a portion of a customer’s credit card balance in the event of certain qualifying life events.
Protection product revenue increased by $123 million, or 31.8%, for the year ended December 31, 2023, primarily as a result of increases in customer enrollment and higher average balances on enrolled accounts.
Loyalty programs
We operate a number of loyalty programs that are designed to generate incremental purchase volume per customer, while reinforcing the value of the card and strengthening cardholder loyalty. These programs typically provide cardholders with statement credit or cash back rewards. Other programs include rewards points, which are redeemable for a variety of products or awards, or merchandise discounts that are earned by achieving a pre-set spending level on their private label credit card, Dual Card or general purpose co-branded credit card. Growth in loyalty program payments has been, and is expected to continue to be, driven by growth in purchase volume related to existing loyalty programs and the rollout of new loyalty programs.
Loyalty programs cost increased by $113 million, or 9.0%, for the year ended December 31, 2023, primarily as a result of growth in purchase volume associated with existing loyalty programs.
Other
Other includes a variety of items including ancillary fees, commission fees related to Pets Best, changes in the fair value of equity investments and realized gains or losses associated with the sale of investments, loan receivables or other assets.
Other decreased by $150 million, or 56.0%, for the year ended December 31, 2023 primarily due to the recognition in the prior year of the gain on sale of $120 million from portfolio sales in the second quarter of 2022.
Other Expense
Years ended December 31 ($ in millions)
2023
2022
Employee costs
$
1,884
$
1,681
Professional fees
842
832
Marketing and business development
527
487
Information processing
712
623
Other
793
714
Total other expense
$
4,758
$
4,337
Employee costs
Employee costs primarily consist of employee compensation and benefit costs.
41
Employee costs increased by $203 million, or 12.1%, for the year ended December 31, 2023, primarily attributable to an increase in headcount driven by business growth, higher benefit costs and $43 million of restructuring costs related to a voluntary early retirement program.
Professional fees
Professional fees consist primarily of outsourced provider fees (e.g., collection agencies and call centers), legal, accounting, consulting, and recruiting expenses.
Professional fees increased by $10 million, or 1.2%, for the year ended December 31, 2023, primarily due to increased technology investments.
Marketing and business development
Marketing and business development costs consist primarily of our contractual and discretionary marketing and business development spend, as well as amortization expense associated with contract costs related to our retail partner agreements.
Marketing and business development increased by $40 million, or 8.2%, for the year ended December 31, 2023, due to higher marketing investments in the current year to support business growth.
Information processing
Information processing costs primarily consist of fees related to outsourced information processing providers, credit card associations and software licensing agreements, as well as amortization of capitalized software expenditures.
Information processing costs increased by $89 million, or 14.3%, for the year ended December 31, 2023, primarily driven by increased technology investments and purchase volume growth.
Other
Other primarily consists of postage, fraud-related operational losses, litigation and regulatory matters expense and various other corporate overhead items such as facilities' costs and telephone charges. Postage is driven primarily by the number of our active accounts and the percentage of customers that utilize our electronic billing option. Fraud-related operational losses are driven primarily by the number of our active Dual Card and general purpose co-branded credit card accounts.
The “other” component increased by $79 million, or 11.1%, for the year ended December 31, 2023, primarily due to higher operational losses, partially offset by lower charitable contributions.
Provision for Income Taxes
Years ended December 31 ($ in millions)
2023
2022
Effective tax rate
22.9
%
23.9
%
Provision for income taxes
$
666
$
946
The effective tax rate for the year ended December 31, 2023, decreased compared to the prior year primarily due to the impact of higher research and development credits and low income housing tax credits recorded in the current year. The impact of all effective tax rate drivers is larger in the current year due to a decline of pre-tax income. The effective tax rate differs from the U.S. federal statutory tax rate primarily due to state income taxes.
Platform Analysis
As discussed above under “Our Business—Our Sales Platforms,” we offer our credit products through five sales platforms (Home & Auto, Digital, Diversified & Value, Health & Wellness and Lifestyle), which management measures based on their revenue-generating activities. The following is a discussion of certain supplemental information for the years ended December 31, 2023 and 2022, for each of our five sales platforms and Corp, Other.
42
Home & Auto
Years ended December 31 ($ in millions)
2023
2022
Purchase volume
$
47,410
$
47,288
Period-end loan receivables
$
31,969
$
29,978
Average loan receivables, including held for sale
$
30,722
$
27,835
Average active accounts (in thousands)
18,967
18,080
Interest and fees on loans
$
5,270
$
4,670
Other income
$
106
$
87
Home & Auto interest and fees on loans increased by $600 million, or 12.8%, for the year ended December 31, 2023, primarily driven by growth in average loan receivables of 10.4% and higher benchmark rates. The growth in average loan receivables reflected the impact of lower customer payment rates and average active account growth of 4.9%. Purchase volume was flat, as growth in commercial, Home Specialty and Auto were offset by lower retail traffic in Furniture and Electronics and the impact of lower gas and lumber prices.
Other income increased by $19 million, or 21.8%, for the year ended December 31, 2023 primarily driven by higher payment protection revenue.
Digital
Years ended December 31 ($ in millions)
2023
2022
Purchase volume
$
55,051
$
51,394
Period-end loan receivables
$
28,925
$
25,522
Average loan receivables, including held for sale
$
26,005
$
22,185
Average active accounts (in thousands)
20,793
19,421
Interest and fees on loans
$
5,894
$
4,599
Other income
$
(14)
$
(61)
Digital interest and fees on loans increased by $1.3 billion, or 28.2%, for the year ended December 31, 2023, primarily driven by growth in average loan receivables of 17.2%, higher benchmark rates and the maturation of newer programs. The growth in average loan receivables reflected lower customer payment rates, purchase volume growth of 7.1%, and average active account growth of 7.1%.
Other income increased by $47 million for the year ended December 31, 2023, primarily driven by increases in interchange and protection product revenue, partially offset by higher program loyalty costs associated with the increases in purchase volume.
Diversified & Value
Years ended December 31 ($ in millions)
2023
2022
Purchase volume
$
61,227
$
56,666
Period-end loan receivables
$
20,666
$
18,617
Average loan receivables, including held for sale
$
18,414
$
16,042
Average active accounts (in thousands)
20,738
19,594
Interest and fees on loans
$
4,533
$
3,610
Other income
$
(93)
$
(105)
Diversified & Value interest and fees on loans increased by $923 million, or 25.6%, for the year ended December 31, 2023, primarily driven by growth in average loan receivables of 14.8%, and higher benchmark rates. The growth in average loan receivables reflected lower customer payment rates and purchase volume growth of 8.0%, reflecting higher out-of-partner spend, strong retailer performance and average active account growth of 5.8%.
43
Other income increased by $12 million for the year ended December 31, 2023 primarily driven by higher interchange and protection product revenue, partially offset by higher program loyalty costs associated with the increase in purchase volume.
Health & Wellness
Years ended December 31 ($ in millions)
2023
2022
Purchase volume
$
15,565
$
13,569
Period-end loan receivables
$
14,521
$
12,179
Average loan receivables, including held for sale
$
13,261
$
10,975
Average active accounts (in thousands)
7,169
6,326
Interest and fees on loans
$
3,231
$
2,710
Other income
$
271
$
217
Health & Wellness interest and fees on loans increased by $521 million, or 19.2%. for the year ended December 31, 2023, primarily driven by growth in average loan receivables of 20.8%. The growth in average loan receivables reflected continued higher promotional purchase volume and lower customer payment rates. Purchase volume increased 14.7%, and average active accounts increased 13.3%, reflecting broad-based growth led by Dental, Pet and Cosmetic.
Other income increased by $54 million for the year ended December 31, 2023, primarily due to higher protection product revenue.
Lifestyle
Years ended December 31 ($ in millions)
2023
2022
Purchase volume
$
5,922
$
5,498
Period-end loan receivables
$
6,744
$
5,970
Average loan receivables, including held for sale
$
6,246
$
5,552
Average active accounts (in thousands)
2,587
2,559
Interest and fees on loans
$
959
$
814
Other income
$
29
$
28
Lifestyle interest and fees on loans increased by $145 million, or 17.8%, for the year ended December 31, 2023, primarily driven by growth in average loan receivables of 12.5% and higher benchmark rates. The growth in average loan receivables reflected lower customer payment rates and purchase volume growth of 7.7%, which was primarily driven by higher transaction values in Outdoor and Luxury.
Other income remained flat for the year ended December 31, 2023, as higher protection product revenue was offset by higher program loyalty costs.
Corp, Other
Years ended December 31 ($ in millions)
2023
2022
Purchase volume
$
3
$
5,772
Period-end loan receivables
$
163
$
204
Average loan receivables, including held for sale
$
184
$
2,083
Average active accounts (in thousands)
83
2,647
Interest and fees on loans
$
15
$
478
Other income
$
(10)
$
214
44
The decreases shown above for the year ended December 31, 2023 for Corp, Other compared to the prior year reflect the effects of the sale of the BP and Gap Inc. portfolios in May 2022 and June 2022, respectively.
Loan receivables are our largest category of assets and represent our primary source of revenue. The following discussion provides supplemental information regarding our loan receivables portfolio. See Note 2. Basis of Presentation and Summary of Significant Accounting Policies and Note 5. Loan Receivables and Allowance for Credit Losses to our consolidated financial statements for additional information related to our loan receivables.
The following table sets forth the composition of our loan receivables portfolio by product type at the dates indicated.
($ in millions)
At December 31, 2023
(%)
At December 31, 2022
(%)
Loans
Credit cards
$
97,043
94.2
%
$
87,630
94.8
%
Consumer installment loans
3,977
3.9
%
3,056
3.3
Commercial credit products
1,839
1.8
%
1,682
1.8
Other
129
0.1
%
102
0.1
Total loans
$
102,988
100.0
%
$
92,470
100.0
%
Loan receivables increased 11.4% to $103.0 billion at December 31, 2023 compared to December 31, 2022, primarily driven by lower customer payment rates and purchase volume growth.
Our loan receivables portfolio, excluding held for sale, had the following maturity distribution at December 31, 2023.
($ in millions)
Within 1
Year(1)
1-5 Years(2)
5-15 Years
After 15 Years
Total
Loans
Credit cards
$
95,851
$
1,192
$
—
$
—
$
97,043
Consumer installment loans(3)
1,350
2,586
41
—
3,977
Commercial credit products
1,830
9
—
—
1,839
Other
65
46
12
6
129
Total loans
$
99,096
$
3,833
$
53
$
6
$
102,988
Loans due after one year at fixed interest rates
N/A
$
3,833
$
53
$
6
$
3,892
Loans due after one year at variable interest rates
N/A
—
—
—
—
Total loans due after one year
N/A
$
3,833
$
53
$
6
$
3,892
______________________
(1)Credit card loans have minimum payment requirements but no stated maturity and therefore are included in the due within one year category. However, many of our credit card holders will revolve their balances, which may extend their repayment period beyond one year for balances at December 31, 2023.
(2)Credit card and commercial loans due after one year relate to loans modified to borrowers experiencing financial difficulty.
(3)Reflects scheduled repayments up to the final contractual maturity of our installment loans.
Our loan receivables portfolio had the following geographic concentration at December 31, 2023.
($ in millions)
Loan Receivables Outstanding
% of Total Loan Receivables Outstanding
State
Texas
$
11,314
11.0
%
California
$
10,753
10.4
%
Florida
$
9,574
9.3
%
New York
$
5,006
4.9
%
North Carolina
$
4,248
4.1
%
45
Delinquencies
Over-30 day loan delinquencies as a percentage of period-end loan receivables increased to 4.74% at December 31, 2023, as compared to 3.65% at December 31, 2022. The 109 basis point increase in 2023 was primarily driven by lower customer payment rates.
Net Charge-Offs
Net charge-offs consist of the unpaid principal balance of loans held for investment that we determine are uncollectible, net of recovered amounts. We exclude accrued and unpaid finance charges and fees and third-party fraud losses from charge-offs. Charged-off and recovered finance charges and fees are included in interest and fees on loans while third-party fraud losses are included in other expense. Charge-offs are recorded as a reduction to the allowance for credit losses and subsequent recoveries of previously charged-off amounts are credited to the allowance for credit losses. Costs incurred to recover charged-off loans are recorded as collection expense and included in Other expense in our Consolidated Statements of Earnings.
The table below sets forth net charge-offs and the ratio of net charge-offs to average loan receivables, including held for sale, (“net charge-off rate”) for the periods indicated.
Years ended December 31
2023
2022
2021
($ in millions)
Amount
Rate
Amount
Rate
Amount
Rate
Credit cards
$
4,311
4.82
%
$
2,392
2.99
%
$
2,235
2.98
%
Consumer installment loans
189
5.40
%
80
2.82
%
38
1.54
%
Commercial credit products
119
6.52
%
63
3.84
%
30
2.28
%
Other
1
0.80
%
1
1.30
%
1
1.75
%
Total net charge-offs
$
4,620
4.87
%
$
2,536
3.00
%
$
2,304
2.92
%
Allowance for Credit Losses
The allowance for credit losses totaled $10.6 billion at December 31, 2023, compared to $9.5 billion at December 31, 2022, and reflects our estimate of expected credit losses for the life of the loan receivables on our Consolidated Statements of Financial Position. Our allowance for credit losses as a percentage of total loan receivables decreased to 10.26% at December 31, 2023, from 10.30% at December 31, 2022.
The increase in the allowance for credit losses was primarily due to growth in loan receivables, partially offset by a $294 million reduction related to the adoption of ASU 2022-02 on January 1, 2023 which eliminated the separate recognition and measurement guidance for troubled debt restructurings (“TDRs”). See Note 2. Basis of Presentation and Summary of Significant Accounting Policies and Note 5. Loan Receivables and Allowance for Credit Losses to our consolidated financial statements for additional information on the effects of adoption of the new accounting guidance.
We maintain a strong focus on liquidity and capital. Our funding, liquidity and capital policies are designed to ensure that our business has the liquidity and capital resources to support our daily operations, our business growth, our credit ratings and our regulatory and policy requirements, in a cost effective and prudent manner through expected and unexpected market environments.
Funding Sources
Our primary funding sources include cash from operations, deposits (direct and brokered deposits), securitized financings and senior and subordinated unsecured notes.
46
The following table summarizes information concerning our funding sources during the periods indicated:
2023
2022
2021
Years ended December 31 ($ in millions)
Average Balance
%
Average Rate
Average Balance
%
Average Rate
Average Balance
%
Average Rate
Deposits(1)
$
75,487
83.5
%
3.9
%
$
65,624
82.6
%
1.5
%
$
60,953
80.9
%
0.9
%
Securitized financings
6,274
6.9
5.4
6,468
8.2
3.0
7,248
9.6
2.3
Senior and subordinated unsecured notes
8,644
9.6
4.8
7,315
9.2
4.3
7,173
9.5
4.1
Total
$
90,405
100.0
%
4.1
%
$
79,407
100.0
%
1.9
%
$
75,374
100.0
%
1.4
%
______________________
(1)Excludes $402 million, $382 million and $349 million average balance of non-interest-bearing deposits for the years ended December 31, 2023, 2022 and 2021, respectively. Non-interest-bearing deposits comprise less than 10% of total deposits for the years ended December 31, 2023, 2022 and 2021.
Deposits
We obtain deposits directly from retail, affinity relationships and commercial customers (“direct deposits”) or through third-party brokerage firms that offer our deposits to their customers (“brokered deposits”). At December 31, 2023, we had $67.0 billion in direct deposits and $14.2 billion in deposits originated through brokerage firms (including network deposit sweeps procured through a program arranger that channels brokerage account deposits to us). A key part of our liquidity plan and funding strategy is to continue to utilize our direct deposit base as a source of stable and diversified low-cost funding.
Our direct deposits are primarily from retail customers and include a range of FDIC-insured deposit products, including certificates of deposit, IRAs, money market accounts, savings accounts, sweep and affinity deposits.
Brokered deposits are primarily from retail customers of large brokerage firms. We have relationships with 10 brokers that offer our deposits through their networks. Our brokered deposits consist primarily of certificates of deposit that bear interest at a fixed rate. These deposits generally are not subject to early withdrawal.
Our ability to attract deposits is sensitive to, among other things, the interest rates we pay, and therefore, we bear funding risk if we fail to pay higher rates, or interest rate risk if we are required to pay higher rates, to retain existing deposits or attract new deposits. To mitigate these risks, our funding strategy includes a range of deposit products, and we seek to maintain access to multiple other funding sources, including securitized financings (including our undrawn committed capacity) and unsecured debt.
The following table summarizes certain information regarding our interest-bearing deposits by type (all of which constitute U.S. deposits) for the periods indicated:
Years ended December 31 ($ in millions)
2023
2022
2021
Average Balance
%
Average Rate
Average Balance
%
Average Rate
Average Balance
%
Average Rate
Direct deposits:
Certificates of deposit (including IRA certificates of deposit)
$
33,104
43.9
%
3.8
%
$
22,405
34.1
%
1.3
%
$
22,129
36.3
%
1.3
%
Savings accounts, money market and demand accounts
29,073
38.5
%
4.1
30,915
47.1
1.5
28,408
46.6
0.5
Brokered deposits
13,310
17.6
%
3.9
12,304
18.8
2.1
10,416
17.1
1.4
Total interest-bearing deposits
$
75,487
100.0
%
3.9
%
$
65,624
100.0
%
1.5
%
$
60,953
100.0
%
0.9
%
Our deposit liabilities provide funding with maturities ranging from one day to ten years. At December 31, 2023, the weighted average maturity of our interest-bearing time deposits was 1.0 years. See Note 8. Deposits to our consolidated financial statements for more information on the maturities of our time deposits.
47
The following table summarizes deposits by contractual maturity at December 31, 2023.
($ in millions)
3 Months or Less
Over 3 Months but within 6 Months
Over 6 Months but within 12 Months
Over 12 Months
Total
U.S. deposits (less than FDIC insurance limit)(1)(2)
$
34,234
$
8,061
$
9,824
$
12,924
$
65,043
U.S. deposits (in excess of FDIC insurance limit)(2)
Direct deposits:
Certificates of deposit (including IRA certificates of deposit)
2,582
2,455
2,512
2,401
9,950
Savings, money market, and demand accounts
6,160
—
—
—
6,160
Total
$
42,976
$
10,516
$
12,336
$
15,325
$
81,153
______________________
(1)Includes brokered certificates of deposit for which underlying individual deposit balances are assumed to be less than $250,000.
(2)The standard deposit insurance amount is $250,000 per depositor, for each account ownership category. Deposits in excess of FDIC insurance limit presented above include partially insured accounts. Our estimate of the uninsured portion of these deposit balances at December 31, 2023 was approximately $5.4 billion.
Securitized Financings
We access the asset-backed securitization market using the Synchrony Card Issuance Trust (“SYNIT”) through which we may issue asset-backed securities through both public transactions and private transactions funded by financial institutions and commercial paper conduits. In addition, we issue asset-backed securities in private transactions through the Synchrony Credit Card Master Note Trust (“SYNCT”) and the Synchrony Sales Finance Master Trust (“SFT”).
At December 31, 2023, we had $3.9 billion of outstanding private asset-backed securities and $3.4 billion of outstanding public asset-backed securities, in each case held by unrelated third parties.
The following table summarizes expected contractual maturities of the investors’ interests in securitized financings, excluding debt premiums, discounts and issuance costs at December 31, 2023.
($ in millions)
Less Than One Year
One Year Through Three Years
Four Years Through Five Years
After Five Years
Total
Scheduled maturities of long-term borrowings—owed to securitization investors:
SYNCT
$
1,600
$
700
$
—
$
—
$
2,300
SFT
775
775
—
—
1,550
SYNIT(1)
—
3,425
—
—
3,425
Total long-term borrowings—owed to securitization investors
$
2,375
$
4,900
$
—
$
—
$
7,275
______________________
(1)Excludes any subordinated classes of SYNIT notes that we owned at December 31, 2023.
We retain exposure to the performance of trust assets through: (i) in the case of SYNCT, SFT and SYNIT, subordinated retained interests in the loan receivables transferred to the trust in excess of the principal amount of the notes for a given series that provide credit enhancement for a particular series, as well as a pari passu seller’s interest in each trust and (ii) in the case of SYNIT, any subordinated classes of notes that we own.
48
All of our securitized financings include early repayment triggers, referred to as early amortization events, including events related to material breaches of representations, warranties or covenants, inability or failure of the Bank to transfer loan receivables to the trusts as required under the securitization documents, failure to make required payments or deposits pursuant to the securitization documents, and certain insolvency-related events with respect to the related securitization depositor, Synchrony (solely with respect to SYNCT) or the Bank. In addition, an early amortization event will occur with respect to a series if the excess spread as it relates to a particular series or for the trust, as applicable, falls below zero. Following an early amortization event, principal collections on the loan receivables in the applicable trust are applied to repay principal of the trust's asset-backed securities rather than being available on a revolving basis to fund the origination activities of our business. The occurrence of an early amortization event also would limit or terminate our ability to issue future series out of the trust in which the early amortization event occurred. No early amortization event has occurred with respect to any of the securitized financings in SYNCT, SFT or SYNIT.
The following table summarizes for each of our trusts the three-month rolling average excess spread at December 31, 2023.
Note Principal Balance ($ in millions)
# of Series Outstanding
Three-Month Rolling
Average Excess
Spread(1)
SYNCT
$
2,300
4
~ 14.3% to 15.1%
SFT
$
1,550
6
11.8
%
SYNIT
$
3,425
1
17.2
%
______________________
(1)Represents the excess spread (generally calculated as interest income collected from the applicable pool of loan receivables less applicable net charge-offs, interest expense and servicing costs, divided by the aggregate principal amount of loan receivables in the applicable pool) for SFT or, in the case of SYNCT, a range of the excess spreads relating to the particular series issued within such trust or, in the case of SYNIT, the excess spread relating to the one outstanding series issued within such trust, in all cases omitting any series that have not been outstanding for at least three full monthly periods and calculated in accordance with the applicable trust or series documentation, for the three securitization monthly periods ended December 31, 2023.
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