![]() For example, charge-offs for Synchrony appear to be trending at 200 basis points above the national average for credit card delinquencies. In fact, I believe the allowance coverage ratio is high enough to protect the company through some of the worst conditions. Fortunately, the company has an allowance coverage ratio of 10.4%, which more than covers the rising charge offs. Synchrony is seeing the effects of recent softening in the economy as their charge off rate has jumped from 2.8% last year to 4.6% at the end of the third quarter. With Synchrony Financial being in the credit card space, delinquencies and write offs are always going to be worrisome, especially in our current situation with rising rates, softening employment, and rising credit card delinquencies across the industry. Finally, Synchrony is sitting on a sizable cash pile of greater than $15 billion, which is more than 20% of its deposits.Ĭompany Financials & Federal Reserve Data Synchrony also has a very low leverage ratio compared to the banking sector which gives it room to borrow if it needs to. This is why Synchrony is comfortable with issuing bonds and has so many issues outstanding. Due to the high return of its loans, Synchrony can access borrowing at higher interest rates with more ease than traditional regional banks because they can generate higher returns. The one ratio that may create concern is the high loan to deposit ratio, but investors need to keep in mind how Synchrony Financial is structured. Consequently, this has allowed Synchrony to grow lending in a high-rate environment with loans also 14% higher than a year ago. Since 2022, Synchrony has consistently grown its deposit base with 14% more deposits than it had a year ago. While regional banks have been hurting to hold depositors and are consequently reducing their lending, Synchrony Financial is heading in the opposite direction. Additionally, net interest spread and net interest margin improved in the third quarter and remained above levels seen during the pandemic. The ratio of net interest income to interest income is still above 80%, which is significantly higher than regional bank counterparts (they are around 50%). Like many regional banks, Synchrony has seen its interest expense rise with the increase in interest rates.ĭespite the rise in borrowing costs, Synchrony’s net interest income (interest income less interest expense) is continuing to rise and has reached its pre-pandemic peak levels. As such, since the company’s primary business is credit card lending, its income yield on assets is much higher. Synchrony Financial is a consumer credit card lender with a deposit base, which makes it a hybrid between a bank and a non-deposit consumer lender. Based on the company’s most recent earnings, I believe Synchrony's preferred shares offer the most attractive entry point for income investors. Fortunately, Synchrony’s preferred shares ( NYSE: SYF.PR.A ) are still trading around 60% to their 2024 call price and combined with their 15% tax qualified dividend of $1.41, they are yielding just under 9%. Since then, the company’s debt has rallied and while the 2033 notes are yielding greater than 8%, many of the notes are trading at or below comparable yields for its credit rating. ![]() Earlier this year, consumer lender Synchrony Financial ( NYSE: SYF) had an attractive opportunity emerge when its long-term debt was yielding over 9%.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |