Executive Summary / Key Takeaways

• Synchrony Financial delivered strong third-quarter 2025 results, with net earnings of $1.1 billion and a return on tangible common equity of 30.6%, driven by reduced credit losses and higher net interest income.
• The company's proactive credit actions have significantly improved portfolio quality, with delinquency rates and net charge-offs outperforming expectations and trending below pre-pandemic levels. This has enabled a gradual reversal of some credit tightening and positions Synchrony for sustainable growth.
• Strategic investments in digital capabilities and a multi-product ecosystem, including the launch of the Walmart OnePay program and Pay Later at Amazon, are key differentiators and expected to drive future loan growth and revenue diversification.
• Synchrony maintains a robust capital position, with a CET1 ratio of 13.7% and a recently approved $1 billion increase in share repurchase authorization, signaling strong capital generation and a commitment to shareholder returns.
• Despite a slight downward revision to the full-year net revenue midpoint, Synchrony's 2025 outlook anticipates net interest margin expansion and a loss rate at the lower end of its long-term target, underscoring the resilience of its business model.

A Foundation of Partnerships and Digital Prowess

Synchrony Financial, established in 1932, stands as a premier consumer financial services company, deeply embedded in the fabric of American commerce. Its core business revolves around providing a comprehensive suite of credit products, including private label, Dual Card, co-brand, and general purpose credit cards, as well as short- and long-term installment loans. These offerings are delivered through strategic financing programs with a diverse network of national and regional retailers, local merchants, manufacturers, buying groups, industry associations, and healthcare service providers. This partnership-centric model is a foundational strength, enabling Synchrony to offer tailored financial solutions that drive sales and foster customer loyalty for its partners.

The company's strategic responses to evolving market dynamics are significantly underpinned by its technological differentiation. Synchrony leverages a sophisticated technology stack, including its proprietary PRISM underwriting system, an advanced API stack, and a robust digital ecosystem. These capabilities enable seamless digital experiences, from application to servicing, and facilitate the integration of new products like Pay Later solutions. Investments in areas such as GenAI are aimed at enhancing efficiency, accelerating speed to market, optimizing customer service, and driving top-line growth through innovative marketplace capabilities. This technological edge, coupled with its disciplined credit underwriting, is a key differentiator in a competitive landscape.

In the broader consumer finance industry, Synchrony operates alongside major players such as Capital One Financial (COF), Discover Financial Services (DFS), American Express (AXP), and Ally Financial (ALLY). While competitors like Capital One and Discover offer broader consumer banking and proprietary credit card products, Synchrony's specialized focus on co-branded and private label lending through deep retail and healthcare partnerships provides a distinct market positioning. This niche strategy allows Synchrony to capture significant segments in retail and healthcare financing, often leading to stronger customer loyalty within these specific ecosystems. However, larger, more diversified players like Capital One may demonstrate greater agility in scaling broad digital platforms, and American Express commands a premium brand in high-end consumer segments. Synchrony's ability to integrate its financial ecosystem directly into its partners' sales channels, including digital wallets and mobile apps, is a critical competitive advantage, enhancing product stickiness and driving engagement.

Strategic Evolution and Credit Resilience

Synchrony's journey through 2023 and 2024 was marked by a proactive and disciplined approach to credit management. Recognizing the broader credit normalization trends and an uncertain economic environment, Synchrony implemented strategic credit tightening actions. These measures, while leading to a temporary impact on purchase volume and new account growth, were "by design" to enhance the resilience of its portfolio and ensure sustainable, profitable growth. This disciplined stance has resulted in credit performance that has "outperformed expectations," with delinquency rates and net charge-offs trending more favorably than many peers.

A key strategic move in March 2024 was the acquisition of Ally Financial Inc.'s point-of-sale financing business, Ally Lending, for $2 billion, which bolstered Synchrony's presence in the home improvement and health and wellness sectors. Concurrently, the divestiture of Pets Best Insurance Services, LLC, yielded a $1.10 billion gain and secured an equity interest in Independence Pet Holdings, Inc., expanding Synchrony's footprint in the growing pet industry. Throughout 2024, Synchrony expanded its network by adding over 45 new partners and renewing more than 45 programs, including significant long-term extensions with Sam's Club and JCPenney in January 2025. The JCPenney renewal notably introduced Synchrony Pay Later, a buy now, pay later solution, highlighting the company's evolving multi-product strategy.

The first three quarters of 2025 continued this strategic momentum. Synchrony extended its program agreement with Amazon in July 2025, ensuring its presence with one of its largest partners through 2030-2035. The company also launched the Sun Country Airlines (SNCY) credit card program and the Walmart program with OnePay in September 2025, with early results from Walmart described as "very encouraging". Further enhancing its technological capabilities and access to flexible financing, Synchrony acquired Versatile Credit in October 2025, a multi-source financing platform. These initiatives underscore Synchrony's commitment to diversifying its offerings and strengthening its position at the heart of American commerce.

Financial Performance and Operational Details

Synchrony's financial performance in the third quarter of 2025 demonstrated the effectiveness of its strategic adjustments. Net earnings increased to $1.10 billion, a significant rise from $789 million in the prior year period. This improvement was primarily attributable to a decrease in the provision for credit losses and higher net interest income, partially offset by increased retailer share arrangements. Diluted earnings per share for Q3 2025 stood at $2.86, surpassing analyst expectations.

Loan receivables saw a slight decrease of 2% to $100.20 billion at September 30, 2025, compared to $102.20 billion a year prior. This reflected a combination of lower purchase volume in the nine months ended September 30, 2025, and higher payment rates, alongside a reclassification of $0.20 billion of loan receivables to held for sale. Net interest income grew 2.4% to $4.70 billion for the quarter, driven by a 14% decrease in interest expense, which was partially offset by lower interest income on investment securities. The net interest margin improved by 58 basis points year-over-year to 15.62% in Q3 2025. This expansion was largely due to a 58 basis point decline in total interest-bearing liabilities cost and a 35 basis point increase in loan receivables yield, influenced by product, pricing, and policy changes (PPPCs).

Retailer share arrangements (RSAs) increased 12% to $1 billion in Q3 2025, reflecting improved program performance, including lower net charge-offs and the impact of PPPCs. The provision for credit losses decreased by $451 million, or 28.2%, to $1.1 billion, primarily due to reserve releases in the current year and lower net charge-offs. The allowance coverage ratio, representing the allowance for credit losses as a percentage of period-end loan receivables, decreased to 10.35% at September 30, 2025, from 10.79% a year earlier.

Purchase volume for the third quarter increased 2% year-over-year to $46 billion, signaling a return to growth driven by stronger spend trends across all five platforms. Dual and co-branded cards, which accounted for 46% of total purchase volume, saw an 8% increase. Average transaction values for the portfolio were approximately 40 basis points higher than the prior year, with particular strength observed in the non-prime segment, indicating the efficacy of Synchrony's credit actions. Spend frequency also increased by about 3.4% across all credit grades. The payment rate rose approximately 60 basis points to 16.3% in Q3 2025, significantly above the pre-pandemic average.

Operational efficiency, as measured by the efficiency ratio, was 32.6% in Q3 2025. While this was 140 basis points higher than the prior year, it reflected higher overall expenses, including technology investments and employee costs, and the impact of higher RSAs on net revenue as credit performance improved.

Technological Edge and Innovation Roadmap

Synchrony's competitive advantage is deeply rooted in its differentiated technology and continuous innovation. The company's core underwriting engine, PRISM, is a proprietary system that leverages extensive data analytics and alternative data sources to assess credit risk. This sophisticated system allows for a more granular understanding of customer behavior and risk profiles, enabling Synchrony to make more precise lending decisions and manage its credit portfolio effectively. The tangible benefit is evident in the outperformance of its credit metrics, particularly in the non-prime segment, where credit actions have led to stronger behavior patterns and payment trends.

Beyond underwriting, Synchrony is building a comprehensive digital ecosystem. Its API stack facilitates seamless integration with partner platforms, enabling embedded finance solutions. The Walmart OnePay app integration, for instance, is designed to be one of Synchrony's most technologically advanced programs, offering a completely embedded digital experience from application through servicing. This enhances customer experience and drives new account growth. The CareCredit Status Tool, integrated with partners like Dental Intelligence, exemplifies how technology streamlines patient-provider relationships and financing options, improving administrative efficiency.

Synchrony is also actively investing in emerging technologies like Generative AI (GenAI). These investments target multiple benefits:

• Efficiency and Speed: GenAI is expected to improve internal processes, reduce costs, and accelerate speed to market for new products and services.
• Customer Service Enhancement: Developing GenAI tools to assist contact center associates in resolving customer inquiries more quickly.
• Top-Line Growth: Launching GenAI capabilities in its marketplace to enhance search functionality and offer curated campaigns, driving sales for partners and incremental new accounts for Synchrony.

The company's digital wallet strategy is another area of significant investment and growth. In 2024, unique active digital wallet users grew 85%, and digital wallet sales more than doubled, leading to a 200 basis point improvement in dual and co-brand card wallet penetration. The recent announcement allowing eligible Synchrony MasterCard holders to use Apple (AAPL) Pay Online and in-app with standard or promotional terms, with future plans for reward viewing and redemption, further solidifies this digital leadership. These technological advancements collectively contribute to Synchrony's competitive moat by enhancing customer experience, driving operational efficiencies, and expanding its market reach, ultimately bolstering its financial performance through higher engagement and lower acquisition costs.

Strategic Initiatives and Growth Trajectory

Synchrony's strategic initiatives are designed to drive future growth and diversify its revenue streams. The company has begun to gradually reverse some of its credit tightening in areas demonstrating strong risk-adjusted growth opportunities, with plans to add back approximately 30% of sales from previous credit actions. This measured approach, coupled with ongoing monitoring of macroeconomic conditions, is expected to provide a growth lift towards the end of 2025 and into 2026.

Key growth drivers include:

• Walmart OnePay Program: Launched in September 2025, this program is off to an encouraging start, with good growth in new accounts and out-of-store spend. Management views this as a potential "top five program" in the future.
• Amazon Pay Later: The launch of this Buy Now Pay Later offering at Amazon is showing good early results and is anticipated to contribute to growth in 2026.
• PayPal (PYPL) Physical Card: The rollout of this card, enabling broader utility and promotional financing, is expected to add to average active accounts.
• Acquisition of Versatile Credit: Completed in October 2025, this acquisition of a multi-source financing platform is not expected to be material in the near term but is projected to contribute to profitable growth for years to come by expanding access to flexible financing options.
• Lowe's (LOW) Commercial Co-branded Credit Card Portfolio Acquisition: Expected to close in the first half of 2026, this acquisition of approximately $0.80 billion in loan receivables will deepen Synchrony's presence in the home improvement sector.

These initiatives, alongside continued investment in the high-growth Health and Wellness platform, which has seen strong performance in Pet and Audiology, are expected to drive Synchrony back to mid-to-high single-digit loan growth in 2026. The company's multi-product strategy, offering a range of credit solutions from Pay Later to private label and co-branded cards, is resonating with partners who appreciate the choice and flexibility offered to customers.

Funding, Liquidity, and Capital Strength

Synchrony maintains a robust funding, liquidity, and capital position, providing a strong foundation for its operations and growth. At September 30, 2025, deposits constituted 85% of its total funding sources, amounting to $79.90 billion. This diversified deposit base, including direct and brokered deposits, serves as a stable and low-cost funding source for its credit activities.

The company's liquidity portfolio held $18.20 billion of liquid assets, an increase from December 31, 2024, reflecting a decrease in loan receivables and a strategic decision to maintain higher liquidity to pre-fund future growth. Synchrony also has ample additional liquidity, including $10 billion of available borrowing capacity through the Federal Reserve's discount window and $2.60 billion of undrawn capacity on its securitized financings.

From a capital perspective, Synchrony is exceptionally well-capitalized. Both Synchrony Financial and its subsidiary, Synchrony Bank, met all applicable requirements to be deemed well-capitalized at September 30, 2025. The common equity Tier 1 (CET1) ratio stood at 13.7% at quarter-end, a 60 basis point increase from the prior year. This strong capital position is a result of consistent earnings generation, with over 350 basis points of incremental CET1 generated from business earnings over the last year.

Synchrony is committed to returning capital to shareholders. During the third quarter of 2025, the company returned $971 million to shareholders, comprising $861 million in share repurchases and $110 million in common stock dividends. The Board approved an incremental $1 billion in share repurchases in September 2025, bringing the total remaining authorization to $2.1 billion through June 30, 2026. This aggressive yet prudent capital allocation strategy prioritizes organic risk-weighted asset (RWA) growth, followed by dividends, and then share repurchases or inorganic opportunities, aiming to bring the CET1 ratio closer to its 11% target.

Competitive Positioning and Risk Assessment

Synchrony's competitive positioning is characterized by its deep, long-term partnerships and its specialized focus within the consumer finance sector. The company's ability to offer customized, digitally-enabled financing solutions through its partners, particularly in retail and healthcare, differentiates it from broader consumer lenders. While competitors like Capital One and Discover offer a wider array of general-purpose credit products, Synchrony excels in embedding its financial ecosystem directly into the merchant and provider experience, fostering strong loyalty and driving sales. Its disciplined underwriting and credit management have consistently led to better credit performance compared to industry peers, allowing it to return to its long-term net charge-off target range faster.

However, Synchrony faces several risks. The regulatory environment remains dynamic, as evidenced by the vacating of the CFPB's final rule on credit card late fees in April 2025. While this removed an immediate headwind, the ongoing review of product, pricing, and policy changes with partners introduces a degree of uncertainty regarding future revenue streams. Additionally, the CFPB's final rule on Section 1033 of the Dodd-Frank Act, requiring financial institutions to make consumer financial product information available, could impact operational processes. Synchrony is also exposed to market risk from changes in interest rates, particularly mismatches between floating rate assets and liabilities. The broader macroeconomic environment, characterized by geopolitical conditions, tariffs, and sticky inflation, presents ongoing challenges, although Synchrony's consumer base has demonstrated resilience. The company's dependence on retail partnerships, while a strength, also represents a vulnerability if key partnerships falter or consolidate.

Outlook and Conclusion

Synchrony Financial's outlook for 2025 reflects a company well-positioned for stability and future growth, built on a foundation of credit resilience and strategic innovation. The company expects ending loan receivables to remain flat year-over-year, influenced by past credit actions and selective consumer spending. However, the loss rate is projected to be between 5.6% and 5.7%, at the lower end of its long-term underwriting target of 5.5% to 6%, underscoring the strength of its credit portfolio. Net revenue for the full year is anticipated to be between $15 billion and $15.1 billion, with net interest margin expected to average approximately 15.7%. The efficiency ratio is projected to be between 33% and 33.5%, reflecting ongoing investments and improved program performance.

The core investment thesis for Synchrony Financial centers on its ability to leverage its differentiated partnership model, advanced technology, and disciplined credit management to drive sustainable, profitable growth. The company's proactive credit actions have created a robust portfolio, enabling it to gradually re-open credit in targeted areas. Strategic initiatives, including the successful launch of the Walmart (WMT) OnePay program and Pay Later at Amazon (AMZN), coupled with the acquisition of Versatile Credit, are poised to accelerate loan growth and diversify revenue streams in 2026 and beyond. With a strong capital position and a clear commitment to shareholder returns, Synchrony Financial is well-equipped to capitalize on evolving market opportunities and deepen its role in American commerce.