A Solid Second Quarter for Synchrony as Credit Results Continue to Impress

No-moat-rated Synchrony Financial reported solid second-quarter results with resilient credit costs and good core loan growth being offset by higher expenses. The bank’s net interest income grew 14.8% from last year to $3.8 billion. Net income shrank 35% to $804 million, as the prior year's quarter benefited from a significant release of loan loss reserves, but still translated to an impressive 24% return on equity. During the quarter Synchrony repurchased $701 million in shares, leaving it with a remaining share repurchase authorization of $2.4 billion. With Synchrony’s market capitalization of roughly $16 billion, these repurchases represent a significant return of shareholder value. We appreciate the use of buybacks, as we see Synchrony as undervalued at the current price and the bank has room on its balance sheet to support the returns, with a common equity Tier 1 capital ratio of 15.2% versus its long-term target of 11%. After incorporating these results, we are maintaining our $43 fair value estimate for Synchrony.