Synchrony Financial Reports Third Quarter Net Earnings of $555 Million or $0.70 Per Diluted Share

Friday, October 20, 2017 6:30 am EDT

Dateline:

STAMFORD, Conn.

Public Company Information:

NYSE:
SYF

STAMFORD, Conn.--(BUSINESS WIRE)--Synchrony Financial (NYSE: SYF) today announced third quarter 2017 net earnings of $555 million, or $0.70 per diluted share. Highlights for the quarter included:

  • Net interest income increased 11% from the third quarter of 2016 to $3.9 billion
  • Loan receivables grew $6 billion, or 9%, from the third quarter of 2016 to $77 billion
  • Purchase volume increased 4% from the third quarter of 2016
  • Strong deposit growth continued, up $5 billion, or 9%, over the third quarter of 2016
  • Renewed relationships: Yamaha, BrandsMart U.S.A., Nautilus, Mars Petcare, and Evine
  • Launched new programs with At Home and zulily
  • Launched new 2% Cash Back value proposition at PayPal
  • Launched new CareCredit Dual Card™
  • Quarterly common stock dividend payment of $0.15 per share and repurchased $390 million of Synchrony Financial common stock

“Our focus on strong organic growth across our sales platforms has helped deliver another solid quarter. Renewing key relationships remains a priority—we recently renewed several programs in addition to launching two new ones. Compelling value propositions are integral to driving program growth and we are pleased to continue to launch innovative solutions that provide value to our partners and cardholders. Our deposit base comprises a significant portion of our funding and, as such, generating deposit growth through attractive rates and great customer service is a priority,” said Margaret Keane, President and Chief Executive Officer of Synchrony Financial. “We have maintained solid returns and a strong balance sheet and remain focused on returning capital to shareholders.”

Business and Financial Highlights for the Third Quarter of 2017

All comparisons below are for the third quarter of 2017 compared to the third quarter of 2016, unless otherwise noted.

Earnings

  • Net interest income increased $395 million, or 11%, to $3.9 billion, primarily driven by strong loan receivables growth. Net interest income after retailer share arrangements increased 13%.
  • Provision for loan losses increased $324 million to $1.3 billion driven by credit normalization and loan receivables growth.
  • Other income was down $8 million to $76 million, primarily due to higher loyalty program expense, partially offset by higher interchange revenue.
  • Other expense increased $99 million to $958 million, primarily driven by business growth.
  • Net earnings totaled $555 million compared to $604 million in the third quarter of 2016.

Balance Sheet

  • Period-end loan receivables growth remained strong at 9%, primarily driven by purchase volume growth of 4% and average active account growth of 4%.
  • Deposits grew to $54 billion, up $5 billion, or 9%, and comprised 73% of funding compared to 71% last year.
  • The Company’s balance sheet remained strong with total liquidity (liquid assets and undrawn credit facilities) of $22 billion, or 24% of total assets.
  • The estimated Common Equity Tier 1 ratio under Basel III subject to transition provisions was 17.3% and the estimated fully phased-in Common Equity Tier 1 ratio under Basel III was 17.2%.

Key Financial Metrics

  • Return on assets was 2.4% and return on equity was 15.3%.
  • Net interest margin increased 40 basis points to 16.74%.
  • Efficiency ratio was 30.4%, compared to 30.6% in the third quarter of 2016, driven by strong positive operating leverage. Year-to-date efficiency ratio was 30.3%, compared to 31.0% in the prior year.

Credit Quality

  • Loans 30+ days past due as a percentage of total period-end loan receivables were 4.80% compared to 4.26% last year.
  • Net charge-offs as a percentage of total average loan receivables were 4.95% compared to 4.39% last year.
  • The allowance for loan losses as a percentage of total period-end loan receivables was 6.97% compared to 5.82% last year.

Sales Platforms

  • Retail Card interest and fees on loans increased 11%, driven primarily by period-end loan receivables growth of 9%. Purchase volume growth was 4% and average active account growth was 3%. Loan receivables growth was broad-based across partner programs.
  • Payment Solutions interest and fees on loans increased 11%, driven primarily by period-end loan receivables growth of 9%. Purchase volume growth was 6%, adjusted to exclude the impact from the hhgregg bankruptcy, and average active account growth was 9%. Loan receivables growth was led by home furnishings and automotive.
  • CareCredit interest and fees on loans increased 9%, driven primarily by period-end loan receivables growth of 10%. Purchase volume growth was 9% and average active account growth was 9%. Loan receivables growth was led by dental and veterinary.

Corresponding Financial Tables and Information

No representation is made that the information in this news release is complete. Investors are encouraged to review the foregoing summary and discussion of Synchrony Financial's earnings and financial condition in conjunction with the detailed financial tables and information that follow and in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, as filed February 23, 2017, and the Company’s forthcoming Quarterly Report on Form 10-Q for the quarter ended September 30, 2017. The detailed financial tables and other information are also available on the Investor Relations page of the Company’s website at www.investors.synchronyfinancial.com. This information is also furnished in a Current Report on Form 8-K filed with the SEC today.

Conference Call and Webcast Information

On Friday, October 20, 2017, at 8:30 a.m. Eastern Time, Margaret Keane, President and Chief Executive Officer, and Brian Doubles, Executive Vice President and Chief Financial Officer, will host a conference call to review the financial results and outlook for certain business drivers. The conference call can be accessed via an audio webcast through the Investor Relations page on the Synchrony Financial corporate website, www.investors.synchronyfinancial.com, under Events and Presentations. A replay will be available on the website or by dialing (888) 843-7419 (U.S. domestic) or (630) 652-3042 (international), passcode 32017#, and can be accessed beginning approximately two hours after the event through November 3, 2017.

About Synchrony Financial

Synchrony Financial (NYSE: SYF) is one of the nation’s premier consumer financial services companies. Our roots in consumer finance trace back to 1932, and today we are the largest provider of private label credit cards in the United States based on purchase volume and receivables.* 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 to help generate growth for our partners and offer financial flexibility to our customers. Through our partners’ over 365,000 locations across the United States and Canada, and their websites and mobile applications, we offer our customers a variety of credit products to finance the purchase of goods and services. Synchrony Financial offers private label credit cards, Dual Card™ and general purpose co-branded credit cards, promotional financing and installment lending, loyalty programs and FDIC-insured savings products through Synchrony Bank. More information can be found at www.synchronyfinancial.comfacebook.com/SynchronyFinancial, www.linkedin.com/company/synchrony-financial and twitter.com/SYFNews.

*Source: The Nilson Report (June 2017, Issue # 1112) - based on 2016 data.

Cautionary Statement Regarding Forward-Looking Statements

This news release contains certain 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, 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 Retail Card partners, promotion and support of our products by our partners, and financial performance of our partners; cyber-attacks or other security breaches; higher borrowing costs and adverse financial market conditions impacting our funding and liquidity, and any reduction in our credit ratings; our ability to securitize our loans, occurrence of an early amortization of our securitization facilities, loss of the right to service or subservice our securitized loans, and lower payment rates on our securitized loans; our ability to grow our deposits in the future; 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, the sufficiency of our allowance for loan losses and the accuracy of the assumptions or estimates used in preparing our financial statements; 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 strategic investments; reductions in interchange fees; fraudulent activity; failure of third parties to provide various services that are important to our operations; disruptions in the operations of our computer systems and data centers; 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; damage to our reputation; our ability to attract, retain and motivate key officers and employees; tax legislation initiatives or challenges to our tax positions and state sales tax rules and regulations; a material indemnification obligation to GE under the tax sharing and separation agreement with GE if we cause the split-off from GE or certain preliminary transactions to fail to qualify for tax-free treatment or in the case of certain significant transfers of our stock following the split-off; regulation, supervision, examination and enforcement of our business by governmental authorities, the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the impact of the Consumer Financial Protection Bureau’s regulation of our business; 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 Synchrony 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 elsewhere in this news release and in our public filings, including under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, as filed on February 23, 2017. 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.

Non-GAAP Measures

The information provided herein includes measures we refer to as “tangible common equity” and certain capital ratios, which are not prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). For a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures, please see the detailed financial tables and information that follow. For a statement regarding the usefulness of these measures to investors, please see the Company’s Current Report on Form 8-K filed with the SEC today.

                     
SYNCHRONY FINANCIAL
FINANCIAL SUMMARY
(unaudited, in millions, except per share statistics)
Quarter Ended Nine Months Ended
Sep 30,

2017

Jun 30,

2017

Mar 31,

2017

Dec 31,

2016

Sep 30,

2016

3Q'17 vs. 3Q'16 Sep 30,

2017

  Sep 30,

2016

YTD'17 vs. YTD'16

EARNINGS

Net interest income $ 3,876 $ 3,637 $ 3,587 $ 3,628 $ 3,481 $ 395 11.3 % $ 11,100 $ 9,902 $ 1,198 12.1 %
Retailer share arrangements   (805 )   (669 )   (684 )   (811 )   (757 )   (48 )   6.3 %   (2,158 )   (2,091 )   (67 )   3.2 %
Net interest income, after retailer share arrangements 3,071 2,968 2,903 2,817 2,724 347 12.7 % 8,942 7,811 1,131 14.5 %
Provision for loan losses   1,310     1,326     1,306     1,076     986     324     32.9 %   3,942     2,910     1,032     35.5 %
Net interest income, after retailer share arrangements and provision for loan losses 1,761 1,642 1,597 1,741 1,738 23 1.3 % 5,000 4,901 99 2.0 %
Other income 76 57 93 85 84 (8 ) (9.5 )% 226 259 (33 ) (12.7 )%
Other expense   958     911     908     918     859     99     11.5 %   2,777     2,498     279     11.2 %
Earnings before provision for income taxes 879 788 782 908 963 (84 ) (8.7 )% 2,449 2,662 (213 ) (8.0 )%
Provision for income taxes   324     292     283     332     359     (35 )   (9.7 )%   899     987     (88 )   (8.9 )%
Net earnings $ 555   $ 496   $ 499   $ 576   $ 604   $ (49 )   (8.1 )% $ 1,550     $ 1,675     $ (125 )   (7.5 )%
Net earnings attributable to common stockholders $ 555   $ 496   $ 499   $ 576   $ 604   $ (49 )   (8.1 )% $ 1,550     $ 1,675     $ (125 )   (7.5 )%
 

COMMON SHARE STATISTICS

Basic EPS $ 0.70 $ 0.62 $ 0.61 $ 0.70 $ 0.73 $ (0.03 ) (4.1 )% $ 1.93 $ 2.01 $ (0.08 ) (4.0 )%
Diluted EPS $ 0.70 $ 0.61 $ 0.61 $ 0.70 $ 0.73 $ (0.03 ) (4.1 )% $ 1.93 $ 2.01 $ (0.08 ) (4.0 )%
Dividend declared per share $ 0.15 $ 0.13 $ 0.13 $ 0.13 $ 0.13 $ 0.02 15.4 % $ 0.41 $ 0.13 $ 0.28 NM
Common stock price $ 31.05 $ 29.82 $ 34.30 $ 36.27 $ 28.00 $ 3.05 10.9 % $ 31.05 $ 28.00 $ 3.05 10.9 %
Book value per share $ 18.40 $ 18.02 $ 17.71 $ 17.37 $ 16.94 $ 1.46 8.6 % $ 18.40 $ 16.94 $ 1.46 8.6 %
Tangible common equity per share(1) $ 16.15 $ 15.79 $ 15.47 $ 15.34 $ 14.90 $ 1.25 8.4 % $ 16.15 $ 14.90 $ 1.25 8.4 %
 
Beginning common shares outstanding 795.3 810.8 817.4 825.5 833.9 (38.6 ) (4.6 )% 817.4 833.8 (16.4 ) (2.0 )%
Issuance of common shares - - - - - - - % - - - - %
Stock-based compensation 0.1 0.2 - - 0.1 - - % 0.3 0.2 0.1 50.0 %
Shares repurchased   (12.8 )   (15.7 )   (6.6 )   (8.1 )   (8.5 )   (4.3 )   50.6 %   (35.1 )   (8.5 )   (26.6 )   NM  
Ending common shares outstanding 782.6 795.3 810.8 817.4 825.5 (42.9 ) (5.2 )% 782.6 825.5 (42.9 ) (5.2 )%
 
Weighted average common shares outstanding 787.3 804.0 813.1 820.5 828.4 (41.1 ) (5.0 )% 801.3 832.1 (30.8 ) (3.7 )%
Weighted average common shares outstanding (fully diluted) 790.9 807.4 817.1 823.8 830.6 (39.7 ) (4.8 )% 805.0 834.1 (29.1 ) (3.5 )%
                                                                                     
(1) Tangible Common Equity ("TCE") is a non-GAAP measure. For corresponding reconciliation of TCE to a GAAP financial measure, see Reconciliation of Non-GAAP Measures and Calculations of Regulatory Measures.
 
                     
SYNCHRONY FINANCIAL
SELECTED METRICS
(unaudited, $ in millions, except account data)
Quarter Ended Nine Months Ended
Sep 30,

2017

Jun 30,

2017

Mar 31,

2017

Dec 31,

2016

Sep 30,

2016

3Q'17 vs. 3Q'16 Sep 30,

2017

Sep 30,

2016

YTD'17 vs. YTD'16

PERFORMANCE METRICS

Return on assets(1) 2.4 % 2.2 % 2.3 % 2.6 % 2.8 % (0.4 )% 2.3 % 2.7 % (0.4 )%
Return on equity(2) 15.3 % 13.8 % 14.1 % 16.2 % 17.3 % (2.0 )% 14.4 % 16.6 % (2.2 )%
Return on tangible common equity(3) 17.4 % 15.7 % 16.1 % 18.4 % 19.6 % (2.2 )% 16.4 % 18.9 % (2.5 )%
Net interest margin(4) 16.74 % 16.20 % 16.18 % 16.26 % 16.34 % 0.40 % 16.38 % 16.05 % 0.33 %
Efficiency ratio(5) 30.4 % 30.1 % 30.3 % 31.6 % 30.6 % (0.2 )% 30.3 % 31.0 % (0.7 )%
Other expense as a % of average loan receivables, including held for sale 4.99 % 4.93 % 4.97 % 5.04 % 4.93 % 0.06 % 4.96 % 4.95 % 0.01 %
Effective income tax rate 36.9 % 37.1 % 36.2 % 36.6 % 37.3 % (0.4 )% 36.7 % 37.1 % (0.4 )%
 

CREDIT QUALITY METRICS

Net charge-offs as a % of average loan receivables, including held for sale 4.95 % 5.42 % 5.33 % 4.65 % 4.39 % 0.56 % 5.23 % 4.54 % 0.69 %
30+ days past due as a % of period-end loan receivables(6) 4.80 % 4.25 % 4.25 % 4.32 % 4.26 % 0.54 % 4.80 % 4.26 % 0.54 %
90+ days past due as a % of period-end loan receivables(6) 2.22 % 1.90 % 2.06 % 2.03 % 1.89 % 0.33 % 2.22 % 1.89 % 0.33 %
Net charge-offs $ 950 $ 1,001 $ 974 $ 847 $ 765 $ 185 24.2 % $ 2,925 $ 2,292 $ 633 27.6 %
Loan receivables delinquent over 30 days(6) $ 3,694 $ 3,208 $ 3,120 $ 3,295 $ 3,008 $ 686 22.8 % $ 3,694 $ 3,008 $ 686 22.8 %
Loan receivables delinquent over 90 days(6) $ 1,707 $ 1,435 $ 1,508 $ 1,546 $ 1,334 $ 373 28.0 % $ 1,707 $ 1,334 $ 373 28.0 %
 
Allowance for loan losses (period-end) $ 5,361 $ 5,001 $ 4,676 $ 4,344 $ 4,115 $ 1,246 30.3 % $ 5,361 $ 4,115 $ 1,246 30.3 %
Allowance coverage ratio(7) 6.97 % 6.63 % 6.37 % 5.69 % 5.82 % 1.15 % 6.97 % 5.82 % 1.15 %
 

BUSINESS METRICS

Purchase volume(8) $ 32,893 $ 33,476 $ 28,880 $ 35,369 $ 31,615 $ 1,278 4.0 % $ 95,249 $ 90,099 $ 5,150 5.7 %
Period-end loan receivables $ 76,928 $ 75,458 $ 73,350 $ 76,337 $ 70,644 $ 6,284 8.9 % $ 76,928 $ 70,644 $ 6,284 8.9 %
Credit cards $ 73,946 $ 72,492 $ 70,587 $ 73,580 $ 67,858 $ 6,088 9.0 % $ 73,946 $ 67,858 $ 6,088 9.0 %
Consumer installment loans $ 1,561 $ 1,514 $ 1,411 $ 1,384 $ 1,361 $ 200 14.7 % $ 1,561 $ 1,361 $ 200 14.7 %
Commercial credit products $ 1,384 $ 1,386 $ 1,311 $ 1,333 $ 1,385 $ (1 ) (0.1 )% $ 1,384 $ 1,385 $ (1 ) (0.1 )%
Other $ 37 $ 66 $ 41 $ 40 $ 40 $ (3 ) (7.5 )% $ 37 $ 40 $ (3 ) (7.5 )%
Average loan receivables, including held for sale $ 76,165 $ 74,090 $ 74,132 $ 72,476 $ 69,316 $ 6,849 9.9 % $ 74,803 $ 67,364 $ 7,439 11.0 %
Period-end active accounts (in thousands)(9) 69,008 69,277 67,905 71,890 66,781 2,227 3.3 % 69,008 66,781 2,227 3.3 %
Average active accounts (in thousands)(9) 69,331 68,635 69,629 68,701 66,639 2,692 4.0 % 69,319 66,204 3,115 4.7 %
 

LIQUIDITY

Liquid assets
Cash and equivalents $ 13,915 $ 12,020 $ 11,392 $ 9,321 $ 13,588 $ 327 2.4 % $ 13,915 $ 13,588 $ 327 2.4 %
Total liquid assets $ 16,391 $ 15,274 $ 16,158 $ 13,612 $ 16,362 $ 29 0.2 % $ 16,391 $ 16,362 $ 29 0.2 %
Undrawn credit facilities
Undrawn credit facilities $ 5,650 $ 6,650 $ 5,600 $ 6,700 $ 7,150 $ (1,500 ) (21.0 )% $ 5,650 $ 7,150 $ (1,500 ) (21.0 )%
Total liquid assets and undrawn credit facilities $ 22,041 $ 21,924 $ 21,758 $ 20,312 $ 23,512 $ (1,471 ) (6.3 )% $ 22,041 $ 23,512 $ (1,471 ) (6.3 )%
Liquid assets % of total assets 17.71 % 16.76 % 18.14 % 15.09 % 18.77 % (1.06 )% 17.71 % 18.77 % (1.06 )%
Liquid assets including undrawn credit facilities % of total assets 23.82 % 24.06 % 24.43 % 22.52 % 26.98 % (3.16 )% 23.82 % 26.98 % (3.16 )%
                                                                             
(1) Return on assets represents net earnings as a percentage of average total assets.
(2) Return on equity represents net earnings as a percentage of average total equity.
(3) Return on tangible common equity represents net earnings as a percentage of average tangible common equity. Tangible common equity ("TCE") is a non-GAAP measure. For corresponding reconciliation of TCE to a GAAP financial measure, see Reconciliation of Non-GAAP Measures and Calculations of Regulatory Measures.
(4) Net interest margin represents net interest income divided by average interest-earning assets.
(5) Efficiency ratio represents (i) other expense, divided by (ii) net interest income, after retailer share arrangements, plus other income.
(6) Based on customer statement-end balances extrapolated to the respective period-end date.
(7) Allowance coverage ratio represents allowance for loan losses divided by total period-end loan receivables.
(8) 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.
(9) Active accounts represent credit card or installment loan accounts on which there has been a purchase, payment or outstanding balance in the current month.
 
                     
SYNCHRONY FINANCIAL
STATEMENTS OF EARNINGS
(unaudited, $ in millions)
Quarter Ended Nine Months Ended
Sep 30,

2017

Jun 30,

2017

Mar 31,

2017

Dec 31,

2016

Sep 30,

2016

3Q'17 vs. 3Q'16 Sep 30,

2017

Sep 30,

2016

YTD'17 vs. YTD'16
Interest income:
Interest and fees on loans $ 4,182 $ 3,927 $ 3,877 $ 3,919 $ 3,771 $ 411 10.9 % $ 11,986 $ 10,763 $ 1,223 11.4 %
Interest on investment securities   51     43     36     28     25     26     104.0 %   130     68     62     91.2 %
Total interest income 4,233 3,970 3,913 3,947 3,796 437 11.5 % 12,116 10,831 1,285 11.9 %
 
Interest expense:
Interest on deposits 219 202 194 188 188 31 16.5 % 615 539 76 14.1 %
Interest on borrowings of consolidated securitization entities 65 63 65 64 63 2 3.2 % 193 180 13 7.2 %
Interest on third-party debt   73     68     67     67     64     9     14.1 %   208     210     (2 )   (1.0 )%
Total interest expense 357 333 326 319 315 42 13.3 % 1,016 929 87 9.4 %
                         
Net interest income 3,876 3,637 3,587 3,628 3,481 395 11.3 % 11,100 9,902 1,198 12.1 %
 
Retailer share arrangements   (805 )   (669 )   (684 )   (811 )   (757 )   (48 )   6.3 %   (2,158 )   (2,091 )   (67 )   3.2 %
Net interest income, after retailer share arrangements 3,071 2,968 2,903 2,817 2,724 347 12.7 % 8,942 7,811 1,131 14.5 %
 
Provision for loan losses   1,310     1,326     1,306     1,076     986     324     32.9 %   3,942     2,910     1,032     35.5 %
Net interest income, after retailer share arrangements and provision for loan losses 1,761 1,642 1,597 1,741 1,738 23 1.3 % 5,000 4,901 99 2.0 %
 
Other income:
Interchange revenue 164 165 145 167 154 10 6.5 % 474 435 39 9.0 %
Debt cancellation fees 67 68 68 68 67 - - % 203 194 9 4.6 %
Loyalty programs (168 ) (206 ) (137 ) (157 ) (145 ) (23 ) 15.9 % (511 ) (390 ) (121 ) 31.0 %
Other   13     30     17     7     8     5     62.5 %   60     20     40     NM  
Total other income   76     57     93     85     84     (8 )   (9.5 )%   226     259     (33 )   (12.7 )%
 
Other expense:
Employee costs 335 321 325 315 311 24 7.7 % 981 892 89 10.0 %
Professional fees 161 158 151 164 174 (13 ) (7.5 )% 470 474 (4 ) (0.8 )%
Marketing and business development 124 124 94 130 92 32 34.8 % 342 293 49 16.7 %
Information processing 96 88 90 88 87 9 10.3 % 274 250 24 9.6 %
Other   242     220     248     221     195     47     24.1 %   710     589     121     20.5 %
Total other expense 958 911 908 918 859 99 11.5 % 2,777 2,498 279 11.2 %
                         
Earnings before provision for income taxes 879 788 782 908 963 (84 ) (8.7 )% 2,449 2,662 (213 ) (8.0 )%
Provision for income taxes   324     292     283     332     359     (35 )   (9.7 )%   899     987     (88 )   (8.9 )%

Net earnings attributable to common shareholders

$ 555   $ 496   $ 499   $ 576   $ 604   $ (49 )   (8.1 )% $ 1,550   $ 1,675   $ (125 )   (7.5 )%
 
           
SYNCHRONY FINANCIAL
STATEMENTS OF FINANCIAL POSITION
(unaudited, $ in millions)
  Quarter Ended
Sep 30,

2017

Jun 30,

2017

Mar 31,

2017

Dec 31,

2016

Sep 30,

2016

Sep 30, 2017 vs.

Sep 30, 2016

Assets
Cash and equivalents $ 13,915 $ 12,020 $ 11,392 $ 9,321 $ 13,588 $ 327 2.4 %
Investment securities 3,317 3,997 5,328 5,110 3,356 (39 ) (1.2 )%
Loan receivables:
Unsecuritized loans held for investment 53,997 52,550 50,398 52,332 47,517 6,480 13.6 %
Restricted loans of consolidated securitization entities   22,931     22,908     22,952     24,005     23,127     (196 )   (0.8 )%
Total loan receivables 76,928 75,458 73,350 76,337 70,644 6,284 8.9 %
Less: Allowance for loan losses   (5,361 )   (5,001 )   (4,676 )   (4,344 )   (4,115 )   (1,246 )   30.3 %
Loan receivables, net 71,567 70,457 68,674 71,993 66,529 5,038 7.6 %
Goodwill 991 991 992 949 949 42 4.4 %
Intangible assets, net 772 787 826 712 733 39 5.3 %
Other assets   1,986     2,888     1,838     2,122     2,004     (18 )   (0.9 )%
Total assets $ 92,548   $ 91,140   $ 89,050   $ 90,207   $ 87,159   $ 5,389     6.2 %
 
Liabilities and Equity
Deposits:
Interest-bearing deposit accounts $ 54,232 $ 52,659 $ 51,359 $ 51,896 $ 49,611 $ 4,621 9.3 %
Non-interest-bearing deposit accounts   222     226     246     159     204     18     8.8 %
Total deposits 54,454 52,885 51,605 52,055 49,815 4,639 9.3 %
Borrowings:
Borrowings of consolidated securitization entities 11,891 12,204 12,433 12,388 12,411 (520 ) (4.2 )%
Bank term loan - - - - - - - %
Senior unsecured notes   8,008     8,505     7,761     7,759     7,756     252     3.2 %
Total borrowings 19,899 20,709 20,194 20,147 20,167 (268 ) (1.3 )%
Accrued expenses and other liabilities   3,793     3,214     2,888     3,809     3,196     597     18.7 %
Total liabilities 78,146 76,808 74,687 76,011 73,178 4,968 6.8 %
Equity:
Common stock 1 1 1 1 1 - - %
Additional paid-in capital 9,429 9,415 9,405 9,393 9,381 48 0.5 %
Retained earnings 6,543 6,109 5,724 5,330 4,861 1,682 34.6 %
Accumulated other comprehensive income: (40 ) (49 ) (55 ) (53 ) (24 ) (16 ) 66.7 %
Treasury Stock   (1,531 )   (1,144 )   (712 )   (475 )   (238 )   (1,293 )   NM  
Total equity   14,402     14,332     14,363     14,196     13,981     421     3.0 %
Total liabilities and equity $ 92,548   $ 91,140   $ 89,050   $ 90,207   $ 87,159   $ 5,389     6.2 %
                                                       
 
 
SYNCHRONY FINANCIAL
AVERAGE BALANCES, NET INTEREST INCOME AND NET INTEREST MARGIN
(unaudited, $ in millions)
                             
Quarter Ended
Sep 30, 2017 Jun 30, 2017 Mar 31, 2017 Dec 31, 2016 Sep 30, 2016
Interest Average Interest Average Interest Average Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate Balance Expense Rate Balance Expense Rate
Assets
Interest-earning assets:
Interest-earning cash and equivalents $ 11,895 $ 37 1.23 % $ 10,758 $ 28 1.04 % $ 10,552 $ 21 0.81 % $ 12,210 $ 17 0.55 % $ 12,480 $ 16 0.51 %
Securities available for sale 3,792 14 1.46 % 5,195 15 1.16 % 5,213 15 1.17 % 4,076 11 1.07 % 2,960 9 1.21 %
 
Loan receivables:
Credit cards, including held for sale 73,172 4,111 22.29 % 71,206 3,858 21.73 % 71,365 3,811 21.66 % 69,660 3,851 21.99 % 66,519 3,705 22.16 %
Consumer installment loans 1,543 35 9.00 % 1,461 34 9.33 % 1,389 32 9.34 % 1,373 31 8.98 % 1,333 31 9.25 %
Commercial credit products 1,392 36 10.26 % 1,378 34 9.90 % 1,317 34 10.47 % 1,386 36 10.33 % 1,401 35 9.94 %
Other   58     - - %   45     1 NM     61     - - %   57     1 NM     63     - - %
Total loan receivables, including held for sale   76,165     4,182 21.78 %   74,090     3,927 21.26 %   74,132     3,877 21.21 %   72,476     3,919 21.51 %   69,316     3,771 21.64 %
Total interest-earning assets   91,852     4,233 18.28 %   90,043     3,970 17.68 %   89,897     3,913 17.65 %   88,762     3,947 17.69 %   84,756     3,796 17.82 %
 
Non-interest-earning assets:
Cash and due from banks 877 829 802 739 862
Allowance for loan losses (5,125 ) (4,781 ) (4,408 ) (4,228 ) (3,933 )
Other assets   3,517     3,303     3,177     3,479     3,189  
Total non-interest-earning assets   (731 )   (649 )   (429 )   (10 )   118  
         
Total assets $ 91,121   $ 89,394   $ 89,468   $ 88,752   $ 84,874  
 
Liabilities
Interest-bearing liabilities:
Interest-bearing deposit accounts $ 53,294 $ 219 1.63 % $ 51,836 $ 202 1.56 % $ 51,829 $ 194 1.52 % $ 51,006 $ 188 1.47 % $ 47,895 $ 188 1.56 %
Borrowings of consolidated securitization entities 11,759 65 2.19 % 12,213 63 2.07 % 12,321 65 2.14 % 12,389 64 2.06 % 12,254 63 2.05 %
Bank term loan - - - % - - - % - - - % - - - % - - - %
Senior unsecured notes   8,251     73 3.51 %   7,933     68 3.44 %   7,760     67 3.50 %   7,757     67 3.44 %   7,448     64 3.42 %
Total interest-bearing liabilities   73,304     357 1.93 %   71,982     333 1.86 %   71,910     326 1.84 %   71,152     319 1.78 %   67,597     315 1.85 %
 
Non-interest-bearing liabilities
Non-interest-bearing deposit accounts 232 218 240 176 204
Other liabilities   3,154     2,752     2,995     3,321     3,175  
Total non-interest-bearing liabilities   3,386     2,970     3,235     3,497     3,379  
         
Total liabilities   76,690     74,952     75,145     74,649     70,976  
 
Equity
Total equity 14,431 14,442 14,323 14,103 13,898
         
Total liabilities and equity $ 91,121   $ 89,394   $ 89,468   $ 88,752   $ 84,874  
Net interest income $ 3,876 $ 3,637 $ 3,587 $ 3,628 $ 3,481
 
Interest rate spread (1) 16.35 % 15.82 % 15.81 % 15.91 % 15.97 %
Net interest margin (2) 16.74 % 16.20 % 16.18 % 16.26 % 16.34 %
                                                             
(1) Interest rate spread represents the difference between the yield on total interest-earning assets and the rate on total interest-bearing liabilities.
(2) Net interest margin represents net interest income divided by average interest-earning assets.
 
 
SYNCHRONY FINANCIAL
AVERAGE BALANCES, NET INTEREST INCOME AND NET INTEREST MARGIN
(unaudited, $ in millions)
           
Nine Months Ended

Sep 30, 2017

Nine Months Ended

Sep 30, 2016

Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
Assets
Interest-earning assets:
Interest-earning cash and equivalents $ 11,073 $ 86 1.04 % $ 12,132 $ 46 0.51 %
Securities available for sale 4,732 44 1.24 % 2,932 22 1.00 %
 
Loan receivables:
Credit cards, including held for sale 71,920 11,780 21.90 % 64,701 10,573 21.83 %
Consumer installment loans 1,465 101 9.22 % 1,240 86 9.26 %
Commercial credit products 1,363 104 10.20 % 1,367 103 10.06 %
Other   55     1 2.43 %   56     1 2.39 %
Total loan receivables, including held for sale   74,803     11,986 21.42 %   67,364     10,763 21.34 %
Total interest-earning assets   90,608     12,116 17.88 %   82,428     10,831 17.55 %
 
Non-interest-earning assets:
Cash and due from banks 836 1,041
Allowance for loan losses (4,774 ) (3,752 )
Other assets   3,334     3,222  
Total non-interest-earning assets   (604 )   511  
   
Total assets $ 90,004   $ 82,939  
 
Liabilities
Interest-bearing liabilities:
Interest-bearing deposit accounts $ 52,325 $ 615 1.57 % $ 45,915 $ 539 1.57 %
Borrowings of consolidated securitization entities 12,096 193 2.13 % 12,441 180 1.93 %
Bank term loan(1) - - - % 742 31 5.58 %
Senior unsecured notes   7,983     208 3.48 %   6,957     179 3.44 %
Total interest-bearing liabilities   72,404     1,016 1.88 %   66,055     929 1.88 %
 
Non-interest-bearing liabilities
Non-interest-bearing deposit accounts 230 215
Other liabilities   2,971     3,211  
Total non-interest-bearing liabilities   3,201     3,426  
   
Total liabilities   75,605     69,481  
 
Equity
Total equity 14,399 13,458
   
Total liabilities and equity $ 90,004   $ 82,939  
Net interest income $ 11,100 $ 9,902
 
Interest rate spread (2) 16.00 % 15.67 %
Net interest margin (3) 16.38 % 16.05 %
                         
(1) The effective interest rate for the Bank term loan for the 9 months ended September 30, 2016 was 2.48%. The Bank term loan effective rate excludes the impact of charges incurred in connection with prepayments of the loan.
(2) Interest rate spread represents the difference between the yield on total interest-earning assets and the rate on total interest-bearing liabilities.
(3) Net interest margin represents net interest income divided by average interest-earning assets.
 
             
SYNCHRONY FINANCIAL
BALANCE SHEET STATISTICS
(unaudited, $ in millions, except per share statistics)
 
Quarter Ended
Sep 30,

2017

Jun 30,

2017

Mar 31,

2017

Dec 31,

2016

Sep 30,

2016

Sep 30, 2017 vs.

Sep 30, 2016

BALANCE SHEET STATISTICS

Total common equity $ 14,402 $ 14,332 $ 14,363 $ 14,196 $ 13,981 $ 421 3.0 %
Total common equity as a % of total assets 15.56 % 15.73 % 16.13 % 15.74 % 16.04 % (0.48 )%
 
Tangible assets $ 90,785 $ 89,362 $ 87,232 $ 88,546 $ 85,477 $ 5,308 6.2 %
Tangible common equity(1) $ 12,639 $ 12,554 $ 12,545 $ 12,535 $ 12,299 $ 340 2.8 %
Tangible common equity as a % of tangible assets(1) 13.92 % 14.05 % 14.38 % 14.16 % 14.39 % (0.47 )%
Tangible common equity per share(1) $ 16.15 $ 15.79 $ 15.47 $ 15.34 $ 14.90 $ 1.25 8.4 %
 

REGULATORY CAPITAL RATIOS (2)

Basel III Transition
Total risk-based capital ratio(3) 18.7 % 18.7 % 19.3 % 18.5 % 19.5 %
Tier 1 risk-based capital ratio(4) 17.3 % 17.4 % 18.0 % 17.2 % 18.2 %
Tier 1 leverage ratio(5) 14.6 % 14.8 % 14.8 % 15.0 % 15.4 %
Common equity Tier 1 capital ratio(6) 17.3 % 17.4 % 18.0 % 17.2 % 18.2 %
 
Basel III Fully Phased-in
Common equity Tier 1 capital ratio(6) 17.2 % 17.2 % 17.7 % 17.0 % 17.9 %
                                                 
(1) Tangible common equity ("TCE") is a non-GAAP measure. We believe TCE is a more meaningful measure of the net asset value of the Company to investors. For corresponding reconciliation of TCE to a GAAP financial measure, see Reconciliation of Non-GAAP Measures and Calculations of Regulatory Measures.
(2) Regulatory capital metrics at September 30, 2017 are preliminary and therefore subject to change.
(3) Total risk-based capital ratio is the ratio of total risk-based capital divided by risk-weighted assets.
(4) Tier 1 risk-based capital ratio is the ratio of Tier 1 capital divided by risk-weighted assets.
(5) Tier 1 leverage ratio is the ratio of Tier 1 capital divided by total average assets, after certain adjustments. Tier 1 leverage ratios are based upon the use of daily averages for all periods presented.
(6) Common equity Tier 1 capital ratio is the ratio of common equity Tier 1 capital to total risk-weighted assets, each as calculated under Basel III rules. Common equity Tier 1 capital ratio (fully phased-in) is a preliminary estimate reflecting management’s interpretation of the final Basel III rules adopted in July 2013 by the Federal Reserve Board, which have not been fully implemented, and our estimate and interpretations are subject to, among other things, ongoing regulatory review and implementation guidance.
 
                     
SYNCHRONY FINANCIAL
PLATFORM RESULTS
(unaudited, $ in millions)
Quarter Ended Nine Months Ended
Sep 30,

2017

Jun 30,

2017

Mar 31,

2017

Dec 31,

2016

Sep 30,

2016

3Q'17 vs. 3Q'16 Sep 30,

2017

Sep 30,

2016

YTD'17 vs. YTD'16

RETAIL CARD

Purchase volume(1)(2) $ 26,347 $ 27,101 $ 22,952 $ 28,996 $ 25,285 $ 1,062 4.2 % $ 76,400 $ 72,246 $ 4,154 5.7 %
Period-end loan receivables $ 52,119 $ 51,437 $ 49,905 $ 52,701 $ 48,010 $ 4,109 8.6 % $ 52,119 $ 48,010 $ 4,109 8.6 %
Average loan receivables, including held for sale $ 51,817 $ 50,533 $ 50,644 $ 49,476 $ 47,274 $ 4,543 9.6 % $ 51,002 $ 46,119 $ 4,883 10.6 %
Average active accounts (in thousands)(2)(3) 54,471 54,058 55,049 54,489 52,959 1,512 2.9 % 54,639 52,834 1,805 3.4 %
 
Interest and fees on loans(2) $ 3,102 $ 2,900 $ 2,888 $ 2,909 $ 2,790 $ 312 11.2 % $ 8,890 $ 7,989 $ 901 11.3 %
Other income(2) $ 61 $ 25 $ 77 $ 70 $ 70 $ (9 ) (12.9 )% $ 163 $ 218 $ (55 ) (25.2 )%
Retailer share arrangements(2) $ (795 ) $ (657 ) $ (681 ) $ (801 ) $ (752 ) $ (43 ) 5.7 % $ (2,133 ) $ (2,069 ) $ (64 ) 3.1 %
 

PAYMENT SOLUTIONS

Purchase volume(1) $ 4,178 $ 3,930 $ 3,686 $ 4,194 $ 4,152 $ 26 0.6 % $ 11,794 $ 11,447 $ 347 3.0 %
Period-end loan receivables $ 16,153 $ 15,595 $ 15,320 $ 15,567 $ 14,798 $ 1,355 9.2 % $ 16,153 $ 14,798 $ 1,355 9.2 %
Average loan receivables $ 15,848 $ 15,338 $ 15,424 $ 15,076 $ 14,367 $ 1,481 10.3 % $ 15,538 $ 13,786 $ 1,752 12.7 %
Average active accounts (in thousands)(3) 9,183 9,031 9,090 8,844 8,461 722 8.5 % 9,108 8,261 847 10.3 %
 
Interest and fees on loans $ 559 $ 533 $ 515 $ 523 $ 505 $ 54 10.7 % $ 1,607 $ 1,429 $ 178 12.5 %
Other income $ 2 $ 6 $ 4 $ 3 $ 3 $ (1 ) (33.3 )% $ 12 $ 10 $ 2 20.0 %
Retailer share arrangements $ (9 ) $ (9 ) $ (1 ) $ (9 ) $ (3 ) $ (6 ) NM $ (19 ) $ (17 ) $ (2 ) 11.8 %
 

CARECREDIT

Purchase volume(1) $ 2,368 $ 2,445 $ 2,242 $ 2,179 $ 2,178 $ 190 8.7 % $ 7,055 $ 6,406 $ 649 10.1 %
Period-end loan receivables $ 8,656 $ 8,426 $ 8,125 $ 8,069 $ 7,836 $ 820 10.5 % $ 8,656 $ 7,836 $ 820 10.5 %
Average loan receivables $ 8,500 $ 8,219 $ 8,064 $ 7,924 $ 7,675 $ 825 10.7 % $ 8,263 $ 7,459 $ 804 10.8 %
Average active accounts (in thousands)(3) 5,677 5,546 5,490 5,368 5,219 458 8.8 % 5,572 5,109 463 9.1 %
 
Interest and fees on loans $ 521 $ 494 $ 474 $ 487 $ 476 $ 45 9.5 % $ 1,489 $ 1,345 $ 144 10.7 %
Other income $ 13 $ 26 $ 12 $ 12 $ 11 $ 2 18.2 % $ 51 $ 31 $ 20 64.5 %
Retailer share arrangements $ (1 ) $ (3 ) $ (2 ) $ (1 ) $ (2 ) $ 1 (50.0 )% $ (6 ) $ (5 ) $ (1 ) 20.0 %
 

TOTAL SYF

Purchase volume(1)(2) $ 32,893 $ 33,476 $ 28,880 $ 35,369 $ 31,615 $ 1,278 4.0 % $ 95,249 $ 90,099 $ 5,150 5.7 %
Period-end loan receivables $ 76,928 $ 75,458 $ 73,350 $ 76,337 $ 70,644 $ 6,284 8.9 % $ 76,928 $ 70,644 $ 6,284 8.9 %
Average loan receivables, including held for sale $ 76,165 $ 74,090 $ 74,132 $ 72,476 $ 69,316 $ 6,849 9.9 % $ 74,803 $ 67,364 $ 7,439 11.0 %
Average active accounts (in thousands)(2)(3) 69,331 68,635 69,629 68,701 66,639 2,692 4.0 % 69,319 66,204 3,115 4.7 %
 
Interest and fees on loans(2) $ 4,182 $ 3,927 $ 3,877 $ 3,919 $ 3,771 $ 411 10.9 % $ 11,986 $ 10,763 $ 1,223 11.4 %
Other income(2) $ 76 $ 57 $ 93 $ 85 $ 84 $ (8 ) (9.5 )% $ 226 $ 259 $ (33 ) (12.7 )%
Retailer share arrangements(2) $ (805 ) $ (669 ) $ (684 ) $ (811 ) $ (757 ) $ (48 ) 6.3 % $ (2,158 ) $ (2,091 ) $ (67 ) 3.2 %
                                             
(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 balances 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.
 
         
SYNCHRONY FINANCIAL
RECONCILIATION OF NON-GAAP MEASURES AND CALCULATIONS OF REGULATORY MEASURES (1)
(unaudited, $ in millions, except per share statistics)
Quarter Ended
Sep 30,

2017

Jun 30,

2017

Mar 31,

2017

Dec 31,

2016

Sep 30,

2016

COMMON EQUITY MEASURES

GAAP Total common equity $ 14,402 $ 14,332 $ 14,363 $ 14,196 $ 13,981
Less: Goodwill (991 ) (991 ) (992 ) (949 ) (949 )
Less: Intangible assets, net   (772 )   (787 )   (826 )   (712 )   (733 )
Tangible common equity $ 12,639 $ 12,554 $ 12,545 $ 12,535 $ 12,299
Adjustments for certain deferred tax liabilities and certain items in accumulated comprehensive income (loss)   344     337     340     337     299  
Basel III - Common equity Tier 1 (fully phased-in) $ 12,983   $ 12,891   $ 12,885   $ 12,872   $ 12,598  
Adjustment related to capital components during transition   142     146     154     263     273  
Basel III - Common equity Tier 1 (transition) $ 13,125   $ 13,037   $ 13,039   $ 13,135   $ 12,871  
 

RISK-BASED CAPITAL

Common equity Tier 1 $ 13,125 $ 13,037 $ 13,039 $ 13,135 $ 12,871
Add: Allowance for loan losses includible in risk-based capital   1,001     985     954     994     923  
Risk-based capital $ 14,126   $ 14,022   $ 13,993   $ 14,129   $ 13,794  
 

ASSET MEASURES

Total average assets(2) $ 91,121 $ 89,394 $ 89,468 $ 88,752 $ 84,874
Adjustments for:

Disallowed goodwill and other disallowed intangible assets (net of related deferred tax liabilities) and other

  (1,304 )   (1,325 )   (1,358 )   (1,059 )   (1,117 )
Total assets for leverage purposes $ 89,817   $ 88,069   $ 88,110   $ 87,693   $ 83,757  
 
Risk-weighted assets - Basel III (fully phased-in) (3) $ 75,614 $ 74,748 $ 72,596 $ 75,941 $ 70,448
Risk-weighted assets - Basel III (transition) (3) $ 75,729 $ 74,792 $ 72,627 $ 76,179 $ 70,660
 

TANGIBLE COMMON EQUITY PER SHARE

GAAP book value per share $ 18.40 $ 18.02 $ 17.71 $ 17.37 $ 16.94
Less: Goodwill (1.27 ) (1.25 ) (1.22 ) (1.16 ) (1.14 )
Less: Intangible assets, net   (0.98 )   (0.98 )   (1.02 )   (0.87 )   (0.90 )
Tangible common equity per share $ 16.15   $ 15.79   $ 15.47   $ 15.34   $ 14.90  
                                         
(1) Regulatory measures at September 30, 2017 are presented on an estimated basis.
(2) Total average assets are presented based upon the use of daily averages.
(3) Key differences between Basel III transitional rules and fully phased-in Basel III rules in the calculation of risk-weighted assets include, but not limited to, risk weighting of deferred tax assets and adjustments for certain intangible assets.
 

Contact:

Synchrony Financial
Investor Relations:
Greg Ketron, 203-585-6291
or
Media Relations
Lisa Lanspery, 203-585-6143

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