Synchrony Financial Reports Second Quarter Net Earnings of $496 Million or $0.61 Per Diluted Share

Friday, July 21, 2017 6:30 am EDT

Dateline:

STAMFORD, Conn.

Public Company Information:

NYSE:
SYF

STAMFORD, Conn.--(BUSINESS WIRE)--Synchrony Financial (NYSE: SYF) today announced second quarter 2017 net earnings of $496 million, or $0.61 per diluted share. Highlights for the quarter included:

  • Net interest income increased 13% from the second quarter of 2016 to $3.6 billion
  • Loan receivables grew $7 billion, or 11%, from the second quarter of 2016 to $75 billion
  • Purchase volume increased 6% from the second quarter of 2016
  • Strong deposit growth continued, up $6 billion, or 14%, over the second quarter of 2016
  • Signed a new partnership with zulily
  • Launched new programs with Nissan and Infiniti
  • Renewed relationships: MEGA Group USA, City Furniture, and National Veterinary Associates
  • Announced new capital plan increasing quarterly common stock dividend to $0.15 per share and share repurchases of up to $1.64 billion of Synchrony Financial common stock

“Strong execution of our strategies yielded solid performance across our three sales platforms. Organic growth remains an important business driver and contributed meaningfully to this quarter’s results. Our focus on the application and development of digital innovations is yielding results as we continue to drive strong online sales volume growth and penetration. A primary funding objective for us is growing deposits, and we continued to execute on this, achieving double-digit growth again this quarter,” said Margaret Keane, President and Chief Executive Officer of Synchrony Financial. “We were pleased to announce a meaningful increase in our capital return to shareholders through dividends and share repurchases--this is a key priority, along with continued growth of the business while maintaining solid returns and a strong balance sheet.”

Business and Financial Highlights for the Second Quarter of 2017

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

Earnings

  • Net interest income increased $425 million, or 13%, to $3.6 billion, primarily driven by strong loan receivables growth. Net interest income after retailer share arrangements increased 16%.
  • Provision for loan losses increased $305 million to $1,326 million driven by credit normalization and loan receivables growth.
  • Other income was down $26 million to $57 million, largely driven by an increase in loyalty programs expense.
  • Other expense increased $72 million to $911 million, primarily driven by business growth.
  • Net earnings totaled $496 million compared to $489 million in the second quarter of 2016.

Balance Sheet

  • Period-end loan receivables growth remained strong at 11%, primarily driven by purchase volume growth of 6% and average active account growth of 5%.
  • Deposits grew to $53 billion, up $6 billion, or 14%, and comprised 72% 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 17.4% and the estimated fully phased-in Common Equity Tier 1 ratio under Basel III was 17.2%.

Key Financial Metrics

  • Return on assets was 2.2% and return on equity was 13.8%.
  • Net interest margin increased 26 basis points to 16.20%.
  • Efficiency ratio was 30.1%, compared to 31.9% in the second quarter of 2016, driven by strong positive operating leverage.

Credit Quality

  • Loans 30+ days past due as a percentage of total period-end loan receivables were 4.25% compared to 3.79% last year.
  • Net charge-offs as a percentage of total average loan receivables were 5.42% compared to 4.51% last year.
  • The allowance for loan losses as a percentage of total period-end loan receivables was 6.63% compared to 5.70% last year.

Sales Platforms

  • Retail Card interest and fees on loans increased 12%, driven primarily by period-end loan receivables growth of 10%. Purchase volume growth was 7% and average active account growth was 3%. Loan receivables growth was broad-based across partner programs.
  • Payment Solutions interest and fees on loans increased 14%, driven primarily by period-end loan receivables growth of 11%. Purchase volume growth was 6%, adjusted to exclude the impact from the hhgregg bankruptcy, and average active account growth was 11%. Loan receivables growth was led by home furnishings and automotive.
  • CareCredit interest and fees on loans increased 12%, driven primarily by period-end loan receivables growth of 11%. Purchase volume growth was 11% and average active account growth was 10%. 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 June 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, July 21, 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 22017#, and can be accessed beginning approximately two hours after the event through August 4, 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 and co-branded Dual Card™ 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.com, facebook.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 Six Months Ended

Jun 30,
2017

Mar 31,
2017

Dec 31,
2016

Sep 30,
2016

Jun 30,
2016

2Q'17 vs. 2Q'16

Jun 30,
2017

Jun 30,
2016

YTD'17 vs. YTD'16

EARNINGS

Net interest income $3,637 $3,587 $3,628 $3,481 $3,212 $425 13.2 % $7,224 $6,421 $803 12.5 %
Retailer share arrangements (669 ) (684 ) (811 ) (757 ) (664 ) (5 ) 0.8 % (1,353 ) (1,334 ) (19 ) 1.4 %
Net interest income, after retailer share arrangements 2,968 2,903 2,817 2,724 2,548 420 16.5 % 5,871 5,087 784 15.4 %
Provision for loan losses 1,326   1,306   1,076   986   1,021   305   29.9 % 2,632   1,924   708   36.8 %
Net interest income, after retailer share arrangements and provision for loan losses 1,642 1,597 1,741 1,738 1,527 115 7.5 % 3,239 3,163 76 2.4 %
Other income 57 93 85 84 83 (26 ) (31.3 )% 150 175 (25 ) (14.3 )%
Other expense 911   908   918   859   839   72   8.6 % 1,819   1,639   180   11.0 %
Earnings before provision for income taxes 788 782 908 963 771 17 2.2 % 1,570 1,699 (129 ) (7.6 )%
Provision for income taxes 292   283   332   359   282   10   3.5 % 575   628   (53 ) (8.4 )%
Net earnings $496   $499   $576   $604   $489   $7   1.4 % $995   $1,071   $(76 ) (7.1 )%
Net earnings attributable to common stockholders $496   $499   $576   $604   $489   $7   1.4 % $995   $1,071   $(76 ) (7.1 )%
 

COMMON SHARE STATISTICS

Basic EPS $0.62 $0.61 $0.70 $0.73 $0.59 $0.03 5.1 % $1.23 $1.28 $(0.05 ) (3.9 )%
Diluted EPS $0.61 $0.61 $0.70 $0.73 $0.58 $0.03 5.2 % $1.23 $1.28 $(0.05 ) (3.9 )%
Dividend declared per share $0.13 $0.13 $0.13 $0.13 - $0.13 NM $0.26 - $0.26 NM
Common stock price $29.82 $34.30 $36.27 $28.00 $25.28 $4.54 18.0 % $29.82 $25.28 $4.54 18.0 %
Book value per share $18.02 $17.71 $17.37 $16.94 $16.45 $1.57 9.5 % $18.02 $16.45 $1.57 9.5 %
Tangible common equity per share(1) $15.79 $15.47 $15.34 $14.90 $14.46 $1.33 9.2 % $15.79 $14.46 $1.33 9.2 %
 
Beginning common shares outstanding 810.8 817.4 825.5 833.9 833.8 (23.0 ) (2.8 )% 817.4 833.8 (16.4 ) (2.0 )%
Issuance of common shares - - - - - - - % - - - - %
Stock-based compensation 0.2 - - 0.1 0.1 0.1 100.0 % 0.2 0.1 0.1 100.0 %
Shares repurchased (15.7 ) (6.6 ) (8.1 ) (8.5 ) -   (15.7 ) NM   (22.3 ) -   (22.3 ) NM  
Ending common shares outstanding 795.3 810.8 817.4 825.5 833.9 (38.6 ) (4.6 )% 795.3 833.9 (38.6 ) (4.6 )%
 
Weighted average common shares outstanding 804.0 813.1 820.5 828.4 833.9 (29.9 ) (3.6 )% 808.5 833.9 (25.4 ) (3.0 )%
Weighted average common shares outstanding (fully diluted) 807.4 817.1 823.8 830.6 836.2 (28.8 ) (3.4 )% 812.2 835.8 (23.6 ) (2.8 )%
                                                                           
(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 Six Months Ended

Jun 30,
2017

Mar 31,
2017

Dec 31,
2016

Sep 30,
2016

Jun 30,
2016

2Q'17 vs. 2Q'16

Jun 30,
2017

Jun 30,
2016

YTD'17 vs. YTD'16

PERFORMANCE METRICS

Return on assets(1) 2.2 % 2.3 % 2.6 % 2.8 % 2.4 % (0.2 )% 2.2 % 2.6 % (0.4 )%
Return on equity(2) 13.8 % 14.1 % 16.2 % 17.3 % 14.5 % (0.7 )% 14.0 % 16.3 % (2.3 )%
Return on tangible common equity(3) 15.7 % 16.1 % 18.4 % 19.6 % 16.5 % (0.8 )% 15.9 % 18.6 % (2.7 )%
Net interest margin(4) 16.20 % 16.18 % 16.26 % 16.34 % 15.94 % 0.26 % 16.19 % 15.89 % 0.30 %
Efficiency ratio(5) 30.1 % 30.3 % 31.6 % 30.6 % 31.9 % (1.8 )% 30.2 % 31.1 % (0.9 )%
Other expense as a % of average loan receivables, including held for sale 4.93 % 4.97 % 5.04 % 4.93 % 5.07 % (0.14 )% 4.95 % 4.97 % (0.02 )%
Effective income tax rate 37.1 % 36.2 % 36.6 % 37.3 % 36.6 % 0.5 % 36.6 % 37.0 % (0.4 )%
 

CREDIT QUALITY METRICS

Net charge-offs as a % of average loan receivables, including held for sale 5.42 % 5.33 % 4.65 % 4.39 % 4.51 % 0.91 % 5.37 % 4.63 % 0.74 %
30+ days past due as a % of period-end loan receivables(6) 4.25 % 4.25 % 4.32 % 4.26 % 3.79 % 0.46 % 4.25 % 3.79 % 0.46 %
90+ days past due as a % of period-end loan receivables(6) 1.90 % 2.06 % 2.03 % 1.89 % 1.67 % 0.23 % 1.90 % 1.67 % 0.23 %
Net charge-offs $1,001 $974 $847 $765 $747 $254 34.0 % $1,975 $1,527 $448 29.3 %
Loan receivables delinquent over 30 days(6) $3,208 $3,120 $3,295 $3,008 $2,585 $623 24.1 % $3,208 $2,585 $623 24.1 %
Loan receivables delinquent over 90 days(6) $1,435 $1,508 $1,546 $1,334 $1,143 $292 25.5 % $1,435 $1,143 $292 25.5 %
 
Allowance for loan losses (period-end) $5,001 $4,676 $4,344 $4,115 $3,894 $1,107 28.4 % $5,001 $3,894 $1,107 28.4 %
Allowance coverage ratio(7) 6.63 % 6.37 % 5.69 % 5.82 % 5.70 % 0.93 % 6.63 % 5.70 % 0.93 %
 

BUSINESS METRICS

Purchase volume(8) $33,476 $28,880 $35,369 $31,615 $31,507 $1,969 6.2 % $62,356 $58,484 $3,872 6.6 %
Period-end loan receivables $75,458 $73,350 $76,337 $70,644 $68,282 $7,176 10.5 % $75,458 $68,282 $7,176 10.5 %
Credit cards $72,492 $70,587 $73,580 $67,858 $65,511 $6,981 10.7 % $72,492 $65,511 $6,981 10.7 %
Consumer installment loans $1,514 $1,411 $1,384 $1,361 $1,293 $221 17.1 % $1,514 $1,293 $221 17.1 %
Commercial credit products $1,386 $1,311 $1,333 $1,385 $1,389 $(3 ) (0.2 )% $1,386 $1,389 $(3 ) (0.2 )%
Other $66 $41 $40 $40 $89 ($23 ) (25.8 )% $66 $89 $(23 ) (25.8 )%
Average loan receivables, including held for sale $74,090 $74,132 $72,476 $69,316 $66,561 $7,529 11.3 % $74,111 $66,377 $7,734 11.7 %
Period-end active accounts (in thousands)(9) 69,277 67,905 71,890 66,781 66,491 2,786 4.2 % 69,277 66,491 2,786 4.2 %
Average active accounts (in thousands)(9) 68,635 69,629 68,701 66,639 65,531 3,104 4.7 % 69,307 65,996 3,311 5.0 %
 

LIQUIDITY

Liquid assets
Cash and equivalents $12,020 $11,392 $9,321 $13,588 $11,787 $233 2.0 % $12,020 $11,787 $233 2.0 %
Total liquid assets $15,274 $16,158 $13,612 $16,362 $13,956 $1,318 9.4 % $15,274 $13,956 $1,318 9.4 %
Undrawn credit facilities
Undrawn credit facilities $6,650 $5,600 $6,700 $7,150 $7,025 $(375 ) (5.3 )% $6,650 $7,025 $(375 ) (5.3 )%
Total liquid assets and undrawn credit facilities $21,924 $21,758 $20,312 $23,512 $20,981 $943 4.5 % $21,924 $20,981 $943 4.5 %
Liquid assets % of total assets 16.76 % 18.14 % 15.09 % 18.77 % 16.94 % (0.18 )% 16.76 % 16.94 % (0.18 )%
Liquid assets including undrawn credit facilities % of total assets 24.06 % 24.43 % 22.52 % 26.98 % 25.47 % (1.41 )% 24.06 % 25.47 % (1.41 )%
                                                                           
(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 Six Months Ended

Jun 30,
2017

Mar 31,
2017

Dec 31,
2016

Sep 30,
2016

Jun 30,
2016

2Q'17 vs. 2Q'16

Jun 30,
2017

Jun 30,
2016

YTD'17 vs. YTD'16
Interest income:
Interest and fees on loans $3,927 $3,877 $3,919 $3,771 $3,494 $433 12.4 % $7,804 $6,992 $812 11.6 %
Interest on investment securities 43   36   28   25   21   22   104.8 % 79   43   36   83.7 %
Total interest income 3,970 3,913 3,947 3,796 3,515 455 12.9 % 7,883 7,035 848 12.1 %
 
Interest expense:
Interest on deposits 202 194 188 188 179 23 12.8 % 396 351 45 12.8 %
Interest on borrowings of consolidated securitization entities 63 65 64 63 59 4 6.8 % 128 117 11 9.4 %
Interest on third-party debt 68   67   67   64   65   3   4.6 % 135   146   (11 ) (7.5 )%
Total interest expense 333 326 319 315 303 30 9.9 % 659 614 45 7.3 %
                     
Net interest income 3,637 3,587 3,628 3,481 3,212 425 13.2 % 7,224 6,421 803 12.5 %
 
Retailer share arrangements (669 ) (684 ) (811 ) (757 ) (664 ) (5 ) 0.8 % (1,353 ) (1,334 ) (19 ) 1.4 %
Net interest income, after retailer share arrangements 2,968 2,903 2,817 2,724 2,548 420 16.5 % 5,871 5,087 784 15.4 %
 
Provision for loan losses 1,326   1,306   1,076   986   1,021   305   29.9 % 2,632   1,924   708   36.8 %
Net interest income, after retailer share arrangements and provision for loan losses 1,642 1,597 1,741 1,738 1,527 115 7.5 % 3,239 3,163 76 2.4 %
 
Other income:
Interchange revenue 165 145 167 154 151 14 9.3 % 310 281 29 10.3 %
Debt cancellation fees 68 68 68 67 63 5 7.9 % 136 127 9 7.1 %
Loyalty programs (206 ) (137 ) (157 ) (145 ) (135 ) (71 ) 52.6 % (343 ) (245 ) (98 ) 40.0 %
Other 30   17   7   8   4   26   NM   47   12   35   NM  
Total other income 57   93   85   84   83   (26 ) (31.3 )% 150   175   (25 ) (14.3 )%
 
Other expense:
Employee costs 321 325 315 311 301 20 6.6 % 646 581 65 11.2 %
Professional fees 158 151 164 174 154 4 2.6 % 309 300 9 3.0 %
Marketing and business development 124 94 130 92 107 17 15.9 % 218 201 17 8.5 %
Information processing 88 90 88 87 81 7 8.6 % 178 163 15 9.2 %
Other 220   248   221   195   196   24   12.2 % 468   394   74   18.8 %
Total other expense 911 908 918 859 839 72 8.6 % 1,819 1,639 180 11.0 %
                     
Earnings before provision for income taxes 788 782 908 963 771 17 2.2 % 1,570 1,699 (129 ) (7.6 )%
Provision for income taxes 292   283   332   359   282   10   3.5 % 575   628   (53 ) (8.4 )%
Net earnings attributable to common stockholders $496   $499   $576   $604   $489   $7   1.4 % $995   $1,071   $(76 ) (7.1 )%
                                                                                                 
                         
SYNCHRONY FINANCIAL
STATEMENTS OF FINANCIAL POSITION
(unaudited, $ in millions)
Quarter Ended

Jun 30,
2017

Mar 31,
2017

Dec 31,
2016

Sep 30,
2016

Jun 30,
2016

Jun 30, 2017 vs.
Jun 30, 2016

Assets
Cash and equivalents $12,020 $11,392 $9,321 $13,588 $11,787 $233 2.0 %
Investment securities 3,997 5,328 5,110 3,356 2,723 1,274 46.8 %
Loan receivables:
Unsecuritized loans held for investment 52,550 50,398 52,332 47,517 44,854 7,696 17.2 %
Restricted loans of consolidated securitization entities 22,908   22,952   24,005   23,127   23,428   (520 ) (2.2 )%
Total loan receivables 75,458 73,350 76,337 70,644 68,282 7,176 10.5 %
Less: Allowance for loan losses (5,001 ) (4,676 ) (4,344 ) (4,115 ) (3,894 ) (1,107 ) 28.4 %
Loan receivables, net 70,457 68,674 71,993 66,529 64,388 6,069 9.4 %
Goodwill 991 992 949 949 949 42 4.4 %
Intangible assets, net 787 826 712 733 704 83 11.8 %
Other assets 2,888   1,838   2,122   2,004   1,833   1,055   57.6 %
Total assets $91,140   $89,050   $90,207   $87,159   $82,384   $8,756   10.6 %
 
Liabilities and Equity
Deposits:
Interest-bearing deposit accounts $52,659 $51,359 $51,896 $49,611 $46,220 $6,439 13.9 %
Non-interest-bearing deposit accounts 226   246   159   204   207   19   9.2 %
Total deposits 52,885 51,605 52,055 49,815 46,427 6,458 13.9 %
Borrowings:
Borrowings of consolidated securitization entities 12,204 12,433 12,388 12,411 12,236 (32 ) (0.3 )%
Bank term loan - - - - - - - %
Senior unsecured notes 8,505   7,761   7,759   7,756   7,059   1,446   20.5 %
Total borrowings 20,709 20,194 20,147 20,167 19,295 1,414 7.3 %
Accrued expenses and other liabilities 3,214   2,888   3,809   3,196   2,947   267   9.1 %
Total liabilities 76,808 74,687 76,011 73,178 68,669 8,139 11.9 %
Equity:
Common stock 1 1 1 1 1 - - %
Additional paid-in capital 9,415 9,405 9,393 9,381 9,370 45 0.5 %
Retained earnings 6,109 5,724 5,330 4,861 4,364 1,745 40.0 %
Accumulated other comprehensive income: (49 ) (55 ) (53 ) (24 ) (20 ) (29 ) 145.0 %
Treasury Stock (1,144 ) (712 ) (475 ) (238 ) -   (1,144 ) NM  
Total equity 14,332   14,363   14,196   13,981   13,715   617   4.5 %
Total liabilities and equity $91,140   $89,050   $90,207   $87,159   $82,384   $8,756   10.6 %
                                                                 
                                                             
SYNCHRONY FINANCIAL
AVERAGE BALANCES, NET INTEREST INCOME AND NET INTEREST MARGIN
(unaudited, $ in millions)
 
Quarter Ended
Jun 30, 2017 Mar 31, 2017 Dec 31, 2016 Sep 30, 2016 Jun 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 $10,758 $28 1.04 % $10,552 $21 0.81 % $12,210 $17 0.55 % $12,480 $16 0.51 % $11,623 $14 0.48 %
Securities available for sale 5,195 15 1.16 % 5,213 15 1.17 % 4,076 11 1.07 % 2,960 9 1.21 % 2,858 7 0.99 %
 
Loan receivables:
Credit cards, including held for sale 71,206 3,858 21.73 % 71,365 3,811 21.66 % 69,660 3,851 21.99 % 66,519 3,705 22.16 % 63,876 3,432 21.61 %
Consumer installment loans 1,461 34 9.33 % 1,389 32 9.34 % 1,373 31 8.98 % 1,333 31 9.25 % 1,233 28 9.13 %
Commercial credit products 1,378 34 9.90 % 1,317 34 10.47 % 1,386 36 10.33 % 1,401 35 9.94 % 1,388 33 9.56 %
Other 45   1 NM   61   - - % 57   1 NM   63   - - % 64   1 NM  
Total loan receivables, including held for sale 74,090   3,927 21.26 % 74,132   3,877 21.21 % 72,476   3,919 21.51 % 69,316   3,771 21.64 % 66,561   3,494 21.11 %
Total interest-earning assets 90,043   3,970 17.68 % 89,897   3,913 17.65 % 88,762   3,947 17.69 % 84,756   3,796 17.82 % 81,042   3,515 17.44 %
 
Non-interest-earning assets:
Cash and due from banks 829 802 739 862 895
Allowance for loan losses (4,781 ) (4,408 ) (4,228 ) (3,933 ) (3,732 )
Other assets 3,303   3,177   3,479   3,189   3,208  
Total non-interest-earning assets (649 ) (429 ) (10 ) 118   371  
         
Total assets $89,394   $89,468   $88,752   $84,874   $81,413  
 
Liabilities
Interest-bearing liabilities:
Interest-bearing deposit accounts $51,836 $202 1.56 % $51,829 $194 1.52 % $51,006 $188 1.47 % $47,895 $188 1.56 % $45,523 $179 1.58 %
Borrowings of consolidated securitization entities 12,213 63 2.07 % 12,321 65 2.14 % 12,389 64 2.06 % 12,254 63 2.05 % 12,211 59 1.94 %
Bank term loan - - - % - - - % - - - % - - - % 65 7 NM
Senior unsecured notes 7,933 68 3.44 % 7,760 67 3.50 % 7,757 67 3.44 % 7,448 64 3.42 % 6,861 58 3.40 %
                             
Total interest-bearing liabilities 71,982   333 1.86 % 71,910   326 1.84 % 71,152   319 1.78 % 67,597   315 1.85 % 64,660   303 1.88 %
 
Non-interest-bearing liabilities
Non-interest-bearing deposit accounts 218 240 176 204 208
Other liabilities 2,752   2,995   3,321   3,175   3,002  
Total non-interest-bearing liabilities 2,970   3,235   3,497   3,379   3,210  
         
Total liabilities 74,952   75,145   74,649   70,976   67,870  
 
Equity
Total equity 14,442 14,323 14,103 13,898 13,543
         
Total liabilities and equity $89,394   $89,468   $88,752   $84,874   $81,413  
Net interest income $3,637 $3,587 $3,628 $3,481 $3,212
 
Interest rate spread(1) 15.82 % 15.81 % 15.91 % 15.97 % 15.56 %
Net interest margin(2) 16.20 % 16.18 % 16.26 % 16.34 % 15.94 %
                                                                                                                 
(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)
 

Six Months Ended
Jun 30, 2017

Six Months Ended
Jun 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 $10,656 $49 0.93 % $11,957 $30 0.50 %
Securities available for sale 5,204 30 1.16 % 2,918 13 0.90 %
 
Loan receivables:
Credit cards, including held for sale 71,285 7,669 21.69 % 63,781 6,868 21.65 %
Consumer installment loans 1,425 66 9.34 % 1,194 55 9.26 %
Commercial credit products 1,348 68 10.17 % 1,350 68 10.13 %
Other 53   1 3.80 % 52   1 3.87 %
Total loan receivables, including held for sale 74,111   7,804 21.23 % 66,377   6,992 21.18 %
Total interest-earning assets 89,971   7,883 17.67 % 81,252   7,035 17.41 %
 
Non-interest-earning assets:
Cash and due from banks 816 1,131
Allowance for loan losses (4,595 ) (3,661 )
Other assets 3,239   3,240  
Total non-interest-earning assets (540 ) 710  
   
Total assets $89,431   $81,962  
 
Liabilities
Interest-bearing liabilities:
Interest-bearing deposit accounts $51,833 $396 1.54 % $44,914 $351 1.57 %
Borrowings of consolidated securitization entities 12,267 128 2.10 % 12,535 117 1.88 %
Bank term loan(1) - - - % 1,118 31 5.58 %
Senior unsecured notes 7,847   135 3.47 % 6,709   115 3.45 %
Total interest-bearing liabilities 71,947   659 1.85 % 65,276   614 1.89 %
 
Non-interest-bearing liabilities
Non-interest-bearing deposit accounts 229 221
Other liabilities 2,872   3,229  
Total non-interest-bearing liabilities 3,101   3,450  
   
Total liabilities 75,048   68,726  
 
Equity
Total equity 14,383 13,236
   
Total liabilities and equity $89,431   $81,962  
Net interest income $7,224 $6,421
 
Interest rate spread(2) 15.82 % 15.52 %
Net interest margin(3) 16.19 % 15.89 %
                                                 
(1) The effective interest rate for the Bank term loan for the 6 months ended June 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

Jun 30,
2017

Mar 31,
2017

Dec 31,
2016

Sep 30,
2016

Jun 30,
2016

Jun 30, 2017 vs.
Jun 30, 2016

BALANCE SHEET STATISTICS

Total common equity $14,332 $14,363 $14,196 $13,981 $13,715 $617 4.5 %
Total common equity as a % of total assets 15.73 % 16.13 % 15.74 % 16.04 % 16.65 % (0.92 )%
 
Tangible assets $89,362 $87,232 $88,546 $85,477 $80,731 $8,631 10.7 %
Tangible common equity(1) $12,554 $12,545 $12,535 $12,299 $12,062 $492 4.1 %
Tangible common equity as a % of tangible assets(1) 14.05 % 14.38 % 14.16 % 14.39 % 14.94 % (0.89 )%
Tangible common equity per share(1) $15.79 $15.47 $15.34 $14.90 $14.46 $1.33 9.2 %
 

REGULATORY CAPITAL RATIOS(2)

Basel III Transition
Total risk-based capital ratio(3) 18.7 % 19.3 % 18.5 % 19.5 % 19.8 %
Tier 1 risk-based capital ratio(4) 17.4 % 18.0 % 17.2 % 18.2 % 18.5 %
Tier 1 leverage ratio(5) 14.8 % 14.8 % 15.0 % 15.4 % 15.7 %
Common equity Tier 1 capital ratio(6) 17.4 % 18.0 % 17.2 % 18.2 % 18.5 %
 
Basel III Fully Phased-in
Common equity Tier 1 capital ratio(6) 17.2 % 17.7 % 17.0 % 17.9 % 18.0 %
                                                   
(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 June 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 Six Months Ended

Jun 30,
2017

Mar 31,
2017

Dec 31,
2016

Sep 30,
2016

Jun 30,
2016

2Q'17 vs. 2Q'16

Jun 30,
2017

Jun 30,
2016

YTD'17 vs. YTD'16

RETAIL CARD

Purchase volume(1)(2) $27,101 $22,952 $28,996 $25,285 $25,411 $1,690 6.7 % $50,053 $46,961 $3,092 6.6 %
Period-end loan receivables $51,437 $49,905 $52,701 $48,010 $46,705 $4,732 10.1 % $51,437 $46,705 $4,732 10.1 %
Average loan receivables, including held for sale $50,533 $50,644 $49,476 $47,274 $45,593 $4,940 10.8 % $50,588 $45,536 $5,052 11.1 %
Average active accounts (in thousands)(2)(3) 54,058 55,049 54,489 52,959 52,314 1,744 3.3 % 54,729 52,798 1,931 3.7 %
 
Interest and fees on loans(2) $2,900 $2,888 $2,909 $2,790 $2,585 $315 12.2 % $5,788 $5,199 $589 11.3 %
Other income(2) $25 $77 $70 $70 $69 $(44 ) (63.8 )% $102 $148 $(46 ) (31.1 )%
Retailer share arrangements(2) $(657 ) $(681 ) $(801 ) $(752 ) $(656 ) $(1 ) 0.2 % $(1,338 ) $(1,317 ) $(21 ) 1.6 %
 

PAYMENT SOLUTIONS

Purchase volume(1) $3,930 $3,686 $4,194 $4,152 $3,903 $27 0.7 % $7,616 $7,295 $321 4.4 %
Period-end loan receivables $15,595 $15,320 $15,567 $14,798 $13,997 $1,598 11.4 % $15,595 $13,997 $1,598 11.4 %
Average loan receivables $15,338 $15,424 $15,076 $14,367 $13,554 $1,784 13.2 % $15,381 $13,492 $1,889 14.0 %
Average active accounts (in thousands)(3) 9,031 9,090 8,844 8,461 8,153 878 10.8 % 9,061 8,148 913 11.2 %
 
Interest and fees on loans $533 $515 $523 $505 $467 $66 14.1 % $1,048 $924 $124 13.4 %
Other income $6 $4 $3 $3 $3 $3 100.0 % $10 $7 $3 42.9 %
Retailer share arrangements $(9 ) $(1 ) $(9 ) $(3 ) $(7 ) $(2 ) 28.6 % $(10 ) $(14 ) $4 (28.6 )%
 

CARECREDIT

Purchase volume(1) $2,445 $2,242 $2,179 $2,178 $2,193 $252 11.5 % $4,687 $4,228 $459 10.9 %
Period-end loan receivables $8,426 $8,125 $8,069 $7,836 $7,580 $846 11.2 % $8,426 $7,580 $846 11.2 %
Average loan receivables $8,219 $8,064 $7,924 $7,675 $7,414 $805 10.9 % $8,142 $7,349 $793 10.8 %
Average active accounts (in thousands)(3) 5,546 5,490 5,368 5,219 5,064 482 9.5 % 5,517 5,050 467 9.2 %
 
Interest and fees on loans $494 $474 $487 $476 $442 $52 11.8 % $968 $869 $99 11.4 %
Other income $26 $12 $12 $11 $11 $15 136.4 % $38 $20 $18 90.0 %
Retailer share arrangements $(3 ) $(2 ) $(1 ) $(2 ) $(1 ) $(2 ) NM $(5 ) $(3 ) $(2 ) 66.7 %
 

TOTAL SYF

Purchase volume(1)(2) $33,476 $28,880 $35,369 $31,615 $31,507 $1,969 6.2 % $62,356 $58,484 $3,872 6.6 %
Period-end loan receivables $75,458 $73,350 $76,337 $70,644 $68,282 $7,176 10.5 % $75,458 $68,282 $7,176 10.5 %
Average loan receivables, including held for sale $74,090 $74,132 $72,476 $69,316 $66,561 $7,529 11.3 % $74,111 $66,377 $7,734 11.7 %
Average active accounts (in thousands)(2)(3) 68,635 69,629 68,701 66,639 65,531 3,104 4.7 % 69,307 65,996 3,311 5.0 %
 
Interest and fees on loans(2) $3,927 $3,877 $3,919 $3,771 $3,494 $433 12.4 % $7,804 $6,992 $812 11.6 %
Other income(2) $57 $93 $85 $84 $83 $(26 ) (31.3 )% $150 $175 $(25 ) (14.3 )%
Retailer share arrangements(2) $(669 ) $(684 ) $(811 ) $(757 ) $(664 ) $(5 ) 0.8 % $(1,353 ) $(1,334 ) $(19 ) 1.4 %
                                                                           
(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

Jun 30,
2017

Mar 31,
2017

Dec 31,
2016

Sep 30,
2016

Jun 30,
2016

COMMON EQUITY MEASURES

GAAP Total common equity $14,332 $14,363 $14,196 $13,981 $13,715
Less: Goodwill (991 ) (992 ) (949 ) (949 ) (949 )
Less: Intangible assets, net (787 ) (826 ) (712 ) (733 ) (704 )
 
Tangible common equity $12,554 $12,545 $12,535 $12,299 $12,062

Adjustments for certain deferred tax liabilities and certain items in
accumulated comprehensive income (loss)

337   340   337   299   282  
Basel III - Common equity Tier 1 (fully phased-in) $12,891   $12,885   $12,872   $12,598   $12,344  
Adjustment related to capital components during transition 146   154   263   273   266  
Basel III - Common equity Tier 1 (transition) $13,037   $13,039   $13,135   $12,871   $12,610  
 

RISK-BASED CAPITAL

Common equity Tier 1 $13,037 $13,039 $13,135 $12,871 $12,610
Add: Allowance for loan losses includible in risk-based capital 985   954   994   923   890  
Risk-based capital $14,022   $13,993   $14,129   $13,794   $13,500  
 

ASSET MEASURES

Total average assets(2) $89,394 $89,468 $88,752 $84,874 $81,413
Adjustments for:

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

(1,325 ) (1,358 ) (1,059 ) (1,117 ) (1,113 )
Total assets for leverage purposes $88,069   $88,110   $87,693   $83,757   $80,300  
 
Risk-weighted assets - Basel III (fully phased-in)(3) $74,748 $72,596 $75,941 $70,448 $68,462
Risk-weighted assets - Basel III (transition)(3) $74,792 $72,627 $76,179 $70,660 $68,188
 

TANGIBLE COMMON EQUITY PER SHARE

GAAP book value per share $18.02 $17.71 $17.37 $16.94 $16.45
Less: Goodwill (1.25 ) (1.22 ) (1.16 ) (1.14 ) (1.14 )
Less: Intangible assets, net (0.98 ) (1.02 ) (0.87 ) (0.90 ) (0.85 )
Tangible common equity per share $15.79   $15.47   $15.34   $14.90   $14.46  
                                         
(1) Regulatory measures at June 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
Samuel Wang, 203-585-2933

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