Synchrony Financial Reports Fourth Quarter Net Earnings of $385 Million or $0.49 Per Diluted Share Including Impact from Tax Cuts and Jobs Act; $545 Million or $0.70 Excluding Impact

Friday, January 19, 2018 6:30 am EST

Dateline:

STAMFORD, Conn.

Public Company Information:

NYSE:
SYF

STAMFORD, Conn.--(BUSINESS WIRE)--Synchrony Financial (NYSE: SYF) today announced fourth quarter 2017 net earnings of $385 million, or $0.49 per diluted share including the impact from the Tax Cuts and Jobs Act (“Tax Act”) of 2017, and $545 million, or $0.70 per diluted share excluding $160 million of additional tax expense related to the impact from the Tax Act. Highlights for the quarter included:

  • Net interest income increased 8% from the fourth quarter of 2016 to $3.9 billion
  • Loan receivables grew $6 billion, or 7%, from the fourth quarter of 2016 to $82 billion
  • Purchase volume increased 3% from the fourth quarter of 2016 to $37 billion
  • Deposits grew over $4 billion, or 9%, from the fourth quarter of 2016 to $56 billion
  • Announced agreement to significantly expand strategic consumer credit relationship with PayPal, acquiring PayPal’s U.S. consumer credit receivables portfolio and becoming the exclusive issuer of the PayPal Credit online consumer financing program; expected to close in the third quarter of 2018
  • Renewed relationships: Men’s Wearhouse, Home Furnishings Association, Husqvarna Viking, Sweetwater, Bosley, and Sono Bello
  • Quarterly common stock dividend payment of $0.15 per share and repurchased $430 million of Synchrony Financial common stock
  • The Tax Act resulted in $160 million of additional tax expense primarily due to the Tax Act’s reduction in the corporate tax rate that resulted in a remeasurement of our net deferred tax asset

“Substantial progress was made on our strategic priorities not only in the fourth quarter, but throughout 2017. Our business continues to deliver organic growth, leveraging innovative marketing, promotions, and value propositions. We are making investments in our robust data, analytics and digital capabilities, further enhancing the experience of our partners and cardholders. And we are supporting our business with continued growth in our direct deposit platform. We accomplished all of this while maintaining a strong balance sheet and returning capital to shareholders through growth and the execution of our capital plan,” said Margaret Keane, President and Chief Executive Officer of Synchrony Financial. “Synchrony Financial continues to be well positioned for long-term growth and we look forward to driving further value for our partners, cardholders, and shareholders in 2018.”

Business and Financial Highlights for the Fourth Quarter of 2017

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

Earnings

  • Net interest income increased $288 million, or 8%, to $3.9 billion, primarily driven by strong loan receivables growth. Net interest income after retailer share arrangements increased 11%.
  • Provision for loan losses increased $278 million to $1.4 billion primarily driven by credit normalization.
  • Other income was down $23 million to $62 million, primarily due to higher loyalty program expense, partially offset by higher interchange revenue.
  • Other expense increased $52 million, or 6%, to $970 million, primarily driven by growth and marketing.
  • Net earnings totaled $385 million including the impact from the Tax Act that resulted in $160 million of additional tax expense primarily due to the Tax Act’s reduction in the corporate tax rate that resulted in a remeasurement of our net deferred tax asset; excluding this impact of the Tax Act, net earnings totaled $545 million compared to $576 million in the fourth quarter of 2016.

Balance Sheet

  • Period-end loan receivables growth remained strong at 7%, primarily driven by purchase volume growth of 3% and average active account growth of 4%.
  • Deposits grew to $56 billion, up $4 billion, or 9%, and comprised 73% of funding compared to 72% last year.
  • The Company’s balance sheet remained strong with total liquidity (liquid assets and undrawn credit facilities) of $21 billion, or 22% of total assets.
  • The estimated Common Equity Tier 1 ratio under Basel III subject to transition provisions was 16.0% and the estimated fully phased-in Common Equity Tier 1 ratio under Basel III was 15.8%.

Key Financial Metrics

  • Return on assets was 1.6% and return on equity was 10.5%, including the impact from the Tax Act; excluding the impact of the Tax Act, return on assets was 2.3% and return on equity was 14.9%.
  • Net interest margin was 16.24% compared to 16.26% in the fourth quarter of 2016.
  • Efficiency ratio was 30.3%, compared to 31.6% in the fourth quarter of 2016. The efficiency ratio for 2017 was 30.3%, compared to 31.1% in 2016. The improvement in both the fourth quarter and full-year efficiency ratio reflected the strong operating leverage generated by the business.

Credit Quality

  • Loans 30+ days past due as a percentage of total period-end loan receivables were 4.67% compared to 4.32% last year.
  • Net charge-offs as a percentage of total average loan receivables were 5.78% compared to 4.65% last year.
  • The allowance for loan losses as a percentage of total period-end loan receivables was 6.80% compared to 5.69% last year.

Sales Platforms

  • Retail Card interest and fees on loans increased 8%, driven primarily by period-end loan receivables growth of 7%. Purchase volume and average active account growth was 3%. Loan receivables growth was broad-based across partner programs.
  • Payment Solutions interest and fees on loans increased 10%, driven primarily by period-end loan receivables growth of 8%. Purchase volume growth was 9%, adjusted to exclude the impact from the hhgregg bankruptcy, and average active account growth was 7%. Loan receivables growth was led by home furnishing and automotive.
  • CareCredit interest and fees on loans increased 8%, driven primarily by period-end loan receivables growth of 10%. Purchase volume and average active account growth was 8%. 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 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 Annual Report on Form 10-K for the year ended December 31, 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, January 19, 2018, 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 42017#, and can be accessed beginning approximately two hours after the event through February 2, 2018.

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.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 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,” certain capital ratios, and certain financial measures that have been adjusted to exclude the effects from the Tax Act, 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             Twelve Months Ended    
Dec 31,

2017

    Sep 30,

2017

    Jun 30,

2017

    Mar 31,

2017

 

  Dec 31,

2016

4Q'17 vs. 4Q'16 Dec 31,

2017

    Dec 31,

2016

YTD'17 vs. YTD'16

EARNINGS

   
Net interest income $3,916 $3,876 $3,637 $3,587 $3,628 $288 7.9% $15,016 $13,530 $1,486 11.0%
Retailer share arrangements (779) (805) (669) (684) (811) 32 (3.9)% (2,937) (2,902) (35) 1.2%
Net interest income, after retailer share arrangements 3,137 3,071 2,968 2,903 2,817 320 11.4% 12,079 10,628 1,451 13.7%
Provision for loan losses 1,354 1,310 1,326 1,306 1,076 278 25.8% 5,296 3,986 1,310 32.9%
Net interest income, after retailer share arrangements and provision for loan losses 1,783 1,761 1,642 1,597 1,741 42 2.4% 6,783 6,642 141 2.1%
Other income 62 76 57 93 85 (23) (27.1)% 288 344 (56) (16.3)%
Other expense 970 958 911 908 918 52 5.7% 3,747 3,416 331 9.7%
Earnings before provision for income taxes 875 879 788 782 908 (33) (3.6)% 3,324 3,570 (246) (6.9)%
Provision for income taxes 490 324 292 283 332 158 47.6% 1,389 1,319 70 5.3%
Net earnings $385 $555 $496 $499 $576 $(191) (33.2)% $1,935 $2,251 $(316) (14.0)%
Net earnings attributable to common stockholders $385 $555 $496 $499 $576 $(191) (33.2)% $1,935 $2,251 $(316) (14.0)%
                     
Adjusted net earnings (1) $545 $555 $496 $499 $576 $(31) (5.4)% $2,095 $2,251 $(156) (6.9)%
 

COMMON SHARE STATISTICS

Basic EPS $0.49 $0.70 $0.62 $0.61 $0.70 $(0.21) (30.0)% $2.43 $2.71 $(0.28) (10.3)%
Diluted EPS $0.49 $0.70 $0.61 $0.61 $0.70 $(0.21) (30.0)% $2.42 $2.71 $(0.29) (10.7)%
Adjusted diluted EPS(1) $0.70 $0.70 $0.61 $0.61 $0.70 $- - % $2.62 $2.71 $(0.09) (3.3)%
Dividend declared per share $0.15 $0.15 $0.13 $0.13 $0.13 $0.02 15.4% $0.56 $0.26 $0.30 115.4%
Common stock price $38.61 $31.05 $29.82 $34.30 $36.27 $2.34 6.5% $38.61 $36.27 $2.34 6.5%
Book value per share $18.47 $18.40 $18.02 $17.71 $17.37 $1.10 6.3% $18.47 $17.37 $1.10 6.3%
Tangible common equity per share(2) $16.22 $16.15 $15.79 $15.47 $15.34 $0.88 5.7% $16.22 $15.34 $0.88 5.7%
 
Beginning common shares outstanding 782.6 795.3 810.8 817.4 825.5 (42.9) (5.2)% 817.4 833.8 (16.4) (2.0)%
Issuance of common shares - - - - - - - % - - - - %
Stock-based compensation 0.1 0.1 0.2 - - 0.1 NM 0.4 0.2 0.2 100.0%
Shares repurchased (12.2) (12.8) (15.7) (6.6) (8.1) (4.1) 50.6% (47.3) (16.6) (30.7) 184.9%
Ending common shares outstanding 770.5 782.6 795.3 810.8 817.4 (46.9) (5.7)% 770.5 817.4 (46.9) (5.7)%
 
Weighted average common shares outstanding 778.7 787.3 804.0 813.1 820.5 (41.8) (5.1)% 795.6 829.2 (33.6) (4.1)%
Weighted average common shares outstanding (fully diluted) 784.0 790.9 807.4 817.1 823.8 (39.8) (4.8)% 799.7 831.5 (31.8) (3.8)%
                                                                     

(1) Adjusted net earnings and Adjusted diluted EPS are non-GAAP measures. These measures represent the corresponding GAAP measure, adjusted to exclude the effects to Provision for income taxes in the quarter ended December 31, 2017, resulting from the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). The effects primarily relate to additional tax expense arising from the remeasurement of our net deferred tax asset to reflect the reduction in the U.S. corporate tax rate from 35% to 21%. For a corresponding reconciliation to a GAAP financial measure, see Reconciliation of Non-GAAP Measures and Calculations of Regulatory Measures.

(2) 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 Twelve Months Ended
Dec 31,

2017

Sep 30,

2017

Jun 30,

2017

Mar 31,

2017

Dec 31,

2016

4Q'17 vs. 4Q'16 Dec 31,

2017

Dec 31,

2016

YTD'17 vs. YTD'16

PERFORMANCE METRICS

Return on assets(1) 1.6% 2.4% 2.2% 2.3% 2.6% (1.0)% 2.1% 2.7% (0.6)%
Return on equity(2) 10.5% 15.3% 13.8% 14.1% 16.2% (5.7)% 13.4% 16.5% (3.1)%
Return on tangible common equity(3) 12.0% 17.4% 15.7% 16.1% 18.4% (6.4)% 15.3% 18.8% (3.5)%
Adjusted return on assets(4) 2.3% 2.4% 2.2% 2.3% 2.6% (0.3)% 2.3% 2.7% (0.4)%
Adjusted return on equity(4) 14.9% 15.3% 13.8% 14.1% 16.2% (1.3)% 14.5% 16.5% (2.0)%
Adjusted return on tangible common equity(5) 17.0% 17.4% 15.7% 16.1% 18.4% (1.4)% 16.6% 18.8% (2.2)%
Net interest margin(6) 16.24% 16.74% 16.20% 16.18% 16.26% (0.02)% 16.35% 16.10% 0.25%
Efficiency ratio(7) 30.3% 30.4% 30.1% 30.3% 31.6% (1.3)% 30.3% 31.1% (0.8)%
Other expense as a % of average loan receivables, including held for sale 4.91% 4.99% 4.93% 4.97% 5.04% (0.13)% 4.95% 4.98% (0.03)%
Effective income tax rate 56.0% 36.9% 37.1% 36.2% 36.6% 19.4% 41.8% 36.9% 4.9%
 

CREDIT QUALITY METRICS

Net charge-offs as a % of average loan receivables, including held for sale 5.78% 4.95% 5.42% 5.33% 4.65% 1.13% 5.37% 4.57% 0.80%
30+ days past due as a % of period-end loan receivables(8) 4.67% 4.80% 4.25% 4.25% 4.32% 0.35% 4.67% 4.32% 0.35%
90+ days past due as a % of period-end loan receivables(8) 2.28% 2.22% 1.90% 2.06% 2.03% 0.25% 2.28% 2.03% 0.25%
Net charge-offs $1,141 $950 $1,001 $974 $847 $294 34.7% $4,066 $3,139 $927 29.5%
Loan receivables delinquent over 30 days(8) $3,831 $3,694 $3,208 $3,120 $3,295 $536 16.3% $3,831 $3,295 $536 16.3%
Loan receivables delinquent over 90 days(8) $1,869 $1,707 $1,435 $1,508 $1,546 $323 20.9% $1,869 $1,546 $323 20.9%
 
Allowance for loan losses (period-end) $5,574 $5,361 $5,001 $4,676 $4,344 $1,230 28.3% $5,574 $4,344 $1,230 28.3%
Allowance coverage ratio(9) 6.80% 6.97% 6.63% 6.37% 5.69% 1.11% 6.80% 5.69% 1.11%
 

BUSINESS METRICS

Purchase volume(10) $36,565 $32,893 $33,476 $28,880 $35,369 $1,196 3.4% $131,814 $125,468 $6,346 5.1%
Period-end loan receivables $81,947 $76,928 $75,458 $73,350 $76,337 $5,610 7.3% $81,947 $76,337 $5,610 7.3%
Credit cards $79,026 $73,946 $72,492 $70,587 $73,580 $5,446 7.4% $79,026 $73,580 $5,446 7.4%
Consumer installment loans $1,578 $1,561 $1,514 $1,411 $1,384 $194 14.0% $1,578 $1,384 $194 14.0%
Commercial credit products $1,303 $1,384 $1,386 $1,311 $1,333 $(30) (2.3)% $1,303 $1,333 $(30) (2.3)%
Other $40 $37 $66 $41 $40 $- - % $40 $40 $- - %
Average loan receivables, including held for sale $78,369 $76,165 $74,090 $74,132 $72,476 $5,893 8.1% $75,702 $68,649 $7,053 10.3%
Period-end active accounts (in thousands)(11) 74,541 69,008 69,277 67,905 71,890 2,651 3.7% 74,541 71,890 2,651 3.7%
Average active accounts (in thousands)(11) 71,348 69,331 68,635 69,629 68,701 2,647 3.9% 69,968 66,928 3,040 4.5%
 

LIQUIDITY

Liquid assets
Cash and equivalents $11,602 $13,915 $12,020 $11,392 $9,321 $2,281 24.5% $11,602 $9,321 $2,281 24.5%
Total liquid assets $15,087 $16,391 $15,274 $16,158 $13,612 $1,475 10.8% $15,087 $13,612 $1,475 10.8%
Undrawn credit facilities
Undrawn credit facilities $6,000 $5,650 $6,650 $5,600 $6,700 $(700) (10.4)% $6,000 $6,700 $(700) (10.4)%
Total liquid assets and undrawn credit facilities $21,087 $22,041 $21,924 $21,758 $20,312 $775 3.8% $21,087 $20,312 $775 3.8%
Liquid assets % of total assets 15.75% 17.71% 16.76% 18.14% 15.09% 0.66% 15.75% 15.09% 0.66%
Liquid assets including undrawn credit facilities % of total assets 22.01% 23.82% 24.06% 24.43% 22.52% (0.51)% 22.01% 22.52% (0.51)%
                                                                     
(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) Adjusted return on assets represents Adjusted net earnings as a percentage of average total assets. Adjusted return on equity represents Adjusted net earnings as a percentage of average total equity. Adjusted net earnings is a non-GAAP measure. For a corresponding reconciliation of Adjusted net earnings to a GAAP financial measure, see Reconciliation of Non-GAAP Measures and Calculations of Regulatory Measures.
(5) Adjusted return on tangible common equity represents Adjusted net earnings as a percentage of average tangible common equity. Both Adjusted net earnings and tangible common equity are non-GAAP measures. For corresponding reconciliations to a GAAP financial measure, see Reconciliation of Non-GAAP Measures and Calculations of Regulatory Measures.
(6) Net interest margin represents net interest income divided by average interest-earning assets.
(7) Efficiency ratio represents (i) other expense, divided by (ii) net interest income, after retailer share arrangements, plus other income.
(8) Based on customer statement-end balances extrapolated to the respective period-end date.
(9) Allowance coverage ratio represents allowance for loan losses divided by total period-end loan receivables.
(10) 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.
(11) 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 Twelve Months Ended
Dec 31,

2017

Sep 30,

2017

Jun 30,

2017

Mar 31,

2017

Dec 31,

2016

4Q'17 vs. 4Q'16 Dec 31,

2017

Dec 31,

2016

YTD'17 vs. YTD'16
Interest income:
Interest and fees on loans $4,233 $4,182 $3,927 $3,877 $3,919 $314 8.0% $16,219 $14,682 $1,537 10.5%
Interest on investment securities 58 51 43 36 28 30 107.1% 188 96 92 95.8%
Total interest income 4,291 4,233 3,970 3,913 3,947 344 8.7% 16,407 14,778 1,629 11.0%
 
Interest expense:
Interest on deposits 233 219 202 194 188 45 23.9% 848 727 121 16.6%
Interest on borrowings of consolidated securitization entities 70 65 63 65 64 6 9.4% 263 244 19 7.8%
Interest on third-party debt 72 73 68 67 67 5 7.5% 280 277 3 1.1%
Total interest expense 375 357 333 326 319 56 17.6% 1,391 1,248 143 11.5%
                     
Net interest income 3,916 3,876 3,637 3,587 3,628 288 7.9% 15,016 13,530 1,486 11.0%
 
Retailer share arrangements (779) (805) (669) (684) (811) 32 (3.9)% (2,937) (2,902) (35) 1.2%
Net interest income, after retailer share arrangements 3,137 3,071 2,968 2,903 2,817 320 11.4% 12,079 10,628 1,451 13.7%
 
Provision for loan losses 1,354 1,310 1,326 1,306 1,076 278 25.8% 5,296 3,986 1,310 32.9%
Net interest income, after retailer share arrangements and provision for loan losses 1,783 1,761 1,642 1,597 1,741 42 2.4% 6,783 6,642 141 2.1%
 
Other income:
Interchange revenue 179 164 165 145 167 12 7.2% 653 602 51 8.5%
Debt cancellation fees 69 67 68 68 68 1 1.5% 272 262 10 3.8%
Loyalty programs (193) (168) (206) (137) (157) (36) 22.9% (704) (547) (157) 28.7%
Other 7 13 30 17 7 - - % 67 27 40 148.1%
Total other income 62 76 57 93 85 (23) (27.1)% 288 344 (56) (16.3)%
 
Other expense:
Employee costs 333 335 321 325 315 18 5.7% 1,314 1,207 107 8.9%
Professional fees 159 161 158 151 164 (5) (3.0)% 629 638 (9) (1.4)%
Marketing and business development 156 124 124 94 130 26 20.0% 498 423 75 17.7%
Information processing 99 96 88 90 88 11 12.5% 373 338 35 10.4%
Other 223 242 220 248 221 2 0.9% 933 810 123 15.2%
Total other expense 970 958 911 908 918 52 5.7% 3,747 3,416 331 9.7%
                     
Earnings before provision for income taxes 875 879 788 782 908 (33) (3.6)% 3,324 3,570 (246) (6.9)%
Provision for income taxes 490 324 292 283 332 158 47.6% 1,389 1,319 70 5.3%
Net earnings attributable to common stockholders $385 $555 $496 $499 $576 $(191) (33.2)% $1,935 $2,251 $(316) (14.0)%
 
                             
SYNCHRONY FINANCIAL
STATEMENTS OF FINANCIAL POSITION
(unaudited, $ in millions)
Quarter Ended  
Dec 31,

2017

Sep 30,

2017

Jun 30,

2017

Mar 31,

2017

Dec 31,

2016

Dec 31, 2017 vs.

Dec 31, 2016

Assets
Cash and equivalents $11,602 $13,915 $12,020 $11,392 $9,321 $2,281 24.5%
Investment securities 4,488 3,317 3,997 5,328 5,110 (622) (12.2)%
Loan receivables:
Unsecuritized loans held for investment 55,526 53,997 52,550 50,398 52,332 3,194 6.1%
Restricted loans of consolidated securitization entities 26,421 22,931 22,908 22,952 24,005 2,416 10.1%
Total loan receivables 81,947 76,928 75,458 73,350 76,337 5,610 7.3%
Less: Allowance for loan losses (5,574) (5,361) (5,001) (4,676) (4,344) (1,230) 28.3%
Loan receivables, net 76,373 71,567 70,457 68,674 71,993 4,380 6.1%
Goodwill 991 991 991 992 949 42 4.4%
Intangible assets, net 749 772 787 826 712 37 5.2%
Other assets 1,605 1,986 2,888 1,838 2,122 (517) (24.4)%
Total assets $95,808 $92,548 $91,140 $89,050 $90,207 $5,601 6.2%
 
Liabilities and Equity
Deposits:
Interest-bearing deposit accounts $56,276 $54,232 $52,659 $51,359 $51,896 $4,380 8.4%
Non-interest-bearing deposit accounts 212 222 226 246 159 53 33.3%
Total deposits 56,488 54,454 52,885 51,605 52,055 4,433 8.5%
Borrowings:
Borrowings of consolidated securitization entities 12,497 11,891 12,204 12,433 12,388 109 0.9%
Bank term loan - - - - - - - %
Senior unsecured notes 8,302 8,008 8,505 7,761 7,759 543 7.0%
Total borrowings 20,799 19,899 20,709 20,194 20,147 652 3.2%
Accrued expenses and other liabilities 4,287 3,793 3,214 2,888 3,809 478 12.5%
Total liabilities 81,574 78,146 76,808 74,687 76,011 5,563 7.3%
Equity:
Common stock 1 1 1 1 1 - - %
Additional paid-in capital 9,445 9,429 9,415 9,405 9,393 52 0.6%
Retained earnings 6,809 6,543 6,109 5,724 5,330 1,479 27.7%
Accumulated other comprehensive income (64) (40) (49) (55) (53) (11) 20.8%
Treasury Stock (1,957) (1,531) (1,144) (712) (475) (1,482) NM
Total equity 14,234 14,402 14,332 14,363 14,196 38 0.3%
Total liabilities and equity $95,808 $92,548 $91,140 $89,050 $90,207 $5,601 6.2%
                                             
 
                                                             
SYNCHRONY FINANCIAL
AVERAGE BALANCES, NET INTEREST INCOME AND NET INTEREST MARGIN
(unaudited, $ in millions)
 
Quarter Ended
Dec 31, 2017 Sep 30, 2017 Jun 30, 2017 Mar 31, 2017 Dec 31, 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 $13,591 $43 1.26% $11,895 $37 1.23% $10,758 $28 1.04% $10,552 $21 0.81% $12,210 $17 0.55%
Securities available for sale 3,725 15 1.60% 3,792 14 1.46% 5,195 15 1.16% 5,213 15 1.17% 4,076 11 1.07%
 
Loan receivables:
Credit cards, including held for sale 75,389 4,161 21.90% 73,172 4,111 22.29% 71,206 3,858 21.73% 71,365 3,811 21.66% 69,660 3,851 21.99%
Consumer installment loans 1,568 36 9.11% 1,543 35 9.00% 1,461 34 9.33% 1,389 32 9.34% 1,373 31 8.98%
Commercial credit products 1,375 35 10.10% 1,392 36 10.26% 1,378 34 9.90% 1,317 34 10.47% 1,386 36 10.33%
Other 37 1 NM 58 - - % 45 1 NM 61 - - % 57 1 NM
Total loan receivables, including held for sale 78,369 4,233 21.43% 76,165 4,182 21.78% 74,090 3,927 21.26% 74,132 3,877 21.21% 72,476 3,919 21.51%
Total interest-earning assets 95,685 4,291 17.79% 91,852 4,233 18.28% 90,043 3,970 17.68% 89,897 3,913 17.65% 88,762 3,947 17.69%
 
Non-interest-earning assets:
Cash and due from banks 1,037 877 829 802 739
Allowance for loan losses (5,443) (5,125) (4,781) (4,408) (4,228)
Other assets 3,219 3,517 3,303 3,177 3,479
Total non-interest-earning assets (1,187) (731) (649) (429) (10)
         
Total assets $94,498 $91,121 $89,394 $89,468 $88,752
 
Liabilities
Interest-bearing liabilities:
Interest-bearing deposit accounts $55,690 $233 1.66% $53,294 $219 1.63% $51,836 $202 1.56% $51,829 $194 1.52% $51,006 $188 1.47%
Borrowings of consolidated securitization entities 12,425 70 2.24% 11,759 65 2.19% 12,213 63 2.07% 12,321 65 2.14% 12,389 64 2.06%
Bank term loan - - - % - - - % - - - % - - - % - - - %
Senior unsecured notes 7,940 72 3.60% 8,251 73 3.51% 7,933 68 3.44% 7,760 67 3.50% 7,757 67 3.44%
Total interest-bearing liabilities 76,055 375 1.96% 73,304 357 1.93% 71,982 333 1.86% 71,910 326 1.84% 71,152 319 1.78%
 
Non-interest-bearing liabilities
Non-interest-bearing deposit accounts 218 232 218 240 176
Other liabilities 3,716 3,154 2,752 2,995 3,321
Total non-interest-bearing liabilities 3,934 3,386 2,970 3,235 3,497
         
Total liabilities 79,989 76,690 74,952 75,145 74,649
 
Equity
Total equity 14,509 14,431 14,442 14,323 14,103
         
Total liabilities and equity $94,498 $91,121 $89,394 $89,468 $88,752
Net interest income $3,916 $3,876 $3,637 $3,587 $3,628
 
Interest rate spread (1) 15.83% 16.35% 15.82% 15.81% 15.91%
Net interest margin (2) 16.24% 16.74% 16.20% 16.18% 16.26%
                                                                                             
(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)
 
Twelve Months Ended

Dec 31, 2017

Twelve Months Ended

Dec 31, 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 $11,707 $129 1.10% $12,152 $63 0.52%

Securities available for sale

4,449 59 1.33% 3,220 33 1.02%
 
Loan receivables:
Credit cards, including held for sale 72,795 15,941 21.90% 65,947 14,424 21.87%
Consumer installment loans 1,491 137 9.19% 1,274 117 9.18%
Commercial credit products 1,366 139 10.18% 1,372 139 10.13%
Other 50 2 4.00% 56 2 3.57%
Total loan receivables, including held for sale 75,702 16,219 21.42% 68,649 14,682 21.39%
Total interest-earning assets 91,858 16,407 17.86% 84,021 14,778 17.59%
 
Non-interest-earning assets:
Cash and due from banks 887 965
Allowance for loan losses (4,942) (3,872)
Other assets 3,304 3,286
Total non-interest-earning assets (751) 379
   
Total assets $91,107 $84,400
 
Liabilities
Interest-bearing liabilities:
Interest-bearing deposit accounts $53,173 $848 1.59% $47,194 $727 1.54%
Borrowings of consolidated securitization entities 12,179 263 2.16% 12,428 244 1.96%
Bank term loan(1) - - - % 556 31 5.58%
Senior unsecured notes 7,972 280 3.51% 7,158 246 3.44%
Total interest-bearing liabilities 73,324 1,391 1.90% 67,336 1,248 1.85%
 
Non-interest-bearing liabilities
Non-interest-bearing deposit accounts 227 205
Other liabilities 3,129 3,239
Total non-interest-bearing liabilities 3,356 3,444
   
Total liabilities 76,680 70,780
 
Equity
Total equity 14,427 13,620
   
Total liabilities and equity $91,107 $84,400
Net interest income $15,016 $13,530
 
Interest rate spread (2) 15.96% 15.74%
Net interest margin (3) 16.35% 16.10%
                                       
(1) The effective interest rate for the Bank term loan for the 12 months ended December 31, 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
Dec 31,

2017

Sep 30,

2017

Jun 30,

2017

Mar 31,

2017

Dec 31,

2016

Dec 31, 2017 vs.

Dec 31, 2016

BALANCE SHEET STATISTICS

Total common equity $14,234 $14,402 $14,332 $14,363 $14,196 $38 0.3%
Total common equity as a % of total assets 14.86% 15.56% 15.73% 16.13% 15.74% (0.88)%
 
Tangible assets $94,068 $90,785 $89,362 $87,232 $88,546 $5,522 6.2%
Tangible common equity(1) $12,494 $12,639 $12,554 $12,545 $12,535 $(41) (0.3)%
Tangible common equity as a % of tangible assets(1) 13.28% 13.92% 14.05% 14.38% 14.16% (0.88)%
Tangible common equity per share(1) $16.22 $16.15 $15.79 $15.47 $15.34 $0.88 5.7%
 

REGULATORY CAPITAL RATIOS (2)

Basel III Transition

 

Total risk-based capital ratio(3) 17.3% 18.7% 18.7% 19.3% 18.5%
Tier 1 risk-based capital ratio(4) 16.0% 17.3% 17.4% 18.0% 17.2%
Tier 1 leverage ratio(5) 13.8% 14.6% 14.8% 14.8% 15.0%
Common equity Tier 1 capital ratio(6) 16.0% 17.3% 17.4% 18.0% 17.2%
 
Basel III Fully Phased-in
Common equity Tier 1 capital ratio(6) 15.8% 17.2% 17.2% 17.7% 17.0%
                                             
(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 December 31, 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 an 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 Twelve Months Ended
Dec 31,

2017

Sep 30,

2017

Jun 30,

2017

Mar 31,

2017

Dec 31,

2016

4Q'17 vs. 4Q'16 Dec 31,

2017

Dec 31,

2016

YTD'17 vs. YTD'16

RETAIL CARD

Purchase volume(1)(2) $29,839 $26,347 $27,101 $22,952 $28,996 $843 2.9% $106,239 $101,242 $4,997 4.9%
Period-end loan receivables $56,230 $52,119 $51,437 $49,905 $52,701 $3,529 6.7% $56,230 $52,701 $3,529 6.7%
Average loan receivables, including held for sale $53,256 $51,817 $50,533 $50,644 $49,476 $3,780 7.6% $51,570 $46,963 $4,607 9.8%
Average active accounts (in thousands)(2)(3) 56,113 54,471 54,058 55,049 54,489 1,624 3.0% 55,142 53,344 1,798 3.4%
 
Interest and fees on loans(2) $3,133 $3,102 $2,900 $2,888 $2,909 $224 7.7% $12,023 $10,898 $1,125 10.3%
Other income(2) $49 $61 $25 $77 $70 $(21) (30.0)% $212 $288 $(76) (26.4)%
Retailer share arrangements(2) $(771) $(795) $(657) $(681) $(801) $30 (3.7)% $(2,904) $(2,870) $(34) 1.2%
 

PAYMENT SOLUTIONS

Purchase volume(1) $4,366 $4,178 $3,930 $3,686 $4,194 $172 4.1% $16,160 $15,641 $519 3.3%
Period-end loan receivables $16,857 $16,153 $15,595 $15,320 $15,567 $1,290 8.3% $16,857 $15,567 $1,290 8.3%
Average loan receivables $16,386 $15,848 $15,338 $15,424 $15,076 $1,310 8.7% $15,752 $14,110 $1,642 11.6%
Average active accounts (in thousands)(3) 9,421 9,183 9,031 9,090 8,844 577 6.5% 9,192 8,410 782 9.3%
 
Interest and fees on loans $574 $559 $533 $515 $523 $51 9.8% $2,181 $1,952 $229 11.7%
Other income $2 $2 $6 $4 $3 $(1) (33.3)% $14 $13 $1 7.7%
Retailer share arrangements $(5) $(9) $(9) $(1) $(9) $4 (44.4)% $(24) $(26) $2 (7.7)%
 

CARECREDIT

Purchase volume(1) $2,360 $2,368 $2,445 $2,242 $2,179 $181 8.3% $9,415 $8,585 $830 9.7%
Period-end loan receivables $8,860 $8,656 $8,426 $8,125 $8,069 $791 9.8% $8,860 $8,069 $791 9.8%
Average loan receivables $8,727 $8,500 $8,219 $8,064 $7,924 $803 10.1% $8,380 $7,576 $804 10.6%
Average active accounts (in thousands)(3) 5,814 5,677 5,546 5,490 5,368 446 8.3% 5,634 5,174 460 8.9%
 
Interest and fees on loans $526 $521 $494 $474 $487 $39 8.0% $2,015 $1,832 $183 10.0%
Other income $11 $13 $26 $12 $12 $(1) (8.3)% $62 $43 $19 44.2%
Retailer share arrangements $(3) $(1) $(3) $(2) $(1) $(2) NM $(9) $(6) $(3) 50.0%
 

TOTAL SYF

Purchase volume(1)(2) $36,565 $32,893 $33,476 $28,880 $35,369 $1,196 3.4% $131,814 $125,468 $6,346 5.1%
Period-end loan receivables $81,947 $76,928 $75,458 $73,350 $76,337 $5,610 7.3% $81,947 $76,337 $5,610 7.3%
Average loan receivables, including held for sale $78,369 $76,165 $74,090 $74,132 $72,476 $5,893 8.1% $75,702 $68,649 $7,053 10.3%
Average active accounts (in thousands)(2)(3) 71,348 69,331 68,635 69,629 68,701 2,647 3.9% 69,968 66,928 3,040 4.5%
 
Interest and fees on loans(2) $4,233 $4,182 $3,927 $3,877 $3,919 $314 8.0% $16,219 $14,682 $1,537 10.5%
Other income(2) $62 $76 $57 $93 $85 $(23) (27.1)% $288 $344 $(56) (16.3)%
Retailer share arrangements(2) $(779) $(805) $(669) $(684) $(811) $32 (3.9)% $(2,937) $(2,902) $(35) 1.2%
                                                                     
(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

Twelve Months
Ended

Dec 31,

2017

Sep 30,

2017

Jun 30,

2017

Mar 31,

2017

Dec 31,

2016

Dec 31,

2017

COMMON EQUITY MEASURES

GAAP Total common equity $14,234 $14,402 $14,332 $14,363 $14,196
Less: Goodwill (991) (991) (991) (992) (949)
Less: Intangible assets, net (749) (772) (787) (826) (712)
Tangible common equity $12,494 $12,639 $12,554 $12,545 $12,535

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

254 344 337 340 337
Basel III - Common equity Tier 1 (fully phased-in) $12,748 $12,983 $12,891 $12,885 $12,872
Adjustment related to capital components during transition 142 142 146 154 263
Basel III - Common equity Tier 1 (transition) $12,890 $13,125 $13,037 $13,039 $13,135
 

RISK-BASED CAPITAL

Common equity Tier 1 $12,890 $13,125 $13,037 $13,039 $13,135
Add: Allowance for loan losses includible in risk-based capital 1,064 1,001 985 954 994
Risk-based capital $13,954 $14,126 $14,022 $13,993 $14,129
 

ASSET MEASURES

Total average assets(2) $94,498 $91,121 $89,394 $89,468 $88,752
Adjustments for:

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

(1,392) (1,304) (1,325) (1,358) (1,059)
Total assets for leverage purposes $93,106 $89,817 $88,069 $88,110 $87,693
 
Risk-weighted assets - Basel III (fully phased-in) (3) $80,526 $75,614 $74,748 $72,596 $75,941
Risk-weighted assets - Basel III (transition) (3) $80,669 $75,729 $74,792 $72,627 $76,179
 

TANGIBLE COMMON EQUITY PER SHARE

GAAP book value per share $18.47 $18.40 $18.02 $17.71 $17.37
Less: Goodwill (1.29) (1.27) (1.25) (1.22) (1.16)
Less: Intangible assets, net (0.96) (0.98) (0.98) (1.02) (0.87)
Tangible common equity per share $16.22 $16.15 $15.79 $15.47 $15.34
 

ADJUSTED NET EARNINGS

GAAP net earnings $385 $555 $496 $499 $576 $1,935
Adjustment for tax law change(4) 160 - - - - 160
Adjusted net earnings $545 $555 $496 $499 $576 $2,095
 

ADJUSTED DILUTED EPS

GAAP diluted EPS $0.49 $0.70 $0.61 $0.61 $0.70 $2.42
Adjustment for tax law change(4) 0.21 - - - - 0.20
Adjusted diluted EPS $0.70 $0.70 $0.61 $0.61 $0.70 $2.62
                                       
 
(1) Regulatory measures at December 31, 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.
(4) Adjustment to exclude the effects to Provision for income taxes in the quarter ended December 31, 2017, resulting from the Tax Act.
 

Contact:

Synchrony Financial
Investor Relations
Greg Ketron, 203-585-6291
or
Media Relations
Sue Bishop, 203-585-2802
susan.bishopmangino@syf.com

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