Synchrony Financial Reports Second Quarter Net Earnings of $696 Million or $0.92 Per Diluted Share

STAMFORD, Conn.--()--Synchrony Financial (NYSE: SYF) today announced second quarter 2018 net earnings of $696 million, or $0.92 per diluted share. Highlights included:

  • Net interest income increased 3% from the second quarter of 2017 to $3.7 billion
  • Loan receivables grew $3 billion, or 5%, from the second quarter of 2017 to $79 billion
  • Purchase volume increased 2% from the second quarter of 2017 to $34 billion
  • Deposits grew $6 billion, or 12%, from the second quarter of 2017 to $59 billion
  • Closed the PayPal transaction on July 2, 2018, acquiring $7.6 billion in receivables and making Synchrony the exclusive issuer of PayPal Credit in the U.S.
  • Walmart program agreement will not be renewed and will expire July 31, 2019; expect strategic options will fully replace diluted earnings per share impact of program non-renewal (1)
  • Added new partnerships: Furniture Row and The Good Feet Store
  • Renewed relationships: Ashley HomeStore, Havertys, Sleep Number, LCA Vision, and Robbins Brothers
  • Launched a new Dual Card with Belk
  • Acquired Loop Commerce, a technology leader in digital and in-store gifting services
  • Announced new capital plan increasing quarterly common stock dividend to $0.21 per share and share repurchases of up to $2.2 billion of Synchrony Financial common stock

(1) Please refer to page 12 of the 2Q’18 Financial Results presentation included in Form 8-K filed July 27, 2018

We have continued to deliver solid results, driving organic growth while launching new programs and renewing key relationships. We are pleased to have closed the PayPal transaction, which is now a top 5 program. Our relationship with PayPal is exactly what we look for in a program – strong engagement, significant growth opportunities, and good economic alignment with the partner. Extending this relationship will enable us to leverage new opportunities to meaningfully expand this program and drive growth. And while the Walmart program will not be renewed as we were unable to reach terms that made economic sense for our company and our shareholders, we have strategic options that we expect will fully replace the EPS impact,” said Margaret Keane, President and Chief Executive Officer of Synchrony Financial. “We remain focused on the risk-adjusted returns of our programs and returning capital to shareholders, as evidenced by our actions this quarter, which included significantly increasing the quarterly common stock dividend and share repurchase program.”

Business and Financial Highlights for the Second Quarter of 2018

All comparisons below are for the second quarter of 2018 compared to the second quarter of 2017, unless otherwise noted.

Earnings

  • Net interest income increased $100 million, or 3%, to $3.7 billion, primarily driven by loan receivables growth. Net interest income after retailer share arrangements increased 4%.
  • Provision for loan losses decreased $46 million, or 3%, to $1.3 billion, primarily driven by lower reserve build.
  • Other income was up $6 million to $63 million.
  • Other expense increased $64 million, or 7%, to $975 million, primarily driven by growth and strategic investments.
  • Provision for income taxes was down 33%, primarily due to tax reform.
  • Net earnings totaled $696 million compared to $496 million in the second quarter of 2017.

Balance Sheet

  • Period-end loan receivables growth was 5%, primarily driven by purchase volume growth of 2% and average active account growth of 1%.
  • Deposits grew to $59 billion, up $6 billion, or 12%, 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 $28 billion, or 28% of total assets, including pre-funding for PayPal acquisition.
  • The estimated fully phased-in Common Equity Tier 1 ratio under Basel III was 16.6%.

Key Financial Metrics

  • Return on assets was 2.9% and return on equity was 19.4%.
  • Net interest margin was 15.33%.
  • Efficiency ratio was 31.0%.

Credit Quality

  • Loans 30+ days past due as a percentage of total period-end loan receivables were 4.17% compared to 4.25% last year.
  • Net charge-offs as a percentage of total average loan receivables were 5.97% compared to 5.42% last year.
  • The allowance for loan losses as a percentage of total period-end loan receivables was 7.43% compared to 6.63% last year.

Sales Platforms

  • Retail Card period-end loan receivables grew 3%, solid growth was partially offset by the impact of underwriting refinements. Interest and fees on loans increased 3%, primarily driven by the loan receivables growth. Purchase volume growth was 1% and average active accounts were flat.
  • Payment Solutions period-end loan receivables grew 8%, led by home furnishing and automotive. Interest and fees on loans increased 6%, primarily driven by the loan receivables growth. Purchase volume growth was 9% and average active account growth was 4%.
  • CareCredit period-end loan receivables grew 8%, led by dental and veterinary. Interest and fees on loans increased 6%, primarily driven by the loan receivables growth. Purchase volume grew 8% and average active account growth was 5%.

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, 2017, as filed February 22, 2018, and the Company’s forthcoming Quarterly Report on Form 10-Q for the quarter ended June 30, 2018. 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 27, 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 22018#, and can be accessed beginning approximately two hours after the event through August 10, 2018.

About Synchrony Financial

Synchrony Financial (NYSE: SYF) is a premier consumer financial services company delivering customized financing programs across key industries including retail, health, auto, travel and home, along with award-winning consumer banking products. With more than $130 billion in sales financed and 74.5 million active accounts, Synchrony Financial brings deep industry expertise, actionable data insights, innovative solutions and differentiated digital experiences to improve the success of every business we serve and the quality of each life we touch. More information can be found at www.synchronyfinancial.com and through Twitter: @Synchrony.

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 grow our deposits in the future; our ability to securitize our loan receivables, occurrence of an early amortization of our securitization facilities, loss of the right to service or subservice our securitized loan receivables, and lower payment rates on our securitized loan receivables; 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 acquisitions and strategic investments; our ability to realize the benefits of and expected capital available from strategic options; 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/or interpretations, 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, 2017, as filed on February 22, 2018. 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” 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 Six Months Ended
Jun 30,

2018

Mar 31,

2018

Dec 31,

2017

Sep 30,

2017

Jun 30,

2017

2Q'18 vs. 2Q'17 Jun 30,

2018

Jun 30,

2017

YTD'18 vs. YTD'17

EARNINGS

Net interest income $3,737 $3,842 $3,916 $3,876 $3,637 $100 2.7% $7,579 $7,224 $355 4.9%
Retailer share arrangements (653) (720) (779) (805) (669) 16     (2.4)% (1,373) (1,353) (20)     1.5%
Net interest income, after retailer share arrangements 3,084 3,122 3,137 3,071 2,968 116 3.9% 6,206 5,871 335 5.7%
Provision for loan losses 1,280 1,362 1,354 1,310 1,326 (46)     (3.5)% 2,642 2,632 10     0.4%
Net interest income, after retailer share arrangements and provision for loan losses 1,804 1,760 1,783 1,761 1,642 162 9.9% 3,564 3,239 325 10.0%
Other income 63 75 62 76 57 6 10.5% 138 150 (12) (8.0)%
Other expense 975 988 970 958 911 64     7.0% 1,963 1,819 144     7.9%
Earnings before provision for income taxes 892 847 875 879 788 104 13.2% 1,739 1,570 169 10.8%
Provision for income taxes 196 207 490 324 292 (96)     (32.9)% 403 575 (172)     (29.9)%
Net earnings $696 $640 $385 $555 $496 $200     40.3% $1,336 $995 $341     34.3%
Net earnings attributable to common stockholders $696 $640 $385 $555 $496 $200     40.3% $1,336 $995 $341     34.3%
                             
Adjusted net earnings(1) $696 $640 $545 $555 $496 $200     40.3% $1,336 $995 $341     34.3%
 

COMMON SHARE STATISTICS

Basic EPS $0.93 $0.84 $0.49 $0.70 $0.62 $0.31 50.0% $1.76 $1.23 $0.53 43.1%
Diluted EPS $0.92 $0.83 $0.49 $0.70 $0.61 $0.31 50.8% $1.75 $1.23 $0.52 42.3%
Adjusted diluted EPS(1) $0.92 $0.83 $0.70 $0.70 $0.61 $0.31 50.8% $1.75 $1.23 $0.52 42.3%
Dividend declared per share $0.15 $0.15 $0.15 $0.15 $0.13 $0.02 15.4% $0.30 $0.26 $0.04 15.4%
Common stock price $33.38 $33.53 $38.61 $31.05 $29.82 $3.56 11.9% $33.38 $29.82 $3.56 11.9%
Book value per share $19.37 $18.88 $18.47 $18.40 $18.02 $1.35 7.5% $19.37 $18.02 $1.35 7.5%
Tangible common equity per share(2) $16.84 $16.55 $16.22 $16.15 $15.79 $1.05 6.6% $16.84 $15.79 $1.05 6.6%
 
Beginning common shares outstanding 760.3 770.5 782.6 795.3 810.8 (50.5) (6.2)% 770.5 817.4 (46.9) (5.7)%
Issuance of common shares - - - - - - - % - - - - %
Stock-based compensation 0.3 0.2 0.1 0.1 0.2 0.1 50.0% 0.5 0.2 0.3 150.0%
Shares repurchased (14.0) (10.4) (12.2) (12.8) (15.7) 1.7     (10.8)% (24.4) (22.3) (2.1)     9.4%
Ending common shares outstanding 746.6 760.3 770.5 782.6 795.3 (48.7) (6.1)% 746.6 795.3 (48.7) (6.1)%
 
Weighted average common shares outstanding 752.2 763.7 778.7 787.3 804.0 (51.8) (6.4)% 757.9 808.5 (50.6) (6.3)%
Weighted average common shares outstanding (fully diluted) 758.3 770.3 784.0 790.9 807.4 (49.1) (6.1)% 764.3 812.2 (47.9) (5.9)%
                                                                     
(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

Six Months Ended
Jun 30,

2018

Mar 31,

2018

Dec 31,

2017

Sep 30,

2017

Jun 30,

2017

2Q'18 vs. 2Q'17 Jun 30,

2018

Jun 30,

2017

YTD'18 vs. YTD'17

PERFORMANCE METRICS

Return on assets(1) 2.9% 2.7% 1.6% 2.4% 2.2% 0.7% 2.8% 2.2% 0.6%
Return on equity(2) 19.4% 18.2% 10.5% 15.3% 13.8% 5.6% 18.8% 14.0% 4.8%
Return on tangible common equity(3) 22.1% 20.7% 12.0% 17.4% 15.7% 6.4% 21.5% 15.9% 5.6%
Adjusted return on assets(4) 2.9% 2.7% 2.3% 2.4% 2.2% 0.7% 2.8% 2.2% 0.6%
Adjusted return on equity(4) 19.4% 18.2% 14.9% 15.3% 13.8% 5.6% 18.8% 14.0% 4.8%
Adjusted return on tangible common equity(5) 22.1% 20.7% 17.0% 17.4% 15.7% 6.4% 21.5% 15.9% 5.6%
Net interest margin(6) 15.33% 16.05% 16.24% 16.74% 16.20% (0.87)% 15.69% 16.19% (0.50)%
Efficiency ratio(7) 31.0% 30.9% 30.3% 30.4% 30.1% 0.9% 30.9% 30.2% 0.7%
Other expense as a % of average loan receivables, including held for sale 5.02% 5.07% 4.91% 4.99% 4.93% 0.09% 5.04% 4.95% 0.09%
Effective income tax rate 22.0% 24.4% 56.0% 36.9% 37.1% (15.1)% 23.2% 36.6% (13.4)%
 

CREDIT QUALITY METRICS

Net charge-offs as a % of average loan receivables, including held for sale 5.97% 6.14% 5.78% 4.95% 5.42% 0.55% 6.06% 5.37% 0.69%
30+ days past due as a % of period-end loan receivables(8) 4.17% 4.52% 4.67% 4.80% 4.25% (0.08)% 4.17% 4.25% (0.08)%
90+ days past due as a % of period-end loan receivables(8) 1.98% 2.28% 2.28% 2.22% 1.90% 0.08% 1.98% 1.90% 0.08%
Net charge-offs $1,159 $1,198 $1,141 $950 $1,001 $158 15.8% $2,357 $1,975 $382 19.3%
Loan receivables delinquent over 30 days(8) $3,293 $3,521 $3,831 $3,694 $3,208 $85 2.6% $3,293 $3,208 $85 2.6%
Loan receivables delinquent over 90 days(8) $1,561 $1,776 $1,869 $1,707 $1,435 $126 8.8% $1,561 $1,435 $126 8.8%
 
Allowance for loan losses (period-end) $5,859 $5,738 $5,574 $5,361 $5,001 $858 17.2% $5,859 $5,001 $858 17.2%
Allowance coverage ratio(9) 7.43% 7.37% 6.80% 6.97% 6.63% 0.80% 7.43% 6.63% 0.80%
 

BUSINESS METRICS

Purchase volume(10) $34,268 $29,626 $36,565 $32,893 $33,476 $792 2.4% $63,894 $62,356 $1,538 2.5%
Period-end loan receivables $78,879 $77,853 $81,947 $76,928 $75,458 $3,421 4.5% $78,879 $75,458 $3,421 4.5%
Credit cards $75,753 $74,952 $79,026 $73,946 $72,492 $3,261 4.5% $75,753 $72,492 $3,261 4.5%
Consumer installment loans $1,708 $1,590 $1,578 $1,561 $1,514 $194 12.8% $1,708 $1,514 $194 12.8%
Commercial credit products $1,356 $1,275 $1,303 $1,384 $1,386 $(30) (2.2)% $1,356 $1,386 $(30) (2.2)%
Other $62 $36 $40 $37 $66 $(4) (6.1)% $62 $66 $(4) (6.1)%
Average loan receivables, including held for sale $77,853 $79,090 $78,369 $76,165 $74,090 $3,763 5.1% $78,468 $74,111 $4,357 5.9%
Period-end active accounts (in thousands)(11) 69,767 68,891 74,541 69,008 69,277 490 0.7% 69,767 69,277 490 0.7%
Average active accounts (in thousands)(11) 69,344 71,323 71,348 69,331 68,635 709 1.0% 70,540 69,307 1,233 1.8%
 

LIQUIDITY

Liquid assets
Cash and equivalents $15,675 $13,044 $11,602 $13,915 $12,020 $3,655 30.4% $15,675 $12,020 $3,655 30.4%
Total liquid assets $21,491 $18,557 $15,087 $16,391 $15,274 $6,217 40.7% $21,491 $15,274 $6,217 40.7%
Undrawn credit facilities
Undrawn credit facilities $6,500 $6,000 $6,000 $5,650 $6,650 $(150) (2.3)% $6,500 $6,650 $(150) (2.3)%
Total liquid assets and undrawn credit facilities $27,991 $24,557 $21,087 $22,041 $21,924 $6,067 27.7% $27,991 $21,924 $6,067 27.7%
Liquid assets % of total assets 21.68% 19.42% 15.75% 17.71% 16.76% 4.92% 21.68% 16.76% 4.92%
Liquid assets including undrawn credit facilities % of total assets 28.24% 25.70% 22.01% 23.82% 24.06% 4.18% 28.24% 24.06% 4.18%
                                                                     
(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 Six Months Ended
Jun 30,

2018

Mar 31,

2018

Dec 31,

2017

Sep 30,

2017

Jun 30,

2017

2Q'18 vs. 2Q'17 Jun 30,

2018

Jun 30,

2017

YTD'18 vs. YTD'17
Interest income:
Interest and fees on loans $4,081 $4,172 $4,233 $4,182 $3,927 $154 3.9% $8,253 $7,804 $449 5.8%
Interest on investment securities 93 72 58 51 43 50     116.3% 165 79 86     108.9%
Total interest income 4,174 4,244 4,291 4,233 3,970 204 5.1% 8,418 7,883 535 6.8%
 
Interest expense:
Interest on deposits 273 249 233 219 202 71 35.1% 522 396 126 31.8%
Interest on borrowings of consolidated securitization entities 80 74 70 65 63 17 27.0% 154 128 26 20.3%
Interest on third-party debt 84 79 72 73 68 16     23.5% 163 135 28     20.7%
Total interest expense 437 402 375 357 333 104 31.2% 839 659 180 27.3%
                             
Net interest income 3,737 3,842 3,916 3,876 3,637 100 2.7% 7,579 7,224 355 4.9%
 
Retailer share arrangements (653) (720) (779) (805) (669) 16     (2.4)% (1,373) (1,353) (20)     1.5%
Net interest income, after retailer share arrangements 3,084 3,122 3,137 3,071 2,968 116 3.9% 6,206 5,871 335 5.7%
 
Provision for loan losses 1,280 1,362 1,354 1,310 1,326 (46)     (3.5)% 2,642 2,632 10     0.4%
Net interest income, after retailer share arrangements and provision for loan losses 1,804 1,760 1,783 1,761 1,642 162 9.9% 3,564 3,239 325 10.0%
 
Other income:
Interchange revenue 177 158 179 164 165 12 7.3% 335 310 25 8.1%
Debt cancellation fees 66 66 69 67 68 (2) (2.9)% 132 136 (4) (2.9)%
Loyalty programs (192) (155) (193) (168) (206) 14 (6.8)% (347) (343) (4) 1.2%
Other 12 6 7 13 30 (18)     (60.0)% 18 47 (29)     (61.7)%
Total other income 63 75 62 76 57 6     10.5% 138 150 (12)     (8.0)%
 
Other expense:
Employee costs(1) 351 358 330 333 318 33 10.4% 709 641 68 10.6%
Professional fees 177 166 159 161 158 19 12.0% 343 309 34 11.0%
Marketing and business development 110 121 156 124 124 (14) (11.3)% 231 218 13 6.0%
Information processing 99 104 99 96 88 11 12.5% 203 178 25 14.0%
Other(1) 238 239 226 244 223 15     6.7% 477 473 4     0.8%
Total other expense 975 988 970 958 911 64 7.0% 1,963 1,819 144 7.9%
                             
Earnings before provision for income taxes 892 847 875 879 788 104 13.2% 1,739 1,570 169 10.8%
Provision for income taxes 196 207 490 324 292 (96)     (32.9)% 403 575 (172)     (29.9)%
Net earnings attributable to common stockholders $696 $640 $385 $555 $496 $200     40.3% $1,336 $995 $341     34.3%
                                                                     
(1) We have reclassified certain amounts within Employee costs to Other for all periods in 2017 to conform to the current period classifications.
 
                             
SYNCHRONY FINANCIAL
STATEMENTS OF FINANCIAL POSITION
(unaudited, $ in millions)
Quarter Ended
Jun 30,

2018

Mar 31,

2018

Dec 31,

2017

Sep 30,

2017

Jun 30,

2017

Jun 30, 2018 vs.

Jun 30, 2017

Assets
Cash and equivalents $15,675 $13,044 $11,602 $13,915 $12,020 $3,655 30.4%
Debt securities 6,779 6,259 4,473 3,302 3,982 2,797 70.2%
Loan receivables:
Unsecuritized loans held for investment 50,884 52,469 55,526 53,997 52,550 (1,666) (3.2)%
Restricted loans of consolidated securitization entities 27,995 25,384 26,421 22,931 22,908 5,087     22.2%
Total loan receivables 78,879 77,853 81,947 76,928 75,458 3,421 4.5%
Less: Allowance for loan losses (5,859) (5,738) (5,574) (5,361) (5,001) (858)     17.2%
Loan receivables, net 73,020 72,115 76,373 71,567 70,457 2,563 3.6%
Goodwill 1,024 991 991 991 991 33 3.3%
Intangible assets, net 863 780 749 772 787 76 9.7%
Other assets 1,761 2,370 1,620 2,001 2,903 (1,142)     (39.3)%
Total assets $99,122 $95,559 $95,808 $92,548 $91,140 $7,982     8.8%
 
Liabilities and Equity - - -
Deposits:
Interest-bearing deposit accounts $58,734 $56,285 $56,276 $54,232 $52,659 $6,075 11.5%
Non-interest-bearing deposit accounts 277 285 212 222 226 51     22.6%
Total deposits 59,011 56,570 56,488 54,454 52,885 6,126 11.6%
Borrowings:
Borrowings of consolidated securitization entities 12,170 12,214 12,497 11,891 12,204 (34) (0.3)%
 
Senior unsecured notes 9,551 8,801 8,302 8,008 8,505 1,046     12.3%
Total borrowings 21,721 21,015 20,799 19,899 20,709 1,012 4.9%
Accrued expenses and other liabilities 3,932 3,618 4,287 3,793 3,214 718     22.3%
Total liabilities 84,664 81,203 81,574 78,146 76,808 7,856 10.2%
Equity:
Common stock 1 1 1 1 1 - - %
Additional paid-in capital 9,486 9,470 9,445 9,429 9,415 71 0.8%
Retained earnings 7,906 7,334 6,809 6,543 6,109 1,797 29.4%
Accumulated other comprehensive income: (93) (86) (64) (40) (49) (44) 89.8%
Treasury Stock (2,842) (2,363) (1,957) (1,531) (1,144) (1,698)     148.4%
Total equity 14,458 14,356 14,234 14,402 14,332 126     0.9%
Total liabilities and equity $99,122 $95,559 $95,808 $92,548 $91,140 $7,982     8.8%
                                             
                                                             
SYNCHRONY FINANCIAL
AVERAGE BALANCES, NET INTEREST INCOME AND NET INTEREST MARGIN
(unaudited, $ in millions)
 
Quarter Ended
Jun 30, 2018 Mar 31, 2018 Dec 31, 2017 Sep 30, 2017 Jun 30, 2017
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 $13,097 $59 1.81% $12,434 $47 1.53% $13,591 $43 1.26% $11,895 $37 1.23% $10,758 $28 1.04%
Securities available for sale 6,803 34 2.00% 5,584 25 1.82% 3,725 15 1.60% 3,792 14 1.46% 5,195 15 1.16%
 
Loan receivables:
Credit cards, including held for sale 74,809 4,010 21.50% 76,181 4,099 21.82% 75,389 4,161 21.90% 73,172 4,111 22.29% 71,206 3,858 21.73%
Consumer installment loans 1,648 37 9.01% 1,572 36 9.29% 1,568 36 9.11% 1,543 35 9.00% 1,461 34 9.33%
Commercial credit products 1,346 34 10.13% 1,286 36 11.35% 1,375 35 10.10% 1,392 36 10.26% 1,378 34 9.90%
Other 50 - - % 51 1 NM 37 1 NM 58 - - % 45 1 NM
Total loan receivables, including held for sale 77,853 4,081 21.03% 79,090 4,172 21.39% 78,369 4,233 21.43% 76,165 4,182 21.78% 74,090 3,927 21.26%
Total interest-earning assets 97,753 4,174 17.13% 97,108 4,244 17.72% 95,685 4,291 17.79% 91,852 4,233 18.28% 90,043 3,970 17.68%
 
Non-interest-earning assets:
Cash and due from banks 1,161 1,197 1,037 877 829
Allowance for loan losses (5,768) (5,608) (5,443) (5,125) (4,781)
Other assets 3,068 3,010 3,219 3,517 3,303
Total non-interest-earning assets (1,539) (1,401) (1,187) (731) (649)
         
Total assets $96,214 $95,707 $94,498 $91,121 $89,394
 
Liabilities
Interest-bearing liabilities:
Interest-bearing deposit accounts $57,303 $273 1.91% $56,356 $249 1.79% $55,690 $233 1.66% $53,294 $219 1.63% $51,836 $202 1.56%
Borrowings of consolidated securitization entities 11,821 80 2.71% 12,410 74 2.42% 12,425 70 2.24% 11,759 65 2.19% 12,213 63 2.07%
- %
Senior unsecured notes 9,114 84 3.70% 8,795 79 3.64% 7,940 72 3.60% 8,251 73 3.51% 7,933 68 3.44%
Total interest-bearing liabilities 78,238 437 2.24% 77,561 402 2.10% 76,055 375 1.96% 73,304 357 1.93% 71,982 333 1.86%
 
Non-interest-bearing liabilities
Non-interest-bearing deposit accounts 270 300 218 232 218
Other liabilities 3,299 3,570 3,716 3,154 2,752
Total non-interest-bearing liabilities 3,569 3,870 3,934 3,386 2,970
         
Total liabilities 81,807 81,431 79,989 76,690 74,952
 
Equity
Total equity 14,407 14,276 14,509 14,431 14,442
         
Total liabilities and equity $96,214 $95,707 $94,498 $91,121 $89,394
Net interest income $3,737 $3,842 $3,916 $3,876 $3,637
 
Interest rate spread(1) 14.89% 15.62% 15.83% 16.35% 15.82%
Net interest margin(2) 15.33% 16.05% 16.24% 16.74% 16.20%
                                                                                             
(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, 2018

Six Months Ended

Jun 30, 2017

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 $12,768 $106 1.67% $10,656 $49 0.93%
Securities available for sale 6,197 59 1.92% 5,204 30 1.16%
 
Loan receivables:
Credit cards, including held for sale 75,492 8,109 21.66% 71,285 7,669 21.69%
Consumer installment loans 1,610 73 9.14% 1,425 66 9.34%
Commercial credit products 1,316 70 10.73% 1,348 68 10.17%
Other 50 1 4.03% 53 1 3.80%
Total loan receivables, including held for sale 78,468 8,253 21.21% 74,111 7,804 21.23%
Total interest-earning assets 97,433 8,418 17.42% 89,971 7,883 17.67%
 
Non-interest-earning assets:
Cash and due from banks 1,179 816
Allowance for loan losses (5,689) (4,595)
Other assets 3,039 3,239
Total non-interest-earning assets (1,471) (540)
   
Total assets $95,962 $89,431
 
Liabilities
Interest-bearing liabilities:
Interest-bearing deposit accounts $56,832 $522 1.85% $51,833 $396 1.54%
Borrowings of consolidated securitization entities 12,114 154 2.56% 12,267 128 2.10%
- % 0 0 0.00%
Senior unsecured notes 8,955 163 3.67% 7,847 135 3.47%
Total interest-bearing liabilities 77,901 839 2.17% 71,947 659 1.85%
 
Non-interest-bearing liabilities
Non-interest-bearing deposit accounts 285 229
Other liabilities 3,434 2,872
Total non-interest-bearing liabilities 3,719 3,101
   
Total liabilities 81,620 75,048
 
Equity
Total equity 14,342 14,383
   
Total liabilities and equity $95,962 $89,431
Net interest income $7,579 $7,224
 
Interest rate spread(1) 15.25% 15.82%
Net interest margin(2) 15.69% 16.19%
                                       
(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
BALANCE SHEET STATISTICS
(unaudited, $ in millions, except per share statistics)
 
Quarter Ended
Jun 30,

2018

Mar 31,

2018

Dec 31,

2017

Sep 30,

2017

Jun 30,

2017

Jun 30, 2018 vs.

Jun 30, 2017

BALANCE SHEET STATISTICS

Total common equity $14,458 $14,356 $14,234 $14,402 $14,332 $126 0.9%
Total common equity as a % of total assets 14.59% 15.02% 14.86% 15.56% 15.73% (1.14)%
 
Tangible assets $97,235 $93,788 $94,068 $90,785 $89,362 $7,873 8.8%
Tangible common equity(1) $12,571 $12,585 $12,494 $12,639 $12,554 $17 0.1%
Tangible common equity as a % of tangible assets(1) 12.93% 13.42% 13.28% 13.92% 14.05% (1.12)%
Tangible common equity per share(1) $16.84 $16.55 $16.22 $16.15 $15.79 $1.05 6.6%
 

REGULATORY CAPITAL RATIOS(2)

Basel III Fully Phased-in(3) Basel III Transition
Total risk-based capital ratio(4) 18.0% 18.1% 17.3% 18.7% 18.7%
Tier 1 risk-based capital ratio(5) 16.6% 16.8% 16.0% 17.3% 17.4%
Tier 1 leverage ratio(6) 13.6% 13.7% 13.8% 14.6% 14.8%
Common equity Tier 1 capital ratio 16.6% 16.8% 16.0% 17.3% 17.4%
 
Basel III Fully Phased-in
Common equity Tier 1 capital ratio 16.6% 16.8% 15.8% 17.2% 17.2%
                                             
(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, 2018 are preliminary and therefore subject to change.
(3) Amounts presented do not reflect certain modifications to the regulatory capital rules proposed by the federal banking agencies in September 2017, which among other things, may increase the risk weighting of certain deferred tax assets from 100% to 250% if the proposed rule becomes effective.
(4) Total risk-based capital ratio is the ratio of total risk-based capital divided by risk-weighted assets.
(5) Tier 1 risk-based capital ratio is the ratio of Tier 1 capital divided by risk-weighted assets.
(6) Tier 1 leverage ratio is the ratio of Tier 1 capital divided by total average assets, after certain adjustments.
 
                                             
SYNCHRONY FINANCIAL
PLATFORM RESULTS
(unaudited, $ in millions)
Quarter Ended Six Months Ended
Jun 30,

2018

Mar 31,

2018

Dec 31,

2017

Sep 30,

2017

Jun 30,

2017

2Q'18 vs. 2Q'17 Jun 30,

2018

Jun 30,

2017

YTD'18 vs. YTD'17

RETAIL CARD

Purchase volume(1)(2) $27,340 $23,382 $29,839 $26,347 $27,101 $239 0.9% $50,722 $50,053 $669 1.3%
Period-end loan receivables $52,918 $52,531 $56,230 $52,119 $51,437 $1,481 2.9% $52,918 $51,437 $1,481 2.9%
Average loan receivables, including held for sale $52,427 $53,673 $53,256 $51,817 $50,533 $1,894 3.7% $53,047 $50,588 $2,459 4.9%
Average active accounts (in thousands)(2)(3) 54,092 55,927 56,113 54,471 54,058 34 0.1% 55,211 54,729 482 0.9%
 
Interest and fees on loans(2) $2,993 $3,096 $3,133 $3,102 $2,900 $93 3.2% $6,089 $5,788 $301 5.2%
Other income(2) $48 $65 $49 $61 $25 $23 92.0% $113 $102 $11 10.8%
Retailer share arrangements(2) $(644) $(714) $(771) $(795) $(657) $13 (2.0)% $(1,358) $(1,338) $(20) 1.5%
 

PAYMENT SOLUTIONS

Purchase volume(1) $4,288 $3,823 $4,366 $4,178 $3,930 $358 9.1% $8,111 $7,616 $495 6.5%
Period-end loan receivables $16,875 $16,513 $16,857 $16,153 $15,595 $1,280 8.2% $16,875 $15,595 $1,280 8.2%
Average loan receivables $16,562 $16,629 $16,386 $15,848 $15,338 $1,224 8.0% $16,595 $15,381 $1,214 7.9%
Average active accounts (in thousands)(3) 9,433 9,545 9,421 9,183 9,031 402 4.5% 9,492 9,061 431 4.8%
 
Interest and fees on loans $566 $562 $574 $559 $533 $33 6.2% $1,128 $1,048 $80 7.6%
Other income $4 $2 $2 $2 $6 $(2) (33.3)% $6 $10 $(4) (40.0)%
Retailer share arrangements $(7) $(4) $(5) $(9) $(9) $2 (22.2)% $(11) $(10) $(1) 10.0%
 

CARECREDIT

Purchase volume(1) $2,640 $2,421 $2,360 $2,368 $2,445 $195 8.0% $5,061 $4,687 $374 8.0%
Period-end loan receivables $9,086 $8,809 $8,860 $8,656 $8,426 $660 7.8% $9,086 $8,426 $660 7.8%
Average loan receivables $8,864 $8,788 $8,727 $8,500 $8,219 $645 7.8% $8,826 $8,142 $684 8.4%
Average active accounts (in thousands)(3) 5,819 5,851 5,814 5,677 5,546 273 4.9% 5,837 5,517 320 5.8%
 
Interest and fees on loans $522 $514 $526 $521 $494 $28 5.7% $1,036 $968 $68 7.0%
Other income $11 $8 $11 $13 $26 $(15) (57.7)% $19 $38 $(19) (50.0)%
Retailer share arrangements $(2) $(2) $(3) $(1) $(3) $1 (33.3)% $(4) $(5) $1 (20.0)%
 

TOTAL SYF

Purchase volume(1)(2) $34,268 $29,626 $36,565 $32,893 $33,476 $792 2.4% $63,894 $62,356 $1,538 2.5%
Period-end loan receivables $78,879 $77,853 $81,947 $76,928 $75,458 $3,421 4.5% $78,879 $75,458 $3,421 4.5%
Average loan receivables, including held for sale $77,853 $79,090 $78,369 $76,165 $74,090 $3,763 5.1% $78,468 $74,111 $4,357 5.9%
Average active accounts (in thousands)(2)(3) 69,344 71,323 71,348 69,331 68,635 709 1.0% 70,540 69,307 1,233 1.8%
 
Interest and fees on loans(2) $4,081 $4,172 $4,233 $4,182 $3,927 $154 3.9% $8,253 $7,804 $449 5.8%
Other income(2) $63 $75 $62 $76 $57 $6 10.5% $138 $150 $(12) (8.0)%
Retailer share arrangements(2) $(653) $(720) $(779) $(805) $(669) $16 (2.4)% $(1,373) $(1,353) $(20) 1.5%
                                                                     
(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,

2018

Mar 31,

2018

Dec 31,

2017

Sep 30,

2017

Jun 30,

2017

COMMON EQUITY MEASURES

GAAP Total common equity $14,458 $14,356 $14,234 $14,402 $14,332
Less: Goodwill (1,024) (991) (991) (991) (991)
Less: Intangible assets, net (863) (780) (749) (772) (787)
Tangible common equity $12,571 $12,585 $12,494 $12,639 $12,554
Adjustments for certain deferred tax liabilities and certain items in accumulated comprehensive income (loss) 287 278 254 344 $337
Basel III - Common equity Tier 1 (fully phased-in) $12,858 $12,863 $12,748 $12,983 $12,891
Adjustment related to capital components during transition 142 142 146
Basel III - Common equity Tier 1 (transition) $12,890 $13,125 $13,037
 

RISK-BASED CAPITAL

Common equity Tier 1 $12,858 $12,863 $12,890 $13,125 $13,037
Add: Allowance for loan losses includible in risk-based capital 1,027 1,015 1,064 1,001 985
Risk-based capital $13,885 $13,878 $13,954 $14,126 $14,022
 

ASSET MEASURES

Total average assets $96,214 $95,707 $94,498 $91,121 $89,394
Adjustments for:
Disallowed goodwill and other disallowed intangible assets

(net of related deferred tax liabilities) and other

(1,670) (1,560) (1,392) (1,304) (1,325)
Total assets for leverage purposes $94,544 $94,147 $93,106 $89,817 $88,069
 
Risk-weighted assets - Basel III (fully phased-in) $77,322 $76,509 $80,526 $75,614 $74,748
Risk-weighted assets - Basel III (transition) $80,669 $75,729 $74,792
 

TANGIBLE COMMON EQUITY PER SHARE

GAAP book value per share $19.37 $18.88 $18.47 $18.40 $18.02
Less: Goodwill (1.37) (1.30) (1.29) (1.27) (1.25)
Less: Intangible assets, net (1.16) (1.03) (0.96) (0.98) (0.98)
Tangible common equity per share $16.84 $16.55 $16.22 $16.15 $15.79
 

ADJUSTED NET EARNINGS

GAAP net earnings $696 $640 $385 $555 $496
Adjustment for tax law change(2) - - 160 - -
Adjusted net earnings $696 $640 $545 $555 $496
 

ADJUSTED DILUTED EPS

GAAP diluted EPS $0.92 $0.83 $0.49 $0.70 $0.61
Adjustment for tax law change(2) - - 0.21 - -
Adjusted diluted EPS $0.92 $0.83 $0.70 $0.70 $0.61
                                 
(1) Regulatory measures at June 30, 2018 are presented on an estimated basis.
(2) Adjustment to exclude the effects to Provision for income taxes in the quarter ended December 31, 2017, resulting from the Tax Act.
 

Contacts

Synchrony Financial
Investor Relations
Greg Ketron, 203-585-6291
or
Media Relations
Sue Bishop, 203-585-2802

Contacts

Synchrony Financial
Investor Relations
Greg Ketron, 203-585-6291
or
Media Relations
Sue Bishop, 203-585-2802