Press Release

October 21, 2016, 6:32 PM EDT

Synchrony Financial Reports Third Quarter Net Earnings of $604 Million or $0.73 Per Diluted Share

Dateline:
STAMFORD, Conn.
 
Public Company Information:
NYSE: SYF
 
STAMFORD, Conn.--(BUSINESS WIRE)--Synchrony Financial (NYSE:SYF) today announced third quarter 2016 net earnings of $604 million, or $0.73 per diluted share. Highlights for the quarter included:
  • Net interest income increased 12% from the third quarter of 2015 to $3.5 billion
  • Loan receivables grew $7 billion, or 11%, from the third quarter of 2015 to $71 billion
  • Purchase volume increased 8% from the third quarter of 2015
  • Strong deposit growth continued, up $9 billion, or 23%, over the third quarter of 2015
  • Renewed key relationships – TJX Companies, hhgregg, Nationwide Marketing Group and American Dental Association
  • Signed new partnerships with Nissan and At Home
  • Launched The Container Store and Google Store programs
  • Commenced quarterly common stock dividend payment of $0.13 per share and repurchased $238 million of Synchrony Financial common stock

“Broad-based growth across our sales platforms generated double-digit loan receivables and net interest income growth and strong purchase volume growth this quarter. Organic growth is an important business driver for us and we are pleased to have recently renewed several key relationships. We also signed new partnerships and launched new programs. Strong deposit growth continued this quarter as we remain focused on this important source of funding to support our business,” said Margaret Keane, President and Chief Executive Officer of Synchrony Financial. “We are pleased to have initiated our quarterly dividend and share repurchase program during the quarter. We are focusing resources on driving strong organic growth and pursuing new profitable partnership opportunities, while also returning capital to shareholders through dividends and share repurchases—a testament to the strength of our business model and strategic focus.”

Business and Financial Highlights for the Third Quarter of 2016

All comparisons below are for the third quarter of 2016 compared to the third quarter of 2015, unless otherwise noted.

Earnings

  • Net interest income increased $378 million, or 12%, to $3.5 billion, primarily driven by strong loan receivables growth. Net interest income after retailer share arrangements increased 14%.
  • Provision for loan losses increased $284 million to $986 million due to higher loan loss reserve build and loan receivables growth.
  • Other income was unchanged at $84 million primarily due to higher interchange income offset by higher loyalty program expense.
  • Other expense increased $16 million to $859 million, primarily driven by business growth.
  • Net earnings totaled $604 million compared to $574 million in the third quarter of 2015.

Balance Sheet

  • Period-end loan receivables growth remained strong at 11%, primarily driven by purchase volume growth of 8% and average active account growth of 7%.
  • Deposits grew to $50 billion, up $9 billion, or 23%, and comprised 71% of funding compared to 63% last year.
  • The Company’s balance sheet remained strong with total liquidity (liquid assets and undrawn credit facilities) of $24 billion, or 27% of total assets.
  • The estimated Common Equity Tier 1 ratio under Basel III subject to transition provisions was 18.2% and the estimated fully phased-in Common Equity Tier 1 ratio under Basel III was 17.9%.

Key Financial Metrics

  • Return on assets was 2.8% and return on equity was 17.4%.
  • Net interest margin increased 30 basis points to 16.27%.
  • Efficiency ratio was 30.6%, a 362 basis point improvement from the third quarter of 2015, driven by positive operating leverage arising from strong revenue growth that exceeded expense growth.

Credit Quality

  • Loans 30+ days past due as a percentage of total period-end loan receivables were 4.26% compared to 4.02% last year.
  • Net charge-offs as a percentage of total average loan receivables were 4.38% compared to 4.02% last year.
  • The allowance for loan losses as a percentage of total period-end loan receivables was 5.82% compared to 5.31% last year.

Sales Platforms

  • Retail Card interest and fees on loans increased 11%, driven primarily by purchase volume growth of 7% and period-end loan receivables growth of 11%. Average active account growth was 6%. Loan receivables growth was broad-based across partner programs.
  • Payment Solutions interest and fees on loans increased 14%, driven primarily by purchase volume growth of 14% and period-end loan receivables growth of 14%. Average active account growth was 13%. Loan receivables growth was led by the home furnishings, automotive, and power product categories.
  • CareCredit interest and fees on loans increased 11%, driven primarily by purchase volume growth of 8% and period-end loan receivables growth of 10%. Average active account growth was 8%. Loan receivables growth was led by the dental and veterinary specialties.

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, 2015, as filed February 25, 2016, and the Company’s forthcoming Quarterly Report on Form 10-Q for the quarter ended September 30, 2016. The detailed financial tables and other information are also available on the Investor Relations page of the Company’s website at www.investors.synchronyfinancial.com. This information is also furnished in a Current Report on Form 8-K filed with the SEC today.

Conference Call and Webcast Information

On Friday, October 21, 2016, 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 Synchrony Financial’s 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 32016#, and can be accessed beginning approximately two hours after the event through November 4, 2016.

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 350,000 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-financialand twitter.com/SYFNews.

*Source: The Nilson Report (May 2016, Issue # 1087) - based on 2015 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 “outlook,” “expects,” “intends,” “anticipates,” “plans,” “believes,” “seeks,” “targets,” “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; 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; cyber-attacks or other security breaches; failure of third parties to provide various services that are important to our operations; our transition to a replacement third-party vendor to manage the technology platform for our online retail deposits; 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; obligations associated with being an independent public company; 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; changes to our methods of offering our CareCredit products; 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, 2015, as filed on February 25, 2016. 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

3Q'16 vs. 3Q'15

Nine Months Ended

YTD'16 vs. YTD'15

 

Sep 30,

Jun 30,

Mar 31,

Dec 31,

Sep 30,

Sep 30,

Sep 30,

2016

2016

2016

2015

2015

2016

2015

EARNINGS

 

 

 

 

 

 

 

 

 

 

 

Net interest income

$3,481

$3,212

$3,209

$3,208

$3,103

$378

12.20%

$9,902

$8,885

$1,017

11.40%

Retailer share arrangements

-757

-664

-670

-734

-723

-34

4.70%

-2,091

-2,004

-87

4.30%

Net interest income, after retailer share arrangements

2,724

2,548

2,539

2,474

2,380

344

14.50%

7,811

6,881

930

13.50%

Provision for loan losses

986

1,021

903

823

702

284

40.50%

2,910

2,129

781

36.70%

Net interest income, after retailer share arrangements and provision for loan losses

1,738

1,527

1,636

1,651

1,678

60

3.60%

4,901

4,752

149

3.10%

Other income

84

83

92

87

84

-

- %

259

305

-46

-15.10%

Other expense

859

839

800

870

843

16

1.90%

2,498

2,394

104

4.30%

Earnings before provision for income taxes

963

771

928

868

919

44

4.80%

2,662

2,663

-1

0.00%

Provision for income taxes

359

282

346

321

345

14

4.10%

987

996

-9

-0.90%

Net earnings

$604

$489

$582

$547

$574

$30

5.20%

$1,675

$1,667

$8

0.50%

Net earnings attributable to common stockholders

$604

$489

$582

$547

$574

$30

5.20%

$1,675

$1,667

$8

0.50%

COMMON SHARE STATISTICS

 

 

 

 

 

 

 

 

 

 

 

Basic EPS

$0.73

$0.59

$0.70

$0.66

$0.69

$0.04

5.80%

$2.01

$2.00

$0.01

0.50%

Diluted EPS

$0.73

$0.58

$0.70

$0.65

$0.69

$0.04

5.80%

$2.01

$2.00

$0.01

0.50%

Dividend declared per share

$0.13

-

-

-

-

$0.13

NM

$0.13

-

$0.13

NM

Common stock price

$28.00

$25.28

$28.66

$30.41

$31.30

($3.30)

-10.50%

$28.00

$31.30

($3.30)

-10.50%

Book value per share

$16.94

$16.45

$15.84

$15.12

$14.58

$2.36

16.20%

$16.94

$14.58

$2.36

16.20%

Tangible common equity per share(1)

$14.90

$14.46

$13.86

$13.14

$12.67

$2.23

17.60%

$14.90

$12.67

$2.23

17.60%

Beginning common shares outstanding

833.9

833.8

833.8

833.8

833.8

0.1

0.00%

833.8

833.8

-

- %

Issuance of common shares

-

-

-

-

-

-

- %

-

-

-

- %

Stock-based compensation

0.1

0.1

-

-

-

0.1

NM

0.2

-

0.2

NM

Shares repurchased

-8.5

-

-

-

-

-8.5

NM

-8.5

-

-8.5

NM

Ending common shares outstanding

825.5

833.9

833.8

833.8

833.8

-8.3

-1.00%

825.5

833.8

-8.3

-1.00%

Weighted average common shares outstanding

828.4

833.9

833.8

833.8

833.8

-5.4

-0.60%

832.1

833.8

-1.7

-0.20%

Weighted average common shares outstanding (fully diluted)

830.6

836.2

835.5

835.8

835.8

-5.2

-0.60%

834.1

835.4

-1.3

-0.20%

(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 (1)

(unaudited, $ in millions, except account data)

 

Quarter Ended

3Q'16 vs. 3Q'15

Nine Months Ended

YTD'16 vs. YTD'15

 

Sep 30,

Jun 30,

Mar 31,

Dec 31,

Sep 30,

Sep 30,

Sep 30,

2016

2016

2016

2015

2015

2016

2015

PERFORMANCE METRICS

 

 

 

 

 

 

 

 

 

 

 

Return on assets(2)

2.80%

2.40%

2.80%

2.70%

2.90%

 

-0.10%

2.70%

3.00%

 

-0.30%

Return on equity(3)

17.40%

14.60%

18.10%

17.50%

19.20%

 

-1.80%

16.70%

19.70%

 

-3.00%

Return on tangible common equity(4)

19.80%

16.60%

20.80%

20.10%

22.00%

 

-2.20%

19.10%

22.70%

 

-3.60%

Net interest margin(5)

16.27%

15.86%

15.76%

15.73%

15.97%

 

0.30%

15.94%

15.81%

 

0.13%

Efficiency ratio(6)

30.60%

31.90%

30.40%

34.00%

34.20%

 

-3.60%

31.00%

33.30%

 

-2.30%

Other expense as a % of average loan receivables, including held for sale

4.92%

5.04%

4.82%

5.28%

5.35%

 

-0.43%

4.92%

5.25%

 

-0.33%

Effective income tax rate

37.30%

36.60%

37.30%

37.00%

37.50%

 

-0.20%

37.10%

37.40%

 

-0.30%

CREDIT QUALITY METRICS

 

 

 

 

 

 

 

 

 

 

 

Net charge-offs as a % of average loan receivables, including held for sale

4.38%

4.49%

4.70%

4.23%

4.02%

 

0.36%

4.51%

4.37%

 

0.14%

30+ days past due as a % of period-end loan receivables(7)

4.26%

3.79%

3.85%

4.06%

4.02%

 

0.24%

4.26%

4.02%

 

0.24%

90+ days past due as a % of period-end loan receivables(7)

1.89%

1.67%

1.84%

1.86%

1.73%

 

0.16%

1.89%

1.73%

 

0.16%

Net charge-offs

$765

$747

$780

$697

$633

$132

20.90%

$2,292

$1,994

$298

14.90%

Loan receivables delinquent over 30 days(7)

$3,008

$2,585

$2,538

$2,772

$2,553

$455

17.80%

$3,008

$2,553

$455

17.80%

Loan receivables delinquent over 90 days(7)

$1,334

$1,143

$1,212

$1,273

$1,102

$232

21.10%

$1,334

$1,102

$232

21.10%

Allowance for loan losses (period-end)

$4,115

$3,894

$3,620

$3,497

$3,371

$744

22.10%

$4,115

$3,371

$744

22.10%

Allowance coverage ratio(8)

5.82%

5.70%

5.50%

5.12%

5.31%

 

0.51%

5.82%

5.31%

 

0.51%

BUSINESS METRICS

 

 

 

 

 

 

 

 

 

 

 

Purchase volume(9)

$31,615

$31,507

$26,977

$32,460

$29,206

$2,409

8.20%

$90,099

$81,155

$8,944

11.00%

Period-end loan receivables

$70,644

$68,282

$65,849

$68,290

$63,520

$7,124

11.20%

$70,644

$63,520

$7,124

11.20%

Credit cards

$67,858

$65,511

$63,309

$65,773

$60,920

$6,938

11.40%

$67,858

$60,920

$6,938

11.40%

Consumer installment loans

$1,361

$1,293

$1,184

$1,154

$1,171

$190

16.20%

$1,361

$1,171

$190

16.20%

Commercial credit products

$1,385

$1,389

$1,318

$1,323

$1,380

$5

0.40%

$1,385

$1,380

$5

0.40%

Other

$40

$89

$38

$40

$49

($9)

-18.40%

$40

$49

($9)

-18.40%

Average loan receivables, including held for sale

$69,525

$66,943

$66,705

$65,406

$62,504

$7,021

11.20%

$67,856

$60,946

$6,910

11.30%

Period-end active accounts (in thousands) (10)

66,781

66,491

64,689

68,314

62,831

3,950

6.30%

66,781

62,831

3,950

6.30%

Average active accounts (in thousands)(10)

66,639

65,531

66,134

64,892

62,247

4,392

7.10%

66,204

61,762

4,442

7.20%

LIQUIDITY

 

 

 

 

 

 

 

 

 

 

 

Liquid assets

 

 

 

 

 

 

 

 

 

 

 

Cash and equivalents

$13,588

$11,787

$12,500

$12,325

$12,271

$1,317

10.70%

$13,588

$12,271

$1,317

10.70%

Total liquid assets

$16,362

$13,956

$14,915

$14,836

$15,305

$1,057

6.90%

$16,362

$15,305

$1,057

6.90%

Undrawn credit facilities

 

 

 

 

 

 

 

 

 

 

 

Undrawn credit facilities

$7,150

$7,025

$7,325

$6,075

$6,550

$600

9.20%

$7,150

$6,550

$600

9.20%

Total liquid assets and undrawn facilities

$23,512

$20,981

$22,240

$20,911

$21,855

$1,657

7.60%

$23,512

$21,855

$1,657

7.60%

Liquid assets % of total assets

18.77%

16.94%

18.27%

17.66%

19.30%

 

-0.53%

18.77%

19.30%

 

-0.53%

Liquid assets including undrawn facilities % of total assets

26.98%

25.47%

27.24%

24.90%

27.56%

 

-0.58%

26.98%

27.56%

 

-0.58%

(1) Certain balance sheet amounts and related metrics have been updated to reflect the adoption of ASU 2015-03. More detail on this update is in footnote (1) on the Statements of Financial Position.

(2) Return on assets represents net earnings as a percentage of average total assets.

(3) Return on equity represents net earnings as a percentage of average total equity.

(4) 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.

(5) Net interest margin represents net interest income divided by average interest-earning assets.

(6) Efficiency ratio represents (i) other expense, divided by (ii) net interest income, after retailer share arrangements, plus other income.

(7) Based on customer statement-end balances extrapolated to the respective period-end date.

(8) Allowance coverage ratio represents allowance for loan losses divided by total period-end loan receivables.

(9) 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.

(10) 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

3Q'16 vs. 3Q'15

Nine Months Ended

YTD'16 vs. YTD'15

 

Sep 30,

Jun 30,

Mar 31,

Dec 31,

Sep 30,

Sep 30,

Sep 30,

2016

2016

2016

2015

2015

2016

2015

Interest income:

 

 

 

 

 

 

 

 

 

 

 

Interest and fees on loans

$3,771

$3,494

$3,498

$3,494

$3,379

$392

11.60%

$10,763

$9,685

$1,078

11.10%

Interest on investment securities

25

21

22

15

13

12

92.30%

68

34

34

100.00%

Total interest income

3796

3515

3520

3509

3392

404

11.90%

10831

9719

1112

11.40%

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

Interest on deposits

188

179

172

165

159

29

18.20%

539

442

97

21.90%

Interest on borrowings of consolidated securitization entities

63

59

58

56

54

9

16.70%

180

159

21

13.20%

Interest on third-party debt

64

65

81

80

76

-12

-15.80%

210

229

-19

-8.30%

Interest on related party debt

-

-

-

-

-

-

- %

-

4

-4

-100.00%

Total interest expense

315

303

311

301

289

26

9.00%

929

834

95

11.40%

Net interest income

3481

3212

3209

3208

3103

378

12.20%

9902

8885

1017

11.40%

Retailer share arrangements

-757

-664

-670

-734

-723

-34

4.70%

-2091

-2004

-87

4.30%

Net interest income, after retailer share arrangements

2724

2548

2539

2474

2380

344

14.50%

7811

6881

930

13.50%

Provision for loan losses

986

1021

903

823

702

284

40.50%

2910

2129

781

36.70%

Net interest income, after retailer share arrangements and provision for loan losses

1738

1527

1636

1651

1678

60

3.60%

4901

4752

149

3.10%

Other income:

 

 

 

 

 

 

 

 

 

 

 

Interchange revenue

154

151

130

147

135

19

14.10%

435

358

77

21.50%

Debt cancellation fees

67

63

64

62

61

6

9.80%

194

187

7

3.70%

Loyalty programs

-145

-135

-110

-125

-122

-23

18.90%

-390

-294

-96

32.70%

Other

8

4

8

3

10

-2

-20.00%

20

54

-34

-63.00%

Total other income

84

83

92

87

84

-

- %

259

305

-46

-15.10%

Other expense:

 

 

 

 

 

 

 

 

 

 

 

Employee costs

311

301

280

285

268

43

16.00%

892

757

135

17.80%

Professional fees

174

154

146

165

162

12

7.40%

474

480

-6

-1.30%

Marketing and business development

92

107

94

128

115

-23

-20.00%

293

305

-12

-3.90%

Information processing

87

81

82

83

77

10

13.00%

250

214

36

16.80%

Other

195

196

198

209

221

-26

-11.80%

589

638

-49

-7.70%

Total other expense

859

839

800

870

843

16

1.90%

2498

2394

104

4.30%

Earnings before provision for income taxes

963

771

928

868

919

44

4.80%

2662

2663

-1

0.00%

Provision for income taxes

359

282

346

321

345

14

4.10%

987

996

-9

-0.90%

Net earnings attributable to common stockholders

$604

$489

$582

$547

$574

$30

5.20%

$1,675

$1,667

$8

0.50%

SYNCHRONY FINANCIAL

STATEMENTS OF FINANCIAL POSITION (1)

(unaudited, $ in millions)

 

Quarter Ended

Sep 30, 2016 vs. Sep 30, 2015

 

Sep 30,

Jun 30,

Mar 31,

Dec 31,

Sep 30,

2016

2016

2016

2015

2015

Assets

 

 

 

 

 

 

 

Cash and equivalents

$13,588

$11,787

$12,500

$12,325

$12,271

$1,317

10.70%

Investment securities

3356

2723

2949

3142

3596

-240

-6.70%

Loan receivables:

 

 

 

 

 

 

 

Unsecuritized loans held for investment

47517

44854

41730

42826

38325

9192

24.00%

Restricted loans of consolidated securitization entities

23127

23428

24119

25464

25195

-2068

-8.20%

Total loan receivables

70644

68282

65849

68290

63520

7124

11.20%

Less: Allowance for loan losses

-4115

-3894

-3620

-3497

-3371

-744

22.10%

Loan receivables, net

66529

64388

62229

64793

60149

6380

10.60%

Goodwill

949

949

949

949

949

-

- %

Intangible assets, net

733

704

702

701

646

87

13.50%

Other assets

2004

1833

2327

2080

1679

325

19.40%

Total assets

$87,159

$82,384

$81,656

$83,990

$79,290

$7,869

9.90%

Liabilities and Equity

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

Interest-bearing deposit accounts

$49,611

$46,220

$44,721

$43,215

$40,323

$9,288

23.00%

Non-interest-bearing deposit accounts

204

207

256

152

140

64

45.70%

Total deposits

49815

46427

44977

43367

40463

9352

23.10%

Borrowings:

 

 

 

 

 

 

 

Borrowings of consolidated securitization entities

12411

12236

12423

13589

13624

-1213

-8.90%

Bank term loan

-

-

1494

4133

4630

-4630

-100.00%

Senior unsecured notes

7756

7059

6559

6557

5560

2196

39.50%

Related party debt

-

-

-

-

-

-

- %

Total borrowings

20167

19295

20476

24279

23814

-3647

-15.30%

Accrued expenses and other liabilities

3196

2947

2999

3740

2855

341

11.90%

Total liabilities

73178

68669

68452

71386

67132

6046

9.00%

Equity:

 

 

 

 

 

 

 

Common stock

1

1

1

1

1

-

- %

Additional paid-in capital

9381

9370

9359

9351

9431

-50

-0.50%

Retained earnings

4861

4364

3875

3293

2746

2115

77.00%

Accumulated other comprehensive income:

-24

-20

-31

-41

-20

-4

20.00%

Treasury Stock

-238

-

-

-

-

-238

NM

Total equity

13981

13715

13204

12604

12158

1823

15.00%

Total liabilities and equity

$87,159

$82,384

$81,656

$83,990

$79,290

$7,869

9.90%

(1) In January 2016, we adopted ASU 2015-03, Interest–Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires the presentation of deferred issuance costs related to a recognized debt liability as a direct deduction from the carrying amount of the debt liability. Accordingly, we have reclassified issuance costs associated with our borrowings and certain brokered deposits, from other assets, and reflected as a reduction of borrowings and interest-bearing deposit accounts, as applicable, for each period presented to conform to the current period presentation. Related selected financial metrics included within this Financial Data Supplement have also been updated where applicable to reflect this reclassification.

SYNCHRONY FINANCIAL

AVERAGE BALANCES, NET INTEREST INCOME AND NET INTEREST MARGIN (1)

(unaudited, $ in millions)

 

Quarter Ended

 

30-Sep-16

30-Jun-16

31-Mar-16

31-Dec-15

30-Sep-15

 

 

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

$12,574

$16

0.51%

$11,692

$14

0.48%

$12,185

$16

0.53%

$12,070

$9

0.30%

$11,059

$7

0.25%

Securities available for sale

3,018

9

1.19%

2,805

7

1.00%

2,995

6

0.81%

3,445

6

0.69%

3,534

6

0.67%

Loan receivables:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit cards, including held for sale

66,746

3,705

22.08%

64,269

3,432

21.48%

64,194

3,436

21.53%

62,834

3,432

21.67%

59,890

3,315

21.96%

Consumer installment loans

1,331

31

9.27%

1,235

28

9.12%

1,159

27

9.37%

1,163

26

8.87%

1,160

27

9.23%

Commercial credit products

1,390

35

10.02%

1,373

33

9.67%

1,313

35

10.72%

1,361

36

10.49%

1,400

36

10.20%

Other

58

-

- %

66

1

NM

39

-

- %

48

-

- %

54

1

NM

Total loan receivables, including held for sale

69,525

3,771

21.58%

66,943

3,494

20.99%

66,705

3,498

21.09%

65,406

3,494

21.19%

62,504

3,379

21.45%

Total interest-earning assets

85,117

3,796

17.74%

81,440

3,515

17.36%

81,885

3,520

17.29%

80,921

3,509

17.20%

77,097

3,392

17.46%

Non-interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

641

 

 

774

 

 

1,277

 

 

1,268

 

 

1,216

 

 

Allowance for loan losses

-3,977

 

 

-3,729

 

 

-3,583

 

 

-3,440

 

 

-3,341

 

 

Other assets

3,240

 

 

3,209

 

 

3,256

 

 

3,133

 

 

2,869

 

 

Total non-interest-earning assets

-96

 

 

254

 

 

950

 

 

961

 

 

744

 

 

Total assets

$85,021

 

 

$81,694

 

 

$82,835

 

 

$81,882

 

 

$77,841

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposit accounts

$47,926

$188

1.56%

$45,490

$179

1.58%

$44,101

$172

1.57%

$42,079

$165

1.56%

$39,048

$159

1.62%

Borrowings of consolidated securitization entities

12,369

63

2.03%

12,291

59

1.93%

12,950

58

1.80%

13,550

56

1.64%

13,715

54

1.56%

Bank term loan(2)

-

-

- %

374

7

7.53%

2,565

24

3.76%

4,507

28

2.46%

4,878

29

2.36%

Senior unsecured notes

7,408

64

3.44%

6,809

58

3.43%

6,558

57

3.50%

5,810

52

3.55%

5,312

47

3.51%

Related party debt

-

-

- %

-

-

- %

-

-

- %

-

-

- %

-

-

- %

Total interest-bearing liabilities

67,703

315

1.85%

64,964

303

1.88%

66,174

311

1.89%

65,946

301

1.81%

62,953

289

1.82%

Non-interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest-bearing deposit accounts

203

 

 

217

 

 

226

 

 

147

 

 

149

 

 

Other liabilities

3,314

 

 

3,046

 

 

3,534

 

 

3,396

 

 

2,859

 

 

Total non-interest-bearing liabilities

3,517

 

 

3,263

 

 

3,760

 

 

3,543

 

 

3,008

 

 

Total liabilities

71,220

 

 

68,227

 

 

69,934

 

 

69,489

 

 

65,961

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total equity

13,801

 

 

13,467

 

 

12,901

 

 

12,393

 

 

11,880

 

 

Total liabilities and equity

$85,021

 

 

$81,694

 

 

$82,835

 

 

$81,882

 

 

$77,841

 

 

Net interest income

 

$3,481

 

 

$3,212

 

 

$3,209

 

 

$3,208

 

 

$3,103

 

Interest rate spread (3)

 

 

15.89%

 

 

15.48%

 

 

15.40%

 

 

15.39%

 

 

15.64%

Net interest margin (4)

 

 

16.27%

 

 

15.86%

 

 

15.76%

 

 

15.73%

 

 

15.97%

(1) Certain balance sheet amounts and related metrics have been updated to reflect the adoption of ASU 2015-03. More detail on this update is in footnote (1) on the Statements of Financial Position.

(2) Average interest rate on liabilities calculated above utilizes monthly average balances. The effective interest rates for the Bank term loan for the quarters ended June 30, 2016, March 31, 2016, December 31, 2015 and September 30, 2015 were 2.51%, 2.47%, 2.26%, and 2.23% respectively. The Bank term loan effective rate excludes the impact of charges incurred in connection with prepayments of the loan.

(3) Interest rate spread represents the difference between the yield on total interest-earning assets and the rate on total interest-bearing liabilities.

(4) Net interest margin represents net interest income divided by average interest-earning assets.

SYNCHRONY FINANCIAL

AVERAGE BALANCES, NET INTEREST INCOME AND NET INTEREST MARGIN (1)

(unaudited, $ in millions)

 

Nine Months Ended

Nine Months Ended

30-Sep-16

30-Sep-15

 

 

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

$12,172

$46

0.50%

$11,144

$19

0.23%

Securities available for sale

2,960

22

0.99%

$3,066

15

0.65%

Loan receivables:

 

 

 

 

 

 

Credit cards, including held for sale

65,201

10,573

21.66%

58,442

9,500

21.73%

Consumer installment loans

1,242

86

9.25%

1,107

78

9.42%

Commercial credit products

1,360

103

10.12%

1,361

106

10.41%

Other

53

1

NM

36

1

NM

Total loan receivables, including held for sale

67,856

10,763

21.19%

60,946

9,685

21.25%

Total interest-earning assets

82,988

10,831

17.43%

75,156

9,719

17.29%

Non-interest-earning assets:

 

 

 

 

 

 

Cash and due from banks

942

 

 

782

 

 

Allowance for loan losses

-3,764

 

 

-3,304

 

 

Other assets

3,250

 

 

2,759

 

 

Total non-interest-earning assets

428

 

 

237

 

 

Total assets

$83,416

 

 

$75,393

 

 

Liabilities

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

Interest-bearing deposit accounts

$45,913

$539

1.57%

$36,677

$442

1.61%

Borrowings of consolidated securitization entities

12,578

180

1.91%

13,952

159

1.52%

Bank term loan(2)

1,026

31

4.04%

5,625

108

2.57%

Senior unsecured notes

6,948

179

3.44%

4,667

121

3.47%

Related party debt

-

-

- %

163

4

3.28%

Total interest-bearing liabilities

66,465

929

1.87%

61,084

834

1.83%

Non-interest-bearing liabilities

 

 

 

 

 

 

Non-interest-bearing deposit accounts

212

 

 

153

 

 

Other liabilities

3,363

 

 

2,846

 

 

Total non-interest-bearing liabilities

3,575

 

 

2,999

 

 

Total liabilities

70,040

 

 

64,083

 

 

Equity

 

 

 

 

 

 

Total equity

13,376

 

 

11,310

 

 

Total liabilities and equity

$83,416

 

 

$75,393

 

 

Net interest income

 

$9,902

 

 

$8,885

 

Interest rate spread (3)

 

 

15.56%

 

 

15.46%

Net interest margin (4)

 

 

15.94%

 

 

15.81%

(1) Certain balance sheet amounts and related metrics have been updated to reflect the adoption of ASU 2015-03. More detail on this update is in footnote (1) on the Statements of Financial Position.

(2) Average interest rate on liabilities calculated above utilizes monthly average balances. The effective interest rates for the Bank term loan for the 9 months ended September 30, 2016 and September 30, 2015 were 2.48% and 2.22%, respectively. The Bank term loan effective rate excludes the impact of charges incurred in connection with prepayments of the loan.

(3) Interest rate spread represents the difference between the yield on total interest-earning assets and the rate on total interest-bearing liabilities.

(4) Net interest margin represents net interest income divided by average interest-earning assets.

 

 

SYNCHRONY FINANCIAL

BALANCE SHEET STATISTICS (1)

(unaudited, $ in millions, except per share statistics)

 

Quarter Ended

Sep 30, 2016 vs. Sep 30, 2015

 

Sep 30,

Jun 30,

Mar 31,

Dec 31,

Sep 30,

2016

2016

2016

2015

2015

BALANCE SHEET STATISTICS

 

 

 

 

 

 

 

Total common equity

$13,981

$13,715

$13,204

$12,604

$12,158

$1,823

15.00%

Total common equity as a % of total assets

16.04%

16.65%

16.17%

15.01%

15.33%

 

0.71%

Tangible assets

$85,477

$80,731

$80,005

$82,340

$77,695

$7,782

10.00%

Tangible common equity(2)

$12,299

$12,062

$11,553

$10,954

$10,563

$1,736

16.40%

Tangible common equity as a % of tangible assets(2)

14.39%

14.94%

14.44%

13.30%

13.60%

 

0.79%

Tangible common equity per share(2)

$14.90

$14.46

$13.86

$13.14

$12.67

$2.23

17.60%

REGULATORY CAPITAL RATIOS (3)

 

 

 

 

 

 

 

 

Basel III Transition

 

 

Total risk-based capital ratio(4)

19.50%

19.80%

19.40%

18.10%

18.80%

 

 

Tier 1 risk-based capital ratio(5)

18.20%

18.50%

18.10%

16.80%

17.50%

 

 

Tier 1 leverage ratio(6)

15.30%

15.60%

14.80%

14.40%

14.60%

 

 

Common equity Tier 1 capital ratio(7)

18.20%

18.50%

18.10%

16.80%

17.50%

 

 

 

Basel III Fully Phased-in

 

 

Common equity Tier 1 capital ratio(7)

17.90%

18.00%

17.50%

15.90%

16.70%

 

 

(1) Certain balance sheet amounts and related metrics have been updated to reflect the adoption of ASU 2015-03. More detail on this update is in footnote (1) on the Statements of Financial Position.

(2) 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.

(3) Regulatory capital metrics at September 30, 2016 are preliminary and therefore subject to change. As a new savings and loan holding company, the Company historically has not been required by regulators to disclose capital ratios prior to December 31, 2015, and therefore these ratios are non-GAAP measures. See Reconciliation of Non-GAAP Measures and Calculation of Regulatory Measures for components of capital ratio calculations.

(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.

(7) 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

3Q'16 vs. 3Q'15

Nine Months Ended

YTD'16 vs. YTD'15

 

Sep 30,

Jun 30,

Mar 31,

Dec 31,

Sep 30,

Sep 30,

Sep 30,

2016

2016

2016

2015

2015

2016

2015

RETAIL CARD

 

 

 

 

 

 

 

 

 

 

 

Purchase volume(1)(2)

$25,285

$25,411

$21,550

$26,768

$23,560

$1,725

7.30%

$72,246

$65,422

$6,824

10.40%

Period-end loan receivables

$48,010

$46,705

$45,113

$47,412

$43,432

$4,578

10.50%

$48,010

$43,432

$4,578

10.50%

Average loan receivables, including held for sale

$47,420

$45,861

$45,900

$44,958

$42,933

$4,487

10.50%

$46,491

$41,853

$4,638

11.10%

Average active accounts (in thousands)(2)(3)

52,959

52,314

52,969

52,038

49,953

3,006

6.00%

52,834

49,671

3,163

6.40%

Interest and fees on loans(2)

$2,790

$2,585

$2,614

$2,594

$2,508

$282

11.20%

$7,989

$7,180

$809

11.30%

Other income(2)

$70

$69

$79

$76

$70

$-

- %

$218

$263

($45)

-17.10%

Retailer share arrangements(2)

($752)

($656)

($661)

($723)

($708)

($44)

6.20%

($2,069)

($1,965)

($104)

5.30%

PAYMENT SOLUTIONS

 

 

 

 

 

 

 

 

 

 

 

Purchase volume(1)

$4,152

$3,903

$3,392

$3,714

$3,635

$517

14.20%

$11,447

$9,954

$1,493

15.00%

Period-end loan receivables

$14,798

$13,997

$13,420

$13,543

$12,933

$1,865

14.40%

$14,798

$12,933

$1,865

14.40%

Average loan receivables

$14,391

$13,644

$13,482

$13,192

$12,523

$1,868

14.90%

$13,865

$12,183

$1,682

13.80%

Average active accounts (in thousands)(3)

8,461

8,153

8,134

7,896

7,468

993

13.30%

8,261

7,335

926

12.60%

Interest and fees on loans

$505

$467

$457

$462

$442

$63

14.30%

$1,429

$1,257

$172

13.70%

Other income

$3

$3

$4

$3

$5

($2)

-40.00%

$10

$14

($4)

-28.60%

Retailer share arrangements

($3)

($7)

($7)

($10)

($13)

$10

-76.90%

($17)

($35)

$18

-51.40%

CARECREDIT

 

 

 

 

 

 

 

 

 

 

 

Purchase volume(1)

$2,178

$2,193

$2,035

$1,978

$2,011

$167

8.30%

$6,406

$5,779

$627

10.80%

Period-end loan receivables

$7,836

$7,580

$7,316

$7,335

$7,155

$681

9.50%

$7,836

$7,155

$681

9.50%

Average loan receivables

$7,714

$7,438

$7,323

$7,256

$7,048

$666

9.40%

$7,500

$6,910

$590

8.50%

Average active accounts (in thousands)(3)

5,219

5,064

5,031

4,958

4,826

393

8.10%

5,109

4,756

353

7.40%

Interest and fees on loans

$476

$442

$427

$438

$429

$47

11.00%

$1,345

$1,248

$97

7.80%

Other income

$11

$11

$9

$8

$9

$2

22.20%

$31

$28

$3

10.70%

TOTAL SYF

 

 

 

 

 

 

 

 

 

 

 

Purchase volume(1)(2)

$31,615

$31,507

$26,977

$32,460

$29,206

$2,409

8.20%

$90,099

$81,155

$8,944

11.00%

Period-end loan receivables

$70,644

$68,282

$65,849

$68,290

$63,520

$7,124

11.20%

$70,644

$63,520

$7,124

11.20%

Average loan receivables, including held for sale

$69,525

$66,943

$66,705

$65,406

$62,504

$7,021

11.20%

$67,856

$60,946

$6,910

11.30%

Average active accounts (in thousands)(2)(3)

66,639

65,531

66,134

64,892

62,247

4,392

7.10%

66,204

61,762

4,442

7.20%

Interest and fees on loans(2)

$3,771

$3,494

$3,498

$3,494

$3,379

$392

11.60%

$10,763

$9,685

$1,078

11.10%

Other income(2)

$84

$83

$92

$87

$84

$-

- %

$259

$305

($46)

-15.10%

Retailer share arrangements(2)

($757)

($664)

($670)

($734)

($723)

($34)

4.70%

($2,091)

($2,004)

($87)

4.30%

(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)(2)

(unaudited, $ in millions, except per share statistics)

 

Quarter Ended

 

Sep 30,

Jun 30,

Mar 31,

Dec 31,

Sep 30,

2016

2016

2016

2015

2015

COMMON EQUITY MEASURES

 

 

 

 

 

GAAP Total common equity

$13,981

$13,715

$13,204

$12,604

$12,158

Less: Goodwill

-949

-949

-949

-949

-949

Less: Intangible assets, net

-733

-704

-702

-701

-646

Tangible common equity

$12,299

$12,062

$11,553

$10,954

$10,563

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

299

282

281

280

291

Basel III - Common equity Tier 1 (fully phased-in)

$12,598

$12,344

$11,834

$11,234

$10,854

Adjustment related to capital components during transition

273

266

265

399

375

Basel III - Common equity Tier 1 (transition)

$12,871

$12,610

$12,099

$11,633

$11,229

RISK-BASED CAPITAL

 

 

 

 

 

Common equity Tier 1

$12,871

$12,610

$12,099

$11,633

$11,229

Add: Allowance for loan losses includible in risk-based capital

923

890

869

898

833

Risk-based capital

$13,794

$13,500

$12,968

$12,531

$12,062

ASSET MEASURES

 

 

 

 

 

Total average assets

$85,021

$81,694

$82,835

$81,882

$77,841

Adjustments for:

 

 

 

 

 

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

-1,117

-1,113

-1,117

-991

-931

Other

-

-

-

-

104

Total assets for leverage purposes

$83,904

$80,581

$81,718

$80,891

$77,014

Risk-weighted assets - Basel III (fully phased-in) (3)

$70,448

$68,462

$67,697

$70,493

$65,125

Risk-weighted assets - Basel III (transition) (3)

$70,660

$68,188

$66,689

$69,224

$64,090

TANGIBLE COMMON EQUITY PER SHARE

 

 

 

 

 

GAAP book value per share

$16.94

$16.45

$15.84

$15.12

$14.58

Less: Goodwill

-1.14

-1.14

-1.14

-1.14

-1.14

Less: Intangible assets, net

-0.9

-0.85

-0.84

-0.84

-0.77

Tangible common equity per share

$14.90

$14.46

$13.86

$13.14

$12.67

(1) Certain balance sheet amounts and related metrics have been updated to reflect the adoption of ASU 2015-03. More detail on this update is in footnote (1) on the Statements of Financial Position.

(2) Regulatory measures at September 30, 2016 are presented on an estimated basis.

(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.
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