Synchrony Financial Reports Second Quarter Net Earnings of $489 Million or $0.58 Per Diluted Share

STAMFORD, Conn.--()--Synchrony Financial (NYSE:SYF) today announced second quarter 2016 net earnings of $489 million, or $0.58 per diluted share. Highlights for the quarter included:

  • Net interest income increased 10% from the second quarter of 2015 to $3.2 billion
  • Loan receivables grew $7 billion, or 11%, from the second quarter of 2015 to $68 billion
  • Purchase volume increased 9% from the second quarter of 2015
  • Strong deposit growth continued, up $9 billion, or 23%, over the second quarter of 2015
  • Renewed key relationships – Ashley Homestore, Suzuki, VCA Animal Hospitals, and American Society of Plastic Surgeons
  • Signed new partnerships with Cathay Pacific and Fareportal
  • Launched Mattress Firm and Marvel card programs
  • Announced quarterly common stock dividend of $0.13 per share and share repurchase program of up to $952 million for the four quarters ending June 30, 2017

“We delivered another quarter of strong operational and financial performance with solid growth generated in each of our sales platforms. We signed several new partners and renewed key programs and increased deposits by $9 billion over last year to support our growing business,” said Margaret Keane, President and Chief Executive Officer of Synchrony Financial. “Furthermore, we are pleased to commence payment of dividends to our shareholders and opportunistically repurchase our stock. These actions not only reflect the strength of our capital position and financial performance, but also the power of our business model and our confidence in future opportunities.”

Business and Financial Highlights for the Second Quarter of 2016

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

Earnings

  • Net interest income increased $305 million, or 10%, to $3.2 billion, primarily driven by strong loan receivables growth. Net interest income after retailer share arrangements increased 11%.
  • Provision for loan losses increased $281 million to $1,021 million due to higher loan loss reserve build and loan receivables growth in the second quarter of 2016.
  • Other income decreased $37 million to $83 million, driven by a $20 million gain on portfolio sales in the second quarter of 2015, and an increase in loyalty programs, partially offset by higher interchange income.
  • Other expense increased $34 million to $839 million, primarily driven by business growth.
  • Net earnings totaled $489 million compared to $541 million in the second quarter of 2015.

Balance Sheet

  • Period-end loan receivables growth remained strong at 11%, primarily driven by purchase volume growth of 9% and average active account growth of 8%.
  • Deposits grew to $46 billion, up $9 billion, or 23%, and comprised 71% of funding compared to 61% last year.
  • Fully paid off Bank Term Loan on April 5, 2016.
  • The Company’s balance sheet remained strong with total liquidity (liquid assets and undrawn securitization capacity) of $21 billion, or 25% of total assets.
  • The estimated Common Equity Tier 1 ratio under Basel III subject to transition provisions was 18.5% and the estimated fully phased-in Common Equity Tier 1 ratio under Basel III was 18.0%.

Key Financial Metrics

  • Return on assets was 2.4% and return on equity was 14.6%.
  • Net interest margin increased 9 basis points to 15.86%.
  • Efficiency ratio was 31.9%, a 157 basis point improvement from the second 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 3.79% compared to 3.53% last year.
  • Net charge-offs as a percentage of total average loan receivables were 4.49% compared to 4.63% last year.
  • The allowance for loan losses as a percentage of total period-end loan receivables was 5.70% compared to 5.38% last year.

Sales Platforms

  • Retail Card 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 7%. Loan receivables growth was broad-based across partner programs.
  • Payment Solutions interest and fees on loans increased 13%, driven primarily by purchase volume growth of 16% and period-end loan receivables growth of 15%. Average active account growth was 13%. Loan receivables growth was led by the home furnishings and automotive product categories.
  • CareCredit interest and fees on loans increased 5%, driven primarily by purchase volume growth of 10% and period-end loan receivables growth of 10%. Average active account growth was 7%. 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, the Company’s forthcoming Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 and the Form 8-K furnished by the Company on June 14, 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, July 22, 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 22016#, and can be accessed beginning approximately two hours after the event through August 5, 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 (formerly GE Capital Retail Finance) offers private label and co-branded Dual Card credit cards, promotional financing and installment lending, loyalty programs and FDIC-insured savings products through Synchrony Bank. More information can be found at www.synchronyfinancial.com, facebook.com/SynchronyFinancial, www.linkedin.com/company/synchrony-financial and twitter.com/SYFNews.

*Source: The Nilson Report (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 Six Months Ended

Jun 30,
2016

Mar 31,
2016

Dec 31,
2015

Sep 30,
2015

Jun 30,
2015

2Q'16 vs. 2Q'15

Jun 30,
2016

Jun 30,
2015

YTD'16 vs. YTD'15

EARNINGS

Net interest income $3,212 $3,209 $3,208 $3,103 $2,907 $305 10.5% $6,421 $5,782 $639 11.1%
Retailer share arrangements (664) (670) (734) (723) (621) (43) 6.9% (1,334) (1,281) (53) 4.1%
Net interest income, after retailer share arrangements 2,548 2,539 2,474 2,380 2,286 262 11.5% 5,087 4,501 586 13.0%
Provision for loan losses 1,021 903 823 702 740 281 38.0% 1,924 1,427 497 34.8%
Net interest income, after retailer share arrangements and provision for loan losses 1,527 1,636 1,651 1,678 1,546 (19) (1.2)% 3,163 3,074 89 2.9%
Other income 83 92 87 84 120 (37) (30.8)% 175 221 (46) (20.8)%
Other expense 839 800 870 843 805 34 4.2% 1,639 1,551 88 5.7%
Earnings before provision for income taxes 771 928 868 919 861 (90) (10.5)% 1,699 1,744 (45) (2.6)%
Provision for income taxes 282 346 321 345 320 (38) (11.9)% 628 651 (23) (3.5)%
Net earnings $489 $582 $547 $574 $541 $(52) (9.6)% $1,071 $1,093 $(22) (2.0)%
Net earnings attributable to common stockholders $489 $582 $547 $574 $541 $(52) (9.6)% $1,071 $1,093 $(22) (2.0)%
 

COMMON SHARE STATISTICS

Basic EPS $0.59 $0.70 $0.66 $0.69 $0.65 $(0.06) (9.2)% $1.28 $1.31 $(0.03) (2.3)%
Diluted EPS $0.58 $0.70 $0.65 $0.69 $0.65 $(0.07) (10.8)% $1.28 $1.31 $(0.03) (2.3)%
Common stock price $25.28 $28.66 $30.41 $31.30 $32.93 $(7.65) (23.2)% $25.28 $32.93 $(7.65) (23.2)%
Book value per share $16.45 $15.84 $15.12 $14.58 $13.89 $2.56 18.4% $16.45 $13.89 $2.56 18.4%
Tangible common equity per share(1) $14.46 $13.86 $13.14 $12.67 $12.06 $2.40 19.9% $14.46 $12.06 $2.40 19.9%
 
Beginning common shares outstanding 833.8 833.8 833.8 833.8 833.8 - - % 833.8 833.8 - - %
Issuance of common shares - - - - - - - % - - - - %
Stock-based compensation 0.1 - - - - 0.1 NM 0.1 - 0.1 NM
Shares repurchased - - - - - - - % - - - - %
Ending common shares outstanding 833.9 833.8 833.8 833.8 833.8 0.1 - % 833.9 833.8 0.1 - %
 
Weighted average common shares outstanding 833.9 833.8 833.8 833.8 833.8 0.1 - % 833.9 833.8 0.1 - %
Weighted average common shares outstanding (fully diluted) 836.2 835.5 835.8 835.8 835.4 0.8 0.1% 835.8 835.2 0.6 0.1%
                                           

(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 Six Months Ended

Jun 30,
2016

Mar 31,
2016

Dec 31,
2015

Sep 30,
2015

Jun 30,
2015

2Q'16 vs. 2Q'15

Jun 30,
2016

Jun 30,
2015

YTD'16 vs. YTD'15

PERFORMANCE METRICS

Return on assets(2) 2.4% 2.8% 2.7% 2.9% 2.9% (0.5)% 2.6% 3.0% (0.4)%
Return on equity(3) 14.6% 18.1% 17.5% 19.2% 19.2% (4.6)% 16.3% 20.0% (3.7)%
Return on tangible common equity(4) 16.6% 20.8% 20.1% 22.0% 22.2% (5.6)% 18.7% 23.1% (4.4)%
Net interest margin(5) 15.86% 15.76% 15.73% 15.97% 15.77% 0.09% 15.80% 15.75% 0.05%
Efficiency ratio(6) 31.9% 30.4% 34.0% 34.2% 33.5% (1.6)% 31.1% 32.8% (1.7)%
Other expense as a % of average loan receivables, including held for sale 5.04% 4.82% 5.28% 5.35% 5.37% (0.33)% 4.92% 5.20% (0.28)%
Effective income tax rate 36.6% 37.3% 37.0% 37.5% 37.2% (0.6)% 37.0% 37.3% (0.3)%
 

CREDIT QUALITY METRICS

Net charge-offs as a % of average loan receivables, including held for sale 4.49% 4.70% 4.23% 4.02% 4.63% (0.14)% 4.59% 4.56% 0.03%
30+ days past due as a % of period-end loan receivables(7) 3.79% 3.85% 4.06% 4.02% 3.53% 0.26% 3.79% 3.53% 0.26%
90+ days past due as a % of period-end loan receivables(7) 1.67% 1.84% 1.86% 1.73% 1.52% 0.15% 1.67% 1.52% 0.15%
Net charge-offs $747 $780 $697 $633 $693 $54 7.8% $1,527 $1,361 $166 12.2%
Loan receivables delinquent over 30 days(7) $2,585 $2,538 $2,772 $2,553 $2,171 $414 19.1% $2,585 $2,171 $414 19.1%
Loan receivables delinquent over 90 days(7) $1,143 $1,212 $1,273 $1,102 $933 $210 22.5% $1,143 $933 $210 22.5%
 
Allowance for loan losses (period-end) $3,894 $3,620 $3,497 $3,371 $3,302 $592 17.9% $3,894 $3,302 $592 17.9%
Allowance coverage ratio(8) 5.70% 5.50% 5.12% 5.31% 5.38% 0.32% 5.70% 5.38% 0.32%
 

BUSINESS METRICS

Purchase volume(9) $31,507 $26,977 $32,460 $29,206 $28,810 $2,697 9.4% $58,484 $51,949 $6,535 12.6%
Period-end loan receivables $68,282 $65,849 $68,290 $63,520 $61,431 $6,851 11.2% $68,282 $61,431 $6,851 11.2%
Credit cards $65,511 $63,309 $65,773 $60,920 $58,827 $6,684 11.4% $65,511 $58,827 $6,684 11.4%
Consumer installment loans $1,293 $1,184 $1,154 $1,171 $1,138 $155 13.6% $1,293 $1,138 $155 13.6%
Commercial credit products $1,389 $1,318 $1,323 $1,380 $1,410 $(21) (1.5)% $1,389 $1,410 $(21) (1.5)%
Other $89 $38 $40 $49 $56 $33 58.9% $89 $56 $33 58.9%
Average loan receivables, including held for sale $66,943 $66,705 $65,406 $62,504 $60,094 $6,849 11.4% $66,963 $60,124 $6,839 11.4%
Period-end active accounts (in thousands)(10) 66,491 64,689 68,314 62,831 61,718 4,773 7.7% 66,491 61,718 4,773 7.7%
Average active accounts (in thousands)(10) 65,531 66,134 64,892 62,247 60,923 4,608 7.6% 65,996 61,478 4,518 7.3%
 

LIQUIDITY

Liquid assets
Cash and equivalents $11,787 $12,500 $12,325 $12,271 $10,621 $1,166 11.0% $11,787 $10,621 $1,166 11.0%
Total liquid assets $13,956 $14,915 $14,836 $15,305 $13,660 $296 2.2% $13,956 $13,660 $296 2.2%
Undrawn credit facilities
Undrawn committed securitization financings $7,025 $7,325 $6,075 $6,550 $6,125 $900 14.7% $7,025 $6,125 $900 14.7%
Total liquid assets and undrawn credit facilities $20,981 $22,240 $20,911 $21,855 $19,785 $1,196 6.0% $20,981 $19,785 $1,196 6.0%
Liquid assets % of total assets 16.94% 18.27% 17.66% 19.30% 18.07% (1.13)% 16.94% 18.07% (1.13)%
Liquid assets including undrawn committed securitization financings % of total assets 25.47% 27.24% 24.90% 27.56% 26.17% (0.70)% 25.47% 26.17% (0.70)%
                                           
(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) 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 Six Months Ended

Jun 30,
2016

Mar 31,
2016

Dec 31,
2015

Sep 30,
2015

Jun 30,
2015

2Q'16 vs. 2Q'15

Jun 30,
2016

Jun 30,
2015

YTD'16 vs. YTD'15
Interest income:
Interest and fees on loans $3,494 $3,498 $3,494 $3,379 $3,166 $328 10.4% $6,992 $6,306 $686 10.9%
Interest on investment securities 21 22 15 13 11 10 90.9% 43 21 22 104.8%
Total interest income 3,515 3,520 3,509 3,392 3,177 338 10.6% 7,035 6,327 708 11.2%
 
Interest expense:
Interest on deposits 179 172 165 159 146 33 22.6% 351 283 68 24.0%
Interest on borrowings of consolidated securitization entities 59 58 56 54 53 6 11.3% 117 105 12 11.4%
Interest on third-party debt 65 81 80 76 71 (6) (8.5)% 146 153 (7) (4.6)%
Interest on related party debt - - - - - - - % - 4 (4) (100.0)%
Total interest expense 303 311 301 289 270 33 12.2% 614 545 69 12.7%
                     
Net interest income 3,212 3,209 3,208 3,103 2,907 305 10.5% 6,421 5,782 639 11.1%
 
Retailer share arrangements (664) (670) (734) (723) (621) (43) 6.9% (1,334) (1,281) (53) 4.1%
Net interest income, after retailer share arrangements 2,548 2,539 2,474 2,380 2,286 262 11.5% 5,087 4,501 586 13.0%
 
Provision for loan losses 1,021 903 823 702 740 281 38.0% 1,924 1,427 497 34.8%
Net interest income, after retailer share arrangements and provision for loan losses 1,527 1,636 1,651 1,678 1,546 (19) (1.2)% 3,163 3,074 89 2.9%
 
Other income:
Interchange revenue 151 130 147 135 123 28 22.8% 281 223 58 26.0%
Debt cancellation fees 63 64 62 61 61 2 3.3% 127 126 1 0.8%
Loyalty programs (135) (110) (125) (122) (94) (41) 43.6% (245) (172) (73) 42.4%
Other 4 8 3 10 30 (26) (86.7)% 12 44 (32) (72.7)%
Total other income 83 92 87 84 120 (37) (30.8)% 175 221 (46) (20.8)%
 
Other expense:
Employee costs 301 280 285 268 250 51 20.4% 581 489 92 18.8%
Professional fees 154 146 165 162 156 (2) (1.3)% 300 318 (18) (5.7)%
Marketing and business development 107 94 128 115 108 (1) (0.9)% 201 190 11 5.8%
Information processing 81 82 83 77 74 7 9.5% 163 137 26 19.0%
Other 196 198 209 221 217 (21) (9.7)% 394 417 (23) (5.5)%
Total other expense 839 800 870 843 805 34 4.2% 1,639 1,551 88 5.7%
                     
Earnings before provision for income taxes 771 928 868 919 861 (90) (10.5)% 1,699 1,744 (45) (2.6)%
Provision for income taxes 282 346 321 345 320 (38) (11.9)% 628 651 (23) (3.5)%
Net earnings attributable to common shareholders $489 $582 $547 $574 $541 $(52) (9.6)% $1,071 $1,093 $(22) (2.0)%
                                           
 
             
SYNCHRONY FINANCIAL
STATEMENTS OF FINANCIAL POSITION(1)
(unaudited, $ in millions)
Quarter Ended

Jun 30,
2016

Mar 31,
2016

Dec 31,
2015

Sep 30,
2015

Jun 30,
2015

Jun 30, 2016 vs.
Jun 30, 2015

Assets
Cash and equivalents $11,787 $12,500 $12,325 $12,271 $10,621 $1,166 11.0%
Investment securities 2,723 2,949 3,142 3,596 3,682 (959) (26.0)%
Loan receivables:
Unsecuritized loans held for investment 44,854 41,730 42,826 38,325 36,019 8,835 24.5%
Restricted loans of consolidated securitization entities 23,428 24,119 25,464 25,195 25,412 (1,984) (7.8)%
Total loan receivables 68,282 65,849 68,290 63,520 61,431 6,851 11.2%
Less: Allowance for loan losses (3,894) (3,620) (3,497) (3,371) (3,302) (592) 17.9%
Loan receivables, net 64,388 62,229 64,793 60,149 58,129 6,259 10.8%
Loan receivables held for sale - - - - - - - %
Goodwill 949 949 949 949 949 - - %
Intangible assets, net 704 702 701 646 575 129 22.4%
Other assets 1,833 2,327 2,080 1,679 1,640 193 11.8%
Total assets $82,384 $81,656 $83,990 $79,290 $75,596 $6,788 9.0%
 
Liabilities and Equity
Deposits:
Interest-bearing deposit accounts $46,220 $44,721 $43,215 $40,323 $37,539 $8,681 23.1%
Non-interest-bearing deposit accounts 207 256 152 140 143 64 44.8%
Total deposits 46,427 44,977 43,367 40,463 37,682 8,745 23.2%
Borrowings:
Borrowings of consolidated securitization entities 12,236 12,423 13,589 13,624 13,933 (1,697) (12.2)%
Bank term loan - 1,494 4,133 4,630 5,126 (5,126) (100.0)%
Senior unsecured notes 7,059 6,559 6,557 5,560 4,569 2,490 54.5%
Related party debt - - - - - - - %
Total borrowings 19,295 20,476 24,279 23,814 23,628 (4,333) (18.3)%
Accrued expenses and other liabilities 2,947 2,999 3,740 2,855 2,708 239 8.8%
Total liabilities 68,669 68,452 71,386 67,132 64,018 4,651 7.3%
Equity:
Common stock 1 1 1 1 1 - - %
Additional paid-in capital 9,370 9,359 9,351 9,431 9,422 (52) (0.6)%
Retained earnings 4,364 3,875 3,293 2,746 2,172 2,192 100.9%
Accumulated other comprehensive income: (20) (31) (41) (20) (17) (3) 17.6%
Total equity 13,715 13,204 12,604 12,158 11,578 2,137 18.5%
Total liabilities and equity $82,384 $81,656 $83,990 $79,290 $75,596 $6,788 9.0%
                             
(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
Jun 30, 2016 Mar 31, 2016 Dec 31, 2015 Sep 30, 2015 Jun 30, 2015
Interest Average Interest Average Interest Average Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate Balance Expense Rate Balance Expense Rate
Assets
Interest-earning assets:
Interest-earning cash and equivalents $11,692 $14 0.48% $12,185 $16 0.53% $12,070 $9 0.30% $11,059 $7 0.25% $10,728 $6 0.22%
Securities available for sale 2,805 7 1.00% 2,995 6 0.81% 3,445 6 0.69% 3,534 6 0.67% 3,107 5 0.65%
 
Loan receivables:
Credit cards, including held for sale 64,269 3,432 21.48% 64,194 3,436 21.53% 62,834 3,432 21.67% 59,890 3,315 21.96% 57,588 3,106 21.63%
Consumer installment loans 1,235 28 9.12% 1,159 27 9.37% 1,163 26 8.87% 1,160 27 9.23% 1,101 26 9.47%
Commercial credit products 1,373 33 9.67% 1,313 35 10.72% 1,361 36 10.49% 1,400 36 10.20% 1,372 34 9.94%
Other 66 1 NM 39 - - % 48 - - % 54 1 NM 33 - - %
Total loan receivables, including held for sale 66,943 3,494 20.99% 66,705 3,498 21.09% 65,406 3,494 21.19% 62,504 3,379 21.45% 60,094 3,166 21.13%
Total interest-earning assets 81,440 3,515 17.36% 81,885 3,520 17.29% 80,921 3,509 17.20% 77,097 3,392 17.46% 73,929 3,177 17.24%
 
Non-interest-earning assets:
Cash and due from banks 774 1,277 1,268 1,216 583
Allowance for loan losses (3,729) (3,583) (3,440) (3,341) (3,285)
Other assets 3,209 3,256 3,133 2,869 2,758
Total non-interest-earning assets 254 950 961 744 56
         
Total assets $81,694 $82,835 $81,882 $77,841 $73,985
 
Liabilities
Interest-bearing liabilities:
Interest-bearing deposit accounts $45,490 $179 1.58% $44,101 $172 1.57% $42,079 $165 1.56% $39,048 $159 1.62% $35,816 $146 1.64%
Borrowings of consolidated securitization entities 12,291 59 1.93% 12,950 58 1.80% 13,550 56 1.64% 13,715 54 1.56% 14,011 53 1.52%
Bank term loan(2) 374 7 7.53% 2,565 24 3.76% 4,507 28 2.46% 4,878 29 2.36% 5,374 32 2.39%
Senior unsecured notes 6,809 58 3.43% 6,558 57 3.50% 5,810 52 3.55% 5,312 47 3.51% 4,568 39 3.42%
Related party debt - - - % - - - % - - - % - - - % - - - %
Total interest-bearing liabilities 64,964 303 1.88% 66,174 311 1.89% 65,946 301 1.81% 62,953 289 1.82% 59,769 270 1.81%
 
Non-interest-bearing liabilities
Non-interest-bearing deposit accounts 217 226 147 149 166
Other liabilities 3,046 3,534 3,396 2,859 2,750
Total non-interest-bearing liabilities 3,263 3,760 3,543 3,008 2,916
         
Total liabilities 68,227 69,934 69,489 65,961 62,685
 
Equity
Total equity 13,467 12,901 12,393 11,880 11,300
         
Total liabilities and equity $81,694 $82,835 $81,882 $77,841 $73,985
Net interest income $3,212 $3,209 $3,208 $3,103 $2,907
 
Interest rate spread(3) 15.48% 15.40% 15.39% 15.64% 15.43%
Net interest margin(4) 15.86% 15.76% 15.73% 15.97% 15.77%
                                                               
(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, September 30, 2015, and June 30, 2015 were 2.51%, 2.47%, 2.26%, 2.23%, and 2.21%, 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)
 

Six Months Ended
Jun 30, 2016

Six Months Ended
Jun 30, 2015

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 $11,874 $30 0.51% $11,006 $12 0.22%
Securities available for sale 2,893 13 0.90% 2,887 9 0.63%
 
Loan receivables:
Credit cards, including held for sale 64,363 6,868 21.46% 57,670 6,185 21.63%
Consumer installment loans 1,199 55 9.22% 1,081 51 9.51%
Commercial credit products 1,346 68 10.16% 1,345 70 10.50%
Other 55 1 NM 28 - - %
Total loan receivables, including held for sale 66,963 6,992 21.00% 60,124 6,306 21.15%
Total interest-earning assets 81,730 7,035 17.31% 74,017 6,327 17.24%
 
Non-interest-earning assets:
Cash and due from banks 1,036 578
Allowance for loan losses (3,661) (3,282)
Other assets 3,246 2,710
Total non-interest-earning assets 621 6
   
Total assets $82,351 $74,023
 
Liabilities
Interest-bearing liabilities:
Interest-bearing deposit accounts $44,807 $351 1.58% $35,445 $283 1.61%
Borrowings of consolidated securitization entities 12,648 117 1.86% 14,085 105 1.50%
Bank term loan(2) 1,466 31 4.25% 5,981 79 2.66%
Senior unsecured notes 6,701 115 3.45% 4,284 74 3.48%
Related party debt - - - % 232 4 3.48%
Total interest-bearing liabilities 65,622 614 1.88% 60,027 545 1.83%
 
Non-interest-bearing liabilities
Non-interest-bearing deposit accounts 217 153
Other liabilities 3,331 2,820
Total non-interest-bearing liabilities 3,548 2,973
   
Total liabilities 69,170 63,000
 
Equity
Total equity 13,181 11,023
   
Total liabilities and equity $82,351 $74,023
Net interest income $6,421 $5,782
 
Interest rate spread(3) 15.43% 15.41%
Net interest margin(4) 15.80% 15.75%
                           
(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 6 months ended June 30, 2016 and June 30, 2015 were 2.48% and 2.21%, 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

Jun 30,
2016

Mar 31,
2016

Dec 31,
2015

Sep 30,
2015

Jun 30,
2015

Jun 30, 2016 vs.
Jun 30, 2015

BALANCE SHEET STATISTICS

Total common equity $13,715 $13,204 $12,604 $12,158 $11,578 $2,137 18.5%
Total common equity as a % of total assets 16.65% 16.17% 15.01% 15.33% 15.32% 1.33%
 
Tangible assets $80,731 $80,005 $82,340 $77,695 $74,072 $6,659 9.0%
Tangible common equity(2) $12,062 $11,553 $10,954 $10,563 $10,054 $2,008 20.0%
Tangible common equity as a % of tangible assets(2) 14.94% 14.44% 13.30% 13.60% 13.57% 1.37%
Tangible common equity per share(2) $14.46 $13.86 $13.14 $12.67 $12.06 $2.40 19.9%
 

REGULATORY CAPITAL RATIOS(3)

Basel III Transition
Total risk-based capital ratio(4) 19.8% 19.4% 18.1% 18.8% 18.6%
Tier 1 risk-based capital ratio(5) 18.5% 18.1% 16.8% 17.5% 17.3%
Tier 1 leverage ratio(6) 15.6% 14.8% 14.4% 14.6% 14.6%
Common equity Tier 1 capital ratio(7) 18.5% 18.1% 16.8% 17.5% 17.3%
 
Basel III Fully Phased-in
Common equity Tier 1 capital ratio(7) 18.0% 17.5% 15.9% 16.7% 16.5%
                             
(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 June 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 Six Months Ended

Jun 30,
2016

Mar 31,
2016

Dec 31,
2015

Sep 30,
2015

Jun 30,
2015

2Q'16 vs. 2Q'15

Jun 30,
2016

Jun 30,
2015

YTD'16 vs. YTD'15

RETAIL CARD

Purchase volume(1)(2) $25,411 $21,550 $26,768 $23,560 $23,452 $1,959 8.4% $46,961 $41,862 $5,099 12.2%
Period-end loan receivables $46,705 $45,113 $47,412 $43,432 $42,315 $4,390 10.4% $46,705 $42,315 $4,390 10.4%
Average loan receivables, including held for sale $45,861 $45,900 $44,958 $42,933 $41,303 $4,558 11.0% $45,990 $41,302 $4,688 11.4%
Average active accounts (in thousands)(2)(3) 52,314 52,969 52,038 49,953 48,981 3,333 6.8% 52,798 49,513 3,285 6.6%
 
Interest and fees on loans(2) $2,585 $2,614 $2,594 $2,508 $2,335 $250 10.7% $5,199 $4,672 $527 11.3%
Other income(2) $69 $79 $76 $70 $107 $(38) (35.5)% $148 $193 $(45) (23.3)%
Retailer share arrangements(2) $(656) $(661) $(723) $(708) $(606) $(50) 8.3% $(1,317) $(1,257) $(60) 4.8%
 

PAYMENT SOLUTIONS

Purchase volume(1) $3,903 $3,392 $3,714 $3,635 $3,371 $532 15.8% $7,295 $6,319 $976 15.4%
Period-end loan receivables $13,997 $13,420 $13,543 $12,933 $12,194 $1,803 14.8% $13,997 $12,194 $1,803 14.8%
Average loan receivables $13,644 $13,482 $13,192 $12,523 $11,971 $1,673 14.0% $13,584 $11,990 $1,594 13.3%
Average active accounts (in thousands)(3) 8,153 8,134 7,896 7,468 7,231 922 12.8% 8,148 7,251 897 12.4%
 
Interest and fees on loans $467 $457 $462 $442 $412 $55 13.3% $924 $815 $109 13.4%
Other income $3 $4 $3 $5 $4 $(1) (25.0)% $7 $9 $(2) (22.2)%
Retailer share arrangements $(7) $(7) $(10) $(13) $(14) $7 (50.0)% $(14) $(22) $8 (36.4)%
 

CARECREDIT

Purchase volume(1) $2,193 $2,035 $1,978 $2,011 $1,987 $206 10.4% $4,228 $3,768 $460 12.2%
Period-end loan receivables $7,580 $7,316 $7,335 $7,155 $6,922 $658 9.5% $7,580 $6,922 $658 9.5%
Average loan receivables $7,438 $7,323 $7,256 $7,048 $6,820 $618 9.1% $7,389 $6,832 $557 8.2%
Average active accounts (in thousands)(3) 5,064 5,031 4,958 4,826 4,711 353 7.5% 5,050 4,714 336 7.1%
 
Interest and fees on loans $442 $427 $438 $429 $419 $23 5.5% $869 $819 $50 6.1%
Other income $11 $9 $8 $9 $9 $2 22.2% $20 $19 $1 5.3%
Retailer share arrangements $(1) $(2) $(1) $(2) $(1) $- - % $(3) $(2) $(1) 50.0%
 

TOTAL SYF

Purchase volume(1)(2) $31,507 $26,977 $32,460 $29,206 $28,810 $2,697 9.4% $58,484 $51,949 $6,535 12.6%
Period-end loan receivables $68,282 $65,849 $68,290 $63,520 $61,431 $6,851 11.2% $68,282 $61,431 $6,851 11.2%
Average loan receivables, including held for sale $66,943 $66,705 $65,406 $62,504 $60,094 $6,849 11.4% $66,963 $60,124 $6,839 11.4%
Average active accounts (in thousands)(2)(3) 65,531 66,134 64,892 62,247 60,923 4,608 7.6% 65,996 61,478 4,518 7.3%
 
Interest and fees on loans(2) $3,494 $3,498 $3,494 $3,379 $3,166 $328 10.4% $6,992 $6,306 $686 10.9%
Other income(2) $83 $92 $87 $84 $120 $(37) (30.8)% $175 $221 $(46) (20.8)%
Retailer share arrangements(2) $(664) $(670) $(734) $(723) $(621) $(43) 6.9% $(1,334) $(1,281) $(53) 4.1%
                                           
(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

Jun 30,
2016

Mar 31,
2016

Dec 31,
2015

Sep 30,
2015

Jun 30,
2015

COMMON EQUITY MEASURES

GAAP Total common equity $13,715 $13,204 $12,604 $12,158 $11,578
Less: Goodwill (949) (949) (949) (949) (949)
Less: Intangible assets, net (704) (702) (701) (646) (575)
Tangible common equity $12,062 $11,553 $10,954 $10,563 $10,054
Adjustments for certain deferred tax liabilities and certain items in accumulated comprehensive income (loss) 282 281 280 291 293
Basel III - Common equity Tier 1 (fully phased-in) $12,344 $11,834 $11,234 $10,854 $10,347
Adjustment related to capital components during transition 266 265 399 375 331
Basel III - Common equity Tier 1 (transition) $12,610 $12,099 $11,633 $11,229 $10,678
 

RISK-BASED CAPITAL

Common equity Tier 1 $12,610 $12,099 $11,633 $11,229 $10,678
Add: Allowance for loan losses includible in risk-based capital 890 869 898 833 804
Risk-based capital $13,500 $12,968 $12,531 $12,062 $11,482
 

ASSET MEASURES

Total average assets $81,694 $82,835 $81,882 $77,841 $73,985
Adjustments for:
Disallowed goodwill and other disallowed intangible assets, net of

related deferred tax liabilities

(1,113) (1,117) (991) (931) (903)
Other - - - 104 60
Total assets for leverage purposes $80,581 $81,718 $80,891 $77,014 $73,142
 
Risk-weighted assets - Basel III (fully phased-in)(3) $68,462 $67,697 $70,493 $65,125 $62,814
Risk-weighted assets - Basel III (transition)(3) $68,188 $66,689 $69,224 $64,090 $61,829
 

TANGIBLE COMMON EQUITY PER SHARE

GAAP book value per share $16.45 $15.84 $15.12 $14.58 $13.89
Less: Goodwill (1.14) (1.14) (1.14) (1.14) (1.14)
Less: Intangible assets, net (0.85) (0.84) (0.84) (0.77) (0.69)
Tangible common equity per share $14.46 $13.86 $13.14 $12.67 $12.06
                       
(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 June 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.
 

Contacts

Synchrony Financial
Investor Relations:
Greg Ketron, 203-585-6291
or
Media Relations:
Samuel Wang, 203-585-2933

Release Summary

Synchrony Financial Reports Second Quarter Net Earnings of $489 Million or $0.58 Per Diluted Share

Contacts

Synchrony Financial
Investor Relations:
Greg Ketron, 203-585-6291
or
Media Relations:
Samuel Wang, 203-585-2933