Synchrony Financial Reports First Quarter Net Earnings of $640 Million or $0.83 Per Diluted Share

Friday, April 20, 2018 6:30 am EDT

Dateline:

STAMFORD, Conn.

Public Company Information:

NYSE:
SYF

STAMFORD, Conn.--(BUSINESS WIRE)--Synchrony Financial (NYSE:SYF) today announced first quarter 2018 net earnings of $640 million, or $0.83 per diluted share. Highlights included:

  • Net interest income increased 7% from the first quarter of 2017 to $3.8 billion
  • Loan receivables grew $5 billion, or 6%, from the first quarter of 2017 to $78 billion
  • Purchase volume increased 3% from the first quarter of 2017 to $30 billion
  • Deposits grew $5 billion, or 10%, from the first quarter of 2017 to $57 billion
  • Added new partnerships: Crate and Barrel, jtv, and Mahindra
  • Renewed relationships: Nationwide Marketing Group, Briggs & Stratton, and American Signature Furniture
  • Expanded CareCredit network: American Veterinary Medical Association, American Med Spa Association, and Spa Industry Association
  • Quarterly common stock dividend payment of $0.15 per share and repurchased $410 million of Synchrony Financial common stock

“We started the year with solid results as we continued to drive organic growth, while also winning exciting new partnerships. Furthermore, we closed several key renewals during the quarter and made investments to help augment our capabilities. Innovative value propositions, compelling promotional offers, and robust data, analytics and digital capabilities, remain a hallmark of our business, and continue to drive value for our partners and cardholders,” said Margaret Keane, President and Chief Executive Officer of Synchrony Financial. “Returning capital to shareholders remains a key priority, and we are pleased to continue to return significant capital to shareholders through our dividend and share repurchase program, while also deploying capital through organic growth and program acquisitions.”

Business and Financial Highlights for the First Quarter of 2018

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

Earnings

  • Net interest income increased $255 million, or 7%, to $3.8 billion, primarily driven by strong loan receivables growth. Net interest income after retailer share arrangements increased 8%.
  • Provision for loan losses increased $56 million, or 4% to $1.4 billion primarily driven by credit normalization and growth.
  • Other income was down $18 million to $75 million, primarily due to higher loyalty program expense, partially offset by higher interchange revenue.
  • Other expense increased $80 million, or 9% to $988 million, primarily driven by growth and marketing.
  • Provision for income taxes was down 27%, primarily due to tax reform.
  • Net earnings totaled $640 million compared to $499 million in the first quarter of 2017.

Balance Sheet

  • Period-end loan receivables growth was 6%, primarily driven by purchase volume growth of 3% and average active account growth of 2%.
  • Deposits grew to $57 billion, up $5 billion, or 10%, 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 $25 billion, or 26% of total assets.
  • The estimated fully phased-in Common Equity Tier 1 ratio under Basel III was 16.8%.

Key Financial Metrics

  • Return on assets was 2.7% and return on equity was 18.2%.
  • Net interest margin was 16.05%.
  • Efficiency ratio was 30.9%.

Credit Quality

  • Loans 30+ days past due as a percentage of total period-end loan receivables were 4.52% compared to 4.25% last year.
  • Net charge-offs as a percentage of total average loan receivables were 6.14% compared to 5.33% last year.
  • The allowance for loan losses as a percentage of total period-end loan receivables was 7.37% compared to 6.37% last year.

Sales Platforms

  • Retail Card period-end loan receivables grew 5% reflecting broad-based growth across partner programs. Interest and fees on loans increased 7%, primarily driven by the loan receivables growth. Purchase volume and average active account growth was 2%.
  • Payment Solutions period-end loan receivables grew 8%, led by home furnishing and automotive. Interest and fees on loans increased 9%, primarily driven by the loan receivables growth. Purchase volume growth was 7%, adjusted to exclude the impact from the hhgregg bankruptcy, and average active account growth was 5%.
  • CareCredit period-end loan receivables grew 8%, led by dental and veterinary. Interest and fees on loans increased 8%, primarily driven by the loan receivables growth. Purchase volume grew 8% and average active account growth was 7%.

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 March 31, 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, April 20, 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 12018#, and can be accessed beginning approximately two hours after the event through May 4, 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; 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  
  

Mar 31,

 

Dec 31,

 

Sep 30,

 

Jun 30,

 

Mar 31,

  
  

2018

 

2017

 

2017

 

2017

 

2017

 1Q'18 vs. 1Q'17

EARNINGS

              
Net interest income $3,842  $3,916  $3,876  $3,637  $3,587  $255  7.1%
Retailer share arrangements  (720)  (779)  (805)  (669)  (684)  (36) 5.3%
Net interest income, after retailer share arrangements  3,122   3,137   3,071   2,968   2,903   219  7.5%
Provision for loan losses  1,362   1,354   1,310   1,326   1,306   56  4.3%
Net interest income, after retailer share arrangements and provision for loan losses  1,760   1,783   1,761   1,642   1,597   163  10.2%
Other income  75   62   76   57   93   (18) (19.4)%
Other expense  988   970   958   911   908   80  8.8%
Earnings before provision for income taxes  847   875   879   788   782   65  8.3%
Provision for income taxes  207   490   324   292   283   (76) (26.9)%
Net earnings $640  $385  $555  $496  $499  $141  28.3%
Net earnings attributable to common stockholders $640  $385  $555  $496  $499  $141  28.3%
               
Adjusted net earnings (1)  $640  $545  $555  $496  $499  $141  28.3%
               

COMMON SHARE STATISTICS

              
Basic EPS $0.84  $0.49  $0.70  $0.62  $0.61  $0.23  37.7%
Diluted EPS $0.83  $0.49  $0.70  $0.61  $0.61  $0.22  36.1%
Adjusted diluted EPS(1) $0.83  $0.70  $0.70  $0.61  $0.61  $0.22  36.1%
Dividend declared per share $0.15  $0.15  $0.15  $0.13  $0.13  $0.02  15.4%
Common stock price $33.53  $38.61  $31.05  $29.82  $34.30  $(0.77) (2.2)%
Book value per share $18.88  $18.47  $18.40  $18.02  $17.71  $1.17  6.6%
Tangible common equity per share(2) $16.55  $16.22  $16.15  $15.79  $15.47  $1.08  7.0%
               
Beginning common shares outstanding  770.5   782.6   795.3   810.8   817.4   (46.9) (5.7)%
Issuance of common shares  -   -   -   -   -   -  -%
Stock-based compensation  0.2   0.1   0.1   0.2   -   0.2  NM 
Shares repurchased  (10.4)  (12.2)  (12.8)  (15.7)  (6.6)  (3.8) 57.6%
Ending common shares outstanding  760.3   770.5   782.6   795.3   810.8   (50.5) (6.2)%
               
Weighted average common shares outstanding  763.7   778.7   787.3   804.0   813.1   (49.4) (6.1)%
Weighted average common shares outstanding (fully diluted)  770.3   784.0   790.9   807.4   817.1   (46.8) (5.7)%
 
(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  
  

Mar 31,

 

Dec 31,

 

Sep 30,

 

Jun 30,

 

Mar 31,

  
  

2018

 

2017

 

2017

 

2017

 

2017

 1Q'18 vs. 1Q'17

PERFORMANCE METRICS

              
Return on assets(1)  2.7%  1.6%  2.4%  2.2%  2.3%   0.4%
Return on equity(2)  18.2%  10.5%  15.3%  13.8%  14.1%   4.1%
Return on tangible common equity(3)  20.7%  12.0%  17.4%  15.7%  16.1%   4.6%
Adjusted return on assets(4)  2.7%  2.3%  2.4%  2.2%  2.3%   0.4%
Adjusted return on equity(4)  18.2%  14.9%  15.3%  13.8%  14.1%   4.1%
Adjusted return on tangible common equity(5)  20.7%  17.0%  17.4%  15.7%  16.1%   4.6%
Net interest margin(6)  16.05%  16.24%  16.74%  16.20%  16.18%   (0.13)%
Efficiency ratio(7)  30.9%  30.3%  30.4%  30.1%  30.3%   0.6%
Other expense as a % of average loan receivables, including held for sale  5.07%  4.91%  4.99%  4.93%  4.97%   0.10%
Effective income tax rate  24.4%  56.0%  36.9%  37.1%  36.2%   (11.8)%
               

CREDIT QUALITY METRICS

              
Net charge-offs as a % of average loan receivables, including held for sale  6.14%  5.78%  4.95%  5.42%  5.33%   0.81%
30+ days past due as a % of period-end loan receivables(8)  4.52%  4.67%  4.80%  4.25%  4.25%   0.27%
90+ days past due as a % of period-end loan receivables(8)  2.28%  2.28%  2.22%  1.90%  2.06%   0.22%
Net charge-offs $1,198  $1,141  $950  $1,001  $974  $224  23.0%
Loan receivables delinquent over 30 days(8) $3,521  $3,831  $3,694  $3,208  $3,120  $401  12.9%
Loan receivables delinquent over 90 days(8) $1,776  $1,869  $1,707  $1,435  $1,508  $268  17.8%
               
Allowance for loan losses (period-end) $5,738  $5,574  $5,361  $5,001  $4,676  $1,062  22.7%
Allowance coverage ratio(9)  7.37%  6.80%  6.97%  6.63%  6.37%   1.00%
               

BUSINESS METRICS

              
Purchase volume(10) $29,626  $36,565  $32,893  $33,476  $28,880  $746  2.6%
Period-end loan receivables $77,853  $81,947  $76,928  $75,458  $73,350  $4,503  6.1%
Credit cards $74,952  $79,026  $73,946  $72,492  $70,587  $4,365  6.2%
Consumer installment loans $1,590  $1,578  $1,561  $1,514  $1,411  $179  12.7%
Commercial credit products $1,275  $1,303  $1,384  $1,386  $1,311  $(36) (2.7)%
Other $36  $40  $37  $66  $41  $(5) (12.2)%
Average loan receivables, including held for sale $79,090  $78,369  $76,165  $74,090  $74,132  $4,958  6.7%
Period-end active accounts (in thousands)(11)  68,891   74,541   69,008   69,277   67,905   986  1.5%
Average active accounts (in thousands)(11)  71,323   71,348   69,331   68,635   69,629   1,694  2.4%
               

LIQUIDITY

              
Liquid assets              
Cash and equivalents $13,044  $11,602  $13,915  $12,020  $11,392  $1,652  14.5%
Total liquid assets $18,557  $15,087  $16,391  $15,274  $16,158  $2,399  14.8%
Undrawn credit facilities              
Undrawn credit facilities $6,000  $6,000  $5,650  $6,650  $5,600  $400  7.1%
Total liquid assets and undrawn credit facilities $24,557  $21,087  $22,041  $21,924  $21,758  $2,799  12.9%
Liquid assets % of total assets  19.42%  15.75%  17.71%  16.76%  18.14%   1.28%
Liquid assets including undrawn credit facilities % of total assets  25.70%  22.01%  23.82%  24.06%  24.43%   1.27%
 
(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  
  

Mar 31,

 

Dec 31,

 

Sep 30,

 

Jun 30,

 

Mar 31,

  
  

2018

 

2017

 

2017

 

2017

 

2017

 1Q'18 vs. 1Q'17
Interest income:              
Interest and fees on loans $4,172  $4,233  $4,182  $3,927  $3,877  $295  7.6%
Interest on investment securities  72   58   51   43   36   36  100.0%
Total interest income  4,244   4,291   4,233   3,970   3,913   331  8.5%
               
Interest expense:              
Interest on deposits  249   233   219   202   194   55  28.4%
Interest on borrowings of consolidated securitization entities  74   70   65   63   65   9  13.8%
Interest on third-party debt  79   72   73   68   67   12  17.9%
Total interest expense  402   375   357   333   326   76  23.3%
               
Net interest income  3,842   3,916   3,876   3,637   3,587   255  7.1%
               
Retailer share arrangements  (720)  (779)  (805)  (669)  (684)  (36) 5.3%
Net interest income, after retailer share arrangements  3,122   3,137   3,071   2,968   2,903   219  7.5%
               
Provision for loan losses  1,362   1,354   1,310   1,326   1,306   56  4.3%
Net interest income, after retailer share arrangements and provision for loan losses  1,760   1,783   1,761   1,642   1,597   163  10.2%
               
Other income:              
Interchange revenue  158   179   164   165   145   13  9.0%
Debt cancellation fees  66   69   67   68   68   (2) (2.9)%
Loyalty programs  (155)  (193)  (168)  (206)  (137)  (18) 13.1%
Other  6   7   13   30   17   (11) (64.7)%
Total other income  75   62   76   57   93   (18) (19.4)%
               
Other expense:              
Employee costs(1)  358   330   333   318   323   35  10.8%
Professional fees  166   159   161   158   151   15  9.9%
Marketing and business development  121   156   124   124   94   27  28.7%
Information processing  104   99   96   88   90   14  15.6%
Other(1)  239   226   244   223   250   (11) (4.4)%
Total other expense  988   970   958   911   908   80  8.8%
               
Earnings before provision for income taxes  847   875   879   788   782   65  8.3%
Provision for income taxes  207   490   324   292   283   (76) (26.9)%
Net earnings attributable to common stockholders $640  $385  $555  $496  $499  $141  28.3%
 
(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  
  

Mar 31,

 

Dec 31,

 

Sep 30,

 

Jun 30,

 

Mar 31,

 

Mar 31, 2018 vs.

  

2018

 

2017

 

2017

 

2017

 

2017

 

Mar 31, 2017

Assets              
Cash and equivalents $13,044  $11,602  $13,915  $12,020  $11,392  $1,652  14.5%
Debt securities  6,259   4,473   3,302   3,982   5,313   946  17.8%
Loan receivables:              
Unsecuritized loans held for investment  52,469   55,526   53,997   52,550   50,398   2,071  4.1%
Restricted loans of consolidated securitization entities  25,384   26,421   22,931   22,908   22,952   2,432  10.6%

Total loan receivables

  77,853   81,947   76,928   75,458   73,350   4,503  6.1%
Less: Allowance for loan losses  (5,738)  (5,574)  (5,361)  (5,001)  (4,676)  (1,062) 22.7%
Loan receivables, net  72,115   76,373   71,567   70,457   68,674   3,441  5.0%
Goodwill  991   991   991   991   992   (1) (0.1)%
Intangible assets, net  780   749   772   787   826   (46) (5.6)%
Other assets  2,370   1,620   2,001   2,903   1,853   517  27.9%
Total assets $95,559  $95,808  $92,548  $91,140  $89,050  $6,509  7.3%
               
Liabilities and Equity    -   -   -   -     
Deposits:              
Interest-bearing deposit accounts $56,285  $56,276  $54,232  $52,659  $51,359  $4,926  9.6%
Non-interest-bearing deposit accounts  285   212   222   226   246   39  15.9%
Total deposits  56,570   56,488   54,454   52,885   51,605   4,965  9.6%
Borrowings:              
Borrowings of consolidated securitization entities  12,214   12,497   11,891   12,204   12,433   (219) (1.8)%
Senior unsecured notes  8,801   8,302   8,008   8,505   7,761   1,040  13.4%
Total borrowings  21,015   20,799   19,899   20,709   20,194   821  4.1%
Accrued expenses and other liabilities  3,618   4,287   3,793   3,214   2,888   730  25.3%
Total liabilities  81,203   81,574   78,146   76,808   74,687   6,516  8.7%
Equity:              
Common stock  1   1   1   1   1   -  -%
Additional paid-in capital  9,470   9,445   9,429   9,415   9,405   65  0.7%
Retained earnings  7,334   6,809   6,543   6,109   5,724   1,610  28.1%
Accumulated other comprehensive income:  (86)  (64)  (40)  (49)  (55)  (31) 56.4%
Treasury Stock  (2,363)  (1,957)  (1,531)  (1,144)  (712)  (1,651) NM 
Total equity  14,356   14,234   14,402   14,332   14,363   (7) (0.0)%
Total liabilities and equity $95,559  $95,808  $92,548  $91,140  $89,050  $6,509  7.3%
 
SYNCHRONY FINANCIAL
AVERAGE BALANCES, NET INTEREST INCOME AND NET INTEREST MARGIN
(unaudited, $ in millions)
  Quarter Ended
  Mar 31, 2018 Dec 31, 2017 Sep 30, 2017 Jun 30, 2017 Mar 31, 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 $12,434  $

47

 

 1.53% $13,591  $

43

 

 1.26% $11,895  $

37

 

 1.23% $10,758  $

28

 

 1.04% $10,552  $

21

 

 0.81%
Securities available for sale  5,584   25  1.82%  3,725   15  1.60%  3,792   14  1.46%  5,195   15  1.16%  5,213   15  1.17%
                               
Loan receivables:                              
Credit cards, including held for sale  76,181   4,099  21.82%  75,389   4,161  21.90%  73,172   4,111  22.29%  71,206   3,858  21.73%  71,365   3,811  21.66%
Consumer installment loans  1,572   36  9.29%  1,568   36  9.11%  1,543   35  9.00%  1,461   34  9.33%  1,389   32  9.34%
Commercial credit products  1,286   36  11.35%  1,375   35  10.10%  1,392   36  10.26%  1,378   34  9.90%  1,317   34  10.47%
Other  51   1  NM   37   1  NM   58   -  -%  45   1  NM   61   -  -%
Total loan receivables, including held for sale  79,090   4,172  21.39%  78,369   4,233  21.43%  76,165   4,182  21.78%  74,090   3,927  21.26%  74,132   3,877  21.21%
Total interest-earning assets  97,108   4,244  17.72%  95,685   4,291  17.79%  91,852   4,233  18.28%  90,043   3,970  17.68%  89,897   3,913  17.65%
                               
Non-interest-earning assets:                              
Cash and due from banks  1,197       1,037       877       829       802     
Allowance for loan losses  (5,608)      (5,443)      (5,125)      (4,781)      (4,408)    
Other assets  3,010       3,219       3,517       3,303       3,177     
Total non-interest-earning assets  (1,401)      (1,187)      (731)      (649)      (429)    
                               
Total assets $95,707      $94,498      $91,121      $89,394      $89,468     
                               
Liabilities                              
Interest-bearing liabilities:                              
Interest-bearing deposit accounts $56,356  $249  1.79% $55,690  $233  1.66% $53,294  $219  1.63% $51,836  $202  1.56% $51,829  $194  1.52%
Borrowings of consolidated securitization entities  12,410   74  2.42%  12,425   70  2.24%  11,759   65  2.19%  12,213   63  2.07%  12,321   65  2.14%
Senior unsecured notes  8,795   79  3.64%  7,940   72  3.60%  8,251   73  3.51%  7,933   68  3.44%  7,760   67  3.50%
Total interest-bearing liabilities  77,561   402  2.10%  76,055   375  1.96%  73,304   357  1.93%  71,982   333  1.86%  71,910   326  1.84%
                               
Non-interest-bearing liabilities                              
Non-interest-bearing deposit accounts  300       218       232       218       240     
Other liabilities  3,570       3,716       3,154       2,752       2,995     
Total non-interest-bearing liabilities  3,870       3,934       3,386       2,970       3,235     
                               
Total liabilities  81,431       79,989       76,690       74,952       75,145     
                               
Equity                              
Total equity  14,276       14,509       14,431       14,442       14,323     
                               
Total liabilities and equity $95,707      $94,498      $91,121      $89,394      $89,468     
Net interest income   $3,842      $3,916      $3,876      $3,637      $3,587   
                               
Interest rate spread (1)      15.62%     15.83%     16.35%     15.82%     15.81%
Net interest margin (2)      16.05%     16.24%     16.74%     16.20%     16.18%
 
(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  
  

Mar 31,

 

Dec 31,

 

Sep 30,

 

Jun 30,

 

Mar 31,

 

Mar 31, 2018 vs.

  

2018

 

2017

 

2017

 

2017

 

2017

 

Mar 31, 2017

BALANCE SHEET STATISTICS

              
Total common equity $14,356  $14,234  $14,402  $14,332  $14,363   ($7) (0.0)%
Total common equity as a % of total assets  15.02%  14.86%  15.56%  15.73%  16.13%   (1.11)%
               
Tangible assets $93,788  $94,068  $90,785  $89,362  $87,232  $6,556  7.5%
Tangible common equity(1) $12,585  $12,494  $12,639  $12,554  $12,545  $40  0.3%
Tangible common equity as a % of tangible assets(1)  13.42%  13.28%  13.92%  14.05%  14.38%   (0.96)%
Tangible common equity per share(1) $16.55  $16.22  $16.15  $15.79  $15.47  $1.08  7.0%
               

REGULATORY CAPITAL RATIOS (2)

              
  

Basel III Fully

            
  

Phased-in (3)

 Basel III Transition    
Total risk-based capital ratio(4)  18.1%  17.3%  18.7%  18.7%  19.3%    
Tier 1 risk-based capital ratio(5)  16.8%  16.0%  17.3%  17.4%  18.0%    
Tier 1 leverage ratio(6)  13.7%  13.8%  14.6%  14.8%  14.8%    
Common equity Tier 1 capital ratio  16.8%  16.0%  17.3%  17.4%  18.0%    
               
  

 

 

Basel III Fully Phased-in

     
Common equity Tier 1 capital ratio  16.8%  15.8%  17.2%  17.2%  17.7%    
 
(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 March 31, 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. Tier 1 leverage ratios are based upon the use of daily averages for all periods presented.
 
SYNCHRONY FINANCIAL
PLATFORM RESULTS
(unaudited, $ in millions)
  Quarter Ended  
  

Mar 31,

 

Dec 31,

 

Sep 30,

 

Jun 30,

 

Mar 31,

  
  

2018

 

2017

 

2017

 

2017

 

2017

 1Q'18 vs. 1Q'17

RETAIL CARD

              
Purchase volume(1)(2) $23,382  $29,839  $26,347  $27,101  $22,952  $430  1.9%
Period-end loan receivables $52,531  $56,230  $52,119  $51,437  $49,905  $2,626  5.3%
Average loan receivables, including held for sale $53,673  $53,256  $51,817  $50,533  $50,644  $3,029  6.0%
Average active accounts (in thousands)(2)(3)  55,927   56,113   54,471   54,058   55,049   878  1.6%
Interest and fees on loans(2) $3,096  $3,133  $3,102  $2,900  $2,888  $208  7.2%
Other income(2) $65  $49  $61  $25  $77  $(12) (15.6)%
Retailer share arrangements(2) $(714) $(771) $(795) $(657) $(681) $(33) 4.8%
               

PAYMENT SOLUTIONS

              
Purchase volume(1) $3,823  $4,366  $4,178  $3,930  $3,686  $137  3.7%
Period-end loan receivables $16,513  $16,857  $16,153  $15,595  $15,320  $1,193  7.8%
Average loan receivables $16,629  $16,386  $15,848  $15,338  $15,424  $1,205  7.8%
Average active accounts (in thousands)(3)  9,545   9,421   9,183   9,031   9,090   455  5.0%
Interest and fees on loans $562  $574  $559  $533  $515  $47  9.1%
Other income $2  $2  $2  $6  $4  $(2) (50.0)%
Retailer share arrangements $(4) $(5) $(9) $(9) $(1) $(3) NM 
               

CARECREDIT

              
Purchase volume(1) $2,421  $2,360  $2,368  $2,445  $2,242  $179  8.0%
Period-end loan receivables $8,809  $8,860  $8,656  $8,426  $8,125  $684  8.4%
Average loan receivables $8,788  $8,727  $8,500  $8,219  $8,064  $724  9.0%
Average active accounts (in thousands)(3)  5,851   5,814   5,677   5,546   5,490   361  6.6%
Interest and fees on loans $514  $526  $521  $494  $474  $40  8.4%
Other income $8  $11  $13  $26  $12  $(4) (33.3)%
Retailer share arrangements $(2) $(3) $(1) $(3) $(2) $-  -%
               

TOTAL SYF

              
Purchase volume(1)(2) $29,626  $36,565  $32,893  $33,476  $28,880  $746  2.6%
Period-end loan receivables $77,853  $81,947  $76,928  $75,458  $73,350  $4,503  6.1%
Average loan receivables, including held for sale $79,090  $78,369  $76,165  $74,090  $74,132  $4,958  6.7%
Average active accounts (in thousands)(2)(3)  71,323   71,348   69,331   68,635   69,629   1,694  2.4%
Interest and fees on loans(2) $4,172  $4,233  $4,182  $3,927  $3,877  $295  7.6%
Other income(2) $75  $62  $76  $57  $93  $(18) (19.4)%
Retailer share arrangements(2) $(720) $(779) $(805) $(669) $(684) $(36) 5.3%
 
(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
  

Mar 31,

 

Dec 31,

 

Sep 30,

 

Jun 30,

 

Mar 31,

  

2018

 

2017

 

2017

 

2017

 

2017

COMMON EQUITY MEASURES

          
GAAP Total common equity $14,356  $14,234  $14,402  $14,332  $14,363 
Less: Goodwill  (991)  (991)  (991)  (991)  (992)
Less: Intangible assets, net  (780)  (749)  (772)  (787)  (826)
Tangible common equity $12,585  $12,494  $12,639  $12,554  $12,545 
Adjustments for certain deferred tax liabilities and certain items in accumulated comprehensive income (loss)  278   254   344   337   340 
Basel III - Common equity Tier 1 (fully phased-in) $12,863  $12,748  $12,983  $12,891  $12,885 
Adjustment related to capital components during transition    142   142   146   154 
Basel III - Common equity Tier 1 (transition)   $12,890  $13,125  $13,037  $13,039 
           

RISK-BASED CAPITAL

          
Common equity Tier 1 $12,863  $12,890  $13,125  $13,037  $13,039 
Add: Allowance for loan losses includible in risk-based capital  1,015   1,064   1,001   985   954 
Risk-based capital $13,878  $13,954  $14,126  $14,022  $13,993 
           

ASSET MEASURES

          
Total average assets $95,707  $94,498  $91,121  $89,394  $89,468 
Adjustments for:          

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

  (1,560)  (1,392)  (1,304)  (1,325)  (1,358)
Total assets for leverage purposes $94,147  $93,106  $89,817  $88,069  $88,110 
           
Risk-weighted assets - Basel III (fully phased-in) $76,509  $80,526  $75,614  $74,748  $72,596 
Risk-weighted assets - Basel III (transition)   $80,669  $75,729  $74,792  $72,627 
           

TANGIBLE COMMON EQUITY PER SHARE

          
GAAP book value per share $18.88  $18.47  $18.40  $18.02  $17.71 
Less: Goodwill  (1.30)  (1.29)  (1.27)  (1.25)  (1.22)
Less: Intangible assets, net  (1.03)  (0.96)  (0.98)  (0.98)  (1.02)
Tangible common equity per share $16.55  $16.22  $16.15  $15.79  $15.47 
           

ADJUSTED NET EARNINGS

          
GAAP net earnings $640  $385  $555  $496  $499 
Adjustment for tax law change(2)  -   160   -   -   - 
Adjusted net earnings $640  $545  $555  $496  $499 
           

ADJUSTED DILUTED EPS

          
GAAP diluted EPS $0.83  $0.49  $0.70  $0.61  $0.61 
Adjustment for tax law change(2)  -   0.21   -   -   - 
Adjusted diluted EPS $0.83  $0.70  $0.70  $0.61  $0.61 
 
(1) Regulatory measures at March 31, 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.

 

Contact:

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

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