Synchrony Financial Reports Third Quarter Net Earnings of $671 Million or $0.91 Per Diluted Share

Friday, October 19, 2018 6:30 am EDT

Dateline:

STAMFORD, Conn.

Public Company Information:

NYSE:
SYF

STAMFORD, Conn.--(BUSINESS WIRE)--Synchrony Financial (NYSE:SYF) today announced third quarter 2018 net earnings of $671 million, or $0.91 per diluted share. Highlights included:

  • Net interest income increased 9% from the third quarter of 2017 to $4.2 billion
  • Loan receivables grew $11 billion, or 14%, from the third quarter of 2017 to $88 billion
  • Purchase volume increased 11% from the third quarter of 2017 to $36 billion
  • Deposits grew $8 billion, or 14%, from the third quarter of 2017 to $62 billion
  • Completed the U.S. PayPal Credit financing program acquisition on July 2, 2018, acquiring $7.6 billion in receivables and making Synchrony the exclusive issuer of PayPal Credit in the U.S.
  • Renewed relationships: Lowe’s, JCPenney, Associated Materials, and Generac
  • Added new partnerships: Fred Meyer Jewelers and Eargo
  • Expanded CareCredit network and enhanced mobile app capabilities
  • Paid quarterly common stock dividend of $0.21 per share and repurchased $966 million of Synchrony Financial common stock

“We generated strong results this quarter, adding a top new program with the completion of the acquisition of the U.S. PayPal Credit program, while also continuing to drive organic growth. In addition to renewing key partnerships, we won exciting new programs. We have also been expanding our valuable CareCredit network, entering more than 25 new markets over the last several quarters. We continue to invest in our digital capabilities and network, focusing on ease of card use across platforms, as well as card utility, enhancing our competitive position in the rapidly changing marketplace. We are also seeing other important elements of our business, such as credit quality, continue to perform in-line with our expectations,” said Margaret Keane, President and Chief Executive Officer of Synchrony Financial.

Business and Financial Highlights for the Third Quarter of 2018

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

Earnings

  • Net interest income increased $330 million, or 9%, to $4.2 billion, primarily driven by the PayPal Credit program acquisition and loan receivables growth. Net interest income after retailer share arrangements increased 9%.
  • Provision for loan losses increased $141 million, or 11%, to $1.5 billion, driven by the PayPal Credit reserve build partially offset by moderating credit trends.
  • Other income was down $13 million to $63 million.
  • Other expense increased $96 million, or 10%, to $1.1 billion, primarily driven by the PayPal Credit program acquisition and growth-related expenses.
  • Provision for income taxes was down 31%, primarily due to tax reform.
  • Net earnings totaled $671 million compared to $555 million last year.

Balance Sheet

  • Period-end loan receivables growth was 14%, purchase volume growth was 11% and average active account growth was 9%, primarily driven by the PayPal Credit program acquisition and growth.
  • Deposits grew to $62 billion, up $8 billion, or 14%, and comprised 72% of funding.
  • The Company’s balance sheet remained strong with total liquidity (liquid assets and undrawn credit facilities) of $23 billion, or 22% of total assets.
  • The estimated fully phased-in Common Equity Tier 1 ratio under Basel III was 14.2%, compared to 17.2%, reflecting the impact of capital deployment through the PayPal Credit program acquisition, growth, and continued execution of our capital plan.

Key Financial Metrics

  • Return on assets was 2.7% and return on equity was 18.5%.
  • Net interest margin was 16.41%.
  • Efficiency ratio was 31.0%.

Credit Quality

  • Loans 30+ days past due as a percentage of total period-end loan receivables were 4.59% compared to 4.80% last year.
  • Net charge-offs as a percentage of total average loan receivables were 4.97% compared to 4.95% last year.
  • The allowance for loan losses as a percentage of total period-end loan receivables was 7.11% compared to 6.97% last year.

Sales Platforms

  • Retail Card period-end loan receivables grew 16%, driven by the PayPal Credit program acquisition. Interest and fees on loans increased 12%, purchase volume growth was 11% and average active accounts increased 10%, all largely driven by the PayPal Credit program acquisition.
  • Payment Solutions period-end loan receivables grew 9%, led by home furnishings and power equipment. Interest and fees on loans increased 8%, primarily driven by the loan receivables growth. Purchase volume growth was 10% and average active accounts increased 5%.
  • CareCredit period-end loan receivables grew 8%, led by dental and veterinary. Interest and fees on loans increased 6%, primarily driven by the loan receivables growth. Purchase volume grew 9% and average active account growth was 5%.

Corresponding Financial Tables and Information

No representation is made that the information in this news release is complete. Investors are encouraged to review the foregoing summary and discussion of Synchrony Financial's earnings and financial condition in conjunction with the detailed financial tables and information that follow and the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, as filed February 22, 2018, and the Company’s forthcoming Quarterly Report on Form 10-Q for the quarter ended September 30, 2018. The detailed financial tables and other information are also available on the Investor Relations page of the Company’s website at www.investors.synchronyfinancial.com. This information is also furnished in a Current Report on Form 8-K filed with the SEC today.

Conference Call and Webcast Information

On Friday, October 19, 2018, at 8:30 a.m. Eastern Time, Margaret Keane, President and Chief Executive Officer, and Brian Doubles, Executive Vice President and Chief Financial Officer, will host a conference call to review the financial results and outlook for certain business drivers. The conference call can be accessed via an audio webcast through the Investor Relations page on the Synchrony Financial corporate website, www.investors.synchronyfinancial.com, under Events and Presentations. A replay will be available on the website or by dialing (888) 843-7419 (U.S. domestic) or (630) 652-3042 (international), passcode 32018#, and can be accessed beginning approximately two hours after the event through November 2, 2018.

About Synchrony Financial

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

Cautionary Statement Regarding Forward-Looking Statements

This news release contains certain forward-looking statements as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the "safe harbor" created by those sections. Forward-looking statements may be identified by words such as “expects,” “intends,” “anticipates,” “plans,” “believes,” “seeks,” “targets,” “outlook,” “estimates,” “will,” “should,” “may” or words of similar meaning, but these words are not the exclusive means of identifying forward-looking statements. Forward-looking statements are based on management’s current expectations and assumptions, and are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, actual results could differ materially from those indicated in these forward-looking statements. Factors that could cause actual results to differ materially include global political, economic, business, competitive, market, regulatory and other factors and risks, such as: the impact of macroeconomic conditions and whether industry trends we have identified develop as anticipated; retaining existing partners and attracting new partners, concentration of our revenue in a small number of Retail Card partners, promotion and support of our products by our partners, and financial performance of our partners; cyber-attacks or other security breaches; higher borrowing costs and adverse financial market conditions impacting our funding and liquidity, and any reduction in our credit ratings; our ability to grow our deposits in the future; our ability to securitize our loan receivables, occurrence of an early amortization of our securitization facilities, loss of the right to service or subservice our securitized loan receivables, and lower payment rates on our securitized loan receivables; changes in market interest rates and the impact of any margin compression; effectiveness of our risk management processes and procedures, reliance on models which may be inaccurate or misinterpreted, our ability to manage our credit risk, the sufficiency of our allowance for loan losses and the accuracy of the assumptions or estimates used in preparing our financial statements; our ability to offset increases in our costs in retailer share arrangements; competition in the consumer finance industry; our concentration in the U.S. consumer credit market; our ability to successfully develop and commercialize new or enhanced products and services; our ability to realize the value of acquisitions and strategic investments; our ability to realize the benefits of and expected capital available from strategic options; reductions in interchange fees; fraudulent activity; failure of third parties to provide various services that are important to our operations; disruptions in the operations of our computer systems and data centers; international risks and compliance and regulatory risks and costs associated with international operations; alleged infringement of intellectual property rights of others and our ability to protect our intellectual property; litigation and regulatory actions; damage to our reputation; our ability to attract, retain and motivate key officers and employees; tax legislation initiatives or challenges to our tax positions and/or interpretations, and state sales tax rules and regulations; a material indemnification obligation to GE under the tax sharing and separation agreement with GE if we cause the split-off from GE or certain preliminary transactions to fail to qualify for tax-free treatment or in the case of certain significant transfers of our stock following the split-off; regulation, supervision, examination and enforcement of our business by governmental authorities, the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the impact of the Consumer Financial Protection Bureau’s regulation of our business; impact of capital adequacy rules and liquidity requirements; restrictions that limit our ability to pay dividends and repurchase our common stock, and restrictions that limit Synchrony Bank’s ability to pay dividends to us; regulations relating to privacy, information security and data protection; use of third-party vendors and ongoing third-party business relationships; and failure to comply with anti-money laundering and anti-terrorism financing laws.

For the reasons described above, we caution you against relying on any forward-looking statements, which should also be read in conjunction with the other cautionary statements that are included elsewhere in this news release and in our public filings, including under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, as filed on February 22, 2018. You should not consider any list of such factors to be an exhaustive statement of all the risks, uncertainties, or potentially inaccurate assumptions that could cause our current expectations or beliefs to change. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except as otherwise may be required by law.

Non-GAAP Measures

The information provided herein includes measures we refer to as “tangible common equity” and certain financial measures that have been adjusted to exclude the effects from the Tax Act, which are not prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). For a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures, please see the detailed financial tables and information that follow. For a statement regarding the usefulness of these measures to investors, please see the Company’s Current Report on Form 8-K filed with the SEC today.

                         
SYNCHRONY FINANCIAL
FINANCIAL SUMMARY
(unaudited, in millions, except per share statistics)
Quarter Ended Nine Months Ended
Sep 30,

2018

Jun 30,

2018

Mar 31,

2018

Dec 31,

2017

Sep 30,

2017

3Q'18 vs. 3Q'17 Sep 30,

2018

Sep 30,

2017

YTD'18 vs. YTD'17

EARNINGS

Net interest income $4,206 $3,737 $3,842 $3,916 $3,876 $330 8.5% $11,785 $11,100 $685 6.2%
Retailer share arrangements (871) (653) (720) (779) (805) (66) 8.2% (2,244) (2,158) (86) 4.0%
Net interest income, after retailer share arrangements 3,335 3,084 3,122 3,137 3,071 264 8.6% 9,541 8,942 599 6.7%
Provision for loan losses 1,451 1,280 1,362 1,354 1,310 141 10.8% 4,093 3,942 151 3.8%
Net interest income, after retailer share arrangements and provision for loan losses 1,884 1,804 1,760 1,783 1,761 123 7.0% 5,448 5,000 448 9.0%
Other income 63 63 75 62 76 (13) (17.1)% 201 226 (25) (11.1)%
Other expense 1,054 975 988 970 958 96 10.0% 3,017 2,777 240 8.6%
Earnings before provision for income taxes 893 892 847 875 879 14 1.6% 2,632 2,449 183 7.5%
Provision for income taxes 222 196 207 490 324 (102) (31.5)% 625 899 (274) (30.5)%
Net earnings $671 $696 $640 $385 $555 $116 20.9% $2,007 $1,550 $457 29.5%
Net earnings attributable to common stockholders $671 $696 $640 $385 $555 $116 20.9% $2,007 $1,550 $457 29.5%
                     
Adjusted net earnings (1) $671 $696 $640 $545 $555 $116 20.9% $2,007 $1,550 $457 29.5%
 

COMMON SHARE STATISTICS

Basic EPS $0.91 $0.93 $0.84 $0.49 $0.70 $0.21 30.0% $2.68 $1.93 $0.75 38.9%
Diluted EPS $0.91 $0.92 $0.83 $0.49 $0.70 $0.21 30.0% $2.66 $1.93 $0.73 37.8%
Adjusted diluted EPS(1) $0.91 $0.92 $0.83 $0.70 $0.70 $0.21 30.0% $2.66 $1.93 $0.73 37.8%
Dividend declared per share $0.21 $0.15 $0.15 $0.15 $0.15 $0.06 40.0% $0.51 $0.41 $0.10 24.4%
Common stock price $31.08 $33.38 $33.53 $38.61 $31.05 $0.03 0.1% $31.08 $31.05 $0.03 0.1%
Book value per share $19.47 $19.37 $18.88 $18.47 $18.40 $1.07 5.8% $19.47 $18.40 $1.07 5.8%
Tangible common equity per share(2) $16.51 $16.84 $16.55 $16.22 $16.15 $0.36 2.2% $16.51 $16.15 $0.36 2.2%
 
Beginning common shares outstanding 746.6 760.3 770.5 782.6 795.3 (48.7) (6.1)% 770.5 817.4 (46.9) (5.7)%
Issuance of common shares - - - - - - - % - - - - %
Stock-based compensation 2.4 0.3 0.2 0.1 0.1 2.3 NM 2.9 0.3 2.6 NM
Shares repurchased (30.3) (14.0) (10.4) (12.2) (12.8) (17.5) 136.7% (54.7) (35.1) (19.6) 55.8%
Ending common shares outstanding 718.7 746.6 760.3 770.5 782.6 (63.9) (8.2)% 718.7 782.6 (63.9) (8.2)%
 
Weighted average common shares outstanding 734.9 752.2 763.7 778.7 787.3 (52.4) (6.7)% 750.2 801.3 (51.1) (6.4)%
Weighted average common shares outstanding (fully diluted) 738.8 758.3 770.3 784.0 790.9 (52.1) (6.6)% 755.7 805.0 (49.3) (6.1)%
                                                         
(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 Nine Months Ended
Sep 30,

2018

Jun 30,

2018

Mar 31,

2018

Dec 31,

2017

Sep 30,

2017

3Q'18 vs. 3Q'17 Sep 30,

2018

Sep 30,

2017

YTD'18 vs. YTD'17

PERFORMANCE METRICS

Return on assets(1) 2.7% 2.9% 2.7% 1.6% 2.4% 0.3% 2.8% 2.3% 0.5%
Return on equity(2) 18.5% 19.4% 18.2% 10.5% 15.3% 3.2% 18.7% 14.4% 4.3%
Return on tangible common equity(3) 21.5% 22.1% 20.7% 12.0% 17.4% 4.1% 21.5% 16.4% 5.1%
Adjusted return on assets(4) 2.7% 2.9% 2.7% 2.3% 2.4% 0.3% 2.8% 2.3% 0.5%
Adjusted return on equity(4) 18.5% 19.4% 18.2% 14.9% 15.3% 3.2% 18.7% 14.4% 4.3%
Adjusted return on tangible common equity(5) 21.5% 22.1% 20.7% 17.0% 17.4% 4.1% 21.5% 16.4% 5.1%
Net interest margin(6) 16.41% 15.33% 16.05% 16.24% 16.74% (0.33)% 15.94% 16.38% (0.44)%
Efficiency ratio(7) 31.0% 31.0% 30.9% 30.3% 30.4% 0.6% 31.0% 30.3% 0.7%
Other expense as a % of average loan receivables, including held for sale 4.82% 5.02% 5.07% 4.91% 4.99% (0.17)% 4.96% 4.96% - %
Effective income tax rate 24.9% 22.0% 24.4% 56.0% 36.9% (12.0)% 23.7% 36.7% (13.0)%
 

CREDIT QUALITY METRICS

Net charge-offs as a % of average loan receivables, including held for sale 4.97% 5.97% 6.14% 5.78% 4.95% 0.02% 5.67% 5.23% 0.44%
30+ days past due as a % of period-end loan receivables(8) 4.59% 4.17% 4.52% 4.67% 4.80% (0.21)% 4.59% 4.80% (0.21)%
90+ days past due as a % of period-end loan receivables(8) 2.09% 1.98% 2.28% 2.28% 2.22% (0.13)% 2.09% 2.22% (0.13)%
Net charge-offs $1,087 $1,159 $1,198 $1,141 $950 $137 14.4% $3,444 $2,925 $519 17.7%
Loan receivables delinquent over 30 days(8) $4,021 $3,293 $3,521 $3,831 $3,694 $327 8.9% $4,021 $3,694 $327 8.9%
Loan receivables delinquent over 90 days(8) $1,833 $1,561 $1,776 $1,869 $1,707 $126 7.4% $1,833 $1,707 $126 7.4%
 
Allowance for loan losses (period-end) $6,223 $5,859 $5,738 $5,574 $5,361 $862 16.1% $6,223 $5,361 $862 16.1%
Allowance coverage ratio(9) 7.11% 7.43% 7.37% 6.80% 6.97% 0.14% 7.11% 6.97% 0.14%
 

BUSINESS METRICS

Purchase volume(10) $36,443 $34,268 $29,626 $36,565 $32,893 $3,550 10.8% $100,337 $95,249 $5,088 5.3%
Period-end loan receivables $87,521 $78,879 $77,853 $81,947 $76,928 $10,593 13.8% $87,521 $76,928 $10,593 13.8%
Credit cards $84,319 $75,753 $74,952 $79,026 $73,946 $10,373 14.0% $84,319 $73,946 $10,373 14.0%
Consumer installment loans $1,789 $1,708 $1,590 $1,578 $1,561 $228 14.6% $1,789 $1,561 $228 14.6%
Commercial credit products $1,353 $1,356 $1,275 $1,303 $1,384 $(31) (2.2)% $1,353 $1,384 $(31) (2.2)%
Other $60 $62 $36 $40 $37 $23 62.2% $60 $37 $23 62.2%
Average loan receivables, including held for sale $86,783 $77,853 $79,090 $78,369 $76,165 $10,618 13.9% $81,270 $74,803 $6,467 8.6%
Period-end active accounts (in thousands)(11) 75,457 69,767 68,891 74,541 69,008 6,449 9.3% 75,457 69,008 6,449 9.3%
Average active accounts (in thousands)(11) 75,482 69,344 71,323 71,348 69,331 6,151 8.9% 72,594 69,319 3,275 4.7%
 

LIQUIDITY

Liquid assets
Cash and equivalents $12,068 $15,675 $13,044 $11,602 $13,915 $(1,847) (13.3)% $12,068 $13,915 $(1,847) (13.3)%
Total liquid assets $18,214 $21,491 $18,557 $15,087 $16,391 $1,823 11.1% $18,214 $16,391 $1,823 11.1%
Undrawn credit facilities
Undrawn credit facilities $5,125 $6,500 $6,000 $6,000 $5,650 $(525) (9.3)% $5,125 $5,650 $(525) (9.3)%
Total liquid assets and undrawn credit facilities $23,339 $27,991 $24,557 $21,087 $22,041 $1,298 5.9% $23,339 $22,041 $1,298 5.9%
Liquid assets % of total assets 17.42% 21.68% 19.42% 15.75% 17.71% (0.29)% 17.42% 17.71% (0.29)%
Liquid assets including undrawn credit facilities % of total assets 22.32% 28.24% 25.70% 22.01% 23.82% (1.50)% 22.32% 23.82% (1.50)%
                                           
(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 Nine Months Ended
Sep 30,

2018

Jun 30,

2018

Mar 31,

2018

Dec 31,

2017

Sep 30,

2017

3Q'18 vs. 3Q'17 Sep 30,

2018

Sep 30,

2017

YTD'18 vs. YTD'17
Interest income:
Interest and fees on loans $4,617 $4,081 $4,172 $4,233 $4,182 $435 10.4% $12,870 $11,986 $884 7.4%
Interest on investment securities 77 93 72 58 51 26 51.0% 242 130 112 86.2%
Total interest income 4,694 4,174 4,244 4,291 4,233 461 10.9% 13,112 12,116 996 8.2%
 
Interest expense:
Interest on deposits 314 273 249 233 219 95 43.4% 836 615 221 35.9%
Interest on borrowings of consolidated securitization entities 86 80 74 70 65 21 32.3% 240 193 47 24.4%
Interest on third-party debt 88 84 79 72 73 15 20.5% 251 208 43 20.7%
Total interest expense 488 437 402 375 357 131 36.7% 1,327 1,016 311 30.6%
                     
Net interest income 4,206 3,737 3,842 3,916 3,876 330 8.5% 11,785 11,100 685 6.2%
 
Retailer share arrangements (871) (653) (720) (779) (805) (66) 8.2% (2,244) (2,158) (86) 4.0%
Net interest income, after retailer share arrangements 3,335 3,084 3,122 3,137 3,071 264 8.6% 9,541 8,942 599 6.7%
 
Provision for loan losses 1,451 1,280 1,362 1,354 1,310 141 10.8% 4,093 3,942 151 3.8%
Net interest income, after retailer share arrangements and provision for loan losses 1,884 1,804 1,760 1,783 1,761 123 7.0% 5,448 5,000 448 9.0%
 
Other income:
Interchange revenue 182 177 158 179 164 18 11.0% 517 474 43 9.1%
Debt cancellation fees 65 66 66 69 67 (2) (3.0)% 197 203 (6) (3.0)%
Loyalty programs (196) (192) (155) (193) (168) (28) 16.7% (543) (511) (32) 6.3%
Other 12 12 6 7 13 (1) (7.7)% 30 60 (30) (50.0)%
Total other income 63 63 75 62 76 (13) (17.1)% 201 226 (25) (11.1)%
 
Other expense:
Employee costs(1) 365 351 358 330 333 32 9.6% 1,074 974 100 10.3%
Professional fees 232 177 166 159 161 71 44.1% 575 470 105 22.3%
Marketing and business development 131 110 121 156 124 7 5.6% 362 342 20 5.8%
Information processing 105 99 104 99 96 9 9.4% 308 274 34 12.4%
Other(1) 221 238 239 226 244 (23) (9.4)% 698 717 (19) (2.6)%
Total other expense 1,054 975 988 970 958 96 10.0% 3,017 2,777 240 8.6%
                     
Earnings before provision for income taxes 893 892 847 875 879 14 1.6% 2,632 2,449 183 7.5%
Provision for income taxes 222 196 207 490 324 (102) (31.5)% 625 899 (274) (30.5)%

Net earnings attributable to common shareholders

$671 $696 $640 $385 $555 $116 20.9% $2,007 $1,550 $457 29.5%
                                           
(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
Sep 30,

2018

Jun 30,

2018

Mar 31,

2018

Dec 31,

2017

Sep 30,

2017

Sep 30, 2018 vs.

Sep 30, 2017

Assets
Cash and equivalents $12,068 $15,675 $13,044 $11,602 $13,915 $(1,847) (13.3)%
Debt securities 7,281 6,779 6,259 4,473 3,302 3,979 120.5%
Loan receivables:
Unsecuritized loans held for investment 59,868 50,884 52,469 55,526 53,997 5,871 10.9%
Restricted loans of consolidated securitization entities 27,653 27,995 25,384 26,421 22,931 4,722 20.6%
Total loan receivables 87,521 78,879 77,853 81,947 76,928 10,593 13.8%
Less: Allowance for loan losses (6,223) (5,859) (5,738) (5,574) (5,361) (862) 16.1%
Loan receivables, net 81,298 73,020 72,115 76,373 71,567 9,731 13.6%
Goodwill 1,024 1,024 991 991 991 33 3.3%
Intangible assets, net 1,105 863 780 749 772 333 43.1%
Other assets 1,769 1,761 2,370 1,620 2,001 (232) (11.6)%
Total assets $104,545 $99,122 $95,559 $95,808 $92,548 $11,997 13.0%
 
Liabilities and Equity

 

 

Deposits:
Interest-bearing deposit accounts $62,030 $58,734 $56,285 $56,276 $54,232 $7,798 14.4%
Non-interest-bearing deposit accounts 287 277 285 212 222 65 29.3%
Total deposits 62,317 59,011 56,570 56,488 54,454 7,863 14.4%
Borrowings:
Borrowings of consolidated securitization entities 14,187 12,170 12,214 12,497 11,891 2,296 19.3%
 
Senior unsecured notes 9,554 9,551 8,801 8,302 8,008 1,546 19.3%
Total borrowings 23,741 21,721 21,015 20,799 19,899 3,842 19.3%
Accrued expenses and other liabilities 4,491 3,932 3,618 4,287 3,793 698 18.4%
Total liabilities 90,549 84,664 81,203 81,574 78,146 12,403 15.9%
Equity:
Common stock 1 1 1 1 1 - - %
Additional paid-in capital 9,470 9,486 9,470 9,445 9,429 41 0.4%
Retained earnings 8,355 7,906 7,334 6,809 6,543 1,812 27.7%
Accumulated other comprehensive income: (99) (93) (86) (64) (40) (59) 147.5%
Treasury Stock (3,731) (2,842) (2,363) (1,957) (1,531) (2,200) 143.7%
Total equity 13,996 14,458 14,356 14,234 14,402 (406) (2.8)%
Total liabilities and equity $104,545 $99,122 $95,559 $95,808 $92,548 $11,997 13.0%
 
SYNCHRONY FINANCIAL                                
AVERAGE BALANCES, NET INTEREST INCOME AND NET INTEREST MARGIN
(unaudited, $ in millions)
 
Quarter Ended
Sep 30, 2018 Jun 30, 2018 Mar 31, 2018 Dec 31, 2017 Sep 30, 2017
Interest Average Interest Average Interest Average Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate Balance Expense Rate Balance Expense Rate
Assets
Interest-earning assets:
Interest-earning cash and equivalents $7,901 $39 1.96% $13,097 $59 1.81% $12,434 $47 1.53% $13,591 $43 1.26% $11,895 $37 1.23%
Securities available for sale 7,022 38 2.15% 6,803 34 2.00% 5,584 25 1.82% 3,725 15 1.60% 3,792 14 1.46%
 
Loan receivables:
Credit cards, including held for sale 83,609 4,538 21.53% 74,809 4,010 21.50% 76,181 4,099 21.82% 75,389 4,161 21.90% 73,172 4,111 22.29%
Consumer installment loans 1,753 41 9.28% 1,648 37 9.01% 1,572 36 9.29% 1,568 36 9.11% 1,543 35 9.00%
Commercial credit products 1,355 37 10.83% 1,346 34 10.13% 1,286 36 11.35% 1,375 35 10.10% 1,392 36 10.26%
Other 66 1 NM 50 - - % 51 1 NM 37 1 NM 58 - - %
Total loan receivables, including held for sale 86,783 4,617 21.11% 77,853 4,081 21.03% 79,090 4,172 21.39% 78,369 4,233 21.43% 76,165 4,182 21.78%
Total interest-earning assets 101,706 4,694 18.31% 97,753 4,174 17.13% 97,108 4,244 17.72% 95,685 4,291 17.79% 91,852 4,233 18.28%
 
Non-interest-earning assets:
Cash and due from banks 1,217 1,161 1,197 1,037 877
Allowance for loan losses (5,956) (5,768) (5,608) (5,443) (5,125)
Other assets 3,482 3,068 3,010 3,219 3,517
Total non-interest-earning assets (1,257) (1,539) (1,401) (1,187) (731)
         
Total assets $100,449 $96,214 $95,707 $94,498 $91,121
 
Liabilities
Interest-bearing liabilities:
Interest-bearing deposit accounts $60,123 $314 2.07% $57,303 $273 1.91% $56,356 $249 1.79% $55,690 $233 1.66% $53,294 $219 1.63%
Borrowings of consolidated securitization entities 12,306 86 2.77% 11,821 80 2.71% 12,410 74 2.42% 12,425 70 2.24% 11,759 65 2.19%
- - % - %
Senior unsecured notes 9,552 88 3.66% 9,114 84 3.70% 8,795 79 3.64% 7,940 72 3.60% 8,251 73 3.51%
Total interest-bearing liabilities 81,981 488 2.36% 78,238 437 2.24% 77,561 402 2.10% 76,055 375 1.96% 73,304 357 1.93%
 
Non-interest-bearing liabilities
Non-interest-bearing deposit accounts 275 270 300 218 232
Other liabilities 3,772 3,299 3,570 3,716 3,154
Total non-interest-bearing liabilities 4,047 3,569 3,870 3,934 3,386
         
Total liabilities 86,028 81,807 81,431 79,989 76,690
 
Equity
Total equity 14,421 14,407 14,276 14,509 14,431
         
Total liabilities and equity $100,449 $96,214 $95,707 $94,498 $91,121
Net interest income $4,206 $3,737 $3,842 $3,916 $3,876
 
Interest rate spread (1) 15.95% 14.89% 15.62% 15.83% 16.35%
Net interest margin (2) 16.41% 15.33% 16.05% 16.24% 16.74%
                                                               
(1) Interest rate spread represents the difference between the yield on total interest-earning assets and the rate on total interest-bearing liabilities.
(2) Net interest margin represents net interest income divided by average interest-earning assets.
SYNCHRONY FINANCIAL              
AVERAGE BALANCES, NET INTEREST INCOME AND NET INTEREST MARGIN
(unaudited, $ in millions)
 
Nine Months Ended

Sep 30, 2018

Nine Months Ended

Sep 30, 2017

Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
Assets
Interest-earning assets:
Interest-earning cash and equivalents $11,128 $145 1.74% $11,073 $86 1.04%
Securities available for sale 6,475 97 2.00% 4,732 44 1.24%
 
Loan receivables:
Credit cards, including held for sale 78,227 12,647 21.62% 71,920 11,780 21.90%
Consumer installment loans 1,658 114 9.19% 1,465 101 9.22%
Commercial credit products 1,329 107 10.76% 1,363 104 10.20%
Other 56 2 4.77% 55 1 2.43%
Total loan receivables, including held for sale 81,270 12,870 21.17% 74,803 11,986 21.42%
Total interest-earning assets 98,873 13,112 17.73% 90,608 12,116 17.88%
 
Non-interest-earning assets:
Cash and due from banks 1,192 836
Allowance for loan losses (5,779) (4,774)
Other assets 3,188 3,334
Total non-interest-earning assets (1,399) (604)
   
Total assets $97,474 $90,004
 
Liabilities
Interest-bearing liabilities:
Interest-bearing deposit accounts $57,941 $836 1.93% $52,325 $615 1.57%
Borrowings of consolidated securitization entities 12,178 240 2.63% 12,096 193 2.13%
Senior unsecured notes 9,156 251 3.67% 7,983 208 3.48%
Total interest-bearing liabilities 79,275 1,327 2.24% 72,404 1,016 1.88%
 
Non-interest-bearing liabilities
Non-interest-bearing deposit accounts 282 230
Other liabilities 3,548 2,971
Total non-interest-bearing liabilities 3,830 3,201
   
Total liabilities 83,105 75,605
 
Equity
Total equity 14,369 14,399
   
Total liabilities and equity $97,474 $90,004
Net interest income $11,785 $11,100
 
Interest rate spread (1) 15.49% 16.00%
Net interest margin (2) 15.94% 16.38%
                           
(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
Sep 30,

2018

Jun 30,

2018

Mar 31,

2018

Dec 31,

2017

Sep 30,

2017

Sep 30, 2018 vs.

Sep 30, 2017

BALANCE SHEET STATISTICS

Total common equity $13,996 $14,458 $14,356 $14,234 $14,402 $(406) (2.8)%
Total common equity as a % of total assets 13.39% 14.59% 15.02% 14.86% 15.56% (2.17)%
 
Tangible assets $102,416 $97,235 $93,788 $94,068 $90,785 $11,631 12.8%
Tangible common equity(1) $11,867 $12,571 $12,585 $12,494 $12,639 $(772) (6.1)%
Tangible common equity as a % of tangible assets(1) 11.59% 12.93% 13.42% 13.28% 13.92% (2.33)%
Tangible common equity per share(1) $16.51 $16.84 $16.55 $16.22 $16.15 $0.36 2.2%
 

REGULATORY CAPITAL RATIOS (2)

Basel III Fully Phased-in (3) Basel III Transition
Total risk-based capital ratio(4) 15.5% 18.0% 18.1% 17.3% 18.7%
Tier 1 risk-based capital ratio(5) 14.2% 16.6% 16.8% 16.0% 17.3%
Tier 1 leverage ratio(6) 12.3% 13.6% 13.7% 13.8% 14.6%
Common equity Tier 1 capital ratio 14.2% 16.6% 16.8% 16.0% 17.3%
 
Basel III Fully Phased-in
Common equity Tier 1 capital ratio 14.2% 16.6% 16.8% 15.8% 17.2%
                             
(1) Tangible common equity ("TCE") is a non-GAAP measure. We believe TCE is a more meaningful measure of the net asset value of the Company to investors. For corresponding reconciliation of TCE to a GAAP financial measure, see Reconciliation of Non-GAAP Measures and Calculations of Regulatory Measures.
(2) Regulatory capital metrics at September 30, 2018 are preliminary and therefore subject to change.
(3) Amounts presented do not reflect certain modifications to the regulatory capital rules proposed by the federal banking agencies in September 2017, which among other things, may increase the risk weighting of certain deferred tax assets from 100% to 250% if the proposed rule becomes effective.
(4) Total risk-based capital ratio is the ratio of total risk-based capital divided by risk-weighted assets.
(5) Tier 1 risk-based capital ratio is the ratio of Tier 1 capital divided by risk-weighted assets.
(6) Tier 1 leverage ratio is the ratio of Tier 1 capital divided by total average assets, after certain adjustments. 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 Nine Months Ended
Sep 30,

2018

Jun 30,

2018

Mar 31,

2018

Dec 31,

2017

Sep 30,

2017

3Q'18 vs. 3Q'17 Sep 30,

2018

 

Sep 30,

2017

YTD'18 vs. YTD'17

RETAIL CARD

Purchase volume(1)(2) $29,264 $27,340 $23,382 $29,839 $26,347 $2,917 11.1% $79,986 $76,400 $3,586 4.7%
Period-end loan receivables $60,564 $52,918 $52,531 $56,230 $52,119 $8,445 16.2% $60,564 $52,119 $8,445 16.2%
Average loan receivables, including held for sale $60,389 $52,427 $53,673 $53,256 $51,817 $8,572 16.5% $55,522 $51,002 $4,520 8.9%
Average active accounts (in thousands)(2)(3) 59,846 54,092 55,927 56,113 54,471 5,375 9.9% 57,140 54,639 2,501 4.6%
 
Interest and fees on loans(2) $3,465 $2,993 $3,096 $3,133 $3,102 $363 11.7% $9,554 $8,890 $664 7.5%
Other income(2) $51 $48 $65 $49 $61 $(10) (16.4)% $164 $163 $1 0.6%
Retailer share arrangements(2) $(851) $(644) $(714) $(771) $(795) $(56) 7.0% $(2,209) $(2,133) $(76) 3.6%
 

PAYMENT SOLUTIONS

Purchase volume(1) $4,606 $4,288 $3,823 $4,366 $4,178 $428 10.2% $12,717 $11,794 $923 7.8%
Period-end loan receivables $17,639 $16,875 $16,513 $16,857 $16,153 $1,486 9.2% $17,639 $16,153 $1,486 9.2%
Average loan receivables $17,234 $16,562 $16,629 $16,386 $15,848 $1,386 8.7% $16,810 $15,538 $1,272 8.2%
Average active accounts (in thousands)(3) 9,675 9,433 9,545 9,421 9,183 492 5.4% 9,569 9,108 461 5.1%
 
Interest and fees on loans $601 $566 $562 $574 $559 $42 7.5% $1,729 $1,607 $122 7.6%
Other income $4 $4 $2 $2 $2 $2 100.0% $10 $12 $(2) (16.7)%
Retailer share arrangements $(17) $(7) $(4) $(5) $(9) $(8) 88.9% $(28) $(19) $(9) 47.4%
 

CARECREDIT

Purchase volume(1) $2,573 $2,640 $2,421 $2,360 $2,368 $205 8.7% $7,634 $7,055 $579 8.2%
Period-end loan receivables $9,318 $9,086 $8,809 $8,860 $8,656 $662 7.6% $9,318 $8,656 $662 7.6%
Average loan receivables $9,160 $8,864 $8,788 $8,727 $8,500 $660 7.8% $8,938 $8,263 $675 8.2%
Average active accounts (in thousands)(3) 5,961 5,819 5,851 5,814 5,677 284 5.0% 5,885 5,572 313 5.6%
 
Interest and fees on loans $551 $522 $514 $526 $521 $30 5.8% $1,587 $1,489 $98 6.6%
Other income $8 $11 $8 $11 $13 $(5) (38.5)% $27 $51 $(24) (47.1)%
Retailer share arrangements $(3) $(2) $(2) $(3) $(1) $(2) NM $(7) $(6) $(1) 16.7%
 

TOTAL SYF

Purchase volume(1)(2) $36,443 $34,268 $29,626 $36,565 $32,893 $3,550 10.8% $100,337 $95,249 $5,088 5.3%
Period-end loan receivables $87,521 $78,879 $77,853 $81,947 $76,928 $10,593 13.8% $87,521 $76,928 $10,593 13.8%
Average loan receivables, including held for sale $86,783 $77,853 $79,090 $78,369 $76,165 $10,618 13.9% $81,270 $74,803 $6,467 8.6%
Average active accounts (in thousands)(2)(3) 75,482 69,344 71,323 71,348 69,331 6,151 8.9% 72,594 69,319 3,275 4.7%
 
Interest and fees on loans(2) $4,617 $4,081 $4,172 $4,233 $4,182 $435 10.4% $12,870 $11,986 $884 7.4%
Other income(2) $63 $63 $75 $62 $76 $(13) (17.1)% $201 $226 $(25) (11.1)%
Retailer share arrangements(2) $(871) $(653) $(720) $(779) $(805) $(66) 8.2% $(2,244) $(2,158) $(86) 4.0%
                                           
(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
Sep 30,

2018

Jun 30,

2018

Mar 31,

2018

Dec 31,

2017

Sep 30,

2017

COMMON EQUITY MEASURES

GAAP Total common equity $13,996 $14,458 $14,356 $14,234 $14,402
Less: Goodwill (1,024) (1,024) (991) (991) (991)
Less: Intangible assets, net (1,105) (863) (780) (749) (772)
Tangible common equity $11,867 $12,571 $12,585 $12,494 $12,639
Adjustments for certain deferred tax liabilities and certain items in accumulated comprehensive income (loss) 311 287 278 254 344
Basel III - Common equity Tier 1 (fully phased-in) $12,178 $12,858 $12,863 $12,748 $12,983
Adjustment related to capital components during transition 142 142
Basel III - Common equity Tier 1 (transition) $12,890 $13,125
 

RISK-BASED CAPITAL

Common equity Tier 1 $12,178 $12,858 $12,863 $12,890 $13,125
Add: Allowance for loan losses includible in risk-based capital 1,137 1,027 1,015 1,064 1,001
Risk-based capital $13,315 $13,885 $13,878 $13,954 $14,126
 

ASSET MEASURES

Total average assets $100,449 $96,214 $95,707 $94,498 $91,121
Adjustments for:
Disallowed goodwill and other disallowed intangible assets

(net of related deferred tax liabilities) and other

(1,836) (1,670) (1,560) (1,392) (1,304)
Total assets for leverage purposes $98,613 $94,544 $94,147 $93,106 $89,817
 
Risk-weighted assets - Basel III (fully phased-in) $85,941 $77,322 $76,509 $80,526 $75,614
Risk-weighted assets - Basel III (transition) $80,669 $75,729
 

TANGIBLE COMMON EQUITY PER SHARE

GAAP book value per share $19.47 $19.37 $18.88 $18.47 $18.40
Less: Goodwill (1.42) (1.37) (1.30) (1.29) (1.27)
Less: Intangible assets, net (1.54) (1.16) (1.03) (0.96) (0.98)
Tangible common equity per share $16.51 $16.84 $16.55 $16.22 $16.15
 

ADJUSTED NET EARNINGS

GAAP net earnings $671 $696 $640 $385 $555
Adjustment for tax law change(2) - - - 160 -
Adjusted net earnings $671 $696 $640 $545 $555
 

ADJUSTED DILUTED EPS

GAAP diluted EPS $0.91 $0.92 $0.83 $0.49 $0.70
Adjustment for tax law change(2) - - - 0.21 -
Adjusted diluted EPS $0.91 $0.92 $0.83 $0.70 $0.70
                       
(1) Regulatory measures at September 30, 2018 are presented on an estimated basis.
(2) Adjustment to exclude the effects to Provision for income taxes in the quarter ended December 31, 2017, resulting from the Tax Act.

Contact:

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