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

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

“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.”

  • 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.

Contacts

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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In Q1, Synchrony continued to see organic growth, with the launch of new programs and strategic investments.

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