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

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.