Synchrony Financial : Q2'23 Earnings Press Release (with financial tables)

For Immediate Release

Synchrony Financial (NYSE: SYF)

July 18, 2023

SECOND QUARTER 2023 RESULTS AND KEY METRICS

2.1%	12.3%	$399M	CEO COMMENTARY
Return on	CET1	Capital
Assets	Ratio	Returned

$94.8B

Loan Receivables

Net Earnings of $569 Million or $1.32 per Diluted

Share

Continued Record Level of Purchase Volume, and Strong Receivables Growth

Returned $399 Million of Capital to Shareholders, including $300 Million of Share Repurchases

STAMFORD, Conn. - Synchrony Financial (NYSE: SYF) today announced second quarter 2023 net earnings of $569 million, or $1.32 per diluted share, compared to $804 million, or $1.60 per diluted share in the second quarter 2022.

KEY OPERATING & FINANCIAL METRICS*

PERFORMANCE REFLECTS DIFFERENTIATED BUSINESS MODEL AND CONTINUED STRENGTH OF THE CONSUMER

• Purchase volume remained largely unchanged at $47.3 billion, and increased 6% on a Core basis**
• Loan receivables were $94.8 billion and increased 15%
• Average active accounts increased 1% to 69.5 million, and 7% on a Core basis
• New accounts decreased 1% to 5.9 million, and remained largely unchanged on a Core basis
• Net interest margin decreased 66 basis points to 14.94%
• Efficiency ratio decreased 220 basis points to 35.5%
• Return on assets decreased 130 basis points to 2.1%
• Return on equity decreased 7 percentage points to 17%; return on tangible common equity*** decreased 8.6 percentage points to 21.7%

"Synchrony continues to demonstrate strong growth and financial performance as consumer behavior reverts to pre-pandemic norms - and as our products and value propositions resonate strongly across our diversified set of platforms and partners," said Brian Doubles, Synchrony's President and Chief Executive Officer.

"As we monitor the health of our customers, we are also advancing our key strategic priorities, including the expansion of our multi-product strategy. We have now launched our installment solution suite with over 700 partners, providers and merchants, and are seeing the benefits of deeper relationships with our customers.

"Our differentiated model has benefited the company through evolving environments. We consistently strive to power best-in-class experiences for our customers and strong outcomes for our partners, even as their needs change. As I look ahead to the remainder of this year, I am confident in our ability to execute on our strategic priorities and deliver value to our many stakeholders."

CFO COMMENTARY

"Synchrony's second quarter results demonstrated the benefit of our differentiated model. Our broad reach across industries and compelling value propositions drove continued volume growth, while our disciplined underwriting, diverse funding opportunities and RSA provided effective offsets to changes in the macroeconomic environment," said Brian Wenzel, Synchrony's Executive Vice President and Chief Financial Officer.

"Continuing our commitment to robust capital returns, we announced an incremental $1 billion share repurchase authorization through June of 2024, and a 9% increase in our common stock dividend.

"Synchrony has a long history of capital generation and management, which is empowered by our resilient business model. Given the uncertainties in both the macro environment and the financial services industry, we remain focused on actively managing the assets that we originate, and prudently managing the capital we generate, to optimize Synchrony's long-term value creation and resiliency."

BUSINESS AND FINANCIAL RESULTS FOR THE SECOND QUARTER OF 2023*

BUSINESS HIGHLIGHTS

CONTINUED TO EXPAND PORTFOLIO, ENHANCE PRODUCTS AND EXTEND REACH

• Added or renewed more than 15 programs, including The Container Store, Zulily and NVA
• Expanded multi-product strategy through our installment solution suite, including expanded partnership with At Home as the exclusive provider of a buy now, pay later financing option, Synchrony Pay Later, to offer customers more options and flexibility in how they make their purchases

FINANCIAL HIGHLIGHTS

EARNINGS DRIVEN BY CORE BUSINESS DRIVERS

• Interest and fees on loans increased 19% to $4.8 billion, driven primarily by growth in average loan receivables and higher benchmark rates, partially offset by impacts of portfolios sold during 2Q'22.
• Net interest income increased $318 million, or 8%, to $4.1 billion, driven by higher interest and fees on loans, partially offset by an increase in interest expense from higher benchmark rates and higher funding liabilities.
• Retailer share arrangements decreased $240 million, or 21%, to $887 million, reflecting higher net charge-offs and the impact of portfolios sold during 2Q'22, partially offset by higher net interest income.
• Provision for credit losses increased $659 million to $1.4 billion, driven by higher net charge-offs and a higher reserve build in 2Q'23.
• Other income decreased $137 million, or 69%, to $61 million, driven primarily by a $120 million gain on portfolio sales in 2Q'22.
• Other expense increased $86 million, or 8%, to $1.2 billion, driven primarily by growth related items, as well as operational losses and technology investments, partially offset by additional marketing and site strategy actions in 2Q'22 related to reinvestment of Gain on Sale proceeds.
• Net earnings decreased to $569 million, compared to $804 million.

CREDIT QUALITY

CREDIT CONTINUES TO NORMALIZE IN LINE WITH EXPECTATIONS

• Loans 30+ days past due as a percentage of total period-end loan receivables were 3.84% compared to 2.74% in the prior year, an increase of 110 basis points.
• Net charge-offs as a percentage of total average loan receivables were 4.75% compared to 2.73% in the prior year, an increase of 202 basis points, and continue to normalize consistently with our expectations toward our underwriting target of 5.5-6.0%
• The allowance for credit losses as a percentage of total period-end loan receivables was 10.34%, compared to 10.44% in the first quarter 2023.

SALES PLATFORM HIGHLIGHTS

DIVERSITY ACROSS OUR PLATFORMS CONTINUES TO PROVIDE RESILIENCE

• Home & Auto purchase volume remained flat, as higher transaction values in Furniture and Home Specialty and commercial sales growth were generally offset by lower retail traffic and a reduction in gas prices. Period-end loan receivables increased 10%, reflecting lower payment rates. Interest and fees on loans were up 15%, primarily driven by the growth in loan receivables and higher benchmark rates. Average active accounts increased 6%.
• Digital purchase volume increased 8%, reflecting growth in average active accounts. Period-end loan receivables increased 18%, driven by lower payment rates and continued purchase volume growth. Interest and fees on loans increased 34%, reflecting loan receivables growth, the impact of higher benchmark rates and maturation of newer programs. Average active accounts increased 8%.
• Diversified & Value purchase volume increased 7%, driven by higher out-of-partner spend, strong retailer performance and penetration growth. Period-end loan receivables increased 14%, reflecting purchase volume growth and lower payment rates. Interest and fees on loans increased 32%, driven by the growth in loan receivables and higher benchmark rates. Average active accounts increased 7%.
• Health & Wellness purchase volume increased 17%, reflecting broad-based growth in active accounts and strong customer engagement. Period-end loan receivables increased 22%, driven by continued higher promotional purchase volume and lower payment rates. Interest and fees on loans increased 22%, reflecting the growth in volume and loan receivables. Average active accounts increased 14%.
• Lifestyle purchase volume increased 10%, reflecting stronger transaction values in Outdoor and Luxury. Period-end loan receivables increased 13%, driven by purchase volume growth and lower payment rates. Interest and fees on loans increased 20%, driven primarily by the growth in loan receivables and higher benchmark rates. Average active accounts increased 1%.

BALANCE SHEET, LIQUIDITY & CAPITAL

FUNDING, CAPITAL & LIQUIDITY REMAIN ROBUST

• Loan receivables of $94.8 billion increased 15%; purchase volume remained flat and average active accounts increased 1%.
• Deposits increased $11.1 billion, or 17%, to $75.8 billion and comprised 84% of funding.
• Total liquidity, consisting of liquid assets and undrawn credit facilities, was $19.4 billion, or 17.9% of total assets.
• The company returned $399 million in capital to shareholders, including $300 million of share repurchases and $99 million of common stock dividends.
• As of June 30, 2023, the Company had a total remaining share repurchase authorization of $1 billion.
• The estimated Common Equity Tier 1 ratio was 12.3% compared to 15.2%, and the estimated Tier 1 Capital ratio was 13.1% compared to 16.1%.

• All comparisons are for the second quarter of 2023 compared to the second quarter of 2022, unless otherwise noted.

• Financial measures shown on a Core basis are non-GAAP measures and exclude from both the prior and current years amounts related to portfolios sold in the second quarter of 2022. See non-GAAP reconciliation in
  the financial tables.
• Tangible common equity is a non-GAAP financial measure. See non-GAAP reconciliation in the financial tables.

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, 2022, as filed February 9, 2023, and the Company's forthcoming Quarterly Report on Form 10-Q for the quarter ended June 30, 2023. 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

On Tuesday, July 18, 2023, at 8:00 a.m. Eastern Time, Brian Doubles, President and Chief Executive Officer, and Brian Wenzel Sr., 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 also be available on the website.

ABOUT SYNCHRONY FINANCIAL

Synchrony (NYSE: SYF) is a premier consumer financial services company delivering one of the industry's most complete digitally-enabled product suites. Our experience, expertise and scale encompass a broad spectrum of industries including digital, health and wellness, retail, telecommunications, home, auto, outdoor, pet and more. We have an established and diverse group of national and regional retailers, local merchants, manufacturers, buying groups, industry associations and healthcare service providers, which we refer to as our "partners." We connect our partners and consumers through our dynamic financial ecosystem and provide them with a diverse set of financing solutions and innovative digital capabilities to address their specific needs and deliver seamless, omnichannel experiences. We offer the right financing products to the right customers in their channel of choice.

For more information, visit www.synchrony.com and Twitter: @Synchrony.

Investor Relations	Media Relations
Kathryn Miller	Lisa Lanspery
[phone]	[phone]

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, including the future impacts of the novel coronavirus disease ("COVID-19") outbreak and measures taken in response thereto for which future developments are highly uncertain and difficult to predict; retaining existing partners and attracting new partners, concentration of our revenue in a small number of partners, and promotion and support of our products by our partners; cyber-attacks or other security breaches; disruptions in the operations of our and our outsourced partners' computer systems and data centers; the financial performance of our partners; the sufficiency of our allowance for credit losses and the accuracy of the assumptions or estimates used in preparing our financial statements, including those related to the CECL accounting guidance; 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; damage to our reputation; 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; 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; 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; 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; 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 other legislative and regulatory developments 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 the 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.