Synchrony Financial Reports Fourth Quarter Net Earnings of $731 Million or $1.15 Per Diluted Share

1/24/20

Synchrony Financial (NYSE: SYF) today announced fourth quarter 2019 net earnings of $731 million, or $1.15 per diluted share; this includes a $38 million pre-tax, $28 million after-tax, or $0.05 per diluted share benefit from a reduction in the reserve related to the sale of the Walmart consumer portfolio, which was completed in October. Highlights included*.

  • Loan receivables decreased 6% to $87.2 billion; loan receivables grew 5% on a Core** basis
  • Interest and fees on loans decreased 6% to $4.5 billion; interest and fees on loans increased 5% on a Core basis
  • Purchase volume was flat at $40.2 billion; purchase volume was up 7% on a Core basis
  • Average active accounts decreased 5% to 74 million; average active accounts grew 3% on a Core basis
  • Deposits grew $1.1 billion, or 2%, to $65.1 billion
  • Announced a new partnership with Verizon making Synchrony the exclusive issuer of Verizon's co-branded consumer credit card which will be launched in the first half of this year
  • Established new Payment Solutions relationships: Mor Furniture for Less, Grand Home Furnishings, Travis Industries, and Leisure Pro
  • Renewed key Payment Solutions relationships: Rooms To Go, BuyMax Alliance, CFMOTO, and Continental Tires
  • CareCredit established a new relationship with Kaiser Permanente, bringing the number of health systems under contract to five, and renewed a key relationship with Demant
  • Paid quarterly common stock dividend of $0.22 per share and repurchased $1.4 billion of Synchrony Financial common stock
  • Issued $750 million of preferred stock

"2019 marked another year of significant transformation for Synchrony. During the year we renewed over 50 partnerships and won 30 new business deals, expanded our CareCredit, Auto and Home networks, significantly enhanced the digital experience for our cardholders, and substantially grew our direct-to-consumer deposit platform. The consistent investments we have made in people and technology have propelled our company forward and empowered leading offerings for our partners and enhanced capabilities and user experiences for our cardholders. Organic growth continues to present the largest opportunity as we have demonstrated in our ability to not only grow existing programs, but also launch new programs with fast-growing partners in new markets," said Margaret Keane, Chief Executive Officer of Synchrony Financial. "Further, we remain focused on executing a capital allocation strategy that helps to drive growth at attractive risk adjusted returns, while maintaining a strong balance sheet and the ability to continue to return capital to shareholders."

Business and Financial Highlights for the Fourth Quarter of 2019*

Earnings

  • Net interest income decreased $304 million, or 7%, to $4.0 billion, with the impact from the sale of the Walmart consumer portfolio offsetting loan receivables growth.
  • Retailer share arrangements increased $174 million, or 20%, to $1.0 billion, mainly driven by improved program performance and growth in loan receivables.
  • Provision for loan losses decreased $348 million, or 24%, to $1.1 billion, largely driven by a lower core reserve build and a reduction in net charge-offs.
  • Other income increased $40 million, or 63%, to $104 million, largely driven by lower loyalty program costs as a result of the sale of the Walmart consumer portfolio.
  • Other expense remained flat at $1.1 billion and included a restructuring charge of $21 million included in employee costs.
  • Net earnings totaled $731 million compared to $783 million last year.

Balance Sheet

  • Period-end loan receivables decreased 6%; On a Core basis, loan receivables increased 5%, purchase volume growth was 7%, and average active accounts increased 3%.
  • Deposits grew to $65.1 billion, up $1.1 billion, or 2%, and comprised 77% of funding.
  • The Company's balance sheet remained strong with total liquidity (liquid assets and undrawn credit facilities) of $23.4 billion, or 22.3% of total assets.
  • The estimated fully phased-in Common Equity Tier 1 ratio under Basel III was 14.1%, compared to 14.0%, reflecting the Company's strong capital generation capabilities while deploying capital through organic growth, program acquisitions, and continued execution of our capital plans.

Key Financial Metrics

  • Return on assets was 2.7% and return on equity was 19.0%.
  • Net interest margin was 15.01%.
  • Efficiency ratio was 34.8%.

Credit Quality

  • Loans 30+ days past due as a percentage of total period-end loan receivables were 4.44% compared to 4.76% last year; excluding the PayPal Credit program and the Walmart portfolio, the rate was flat compared to last year.
  • Net charge-offs as a percentage of total average loan receivables were 5.15% compared to 5.54% last year; excluding the PayPal Credit program and the Walmart portfolio, the rate decreased approximately 15 basis points compared to last year.
  • The allowance for loan losses as a percentage of total period-end loan receivables was 6.42% compared to 6.90% last year.

Sales Platforms

  • Retail Card period-end loan receivables decreased 12%; period-end loan receivables increased 4% on a Core basis primarily driven by digital partners. Interest and fees on loans decreased 10%, purchase volume decreased 2%, and average active accounts decreased 7%, primarily driven by the sale of the Walmart consumer portfolio.
  • Payment Solutions period-end loan receivables grew 4%, which included the impact of the reclassification of the Yamaha portfolio to loan receivables held for sale; period-end loan receivables increased 7% on a Core basis led by home furnishings and home specialty. Interest and fees on loans increased 4%, primarily driven by the loan receivables growth. Purchase volume growth was 6% and average active accounts increased 3%.
  • CareCredit period-end loan receivables grew 8%, led by dental and veterinary. Interest and fees on loans increased 9%, primarily driven by the loan receivables growth. Purchase volume growth was 12% and average active accounts increased 5%.

* All comparisons are for the fourth quarter of 2019 compared to the fourth quarter of 2018, unless otherwise noted.**Financial measures shown above on a Core basis are non-GAAP measures and exclude from both the prior year and the current year amounts related to the Walmart and Yamaha portfolios, sold in October 2019 and January 2020, respectively. See non-GAAP reconciliation in the financial tables.

About Synchrony Financial

Synchrony (NYSE: SYF) is a premier consumer financial services company. We deliver a wide range of specialized financing programs, as well as innovative consumer banking products, across key industries including digital, retail, home, auto, travel, health and pet. Synchrony enables our partners to grow sales and loyalty with consumers. We are one of the largest issuers of private label credit cards in the United States; we also offer co-branded products, installment loans and consumer financing products for small- and medium-sized businesses, as well as healthcare providers.

Synchrony is changing what's possible through our digital capabilities, deep industry expertise, actionable data insights, frictionless customer experience and customized financing solutions.

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