Synchrony Reports Second Quarter Net Earnings of $48 Million

7/21/20

Synchrony Financial (NYSE: SYF) today announced second quarter 2020 earnings results amid the continuing Coronavirus (COVID-19) pandemic. Synchrony reported second quarter 2020 net earnings of $48 million, or $0.06 per diluted share; this includes an increase in the provision for credit losses as a result of CECL implementation earlier this year of $483 million, or $365 million after tax, which equates to an EPS reduction of $0.63. Highlights included*:

  • Loan receivables decreased 4% to $78.3 billion, or 3% on a Core** basis
  • Interest and fees on loans decreased 18% to $3.8 billion, or 7% on a Core basis
  • Purchase volume decreased 19% to $31.2 billion, or 13% on a Core basis
  • Average active accounts decreased 14% to 65 million, or 5% on a Core basis
  • Deposits decreased $1.5 billion, or 2%, to $64.1 billion
  • Successfully launched the new Verizon program
  • Established new relationships with Adorama, AdventHealth, Club Champion, Hisun, and Modani
  • Renewed and extended key relationships with CarX, Englert, Bernina, Hanks, Puronics, Vanderhall, and West Coast Dental
  • Returned $128 million in capital through common stock dividends

"We continue to support our employees, partners, customers and communities during the uncertainty of today's health and economic crisis. In addition, our country is awakening to the need to meaningfully address racial injustice and equality. We continue to be guided by the principle of putting clients, partners, shareholders and communities at the forefront of all we do, and believe that the values which underpin our organization will empower us to become an even stronger, better company," said Margaret Keane, Chief Executive Officer of Synchrony Financial. "As we navigate this new environment, we remain acutely focused on the future of our business. During the quarter, we successfully launched an exciting new program with Verizon and extended several programs, while also adding new partnerships. We believe we have an advantageous position as the shift to digital has accelerated—we will continue to prioritize investments to augment our digital assets and capabilities to meet the rapidly evolving needs of our cardholders and partners."

Business and Financial Highlights for the Second Quarter of 2020*

Earnings

  • Net interest income decreased $759 million, or 18%, to $3.4 billion, mainly due to the Walmart consumer portfolio sale and impact of COVID-19.
  • Retailer share arrangements decreased $86 million, or 10%, to $773 million, reflecting the initial impact of COVID-19 on program performance.
  • Provision for credit losses increased $475 million, or 40%, to $1.7 billion, mainly driven by the reserve increase for the projected impact of COVID-19 related losses and the prior year reserve reduction related to Walmart.
  • Other income increased $5 million, or 6%, to $95 million.
  • Other expense decreased $73 million, or 7%, mainly due to the cost reductions from Walmart, lower purchase volume and accounts as well as reductions in certain discretionary spend, partially offset by higher operational losses, expenses related to the COVID-19 response and charitable contributions.
  • Net earnings totaled $48 million compared to $853 million last year.

Balance Sheet

  • Period-end loan receivables decreased 4%, or 3% on a Core basis; purchase volume decreased 19%, or 13% on a Core basis; and average active accounts decreased 14%, or 5% on a Core basis.
  • Deposits decreased $1.5 billion, or 2%, to $64.1 billion and comprised 80% of funding.
  • The Company's balance sheet remained strong with total liquidity (liquid assets and undrawn credit facilities) of $28.0 billion, or 29.0% of total assets.
  • The Company has elected to defer the regulatory capital effects of CECL for two years; the estimated Common Equity Tier 1 ratio was 15.3% compared to 14.3%, and the estimated Tier 1 Capital ratio was 16.3% compared to 14.3%, reflecting the Company's strong capital generation capabilities. The estimated Tier 1 Capital ratio also reflects the $750 million preferred stock issuance in November 2019.

Key Financial Metrics

  • Return on assets was 0.2% and return on equity was 1.6%.
  • Net interest margin was 13.53%.
  • Efficiency ratio was 36.3%.

Credit Quality

  • Loans 30+ days past due as a percentage of total period-end loan receivables were 3.13% compared to 4.43% last year; excluding the Walmart consumer portfolio, the rate was down approximately 90 basis points compared to last year.
  • Net charge-offs as a percentage of total average loan receivables were 5.35% compared to 6.01% last year; excluding the Walmart consumer portfolio, the rate decreased approximately 20 basis points compared to last year.
  • The allowance for credit losses as a percentage of total period-end loan receivables was 12.52%.

Sales Platforms

  • Retail Card period-end loan receivables decreased 4%, driven primarily by the impact from COVID-19, partially offset by growth in digital partners. Interest and fees on loans decreased 22%, purchase volume decreased 17%, and average active accounts decreased 18%, driven primarily by the sale of the Walmart consumer portfolio and the decline in loan receivables.
  • Payment Solutions period-end loan receivables decreased 3%; period-end loan receivables increased 1% on a Core basis led by growth in Power, substantially offset by the impact from COVID-19. Interest and fees on loans decreased 8%, driven primarily by lower late fees. Purchase volume decreased 19% and average active accounts decreased 3%.
  • CareCredit period-end loan receivables decreased 5%, driven primarily by the impact from COVID-19, partially offset by growth in Veterinary. Interest and fees on loans decreased 4%, driven primarily by lower merchant discount as a result of the decline in purchase volume, which decreased 31%. Average active accounts decreased 2%.

* All comparisons are for the second quarter of 2020 compared to the second quarter of 2019, 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.

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