SYNCHRONY FINANCIAL The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this quarterly report and in our 2021 Form 10-K. The discussion below contains forward-looking statements that are based upon current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations. See "Cautionary Note Regarding Forward-Looking Statements." Introduction and Business Overview ____________________________________________________________________________________________ We are 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." For the three and six months endedJune 30, 2022 , we financed$47.2 billion and$87.7 billion of purchase volume, respectively, and had 68.7 million and 69.4 million average active accounts, respectively, and atJune 30, 2022 , we had$82.7 billion of loan receivables. We offer our credit products primarily through our wholly-owned subsidiary, the Bank. In addition, through the Bank, we offer, directly to retail, affinity relationships and commercial customers, a range of deposit products insured by theFederal Deposit Insurance Corporation ("FDIC"), including certificates of deposit, individual retirement accounts ("IRAs"), money market accounts, savings accounts and sweep and affinity deposits. We also take deposits at the Bank through third-party securities brokerage firms that offer ourFDIC -insured deposit products to their customers. We have significantly expanded our online direct banking operations in recent years and our deposit base serves as a source of stable and diversified low cost funding for our credit activities. AtJune 30, 2022 , we had$64.7 billion in deposits, which represented 84% of our total funding sources. Our Sales Platforms _________________________________________________________________ We conduct our operations through a single business segment. Profitability and expenses, including funding costs, credit losses and operating expenses, are managed for the business as a whole. Substantially all of our revenue activities are withinthe United States . We primarily manage our credit products through five sales platforms (Home & Auto, Digital, Diversified & Value, Health & Wellness and Lifestyle). Those platforms are organized by the types of partners we work with, and are measured on interest and fees on loans, loan receivables, active accounts and other sales metrics. 6
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Home & Auto
Our Home & Auto sales platform provides comprehensive payments and financing solutions with integrated in-store and digital experiences through a broad network of partners and merchants providing home and automotive merchandise and services, as well as ourSynchrony Car Care network and Synchrony HOME credit card offering. Our Home & Auto sales platform partners include a wide range of key retailers in the home improvement, furniture, bedding, appliance and electronics industry, such asAshley HomeStores LTD , Lowe's, and Mattress Firm, as well as automotive merchandise and services, such asChevron andDiscount Tire . In addition, we also have program agreements with buying groups, manufacturers and industry associations, such asNationwide Marketing Group and theHome Furnishings Association .
Digital
Our Digital sales platform provides comprehensive payments and financing solutions with integrated digital experiences through partners and merchants who primarily engage with their consumers through digital channels. Our Digital sales platform includes key partners delivering digital payment solutions, such asPayPal , including our Venmo program, online marketplaces, such as Amazon and eBay, and digital-first brands and merchants, such as Verizon, the Qurate brands, and Fanatics.
Diversified & Value
Our Diversified & Value sales platform provides comprehensive payments and financing solutions with integrated in-store and digital experiences through large retail partners who deliver everyday value to consumers shopping for daily needs or important life moments. Our Diversified & Value sales platform is comprised of five large retail partners: Belk,Fleet Farm , JCPenney,Sam's Club and TJX Companies, Inc. Health & Wellness Our Health & Wellness sales platform provides comprehensive healthcare payments and financing solutions, through a network of providers and health systems, for those seeking health and wellness care for themselves, their families and their pets, and includes key brands such as CareCredit and Pets Best, as well as partners such as Walgreens. 7
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Lifestyle
Lifestyle provides comprehensive payments and financing solutions with integrated in-store and digital experiences through partners and merchants who offer merchandise in power sports, outdoor power equipment, and other industries such as sporting goods, apparel, jewelry and music. Our Lifestyle sales platform partners includes a wide range of key retailers in the apparel, specialty retail, outdoor, music and luxury industry, such as American Eagle, Dick's Sporting Goods, Guitar Center, Polaris and Pandora.
Corp, Other
Corp, Other includes activity and balances related to certain program agreements
with retail partners and merchants that will not be renewed beyond their current
expiry date and certain programs that were previously terminated, which are not
managed within the five sales platforms discussed above, and primarily includes
activity associated with the Gap Inc. and BP portfolios, which were both sold in
the second quarter of 2022. Corp, Other also includes amounts related to changes
in the fair value of equity investments and realized gains or losses associated
with the sale of investments.
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Our Credit Products ____________________________________________________________________________________________ Through our sales platforms, we offer three principal types of credit products: credit cards, commercial credit products and consumer installment loans. We also offer a debt cancellation product. The following table sets forth each credit product by type and indicates the percentage of our total loan receivables that are under standard terms only or pursuant to a promotional financing offer atJune 30, 2022 . Promotional Offer Credit Product Standard Terms Only Deferred Interest Other Promotional Total Credit cards 57.8 % 20.4 % 16.2 % 94.4 % Commercial credit products 2.0 - - 2.0 Consumer installment loans 0.1 0.1 3.3 3.5 Other 0.1 - - 0.1 Total 60.0 % 20.5 % 19.5 % 100.0 % Credit Cards
We offer the following principal types of credit cards:
•Private Label Credit Cards. Private label credit cards are partner-branded credit cards (e.g., Lowe's or Amazon) or program-branded credit cards (e.g.,Synchrony Car Care or CareCredit) that are used primarily for the purchase of goods and services from the partner or within the program network. In addition, in some cases, cardholders may be permitted to access their credit card accounts for cash advances. Credit under our private label credit cards typically is extended either on standard terms only or pursuant to a promotional financing offer. •Dual Cards and General Purpose Co-Branded Cards. Our patented Dual Cards are credit cards that function as private label credit cards when used to purchase goods and services from our partners, and as general purpose credit cards when used to make purchases from other retailers wherever cards from those card networks are accepted or for cash advance transactions. We also offer general purpose co-branded credit cards that do not function as private label credit cards, as well as a Synchrony-branded general purpose credit card. Dual Cards and general purpose co-branded credit cards are offered across all of our sales platforms and credit is typically extended on standard terms only. We offer either Dual Cards or general purpose co-branded credit cards through 22 credit partners, of which the majority are Dual Cards, as well as our CareCredit Dual Card. Consumer Dual Cards and Co-Branded cards totaled 22% of our total loan receivables portfolio atJune 30, 2022 .
Commercial Credit Products
We offer private label cards and Dual Cards for commercial customers that are similar to our consumer offerings. We also offer a commercial pay-in-full accounts receivable product to a wide range of business customers.
Installment Loans
We originate installment loans to consumers (and a limited number of commercial customers) inthe United States , primarily in the power products market (motorcycles, ATVs and lawn and garden), as well as through our various SetPay installment products (such as our SetPay Pay in 4 product for short-term loans). Installment loans are closed-end credit accounts where the customer pays down the outstanding balance in installments. Installment loans are generally assessed periodic finance charges using fixed interest rates. 9
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Business Trends and Conditions ____________________________________________________________________________________________ We believe our business and results of operations will be impacted in the future by various trends and conditions. For a discussion of certain trends and conditions, see "Management's Discussion and Analysis of Financial Condition and Results of Operations-Business Trends and Conditions" in our 2021 Form 10-K. For a discussion of how certain trends and conditions impacted the three and six months endedJune 30, 2022 , see "-Results of Operations."
Seasonality
____________________________________________________________________________________________
We experience fluctuations in transaction volumes and the level of loan receivables as a result of higher seasonal consumer spending and payment patterns that typically result in an increase of loan receivables from August through a peak in late December, with reductions in loan receivables typically occurring over the first and second quarters of the following year as customers pay their balances down.
The seasonal impact to transaction volumes and the loan receivables balance typically results in fluctuations in our results of operations, delinquency metrics and the allowance for credit losses as a percentage of total loan receivables between quarterly periods.
In addition to the seasonal variance in loan receivables discussed above, we also typically experience a seasonal increase in delinquency rates and delinquent loan receivables balances during the third and fourth quarters of each year due to lower customer payment rates, resulting in higher net charge-off rates in the first and second quarters. Our delinquency rates and delinquent loan receivables balances typically decrease during the subsequent first and second quarters as customers begin to pay down their loan balances and return to current status, resulting in lower net charge-off rates in the third and fourth quarters. Because customers who were delinquent during the fourth quarter of a calendar year have a higher probability of returning to current status when compared to customers who are delinquent at the end of each of our interim reporting periods, we expect that a higher proportion of delinquent accounts outstanding at an interim period end will result in charge-offs, as compared to delinquent accounts outstanding at a year end. Consistent with this historical experience, we generally experience a higher allowance for credit losses as a percentage of total loan receivables at the end of an interim period, as compared to the end of a calendar year. In addition, despite improving credit metrics such as declining past due amounts, we may experience an increase in our allowance for credit losses at an interim period end compared to the prior year end, reflecting these same seasonal trends. While the effects of the seasonal trends discussed above have remained evident during the six months endedJune 30, 2022 , we also continue to experience elevated customer payment behavior, which include the effects of governmental stimulus actions, industry-wide forbearance measures and elevated consumer savings. Customer payments as a percentage of beginning-of-period loan receivables remain significantly elevated compared to historical averages. These higher customer payment levels, and resulting impact to both delinquency rates and net charge-off rates, have acted as a partial offset to the seasonal impact to our financial results and metrics that we typically experience. 10
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Results of Operations
____________________________________________________________________________________________
Highlights for the Three and Six Months Ended
Below are highlights of our performance for the three and six months ended
•Net earnings decreased to$804 million from$1.2 billion and to$1.7 billion from$2.3 billion . The decreases in the three and six months endedJune 30, 2022 were primarily driven by increases in provision for credit losses due to reserve releases in the prior year, partially offset by higher net interest income. •Loan receivables increased to$82.7 billion atJune 30, 2022 compared to$78.4 billion atJune 30, 2021 , driven by strong purchase volume growth, partially offset by the sale of$3.8 billion of loan receivables in the second quarter of 2022. Excluding the impact of the sale of these portfolios, loan receivables increased 11.5% reflecting strong purchase volume growth of 12.1% and 14.1% for the three and six months endedJune 30, 2022 , respectively. •Net interest income increased 14.8% to$3.8 billion and 12.4% to$7.6 billion for the three and six months endedJune 30, 2022 , respectively. Interest and fees on loans increased 13.2% and 10.2% for the three and six months ended months endedJune 30, 2022 , respectively, driven by growth in average loan receivables. For the three months endedJune 30, 2022 , interest expense increased due to higher funding liabilities. For the six months endedJune 30, 2022 , interest expense decreased primarily due to lower benchmark interest rates.
•Retailer share arrangements increased 12.0% to
•Over-30 day loan delinquencies as a percentage of period-end loan receivables increased 63 basis points to 2.74% atJune 30, 2022 . The net charge-off rate decreased 84 basis points to 2.73% and 86 basis points to 2.73% for the three and six months endedJune 30, 2022 . •Provision for credit losses increased by$918 million , or 473%, and$1.1 billion , or 789% for the three and six months endedJune 30, 2022 , respectively, primarily driven by reserve releases in the prior year periods, partially offset by lower net charge-offs. Our allowance coverage ratio (allowance for credit losses as a percent of period-end loan receivables) decreased to 10.65% atJune 30, 2022 , as compared to 11.51% atJune 30, 2021 . •Other expense increased by$135 million , or 14.2%, and$242 million , or 12.9%, for the three and six months endedJune 30, 2022 , respectively, primarily driven by higher employee costs, marketing and business development, information processing and other expense.
•At
•During the six months endedJune 30, 2022 , we declared and paid cash dividends on our Series A 5.625% non-cumulative preferred stock of$28.12 per share, or$21 million . •InApril 2022 , we announced that our Board approved an incremental share repurchase authorization of$2.8 billion throughJune 2023 and plans to increase our quarterly dividend by 5% to$0.23 per common share commencing in the third quarter of 2022. During the six months endedJune 30, 2022 , we repurchased$1.7 billion of our outstanding common stock, and declared and paid cash dividends of$0.44 per share, or$222 million . AtJune 30, 2022 we have a total share repurchase authorization of$2.4 billion remaining. For more information, see "Capital-Dividend and Share Repurchases." 11
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2022 Partner Agreements
During the six months ended
•In our Home & Auto sales platform, we announced our new partnership withFurnitureland South and extended our agreements withCardi's ,Generac Power Systems ,Home Zone ,Mathis Brothers ,Mattress Warehouse , Mitsubishi Electric Trane HVAC, NAPA AutoCare, New South Window Solutions, Sleep Number andSit 'N Sleep .
•In our Diversified & Value sales platform, we extended our program agreement
with
•In our Health & Wellness sales platform, we expanded our network through our new partnerships withBuffalo Veterinary Group ,Rarebreed Veterinary Partners , Service Corporation International and Suveto and extended our agreements withEncore Vet Group and Lucid.
•We expanded our partnership with AdventHealth to offer CareCredit as the primary patient financing solution across nationwide footprint.
•In our Lifestyle sales platform, we extended our program agreements with Guitar
Center,
•We launched our SetPay Pay in 4 buy now, pay later solution on the Clover point-of-sale and business management platform from Fiserv.
•We completed the sales of a total of$3.8 billion of loan receivables associated with our program agreements with Gap Inc. and BP during the second quarter of 2022, and recognized a gain on sale of$120 million included within other income in our condensed consolidated statement of earnings.
Summary Earnings
The following table sets forth our results of operations for the periods indicated.
Three months ended June 30, Six months ended June 30,
($ in millions) 2022 2021 2022 2021
Interest income $ 4,074 $ 3,578 $ 8,096 $ 7,320
Interest expense 272 266 505 569
Net interest income 3,802 3,312 7,591 6,751
Retailer share arrangements (1,127) (1,006) (2,231) (1,995)
Provision for credit losses 724 (194) 1,245 140
Net interest income, after retailer share
arrangements and provision for credit
losses 1,951 2,500 4,115 4,616
Other income 198 89 306 220
Other expense 1,083 948 2,122 1,880
Earnings before provision for income
taxes 1,066 1,641 2,299 2,956
Provision for income taxes 262 399 563 689
Net earnings $ 804 $ 1,242 $ 1,736 $ 2,267
Net earnings available to common
stockholders $ 793 $ 1,232 $ 1,715 $ 2,246
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Other Financial and Statistical Data
The following table sets forth certain other financial and statistical data for the periods indicated.
At and for the At and for the
Three months ended June 30, Six months ended June 30,
($ in millions) 2022 2021 2022 2021
Financial Position Data (Average):
Loan receivables, including held for
sale $ 83,412 $ 76,821 $ 83,081 $ 77,585
Total assets $ 96,073 $ 93,389 $ 95,816 $ 94,914
Deposits $ 64,357 $ 61,110 $ 63,527 $ 62,085
Borrowings $ 13,537 $ 14,425 $ 13,791 $ 15,039
Total equity $ 13,462 $ 13,655 $ 13,595 $ 13,365
Selected Performance Metrics:
Purchase volume(1)(2) $ 47,217 $ 42,121 $ 87,707 $ 76,870
Home & Auto $ 12,895 $ 11,523 $ 23,155 $ 20,860
Digital $ 12,463 $ 10,930 $ 23,659 $ 20,270
Diversified & Value $ 14,388 $ 11,618 $ 25,946 $ 20,838
Health & Wellness $ 3,443 $ 2,988 $ 6,550 $ 5,636
Lifestyle $ 1,431 $ 1,405 $ 2,626 $ 2,559
Corp, Other $ 2,597 $ 3,657 $ 5,771 $ 6,707
Average active accounts (in
thousands)(2)(3) 68,671 65,810 69,438 66,163
Net interest margin(4) 15.60 % 13.78 % 15.70 % 13.88 %
Net charge-offs $ 567 $ 684 $ 1,125 $ 1,383
Net charge-offs as a % of average loan
receivables, including held for sale 2.73 % 3.57 % 2.73 % 3.59 %
Allowance coverage ratio(5) 10.65 % 11.51 % 10.65 % 11.51 %
Return on assets(6) 3.4 % 5.3 % 3.7 % 4.8 %
Return on equity(7) 24.0 % 36.5 % 25.8 % 34.2 %
Equity to assets(8) 14.01 % 14.62 % 14.19 % 14.08 %
Other expense as a % of average loan
receivables, including held for sale 5.21 % 4.95 % 5.15 % 4.89 %
Efficiency ratio(9) 37.7 % 39.6 % 37.5 % 37.8 %
Effective income tax rate 24.6 % 24.3 % 24.5 % 23.3 %
Selected Period-End Data:
Loan receivables $ 82,674 $ 78,374 $ 82,674 $ 78,374
Allowance for credit losses $ 8,808 $ 9,023 $ 8,808 $ 9,023
30+ days past due as a % of period-end
loan receivables(10) 2.74 % 2.11 % 2.74 % 2.11 %
90+ days past due as a % of period-end
loan receivables(10) 1.22 % 1.00 % 1.22 % 1.00 %
Total active accounts (in
thousands)(2)(3) 65,969 66,892 65,969 66,892
______________________
(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 accounts 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.
(4)Net interest margin represents net interest income divided by average
interest-earning assets.
(5)Allowance coverage ratio represents allowance for credit losses divided by
total period-end loan receivables.
(6)Return on assets represents net earnings as a percentage of average total
assets.
(7)Return on equity represents net earnings as a percentage of average total
equity.
(8)Equity to assets represents average total equity as a percentage of average
total assets.
(9)Efficiency ratio represents (i) other expense, divided by (ii) sum of net
interest income, plus other income, less retailer share arrangements.
(10)Based on customer statement-end balances extrapolated to the respective
period-end date.
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Average Balance Sheet
The following tables set forth information for the periods indicated regarding
average balance sheet data, which are used in the discussion of interest income,
interest expense and net interest income that follows.
2022 2021
Interest Average Interest Average
Average Income / Yield / Average Income/ Yield /
Three months ended
Rate(1) Balance Expense Rate(1)
Assets
Interest-earning assets: Interest-earning cash and equivalents(2)$ 9,249 $ 20 0.87 %$ 13,584 $ 4 0.12 % Securities available for sale 5,063 15 1.19 % 5,988 7 0.47 % Loan receivables, including held for sale(3): Credit cards 78,912 3,943 20.04 % 72,989 3,484 19.15 % Consumer installment loans 2,775 69 9.97 % 2,417 59 9.79 % Commercial credit products 1,654 25 6.06 % 1,363 23 6.77 % Other 71 2 11.30 52 1 NM Total loan receivables, including held for sale 83,412 4,039 19.42 % 76,821 3,567 18.62 % Total interest-earning assets 97,724 4,074 16.72 % 96,393 3,578 14.89 % Non-interest-earning assets: Cash and due from banks 1,614 1,559 Allowance for credit losses (8,651) (9,801) Other assets 5,386 5,238 Total non-interest-earning assets (1,651) (3,004) Total assets$ 96,073 $ 93,389 Liabilities Interest-bearing liabilities: Interest-bearing deposit accounts$ 63,961 $ 160 1.00 %$ 60,761 $ 146 0.96 % Borrowings of consolidated securitization entities 6,563 40 2.44 % 7,149 44 2.47 % Senior unsecured notes 6,974 72 4.14 % 7,276 76 4.19 % Total interest-bearing liabilities 77,498 272 1.41 % 75,186 266 1.42 % Non-interest-bearing liabilities: Non-interest-bearing deposit accounts 396 349 Other liabilities 4,717 4,199 Total non-interest-bearing liabilities 5,113 4,548 Total liabilities 82,611 79,734 Equity Total equity 13,462 13,655 Total liabilities and equity$ 96,073 $ 93,389 Interest rate spread(4) 15.31 % 13.47 % Net interest income$ 3,802 $ 3,312 Net interest margin(5) 15.60 % 13.78 % 14
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2022 2021
Interest Average Interest Average
Average Income / Yield / Average Income/ Yield /
Six months ended June 30 ($ in millions) Balance Expense Rate(1) Balance Expense Rate(1)
Assets
Interest-earning assets: Interest-earning cash and equivalents(2)$ 9,113 $ 25 0.55 %$ 14,094 $ 8 0.11 % Securities available for sale 5,287 24 0.92 % 6,378 13 0.41 % Loan receivables, including held for sale(3): Credit cards 78,738 7,856 20.12 % 73,921 7,141 19.48 % Consumer installment loans 2,729 135 9.98 % 2,319 112 9.74 % Commercial credit products 1,545 53 6.92 % 1,297 44 6.84 % Other 69 3 8.77 48 2 8.40 % Total loan receivables, including held for sale 83,081 8,047 19.53 % 77,585 7,299 18.97 % Total interest-earning assets 97,481 8,096 16.75 % 98,057 7,320 15.05 % Non-interest-earning assets: Cash and due from banks 1,620 1,597 Allowance for credit losses (8,663) (10,012) Other assets 5,378 5,272 Total non-interest-earning assets (1,665) (3,143) Total assets$ 95,816 $ 94,914 Liabilities Interest-bearing liabilities: Interest-bearing deposit accounts$ 63,142 $ 287 0.92 %$ 61,737 $ 316 1.03 % Borrowings of consolidated securitization entities 6,695 73 2.20 % 7,420 95 2.58 % Senior unsecured notes 7,096 145 4.12 % 7,619 158 4.18 % Total interest-bearing liabilities 76,933 505 1.32 % 76,776 569 1.49 % Non-interest-bearing liabilities: Non-interest-bearing deposit accounts 385 348 Other liabilities 4,903 4,425 Total non-interest-bearing liabilities 5,288 4,773 Total liabilities 82,221 81,549 Equity Total equity 13,595 13,365 Total liabilities and equity$ 95,816 $ 94,914 Interest rate spread(4) 15.43 % 13.56 % Net interest income$ 7,591 $ 6,751 Net interest margin(5) 15.70 % 13.88 % ____________________ (1)Average yields/rates are based on total interest income/expense over average balances. (2)Includes average restricted cash balances of$637 million and$538 million for the three months endedJune 30, 2022 and 2021, respectively, and$626 million and$481 million for the six months endedJune 30, 2022 and 2021, respectively. (3)Interest income on loan receivables includes fees on loans of$631 million and$489 million for the three months endedJune 30, 2022 and 2021, respectively, and$1.3 billion and$1.0 billion for the six months endedJune 30, 2022 and 2021, respectively. (4)Interest rate spread represents the difference between the yield on total interest-earning assets and the rate on total interest-bearing liabilities. (5)Net interest margin represents net interest income divided by average total interest-earning assets. 15
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For a summary description of the composition of our key line items included in our Statements of Earnings, see Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2021 Form 10-K.
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