Synchrony Financial : Q1 2023 Basel III Pillar 3 Regulatory Capital Disclosure Report

SYNCHRONY FINANCIAL

Basel III Pillar 3 Regulatory Capital

Disclosure Report

March 31, 2023

	Synchrony Financial
	Table of Contents
	Page
Introduction	4
Capital Structure	5
Capital Adequacy	6
Capital Conservation Buffer	9
Credit Risk: General Disclosures	9
Credit Risk Mitigation	13
Securitizations	13
Equities Not Subject to Market Risk Rule	14
Interest Rate Risk for Non-TradingActivities	15
Appendix A - Disclosure Index	16

Synchrony Financial

Basel III Regulatory Capital Disclosures at March 31, 2023

Certain Defined Terms:

Except as the context may otherwise require in this report, references to:

• "we," "us," "our" and the "Company" are to SYNCHRONY FINANCIAL and its subsidiaries;
• "Synchrony" are to SYNCHRONY FINANCIAL only;
• the "Bank" are to Synchrony Bank (a subsidiary of Synchrony);
• the "Board of Directors" are to Synchrony's board of directors;
• "CECL" are to the impairment model known as the Current Expected Credit Loss model, which is based on expected credit losses; and
• the "Federal Banking Agencies" are to the Board of Governors of the Federal Reserve System ("Federal Reserve Board"), the Office of the Comptroller of the Currency ("OCC") and the Federal Deposit Insurance Corporation ("FDIC"), collectively.

Cautionary Note Regarding Forward-Looking Statements:

Various statements in this report may contain "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 (the "Exchange Act"), 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 (the "Dodd-Frank Act") and other legislative and regulatory developments and the impact of the Consumer Financial Protection Bureau's (the "CFPB") 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 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.

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Synchrony Financial

Basel III Regulatory Capital Disclosures at March 31, 2023

For the reasons described above, we caution you against relying on any forward-looking statements in this report, and you should refer to our periodic and current reports filed with the Securities and Exchange Commission, or "SEC," for further information or other factors, which could cause actual results to be significantly different from those expressed or implied by any forward-looking statements herein.

Introduction

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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." 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 utilize a broad set of distribution channels, including mobile apps and websites, as well as online marketplaces and business management solutions like Point-of-Sale platforms. Our offerings include private label, dual, co-brand and general purpose credit cards, as well as short- and long-term installment loans and consumer banking products.

Basel III Regulatory Capital Framework

In July 2013, the Federal Banking Agencies finalized regulatory capital rules implementing standards originally issued by the Basel Committee on Banking Supervision in December 2010 ("Basel III capital rules"), which became effective for the Company in 2015, subject to phase-in periods through the end of 2018. These rules substantially revised the risk-based capital requirements applicable to insured depository institution holding companies and their insured depository institution subsidiaries as compared to the previous U.S. risk-based capital and leverage ratio rules, and implemented certain provisions of the Dodd-Frank Act.

Basel III has three components (Pillars) including minimum capital requirements, a supervisory review process and market discipline:

Pillar 1 - Minimum capital requirements: Establishes the rules by which regulatory capital can be calculated, including defining eligible capital instruments and calculating risk-weighted assets ("RWA").

Pillar 2 - Supervisory review process: Addresses bank-wide governance and risk management, in addition to requiring banks to have an Internal Capital Adequacy Assessment Process.

Pillar 3 - Market discipline: Establishes regulatory disclosure requirements, which are designed to allow market participants to assess the risk and capital profiles of banks.

Basel III Reporting

This Basel III Pillar 3 Regulatory Capital Disclosure Report (the "Basel III Report") provides Synchrony's disclosures regarding its capital structure, capital adequacy, risk exposures and RWA as required by the Basel III Pillar 3 provisions. The required disclosures apply to Synchrony, with the exception that capital ratios for the Bank must also be disclosed.

The Basel III Report should be read in conjunction with Synchrony's filings with the U.S. Securities and Exchange Commission (SEC) - Annual Report on Form 10-K for the year ended December 31, 2022 ("2022 Form 10-K") and Quarterly Report on Form 10-Q for the period ended March 31, 2023 ("1Q 2023 Form 10-Q"). The Basel III Report has not been audited by Synchrony's external auditors. The Basel III Disclosure Index (Appendix A) specifies where all required disclosures are made.

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Synchrony Financial

Basel III Regulatory Capital Disclosures at March 31, 2023

Basis of Consolidation

The basis of consolidation used for the Company's regulatory reporting is the same as that used under U.S. GAAP. There are no entities that are deconsolidated for regulatory capital purposes or the capital of which is deducted from our capital.

Restrictions on Transfer of Funds and Capital

Synchrony is limited in its ability to pay dividends or repurchase its stock by the Federal Reserve Board, including on the basis that doing so would be an unsafe or unsound banking practice. Where Synchrony intends to declare or pay a dividend or repurchase its stock, Synchrony is expected to inform and consult with the Federal Reserve Board in advance to ensure that such dividend or repurchase does not raise supervisory concerns. It is the policy of the Federal Reserve Board that a savings and loan holding company like Synchrony should generally pay dividends on common stock and preferred stock only out of earnings, and only if prospective earnings retention is consistent with the company's capital needs and overall current and prospective financial condition.

According to guidance from the Federal Reserve Board, Synchrony's dividend policies will be assessed against, among other things, its ability to satisfy applicable minimum capital ratio requirements under the Basel III capital rules. If Synchrony does not satisfy these requirements, Synchrony may not be able to pay dividends. Although Synchrony currently expects to meet applicable requirements of the Basel III capital rules, inclusive of any applicable capital conservation buffer, it cannot be sure that it will do so or even if it does, it will be able to pay dividends.

In evaluating the appropriateness of a proposed redemption or repurchase of stock, the Federal Reserve Board will consider, among other things, the potential loss that Synchrony may suffer from the prospective need to increase reserves and write down assets as a result of continued asset deterioration, and Synchrony's ability to raise additional common equity and other capital to replace the stock that will be redeemed or repurchased. The Federal Reserve Board also will consider the potential negative effects on Synchrony's capital structure of replacing common stock with any lower-tier form of regulatory capital issued.

Further, limitations on the Bank's payments of dividends and other distributions and payments that Synchrony receives from the Bank could limit Synchrony's ability to pay dividends or repurchase its stock. The Bank must obtain the approval of the OCC or give the OCC prior notice before making a capital distribution in certain circumstances, including if the Bank proposes to make a capital distribution when it does not meet certain capital requirements (or will not do so as a result of the proposed capital distribution) or certain net income requirements. In addition, the Bank must file a prior written notice of a planned or declared dividend or other distribution with the Federal Reserve Board. The Federal Reserve Board or OCC may object to a capital distribution if, among other things, (i) the Bank is, or as a result of such distribution would be, undercapitalized, significantly undercapitalized, or critically undercapitalized, (ii) the regulators have safety and soundness concerns or (iii) the distribution violates a prohibition in a statute, regulation, agreement between the Bank and the OCC or between Synchrony and the Federal Reserve Board, or a condition imposed on the Bank or Synchrony in an application or notice approved by the OCC or the Federal Reserve Board, respectively.

For further information on restrictions on transfers of funds and capital, refer to "Regulation-RegulationRelating to Our Business-Savingsand Loan Holding Company Regulation-Dividendsand Stock Repurchases" in the 2022 Form 10-K.

Capital Structure

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Capital Instruments and Regulatory Capital

Synchrony's regulatory capital instruments primarily consist of common stock and preferred stock. For additional information, refer to the Company's Condensed Consolidated Statement of Financial Position in the 1Q 2023 Form 10-Q.

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