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 2020 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 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. We provide a range of credit products through our financing programs which we have established with a 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, 2021 , we financed$42.1 billion and$76.9 billion of purchase volume, respectively, and had 65.8 million and 66.2 million average active accounts, respectively, and atJune 30, 2021 , we had$78.4 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 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 and savings accounts. 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, 2021 , we had$59.8 billion in deposits, which represented 81% 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 operations are withinthe United States . InJune 2021 , we announced organizational changes aimed to further align the company's activities with its partners and evolving consumer expectations, while leveraging our innovation, data, expertise and scale to deliver products and capabilities to market faster. As part of these changes, we established aGrowth Organization that includes our marketing, data, analytics, customer experience and product development teams in one cohesive group and we also combined our Technology and Operations teams. For our sales activities, we now 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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[[Image Removed: syf-20210630_g2.jpg]] 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, and includes partners such asAshley Homestores LTD and Lowe's, as well as ourSynchrony Car Care network and Synchrony HOME credit card offering. 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, including partners such as Amazon and PayPal. Diversified & Value Our Diversified & Value sales platform provides comprehensive payments and financing solutions with integrated in-store and digital experiences through partners and merchants who offer a wide assortment of merchandise, including partners such as JCPenney andSam's Club . 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. 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. 7
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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 includes amounts associated with our program agreement with Gap Inc. which is scheduled to expire inApril 2022 . Corp, Other also includes amounts related to changes in the fair value of equity investments and realized gains or losses associated with sale of investments. 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, 2021 . Promotional Offer Credit Product Standard Terms Only Deferred Interest Other Promotional Total Credit cards 60.6 % 18.6 % 15.8 % 95.0 % Commercial credit products 1.7 - - 1.7 Consumer installment loans - 0.1 3.1 3.2 Other 0.1 - - 0.1 Total 62.4 % 18.7 % 18.9 % 100.0 % Credit Cards We typically 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 is extended either on standard terms 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, in limited circumstances, a Synchrony-branded general purpose credit card. Credit extended under our Dual Cards and general purpose co-branded credit cards typically is extended on standard terms only. We offer either Dual Cards or general purpose co-branded credit cards across all of our sales platforms, spanning 21 ongoing partners and our CareCredit Dual Card, of which the majority are Dual Cards. Consumer Dual Cards and Co-Branded cards totaled 23% of our total loan receivables portfolio atJune 30, 2021 . 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. 8
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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). Installment loans are closed-end credit accounts where the customer pays down the outstanding balance in installments. Installment loans are assessed periodic finance charges using fixed interest rates. 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 2020 Form 10-K. For a discussion of how certain trends and conditions impacted the three and six months endedJune 30, 2021 , 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 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 remain evident, we also continue to experience improvements in customer payment behavior, which include the effects of governmental stimulus actions and industry-wide forbearance measures. Customer payments as a percentage of beginning-of-period loan receivables for the three months endedJune 30, 2021 were approximately 280 basis points higher than our prior five-year historical average for the second quarter. These higher payment rates have resulted in reductions in loan receivables and delinquency rates beyond our seasonal expectations. 9
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Results of Operations ____________________________________________________________________________________________ Highlights for the Three and Six Months EndedJune 30, 2021 Below are highlights of our performance for the three and six months endedJune 30, 2021 compared to the three and six months endedJune 30, 2020 , as applicable, except as otherwise noted. •Net earnings increased to$1.2 billion from$48 million and to$2.3 billion from$334 million for the three and six months endedJune 30, 2021 , respectively, primarily driven by lower provision for credit losses and decreases in other expense, partially offset by lower net interest income. •Loan receivables increased slightly to$78.4 billion atJune 30, 2021 compared to$78.3 billion atJune 30, 2020 , primarily driven by higher purchase volume, largely offset by improvements in customer payment behavior reflecting the impact of government stimulus, industry-wide forbearance actions and lower discretionary spend during the prior year shutdowns. •Net interest income decreased 2.5% to$3.3 billion and 7.3% to$6.8 billion for the three and six months endedJune 30, 2021 , respectively, primarily due to decreases in interest and fees on loans driven by an increase in payment rates and lower delinquencies, partially offset by decreases in interest expense primarily attributed to lower benchmark interest rates. •Retailer share arrangements increased 30.1% to$1.0 billion and 17.4% to$2.0 billion for the three and six months endedJune 30, 2021 , respectively, primarily due to the decrease in the provision for credit losses, including lower net charge-offs, and program performance. •Over-30 day loan delinquencies as a percentage of period-end loan receivables decreased 102 basis points to 2.11% atJune 30, 2021 , and the net charge-off rate decreased 178 basis points to 3.57% and 176 basis points to 3.59% for the three and six months endedJune 30, 2021 , respectively. •Provision for credit losses decreased by$1.9 billion , or 111.6%, and$3.2 billion , or 95.8% for the three and six months endedJune 30, 2021 , respectively, primarily driven by lower reserves and lower net charge-offs. Our allowance coverage ratio (allowance for credit losses as a percent of period-end loan receivables) decreased to 11.51% atJune 30, 2021 , as compared to 12.52% atJune 30, 2020 . •Other expense decreased by$38 million , or 3.9%, and$108 million , or 5.4%, for the three and six months endedJune 30, 2021 , respectively, primarily driven by lower operational losses, partially offset by increases in employee costs, marketing and business development and information processing. •AtJune 30, 2021 , deposits represented 81% of our total funding sources. Total deposits decreased by 4.7% to$59.8 billion atJune 30, 2021 , compared toDecember 31, 2020 . •During the six months endedJune 30, 2021 , we declared and paid cash dividends on our Series A 5.625% non-cumulative preferred stock of$28.12 per share, or$21 million . •During the six months endedJune 30, 2021 , we repurchased$593 million of our outstanding common stock, and declared and paid cash dividends of$0.44 per share, or$256 million . InMay 2021 we announced that the Board of Directors approved a new share repurchase program of up to$2.9 billion for the period which commencedApril 1, 2021 throughJune 30, 2022 , subject to market conditions and other factors, including legal and regulatory restrictions and required approvals, if any. •InFebruary 2021 in our Health & Wellness sales platform, we completed our acquisition of Allegro Credit, a leading provider of point-of-sale consumer financing for audiology products and dental services. 2021 Partner Agreements •In our Home & Auto sales platform, we announced our new partnership with BoxDrop and extended our program agreements withAshley HomeStores LTD , CITGO,Mitchell Gold Co. and Phillips 66. 10
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•In our Digital sales platform, we extended our program agreement with Shop HQ. •In our Diversified & Value sales platform, we extended our program agreement with TJX Companies, Inc. •In our Health & Wellness sales platform, we expanded our network through our new partnerships withEmory Healthcare ,Mercy Health ,Ochsner Health ,Prime Health ,Southern Veterinary Partners and Sycle. In addition, we also made our CareCredit patient financing app available in the EpicApp Orchard , further expanding the availability of CareCredit to healthcare organizations using Epic. •In our Lifestyle sales platform, we announced our new partnerships withFamily Farm & Home and JCB and extended our program agreements with American Eagle, Daniels,Sutherlands andTacony Corporation . •InApril 2021 , we announced that we will not be renewing our program agreement with Gap Inc. when it expires onApril 30, 2022 . We expect our strategic options will be accretive to dilutive earnings per share relative to renewal terms and if the portfolio is sold we expect to recognize a gain on sale of the portfolio and redeploy approximately$1 billion of capital. •Excluding our program agreement with Gap Inc., our five largest programs based upon interest and fees on loans for the year endedDecember 31, 2020 were Amazon, JCPenney, Lowe's,PayPal andSam's Club . Information About Our Executive Officers and Board of Directors •The following events were effectiveApril 1, 2021 : •Margaret Keane, 61, Synchrony's Chief Executive Officer ("CEO"), transitioned roles from CEO to Executive Chair of the Board. •Brian Doubles, 45, Synchrony's President, succeededMs. Keane to become President and CEO, and joined the Board as a director. •Rick Hartnack, 75, Non-Executive Chair of the Board, retired. •Jeffrey Naylor, 62, became Lead Independent Director of the Board. •The following appointments were effectiveJune 14, 2021 : •Mike Bopp, 48, now leads the Growth organization as EVP, Chief Growth Officer. •Carol Juel, 48, now leads the Technology and Operations organization as EVP, Chief Technology and Operating Officer. •Alberto Casellas, 54, now leads the Health & Wellness sales platform as EVP, CEO Health & Wellness. •Curtis Howse, 57, now leads the Home & Auto sales platform as EVP, CEO Home & Auto. •Tom Quindlen, 58, now leads the Diversified & Value sales platform and the Lifestyle sales platform as EVP, CEO Diversified & Value and Lifestyle. •Bart Schaller, 52, now leads the Digital sales platform as EVP, CEO Digital. 11
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Summary Earnings The following table sets forth our results of operations for the periods indicated.
Three months ended June 30, Six months ended June 30,
($ in millions) 2021 2020 2021 2020
Interest income $ 3,578 $ 3,830 $ 7,320 $ 8,237
Interest expense 266 434 569 951
Net interest income 3,312 3,396 6,751 7,286
Retailer share arrangements (1,006) (773) (1,995) (1,699)
Provision for credit losses (194) 1,673 140 3,350
Net interest income, after retailer share
arrangements and provision for credit
losses 2,500 950 4,616 2,237
Other income 89 95 220 192
Other expense 948 986 1,880 1,988
Earnings before provision for income
taxes 1,641 59 2,956 441
Provision for income taxes 399 11 689 107
Net earnings $ 1,242 $ 48 $ 2,267 $ 334
Net earnings available to common
stockholders $ 1,232 $ 37 $ 2,246 $ 312
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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) 2021 2020 2021 2020
Financial Position Data (Average):
Loan receivables, including held for sale $ 76,821 $ 78,697 $ 77,585 $ 81,563
Total assets $ 93,389 $ 97,958 $ 94,914 $ 99,340
Deposits $ 61,110 $ 64,607 $ 62,085 $ 64,636
Borrowings $ 14,425 $ 16,821 $ 15,039 $ 17,807
Total equity $ 13,655 $ 12,181 $ 13,365 $ 12,386
Selected Performance Metrics:
Purchase volume(1)(2) $ 42,121 $ 31,155 $ 76,870 $ 63,197
Home & Auto $ 12,209 $ 9,729 $ 22,124 $ 18,833
Digital $ 10,930 $ 8,439 $ 20,270 $ 15,833
Diversified & Value $ 11,618 $ 7,683 $ 20,838 $ 17,084
Health & Wellness $ 2,988 $ 1,952 $ 5,636 $ 4,611
Lifestyle $ 1,405 $ 1,286 $ 2,559 $ 2,283
Corp, Other $ 2,971 $ 2,066 $ 5,443 $ 4,553
Average active accounts (in
thousands)(2)(3) 65,810 64,836 66,163 68,401
Net interest margin(4) 13.78 % 13.53 % 13.88 % 14.35 %
Net charge-offs $ 684 $ 1,046 $ 1,383 $ 2,171
Net charge-offs as a % of average loan
receivables, including held for sale 3.57 % 5.35 % 3.59 % 5.35 %
Allowance coverage ratio(5) 11.51 % 12.52 % 11.51 % 12.52 %
Return on assets(6) 5.3 % 0.2 % 4.8 % 0.7 %
Return on equity(7) 36.5 % 1.6 % 34.2 % 5.4 %
Equity to assets(8) 14.62 % 12.43 % 14.08 % 12.47 %
Other expense as a % of average loan
receivables, including held for sale 4.95 % 5.04 % 4.89 % 4.90 %
Efficiency ratio(9) 39.6 % 36.3 % 37.8 % 34.4 %
Effective income tax rate 24.3 % 18.6 % 23.3 % 24.3 %
Selected Period-End Data:
Loan receivables $ 78,374 $ 78,313 $ 78,374 $ 78,313
Allowance for credit losses $ 9,023 $ 9,802 $ 9,023 $ 9,802
30+ days past due as a % of period-end loan
receivables(10) 2.11 % 3.13 % 2.11 % 3.13 %
90+ days past due as a % of period-end loan
receivables(10) 1.00 % 1.77 % 1.00 % 1.77 %
Total active accounts (in thousands)(2)(3) 66,892 63,430 66,892 63,430
______________________
(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.
2021 2020
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)$ 13,584 $ 4 0.12 %$ 15,413 $ 3 0.08 % Securities available for sale 5,988 7 0.47 % 6,804 19 1.12 % Loan receivables, including held for sale(3): Credit cards 72,989 3,484 19.15 % 75,942 3,740 19.81 % Consumer installment loans 2,417 59 9.79 % 1,546 37 9.63 % Commercial credit products 1,363 23 6.77 % 1,150 30 10.49 % Other 52 1 NM 59 1 NM Total loan receivables, including held for sale 76,821 3,567 18.62 % 78,697 3,808 19.46 % Total interest-earning assets 96,393 3,578 14.89 % 100,914 3,830 15.26 % Non-interest-earning assets: Cash and due from banks 1,559 1,486 Allowance for credit losses (9,801) (9,221) Other assets 5,238 4,779 Total non-interest-earning assets (3,004) (2,956) Total assets$ 93,389 $ 97,958 Liabilities Interest-bearing liabilities: Interest-bearing deposit accounts$ 60,761 $ 146 0.96 %$ 64,298 $ 293 1.83 % Borrowings of consolidated securitization entities 7,149 44 2.47 % 8,863 59 2.68 % Senior unsecured notes 7,276 76 4.19 % 7,958 82 4.14 % Total interest-bearing liabilities 75,186 266 1.42 % 81,119 434 2.15 % Non-interest-bearing liabilities: Non-interest-bearing deposit accounts 349 309 Other liabilities 4,199 4,349 Total non-interest-bearing liabilities 4,548 4,658 Total liabilities 79,734 85,777 Equity Total equity 13,655 12,181 Total liabilities and equity$ 93,389 $ 97,958 Interest rate spread(4) 13.47 % 13.11 % Net interest income$ 3,312 $ 3,396 Net interest margin(5) 13.78 % 13.53 % 14
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2021 2020
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)$ 14,094 $ 8 0.11 %$ 14,158 $ 45 0.64 % Securities available for sale 6,378 13 0.41 % 6,379 44 1.39 % Loan receivables, including held for sale(3): Credit cards 73,921 7,141 19.48 % 78,830 8,012 20.44 % Consumer installment loans 2,319 112 9.74 % 1,489 72 9.72 % Commercial credit products 1,297 44 6.84 % 1,196 63 10.59 % Other 48 2 8.40 % 48 1 4.19 % Total loan receivables, including held for sale 77,585 7,299 18.97 % 81,563 8,148 20.09 % Total interest-earning assets 98,057 7,320 15.05 % 102,100 8,237 16.22 % Non-interest-earning assets: Cash and due from banks 1,597 1,468 Allowance for credit losses (10,012) (8,965) Other assets 5,272 4,737 Total non-interest-earning assets (3,143) (2,760) Total assets$ 94,914 $ 99,340 Liabilities Interest-bearing liabilities: Interest-bearing deposit accounts$ 61,737 $ 316 1.03 %$ 64,332 $ 649 2.03 % Borrowings of consolidated securitization entities 7,420 95 2.58 % 9,425 132 2.82 % Senior unsecured notes 7,619 158 4.18 % 8,382 170 4.08 % Total interest-bearing liabilities 76,776 569 1.49 % 82,139 951 2.33 % Non-interest-bearing liabilities: Non-interest-bearing deposit accounts 348 304 Other liabilities 4,425 4,511 Total non-interest-bearing liabilities 4,773 4,815 Total liabilities 81,549 86,954 Equity Total equity 13,365 12,386 Total liabilities and equity$ 94,914 $ 99,340 Interest rate spread(4) 13.56 % 13.89 % Net interest income$ 6,751 $ 7,286 Net interest margin(5) 13.88 % 14.35 % _______________________ (1)Average yields/rates are based on total interest income/expense over average balances. (2)Includes average restricted cash balances of$538 million and$645 million for the three months endedJune 30, 2021 and 2020, respectively, and$481 million and$813 million for the six months endedJune 30, 2021 and 2020, respectively. (3)Interest income on loan receivables includes fees on loans of$489 million and$448 million for the three months endedJune 30, 2021 and 2020, respectively, and$1.0 billion and$1.1 billion for the six months endedJune 30, 2021 and 2020, 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 2020 Form 10-K. Interest Income Interest income decreased by$252 million , or 6.6%, and$917 million , or 11.1%, for the three and six months endedJune 30, 2021 , respectively, primarily driven by decreases in interest and fees on loans attributed to improvements in customer payment behavior and lower delinquencies.
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