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 ended
June 30, 2022, we financed $47.2 billionand $87.7 billionof purchase volume, respectively, and had 68.7 million and 69.4 million average active accounts, respectively, and at June 30, 2022, we had $82.7 billionof 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 the Federal 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 our FDIC-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. At June 30, 2022, we had $64.7 billionin 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 within the 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 and automobile
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 our
Synchrony Car Carenetwork 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 as Ashley HomeStores LTD, Lowe's, and Mattress Firm, as well as automotive merchandise and services, such as Chevronand Discount Tire. In addition, we also have program agreements with buying groups, manufacturers and industry associations, such as Nationwide Marketing Groupand the Home Furnishings Association.
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 as
PayPal, 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 and 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 Cluband 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
Way of life
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 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. 8
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 at
June 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 main 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 Careor 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 at June 30, 2022.
Trade credit products
We offer private label cards and dual cards for business customers that are similar to our consumer offerings. We also offer an accounts receivable payment in full business product to a wide range of business customers.
We originate installment loans to consumers (and a limited number of commercial customers) in
the 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
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 ended
June 30, 2022, see "-Results of Operations."
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 on transaction volumes and loan receivables balance generally causes our operating results, default metrics and allowance for credit losses as a percentage of total loans receivable to fluctuate between periods. quarterly.
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 ended
June 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
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 millionfrom $1.2 billionand to $1.7 billionfrom $2.3 billion. The decreases in the three and six months ended June 30, 2022were 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 billionat June 30, 2022compared to $78.4 billionat June 30, 2021, driven by strong purchase volume growth, partially offset by the sale of $3.8 billionof 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 ended June 30, 2022, respectively. •Net interest income increased 14.8% to $3.8 billionand 12.4% to $7.6 billionfor the three and six months ended June 30, 2022, respectively. Interest and fees on loans increased 13.2% and 10.2% for the three and six months ended months ended June 30, 2022, respectively, driven by growth in average loan receivables. For the three months ended June 30, 2022, interest expense increased due to higher funding liabilities. For the six months ended June 30, 2022, interest expense decreased primarily due to lower benchmark interest rates.
• Stock ownership agreements with retailers increased by 12.0% to reach
•Over-30 day loan delinquencies as a percentage of period-end loan receivables increased 63 basis points to 2.74% at
June 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 ended June 30, 2022. •Provision for credit losses increased by $918 million, or 473%, and $1.1 billion, or 789% for the three and six months ended June 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% at June 30, 2022, as compared to 11.51% at June 30, 2021. •Other expense increased by $135 million, or 14.2%, and $242 million, or 12.9%, for the three and six months ended June 30, 2022, respectively, primarily driven by higher employee costs, marketing and business development, information processing and other expense.
•During the six months ended
June 30, 2022, we declared and paid cash dividends on our Series A 5.625% non-cumulative preferred stock of $28.12per share, or $21 million. •In April 2022, we announced that our Board approved an incremental share repurchase authorization of $2.8 billionthrough June 2023and plans to increase our quarterly dividend by 5% to $0.23per common share commencing in the third quarter of 2022. During the six months ended June 30, 2022, we repurchased $1.7 billionof our outstanding common stock, and declared and paid cash dividends of $0.44per share, or $222 million. At June 30, 2022we have a total share repurchase authorization of $2.4 billionremaining. For more information, see "Capital-Dividend and Share Repurchases." 11
Partner agreements 2022
In the six months ended
•In our Home & Auto sales platform, we announced our new partnership with
Furnitureland Southand extended our agreements with Cardi's, Generac Power Systems, Home Zone, Mathis Brothers, Mattress Warehouse, Mitsubishi Electric Trane HVAC, NAPA AutoCare, New South Window Solutions, Sleep Number and Sit 'N Sleep.
• In our diverse and value selling platform, we have extended our program agreement with
•In our Health & Wellness sales platform, we expanded our network through our new partnerships with
Buffalo Veterinary Group, Rarebreed Veterinary Partners, Service Corporation International and Suveto and extended our agreements with Encore Vet Groupand Lucid.
• We expanded our partnership with AdventHealth to offer CareCredit as our primary patient financing solution across the national footprint.
• In our Lifestyle sales platform, we have extended our program agreements with Guitar Center,
• We launched our SetPay Pay in 4 buy now, pay later solution on Fiserv’s Clover point-of-sale and business management platform.
•We completed the sales of a total of
$3.8 billionof 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 $120 millionincluded within other income in our condensed consolidated statement of earnings.
The following table sets forth our results of operations for the periods indicated.
Three months ended June 30, Six months ended June 30, ($ in millions) 2022 2021 2022 2021 Interest income
$ 4,074 $ 3,578 $ 8,096 $ 7,320Interest 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 $ 2,267Net earnings available to common stockholders $ 793 $ 1,232 $ 1,715 $ 2,24612
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 $ 77,585Total assets $ 96,073 $ 93,389 $ 95,816 $ 94,914Deposits $ 64,357 $ 61,110 $ 63,527 $ 62,085Borrowings $ 13,537 $ 14,425 $ 13,791 $ 15,039Total equity $ 13,462 $ 13,655 $ 13,595 $ 13,365Selected Performance Metrics: Purchase volume(1)(2) $ 47,217 $ 42,121 $ 87,707 $ 76,870Home & Auto $ 12,895 $ 11,523 $ 23,155 $ 20,860Digital $ 12,463 $ 10,930 $ 23,659 $ 20,270Diversified & Value $ 14,388 $ 11,618 $ 25,946 $ 20,838Health & Wellness $ 3,443 $ 2,988 $ 6,550 $ 5,636Lifestyle $ 1,431 $ 1,405 $ 2,626 $ 2,559Corp, Other $ 2,597 $ 3,657 $ 5,771 $ 6,707Average 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 $ 1,383Net 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 $ 78,374Allowance for credit losses $ 8,808 $ 9,023 $ 8,808 $ 9,02330+ 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. 13
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 completed
Rate(1) Balance Expense
Interest-earning assets: Interest-earning cash and equivalents(2)
$ 9,249 $ 200.87 % $ 13,584 $ 40.12 % 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 $ 93,389Liabilities Interest-bearing liabilities: Interest-bearing deposit accounts $ 63,961 $ 1601.00 % $ 60,761 $ 1460.96 % 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 $ 93,389Interest rate spread(4) 15.31 % 13.47 % Net interest income $ 3,802 $ 3,312Net interest margin(5) 15.60 % 13.78 % 14
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
Interest-earning assets: Interest-earning cash and equivalents(2)
$ 9,113 $ 250.55 % $ 14,094 $ 80.11 % 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 $ 94,914Liabilities Interest-bearing liabilities: Interest-bearing deposit accounts $ 63,142 $ 2870.92 % $ 61,737 $ 3161.03 % 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 $ 94,914Interest rate spread(4) 15.43 % 13.56 % Net interest income $ 7,591 $ 6,751Net 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 millionand $538 millionfor the three months ended June 30, 2022and 2021, respectively, and $626 millionand $481 millionfor the six months ended June 30, 2022and 2021, respectively. (3)Interest income on loan receivables includes fees on loans of $631 millionand $489 millionfor the three months ended June 30, 2022and 2021, respectively, and $1.3 billionand $1.0 billionfor the six months ended June 30, 2022and 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
For a summary description of the composition of our material items included in our statements of operations, see the MD&A and Discussion of Financial Condition and Results of Operations in our 2021 Form 10-K.
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