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, powersports, 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 months ended
March 31, 2022, we financed $40.5 billionof purchase volume and had 70.1 million average active accounts, and at March 31, 2022, we had $78.9 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 March 31, 2022, we had $63.6 billionin deposits, which represented 83% 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 amounts associated with our program agreements with Gap Inc. and BP which are scheduled to expire 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
March 31, 2022. Promotional Offer Credit Product Standard Terms Only Deferred Interest Other Promotional Total Credit cards 57.5 % 20.6 % 16.4 % 94.5 % Commercial credit products 1.9 - - 1.9 Consumer installment loans 0.1 0.1 3.3 3.5 Other 0.1 - - 0.1 Total 59.6 % 20.7 % 19.7 % 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 21 credit partners, of which the majority are Dual Cards, as well as our CareCredit Dual Card. Consumer Dual Cards and Co-Branded cards totaled 25% of our total loan receivables portfolio, including held for sale, at March 31, 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 months ended
March 31, 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 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. The seasonal trends discussed above are most evident between the fourth quarter and the first quarter of the following year. In addition to these seasonal trends, we continue to experience improvements in 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 for the three months ended
March 31, 2022were approximately 45 basis points higher than the prior year period, and are significantly elevated compared to historical averages. Loan receivables decreased by $1.8 billion, or 2.3% to $78.9 billionat March 31, 2022compared to $80.7 billionat December 31, 2021, and our allowance for credit losses as a percentage of total loan receivables increased to 10.96% at March 31, 2022, from 10.76% at December 31, 2021, reflecting the seasonal trends discussed above. Past due balances increased to $2.2 billionat March 31, 2022from $2.1 billionat December 31, 2021as the effects from some moderation in elevated payment rates exceeded the impact of the seasonal trends we experienced. 10
Results of Operations ____________________________________________________________________________________________ Highlights for the Three Months Ended
Below are highlights of our performance for the three months ended
March 31, 2022compared to the three months ended March 31, 2021, as applicable, except as otherwise noted. •Net earnings decreased to $932 millionfrom $1.0 billion. The decrease in the three months ended March 31, 2022was primarily driven by increases in provision for credit losses, retailer share arrangements and other expense, partially offset by higher net interest income. •Loan receivables increased to $78.9 billionat March 31, 2022compared to $76.9 billionat March 31, 2021, driven by strong purchase volume growth, partially offset by the reclassification of loan receivables associated with the Gap Inc and BP portfolios to loan receivables held for sale. Loan receivables held for sale at March 31, 2022were $4.0 billion. Excluding the impact of the reclassifications of these portfolios to loan receivables held for sale, loan receivables increased 7.9% reflecting strong purchase volume growth of 16.5%, partially offset by elevated customer payment rates. •Net interest income increased 10.2% to $3.8 billionfor the three months ended March 31, 2022. Interest and fees on loans increased by $276 million, or 7.4%, driven by growth in average loan receivables and interest expense decreased by $70 million, or 23.1%, primarily attributed to lower benchmark rates and lower funding liabilities.
• Stock ownership agreements with retailers increased by 11.6% to reach
•Over-30 day loan delinquencies as a percentage of period-end loan receivables decreased 5 basis points to 2.78% at
March 31, 2022. Excluding amounts related to the held for sale portfolios, the decrease compared to the prior year was approximately 15 basis points. The net charge-off rate decreased 89 basis points to 2.73% for the three months ended March 31, 2022. •Provision for credit losses increased by $187 million, or 56.0% for the three months ended March 31, 2022primarily driven by a lower reserve release compared to prior year, partially offset by lower net charge-offs. The reduction in reserves for credit losses in the current year included a $29 millionreserve reduction related to the held for sale portfolios. Our allowance coverage ratio (allowance for credit losses as a percent of period-end loan receivables) decreased to 10.96% at March 31, 2022, as compared to 12.88% at March 31, 2021.
•Other expenses increased by
• During the three months ended
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 three months ended March 31, 2022, we repurchased $967 millionof our outstanding common stock, and declared and paid cash dividends of $0.22per share, or $114 million. Inclusive of the $251 millionof remaining authorized share repurchase capacity at March 31, 2022we have a total share repurchase authorization of $3.1 billion. For more information, see "Capital-Dividend and Share Repurchases." 11
Partner agreements 2022
During the quarter ended
• In our Home & Auto sales platform, we announced our new partnership with
• In our Health and Wellness sales platform, we have expanded our network thanks to our new partnerships with
•In our Lifestyle retail platform, we have extended our program agreements with Guitar Center and Reeds.
Summary Earnings The following table sets forth our results of operations for the periods indicated. Three months ended March 31, ($ in millions) 2022 2021 Interest income
$ 4,022 $ 3,742Interest expense 233 303 Net interest income 3,789 3,439 Retailer share arrangements (1,104) (989) Provision for credit losses 521 334 Net interest income, after retailer share arrangements and provision for credit losses 2,164 2,116 Other income 108 131 Other expense 1,039 932 Earnings before provision for income taxes 1,233 1,315 Provision for income taxes 301 290 Net earnings $ 932 $ 1,025Net earnings available to common stockholders $
Other financial and statistical data
The following table sets forth certain other financial and statistical data for the periods indicated. At and for the Three months ended March 31, ($ in millions) 2022 2021 Financial Position Data (Average): Loan receivables, including held for sale
$ 82,747 $ 78,358Total assets $ 95,556 $ 96,455Deposits $ 62,688 $ 63,070Borrowings $ 14,046 $ 15,659Total equity $ 13,731 $ 13,071Selected Performance Metrics: Purchase volume(1)(2) $ 40,490 $ 34,749Home & Auto $ 10,260 $ 9,337Digital $ 11,196 $ 9,340Diversified & Value $ 11,558 $ 9,220Health & Wellness $ 3,107 $ 2,648Lifestyle $ 1,195 $ 1,154Corp, Other $ 3,174 $ 3,050Average active accounts (in thousands)(2)(3) 70,127 66,280 Net interest margin(4) 15.80 % 13.98 % Net charge-offs $ 558 $ 699
Net write-offs as % of average loan receivables, including held for sale
2.73 % 3.62 % Allowance coverage ratio(5) 10.96 % 12.88 % Return on assets(6) 4.0 % 4.3 % Return on equity(7) 27.5 % 31.8 % Equity to assets(8) 14.37 % 13.55 % Other expense as a % of average loan receivables, including held for sale 5.09 % 4.82 % Efficiency ratio(9) 37.2 % 36.1 % Effective income tax rate 24.4 % 22.1 % Selected Period-End Data: Loan receivables
$ 78,916 $ 76,858Allowance for credit losses $ 8,651 $ 9,90130+ days past due as a % of period-end loan receivables(10) 2.78 % 2.83 % 90+ days past due as a % of period-end loan receivables(10) 1.30 % 1.52 % Total active accounts (in thousands)(2)(3) 69,122 65,219 ______________________ (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)
$ 8,976 $ 50.23 % $ 14,610 $ 40.11 % Securities available for sale 5,513 9 0.66 % 6,772 6 0.36 % Loan receivables, including held for sale(3): Credit cards 78,564 3,913 20.20 % 74,865 3,657 19.81 % Consumer installment loans 2,682 66 9.98 % 2,219 53 9.69 % Commercial credit products 1,434 28 7.92 % 1,231 21 6.92 % Other 67 1 NM 43 1 NM Total loan receivables, including held for sale 82,747 4,008 19.64 % 78,358 3,732 19.32 % Total interest-earning assets 97,236 4,022 16.78 % 99,740 3,742 15.22 % Non-interest-earning assets: Cash and due from banks 1,626 1,635 Allowance for credit losses (8,675) (10,225) Other assets 5,369 5,305 Total non-interest-earning assets (1,680) (3,285) Total assets $ 95,556 $ 96,455Liabilities Interest-bearing liabilities: Interest-bearing deposit accounts $ 62,314 $ 1270.83 % $ 62,724 $ 1701.10 % Borrowings of consolidated securitization entities 6,827 33 1.96 % 7,694 51 2.69 % Senior unsecured notes 7,219 73 4.10 % 7,965 82 4.18 % Total interest-bearing liabilities 76,360 233 1.24 % 78,383 303 1.57 % Non-interest-bearing liabilities: Non-interest-bearing deposit accounts 374 346 Other liabilities 5,091 4,655 Total non-interest-bearing liabilities 5,465 5,001 Total liabilities 81,825 83,384 Equity Total equity 13,731 13,071 Total liabilities and equity $ 95,556 $ 96,455Interest rate spread(4) 15.54 % 13.65 % Net interest income $ 3,789 $ 3,439Net interest margin(5) 15.80 % 13.98 % _______________________ (1)Average yields/rates are based on total interest income/expense over average balances. (2)Includes average restricted cash balances of $614 millionand $423 millionfor the three months ended March 31, 2022and 2021, respectively. (3)Interest income on loan receivables includes fees on loans of $652 millionand $514 millionfor the three months ended March 31, 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. 14
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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