Attached files
| file | filename |
|---|---|
| 8-K - 8-K - Synchrony Financial | a8-k2q15earnings.htm |
| EX-99.2 - EXHIBIT 99.2 - Synchrony Financial | financialtables2q15.htm |
| EX-99.1 - EXHIBIT 99.1 - Synchrony Financial | earningsrelease2q15.htm |
| EX-99.4 - EXHIBIT 99.4 - Synchrony Financial | non-gaapmeasures63015.htm |
2Q’15 Financial Results July 17, 2015 Exhibit 99.3
2 Cautionary Statement Regarding Forward-Looking Statements The following slides are part of a presentation by Synchrony Financial in connection with reporting quarterly financial results. No representation is made that the information in these slides is complete. For additional information, see the earnings release and financial supplement included as exhibits to our Current Report on Form 8-K filed today and available on our website (www.synchronyfinancial.com) and the SEC’s website (www.sec.gov). All references to net earnings and net income are intended to have the same meaning. This presentation contains certain 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, which are subject to the “safe harbor” created by those sections. Forward-looking statements may be identified by words such as “outlook,” “expects,” “intends,” “anticipates,” “plans,” “believes,” “seeks,” “targets,” “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; retaining existing partners and attracting new partners, concentration of our platform revenue in a small number of Retail Card partners, promotion and support of our products by our partners, and financial performance of our partners; our need for additional financing, higher borrowing costs and adverse financial market conditions impacting our funding and liquidity, and any reduction in our credit ratings; our ability to securitize our loans, occurrence of an early amortization of our securitization facilities, loss of the right to service or subservice our securitized loans, and lower payment rates on our securitized loans; our reliance on dividends, distributions and other payments from Synchrony Bank; our ability to grow our deposits in the future; 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, the sufficiency of our allowance for loan losses and the accuracy of the assumptions or estimates used in preparing our financial statements; 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 strategic investments; reductions in interchange fees; fraudulent activity; cyber-attacks or other security breaches; failure of third parties to provide various services that are important to our operations; disruptions in the operations of our computer systems and data centers; 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; damage to our reputation; our ability to attract, retain and motivate key officers and employees; tax legislation initiatives or challenges to our tax positions and state sales tax rules and regulations; significant and extensive regulation, supervision, examination and enforcement of our business by governmental authorities, the impact of the Dodd-Frank Act and the impact of the CFPB’s regulation of our business; changes to our methods of offering our CareCredit products; impact of capital adequacy rules; restrictions that limit Synchrony Bank’s ability to pay dividends; regulations relating to privacy, information security and data protection; use of third-party vendors and ongoing third-party business relationships; failure to comply with anti-money laundering and anti-terrorism financing laws; effect of General Electric Capital Corporation being subject to regulation by the Federal Reserve Board both as a savings and loan holding company and as a systemically important financial institution; General Electric Company (GE) not completing the separation from us as planned or at all, GE’s inability to obtain savings and loan holding company deregistration (GE SLHC Deregistration) and GE continuing to have significant control over us; completion by the Federal Reserve Board of a review (with satisfactory results) of our preparedness to operate on a standalone basis, independently of GE, and Federal Reserve Board approval required for us to continue to be a savings and loan holding company, including the timing of the approval and the imposition of any significant additional capital or liquidity requirements; our need to establish and significantly expand many aspects of our operations and infrastructure; delays in receiving or failure to receive Federal Reserve Board agreement required for us to be treated as a financial holding company after the GE SLHC Deregistration; loss of association with GE’s strong brand and reputation; limited right to use the GE brand name and logo and need to establish a new brand; GE has significant control over us; terms of our arrangements with GE may be more favorable than what we will be able to obtain from unaffiliated third parties; obligations associated with being a public company; our incremental cost of operating as a standalone public company could be substantially more than anticipated; GE could engage in businesses that compete with us, and conflicts of interest may arise between us and GE; and failure caused by us of GE’s distribution of our common stock to its stockholders in exchange for its common stock to qualify for tax-free treatment, which may result in significant tax liabilities to GE for which we may be required to indemnify GE. For the reasons described above, we caution you against relying on any forward-looking statements, which should also be read in conjunction with the other cautionary statements that are included elsewhere in this presentation and in our public filings, including under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014, as filed on February 23, 2015. You should not consider any list of such factors to be an exhaustive statement of all of the risks, uncertainties, or potentially inaccurate assumptions that could cause our current expectations or beliefs to change. Further, any forward- looking statement speaks only as of the date on which it is made, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except as otherwise may be required by law. Differences between this presentation and the supplemental financials may occur due to rounding. Non-GAAP Measures The information provided herein includes measures we refer to as “platform revenue” and “platform revenue excluding retailer share arrangements” and certain capital ratios, which are not prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The reconciliations of such measures to the most directly comparable GAAP measures are included in the appendix of this presentation. Disclaimers
3 2Q'15 Highlights Financial highlights • $541 million Net earnings, $0.65 EPS • Strong growth across the business Purchase volume +11%, Loan receivables +12%, Platform revenue +9% • Asset quality continues to improve Net charge-offs improved from 4.88% to 4.63% compared to prior year 30+ delinquency improved from 3.82% to 3.53% compared to prior year • Expenses in-line with expectations • Delivering on our funding plan, deposits +$7.3 billion compared to prior year • Strong capital and liquidity 17.2% CET1 (BIIIT) $13.7 billion high quality liquid assets Business highlights Announced three new partners Extended one of our 20 largest partners and a strategic CareCredit endorsement Closed BP acquisition, which will be a new top 20 partnership Announced Apple Pay for PLCC launching with JCP in 2H’15 Continued progress on separation … Fed application filed April 30th (a) (a) CET1 % calculated under Basel III rules subject to transition provisions
4 Growth Metrics +11% Purchase volume $ in billions Loan receivables $ in billions Active accounts Average active accounts in millions Platform revenue $ in millions 2Q'14 2Q'15 $26.0 $28.8 $54.9 $61.4 $2,665 $2,442 60.9 58.4 +4% +9% +12% 2Q'14 2Q'15 2Q'14 2Q'15 2Q'14 2Q'15
5 Platform Results Retail Card Loan receivables, $ in billions $37.3 $42.3 2Q'14 2Q'15 Strong receivable growth across partner programs Platform revenue up 10% driven by receivable growth Payment Solutions Loan receivables, $ in billions $11.0 $12.2 2Q'14 2Q'15 Receivable growth led by home furnishing, auto and power equipment Platform revenue up 7% driven by receivable growth CareCredit Loan receivables, $ in billions $6.6 $6.9 2Q'14 2Q'15 Receivable growth led by dental and veterinary Platform revenue up 8% driven by receivable growth Purchase volume Accounts $21.1 47.3 $23.4 49.0 +12% +4% $3.1 6.7 $3.4 7.2 +8% +8% $1.8 4.4 $2.0 4.7 +9% +6% Platform revenue $1,673 $1,836 +10% $375 $402 +7% $394 $427 +8% +14% +11% +5% (a) (a) Accounts represent average active accounts in millions, which are credit card or installment loan accounts on which there has been a purchase, payment or outstanding balance in the current month. Platform revenue $ in millions V% V% V%
6 Financial Results Summary earnings statement Second quarter 2015 highlights $ in millions, except ratios Total interest income $3,177 $2,926 $251 9% Total interest expense 270 206 (64) (31)% Net interest income (NII) 2,907 2,720 187 7% Retailer share arrangements (RSA) (621) (590) (31) (5)% NII, after RSA 2,286 2,130 156 7% Provision for loan losses 740 681 (59) (9)% Other income 120 112 8 7% Other expense 805 797 (8) (1)% Pre-Tax earnings 861 764 97 13% Provision for income taxes 320 292 (28) (10)% Net earnings $541 $472 $69 15% Return on assets 2.9% 3.1% (0.2)pts. 2Q'15 2Q'14 % $ B/(W) • $541 million Net earnings, 2.9% ROA • Net interest income up 7% driven by growth in loan receivables Interest and fees on loan receivables up 8% in-line with average receivable growth Interest expense increase driven by liquidity, funding mix and growth • Provision for loan losses driven largely by receivable growth Asset quality improved … 30+ delinquencies down 29bps. and NCO rate down 25bps. vs. prior year • Other income up 7% driven by gain on portfolio sales $20 million gain on portfolio sales and increased interchange due to program growth partially offset with increased loyalty cost • Other expense up 1% Driven by growth and infrastructure build partially offset by a prior year remediation expense
7 Net Interest Income Second quarter 2015 highlights • Net interest income up 7% driven by growth in receivables partially offset by higher funding costs Interest and fees on loans up 8% driven by loan receivable growth • Net interest margin decline driven primarily by increase in liquidity Liquid assets increased to $13.7 billion, conservatively invested in cash and short-term U.S. Treasuries Receivable yield relatively stable at 21.13%, down 3 bps. Interest expense increased to 1.81%, impacting Net interest margin by 11bps. Net interest income $ in millions, % of average interest-earning assets 17.84% 15.77% 2Q'14 2Q'15 +7% $2,720 $2,907 Receivable yield 21.16% 21.13% (3) bps 2Q'14 Net interest margin 17.84% Liquidity (1.93) Receivable yield (0.03) Interest expense (0.11) 2Q'15 Net interest margin 15.77% V% Net interest margin walk % of average interest-earning assets
8 Asset Quality Metrics Net charge-offs $ in millions, % of average loan receivables including held for sale 30+ days past due $ in millions, % of period-end loan receivables Allowance for loan losses $ in millions, % of period-end loan receivables 90+ days past due $ in millions, % of period-end loan receivables 4.32% 4.26% 5.24% 5.46% 4.07% 4.88% $974 $1,051 3Q’13 3Q’14 $2,299 $2,416 $533 $673 $2,792 $3,102 1.83% 1.85% 4.86% 4.69% $656 4.05% $579 $658 5.48% $3,006 5.52% $2,998 5.05% $2,892 3.82% $2,097 4.09% $2,220 4.35% $2,488 $908 1.65% $1,046 1.93% $1,121 1.96% 4Q’13 1Q’14 2Q’14 3Q’13 3Q’14 4Q’13 1Q’14 2Q’14 3Q’13 3Q’14 4Q’13 1Q’14 2Q’14 3Q’13 3Q’14 4Q’13 1Q’14 2Q’14 (a) Excludes $62 million net charge-off related to disposition of non-core receivables (a) 4.14% $2,536 4Q’14 $1,162 4Q’14 1.90% 5.28% $3,236 4Q’14 4.32% $663 4Q’14 3.79% $2,209 1Q’15 $1,056 1Q’15 1.81% 5.59% $3,255 1Q’15 4.53% $668 1Q’15 3.53% $2,171 2Q’15 $933 2Q’15 1.52% 5.38% $3,302 2Q’15 4.63% $693 2Q’15
9 Other expense $ in millions Other Expense Employee cost $207 $250 $43 21% Professional fees 145 156 11 8% Marketing/BD 97 108 11 11% Information processing 53 74 21 40% Other 295 217 (78) (26)% Other expense $797 $805 $8 1% Efficiency 35.5% 33.5% (2.0)pts. $797 • Expense increase primarily driven by investments in growth and infrastructure build • Employee costs up $43 million Driven by employees added for separation and growth • Professional fees up $11 million Driven by infrastructure build and growth • Marketing/BD costs up $11 million Driven primarily by portfolio marketing investments and launch of BP program • Information processing up $21 million Driven by IT investments and purchase volume growth • Other decreased $78 million Driven primarily by prior year reserve for consumer remediations and GECC cost allocations, which were replaced with employee costs and professional fees (a) “Other Expense” divided by sum of “NII, after RSA” plus “Other income” (1) V$ V% +1% (a) $805 2Q'14 2Q'15 Second quarter 2015 highlights
10 Funding, Capital and Liquidity (c) Liquid assets $6.1 $13.7 Undrawn securitization capacity 5.7 6.1 Total liquidity $11.8 $19.8 % of total assets 18.6% 26.1% Tier 1 common $10.7 $10.3 Risk-weighted assets $62.0 $63.0 Liquidity $ in billions 2Q'15 $19.8 $11.8 2Q'14 Capital ratios 2Q'15, $ in billions BIII CET1 T% (d) Does not include unencumbered assets in the Bank that could be pledged (d) BIII CET1 % (a) Estimated percentages and amounts (b) Calculated under Basel III rules subject to transition provisions (c) Calculated under Basel III rules fully phased-in 17.2% 16.4% Funding sources $ in billions 2Q'14 2Q'15 Variance Deposits 57% 61% +4pts. Securitization 28% 23% (5)pts. GE Capital loan 15% - (15)pts. 3rd Party Debt - 16% +16pts. $53.4 $61.5 Deposits Securitization GECC Loan 3rd Party Debt $30.5 $15.1 $7.8 $37.8 $14.0 $9.7 V$ +9.7 (1.1) +7.3 (a) (b)
11 2Q’15 Wrap Up • Net earnings of $541 million … $0.65 earnings per share • Broad based growth … Purchase volume +11%, Loan receivables +12%, Platform revenue +9% • Wallet strategy taking hold ... Launched BP Dual Card in Apple Pay and will be one of the first issuers to offer PLCC cards in Apple Pay • Launched CareCredit’s digital card and Synchrony’s mobile deposit platform • Announced three new partnerships … Mattress Firm, Newegg and Stash Hotels • Renewed partnership with Chevron & CareCredit endorsement with ASPS • Closed the BP acquisition, which will be one of our 20 largest partnerships • Fast growing deposit platform … deposits $37.8 billion, now 61% of funding • Strong balance sheet, $13.7 billion of liquid assets and 17.2% CET1 (BIIIT) • Continued progress on separation … submitted application April 30th and infrastructure review underway (a) (a) CET1 % calculated under Basel III rules subject to transition provisions
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13 Appendix
14 Non GAAP Reconciliations In order to assess and internally report the revenue performance of our three sales platforms, we use measures we refer to as “platform revenue” and “platform revenue excluding retailer share arrangements.” Platform revenue is the sum of three line items in our Condensed Consolidated and Combined Statements of Earnings prepared in accordance with GAAP: “interest and fees on loans,” plus “other income,” less “retailer share arrangements.” Platform revenue and platform revenue excluding retailer share arrangements are not measures presented in accordance with GAAP. To calculate platform revenue we deduct retailer share arrangements but do not deduct other line item expenses, such as interest expense, provision for loan losses and other expense, because those items are managed for the business as a whole. We believe that platform revenue is a useful measure to investors because it represents management’s view of the net revenue contribution of each of our platforms. Platform revenue excluding retailer share arrangements represents management’s view of the gross revenue contribution of each of our platforms. These measures should not be considered a substitute for interest and fees on loans or other measures of performance we have reported in accordance with GAAP. We present certain capital ratios. As a new savings and loan holding company, we historically have not been required by regulators to disclose capital ratios, and therefore these capital ratios are non-GAAP measures. We believe these capital ratios are useful measures to investors because they are widely used by analysts and regulators to assess the capital position of financial services companies, although our Basel I Tier 1 common ratio is not a Basel I defined regulatory capital ratio, and our Basel I and Basel III Tier 1 common ratios may not be comparable to similarly titled measures reported by other companies. Our Basel I Tier 1 common ratio is the ratio of Tier 1 common equity to total risk- weighted assets, each as calculated in accordance with the U.S. Basel I capital rules. Our Basel III Tier 1 common ratio is the ratio of common equity Tier 1 capital to total risk-weighted assets, each as calculated in accordance with the U.S. Basel III capital rules. Our Basel III Tier 1 common ratio (on a fully phased-in basis) is a preliminary estimate reflecting management’s interpretation of the final Basel III capital rules adopted in July 2013 by the Federal Reserve Board, which have not been fully implemented, and our estimate and interpretations are subject to, among other things, ongoing regulatory review and implementation guidance.
15 Non-GAAP Reconciliation The following table sets forth each component of our platform revenue for periods indicated below. ($ in millions) 2015 2014 Platform Revenue Total: Interest and fees on loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,166 $2,920 Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $120 $112 Retailer share arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(621) $(590) Platform revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,665 $2,442 Retail Card: Interest and fees on loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,335 $2,158 Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $107 $92 Retailer share arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(606) $(577) Platform revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,836 $1,673 Payment Solutions: Interest and fees on loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $412 $379 Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4 $8 Retailer share arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(14) $(12) Platform revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $402 $375 CareCredit: Interest and fees on loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $419 $383 Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9 $12 Retailer share arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(1) $(1) Platform revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $427 $394 For the Three Months Ended June 30,
16 COMMON EQUITY MEASURES GAAP Total common equity…………………………………………………..…….. Less: Goodwill…………………………………………………………..…….. Less: Intangible assets, net……………………………………………..…….. Tangible common equity……………………………………………………..……. Adjustments for certain deferred tax liabilities and certain items in accumulated comprehensive income (loss) ………………………………. Basel III – Common equity Tier 1 (fully phased-in)…………….………………... Adjustments related to capital components during transition.…………..…...... Basel III – Common equity Tier 1 (transition)……………………………..…….. Risk-weighted assets – Basel III (fully phased-in)……………………………………… Risk-weighted assets – Basel III (transition)………..…………………..……..… Non-GAAP Reconciliation The following table sets forth a reconciliation of each component of our capital ratios, presented herein, to the comparable GAAP component at June 30, 2015. $11,578 (949) (575) $10,054 293 $10,347 331 $10,678 $62,970 $61,985 $ in millions at June 30, 2015