syf-20210331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

001-36560

(Commission File Number)

SYNCHRONY FINANCIAL

(Exact name of registrant as specified in its charter)


Delaware						51-0483352
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


777 Long Ridge Road
Stamford,	Connecticut	06902
(Address of principal executive offices)		(Zip Code)

(Registrant’s telephone number, including area code) - (203) 585-2400

Securities Registered Pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.001 per share	SYF	New York Stock Exchange
Depositary Shares Each Representing a 1/40th Interest in a Share of 5.625% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A	SYFPrA	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer	☒	Accelerated Filer	☐

Non-Accelerated Filer	☐	Smaller Reporting Company	☐

		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the registrant’s common stock, par value $0.001 per share, outstanding as of April 20, 2021 was 581,598,847.

Synchrony Financial


PART I - FINANCIAL INFORMATION			Page
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			6

Item 1. Financial Statements:
Condensed Consolidated Statements of Earnings – Three months ended March 31, 2021 and 2020			27
Condensed Consolidated Statements of Comprehensive Income – Three months ended March 31, 2021 and 2020			28
Condensed Consolidated Statements of Financial Position – March 31, 2021 and December 31, 2020			29
Condensed Consolidated Statements of Changes in Equity – Three months ended March 31, 2021 and 2020			30
Condensed Consolidated Statements of Cash Flows – Three months ended March 31, 2021 and 2020			31
Notes to Condensed Consolidated Financial Statements			32
Item 3. Quantitative and Qualitative Disclosures About Market Risk			51
Item 4. Controls and Procedures			51

PART II - OTHER INFORMATION
Item 1. Legal Proceedings			52
Item 1A. Risk Factors			52
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			52
Item 3. Defaults Upon Senior Securities			52
Item 4. Mine Safety Disclosures			52
Item 5. Other Information			53
Item 6. Exhibits			54
Signatures			55

Certain Defined Terms

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

•“we,” “us,” “our” and the “Company” are to SYNCHRONY FINANCIAL and its subsidiaries;

•“Synchrony” are to SYNCHRONY FINANCIAL only;

•the “Bank” are to Synchrony Bank (a subsidiary of Synchrony);

•the “Board of Directors” or “Board” are to Synchrony's board of directors;

•"CECL" are to the impairment model known as the Current Expected Credit Loss model, which is based on expected credit losses; and

•“Vantage” are to VantageScore, a credit score developed by the three major credit reporting agencies which is used as a means of evaluating the likelihood that credit users will pay their obligations.

We provide a range of credit products through programs we have established with a diverse group of national and regional retailers, local merchants, manufacturers, buying groups, industry associations and healthcare service providers, which, in our business and in this report, we refer to as our “partners.” The terms of the programs all require cooperative efforts between us and our partners of varying natures and degrees to establish and operate the programs. Our use of the term “partners” to refer to these entities is not intended to, and does not, describe our legal relationship with them, imply that a legal partnership or other relationship exists between the parties or create any legal partnership or other relationship. The “average length of our relationship” with respect to a specified group of partners or programs is measured on a weighted average basis by interest and fees on loans for the year ended December 31, 2020 for those partners or for all partners participating in a program, based on the date each partner relationship or program, as applicable, started.

Unless otherwise indicated, references to “loan receivables” do not include loan receivables held for sale.

For a description of certain other terms we use, including “active account” and “purchase volume,” see the notes to “Management’s Discussion and Analysis—Results of Operations—Other Financial and Statistical Data” in our Annual Report on Form 10-K for the year ended December 31, 2020 (our “2020 Form 10-K”). There is no standard industry definition for many of these terms, and other companies may define them differently than we do.

“Synchrony” and its logos and other trademarks referred to in this report, including CareCredit®, Quickscreen®, Dual Card™, Synchrony Car Care™ and SyPI™, belong to us. Solely for convenience, we refer to our trademarks in this report without the ™ and ® symbols, but such references are not intended to indicate that we will not assert, to the fullest extent under applicable law, our rights to our trademarks. Other service marks, trademarks and trade names referred to in this report are the property of their respective owners.

On our website at www.synchronyfinancial.com, we make available under the "Investors-SEC Filings" menu selection, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such reports or amendments are electronically filed with, or furnished to, the SEC. The SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements, and other information that we file electronically with the SEC.

Cautionary Note Regarding Forward-Looking Statements:

Various statements in this Quarterly Report on Form 10-Q may contain “forward-looking statements” as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by those sections. Forward-looking statements may be identified by words such as “expects,” “intends,” “anticipates,” “plans,” “believes,” “seeks,” “targets,” “outlook,” “estimates,” “will,” “should,” “may” or words of similar meaning, but these words are not the exclusive means of identifying forward-looking statements.

Forward-looking statements are based on management’s current expectations and assumptions, and are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, actual results could differ materially from those indicated in these forward-looking statements. Factors that could cause actual results to differ materially include global political, economic, business, competitive, market, regulatory and other factors and risks, such as: the impact of macroeconomic conditions and whether industry trends we have identified develop as anticipated, including the future impacts of the novel coronavirus disease (“COVID-19”) outbreak and measures taken in response thereto for which future developments are highly uncertain and difficult to predict; retaining existing partners and attracting new partners, concentration of our revenue in a small number of Retail Card partners, and promotion and support of our products by our partners; cyber-attacks or other security breaches; disruptions in the operations of our and our outsourced partners' computer systems and data centers; the financial performance of our partners; the sufficiency of our allowance for credit losses and the accuracy of the assumptions or estimates used in preparing our financial statements, including those related to the CECL accounting guidance; higher borrowing costs and adverse financial market conditions impacting our funding and liquidity, and any reduction in our credit ratings; our ability to grow our deposits in the future; damage to our reputation; our ability to securitize our loan receivables, occurrence of an early amortization of our securitization facilities, loss of the right to service or subservice our securitized loan receivables, and lower payment rates on our securitized loan receivables; changes in market interest rates and the impact of any margin compression; effectiveness of our risk management processes and procedures, reliance on models which may be inaccurate or misinterpreted, our ability to manage our credit risk; our ability to offset increases in our costs in retailer share arrangements; competition in the consumer finance industry; our concentration in the U.S. consumer credit market; our ability to successfully develop and commercialize new or enhanced products and services; our ability to realize the value of acquisitions and strategic investments; reductions in interchange fees; fraudulent activity; failure of third-parties to provide various services that are important to our operations; international risks and compliance and regulatory risks and costs associated with international operations; alleged infringement of intellectual property rights of others and our ability to protect our intellectual property; litigation and regulatory actions; our ability to attract, retain and motivate key officers and employees; tax legislation initiatives or challenges to our tax positions and/or interpretations, and state sales tax rules and regulations; regulation, supervision, examination and enforcement of our business by governmental authorities, the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and other legislative and regulatory developments and the impact of the Consumer Financial Protection Bureau's (the “CFPB”) regulation of our business; impact of capital adequacy rules and liquidity requirements; restrictions that limit our ability to pay dividends and repurchase our common stock, and restrictions that limit the Bank’s ability to pay dividends to us; regulations relating to privacy, information security and data protection; use of third-party vendors and ongoing third-party business relationships; and failure to comply with anti-money laundering and anti-terrorism financing laws.

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 report and in our public filings, including under the heading “Risk Factors Relating to Our Business” and “Risk Factors Relating to Regulation” in our 2020 Form 10-K. 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.

PART I. FINANCIAL INFORMATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 months ended March 31, 2021, we financed $34.7 billion of purchase volume and had 66.3 million average active accounts, and at March 31, 2021, we had $76.9 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 the Federal 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 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, 2021, we had $62.7 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 within the United States. We offer our credit products through three sales platforms (Retail Card, Payment Solutions and CareCredit). Those platforms are organized by the types of products we offer and the partners we work with, and are measured on interest and fees on loans, loan receivables, active accounts and other sales metrics.

Retail Card

Retail Card is a leading provider of private label credit cards, and also provides Dual Cards, general purpose co-branded credit cards and small and medium-sized business credit products. We offer one or more of these products primarily through 24 national and regional retailers with which we have ongoing program agreements. The average length of our relationship with these Retail Card partners is 23 years. Retail Card’s revenue primarily consists of interest and fees on our loan receivables. Other income primarily consists of interchange fees earned when our Dual Card or general purpose co-branded cards are used outside of our partners' sales channels and fees paid to us by customers who purchase our debt cancellation products, less loyalty program payments. In addition, the majority of our retailer share arrangements, which provide for payments to our partner if the economic performance of the program exceeds a contractually-defined threshold, are with partners in the Retail Card sales platform. Substantially all of the credit extended in this platform is on standard terms.

Payment Solutions

Payment Solutions is a leading provider of promotional financing for major consumer purchases, offering consumer choice for financing at the point of sale, including primarily private label credit cards, Dual Cards and installment loans. Payment Solutions offers these products through participating partners consisting of national and regional retailers, manufacturers, buying groups and industry associations. Credit extended in this platform, other than for our oil and gas retail partners, is primarily promotional financing. Payment Solutions’ revenue primarily consists of interest and fees on our loan receivables, including “merchant discounts,” which are fees paid to us by our partners in almost all cases to compensate us for all or part of foregone interest income associated with promotional financing.

CareCredit

CareCredit is a leading provider of promotional financing to consumers for health, veterinary and personal care procedures, services and products. We have a network of CareCredit providers and health-focused retailers, the vast majority of which are individual or small groups of independent healthcare providers, through which we offer a CareCredit branded private label credit card and our CareCredit Dual Card offering, along with complementary products such as Pets Best pet insurance. Substantially all of the credit extended in this platform is promotional financing. CareCredit’s revenue primarily consists of interest and fees on our loan receivables, including merchant discounts.

Our Credit Products

____________________________________________________________________________________________

Through our 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, 2021.


			Promotional Offer
Credit Product	Standard Terms Only		Deferred Interest		Other Promotional		Total
Credit cards	61.4	%	17.9	%	16.0	%	95.3	%
Commercial credit products	1.6		—		—		1.6
Consumer installment loans	—		0.1		3.0		3.1
Other	—		—		—		—
Total	63.0	%	18.0	%	19.0	%	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. In Retail Card, credit under our private label credit cards typically is extended on standard terms only, and in Payment Solutions and CareCredit, credit under our private label credit cards typically is extended 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 credit 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 at March 31, 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. We offer our commercial credit products primarily through our Retail Card platform to the commercial customers of our Retail Card partners.

Installment Loans

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). 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 months ended March 31, 2021, see “—Results of Operations.”

Seasonality

____________________________________________________________________________________________

In our Retail Card and Payment Solutions platforms, 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.

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 recent governmental stimulus actions. Customer payments as a percentage of beginning-of-period loan receivables for the three months ended March 31, 2021 were approximately 200 basis points higher than our prior five-year historical average for the first quarter. Loan receivables decreased by $5.0 billion, or 6.1%, to $76.9 billion at March 31, 2021 compared to December 31, 2020, primarily due to the effects of customers paying down their balances and past due balances declined to $2.2 billion at March 31, 2021 from $2.5 billion at December 31, 2020, primarily due to collections from customers that were previously delinquent. Our allowance for credit losses as a percentage of total loan receivables increased to 12.88% at March 31, 2021, from 12.54% at December 31, 2020. The increase in the allowance for credit losses as a percentage of loan receivables at March 31, 2021 compared to December 31, 2020, despite a decrease in our past due balances, primarily reflects these same seasonal trends.

Results of Operations

____________________________________________________________________________________________

Highlights for the Three Months Ended March 31, 2021

Below are highlights of our performance for the three months ended March 31, 2021 compared to the three months ended March 31, 2020, as applicable, except as otherwise noted.

•Net earnings increased 258.4% to $1.0 billion for the three months ended March 31, 2021 primarily driven by lower provision for credit losses and a decrease in other expense, partially offset by lower net interest income.

•Loan receivables decreased 6.8% to $76.9 billion at March 31, 2021 compared to March 31, 2020, primarily driven by the impacts of the 2020 shutdowns and improvements in customer payment behavior, partially offset by higher purchase volume.

•Net interest income decreased 11.6% to $3.4 billion for the three months ended March 31, 2021 primarily due to a decrease in interest and fees on loans driven by an increase in payment rates and lower delinquencies, partially offset by a decrease in interest expense reflecting lower benchmark interest rates.

•Retailer share arrangements increased 6.8% to $989 million for the three months ended March 31, 2021, primarily due to lower net charge-offs.

•Over-30 day loan delinquencies as a percentage of period-end loan receivables decreased 141 basis points to 2.83% at March 31, 2021, and the net charge-off rate decreased 174 basis points to 3.62% for the three months ended March 31, 2021.

•Provision for credit losses decreased by $1.3 billion, or 80.1% for the three months ended March 31, 2021. The decrease was 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) increased to 12.88% at March 31, 2021, as compared to 11.13% at March 31, 2020, primarily due to the impact of the prior year pandemic shutdowns.

•Other expense decreased by $70 million, or 7.0%, for the three months ended March 31, 2021 primarily driven by lower operational losses and lower marketing and business development costs, partially offset by higher employee costs.

•At March 31, 2021, deposits represented 81% of our total funding sources. Total deposits were flat at $62.7 billion at March 31, 2021, compared to December 31, 2020.

•During the three months ended March 31, 2021, we declared and paid cash dividends on our Series A 5.625% non-cumulative preferred stock of $14.06 per share, or $11 million.

•During the three months ended March 31, 2021, we repurchased $200 million of our outstanding common stock, and declared and paid cash dividends of $0.22 per share, or $128 million.

•In February 2021 in our CareCredit 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 Retail Card sales platform, we extended our program agreement with American Eagle. In April 2021, we announced that we will not be renewing our program agreement with Gap Inc. when it expires on April 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 ended December 31, 2020 were Amazon, JCPenney, Lowe’s, PayPal and Sam’s Club.

•In our Payment Solutions sales platform, we announced our new partnerships with Family Farm & Home and BoxDrop and extended our program agreements with Ashley HomeStores LTD, CITGO, Phillips 66 and Tacony Corporation.

•In our CareCredit sales platform, we expanded our network through our new partnerships with Emory Healthcare, Mercy Health, Prime Health and Southern Veterinary Partners. In addition, we also made our CareCredit patient financing app available in the Epic App Orchard, further expanding the availability of CareCredit to healthcare organizations using Epic.

Information About Our Executive Officers and Board of Directors

•The following events were effective April 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, succeeded Ms. 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.

Summary Earnings

The following table sets forth our results of operations for the periods indicated.


	Three months ended March 31,
($ in millions)	2021		2020
Interest income	$	3,742	$	4,407
Interest expense	303		517
Net interest income	3,439		3,890
Retailer share arrangements	(989)		(926)

Provision for credit losses	334		1,677
Net interest income, after retailer share arrangements and provision for credit losses	2,116		1,287
Other income	131		97
Other expense	932		1,002
Earnings before provision for income taxes	1,315		382
Provision for income taxes	290		96
Net earnings	$	1,025	$	286
Net earnings available to common stockholders	$	1,014	$	275

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)	2021			2020
Financial Position Data (Average):
Loan receivables, including held for sale	$	78,358		$	84,428
Total assets	$	96,455		$	100,722
Deposits	$	63,070		$	64,665
Borrowings	$	15,659		$	18,793
Total equity	$	13,071		$	12,592
Selected Performance Metrics:
Purchase volume(1)(2)	$	34,749		$	32,042
Retail Card	$	26,540		$	24,008
Payment Solutions	$	5,561		$	5,375
CareCredit	$	2,648		$	2,659
Average active accounts (in thousands)(2)(3)	66,280			72,078
Net interest margin(4)	13.98		%	15.15		%
Net charge-offs	$	699		$	1,125
Net charge-offs as a % of average loan receivables, including held for sale	3.62		%	5.36		%
Allowance coverage ratio(5)	12.88		%	11.13		%
Return on assets(6)	4.3		%	1.1		%
Return on equity(7)	31.8		%	9.1		%
Equity to assets(8)	13.55		%	12.50		%
Other expense as a % of average loan receivables, including held for sale	4.82		%	4.77		%
Efficiency ratio(9)	36.1		%	32.7		%
Effective income tax rate	22.1		%	25.1		%
Selected Period-End Data:
Loan receivables	$	76,858		$	82,469
Allowance for credit losses	$	9,901		$	9,175
30+ days past due as a % of period-end loan receivables(10)	2.83		%	4.24		%
90+ days past due as a % of period-end loan receivables(10)	1.52		%	2.10		%
Total active accounts (in thousands)(2)(3)	65,219			68,849

______________________

(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.

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
Three months ended March 31 ($ in millions)	Average Balance		Interest Income / Expense		Average Yield / Rate(1)		Average Balance		Interest Income/ Expense		Average Yield / Rate(1)
Assets
Interest-earning assets:
Interest-earning cash and equivalents(2)	$	14,610	$	4	0.11	%	$	12,902	$	42	1.31	%
Securities available for sale	6,772		6		0.36	%	5,954		25		1.69	%
Loan receivables, including held for sale(3):
Credit cards	74,865		3,657		19.81	%	81,716		4,272		21.03	%
Consumer installment loans	2,219		53		9.69	%	1,432		35		9.83	%
Commercial credit products	1,231		21		6.92	%	1,243		33		10.68	%
Other	43		1		NM		37		—		—	%
Total loan receivables, including held for sale	78,358		3,732		19.32	%	84,428		4,340		20.67	%
Total interest-earning assets	99,740		3,742		15.22	%	103,284		4,407		17.16	%
Non-interest-earning assets:
Cash and due from banks	1,635						1,450
Allowance for credit losses	(10,225)						(8,708)
Other assets	5,305						4,696
Total non-interest-earning assets	(3,285)						(2,562)
Total assets	$	96,455					$	100,722
Liabilities
Interest-bearing liabilities:
Interest-bearing deposit accounts	$	62,724	$	170	1.10	%	$	64,366	$	356	2.22	%
Borrowings of consolidated securitization entities	7,694		51		2.69	%	9,986		73		2.94	%

Senior unsecured notes	7,965		82		4.18	%	8,807		88		4.02	%

Total interest-bearing liabilities	78,383		303		1.57	%	83,159		517		2.50	%
Non-interest-bearing liabilities:
Non-interest-bearing deposit accounts	346						299
Other liabilities	4,655						4,672
Total non-interest-bearing liabilities	5,001						4,971
Total liabilities	83,384						88,130
Equity
Total equity	13,071						12,592
Total liabilities and equity	$	96,455					$	100,722
Interest rate spread(4)					13.65	%					14.66	%
Net interest income			$	3,439					$	3,890
Net interest margin(5)					13.98	%					15.15	%

_______________________

(1)Average yields/rates are based on total interest income/expense over average balances.

(2)Includes average restricted cash balances of $423 million and $981 million for the three months ended March 31, 2021 and 2020, respectively.

(3)Interest income on loan receivables includes fees on loans of $514 million and $656 million for the three months ended March 31, 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.

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 $665 million, or 15.1%, for the three months ended March 31, 2021 primarily driven by a decrease in interest and fees on loans attributed to improvements in customer payment behavior and lower delinquencies.

Average interest-earning assets


Three months ended March 31 ($ in millions)	2021		%		2020		%
Loan receivables, including held for sale	$	78,358	78.6	%	$	84,428	81.7	%
Liquidity portfolio and other	21,382		21.4	%	18,856		18.3	%
Total average interest-earning assets	$	99,740	100.0	%	$	103,284	100.0	%

The decrease in average loan receivables, including held for sale, of 7.2% for the three months ended March 31, 2021 was primarily driven by the 2020 shutdowns and improvements in customer payment behavior. These decreases were partially offset by higher purchase volume in the three months ended March 31, 2021.

Yield on average interest-earning assets

The yield on average interest-earning assets decreased for the three months ended March 31, 2021, primarily due to a decrease in the yield on average loan receivables and a decrease in the percentage of interest-earning assets attributable to loan receivables. The decrease in loan receivable yield was 135 basis points to 19.32% for the three months ended March 31, 2021, primarily driven by higher payment rates and lower delinquencies.

Interest Expense

Interest expense decreased by $214 million, or 41.4%, for the three months ended March 31, 2021, driven primarily by lower benchmark interest rates. Our cost of funds decreased to 1.57% for the three months ended March 31, 2021, compared to 2.50% for the three months ended March 31, 2020.

Average interest-bearing liabilities


Three months ended March 31 ($ in millions)	2021		%		2020		%
Interest-bearing deposit accounts	$	62,724	80.0	%	$	64,366	77.4	%
Borrowings of consolidated securitization entities	7,694		9.8	%	9,986		12.0	%
Senior unsecured notes	7,965		10.2	%	8,807		10.6	%

Total average interest-bearing liabilities	$	78,383	100.0	%	$	83,159	100.0	%

Net Interest Income

Net interest income decreased by $451 million, or 11.6%, for the three months ended March 31, 2021, primarily driven by the decrease in interest and fees on loans discussed above, partially offset by the decrease in interest expense.

Retailer Share Arrangements

Retailer share arrangements increased by $63 million, or 6.8%, for the three months ended March 31, 2021, primarily due to lower net charge-offs.

Provision for Credit Losses

Provision for credit losses decreased by $1.3 billion, or 80.1%, for the three months ended March 31, 2021, primarily driven by lower reserves in the current year and lower net charge-offs.

Other Income


	Three months ended March 31,
($ in millions)	2021		2020
Interchange revenue	$	171	$	161
Debt cancellation fees	69		69
Loyalty programs	(179)		(158)
Other	70		25
Total other income	$	131	$	97

Other income increased by $34 million, or 35.1%, for the three months ended March 31, 2021, primarily driven by gains related to investment securities and an increase in interchange revenue, partially offset by higher loyalty costs.

Other Expense


	Three months ended March 31,
($ in millions)	2021		2020
Employee costs	$	364	$	324
Professional fees	190		197
Marketing and business development	95		111
Information processing	131		123
Other	152		247
Total other expense	$	932	$	1,002

Other expense decreased by $70 million, or 7.0%, for the three months ended March 31, 2021, primarily driven by lower other expense and lower marketing and business development costs, partially offset by higher employee costs.

The "other" component decreased primarily due to lower operational losses. The decrease in marketing and business development was primarily due to the timing of program spend. The increase in employee costs was primarily due to higher stock-based compensation expense.

Provision for Income Taxes


	Three months ended March 31,
($ in millions)	2021			2020
Effective tax rate	22.1		%	25.1		%
Provision for income taxes	$	290		$	96

The effective tax rate for the three months ended March 31, 2021 decreased compared to the same period in the prior year primarily due to the resolution of certain tax matters in the current period. For both periods presented, the effective tax rate also differs from the applicable U.S. federal statutory tax rate primarily due to state income taxes.

Platform Analysis

As discussed above under “—Our Sales Platforms,” we offer our products through three sales platforms (Retail Card, Payment Solutions and CareCredit), which management measures based on their revenue-generating activities. The following is a discussion of certain supplemental information for the three months ended March 31, 2021, for each of our sales platforms.

Retail Card


	Three months ended March 31,
($ in millions)	2021		2020
Purchase volume	$	26,540	$	24,008
Period-end loan receivables	$	47,855	$	52,390
Average loan receivables, including held for sale	$	49,044	$	53,820
Average active accounts (in thousands)	49,078		53,018

Interest and fees on loans	$	2,547	$	3,037
Retailer share arrangements	$	(970)	$	(904)
Other income	$	66	$	59

Retail Card interest and fees on loans decreased by $490 million, or 16.1%, for the three months ended March 31, 2021, primarily driven by lower average loan receivables and lower loan receivables yield.

Retailer share arrangements increased by $66 million, or 7.3%, for the three months ended March 31, 2021, primarily as a result of the factors discussed under the heading “Retailer Share Arrangements” above.

Other income increased by $7 million, or 11.9%, for the three months ended March 31, 2021, primarily as a result of the factors discussed under the heading "Other Income" above.

Payment Solutions


	Three months ended March 31,
($ in millions)	2021		2020
Purchase volume	$	5,561	$	5,375
Period-end loan receivables	$	19,682	$	19,973
Average loan receivables, including held for sale	$	19,867	$	20,344
Average active accounts (in thousands)	11,496		12,681

Interest and fees on loans	$	627	$	706
Retailer share arrangements	$	(15)	$	(18)
Other income	$	19	$	13

Payment Solutions interest and fees on loans decreased by $79 million, or 11.2%, for the three months ended March 31, 2021, primarily driven by lower late fees, lower finance charges and lower merchant discount.

CareCredit


	Three months ended March 31,
($ in millions)	2021		2020
Purchase volume	$	2,648	$	2,659
Period-end loan receivables	$	9,321	$	10,106
Average loan receivables	$	9,447	$	10,264
Average active accounts (in thousands)	5,706		6,379

Interest and fees on loans	$	558	$	597
Retailer share arrangements	$	(4)	$	(4)
Other income	$	46	$	25

CareCredit interest and fees on loans decreased by $39 million, or 6.5%, for the three months ended March 31, 2021, primarily driven by lower late fees and lower merchant discount.

Other income increased by $21 million, or 84.0%, for the three months ended March 31, 2021, primarily due to commission fees earned by Pets Best.

Loan Receivables

____________________________________________________________________________________________

Loan receivables are our largest category of assets and represent our primary source of revenue. The following discussion provides supplemental information regarding our loan receivables portfolio. See Note 2. Basis of Presentation and Summary of Significant Accounting Policies and Note 4. Loan Receivables and Allowance for Credit Losses to our condensed consolidated financial statements for additional information related to our Loan Receivables, including troubled debt restructurings (“TDR’s”).

The following table sets forth the composition of our loan receivables portfolio by product type at the dates indicated.


($ in millions)	At March 31, 2021		(%)		At December 31, 2020		(%)
Loans
Credit cards	$	73,244	95.3	%	$	78,455	95.9	%
Consumer installment loans	2,319		3.0	%	2,125		2.6
Commercial credit products	1,248		1.6	%	1,250		1.5
Other	47		0.1	%	37		—
Total loans	$	76,858	100.0	%	$	81,867	100.0	%

Loan receivables decreased 6.1% to $76.9 billion at March 31, 2021 compared to December 31, 2020, primarily driven by improvements in customer payment behavior, which include the effects of recent governmental stimulus actions, as well as the seasonality of our business. Customer payments as a percentage of beginning-of-period loan receivables for the three months ended March 31, 2021 were approximately 200 basis points higher than our prior five-year historical average for the first quarter.

Loan receivables decreased 6.8% to $76.9 billion at March 31, 2021 compared to March 31, 2020, primarily driven by the impacts of the 2020 shutdowns and an improvement in customer payment behavior, partially offset by higher purchase volume in the three months ended March 31, 2021.

Our loan receivables portfolio had the following geographic concentration at March 31, 2021.


($ in millions)	Loan Receivables Outstanding		% of Total Loan Receivables Outstanding
State
Texas	$	7,962	10.4	%
California	$	7,923	10.3	%
Florida	$	6,768	8.8	%
New York	$	4,172	5.4	%
North Carolina	$	3,177	4.1	%

Delinquencies

Over-30 day loan delinquencies as a percentage of period-end loan receivables decreased to 2.83% at March 31, 2021 from 4.24% at March 31, 2020, and decreased from 3.07% at December 31, 2020. The decrease compared to the prior year period was primarily driven by an improvement in customer payment behavior. The current quarter decrease as compared to December 31, 2020 reflects these same improvements as well as the seasonality of our business.

Net Charge-Offs

Net charge-offs consist of the unpaid principal balance of loans held for investment that we determine are uncollectible, net of recovered amounts. We exclude accrued and unpaid finance charges and fees and third-party fraud losses from charge-offs. Charged-off and recovered finance charges and fees are included in interest and fees on loans while third-party fraud losses are included in other expense. Charge-offs are recorded as a reduction to the allowance for credit losses and subsequent recoveries of previously charged-off amounts are credited to the allowance for credit losses. Costs incurred to recover charged-off loans are recorded as collection expense and included in other expense in our Condensed Consolidated Statements of Earnings.

The table below sets forth the ratio of net charge-offs to average loan receivables, including held for sale, (“net charge-off rate”) for the periods indicated.


	Three months ended March 31,
	2021		2020
Net charge-off rate	3.62	%	5.36	%

Allowance for Credit Losses

The allowance for credit losses totaled $9.9 billion at March 31, 2021, compared to $10.3 billion at December 31, 2020 and $9.2 billion at March 31, 2020, and reflects our estimate of expected credit losses for the life of the loan receivables on our consolidated statement of financial position.

Our allowance for credit losses as a percentage of total loan receivables increased to 12.88% at March 31, 2021, from 12.54% at December 31, 2020 and from 11.13% at March 31, 2020.

The increase compared to March 31, 2020 is primarily driven by the impact of the prior year pandemic shutdowns, which resulted in a higher estimate of expected credit losses due to the economic decline. The increase compared to December 31, 2020 reflects the seasonality of our business, partially offset by lower reserves in the current quarter.

Funding, Liquidity and Capital Resources

____________________________________________________________________________________________

We maintain a strong focus on liquidity and capital. Our funding, liquidity and capital policies are designed to ensure that our business has the liquidity and capital resources to support our daily operations, our business growth, our credit ratings and our regulatory and policy requirements, in a cost effective and prudent manner through expected and unexpected market environments.

Funding Sources

Our primary funding sources include cash from operations, deposits (direct and brokered deposits), securitized financings and senior unsecured notes.

The following table summarizes information concerning our funding sources during the periods indicated:


	2021						2020
Three months ended March 31 ($ in millions)	Average Balance		%		Average Rate		Average Balance		%		Average Rate
Deposits(1)	$	62,724	80.0	%	1.1	%	$	64,366	77.4	%	2.2	%
Securitized financings	7,694		9.8		2.7		9,986		12.0		2.9
Senior unsecured notes	7,965		10.2		4.2		8,807		10.6		4.0

Total	$	78,383	100.0	%	1.6	%	$	83,159	100.0	%	2.5	%

______________________

(1)Excludes $346 million and $299 million average balance of non-interest-bearing deposits for the three months ended March 31, 2021 and 2020, respectively. Non-interest-bearing deposits comprise less than 10% of total deposits for the three months ended March 31, 2021 and 2020.

Deposits

We obtain deposits directly from retail and commercial customers (“direct deposits”) or through third-party brokerage firms that offer our deposits to their customers (“brokered deposits”). At March 31, 2021, we had $52.2 billion in direct deposits and $10.5 billion in deposits originated through brokerage firms (including network deposit sweeps procured through a program arranger that channels brokerage account deposits to us). A key part of our liquidity plan and funding strategy is to continue to utilize our direct deposits base as a source of stable and diversified low-cost funding.

Our direct deposits include a range of FDIC-insured deposit products, including certificates of deposit, IRAs, money market accounts and savings accounts.

Brokered deposits are primarily from retail customers of large brokerage firms. We have relationships with 11 brokers that offer our deposits through their networks. Our brokered deposits consist primarily of certificates of deposit that bear interest at a fixed rate and at March 31, 2021, had a weighted average remaining life of 1.9 years. These deposits generally are not subject to early withdrawal.

Our ability to attract deposits is sensitive to, among other things, the interest rates we pay, and therefore, we bear funding risk if we fail to pay higher rates, or interest rate risk if we are required to pay higher rates, to retain existing deposits or attract new deposits. To mitigate these risks, our funding strategy includes a range of deposit products, and we seek to maintain access to multiple other funding sources, including securitized financings (including our undrawn committed capacity) and unsecured debt.

The following table summarizes certain information regarding our interest-bearing deposits by type (all of which constitute U.S. deposits) for the periods indicated:


Three months ended March 31 ($ in millions)	2021						2020
	Average Balance		%		Average Rate		Average Balance		%		Average Rate
Direct deposits:
Certificates of deposit (including IRA certificates of deposit)	$	25,291	40.3	%	1.5	%	$	34,019	52.9	%	2.5	%
Savings accounts (including money market accounts)	26,806		42.8		0.5		19,644		30.5		1.7
Brokered deposits	10,627		16.9		1.5		10,703		16.6		2.4
Total interest-bearing deposits	$	62,724	100.0	%	1.1	%	$	64,366	100.0	%	2.2	%

Our deposit liabilities provide funding with maturities ranging from one day to ten years. At March 31, 2021, the weighted average maturity of our interest-bearing time deposits was 1.0 years. See Note 7. Deposits to our condensed consolidated financial statements for more information on the maturities of our time deposits.

The following table summarizes deposits by contractual maturity at March 31, 2021:


($ in millions)	3 Months or Less		Over 3 Months but within 6 Months		Over 6 Months but within 12 Months		Over 12 Months		Total
U.S. deposits (less than FDIC insurance limit)(1)(2)	$	31,634	$	3,583	$	6,624	$	7,702	$	49,543
U.S. deposits (in excess of FDIC insurance limit)(2)
Direct deposits:
Certificates of deposit (including IRA certificates of deposit)	1,403		1,086		1,990		1,203		5,682
Savings accounts (including money market accounts)	7,510		—		—		—		7,510
Brokered deposits:
Sweep accounts	26		—		—		—		26
Total	$	40,573	$	4,669	$	8,614	$	8,905	$	62,761

______________________

(1)Includes brokered certificates of deposit for which underlying individual deposit balances are assumed to be less than $250,000.

(2)The standard deposit insurance amount is $250,000 per depositor, for each account ownership category. Deposits in excess of FDIC insurance limit presented above include partially uninsured accounts.

Securitized Financings

We access the asset-backed securitization market using the Synchrony Credit Card Master Note Trust (“SYNCT”) and the Synchrony Card Issuance Trust (“SYNIT”) through which we may issue asset-backed securities through both public transactions and private transactions funded by financial institutions and commercial paper conduits. In addition, we issue asset-backed securities in private transactions through the Synchrony Sales Finance Master Trust (“SFT”).

The following table summarizes expected contractual maturities of the investors’ interests in securitized financings, excluding debt premiums, discounts and issuance costs at March 31, 2021.


($ in millions)	Less Than One Year		One Year Through Three Years		Four Years Through Five Years		After Five Years		Total
Scheduled maturities of long-term borrowings—owed to securitization investors:
SYNCT(1)	$	1,457	$	2,840	$	—	$	—	$	4,297
SFT	300		—		—		—		300
SYNIT(1)	1,750		850		—		—		2,600
Total long-term borrowings—owed to securitization investors	$	3,507	$	3,690	$	—	$	—	$	7,197

______________________

(1)Excludes any subordinated classes of SYNCT notes and SYNIT notes that we owned at March 31, 2021.

We retain exposure to the performance of trust assets through: (i) in the case of SYNCT, SFT and SYNIT, subordinated retained interests in the loan receivables transferred to the trust in excess of the principal amount of the notes for a given series that provide credit enhancement for a particular series, as well as a pari passu seller’s interest in each trust and (ii) in the case of SYNCT and SYNIT, any subordinated classes of notes that we own.

All of our securitized financings include early repayment triggers, referred to as early amortization events, including events related to material breaches of representations, warranties or covenants, inability or failure of the Bank to transfer loan receivables to the trusts as required under the securitization documents, failure to make required payments or deposits pursuant to the securitization documents, and certain insolvency-related events with respect to the related securitization depositor, Synchrony (solely with respect to SYNCT) or the Bank. In addition, an early amortization event will occur with respect to a series if the excess spread as it relates to a particular series or for the trust, as applicable, falls below zero. Following an early amortization event, principal collections on the loan receivables in the applicable trust are applied to repay principal of the trust's asset-backed securities rather than being available on a revolving basis to fund the origination activities of our business. The occurrence of an early amortization event also would limit or terminate our ability to issue future series out of the trust in which the early amortization event occurred. No early amortization event has occurred with respect to any of the securitized financings in SYNCT, SFT or SYNIT.

The following table summarizes for each of our trusts the three-month rolling average excess spread at March 31, 2021.


	Note Principal Balance ($ in millions)		# of Series Outstanding	Three-Month Rolling Average Excess Spread(1)
SYNCT	$	4,525	9	~18.4% to 21.2%
SFT	$	300	5	19.1	%
SYNIT	$	2,600	1	17.5	%

______________________

(1)Represents the excess spread (generally calculated as interest income collected from the applicable pool of loan receivables less applicable net charge-offs, interest expense and servicing costs, divided by the aggregate principal amount of loan receivables in the applicable pool) for SFT or, in the case of SYNCT, a range of the excess spreads relating to the particular series issued within such trust or, in the case of SYNIT, the excess spread relating to the one outstanding series issued within such trust, in all cases omitting any series that have not been outstanding for at least three full monthly periods and calculated in accordance with the applicable trust or series documentation, for the three securitization monthly periods ended March 31, 2021.

Senior Unsecured Notes

The following table provides a summary of our outstanding fixed rate senior unsecured notes at March 31, 2021.


Issuance Date	Interest Rate(1)	Maturity	Principal Amount Outstanding(2)
($ in millions)
Fixed rate senior unsecured notes:
Synchrony Financial
August 2014	3.750%	August 2021	$	750
August 2014	4.250%	August 2024	1,250
July 2015	4.500%	July 2025	1,000
August 2016	3.700%	August 2026	500
December 2017	3.950%	December 2027	1,000
March 2019	4.375%	March 2024	600
March 2019	5.150%	March 2029	650
July 2019	2.850%	July 2022	750
Synchrony Bank
June 2017	3.000%	June 2022	750
May 2018	3.650%	May 2021	750
Total fixed rate senior unsecured notes			$	8,000

______________________

(1)Weighted average interest rate of all senior unsecured notes at March 31, 2021 was 3.94%.

(2)The amounts shown exclude unamortized debt discounts, premiums and issuance costs.

Short-Term Borrowings

Except as described above, there were no material short-term borrowings for the periods presented.

Other

At March 31, 2021, we had more than $25.0 billion of unencumbered assets in the Bank available to be used to generate additional liquidity through secured borrowings or asset sales or to be pledged to the Federal Reserve Board for credit at the discount window.

Covenants

The indenture pursuant to which our senior unsecured notes have been issued includes various covenants. If we do not satisfy any of these covenants, the maturity of amounts outstanding thereunder may be accelerated and become payable. We were in compliance with all of these covenants at March 31, 2021.

At March 31, 2021, we were not in default under any of our credit facilities.

Credit Ratings

Our borrowing costs and capacity in certain funding markets, including securitizations and senior and subordinated debt, may be affected by the credit ratings of the Company, the Bank and the ratings of our asset-backed securities.

The table below reflects our current credit ratings and outlooks:


	S&P	Fitch Ratings
Synchrony Financial
Senior unsecured debt	BBB-	BBB-
Preferred stock	BB-	B+
Outlook for Synchrony Financial senior unsecured debt	Stable	Negative
Synchrony Bank
Senior unsecured debt	BBB	BBB-
Outlook for Synchrony Bank senior unsecured debt	Stable	Negative

In addition, certain of the asset-backed securities issued by SYNCT and SYNIT are rated by Fitch, S&P and/or Moody’s. A credit rating is not a recommendation to buy, sell or hold securities, may be subject to revision or withdrawal at any time by the assigning rating organization, and each rating should be evaluated independently of any other rating. Downgrades in these credit ratings could materially increase the cost of our funding from, and restrict our access to, the capital markets.

Liquidity

____________________________________________________________________________________________

We seek to ensure that we have adequate liquidity to sustain business operations, fund asset growth, satisfy debt obligations and to meet regulatory expectations under normal and stress conditions.

We maintain policies outlining the overall framework and general principles for managing liquidity risk across our business, which is the responsibility of our Asset and Liability Management Committee, a subcommittee of the Risk Committee of our Board of Directors. We employ a variety of metrics to monitor and manage liquidity. We perform regular liquidity stress testing and contingency planning as part of our liquidity management process. We evaluate a range of stress scenarios including Company specific and systemic events that could impact funding sources and our ability to meet liquidity needs.

We maintain a liquidity portfolio, which at March 31, 2021 had $22.6 billion of liquid assets, primarily consisting of cash and equivalents and short-term obligations of the U.S. Treasury, less cash in transit which is not considered to be liquid, compared to $18.3 billion of liquid assets at December 31, 2020. The increase in liquid assets was primarily due to the reduction in our loan receivables, the retention of excess cash flows from operations and the seasonality of our business. We believe our liquidity position at March 31, 2021 remains strong as we continue to operate in a period of uncertain economic conditions related to COVID-19 and we will continue to closely monitor our liquidity as economic conditions change.

As additional sources of liquidity, at March 31, 2021, we had an aggregate of $4.9 billion of undrawn committed capacity on our securitized financings, subject to customary borrowing conditions, from private lenders under our securitization programs and $0.5 billion of undrawn committed capacity under our unsecured revolving credit facility with private lenders, and we had more than $25.0 billion of unencumbered assets in the Bank available to be used to generate additional liquidity through secured borrowings or asset sales or to be pledged to the Federal Reserve Board for credit at the discount window.

As a general matter, investments included in our liquidity portfolio are expected to be highly liquid, giving us the ability to readily convert them to cash. The level and composition of our liquidity portfolio may fluctuate based upon the level of expected maturities of our funding sources as well as operational requirements and market conditions.

We rely significantly on dividends and other distributions and payments from the Bank for liquidity; however, bank regulations, contractual restrictions and other factors limit the amount of dividends and other distributions and payments that the Bank may pay to us. For a discussion of regulatory restrictions on the Bank’s ability to pay dividends, see “Regulation—Risk Factors Relating to Regulation—We are subject to restrictions that limit our ability to pay dividends and repurchase our common stock; the Bank is subject to restrictions that limit its ability to pay dividends to us, which could limit our ability to pay dividends, repurchase our common stock or make payments on our indebtedness” and “Regulation—Regulation Relating to Our Business—Savings Association Regulation—Dividends and Stock Repurchases” in our 2020 Form 10-K.

Capital

____________________________________________________________________________________________

Our primary sources of capital have been earnings generated by our business and existing equity capital. We seek to manage capital to a level and composition sufficient to support the risks of our business, meet regulatory requirements, adhere to rating agency targets and support future business growth. The level, composition and utilization of capital are influenced by changes in the economic environment, strategic initiatives and legislative and regulatory developments. Within these constraints, we are focused on deploying capital in a manner that will provide attractive returns to our stockholders.

Synchrony is not currently required to conduct stress tests. See “Regulation—Regulation Relating to Our Business—Recent Legislative and Regulatory Developments” in our 2020 Form 10-K. In addition, while we have not been subject to the Federal Reserve Board's formal capital plan submission requirements to-date, we submitted a capital plan to the Federal Reserve Board in 2021. While not required, our capital plan process does include certain internal stress testing.

Dividend and Share Repurchases


Common Stock Cash Dividends Declared	Month of Payment	Amount per Common Share		Amount
($ in millions, except per share data)
Three months ended March 31, 2021	February 2021	$	0.22	$	128


Total dividends declared		$	0.22	$	128


Preferred Stock Cash Dividends Declared	Month of Payment	Amount per Preferred Share		Amount
($ in millions, except per share data)
Three months ended March 31, 2021	February 2021	$	14.06	$	11


Total dividends declared		$	14.06	$	11

The declaration and payment of future dividends to holders of our common and preferred stock will be at the discretion of the Board and will depend on many factors. For a discussion of regulatory and other restrictions on our ability to pay dividends and repurchase stock, see “Regulation—Risk Factors Relating to Regulation—We are subject to restrictions that limit our ability to pay dividends and repurchase our common stock; the Bank is subject to restrictions that limit its ability to pay dividends to us, which could limit our ability to pay dividends, repurchase our common stock or make payments on our indebtedness” in our 2020 Form 10-K.


Common Shares Repurchased Under Publicly Announced Programs	Total Number of Shares Purchased	Dollar Value of Shares Purchased
($ and shares in millions)
Three months ended March 31, 2021	5.1	$	200


Total	5.1	$	200

In January 2021, we announced our Board's approval of a share repurchase program of up to $1.6 billion through December 31, 2021 (the “2021 Share Repurchase Program”), subject to the Company’s capital plan, market conditions and other factors, including regulatory restrictions and required approvals, if any.

Through the end of the first quarter of 2021, we have repurchased $200 million of common stock as part of the 2021 Share Repurchase Program and have $1.4 billion of remaining authorized share repurchase capacity under the 2021 Share Repurchase Program at March 31, 2021.

Regulatory Capital Requirements - Synchrony Financial

As a savings and loan holding company, we are required to maintain minimum capital ratios, under the applicable U.S. Basel III capital rules. For more information, see “Regulation—Savings and Loan Holding Company Regulation” in our 2020 Form 10-K.

For Synchrony Financial to be a well-capitalized savings and loan holding company, Synchrony Bank must be well-capitalized and Synchrony Financial must not be subject to any written agreement, order, capital directive, or prompt corrective action directive issued by the Federal Reserve Board to meet and maintain a specific capital level for any capital measure. As of March 31, 2021, Synchrony Financial met all the requirements to be deemed well-capitalized.

The following table sets forth the composition of our capital ratios for the Company calculated under the Basel III Standardized Approach rules at March 31, 2021 and December 31, 2020, respectively.


	Basel III
	At March 31, 2021				At December 31, 2020
($ in millions)	Amount		Ratio(1)		Amount		Ratio(1)
Total risk-based capital	$	15,146	19.7	%	$	14,604	18.1	%
Tier 1 risk-based capital	$	14,115	18.3	%	$	13,525	16.8	%
Tier 1 leverage	$	14,115	14.5	%	$	13,525	14.0	%
Common equity Tier 1 capital	$	13,381	17.4	%	$	12,791	15.9	%
Risk-weighted assets	$	76,965			$	80,561

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(1)Tier 1 leverage ratio represents total Tier 1 capital as a percentage of total average assets, after certain adjustments. All other ratios presented above represent the applicable capital measure as a percentage of risk-weighted assets.

In March 2020 the joint federal bank regulatory agencies issued an interim final rule that allows banking organizations to mitigate the effects of the CECL accounting standard in their regulatory capital. Banking organizations that adopt CECL in 2020 can elect to mitigate the estimated cumulative regulatory capital effects of CECL for two years. The Company has elected to adopt the option provided by the interim final rule, which will largely delay the effects of CECL on its regulatory capital through the end of 2021, after which the effects will be phased-in over a three-year period from January 1, 2022 through December 31, 2024, collectively the “CECL regulatory capital transition adjustment”. For more information, see “Capital—Regulatory Capital Requirements - Synchrony Financial” in our 2020 Form 10-K.

Capital amounts and ratios at March 31, 2021 in the above table all reflect the application of the CECL regulatory capital transition adjustment. The increase in our common equity Tier 1 capital ratio compared to December 31, 2020 was primarily due to the decrease in loan receivables and a corresponding decrease in risk-weighted assets in the three months ended March 31, 2021.

Regulatory Capital Requirements - Synchrony Bank

At March 31, 2021 and December 31, 2020, the Bank met all applicable requirements to be deemed well-capitalized pursuant to OCC regulations and for purposes of the Federal Deposit Insurance Act. The following table sets forth the composition of the Bank’s capital ratios calculated under the Basel III Standardized Approach rules at March 31, 2021 and December 31, 2020, and also reflects the CECL regulatory capital transition adjustment in the March 31, 2021 amounts and ratios.


	At March 31, 2021				At December 31, 2020				Minimum to be Well-Capitalized under Prompt Corrective Action Provisions
($ in millions)	Amount		Ratio		Amount		Ratio		Ratio
Total risk-based capital	$	13,658	19.9	%	$	12,784	17.8	%	10.0%
Tier 1 risk-based capital	$	12,734	18.5	%	$	11,821	16.5	%	8.0%
Tier 1 leverage	$	12,734	14.5	%	$	11,821	13.6	%	5.0%
Common equity Tier 1 capital	$	12,734	18.5	%	$	11,821	16.5	%	6.5%

Failure to meet minimum capital requirements can result in the initiation of certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could limit our business activities and have a material adverse effect on our business, results of operations and financial condition. See “Regulation—Risk Factors Relating to Regulation—Failure by Synchrony and the Bank to meet applicable capital adequacy and liquidity requirements could have a material adverse effect on us” in our 2020 Form 10-K.

Off-Balance Sheet Arrangements and Unfunded Lending Commitments

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We do not have any material off-balance sheet arrangements, including guarantees of third-party obligations. Guarantees are contracts or indemnification agreements that contingently require us to make a guaranteed payment or perform an obligation to a third-party based on certain trigger events. At March 31, 2021, we had not recorded any contingent liabilities in our Condensed Consolidated Statement of Financial Position related to any guarantees.

We extend credit, primarily arising from agreements with customers for unused lines of credit on our credit cards, in the ordinary course of business. Each unused credit card line is unconditionally cancellable by us. See Note 4 - Loan Receivables and Allowance for Credit Losses to our condensed consolidated financial statements for more information on our unfunded lending commitments.

Critical Accounting Estimates

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In preparing our condensed consolidated financial statements, we have identified certain accounting estimates and assumptions that we consider to be the most critical to an understanding of our financial statements because they involve significant judgments and uncertainties. The critical accounting estimates we have identified relate to allowance for credit losses and fair value measurements. These estimates reflect our best judgment about current, and for some estimates future, economic and market conditions and their effects based on information available as of the date of these financial statements. If these conditions change from those expected, it is reasonably possible that these judgments and estimates could change, which may result in incremental losses on loan receivables, or material changes to our Condensed Consolidated Statement of Financial Position, among other effects. See “Management's Discussion and Analysis—Critical Accounting Estimates” in our 2020 Form 10-K, for a detailed discussion of these critical accounting estimates.

Regulation and Supervision

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Our business, including our relationships with our customers, is subject to regulation, supervision and examination under U.S. federal, state and foreign laws and regulations. These laws and regulations cover all aspects of our business, including lending and collection practices, treatment of our customers, safeguarding deposits, customer privacy and information security, capital structure, liquidity, dividends and other capital distributions, transactions with affiliates, and conduct and qualifications of personnel. Such laws and regulations directly and indirectly affect key drivers of our profitability, including, for example, capital and liquidity, product offerings, risk management, and costs of compliance.

As a savings and loan holding company and a financial holding company, Synchrony is subject to regulation, supervision and examination by the Federal Reserve Board. As a large provider of consumer financial services, we are also subject to regulation, supervision and examination by the CFPB.

The Bank is a federally chartered savings association. As such, the Bank is subject to regulation, supervision and examination by the OCC, which is its primary regulator, and by the CFPB. In addition, the Bank, as an insured depository institution, is supervised by the FDIC.

See “Regulation” in our 2020 Form 10-K for additional information on regulations that are currently applicable to us. See also “—Capital” above, for discussion of the impact of regulations and supervision on our capital and liquidity, including our ability to pay dividends and repurchase stock.

ITEM 1. FINANCIAL STATEMENTS

Synchrony Financial and subsidiaries

Condensed Consolidated Statements of Earnings (Unaudited)

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	Three months ended March 31,
($ in millions, except per share data)	2021		2020
Interest income:
Interest and fees on loans (Note 4)	$	3,732	$	4,340
Interest on cash and debt securities	10		67
Total interest income	3,742		4,407
Interest expense:
Interest on deposits	170		356
Interest on borrowings of consolidated securitization entities	51		73
Interest on senior unsecured notes	82		88

Total interest expense	303		517
Net interest income	3,439		3,890
Retailer share arrangements	(989)		(926)

Provision for credit losses (Note 4)	334		1,677
Net interest income, after retailer share arrangements and provision for credit losses	2,116		1,287
Other income:
Interchange revenue	171		161
Debt cancellation fees	69		69
Loyalty programs	(179)		(158)
Other	70		25
Total other income	131		97
Other expense:
Employee costs	364		324
Professional fees	190		197
Marketing and business development	95		111
Information processing	131		123
Other	152		247
Total other expense	932		1,002
Earnings before provision for income taxes	1,315		382
Provision for income taxes (Note 12)	290		96
Net earnings	$	1,025	$	286
Net earnings available to common stockholders	$	1,014	$	275

Earnings per share
Basic	$	1.74	$	0.45
Diluted	$	1.73	$	0.45

See accompanying notes to condensed consolidated financial statements.

Synchrony Financial and subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

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	Three months ended March 31,
($ in millions)	2021		2020

Net earnings	$	1,025	$	286

Other comprehensive income (loss)
Debt securities	(6)		17
Currency translation adjustments	2		(8)
Employee benefit plans	(1)		—
Other comprehensive income (loss)	(5)		9

Comprehensive income	$	1,020	$	295

Amounts presented net of taxes.

See accompanying notes to condensed consolidated financial statements.

Synchrony Financial and subsidiaries

Condensed Consolidated Statements of Financial Position (Unaudited)

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($ in millions)	At March 31, 2021		At December 31, 2020
Assets
Cash and equivalents	$	16,620	$	11,524
Debt securities (Note 3)	6,550		7,469
Loan receivables: (Notes 4 and 5)
Unsecuritized loans held for investment	53,823		56,472
Restricted loans of consolidated securitization entities	23,035		25,395
Total loan receivables	76,858		81,867
Less: Allowance for credit losses	(9,901)		(10,265)
Loan receivables, net	66,957		71,602
Loan receivables held for sale (Note 4)	23		5
Goodwill	1,104		1,078
Intangible assets, net (Note 6)	1,169		1,125
Other assets	3,431		3,145
Total assets	$	95,854	$	95,948

Liabilities and Equity
Deposits: (Note 7)
Interest-bearing deposit accounts	$	62,419	$	62,469
Non-interest-bearing deposit accounts	342		313
Total deposits	62,761		62,782
Borrowings: (Notes 5 and 8)
Borrowings of consolidated securitization entities	7,193		7,810

Senior unsecured notes	7,967		7,965
Total borrowings	15,160		15,775
Accrued expenses and other liabilities	4,494		4,690
Total liabilities	$	82,415	$	83,247

Equity:
Preferred stock, par share value $0.001 per share; 750,000 shares authorized; 750,000 shares issued and outstanding at both March 31, 2021 and December 31, 2020 and aggregate liquidation preference of $750 at both March 31, 2021 and December 31, 2020	$	734	$	734
Common Stock, par share value $0.001 per share; 4,000,000,000 shares authorized; 833,984,684 shares issued at both March 31, 2021 and December 31, 2020; 581,129,526 and 584,009,550 shares outstanding at March 31, 2021 and December 31, 2020, respectively	1		1
Additional paid-in capital	9,592		9,570
Retained earnings	11,470		10,621
Accumulated other comprehensive income (loss):
Debt securities	19		25
Currency translation adjustments	(20)		(22)
Employee benefit plans	(55)		(54)
Treasury stock, at cost; 252,855,158 and 249,975,134 shares at March 31, 2021 and December 31, 2020, respectively	(8,302)		(8,174)

Total equity	13,439		12,701
Total liabilities and equity	$	95,854	$	95,948

See accompanying notes to condensed consolidated financial statements.

Synchrony Financial and subsidiaries

Condensed Consolidated Statements of Changes in Equity (Unaudited)

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	Preferred Stock			Common Stock
($ in millions, shares in thousands)	Shares Issued	Amount		Shares Issued	Amount		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total Equity

Balance at January 1, 2020	750	$	734	833,985	$	1	$	9,537	$	12,117	$	(58)	$	(7,243)	$	15,088

Cumulative effect of change in accounting principle	—	—		—	—		—		(2,276)		—		—		(2,276)
Adjusted balance, beginning of period	750	734		833,985	1		9,537		9,841		(58)		(7,243)		12,812
Net earnings	—	—		—	—		—		286		—		—		286
Other comprehensive income	—	—		—	—		—		—		9		—		9

Purchases of treasury stock	—	—		—	—		—		—		—		(985)		(985)
Stock-based compensation	—	—		—	—		(14)		(21)		—		29		(6)
Dividends - preferred stock ($14.22 per share)	—	—		—	—		—		(11)		—		—		(11)
Dividends - common stock ($0.22 per share)	—	—		—	—		—		(135)		—		—		(135)

Balance at March 31, 2020	750	$	734	833,985	$	1	$	9,523	$	9,960	$	(49)	$	(8,199)	$	11,970


	Preferred Stock			Common Stock
($ in millions, shares in thousands)	Shares Issued	Amount		Shares Issued	Amount		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total Equity


Balance at January 1, 2021	750	$	734	833,985	$	1	$	9,570	$	10,621	$	(51)	$	(8,174)	$	12,701


Net earnings	—	—		—	—		—		1,025		—		—		1,025
Other comprehensive income	—	—		—	—		—		—		(5)		—		(5)

Purchases of treasury stock	—	—		—	—		—		—		—		(200)		(200)
Stock-based compensation	—	—		—	—		22		(37)		—		72		57