Synchrony Financial (SYF) Earnings

Management highlights

- Overall Financial Performance * Generated net earnings of $885 million ($2.59 per diluted share), with return on average assets of 2.9% and return on tangible common equity of 25.2%; tangible book value per share increased 8% YoY * Total purchase volume grew 8% YoY to an all-time high of nearly $50 billion, with average active accounts returning to growth and ending loan receivables growing 2% to $102 billion * Net interest income increased 2% YoY to $4.6 billion, with net interest margin expanding 30 basis points YoY to 15.08%, driven by lower funding costs and a higher mix of loan receivables relative to interest earning assets * Net charge-off rate was 5.43%, a 27 basis point decrease YoY, with allowance for credit losses at 10.09% of loan receivables * 83% of total funding comes from deposits, with strong capital levels: CET1 ratio of 13.2% at quarter end * Returned $950 million to shareholders in Q2, including $850 million in share repurchases and $100 million in common dividends, with $5.7 billion remaining in share purchase authorization - Partnership and Acquisition Activity * Added or renewed over 15 partners in Q2, including long-term renewals with Suzuki Motor (secured installment financing for 700+ dealers) and AmeriVet (CareCredit as exclusive financing partner for 200+ veterinary clinics), and a new multi-year agreement with Roto-Rooter for home repair financing * Refreshed the 20+ year Dick's Sporting Goods co-branded credit card program, adding 10% cash back on qualifying purchases and enhanced rewards * Completed acquisition of the MyLowes Pro Rewards American Express Card Portfolio in April, extending purchasing power and rewards beyond Lowe's for pro customers and complementing the existing private label card offering - Strategic Focus * Maintained credit discipline while driving growth, with a focus on dynamic underwriting, diversified product offerings, and serving a broad base of business and provider partners * Early adoption of AI across the business, with 90% of exempt employees actively using AI tools to improve productivity and speed to market

Guidance

- Expects continued acceleration of average active account growth and strong purchase volume growth in the second half of 2026, with mid-single-digit growth in ending loan receivables by full year end - Full year 2026 net interest income is expected to grow, supported by higher average loan receivables, the incremental impact of PPPCs, and lower funding costs, partially offset by lower late fee volume and faster new account growth - Full year 2026 net charge-offs are expected to remain below 5.5%, with delinquency and losses following normal seasonal patterns - RSAs (Revenue Sharing Agreements) are expected to increase but remain within the long-term target range of 4% to 4.5% of average receivables - Total other expense in the second half of 2026 is expected to be roughly consistent with the first half of the year - Management reaffirmed the long-term target ROA of 2.5%+ and CET1 target of 11%

Segment performance

Synchrony operates across five sales platforms, with the following Q2 2026 purchase volume performance: 1) Diversified in Value: 12% YoY growth, driven by partner expansion and higher gas sales; 2) Digital Platform: 9% YoY growth, supported by strong performance from diversified partners with highly engaged customers; 3) Home and Auto: 6% YoY growth, driven by new programs and expanded partnership with Lowe's following the acquisition of the MyLowes Pro Rewards American Express Card Portfolio; Furniture and home specialty saw positive green shoots, with furniture up nicely and home specialty up mid-single digits; 4) Lifestyle: 6% YoY growth, driven by new programs and strength in apparel, goods, and luxury categories; 5) Health and Wellness: 2% YoY growth, primarily driven by growth in pet care. Co-branded cards (Ninquity) accounted for 52% of total purchase volume, growing 23% YoY, with out-of-partner discretionary spend up double digits in line with non-discretionary spend.

Risks & headwinds

- Elevated payment rates remain 170 basis points above pre-pandemic levels, driven by new portfolio seasoning, product mix shifts, and prior credit actions, which partially offset loan receivable growth - Higher operational losses in Q2 increased other expense and pushed the efficiency ratio 170 basis points higher YoY; management expects the acceleration of operational losses to flatten in the second half - Potential new regulation on late fees/APR price controls remain a pending risk, which management notes would have serious unintended consequences including restricted consumer credit access - AI token and infrastructure costs are not material currently, but management is monitoring potential long-term cost increases as AI providers pass large technology investment costs to end users - Actual results may differ materially from forward-looking statements due to unforeseen changes in consumer behavior, interest rates, and regulatory conditions, as disclosed in the company's SEC filings

Analyst Q&A

• Q: Analyst asks for an explanation of why second half 2026 EPS implied by current guidance is below street expectations, and what drivers will push margin expansion from the Q2 trough. Can elevated payment rates block further margin growth? /

  A: CFO explains the discrepancy comes from quarterly modeling of reserve provisions: more growth-driven provisions will be recorded in the second half, rather than smoothing reserve changes evenly across quarters. 85% of the Q2 quarter-over-quarter payment rate increase came from new portfolio conversions (including Walmart and new programs) and promo mix, not a fundamental upward trend. Late fees have likely hit a trough, so the headwind from lower late fees will abate, and net interest margin will build sequentially in the second half as the impact of PPPCs becomes more meaningful.

• Q: Analyst asks for an update on long-term growth opportunities, and management's confidence in returning to historical longer-term growth rates. /

  A: CEO outlines three main organic growth pillars: expanding the comprehensive multi-product suite (from secured starter products to traditional revolving and co-branded cards) to serve more customers per partner, investing in integrated customer experiences and partnerships with ISVs/software platforms to scale reach across many small merchants/providers, and leveraging the proprietary PRISM underwriting platform as a competitive advantage for new business and renewals. Management is confident growth will return to the historical 5.5-6% range as the intentional credit restriction posture is relaxed after getting credit losses back below target.

• Q: Analyst asks about AI investment strategy, specifically how management is managing compute/token costs and will balance AI costs versus employee costs going forward. /

  A: Management notes AI is a transformative opportunity that is already driving efficiency gains and faster speed to market, with 90% of exempt employees actively using tools. Token costs are not material currently, and a FinOps team already tracks AI costs similarly to cloud expenses. Long-term, AI costs will be incorporated into standard ROI budgeting frameworks for all projects, with different usage frameworks for technical teams versus support functions, but management will continue to invest in high return use cases.

• Q: Analyst asks if there are acquisition opportunities for large private label portfolios as competitors pull back from the space. /

  A: CEO confirms that as the largest player in the private label financing space, nearly all new de novo and portfolio acquisition opportunities cross Synchrony's desk. The business is actively pursuing these opportunities (which are part of organic growth strategy, distinct from large traditional M&A) and has a strong current pipeline, maintaining discipline on pricing and terms for all opportunities.