Synchrony Financial (SFE) Risk Analysis

____________________________________________________________________________________________Preferred StockCommon Stock($ in millions, shares in thousands)Shares IssuedAmountShares IssuedAmountAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Treasury StockTotal EquityBalance at January 1, 2023750 $734 833,985 $1 $9,718 $16,716 $(125)$(14,171)$12,873 Cumulative effect of change in accounting principle-----222--222Adjusted balance, beginning of period750 $734 833,985 $1 $9,718 $16,938 $(125)$(14,171)$13,095 Net earnings- - - - - 2,238 - - 2,238 Other comprehensive income- - - - - - 57 - 57 Purchases of treasury stock- - - - - - - (1,112)(1,112)Stock-based compensation- - - - 57 (66)- 82 73 Dividends - Series A preferred stock ($56.24 per share)- - - - - (42)- - (42)Dividends - common stock ($0.96 per share)- - - - - (406)- - (406)Balance at December 31, 2023750 $734 833,985 $1 $9,775 $18,662 $(68)$(15,201)$13,903 Net earnings- - - - - 3,499 - - 3,499 Other comprehensive income- - - - - - 9 - 9 Issuance of preferred stock500 488 - - - - - - 488 Purchases of treasury stock- - - - - - - (1,008)(1,008)Stock-based compensation- - - - 78 (56)- 137 159 Dividends - Series A preferred stock ($56.24 per share)- - - - - (42)- - (42)Dividends - Series B preferred stock ($60.05 per share)- - - - - (30)- - (30)Dividends - common stock ($1.00 per share)- - - - - (398)- - (398)Balance at December 31, 20241,250 $1,222 833,985 $1 $9,853 $21,635 $(59)$(16,072)$16,580 Net earnings- - - - - 3,552 - - 3,552 Other comprehensive income- - - - - - 11 - 11 Purchases of treasury stock- - - - - - - (2,941)(2,941)Stock-based compensation- - - - 49 (79)- 104 74 Dividends - Series A preferred stock ($56.24 per share)- - - - - (42)- - (42)Dividends - Series B preferred stock ($82.52 per share)- - - - - (41)- - (41)Dividends - common stock ($1.15 per share)- - - - - (427)- - (427)Balance at December 31, 20251,250 $1,222 833,985 $1 $9,902 $24,598 $(48)$(18,909)$16,766

Ally LendingOn March 1, 2024, we acquired Ally Financial Inc.'s point-of-sale financing business ("Ally Lending") for cash consideration of $2.0 billion. This acquisition deepened our presence and reach in the home improvement and health and wellness sectors, including high-growth specialty areas such as roofing, HVAC, and windows, as well as in cosmetic, audiology, and dentistry. The Ally Lending acquisition was accounted for as a business combination using the acquisition method of accounting and, accordingly, assets acquired and liabilities assumed were recorded at their estimated fair value as of the acquisition date. The valuation of the assets acquired and liabilities assumed was completed in 2024, and during the year ended December 31, 2024, measurement period adjustments were recognized related to the acquisition as detailed in the table below.($ in millions)Amounts Recognized as of Acquisition Date (as previously reported as of March 31, 2024)Measurement Period AdjustmentsAmounts Recognized as of Acquisition Date (as adjusted)Assets acquiredCash$34 $- $34 Loan receivables(a)1,875 (198)1,677 Intangible assets, net23 (5)18 Other assets2 - 2 Total $1,934 $(203)$1,731 Liabilities assumedOther liabilities(16)2 (14)Total net identifiable assets acquired$1,918 $(201)$1,717 Less: Total cash consideration paid1,969 - 1,969 Goodwill$51 $201 $252 _______________________(a)    Loan discounts are recognized into interest income over the estimated remaining life of the acquired loans. The amounts above represent the estimated fair values of the respective assets acquired and liabilities assumed as of the date of acquisition. The estimated fair values reflect market participant assumptions about facts and circumstances that existed at the acquisition date. The measurement period adjustments reflected above did not result from events occurring subsequent to the acquisition date. The goodwill recognized related to the acquisition is tax-deductible and reflected the expected synergies and operational efficiencies arising from the transaction.The acquisition primarily included loan receivables with an unpaid principal balance of $2.2 billion. These loan receivables are reported within Consumer installment loans in Note 5. Loan Receivables and Allowance for Credit Losses. To determine the fair value of loans at acquisition, we estimated expected cash flows and discounted those cash flows using an observable market rate of interest, when available, adjusted for factors that a market participant would consider in determining fair value. In determining fair value, expected cash flows were adjusted to include prepayment, default rate, and loss severity estimates. The difference between the fair value and the amount contractually due was recorded as a loan discount or premium at acquisition. Including the impact of measurement period adjustments, the loan discount at the acquisition date was $469 million, which is amortized into interest income over the estimated remaining life of the loans, as described within Note 2. Basis of Presentation and Summary of Significant Accounting Policies. The interest and fees related to the acquired business are included in our Consolidated Statements of Earnings subsequent to the acquisition date and totaled $320 million for the year ended December 31, 2024. This amount included amortization of the loan discount recognized at acquisition of $162 million. Expense activities, including those associated with the acquired business, are managed for the Company as a whole. Loans acquired without a more-than-insignificant credit deterioration since origination are measured under the Allowance for Credit Losses model, as described within Note 2. Basis of Presentation and Summary of Significant Accounting Policies. The Company's best estimate of contractual cash flows not expected to be collected at the date of acquisition was $180 million, which was included within our Allowance for credit losses, and recognized through Provision for credit losses in our Consolidated Statements of Earnings for the year ended December 31, 2024.Included in the acquisition was $64 million of PCD assets that were not immediately written off at the acquisition date and were subject to specific guidance upon acquisition. An allowance for PCD assets of $39 million was recorded at the date of acquisition. Subsequent to initial recognition, the accounting for the PCD assets generally follows the Allowance for Credit Losses model described within Note 2. Basis of Presentation and Summary of Significant Accounting Policies.Pets BestIn March 2024, we sold our wholly-owned subsidiary, Pets Best Insurance Services, LLC ("Pets Best") to Poodle Holdings, Inc. ("Buyer") for consideration comprising a combination of cash and an equity interest of less than 10% in Independence Pet Holdings, Inc., ("IPH") an affiliate of Buyer. The sale of Pets Best resulted in the recognition of a gain on sale of $1.1 billion, or $802 million, net of tax, in the three months ended March 31, 2024. The pre-tax gain amount was recognized within the Other component of Other income in our Consolidated Statements of Earnings.The Company's initial equity investment in IPH was recorded in Other assets on our Consolidated Statements of Financial Position and is accounted for under the equity method of accounting. The investment was recorded at its estimated fair value at the date acquired of $605 million. The change in the carrying value of our equity investment in IPH subsequent to the date acquired was not material.

DepositsAt December 31 ($ in millions)20252024Interest-bearing deposits:Money market and other demand deposits$2,837 $2,264 Savings29,777 28,605 Certificates of deposit:Direct42,229 41,055 Brokered3,316 5,891 Brokered sweep accounts2,589 3,849 Total interest-bearing deposits80,748 81,664 Total non-interest-bearing deposits396 398 Total deposits$81,144 $82,062 Certificates of DepositAt December 31, 2025, our certificates of deposit maturing over the next five years and thereafter were as follows: ($ in millions)20262027202820292030ThereafterCertificates of deposit$34,275 $5,490 $2,335 $1,186 $2,070 $189 At December 31, 2025 and 2024, direct certificates of deposit of $12.3 billion and $11.2 billion, respectively, were of denominations at or exceeding applicable FDIC insurance limits, which are generally $250,000 per depositor for each account ownership category. These amounts include partially insured certificates of deposit. At December 31, 2025 and 2024, the portion of these direct certificates of deposit estimated to be uninsured was $4.2 billion and $3.7 billion, respectively. Brokered certificates of deposit are assumed to be individual deposit balances within applicable FDIC insurance limits. Brokered Sweep Deposits Our broker network deposit sweeps are procured through a program arranger who channels account deposits to us. Unless extended, the contracts associated with these broker network deposit sweeps will terminate between 2026 and 2029.

20252024At December 31 ($ in millions)Maturity dateInterest RateWeighted average interest rateOutstanding Amount(a)(b)Outstanding Amount(a)(b)Borrowings of consolidated securitization entities:Fixed securitized borrowings2026 - 20284.06% - 5.74%4.97 %$5,490 $4,917 Floating securitized borrowings2027 - 20284.44% - 4.85%4.59 %2,925 2,925 Total borrowings of consolidated securitization entities4.84 %8,415 7,842 Senior unsecured notes:Synchrony Financial senior unsecured notes:Fixed senior unsecured notes2026 - 20312.88% - 5.15%3.90 %2,892 4,637 Fixed-to-floating senior unsecured notes2029 - 20365.02% - 6.00%5.62 %2,534 745 Synchrony Bank senior unsecured notes:Fixed senior unsecured notes20275.63%5.63 %599 1,497 Total senior unsecured notes4.79 %6,025 6,879 Subordinated unsecured notes:Synchrony Financial subordinated unsecured notes:Fixed subordinated unsecured notes20337.25%7.25 %742 741 Total senior and subordinated unsecured notes5.06 %6,767 7,620 Total borrowings$15,182 $15,462 ___________________(a)Includes unamortized debt premiums, discounts and issuance costs.(b)The Company may redeem certain borrowings prior to their original contractual maturity dates in accordance with the optional redemption provision specified in the respective instruments.Debt MaturitiesThe following table summarizes the maturities of the principal amount of our borrowings of consolidated securitization entities and senior and subordinated unsecured notes over the next five years and thereafter: ($ in millions)20262027202820292030ThereafterBorrowings$2,250 $5,350 $2,925 $1,150 $750 $2,800 Senior Unsecured NotesThe following table summarizes the issuances of Synchrony Financial fixed-to-floating rate senior unsecured notes during the year ended December 31, 2025:($ in millions):Issuance DatePrincipal AmountFixed Interest RateInterest Rate Reset DateFloating Rate Spread(a)MaturityMarch 2025$800 5.450%March 6, 2030168 bpsMarch 2031July 2025$500 5.019%July 29, 2028139.5 bpsJuly 2029July 2025$500 6.000%July 29, 2035207 bpsJuly 2036___________________(a)Floating rate applicable at interest rate reset date through maturity, based on compounded Secured Overnight Financing Rate plus floating rate spread noted above.Additional Sources of LiquidityWe have undrawn committed and uncommitted capacity under our credit facilities from private lenders under our securitization programs, subject to customary borrowing conditions, and also have access to the Federal Reserve discount window. At both December 31, 2025 and December 31, 2024, we had:- an aggregate of $2.6 billion of undrawn capacity under our securitization financings, of which $2.1 billion was committed and $450 million was uncommitted, and- an aggregate of $10.0 billion and $11.5 billion, respectively, of available borrowing capacity through the Federal Reserve discount window based on the amount and type of assets pledged.In July 2025, our $500 million unsecured revolving credit facility with private lenders matured.

Synchrony Financial (the "Company") provides a range of credit products through financing programs it has established with a diverse group of national and regional retailers, local merchants, manufacturers, buying groups, industry associations and healthcare service providers. We primarily offer private label, Dual Card, co-brand and general purpose credit cards, as well as short- and long-term installment loans, and savings products insured by the Federal Deposit Insurance Corporation ("FDIC") through Synchrony Bank (the "Bank"). We conduct our operations through a single business segment. See Note 17. Segment Reporting for additional information.References to the "Company," "we," "us" and "our" are to Synchrony Financial and its consolidated subsidiaries unless the context otherwise requires.

Basic earnings per share is computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per common share reflects the assumed conversion of all dilutive securities, which are calculated using the treasury stock method.The following table presents the calculation of basic and diluted earnings per common share:Years ended December 31,($ in millions, except per share data)202520242023Net earnings$3,552 $3,499 $2,238 Preferred stock dividends(83)(72)(42)Net earnings available to common stockholders$3,469 $3,427 $2,196 Weighted average common shares outstanding, basic369.9 396.5 421.2 Effect of dilutive securities4.0 4.1 2.3 Weighted average common shares outstanding, dilutive373.9 400.6 423.5 Earnings per basic common share$9.38 $8.64 $5.21 Earnings per diluted common share$9.28 $8.55 $5.19 We have issued stock-based awards under the Synchrony Financial 2024 Long-Term Incentive Plan, along with prior incentive plans. Awards that were considered anti-dilutive and therefore were excluded from the computation of diluted earnings per common share were less than 1 million shares for both the years ended December 31, 2025 and 2024, and 4 million shares for the year ended December 31, 2023.

Preferred StockAt December 31, 2025 and 2024, the Company had 1.25 million shares of preferred stock outstanding, which had previously been approved by our Board for issuance. In addition, subject to approval from the Board, we have the ability to issue additional series of preferred stock up to a maximum of 300 million shares at a par value of $0.001 per share authorized for issuance. The following table summarizes the Company's series of preferred stock issued and outstanding at December 31, 2025 and 2024.SeriesIssuance DateRedeemable by Issuer BeginningPer Annum Dividend RateLiquidation Preference per ShareTotal Shares OutstandingDecember 31, 2025December 31, 2024($ in millions, except per share data)Series A(a)November 14, 2019November 15, 20245.625%$1,000750,000$734 $734 Series B(a)February 23, 2024May 15, 20298.25%(b)$1,000500,000$488 $488 Total$1,222 $1,222 _______________________(a)Issued as depositary shares, each representing a 1/40th interest in a share of the corresponding series of non-cumulative perpetual preferred stock. Dividends are payable quarterly on February 15, May 15, August 15 and November 15 at a fixed rate, in each case when, as and if declared by the Board of Directors.(b)Through May 14, 2029; resets May 15, 2029 and each date falling on the fifth anniversary at 5-Year Treasury Rate plus 4.044%.Dividends and Share RepurchasesDuring the years ended December 31, 2025, 2024 and 2023, we declared and paid common stock dividends of $1.15, $1.00 and $0.96 per share of common stock, or $427 million, $398 million and $406 million, respectively. We also declared and paid dividends on our series of preferred stock included in the table above totaling $83 million, $72 million and $42 million, for each of the years ended December 31, 2025, 2024 and 2023, respectively.During the year ended December 31, 2025, the Company repurchased an aggregate of 43.7 million shares of our common stock for $2.9 billion, which does not reflect costs and taxes associated with the purchase of shares. The cost of share repurchases, including direct and incremental costs associated with repurchasing, is recorded as a reduction of shareholder's equity. In April 2025, we announced that the Board of Directors approved a share repurchase program of up to $2.5 billion through June 30, 2026 (the "2025 plan"). In September 2025, the Board of Directors approved an incremental share repurchase authorization of up to $1.0 billion, through June 30, 2026 (collectively with the April 2025 program, the "2025 program"). At December 31, 2025 we had $1.2 billion remaining under the 2025 program. In all instances, our share repurchase programs are subject to market conditions and other factors, including legal and regulatory restrictions and required approvals, if any.Synchrony Financial Incentive ProgramsWe have established the Synchrony Financial 2024 Long-Term Incentive Plan (the "2024 Incentive Plan"), along with prior incentive plans which permit us to issue stock-based, stock-denominated and other awards to officers, employees, consultants and non-employee directors providing services to the Company and our participating affiliates. Available awards under the 2024 Incentive Plan include stock options and stock appreciation rights, restricted stock and restricted stock units ("RSUs"), performance share units ("PSUs") and other awards valued in whole or in part by reference to, or otherwise based on, our common stock (other stock-based awards), and dividend equivalents. Each RSU is convertible into one share of Synchrony Financial common stock. A total of 26.3 million shares of our common stock (including authorized and unissued shares) are available for granting awards under the 2024 Incentive Plan.Our grants generally vest over a three-year term on either an annual pro rata proportional basis, starting with the first anniversary of the award date, or at the end of the term of the award on a cliff basis, provided that the employee has remained continuously employed by the Company through such vesting date. For PSUs, the number of shares of common stock that will ultimately be awarded is contingent upon meeting certain pre-defined financial goals over a designated three-year performance period, and can range from 0% to 150% of the number of PSUs awarded. In addition, the final number of shares of common stock to be awarded is also subject to a Total Shareholder Return ("TSR") modifier of +/-20% based on our TSR performance relative to peers over the designated three-year performance period.Compensation expense related to equity awards is recorded as a component of Employee costs in our Consolidated Statements of Earnings, with a corresponding adjustment to equity, net of tax, included within our Consolidated Statements of Equity. At December 31, 2025, there were 1.1 million stock options issued and outstanding and 6.4 million unvested other stock-based awards, comprising 4.0 million RSUs and 2.4 million PSUs. The total unrecognized compensation cost related to these awards at December 31, 2025 was $152 million, which is expected to be amortized over a weighted average period of 1.8 years.

We conduct our operations through a single business segment, which derives interest and fee income earned on our credit products we offer to our customers. Our credit products include private label, dual, co-brand and general purpose credit cards, as well as short- and long-term installment loans. Revenue generating activities are aligned through five sales platforms (Home & Auto, Digital, Diversified & Value, Health & Wellness and Lifestyle). Those platforms are organized by the types of partners we work with to reach our customers. Substantially all of our interest and fees on loans and long-lived assets relate to our operations within the United States.Pursuant to ASC 280, Segment Reporting, operating segments represent components of an enterprise for which separate financial information is available that is regularly evaluated by the chief operating decision maker in determining how to allocate resources and in assessing performance.The chief operating decision maker, our President and Chief Executive Officer, uses consolidated net earnings to assess the performance and profitability of our single business segment. While revenue generating activities are aligned through our five sales platforms, expense activities, including funding costs, credit losses and operating expenses, are managed for the Company as a whole. As a result, detailed profitability information for each sales platform is not used by our chief operating decision maker. The chief operating decision maker uses consolidated net earnings to assess performance by comparing to and monitoring against budget and prior year results. This information is used to manage resources to drive business and net earnings growth, including investment in key strategic priorities, as well as determine the Company's ability to return capital to shareholders. The following table presents segment information for the periods presented herein:For the years ended December 31($ in millions)202520242023Interest and fees on loans$21,698 $21,596 $19,902 Interest on cash and debt securities903 1,049 808 Total interest income22,601 22,645 20,710 Total interest expense4,135 4,634 3,711 Net interest income18,466 18,011 16,999 Retailer share arrangements(4,005)(3,407)(3,661)Reserve build (release)(439)313 1,345 Net charge-offs5,664 6,420 4,620 Provision for credit losses5,225 6,733 5,965 Other income:Other income520 452 289 Gain on sale of business (Note 3)- 1,069 - Total other income520 1,521 289 Other expense:Employee costs2,093 1,872 1,884 Professional fees936 936 842 Marketing and business development 511 524 527 Information processing 899 803 712 Fraud-related operational losses189 192 288 Other segment items(a)507 512 505 Total other expense 5,135 4,839 4,758 Provision for income taxes1,069 1,054 666 Net earnings$3,552 $3,499 $2,238 _____________(a)     Represents the total amount of other expenses included in net earnings, including postage and various other corporate overhead items such as facilities costs and telephone charges.Our segment assets represent our Total assets as presented on the Consolidated Statements of Financial Position.