Synchrony Financial : Q1 2024 Basel III Pillar 3 Regulatory Capital Disclosure Report

SYNCHRONY FINANCIAL

Basel III Pillar 3 Regulatory Capital

Disclosure Report

March 31, 2024

Synchrony Financial

Basel III Regulatory Capital Disclosures at March 31, 2024

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" 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
• the "Federal Banking Agencies" are to the Board of Governors of the Federal Reserve System ("Federal Reserve Board"), the Office of the Comptroller of the Currency ("OCC") and the Federal Deposit Insurance Corporation ("FDIC"), collectively.

Cautionary Note Regarding Forward-Looking Statements:

Various statements in this report 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, retaining existing partners and attracting new partners, concentration of our revenue in a small number of partners, and promotion and support of our products by our partners; cyber-attacks or other security incidents or breaches; disruptions in the operations of our and our outsourced partners' computer systems and data centers; the financial performance of our partners; the Consumer Financial Protection Bureau's (the "CFPB") final rule on credit card late fees; 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, dispositions 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 CFPB's regulation of our business, including new requirements and constraints that Synchrony and the Bank will become subject to as a result of having $100 billion or more in total assets; 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.

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Basel III Regulatory Capital Disclosures at March 31, 2024

For the reasons described above, we caution you against relying on any forward-looking statements in this report, and you should refer to our periodic and current reports filed with the Securities and Exchange Commission, or "SEC," for further information or other factors, which could cause actual results to be significantly different from those expressed or implied by any forward-looking statements herein.

Introduction

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We are a premier consumer financial services company delivering one of the industry's most complete, digitally- enabled product suites. Our experience, expertise and scale encompass a broad spectrum of industries including digital, health and wellness, retail, telecommunications, home, auto, outdoor, pet and more. We have an established and diverse group of national and regional retailers, local merchants, manufacturers, buying groups, industry associations and healthcare service providers, which we refer to as our "partners." We connect our partners and consumers through our dynamic financial ecosystem and provide them with a diverse set of financing solutions and innovative digital capabilities to address their specific needs and deliver seamless, omnichannel experiences. We utilize a broad set of distribution channels, including mobile apps and websites, as well as online marketplaces and business management solutions like point-of-sale platforms. Our offerings include private label, dual, co-brand and general purpose credit cards, as well as short- and long-term installment loans and consumer banking products.

Basel III Regulatory Capital Framework

In July 2013, the Federal Banking Agencies finalized regulatory capital rules implementing standards originally issued by the Basel Committee on Banking Supervision in December 2010 ("Basel III capital rules"), which became effective for the Company in 2015, subject to phase-in periods through the end of 2018. These rules substantially revised the risk-based capital requirements applicable to insured depository institution holding companies and their insured depository institution subsidiaries as compared to the previous U.S. risk-based capital and leverage ratio rules, and implemented certain provisions of the Dodd-Frank Act.

Basel III has three components (Pillars) including minimum capital requirements, a supervisory review process and market discipline:

Pillar 1 - Minimum capital requirements: Establishes the rules by which regulatory capital can be calculated, including defining eligible capital instruments and calculating risk-weighted assets ("RWA").

Pillar 2 - Supervisory review process: Addresses bank-wide governance and risk management, in addition to requiring banks to have an Internal Capital Adequacy Assessment Process.

Pillar 3 - Market discipline: Establishes regulatory disclosure requirements, which are designed to allow market participants to assess the risk and capital profiles of banks.

Basel III Reporting

This Basel III Pillar 3 Regulatory Capital Disclosure Report (the "Basel III Report") provides Synchrony's disclosures regarding its capital structure, capital adequacy, risk exposures and RWA as required by the Basel III Pillar 3 provisions. The required disclosures apply to Synchrony, with the exception that capital ratios for the Bank must also be disclosed.

The Basel III Report should be read in conjunction with Synchrony's filings with the U.S. Securities and Exchange Commission (SEC) - Annual Report on Form 10-K for the year ended December 31, 2023 ("2023 Form 10-K") and Quarterly Report on Form 10-Q for the period ended March 31, 2024 ("1Q 2024 Form 10-Q"). The Basel III Report has not been audited by Synchrony's external auditors. The Basel III Disclosure Index (Appendix A) specifies where all required disclosures are made.

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Basel III Regulatory Capital Disclosures at March 31, 2024

Basis of Consolidation

The basis of consolidation used for the Company's regulatory reporting is the same as that used under U.S. GAAP. There are no entities that are deconsolidated for regulatory capital purposes or the capital of which is deducted from our capital.

Restrictions on Transfer of Funds and Capital

Synchrony is limited in its ability to pay dividends or repurchase its stock by the Federal Reserve Board, including on the basis that doing so would be an unsafe or unsound banking practice. Where Synchrony intends to declare or pay a dividend or repurchase its stock, Synchrony is expected to inform and consult with the Federal Reserve Board in advance to ensure that such dividend or repurchase does not raise supervisory concerns. It is the policy of the Federal Reserve Board that a savings and loan holding company like Synchrony should generally pay dividends on common stock and preferred stock only out of earnings, and only if prospective earnings retention is consistent with the company's capital needs and overall current and prospective financial condition.

According to guidance from the Federal Reserve Board, Synchrony's dividend policies will be assessed against, among other things, its ability to satisfy applicable minimum capital ratio requirements under the Basel III capital rules. If Synchrony does not satisfy these requirements, Synchrony may not be able to pay dividends. Although Synchrony currently expects to meet applicable requirements of the Basel III capital rules, inclusive of any applicable capital conservation buffer, it cannot be sure that it will do so or even if it does, it will be able to pay dividends.

In evaluating the appropriateness of a proposed redemption or repurchase of stock, the Federal Reserve Board will consider, among other things, the potential loss that Synchrony may suffer from the prospective need to increase reserves and write down assets as a result of continued asset deterioration, and Synchrony's ability to raise additional common equity and other capital to replace the stock that will be redeemed or repurchased. The Federal Reserve Board also will consider the potential negative effects on Synchrony's capital structure of replacing common stock with any lower-tier form of regulatory capital issued.

Further, limitations on the Bank's payments of dividends and other distributions and payments that Synchrony receives from the Bank could limit Synchrony's ability to pay dividends or repurchase its stock. The Bank must obtain the approval of the OCC or give the OCC prior notice before making a capital distribution in certain circumstances, including if the Bank proposes to make a capital distribution when it does not meet certain capital requirements (or will not do so as a result of the proposed capital distribution) or certain net income requirements. In addition, the Bank must file a prior written notice of a planned or declared dividend or other distribution with the Federal Reserve Board. The Federal Reserve Board or OCC may object to a capital distribution if, among other things, (i) the Bank is, or as a result of such distribution would be, undercapitalized, significantly undercapitalized, or critically undercapitalized, (ii) the regulators have safety and soundness concerns or (iii) the distribution violates a prohibition in a statute, regulation, agreement between the Bank and the OCC or between Synchrony and the Federal Reserve Board, or a condition imposed on the Bank or Synchrony in an application or notice approved by the OCC or the Federal Reserve Board, respectively.

For further information on restrictions on transfers of funds and capital, refer to "Regulation-RegulationRelating to Our Business-Savingsand Loan Holding Company Regulation-Dividendsand Stock Repurchases" in the 2023 Form 10-K.

Capital Structure

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Capital Instruments and Regulatory Capital

Synchrony's regulatory capital instruments primarily consist of common stock, preferred stock and subordinated unsecured notes. For additional information, refer to the Company's Condensed Consolidated Statement of Financial Position in the 1Q 2024 Form 10-Q.

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Basel III Regulatory Capital Disclosures at March 31, 2024

A reconciliation of regulatory capital elements as they relate to Synchrony's Condensed Consolidated Financial Statements presented in the 1Q 2024 Form 10-Q, in addition to information regarding the components of capital used in calculating common equity Tier 1 ("CET1") capital, Tier 1 capital, Tier 2 capital and Total regulatory capital under the Basel III Standardized Approach for Synchrony at March 31, 2024, are presented in the table below.

Reconciliation of Capital Elements

Capital Adequacy

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Capital Management

Synchrony's capital management objectives are to maintain adequate levels of capital generated through earnings and other sources to ensure viability and flexibility of Synchrony and its subsidiaries. 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, Synchrony is focused on deploying capital in a manner that will provide attractive returns to its shareholders.

The Company's Internal Capital Adequacy Assessment Process ("ICAAP") is designed to enhance the understanding of the Company's exposure to material risks and the capital resources available to absorb those risks. The Company uses both quantitative and qualitative methods to translate risk measures including proprietary econometric forecasting models coupled with management judgment to estimate exposure to material risks.

The Capital Management Committee is the primary committee overseeing capital management activities including, but not limited to, monitoring and reporting regulatory capital, executing the ICAAP, conducting internal stress testing, recommending shareholder dividends and other capital actions, and formulating recommended Capital Contingency Plans, as applicable. The Risk Committee of the Board of Directors is responsible for reviewing risk exposures and ensuring sufficient capital capacity to cover these risk exposures. The Risk Committee is responsible for holding management accountable for providing sufficient information on Synchrony's material risks and exposures to inform decisions on capital adequacy and actions, including capital distribution.

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Regulatory Capital Requirements

As a savings and loan holding company and financial holding company, Synchrony is subject to regulation, supervision and examination by the Federal Reserve Board. 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 with respect to consumer financial matters. In addition, the Bank, as an insured depository institution, is supervised by the Federal Deposit Insurance Corporation.

Synchrony is subject to the capital requirements as prescribed by Basel III capital rules and the requirements of the Dodd-Frank Act.

Specifically, under the Tailoring Rules, most covered savings and loan holding companies with average total consolidated assets of $100 billion or more, but less than $250 billion, are subject to supervisory stress tests on a biennial basis, in even calendar years. Additionally, covered savings and loan holding companies with average total consolidated assets of $100 billion or more are subject to formal capital plan submission requirements and to a stress capital buffer in lieu of the 2.5% capital conservation buffer. Synchrony is now subject to the Federal Reserve Board's formal capital plan submission requirements and submitted its 2024 capital plan to the Federal Reserve Board. While not required, the capital plan process will continue to include certain internal stress testing. Synchrony currently expects that the first supervisory stress test it will be required to participate in will be in 2026. The stress capital buffer requirements will also commence once Synchrony begins to participate in supervisory stress tests. As a result, its capital requirements may increase and its ability to pay dividends, make other capital distributions, or redeem or repurchase its stock may be adversely impacted.

The Company elected to adopt the option provided by the interim final rule issued by joint federal bank regulatory agencies, which largely delayed the effects of CECL on our regulatory capital. Beginning in the first quarter of 2022, the effects are being phased-in over a three-year transitional period through 2024 and twill be fully phased-in beginning in the first quarter of 2025. Under the interim final rule, the amount of adjustments to regulatory capital deferred until the phase-in period included both the initial impact of our adoption of CECL at January 1, 2020 and 25% of subsequent changes in our allowance for credit losses during the two-year period ended December 31, 2021, collectively the "CECL regulatory capital transition adjustment". Beginning in the first quarter of 2024 only 25% of the CECL regulatory capital transition adjustment is deferred in our regulatory capital amounts and ratios.

Failure to meet minimum capital requirements can initiate 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 consolidated financial statements. Under capital adequacy guidelines, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

For Synchrony to be a well-capitalized savings and loan holding company, the Bank must be well-capitalized and Synchrony 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.

At March 31, 2024, Synchrony met all applicable requirements to be deemed well-capitalized pursuant to Federal Reserve Board regulations.

At March 31, 2024, 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 summarizes the Basel III minimum and well-capitalized regulatory capital ratio requirements at March 31, 2024.

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1. Tier 1 leverage ratio represents 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 RWA.
2. At March 31, 2024 Synchrony also must maintain a capital conservation buffer of CET1 capital in excess of minimum risk- based capital ratios by at least 2.5 percentage points to avoid limits on capital distributions and certain discretionary bonus payments to executive officers and similar employees.
3. Applies to the Bank only. For Synchrony to be a well-capitalized savings and loan holding company, the Bank must be well- capitalized and Synchrony 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.

Risk-Weighted Assets and Regulatory Capital Ratios

Basel III establishes two comprehensive methodologies for calculating RWA, a Standardized Approach and an Advanced Approach. Synchrony is subject to the Basel III Standardized Approach for determining RWA.

The following tables present information on the RWA components included within the regulatory capital ratios under the Standardized Approach for Synchrony and the regulatory capital ratios for Synchrony and the Bank at March 31, 2024.

(a) Primarily includes credit card loan receivables, net of excess allowance for credit losses.

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Capital Conservation Buffer

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Synchrony is subject to a capital conservation buffer. Under this requirement, Synchrony could be subject to limitations on its ability to make distributions of capital or make discretionary bonus payments unless it maintains a buffer of capital, composed solely of CET1 capital, sufficient to exceed each of the minimum risk-based capital ratios applicable to the institution plus an additional 2.5% of RWA.

A banking organization's eligible retained income is defined as the greater of the average of its previous four quarters of net income and net income for the four preceding calendar quarters, net of any distributions. At March 31, 2024, Synchrony's capital conservation buffer was 7.8%, which is above the 2.5% minimum and its eligible retained income was $1.5 billion. Synchrony does not currently have a payout ratio limitation on distributions and discretionary bonus payments as Synchrony meets the capital conservation buffer requirements.

Covered savings and loan holding companies with average total consolidated assets of $100 billion or more are subject to a stress capital buffer in lieu of the 2.5% capital conservation buffer. The stress capital buffer is calculated as the amount of loss of CET1 capital incurred by the Company in the severely adverse scenario of the most recent supervisory stress test exercise, assuming certain continued payments on capital instruments, and is subject to a floor of 2.5% of risk-weighted assets. Synchrony will become subject to the stress capital buffer once it begins to participate in supervisory stress tests, which Synchrony currently expects will be in 2026.

Credit Risk: General Disclosures

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Enterprise Risk Management

Strong risk management is at the core of the Company's business strategy and we have developed processes to manage the major categories of risk, namely credit, market, liquidity, operational (including compliance), strategic and reputational risk (considered across all risk types).

We manage enterprise risk using an integrated framework that includes board-level oversight, administration by a group of cross-functional management committees and day-to-day implementation by a dedicated risk management team led by the Chief Risk Officer, a role currently held by our Chief Risk and Legal Officer. We also utilize the "Three Lines of Defense" risk management model to demonstrate and structure the roles, responsibilities and accountabilities in the organization for taking and managing risk. The Risk Committee of the Board of Directors has responsibility for the oversight of the risk management program, and three other board committees have other oversight roles with respect to risk management. Several management committees and subcommittees have important roles and responsibilities in administering the risk management program, including the Enterprise Risk Management Committee (the "ERMC"), the Management Committee (the "MC"), the Asset/Liability Committee and the Capital Management Committee. This committee-focused governance structure provides a forum through which risk expertise is applied cross-functionally to all major decisions, including development of policies, processes and controls used by the Chief Risk Officer and risk management team to execute the risk management philosophy.

The enterprise risk management philosophy is to ensure that all relevant risks are appropriately identified, measured, monitored and controlled. The approach in executing this philosophy focuses on leveraging risk expertise to drive enterprise risk management using a strong governance framework structure, a comprehensive enterprise risk assessment program and an effective risk appetite framework. The corporate culture and values, in conjunction with the risk management accountability incorporated into the integrated Risk Management Framework,

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which includes the governance structure and three distinct Lines of Defense, has facilitated, and will continue to facilitate, the evolution of an effective risk presence across the Company.

The "First Line of Defense" is comprised of the business areas whose day-to-day activities involve decision-making and associated risk-taking for the Company. As the business owner, the first line is responsible for identifying, assessing, managing and controlling that risk, and for mitigating overall risk exposure. The first line formulates strategy and operates within the risk appetite and risk governance framework. The "Second Line of Defense," also known as the independent risk management organization, provides oversight of first line risk taking and management. The second line assists in determining risk capacity, risk appetite and the strategies, policies and structure for managing risks. The second line owns the risk governance framework. The "Third Line of Defense" is comprised of Internal Audit. The third line provides independent and objective assurance to senior management and to the Board of Directors and Audit Committee that the first and second line risk management and internal control systems and its governance processes are well-designed and working as intended.

Responsibility and accountability for risk management flows to individuals and entities throughout the Company, including the Board of Directors, various board and management committees, senior management and members of each "Line of Defense". For example:

• The Chief Executive Officer has ultimate responsibility for ensuring the management of the Company's risk in accordance with the Company's approved risk appetite statement, including through their role as chairperson of the MC. The Chief Executive Officer also provides leadership in communicating the risk appetite to internal and external stakeholders to help embed appropriate risk taking into the overall corporate culture of the Company.
• The Chief Risk Officer manages the risk management team and, as chairperson of the ERMC, is responsible for establishing and implementing standards for the identification, management, measurement, monitoring and reporting of risk on an enterprise-wide basis. In collaboration with the Chief Executive Officer and the Chief Financial Officer, the Chief Risk Officer has responsibility for developing an appropriate risk appetite with corresponding limits that aligns with supervisory expectations, and this risk appetite statement has been approved by the Board of Directors. The Chief Risk Officer regularly reports to the Board of Directors and the Risk Committee on risk management matters.
• The senior executive officers who serve as leaders in the "First Line of Defense", are responsible for ensuring that their respective functions operate within established risk limits, in accordance with the Company's Risk Appetite Statement. As members of the ERMC and the MC, they are also responsible for identifying risks, considering risk when developing strategic plans, budgets and new products and implementing appropriate risk controls when pursuing business strategies and objectives. In addition, senior executive officers are responsible for deploying sufficient financial resources and qualified personnel to manage the risks inherent in the Company's business activities.
• The risk management team, including compliance, led by the Chief Risk Officer, provides oversight of the Company's risk profile and is responsible for maintaining a compliance program that includes compliance risk assessment, policy development, testing and reporting activities. This team effectively serves in a "Second Line of Defense" role by overseeing the operating activities of the "First Line of Defense".
• The internal audit team is responsible for performing periodic, independent reviews and testing of compliance with the Company's and the Bank's risk management policies and standards, as well as with regulatory guidance and industry best practices. The internal audit team also assesses the design of the Company's and the Bank's policies and standards and validates the effectiveness of risk management controls, and reports the results of such reviews to the Audit Committee. The internal audit team effectively serves as the "Third Line of Defense" for the Company.

The Company's Enterprise Risk Management oversight tools, which are an integral component of the integrated Risk Management Framework that is used to help the Company manage risk within its approved risk appetite, are applied to the Company's strategy setting process as well as its operational delivery mechanisms to identify potential events that may impact the Company. To achieve its risk appetite objective, the Company must identify, manage, monitor, control and report on current and emerging risks in a consistent, timely, and understandable manner across the organization. Three examples of the oversight tools that help the Company identify its risks are the Risk Appetite Statement, the Enterprise Risk Assessment process and stress testing activities.

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