01—Abstract
Summary
Summary of the 10-K filed February 23, 2015. Cited figures are marked; the original filing is the authoritative source.
Synchrony Financial (SYF) filed this annual report on Form 10-K for fiscal 2014, following its initial public offering in August 2014.
The company is the largest provider of private label credit cards in the United States by purchase volume and receivables, operating through three sales platforms: Retail Card, Payment Solutions and CareCredit. In 2014 it financed $103.1 billiona of purchase volume, ended the year with $61.3 billion of loan receivables and 64.3 million active accounts, and reported net earnings of $2.1 billion, up from $2.0 billion in 2013, with a return on assets of 3.2%. The company remains majority-owned by General Electric, which holds approximately 84.6% of its common stock through GECFI and GECC.
GE has stated it targets completing a full separation in late 2015, but that depends on Federal Reserve Board approval of Synchrony's application to remain a savings and loan holding company, and the filing states that timing and conditions are uncertain. Until that approval, the company says it expects to retain earnings and not pay dividends or repurchase stock, and it describes significant costs and infrastructure build-out required to operate as a standalone company.
Key risk areas investors should weigh include concentration in a small number of large Retail Card partners (the ten largest accounted for 59.8% of platform revenue), rising funding costs after the IPO as GE-related debt is replaced with third-party borrowings, and ongoing regulatory and consumer-enforcement exposure, including CFPB and DOJ consent orders covering CareCredit and debt cancellation products. Deposits grew to $35.0 billionb, with $19.7 billion from direct deposits, and the Basel III Tier 1 common ratio was estimated at 14.5%.
02—Key points
Key Highlights
- Net earnings rose to $2,109 million in 2014 from $1,979 million in 2013, and net interest income increased 7.1% to $11,320 million.
- Loan receivables grew 7.0% to $61,286 million at December 31, 2014, and purchase volume was $103.1 billion for the year.
- The IPO in August 2014 at $23.00 per share raised net proceeds of approximately $2.8 billion; GE retains about 84.6% ownership.
- Deposits increased 35.9% to $35.0 billion, with direct deposits up 79.1% to $19.7 billion; the company is shifting funding away from GECC-related debt.
- Ten largest Retail Card programs generated 59.8% of total platform revenue, and JCPenney and Walmart each exceeded 10% of platform revenue.
- Over-30 day delinquency fell to 4.14% from 4.35%, and the net charge-off rate fell to 4.51% from 4.68%.
- Other expense rose to $2,927 million from $2,484 million, reflecting standalone infrastructure costs, marketing investment and business growth.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 23, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Interest Expense | $922.00M$742.00M | +24.3% |
| Net Income | $2.11B$1.98B | +6.6% |
| EPS (Basic) | $2.78$2.81 | −1.1% |
| EPS (Diluted) | $2.78$2.81 | −1.1% |
| Shares Outstanding (Basic) | 757.40M705.30M | +7.4% |
| Shares Outstanding (Diluted) | 757.60M705.30M | +7.4% |
05—Questions
Frequently Asked Questions
How much is GE's ownership and when does it plan to fully exit?
GE, through GECFI and GECC, owns about 84.6% of Synchrony's common stock after the IPO. GE has indicated it targets completing its exit through a separation in late 2015, but the filing states this may not occur on that timeline because it depends on Federal Reserve Board approval and other conditions.
Will Synchrony pay dividends or buy back stock soon?
The filing says the company expects to retain net earnings and not pay dividends or repurchase stock until its application to the Federal Reserve Board is approved. After that, the board intends to consider a dividend policy and may consider repurchases, subject to regulatory and contractual limits.
How concentrated is Synchrony's revenue among partners?
The ten largest Retail Card partner relationships accounted for 59.8% of total platform revenue in 2014, and the five largest programs (Gap, JCPenney, Lowe's, Sam's Club and Walmart) accounted for 47.1%. The filing notes the company expects this concentration to continue for the foreseeable future.
What regulatory matters could affect the business?
The company entered consent orders with the CFPB and DOJ, including a 2013 CFPB order covering CareCredit requiring up to $34.1 million in customer payments, and 2014 orders requiring about $207 million in total consumer remediation. The company says it does not believe these will have a material adverse effect on results going forward, though reputational and similar state actions remain possible.
How has Synchrony's funding changed after the IPO?
Following the IPO, the company repaid about $8.0 billion of related-party debt owed to GECC and took on a $8.2 billion Bank Term Loan and $3.6 billion of senior unsecured notes at December 31, 2014. Deposits grew to $35.0 billion, and the filing states that borrowing costs from third parties are higher than its historical GECC-based costs.
06—Continue