01—Abstract
Summary
Summary of the 10-K filed February 25, 2016. Cited figures are marked; the original filing is the authoritative source.
Synchrony Financial (SYF) reported net earnings of $2.2 billiona for 2015, up from $2.1 billion in 2014, with a return on assets of 2.9% versus 3.2%.
The company is one of the premier consumer financial services companies in the United States and describes itself as the largest provider of private label credit cards in the U.S. based on purchase volume and receivables. During 2015 it financed $113.6 billionb of purchase volume, and at December 31, 2015 it held $68.3 billion of loan receivables, 68.3 million active accounts and $43.4 billion of deposits. The company operates through three sales platforms: Retail Card ($7.4 billion, or 69%, of total platform revenue), Payment Solutions ($1.7 billion, or 15%) and CareCredit ($1.7 billion, or 16%).
The filing marks the company's separation from General Electric. GE's exchange offer was completed on November 17, 2015, and GE no longer owns any of Synchrony's common stock. Synchrony also became a stand-alone savings and loan holding company, and its Bank is regulated by the OCC.
Earlier, the Bank's Operating Agreement with the OCC was terminated on February 4, 2016, and the CALMA also terminated. The company says it does not expect to pay a dividend or repurchase stock until it has the Federal Reserve Board's non-objection, and it expects to keep retaining earnings to build capital and liquidity. Its fully phased-in Basel III common equity Tier 1 ratio was 15.9%c at December 31, 2015.
Key risks highlighted include concentration in a small number of Retail Card partners (five largest programs produced 49%d of platform revenue), reliance on securitization and deposit funding, regulatory and CFPB enforcement exposure, and dependence on First Data and FIS (transitioning to Fiserv) for key services. Credit performance improved, with the net charge-off rate falling to 4.33% from 4.51% and the over-30 day delinquency rate falling to 4.06% from 4.14%.
02—Key points
Key Highlights
- Net earnings rose 5.0% to $2,214 million in 2015, driven by higher net interest income, partly offset by higher retailer share arrangements, provision for loan losses and other expenses.
- Loan receivables increased 11.4% to $68,290 million at December 31, 2015, driven by higher purchase volume and average active account growth, including the BP portfolio acquired in Q2 2015.
- Total deposits increased 24.3% to $43.4 billion, with direct deposits up 50.8% to $29.7 billion, while brokered deposits declined.
- Net charge-off rate improved to 4.33% from 4.51%, and the over-30 day delinquency rate fell to 4.06% from 4.14%.
- Other expense rose $337 million, or 11.5%, to $3,264 million, reflecting investment in growth and infrastructure ahead of the GE separation.
- Retail Card partner concentration is high: the five largest programs (Gap, JCPenney, Lowe's, Sam's Club and Walmart) accounted for 49% of total platform revenue.
- The company completed its separation from GE on November 17, 2015, and the OCC terminated the Bank's Operating Agreement on February 4, 2016.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 25, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Interest Expense | $1.14B$922.00M | +23.1% |
| Net Income | $2.21B$2.11B | +5.0% |
| EPS (Basic) | $2.66$2.78 | −4.3% |
| EPS (Diluted) | $2.65$2.78 | −4.7% |
| Shares Outstanding (Basic) | 833.80M757.40M | +10.1% |
| Shares Outstanding (Diluted) | 835.50M757.60M | +10.3% |
05—Questions
Frequently Asked Questions
How did Synchrony perform financially in 2015?
Net earnings were $2,214 million in 2015, up 5.0% from $2,109 million in 2014. Net interest income rose 6.8% to $12,093 million, while provision for loan losses increased $35 million, or 1.2%, to $2,952 million. Diluted earnings per share were $2.65, compared with $2.78 in 2014. Return on assets was 2.9%, down from 3.2%.
Will Synchrony pay dividends or buy back stock soon?
The filing says the company intends to retain net earnings and will not pay a dividend or return capital through share repurchases until it has the non-objection of the Federal Reserve Board. Its board intends to establish dividend and repurchase programs consistent with maintaining capital ratios well above regulatory minimums. Any future dividend depends on board discretion, regulatory restrictions and restrictions in the Bank Term Loan.
How concentrated is Synchrony's revenue among its partners?
Concentration is significant. The five largest programs (Gap, JCPenney, Lowe's, Sam's Club and Walmart) accounted for 49% of total platform revenue and 51% of loan receivables at December 31, 2015. JCPenney and Walmart each produced more than 10% of total platform revenue. Most Retail Card program agreements expire in 2019 or later, and 17 of 22 Retail Card program agreements have expiration dates in 2019 or beyond.
What is Synchrony's capital position?
At December 31, 2015, the company's estimated fully phased-in Basel III common equity Tier 1 ratio was 15.9%, and the transition-basis Common equity Tier 1 ratio was 16.8%. Total risk-based capital was 18.1% and Tier 1 leverage was 14.4%. Synchrony Bank met all requirements to be deemed well-capitalized at year-end 2015.
What regulatory matters could affect Synchrony?
The company is subject to Federal Reserve Board and OCC supervision, and to CFPB supervision as a large consumer financial services provider. It has entered consent orders with the CFPB and DOJ related to its CareCredit platform, debt cancellation products and collection offers. The 2013 CareCredit order required payments up to $34.1 million, and the 2014 orders required about $185 million in balance credits and waivers plus about $15 million in other credits or payments. The filing says the CFPB's proposed arbitration rules could significantly increase class action exposure if enacted.
06—Continue