01—Abstract
Summary
Summary of the 10-K filed February 11, 2021. Cited figures are marked; the original filing is the authoritative source.
Synchrony Financial (SYF) reported a sharp earnings decline for 2020.
Net earnings decreased 63.0% to $1.4 billiona, driven mainly by lower net interest income and a higher provision for credit losses, partially offset by lower retailer share arrangements and other expense. Net interest income fell 14.3% to $14.4 billion, reflecting the 2019 sale of the Walmart consumer portfolio and COVID-19 impacts. Loan receivables decreased 6.1% to $81.9 billion, and purchase volume was $139.1 billion.
The company adopted CECL on January 1, 2020, adding $3.0 billionb to its allowance for credit losses, which reached $10.3 billion, or 12.54% of loan receivables. Credit quality improved in 2020: over-30 day delinquencies fell to 3.07% from 4.44%, and the net charge-off rate decreased to 4.58% from 5.65%. Management nonetheless expects delinquencies and net charge-offs to increase in the second half of 2021 as unemployment-related pressures persist, and expects loan receivables and interest income to grow in 2021.
Deposits of $62.8 billionc funded 80% of total funding sources. The company repurchased $1.0 billion of common stock and paid $520 million in common dividends in 2020, and in January 2021 announced a new buyback of up to $1.6 billion through December 31, 2021.
The filing also notes a planned leadership transition effective April 1, 2021, in which CEO Margaret Keane becomes Executive Chair and President Brian Doubles becomes President and CEO. Credit ratings carry negative outlooks at both Synchrony Financial and Synchrony Bank, with senior unsecured debt rated BBB- by Fitch and S&P at the holding company level.
02—Key points
Key Highlights
- Net earnings fell 63.0% to $1.4 billion in 2020, versus $3.7 billion in 2019, as net interest income dropped 14.3% to $14.4 billion.
- Allowance for credit losses rose to $10.3 billion (12.54% of loan receivables) after a $3.0 billion CECL adoption increase, compared with 6.42% at December 31, 2019.
- Over-30 day delinquencies improved to 3.07% from 4.44%, and the net charge-off rate declined to 4.58% from 5.65%.
- Purchase volume was $139.1 billion and loan receivables were $81.9 billion, with 68.5 million active accounts at year-end.
- Deposits totaled $62.8 billion, representing 80% of total funding sources; the Bank's deposit base is central to funding strategy.
- Management expects delinquencies and net charge-offs to increase in the second half of 2021, partially offset by government stimulus measures.
- A new share repurchase program of up to $1.6 billion was authorized for 2021, following $1.0 billion of repurchases in 2020 when buybacks were temporarily suspended.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2020filed February 11, 2021Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Interest Expense | $1.67B$2.29B | −27.3% |
| Net Income | $1.39B$3.75B | −63.0% |
| EPS (Basic) | $2.28$5.59 | −59.2% |
| EPS (Diluted) | $2.27$5.56 | −59.2% |
| Shares Outstanding (Basic) | 589.00M670.20M | −12.1% |
| Shares Outstanding (Diluted) | 590.80M673.50M | −12.3% |
05—Questions
Frequently Asked Questions
Why did Synchrony's net earnings decline so sharply in 2020?
Net earnings fell 63.0% to $1.4 billion, primarily due to lower net interest income and a higher provision for credit losses. The filing attributes these to COVID-19's impact on purchase volume and loan receivables, the 2019 Walmart portfolio sale, and the $285 million CECL-related increase in provision for the year.
What is the impact of the CECL accounting change?
Synchrony adopted CECL on January 1, 2020, increasing its allowance for credit losses by $3.0 billion and reducing retained earnings by $2.3 billion. The allowance coverage ratio rose to 12.54% at December 31, 2020, compared with 6.42% a year earlier, with COVID-19 projections also contributing.
What do management's 2021 expectations look like?
Management expects loan receivables and interest income to increase in 2021 versus 2020, with slowing payment rates and rising purchase volume in the second half. It also expects delinquencies and net charge-offs to increase in the second half of 2021, partially offset by government actions, and anticipates lower retailer share arrangement payments in absolute terms.
Is Synchrony's capital position strong, and what capital actions are planned?
At December 31, 2020, the company reported a Basel III common equity Tier 1 ratio of 15.9%, with the CECL regulatory capital effect deferred until a phase-in beginning January 1, 2022. Synchrony is well-capitalized, and the Board approved a new share repurchase program of up to $1.6 billion through December 31, 2021, subject to regulatory approval and other factors.
Are there leadership changes or credit rating concerns investors should know about?
Effective April 1, 2021, Margaret Keane will move from CEO to Executive Chair, and Brian Doubles will become President and CEO. Ratings agencies assign negative outlooks to Synchrony Financial and Synchrony Bank senior unsecured debt, and the filing notes that downgrades could raise funding costs and restrict capital market access.
06—Continue