01—Abstract
Summary
Summary of the 10-K filed February 10, 2022. Cited figures are marked; the original filing is the authoritative source.
Synchrony Financial (SYF) reported net earnings of $4.2 billiona for 2021, up sharply from $1.4 billion in 2020, driven mainly by a lower provision for credit losses, which fell to $726 million from $5.3 billion.
Net interest income declined 1.1% to $14.2 billionb as interest and fees on loans fell with elevated customer payment rates, which the filing says were approximately 260 basis points above the five-year historical average. Retailer share arrangements rose 24.2% to $4.5 billion, reflecting the lower provision. Loan receivables ended the year at $80.7 billion, and deposits were $62.3 billion, representing 81% of total funding sources.
The company's asset quality improved markedly, with over-30 day delinquencies at 2.62%c of period-end loan receivables versus 3.07% a year earlier, and a net charge-off rate of 2.92%. The filing warns that management expects payment rates to moderate in 2022, which would likely lead to higher delinquencies, net charge-offs and provisions. The allowance coverage ratio fell to 10.76% from 12.54%.
The Common equity Tier 1 ratio was 15.6%, and the company repurchased $2.9 billiond of common stock and paid $500 million in common dividends during 2021. The filing also notes that the Gap Inc. and BP receivable portfolios, totaling $4.4 billion classified as held for sale, are expected to be conveyed in the second quarter of 2022, which the company expects will reduce interest and fee income compared with 2021. Key risks include concentration in a few large partners (Amazon, JCPenney, Lowe's, PayPal and Sam's Club accounted for 50% of interest and fees on loans), U.S. consumer credit exposure, regulatory and CFPB uncertainty, and reliance on Fiserv for core processing.
02—Key points
Key Highlights
- Net earnings rose to $4.2 billion for 2021 from $1.4 billion in 2020, primarily driven by a lower provision for credit losses of $726 million versus $5.3 billion.
- Net interest income decreased 1.1% to $14.2 billion as elevated payment rates reduced interest and fees on loans.
- Over-30 day delinquencies improved to 2.62% of period-end loan receivables from 3.07%, and the net charge-off rate fell to 2.92% from 4.58%.
- Retailer share arrangements increased 24.2% to $4.5 billion, mainly due to the lower provision for credit losses.
- Deposits totaled $62.3 billion, representing 81% of total funding sources, with $50.1 billion in direct deposits.
- The company repurchased $2.9 billion of common stock and paid $500 million in common dividends in 2021, with $1.2 billion of remaining repurchase authorization.
- Management expects payment rates to moderate in 2022, which it anticipates will increase delinquencies, net charge-offs and provisions, and the Gap Inc. and BP portfolios are expected to be sold in Q2 2022.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2021filed February 10, 2022Financial Statements
FY2021 against FY2020
| Line item | FY2021FY2020 | Change |
|---|---|---|
| Interest Expense | $1.03B$1.67B | −38.0% |
| Net Income | $4.22B$1.39B | +204.8% |
| EPS (Basic) | $7.40$2.28 | +224.6% |
| EPS (Diluted) | $7.34$2.27 | +223.3% |
| Shares Outstanding (Basic) | 564.60M589.00M | −4.1% |
| Shares Outstanding (Diluted) | 569.30M590.80M | −3.6% |
05—Questions
Frequently Asked Questions
Why did net earnings increase so significantly in 2021?
Net earnings increased to $4.2 billion from $1.4 billion, primarily because the provision for credit losses dropped to $726 million from $5.3 billion. The filing attributes the lower provision to reserve reductions, including $345 million related to held for sale portfolios, and lower net charge-offs, driven by improved customer payment behavior.
What does the company expect for credit trends in 2022?
The filing states that management anticipates the elevated payment trend seen in 2021 will begin to moderate in 2022, and expects increases to both delinquencies and net charge-offs compared with current levels. It also expects its credit loss reserve builds and provision for credit losses to be higher than in 2021.
How concentrated is the company's revenue among its partners?
The five largest programs, excluding Gap Inc., were Amazon, JCPenney, Lowe's, PayPal and Sam's Club, which together accounted for 50% of interest and fees on loans in 2021 and 51% of loan receivables at year-end. Lowe's and PayPal (including Venmo) each accounted for more than 10% of interest and fees on loans.
What is the company's capital position?
At December 31, 2021, the Basel III common equity Tier 1 capital ratio was 15.6% for Synchrony Financial and 16.9% for Synchrony Bank, both above their well-capitalized requirements. The filing notes that CECL's regulatory capital effects are being phased in over 2022 through 2024, which will reduce the common equity Tier 1 ratio by 62 basis points in 2022.
What are the main risks highlighted in the filing?
Key risks include macroeconomic conditions affecting consumer credit, dependence on a small number of large partners, intense competition, regulatory and CFPB uncertainty, reliance on Fiserv for transaction processing and production services, cybersecurity threats, and the possibility of higher funding costs or credit rating downgrades. Its ratings were BBB- at Synchrony Financial from both Fitch and S&P.
06—Continue