01—Abstract
Summary
Summary of the 10-K filed February 9, 2023. Cited figures are marked; the original filing is the authoritative source.
Synchrony Financial (SYF) reported net earnings of $3.0 billiona for 2022, down 28.5% from the prior year, as the provision for credit losses rose to $3.4 billion from $726 million in 2021.
The filing attributes the decline mainly to higher credit loss provisions, which reflected reserve reductions in 2021 and reserve increases in 2022, partially offset by higher net interest income of $15.6 billionb (up 9.7%). Loan receivables grew 14.5% to $92.5 billion, driven by purchase volume of $180.2 billion and moderating customer payment rates, and deposits rose 15.2% to $71.7 billion, funding 84% of total sources. Credit quality deteriorated from unusually low levels.
The over-30 day delinquency rate rose to 3.65%c from 2.62%, and the net charge-off rate increased to 3.00%. Management expects delinquencies and net charge-offs to keep rising in 2023 as they trend toward historical averages, and expects the allowance and provision for credit losses in 2023 to exceed 2022 levels. Retailer share arrangement payments are expected to decline in absolute terms in 2023, and interest expense and cost of funds are expected to keep increasing.
Capital returns remained significant: the company repurchased $3.3 billiond of common stock and paid $434 million in common dividends during 2022, and the quarterly dividend was raised 5% to $0.23 per share. The Basel III common equity Tier 1 ratio was 12.8%, down from 15.6%, reflecting higher risk-weighted assets and the first-year phase-in of CECL. The filing also notes a February 2023 issuance of $750 million of 7.250% subordinated unsecured notes.
02—Key points
Key Highlights
- Net earnings fell 28.5% to $3.0 billion in 2022, driven by a provision for credit losses of $3.4 billion versus $726 million in 2021.
- Net interest income rose 9.7% to $15.6 billion, with interest and fees on loans up 10.9% to $16.9 billion.
- Loan receivables increased 14.5% to $92.5 billion; purchase volume reached $180.2 billion and active accounts were 70.8 million.
- Over-30 day delinquencies rose to 3.65% from 2.62%, and the net charge-off rate rose to 3.00%; management expects further increases in 2023.
- Deposits grew 15.2% to $71.7 billion and represented 84% of total funding sources; cost of funds rose to 1.92% from 1.37%.
- The company repurchased $3.3 billion of common stock in 2022 and raised its quarterly dividend 5% to $0.23 per share.
- Basel III common equity Tier 1 ratio was 12.8%, reflecting CECL regulatory capital phase-in, and is expected to fall about 60 basis points more in 2023.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2022filed February 9, 2023Financial Statements
FY2022 against FY2021
| Line item | FY2022FY2021 | Change |
|---|---|---|
| Interest Expense | $1.52B$1.03B | +47.4% |
| Net Income | $3.02B$4.22B | −28.5% |
| EPS (Basic) | $6.19$7.40 | −16.4% |
| EPS (Diluted) | $6.15$7.34 | −16.2% |
| Shares Outstanding (Basic) | 480.40M564.60M | −14.9% |
| Shares Outstanding (Diluted) | 483.40M569.30M | −15.1% |
05—Questions
Frequently Asked Questions
Why did Synchrony's net earnings decline in 2022?
Net earnings decreased 28.5% to $3.0 billion, primarily because the provision for credit losses increased by $2.6 billion to $3.4 billion. The filing says this reflected reserve increases in 2022 versus reserve reductions in 2021, partially offset by higher net interest income.
How is credit quality trending and what does management expect for 2023?
Over-30 day delinquencies rose to 3.65% of period-end loan receivables from 2.62%, and the net charge-off rate rose to 3.00%. Management anticipates that delinquencies and net charge-offs will increase further in 2023 as credit metrics trend toward historical averages, and that the allowance and provision for credit losses will be higher than in 2022.
How much capital did Synchrony return to shareholders in 2022?
The company repurchased $3.3 billion of common stock and declared and paid $434 million in common dividends, or $0.90 per share. It also paid $42 million in preferred dividends. At December 31, 2022, $700 million remained under the share repurchase authorization.
How is Synchrony funded and how is that changing?
At December 31, 2022, deposits were $71.7 billion, or 84% of total funding sources, with $58.0 billion in direct deposits and $13.7 billion in brokered deposits. Interest expense rose 47.4%, and the company expects interest expense and cost of funds to keep increasing in 2023 as benchmark rates and funding needs grow.
What is Synchrony's capital position and does it face new requirements?
The Basel III common equity Tier 1 ratio was 12.8% at December 31, 2022, down from 15.6%, with the CECL regulatory capital transition adjustment phased in over three years through 2024. The filing states that Synchrony's total consolidated assets exceeded $100 billion at year-end 2022, and that if average assets reach $100 billion on a four-quarter average, it would become subject to stress testing, a stress capital buffer and formal capital plan requirements.
06—Continue