Synchrony Financial — FY 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This summary covers the full year; the supplied filing text does not provide standalone fourth-quarter results.
Business context
Synchrony is a U.S.-focused consumer finance company operating through one reportable segment. It provides private-label, dual, co-branded and general-purpose credit cards, installment loans and FDIC-insured deposit products, primarily through Synchrony Bank and retail, digital and healthcare partners. In 2021, purchase volume was $165.9 billion; year-end loan receivables were $80.7 billion and active accounts totaled 72.4 million.
Key financial results
| Metric | FY 2021 | FY 2020 |
|---|---|---|
| Interest and fees on loans | $15.228 billion | $15.950 billion |
| Net interest income | $14.239 billion | $14.402 billion |
| Net earnings | $4.221 billion | $1.385 billion |
| Diluted earnings per share | $7.34 | $2.27 |
| Provision for credit losses | $726 million | $5.310 billion |
| Other income | $481 million | $405 million |
| Other expense | $3.963 billion | $4.055 billion |
| Net interest margin | 14.74% | 14.29% |
| Efficiency ratio | 38.9% | 36.3% |
The filing presents interest income and related components rather than a single consolidated revenue figure. Net earnings increased 204.8%, mainly because the provision for credit losses fell sharply; the result also included a $261 million after-tax benefit from reserve reductions on portfolios held for sale. Lower net interest income and higher retailer-share payments partly offset the benefit.
Credit, balance sheet, liquidity and capital
- Credit quality: Net charge-offs were $2.304 billion, or 2.92% of average loan receivables, versus $3.668 billion and 4.58% in 2020. Loans 30 or more days past due were 2.62% of period-end receivables, compared with 3.07%. The allowance was $8.688 billion, or 10.76% of receivables, versus $10.265 billion and 12.54% a year earlier.
- Loans and deposits: Reported loan receivables declined 1.4% to $80.740 billion; excluding transfers to held-for-sale classification, management said receivables rose 4%. Deposits were $62.270 billion, down 0.8%, and represented 81% of funding sources.
- Debt: Borrowings totaled $14.507 billion at year-end, comprising $7.288 billion of securitization borrowings and $7.219 billion of senior unsecured notes.
- Liquidity: Liquid assets were $13.0 billion, compared with $18.3 billion in 2020. The company also disclosed $2.7 billion of undrawn committed facilities and more than $25 billion of unencumbered Bank assets available as potential liquidity sources.
- Capital and returns: Company common equity Tier 1 ratio was 15.6%, reflecting the CECL regulatory-capital transition. Synchrony repurchased $2.9 billion of common stock and paid $500 million in common dividends during 2021; $1.2 billion of repurchase authorization remained at year-end.
- Cash flow: Operating activities provided $7.099 billion; investing activities used $4.814 billion and financing activities used $5.204 billion. Cash and equivalents, including restricted amounts, decreased $2.919 billion during the year.
Material changes and outlook
- Purchase volume rose 19.2% to $165.9 billion, while customer payment rates remained elevated—about 260 basis points above the prior five-year average—limiting receivables growth and interest income.
- Interest expense declined 38.0% to $1.032 billion, primarily reflecting lower benchmark rates; cost of funds fell to 1.37% from 2.07%.
- Retailer-share arrangements increased 24.2% to $4.528 billion, primarily as lower credit-loss provisions improved program economics. Loyalty-program costs rose 52.9% to $992 million, while interchange revenue increased 35.0% to $880 million.
- Management expected 2022 purchase volume to increase and payment rates to moderate, supporting growth in receivables and interest income for ongoing programs. It also expected delinquencies, charge-offs, reserve builds and credit-loss provision to rise from unusually low 2021 levels. No quantified earnings or loss-rate guidance was provided.
- Management expected aggregate retailer-share payments to decline in 2022 versus 2021, partly reflecting anticipated credit trends and portfolio dispositions, with the amount dependent on timing and asset quality.
- Synchrony agreed to sell the Gap and BP portfolios, with both sales expected to close in the second quarter of 2022, subject to customary conditions. Year-end held-for-sale receivables were $4.361 billion. The company expected a gain on the Gap portfolio sale; the filing text does not provide a clear amount.
Risks, contingencies and unusual items
Key risks include deterioration in consumer credit as stimulus-related savings and elevated payment rates normalize; concentration in a small number of partners (the five largest programs represented 50% of 2021 interest and fees on loans); funding, deposit and securitization-market exposure; interest-rate and margin risk; competition; cyber and third-party service disruptions; and extensive regulatory oversight. The company relies significantly on Fiserv for card processing, production and retail-deposit platform services.
Management identified the allowance for credit losses and fair-value measurements as critical estimates. KPMG issued unqualified opinions on the financial statements and internal controls; the allowance for credit losses was identified as a critical audit matter. A proposed settlement in the Belton bankruptcy-related case, preliminarily approved by the court, contemplated payments of up to $8.5 million, subject to final approval. Management estimated reasonably possible losses on other legal and regulatory matters to be immaterial where estimable, while noting outcomes could still materially affect results in a particular period.
Important facts for investors to verify
- Whether 2022 payment-rate normalization and credit deterioration tracked management’s expectations, and the resulting effect on provision, allowance coverage and charge-offs.
- Completion, sale terms and realized gain or loss for the Gap and BP portfolios, including the effect on receivables, earnings and partner concentration.
- Performance and renewal terms of major partner programs, especially Amazon, JCPenney, Lowe’s, PayPal and Sam’s Club.
- Deposit stability, funding costs, liquidity levels and continued access to securitization and unsecured debt markets.
- Capital ratios as CECL transition adjustments phase in, and the sustainability of dividends and share repurchases under regulatory constraints.
- Progress on the Belton settlement and developments in other litigation, regulatory matters and third-party operational or cybersecurity risks.