Release Date: July 17, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Synchrony Financial (SYF, Financial) reported strong second-quarter results with net earnings of $643 million or $1.55 per diluted share.
- The company added 5.1 million new accounts and grew average active accounts by 2%, indicating strong customer demand.
- Ending receivables grew by 8% compared to last year, driven by a diversified portfolio and disciplined credit management.
- Synchrony Financial (SYF) renewed more than 15 partners, including Verizon and added Virgin Red, expanding its partner network.
- The company maintained a strong capital position with a CET1 ratio of 12.6% and returned $400 million to shareholders through share repurchases and dividends.
Negative Points
- Purchase volume growth ranged from up 2% to down 3% year-over-year, reflecting lower consumer spend on bigger ticket items.
- Average transaction values declined by about 2% versus last year, indicating a decrease in consumer spending per transaction.
- Provision for credit losses increased to $1.7 billion, reflecting higher net charge-offs and a $70 million reserve build.
- The company's 30-plus delinquency rate was 4.47%, up from 3.84% in the prior year, indicating a rise in delinquency rates.
- Synchrony Financial (SYF) expects flat to low single-digit decline in purchase volume for the second half of 2024, reflecting cautious consumer spending.
Q & A Highlights
Q: The consumer seems weaker than anticipated with lower purchase volume and higher reserve rates. Is this accurate, and how are you adjusting your underwriting in response?
A: Brian Doubles, President and CEO: Generally, the consumer is still in good shape, with strong labor market support. However, lower-income consumers are feeling inflation's impact more and are managing their budgets by rotating into nondiscretionary categories. This disciplined spending is positive from a credit perspective as it indicates consumers are not overextending.
Q: The reserve rate guidance has changed to be in line with 2023 rather than better. What factors are driving this, and does it imply similar net charge-offs in 2025?
A: Brian Wenzel, CFO: The shift reflects a more cautious outlook due to persistent inflation and fewer expected rate decreases. While delinquency trends are improving, the macroeconomic environment remains uncertain, necessitating a conservative approach to reserves.
Q: Based on the rollout of your PPPCs, is the $650 million to $700 million range still accurate for the second half? How would this change if the late fee cap is not implemented?
A: Brian Wenzel, CFO: Assuming an October 1 implementation date for the late fee rule, the guidance remains accurate. If the rule is delayed or overturned, we would need to reassess the impact, but currently, we are prepared for the rule to take effect as planned.
Q: Can you provide insights into the expected trends for RSA in the second half as PPPCs roll in?
A: Brian Wenzel, CFO: The RSA percentage will be influenced by lower net charge-offs and the implementation of PPPCs. While there will be some upward bias in the third quarter, the fourth quarter will see adjustments due to the late fee rule, assuming it takes effect.
Q: What are the expectations for NIM in the second half, considering the PPPCs and potential late fee changes?
A: Brian Wenzel, CFO: We expect a positive trend in NIM due to lower net charge-offs, stable funding costs, and benefits from PPPC actions related to APR and promotional fees. Overall, NIM should improve in the second half.
Q: Have there been any impacts on consumer behavior from the pricing changes implemented so far?
A: Brian Wenzel, CFO: We are monitoring various metrics, including purchase activity and complaint volume. Early indications show consumer behavior is generally in line with expectations, but we will continue to closely observe and adjust as necessary.
Q: How are the '23 and '22 vintages performing relative to expectations?
A: Brian Wenzel, CFO: The second half of '21 through the first half of '23 vintages are performing slightly worse than the 2018 vintage. However, the second half of '23 and early '24 vintages are showing better performance due to credit actions taken.
Q: How are you structuring new contracts and renewals given the uncertainty around the late fee rule?
A: Brian Doubles, President and CEO: We have structured new and renewed contracts assuming an $8 late fee. This conservative approach ensures we are prepared for the rule's implementation while protecting our interests.
Q: What is the state of potential partnership opportunities or deals for portfolios?
A: Brian Doubles, President and CEO: We have a healthy pipeline of opportunities, and our technology investments and integration capabilities continue to resonate with partners. The current environment is more rational, leading to disciplined pricing and favorable conditions for new deals.
Q: How will the PPPCs be implemented across partners by October 1, and what is the impact on inactive accounts?
A: Brian Doubles, President and CEO: The first phase of PPPCs covers a substantial part of the business, with a few partners waiting for the rule to be effective. There will be a tail effect as change-in-terms (CITs) are applied to newly active accounts over time.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
