The operator welcomes participants to the Synchrony Financial First Quarter 2024 Earnings Conference Call and directs them to the company's Investor Relations website for materials. The call will be recorded and opened for questions after management's prepared remarks. Kathryn Miller, Senior Vice President of Investor Relations, introduces the call and reminds listeners of the forward-looking statements and non-GAAP financial measures that will be discussed. CEO Brian Doubles and CFO Brian Wenzel are also present on the call.

Synchrony has reported strong first quarter results, including the completion of two transactions that expand their offerings in the market. Excluding the impact of the gain from the Pets Best sale, Synchrony delivered strong earnings and returns. They opened 4.8 million new accounts and grew average active accounts by 3%. Their products and value propositions drove a record-high first quarter purchase volume of $42 billion, with Health & Wellness purchase volume increasing by 8%.

Synchrony experienced a 4% increase in purchase volume in the Diversified & Value category, driven by both partner and non-partner spending. Digital purchase volume increased by 3%, reflecting continued consumer engagement. In Home & Auto, purchase volume decreased by 3% due to lower customer traffic and gas prices. In Lifestyle, purchase volume decreased by 4%, primarily due to lower transaction values. Dual and co-branded cards accounted for 42% of total purchase volume and saw a 6% increase. Synchrony's out-of-partner spend was impacted by weather conditions in January but rebounded in February and March. Consumers focused on non-discretionary spending in the quarter, but Synchrony still saw growth in both discretionary and non-discretionary categories. The company continues to see growth in average transaction values and frequency among higher credit-grade consumers.

The changes in consumer spending habits and credit performance at Synchrony reflect a financially stable consumer who is being more selective in their purchases. This trend is supported by other indicators of consumer financial health, such as a strong labor market and stable savings account balances. Synchrony's delinquency performance has also normalized and stabilized, thanks to their disciplined underwriting and advanced credit management tools. They expect their net charge-offs to peak in the first half of the year and are constantly monitoring their portfolio and taking credit actions to prepare for the future.

Synchrony uses a variety of data to inform their underwriting and credit management strategies, allowing them to consistently deliver successful outcomes for their stakeholders. They have recently added new partners, including BRP and two technology partnerships, which will allow them to offer financing for powersports products and expand access to their financial solutions. Additionally, their partnership with Adit will provide seamless access to dental practices nationwide.

Synchrony is dedicated to providing seamless financing solutions for patients at their dentist's office and contractors through partnerships with ServiceTitan. They prioritize their employees and have been recognized as one of the best companies to work for by Fortune Magazine. Brian Wenzel will discuss their strong financial performance.

Synchrony's first quarter results showcased the strength of their business model and the resilience of consumers in a changing economic landscape. They reported $1.3 billion in net earnings, with $491 million coming from continuing operations. Loan receivables grew by 12%, and net revenue increased by $530 million. Net interest income saw a 9% increase, driven by higher loan receivables and lower payment rates. Provision for credit losses increased to $1.9 billion, and other expenses increased by 8%. The efficiency ratio improved by 270 basis points compared to the previous year.

Synchrony's delinquency rates and net charge-off rate have increased compared to the prior year, but are still within the company's expectations. The company has been taking incremental credit actions to reinforce its portfolio's performance for the future. Synchrony has a track record of achieving consistent and attractive risk-adjusted returns through changing market conditions, thanks to its disciplined underwriting and RSA. The company will continue to leverage its experience, product suite, sales platforms, and technology to deliver on its priorities. Synchrony's funding, capital, and liquidity remain strong and provide a solid foundation for the business.

In the first quarter, the company saw growth in deposits and issued secured funding and preferred stock to optimize its capital structure. Liquid assets and undrawn credit facilities also increased. The company elected to take the benefit of the CECL transition rules, resulting in a decrease in its CET1 ratio. The sale of Pets Best and acquisition of Ally Lending had a positive impact on the CET1 ratio. The company returned $402 million to shareholders through share repurchases and dividends. As of March 31, 2024, $300 million remained in the share repurchase authorization.

Synchrony has increased its share repurchase authorization by $1 billion, bringing the total to $1.3 billion for the period ending June 30, 2025. The company also plans to maintain its current quarterly dividend of $0.25 per share. However, there is uncertainty surrounding the pending late fee rule change and potential changes in consumer behavior, which could impact the company's EPS outlook. Synchrony will continue to focus on its strategic priorities and implement product, policy, and pricing changes in the coming months. The company expects to have a better understanding of the impacts of these changes in the second half of the year, but for now, their business is following typical seasonal patterns.

The paragraph discusses Synchrony's expectations for the year, including a peak in net charge-offs, lower reserve coverage, and continued alignment of their program performance. The company is focused on leveraging their strengths and experience to drive growth and returns. The CEO concludes by expressing confidence in the company's position and their commitment to providing responsible financing solutions for customers, sales for partners, and value for stakeholders. The call is then opened for a Q&A session.

The speaker states that they expect charge-offs to peak in the first half of the year and then decline, based on the trend of delinquencies. They also mention that delinquencies have decreased in April compared to the previous report. The speaker remains confident in their underwriting targets and expects the charge-off rate to decrease in the second half of the year.

The speaker is optimistic about the company's net charge-off rate and reserve coverage rate, which is expected to be lower in the second half of the year. The RSA has been performing well, with the first quarter being below previous guidance due to higher net charge-offs and suppressed NII. The speaker believes the company has peaked in terms of interest-bearing liability costs and net charge-offs, which should lead to an upward trend in the RSA in the remaining quarters. The volume of business may also affect the RSA.

During a conference call, Sanjay Sakhrani from KBW asked about the weak purchase volume and how it can be improved. Brian Doubles, the speaker, responded by saying that while the growth in the business is good and the job market is strong, the spend is being driven by higher-income consumers. This is not necessarily a bad thing, as it shows prudence and responsible budgeting. Brian Wenzel, another speaker, added that the first quarter is being compared to a strong quarter last year and that there is a decrease in purchase volume for lower FICO consumers, particularly in larger purchases like home and auto, as well as in lifestyle purchases.

The company is seeing strengths in certain areas of their business, such as their home specialty and outdoors segments. The consumer is being more cautious with their spending, but transaction frequency is up. The company is still planning for a mid-May implementation of their changes, despite ongoing litigation. They have already completed over 60% of the changes and are preparing for the possibility of an injunction.

The speaker is discussing the impact of product, policy, and pricing changes on the company's financials. They expect to see a gradual increase in benefits over the next few quarters, with the APR having a 50% impact in the first 12 months and 75% in 24 months. They also mention that some fees and policy changes will have more immediate effects, while others will take longer to materialize. The speaker also mentions that their cash balances are currently high but does not provide further details.

The speaker attributes the strength of their deposit franchise to the increase in core retail deposits of $3.4 billion from last year. They also received additional liquidity from the acquisition of Ally and the sale of Pets Best franchise. The excess liquidity has caused a decline in net interest margin, which is expected to be at its low point for the year in the first quarter. The company is still focused on gathering deposits and has not made any significant changes to attract new deposits. In response to a question, the speaker explains that the net interest margin decline is due to seasonal impacts and the increase in cash balances from the Pets Best sale. They expect deposit costs to level out in the future.

The biggest driver of the decline in net funding costs is the decrease in interest-bearing liability costs offset by income from the investment portfolio. There was also a decline in liquidity portfolio, but this was offset by an increase in interest and fee yield. The company believes they have peaked in interest-bearing liability costs and expects net interest margins to improve throughout the year. They have lowered their CD rates to remain competitive and may continue to lower them as other banks do. The company has factored in three rate cuts from the Fed, but there was no significant impact in September.

The speaker is discussing the company's EPS guidance and how it has not been pulled, but was not reiterated in the most recent presentation. They are ahead of expectations in their core business, with interest-bearing liability costs and charge-offs in line with expectations. The speaker also mentions that the reserve rate being lower than 10.26% is consistent with the guidance provided in March. The next question asks for more information on the credit outlook, specifically regarding the difference between mid-2024 and the first half of 2024. The speaker explains that the delinquency formation has improved and the second quarter tends to have the best NCOs, but does not provide further details on what mid-2024 specifically looks like.

Brian Wenzel simplifies the question by saying that first half losses will be higher than second half losses. He also mentions that the late fee implementation in May will be difficult operationally and could have a significant impact on the company. Additionally, the consumer behavior response rate to the changes has been challenging for both issuers and lenders.

The implementation date for the pending litigation is uncertain, but the company's base assumption is October. The impact of the implementation date on the company's business and projected earnings is difficult to predict, but it is unlikely to affect the company's exit point in 2025 or visibility of their business. A May implementation date would have a larger impact on EPS in 2024, but could result in higher EPS in 2025. The company will provide more transparency once there is greater clarity on the implementation date.

Brian Doubles responds to a question about the impact of consumer behavior on the company's financials and states that there have been no major surprises so far, but it is still early. He also mentions that the estimates given in the March 5, 8-K filing regarding the PPPC impact are still applicable, but they may change depending on the implementation date.

The speaker is confident that they will be able to offset the impact of the late fee rule change and maintain their long-term targets for profitability. However, they acknowledge that there are uncertainties and assumptions involved, and the ultimate impact will depend on factors such as consumer behavior and interest rates. They also mention the potential impact of Basel III on capital, but cannot predict the Fed's actions in this regard.

The speaker discusses the lack of support for potential changes in the future and mentions the company's excess capital. They also mention their goal to reach their medium to long-term targets and their openness to potential acquisitions. They provide data on the company's strong earnings and ability to generate capital.

The speaker discusses the company's discipline in making accretive acquisitions and mentions the recent acquisition of Allegro. They also mention their discussions about the potential effects of the CFPB rule change on delinquencies and reserve policies.

Foran asks about the annual internal stress testing process and how it will be impacted by the two-year window and the inclusion of late fees. He also mentions the possibility of peak losses affecting the business.

The speaker, Brian Wenzel, addresses potential constraints on capital considerations due to the late fee rule and the impact on their capital plan. He clarifies that the rule does not interfere with their current plans and that they are engaging with the Fed as usual. He also mentions that competitors are likely responding in similar ways to the PPPC efforts.

The speakers discuss the impact of the new rule on credit card issuers and how they plan to offset the loss of revenue from late fees. They mention that some issuers may handle it differently, but overall, they will likely increase APRs and fees. They emphasize the importance of protecting their partners and continuing to provide credit to customers. They also mention that some issuers may absorb the impact of the rule, but it is not seen as a competitive threat in their industry. They will focus on economic sharing with their partners and maintaining their current customer base.

The speaker discusses the need to protect the company's partners and mentions that some issuers are starting to build potential litigation costs into their pricing models. The other speaker adds that a smaller institution may not be able to sustain absorbing late fees and may have to reallocate capital. The speaker then clarifies that the company is not reiterating their EPS guidance from 45 days ago because the underlying components have not significantly changed.

The speaker is responding to a question about the company's financial performance and guidance. They reiterate that their previous guidance has not changed and that they are pleased with their performance so far. They also mention that they track their market share and are gaining share in the majority of their partner programs.

The speaker discusses their company's multiproduct strategy and how it helps them gain share in the market. They mention their partnerships with small and medium-sized businesses and health providers, which they believe is an underappreciated part of their business model. They have shifted investment dollars into the health and wellness space and have seen success in that area. They also mention that the large partner space is still attractive, but they are also focusing on smaller partnerships.

The speaker discusses the importance of acknowledging and supporting small to medium-sized businesses and professionals like dentists and pet care specialists that Synchrony serves. They thank a participant named Mihir and end the conference call.

This summary was generated with AI and may contain some inaccuracies.