The operator welcomes participants to the Synchrony Financial Second Quarter 2024 Earnings Conference Call and provides information on accessing the company's earnings materials. Senior Vice President of Investor Relations, Kathryn Miller, reminds listeners that the call is being recorded and that forward-looking statements will be made. She also mentions the availability of non-GAAP financial measures and introduces the CEO, Brian Doubles, and CFO, Brian Wenzel. Doubles thanks Kathryn and greets the audience.

Synchrony reported strong second quarter results, with net earnings of $643 million and a return on assets of 2.2%. The company's diversified portfolio, disciplined credit management, and innovative digital capabilities have contributed to its success. Synchrony added 5.1 million new accounts and saw growth in average active accounts and purchase volume. The company's data and analytics, along with flexible financing solutions, have helped it navigate through changing market conditions. Synchrony has also taken credit actions to address potential defaults, resulting in lower new account and purchase volume growth but improved delinquency trends. Overall, purchase volume and receivables trends remained consistent in the second quarter.

In the second quarter, purchase volume growth ranged from up 2% to down 3%, primarily due to lower consumer spending on bigger ticket items and credit actions. However, receivables growth increased across platforms due to payment rate moderation. Synchrony's offerings continue to attract purchases in various categories, but customers are being more cautious with their discretionary spending. Average transaction values have decreased, but customers are transacting more frequently. Payment rate normalization has slowed in the first half of 2024, and savings balances have remained stable compared to last year.

Synchrony is confident in the healthy spending, payment, and savings trends of consumers, along with their credit actions, leading to a lower net charge-off rate in the second half of the year. They are utilizing their insights and expertise to position themselves for sustainable growth. In the second quarter, they added or renewed partnerships, including with Verizon and Virgin Red, to provide maximum customer value and a first-rate digital experience. They are also incorporating strategic and technology-oriented partnerships to enhance the customer experience and recently announced an expanded relationship to improve the overall buying process.

Synchrony is collaborating with a second source provider to expand access to credit for consumers and drive loyalty and sales for small businesses and retail partners. They have also partnered with Installation Made Easy to offer financing for home improvement projects through a streamlined process. Synchrony is leveraging their data, analytics, and technology to enhance their distribution networks and product suite, and drive greater access and flexibility for customers and partners. In the second quarter, Synchrony's differentiated business model showed resilience in the face of a changing environment, and they remain focused on sustainable, risk-adjusted growth.

In the second quarter, Synchrony's ending loan receivables increased by 7.9% to $102 billion, driven by a decrease in the payment rate and growth across all sales platforms. Net revenue also increased by 13%, with higher interest and fees, lower RSA, and an increase in other income. Net interest income grew by 7%, while RSAs decreased due to higher net charge-offs. Other expenses grew by 1%, primarily due to technology investments and preparatory expenses for the late fee rule change. Synchrony's efficiency ratio improved by 380 basis points compared to last year.

In the second quarter, Synchrony had a net earnings of $643 million, with a return on average assets of 2.2% and a return on tangible common equity of 20.2%. Their 30-plus and 90-plus delinquency rates were above historical averages, and their net charge-off rate was also higher. The allowance for credit losses increased slightly due to loan receivable growth. However, their credit actions are improving their delinquency trajectory and they will continue to monitor and take necessary actions. Synchrony's funding, capital, and liquidity remain strong, with deposits representing 84% of total funding and secured and unsecured debt each representing 8%.

In the second quarter, Synchrony's total liquid assets and undrawn credit facilities increased by $3.6 billion, representing 19.1% of total assets. The company elected to take advantage of CECL transition rules, which will result in a final transitional adjustment to their regulatory capital metrics in 2025. Under these rules, the company's CET1 ratio decreased by 20 basis points, while their Tier 1 capital ratio increased by 20 basis points. Synchrony returned $400 million to shareholders in the form of share repurchases and dividends. The company remains focused on preparing for the future and achieving their long-term targets for loss rate and return on assets. They have been closely monitoring their performance and taking appropriate credit actions to support these objectives.

Synchrony has completed the first phase of their PPPCs in preparation for the pending new rule on late fees. These actions will go into effect in the second half of 2024 and their impact will be monitored to determine if any refinements are needed. The timing and outcome of late fee-related litigation, potential changes in consumer behavior, and the implementation of PPPCs could affect their outlook. They expect flat to low-single-digit decline in purchase volume, moderate payment rates, and more moderate loan receivable growth. Net interest income and other income are expected to grow in the third and fourth quarters due to the implementation of PPPCs. Delinquencies and net charge-off rates are expected to trend in line with seasonality and the reserve coverage ratio at the end of 2024 is expected to be in line with the reserve rate at the end of 2023.

The paragraph discusses Synchrony's financial performance and expectations for the future. They expect expenses to align with program and company performance, and predict a fully diluted earnings per share between $7.60 and $7.80 for the full year. They attribute this success to their scale, data analytics, digital capabilities, and lending expertise. The company is dedicated to delivering strong risk-adjusted returns for shareholders and is attracting new opportunities for growth. The Q&A session will begin shortly.

The operator introduces Mihir Bhatia from Bank of America who asks about the health of the consumer. Brian Doubles responds that while the consumer is generally in good shape, there are some differences across different customer cohorts. The higher-income segments are still spending, while the lower-income consumers are pulling back due to inflation. This is reflected in lower purchase volume and new accounts, but it is seen as a positive from a credit perspective as it shows discipline.

The speaker discusses how the company is managing their spend and cash flows, which is seen as a positive from a credit perspective. They also mention the change in reserve rate guidance and the factors driving the higher guide. The speaker explains that the company is being more cautious due to inflation and economic factors, and they hope to see signs of improvement before making any changes. The speaker thanks the questioner for their question.

Terry Ma from Barclays asks about the impact of the rollout of the company's PPPCs on their financials for the second half of the year. Brian Wenzel responds that the $650 million to $700 million range is still accurate, but it may change depending on the implementation of a late fee cap in October. The company also expects a lower loss rate in the second half, which will impact the RSA percent.

The speaker discusses the potential impact of various factors on the net interest margin in the second half of the year, including lower net charge-offs, flat net funding costs, and a positive mix between loan receivables and interest-earning assets. They also mention the expected yield-related effects of PPPC actions.

The company has implemented changes to their pricing practices and are seeing positive trends in interest and fee lines as a result. They have fully executed the first wave of changes and are continuing to evaluate other measures. They have a detailed monitoring dashboard in place to track the impact of the changes on consumers.

The company closely monitors its sales and customer service performance through a dashboard that includes various measures such as purchase active rate, sales per account, call volume, and complaint volume. The first wave of data is in line with expectations, but the company expects to gain a better understanding of consumer adoption in the third quarter. The company is also seeing positive trends in e-bill adoption. The delinquency and loss rates have been improving and are expected to continue to do so in the second half. The company has lagged behind the industry in terms of normalization, but is performing well compared to historical averages.

The speaker discusses the potential impact of the late fee rule on the company's financial performance. They mention that the company has made changes in response to the rule, such as adjusting APRs and adding fees. However, they also mention that the outcome of the rule is uncertain and the company will need to evaluate consumer behavior before making any further changes.

The speaker discusses two buckets for making decisions on pricing, one involving partners and RSAs and the other involving things within their brand's control. They have not spent much time discussing this scenario as they are currently focused on implementing PPPCs and preparing for the outcome of the late fee rule. New accounts are down 14% due to lower foot traffic and retail traffic, as well as credit actions. This will impact growth more in 2025 than 2024.

The speaker discusses the timeline for account growth and predicts above GDP level growth due to strong partnerships. They also mention positive trends in the Health & Wellness and Home Specialty businesses. Another speaker adds that they are monitoring active account growth and making investments in lifecycle marketing. They note lower store traffic and proactive credit actions. The overall sentiment is positive regarding credit quality.

Sanjay Sakhrani asks Brian Wenzel about the benefits of the underwriting refinements made in the past and how they will impact credit quality. Wenzel explains that these actions have already had a positive effect on delinquency rates and will continue to do so in the future. He also mentions that further actions may be taken if necessary. Sakhrani then asks a follow-up question for Brian Doubles.

Brian Doubles, CEO of the company, discusses the state of potential partnership opportunities and deals for portfolios. He mentions that there is a healthy pipeline of opportunities and the company is differentiated in terms of technology investments and partnerships. The current environment is more rational in terms of pricing and the company is well positioned with a good pipeline of opportunities. The company has moved its guidance to the upper end of the prior range, which is attributed to favorable timing with PPPC implementation, late fees, slower loan growth, and favorable impact on reserves.

The speaker discusses the timing of the company's execution and states that they have met all their deliverables and are on schedule. They also mention that purchase volume may be slightly lower than expected, but it shows that consumers are managing well. The speaker believes that the stable funding costs and low expenses are positive for the business. They mention the team's focus on executing their plans for the year, including integrating Ally Lending and disposing of Pets Best. The speaker is asked about capital and their response is not included in the summary.

The speaker discusses the bank's current capital position and their plans for returning excess capital to shareholders. They also mention their disciplined approach to inorganic growth and their goal of reaching a stable reserve rate by the end of 2024. The speaker expects a more favorable loss trajectory under CECL, which could result in reserve releases.

The company has completed the first phase of implementing its PPPC at most of its partners, but there are still a few partners where they are waiting for the rule to take effect before finalizing their plans.

The company is confident that they will fully offset the impact of the late fee rule change and return to pre-late fee ROAs. They also mention that there will be a tail effect and it will take a long time to reach 100% under any scenario. In response to a question about potentially reversing the APR changes if the late fee rule is shot down, the company states that they will discuss it with their partners and consider consumer behavioral changes, but it is still too early to determine.

The speaker, Brian, states that they are prepared for the new rule and will make adjustments if necessary. They are focusing on what they can control, such as pricing and policy changes. The company has renewed contracts with Verizon and added a new partnership with Virgin Red. The uncertainty around the late fee situation has been taken into consideration in negotiations, but they have found ways to structure around it.

The speaker responds to a question about the performance of the '23 and '22 vintage portfolios, noting that they are performing better than the industry average. However, they also acknowledge the impact of other issuers' actions during the pandemic, which resulted in larger vintages and may have affected the shared consumer market.

The speaker discusses delinquencies and how they have performed in recent years. They mention that the second half of 2021 through the first half of 2023 are slightly worse than the 2018 vintage, while 2019 was affected by the pandemic. They also note that the second half of 2023 and the first half of 2024 are performing better than 2018 in terms of charge-offs. The speaker attributes this to credit actions and modifications made by the company. They mention that some consumer segments have contributed to higher delinquency rates, but overall, they are confident in the development of the vintages. The call then concludes.

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