The paragraph introduces the Synchrony Financial Third Quarter 2024 Earnings Conference Call. It mentions that the call is recorded and currently in a listen-only mode, with a Q&A session to follow the prepared remarks. Kathryn Miller, Senior Vice President of Investor Relations, welcomes everyone and highlights that a press release and presentation are available on their Investor Relations website. She reminds listeners that their comments may include forward-looking statements subject to risks, and actual results could differ. Non-GAAP financial measures will be discussed, with reconciliations available in their materials. The call features Brian Doubles, President and CEO, and Brian Wenzel, EVP and CFO of Synchrony.

In the third quarter, Synchrony reported strong financial results with net earnings of $789 million and substantial returns on assets and equity. The company's strategy focused on providing responsible credit access and enhancing customer experiences led to 4.7 million new accounts and $45 billion in purchase volume, despite a slight consumer spending pullback and credit adjustments made in 2023. Average active accounts remained stable, with receivables growing by 4%. Spending trends showed customers being cautious in response to inflation, reducing discretionary spending in areas like furniture and electronics. However, receivables across platforms increased, largely due to moderated payment rates.

In the latest quarter, dual and co-branded cards made up 43% of the total purchase volume but saw a 2% decline due to cautious consumer spending and credit policy impacts. Consumers prioritize essential purchases like groceries and are spending less on discretionary items such as home furnishings, travel, and entertainment. Transaction values have decreased by 3% overall, with non-prime customers reducing their spending by 5% and super-prime customers by 2%. Despite lower transaction values, transaction frequency remains stable. Payment behavior shows stability among non-prime segments, while prime and super-prime customers are increasingly making minimum payments. However, the rate of payments below the minimum remains low, suggesting responsible consumer spending aligned with personal budgets and priorities. Synchrony is focused on providing financial solutions that offer value and utility to meet evolving customer needs.

The paragraph highlights Synchrony's efforts to expand and strengthen partnerships with various companies to offer enhanced services and benefits. They renewed and added over 15 partnerships in the third quarter, including Dick's Sporting Goods, Gibson, and Albertsons. Synchrony extended its long-term partnership with Dick's, enhancing its Score Rewards credit card program for athletes. The collaboration with Gibson introduces a direct-to-consumer credit program, an industry first, aimed at increasing customer engagement. Additionally, Synchrony launched a strategic partnership between CareCredit and Albertsons, allowing customers to use CareCredit for select health and wellness purchases at Albertsons stores, joining other retailers like Sam's Club, Walgreens, and Walmart.

The paragraph highlights Synchrony's launch of a new payment solution for pet health care expenses, which allows pet insurance claims to be directly reimbursed to a CareCredit card. This innovation, in partnership with Independence Pet Holdings, aims to enhance healthcare access for pets and exemplifies Synchrony's commitment to providing flexible financial solutions. The company also reported strong financial performance for the quarter, including a 4% growth in loan receivables and a 10% increase in net revenue, driven by higher interest, fees, and other income. Net interest income rose by 6%, supported by increased average loan receivables and yield.

The paragraph discusses Synchrony's financial performance in the third quarter, highlighting a 30 basis point increase in loan receivable yield driven by product, pricing, and policy changes, despite higher reversals. The cost of interest-bearing liabilities rose to 4.78% due to increased benchmark rates. RSAs were at $914 million, marking a $65 million decrease due to higher net charge-offs. Other income increased to $119 million, aided by PPPC fees but offset by the Pets Best disposition and venture gains/losses. Provision for credit losses rose to $1.6 billion with higher net charge-offs and a reserve build. Expenses increased by 3% to $1.2 billion because of the Ally Lending acquisition and tech investments, partially countered by reduced operational losses. The efficiency ratio improved to 31.2% despite $11 million in costs tied to PPPC execution and potential Late Fee rule changes, showing Synchrony's cost discipline. The company reported net earnings of $789 million, equating to $1.94 per diluted share, with a 2.6% return on average assets and a 24.3% return on tangible common equity. Additionally, the 30-plus delinquency rate was 4.78%, higher than the previous year and above the historical average.

The paragraph discusses Synchrony's financial performance and strategic actions. The 90-plus day delinquency rate increased to 2.33%, and the net charge-off rate rose to 6.06%. Despite these increases, their allowance for credit losses remained consistent at 10.79%. The company reports improvements in delinquency trajectories due to credit actions taken for mid-2023 through early 2024, anticipating a stronger portfolio position by the end of 2024. Synchrony also managed its funding effectively, growing direct deposits by $780 million, reducing broker deposits, and issuing $750 million in senior unsecured notes. Deposits make up 84% of total funding, with $22.4 billion in liquid assets, a $1.9 billion increase from the previous year.

The paragraph discusses Synchrony’s adoption of the CECL transition rules and its impact on regulatory capital metrics. The company expects a transition adjustment of about 50 basis points in January 2025. Despite this, their CET1, Tier 1, and total capital ratios have improved compared to the previous year. Synchrony returned $399 million to shareholders in the third quarter through share repurchases and dividends, with $700 million remaining for repurchases until June 2025. The company is focused on its strategic priorities to enhance long-term financial performance and reports that credit actions and PPPCs are aligning with expectations. They have observed stronger enrollments in e-bill and less customer attrition, indicating the value of their offerings.

The paragraph discusses the company's strategy and outlook for the remainder of 2024. It mentions ongoing efforts to assess financial and operational impacts on customers and partners, aiming for sustainable growth with risk-adjusted returns. There is uncertainty surrounding potential changes in consumer behavior due to pending late fee rule changes and related litigation. The company anticipates a low single-digit decline in fourth-quarter purchase volume and a low single-digit growth in loan receivables. The late fee rule is assumed not to be implemented in 2024 due to ongoing litigation, leading to expectations of flat net interest income and consistent other income levels compared to the third quarter.

The paragraph discusses Synchrony's financial outlook for 2024, noting that the company's program and performance alignment will result in lower expenses relative to loan receivables due to higher net charge-offs. Other expenses are expected to rise with seasonal growth, and delinquencies are also predicted to follow seasonal patterns. Synchrony forecasts a net charge-off rate for the second half of 2024 to be lower than the first half, with reserve rates at year-end 2024 aligning with those of 2023. The projected earnings per share (EPS) for 2024 is expected to be between $8.45 and $8.55, reflecting an improvement from previous forecasts due to factors such as the anticipated implementation of a late fee rule, changes in RSA, and the strong core business performance. Synchrony emphasizes its strategic priorities, leveraging data, digital capabilities, and lending expertise to enhance customer experiences and drive long-term returns.

The paragraph describes a Q&A session following a call, where Ryan Nash from Goldman Sachs asks a detailed question about the Net Interest Income (NII) guidance. Brian Wenzel responds by explaining that in the fourth quarter, delinquency trends and late fees will decrease, which, along with higher reversals, offsets the positive impact on interest income. He suggests that despite seasonal factors, there is potential for continued upward bias in Net Interest Margin (NIM) due to these dynamics.

The paragraph discusses the financial outlook, focusing on net interest margins (NIM) and credit conditions. It highlights that the NIM is expected to benefit from changes in interest components and payment rates, though there may be some delays due to resetting CDs. Looking forward, delinquencies are following seasonal patterns, and losses could potentially drop below 6% next year. Brian Wenzel notes positive delinquency trends, with stable early-stage delinquency and improvements in late-stage collections, which are performing better than pre-pandemic levels. Further details will be shared in January.

The paragraph discusses financial trends and projections related to credit performance and loan yields. It highlights that recent performance has been better than seasonal expectations compared to the 2017 to 2019 period, and that current vintages are trending better than those from 2018. Credit actions are positively impacting purchase volumes and new account originations. They're aiming for a target underwriting range of 5.5% to 6%. There is a noted year-over-year decline in delinquencies for both 30-plus and 90-plus day categories, aligning with expectations for 2024. In a following discussion, Terry Ma from Barclays inquires about a 30 basis point increase in loan yields, asking for a breakdown of contributing factors. Brian Wenzel responds that while specific components won't be broken out, the benefits are showing up in interest yield and other income.

In the paragraph, the speaker discusses the current status and future expectations of the first phase of CITs, noting that customer attrition has been lower than expected, which is positive from a customer standpoint but has financial downsides. They also mention that paper statement use was lower than anticipated due to various factors, but the adoption of e-bills has been positive, leading to better core performance. They express a positive outlook but note the importance of monitoring customer behavior and market changes. In response to Terry Ma's question about credit performance, it is mentioned that while credit is performing as expected, the charge-off rate is slightly above 6%, prompting a request for insights into how credit performance has evolved over the year.

The paragraph discusses actions taken by a company to prepare for potential financial challenges later in the year and into the next. Although purchase volumes were slightly lower than expected, the company remains confident due to strategic measures they implemented earlier. Brian Wenzel notes improvements in late-stage collections, though he acknowledges that collecting from customers has become more challenging over the years. To address this, the company has invested in digital collections and alternative communication methods, such as texting, to improve customer contact and collection efficiency.

The paragraph discusses the evolving dynamics of product deployment and collections in a financial context. It notes a decline in the number of collections due to changing rules but highlights an adaptive approach to late-stage collections, which have slightly improved compared to the early pandemic period, though still lagging behind 2019 and 2020 levels. Don Fandetti expresses concern regarding low-end customers, but Brian Wenzel indicates that while customer behavior is changing, there's no significant acceleration in pressure. Payment trends show more variation in prime credit categories compared to non-prime, with a slight shift into mid-day payments, more evident in prime borrowers.

The paragraph discusses consumer spending behavior and the impact of policy changes and pricing adjustments on spending volumes. The speaker, Brian Wenzel, explains that there is no significant difference in spending between those affected by pricing changes and those who were not, suggesting that these actions haven't caused noticeable customer attrition. Additionally, he notes that transaction values are generally decreasing as consumers are opting for lower-cost purchases, reflecting a trend of trading down.

The paragraph discusses a change in consumer spending behavior, where people are willing to buy discretionary items like mattresses but at lower price points, indicating a trend of trading down. Despite wage growth exceeding inflation, consumers feel pressured, impacting discretionary spending. The labor market's strength helps offset some inflationary pressures. The company observes that consumers are spending more cautiously and rationally, adhering to budgets, which is seen as a positive sign of financial discipline.

The paragraph discusses financial trends and expectations regarding consumer spending and credit. It notes that while there has been an increase in the cost of goods, it is not overly concerning and is somewhat offset by consumer behavior and actions taken by the organization. The movement towards normalized spending and credit levels is seen as a positive development, despite prevailing uncertainties. Brian Wenzel addresses a question from Sanjay Sakhrani regarding reserve rate trends, indicating that this year's reserves should be similar to last year's, around 10.3%, though this may vary slightly due to seasonal factors and receivable developments.

The paragraph discusses the current macroeconomic environment and its impact on financial stability, noting that the Federal Reserve's decision to lower interest rates has been favorable. The speaker anticipates that delinquency levels will return to pre-pandemic norms, which should lead to a decrease in reserve rates. Sanjay Sakhrani inquires about the potential impact of the CFPB late fee rules on consumer behavior and how the company plans to mitigate these effects if they come into play next year. Brian Wenzel responds that the timing of the late fee rule implementation won't significantly alter the point of achieving financial neutrality, suggesting confidence in their current strategy and analysis regardless of changes in the rule's implementation status.

The company is preparing for a potential new rule regarding late fees, which may become effective in the fourth quarter or January. They anticipate the rule will be implemented, although the specifics, such as the $8 late fee, are uncertain. The administration supports the rule, and the company is planning accordingly, despite not spending much time considering a rollback. The company's focus remains on working transparently with partners to manage any changes and continue serving their customers effectively.

The paragraph is part of a financial discussion regarding net interest margins in a declining rate environment. Mihir Bhatia from Bank of America asks about the performance of net interest margins, given the company's portfolio has more fixed-rate components compared to its peers. Brian Wenzel explains that while the prime rate movements might benefit the floating rate components, a decline in payment rates could increase revolve rates, both of which should positively impact the net interest margin (NIM). On the funding side, although they traditionally lag the market, digital banks have proactively lowered rates due to funding needs, creating an additional tailwind for the company's NIM.

The paragraph discusses the dynamics between high-yield savings accounts, CDs (certificates of deposit), and their impact on retail deposits. It highlights that 40% of deposits are in high-yield savings, while 60% are in CDs, with a significant portion of those CD rates expected to reprice within the year, mainly in the first half. The speaker notes that the high-yield savings rates are benefiting from the current Fed rates, thus maintaining a positive economic position and expressing caution about reducing liquidity. They indicate that these factors influence the Net Interest Margin (NIM). In a follow-up question from Mihir Bhatia, he inquires about the stabilization of purchase volumes and whether there are platforms providing indicators on purchase volumes or consumer financial health, to which Brian Wenzel responds affirmatively but without specific details in this excerpt.

The paragraph discusses the observation of spending trends and consumer behavior, noting a decline in sales that stabilized after the third quarter. There is an emphasis on monitoring daily sales and trends, especially heading into the holiday season, which can be unpredictable. There is stability in spending behaviors, with higher credit rate consumers maintaining higher consumption levels. The paragraph also highlights that platforms with more discretionary spending may see a decline, while certain sectors like health and wellness continue to perform well. It concludes by noting that recent years saw unprecedented consumer spending across the industry.

In the paragraph, Brian Wenzel discusses how inflation is impacting consumers, particularly those with lower incomes, and notes that a slowdown isn't necessarily negative in the current environment. He also addresses competitive dynamics in the partnership-based credit card business. Wenzel mentions that while some competitors have made changes, particularly regarding APRs and fees, they feel comfortable with their own strategies. The focus is on maintaining effective relationships with merchants and ensuring that their credit products' pricing aligns with their value proposition to customers, aiming to keep the products attractive and competitive.

The paragraph is part of a financial discussion where Mark DeVries inquires about changes in reserve coverage guidance, noting a more significant seasonal decrease than previous years. Brian Wenzel explains that reserve coverage is based on forward-looking views of potential losses and other macroeconomic factors. They currently feel comfortable it will align with last year's end. In a subsequent exchange, John Hecht asks about trends in the health and wellness segment. Brian Doubles responds by highlighting the segment's focus and market potential, mentioning a slight recent pullback in spending.

The paragraph discusses the growth and performance of a health and wellness sales platform, emphasizing its strong value proposition and brand recognition. It notes that while there has been a general pullback in bigger ticket discretionary purchases, the platform is still experiencing positive growth, especially in areas like pet products, which are up 4% year-over-year. However, cosmetics and high-ticket dental items have seen declines. The platform's card usage has increased by 500 basis points compared to the previous year, demonstrating customer satisfaction and effective investment strategy. Despite some challenges, the 10% loan growth year-over-year remains a strong aspect of the company's strategy.

The paragraph discusses the current status of litigation related to a late fee rule, with no specific timetable for a district court decision on a motion concerning venue and plaintiff standing. The company is prepared for various outcomes and has enacted plans to offset potential negative impacts, assuming a worst-case scenario of an $8 fee effective by October 1. Despite the uncertain timing of the rule’s implementation, the company has already adjusted its pricing and policies in anticipation. The overall situation is unpredictable, and while the company feels confident about their legal position, they continue to operate under the assumption that the rule will be enacted.

In this discussion, Brian Wenzel explains to Jeff Adelson from Morgan Stanley that the credit actions taken earlier in the year were strategic and ongoing rather than one-time measures. These actions, related to areas like debt consolidation and student loans, continue to be applied based on specific circumstances such as partner channels or product performance. While they have adjusted the intensity of these actions, they are not new and are implemented based on risk-adjusted returns. Wenzel hints that these ongoing strategies could influence loan growth outlooks, possibly enabling a shift from low single-digit to higher growth rates in the future but doesn't provide a specific timeline for returning to high single-digit growth.

The paragraph discusses the impact of credit actions and economic conditions on consumer affordability, particularly for lower-income individuals. It suggests that current pressures are related more to the previous overextension of credit between 2021 and early 2023, which now needs to be addressed. The speaker anticipates that as these issues resolve, there may be opportunities to relax restrictive credit measures by late 2025, depending on performance. The long-term growth expectation remains at 7% to 10%. Additionally, Jeff Adelson inquires about progress on a financial target related to PPPC (possibly a project or initiative), and Brian Wenzel responds, mentioning how customer attrition rates impact tracking towards these goals.

The paragraph involves a discussion between analysts and company representatives about performance metrics and reserve rates. The company indicates that its actions and core performance are slightly better than expected and the "neutrality point" hasn't changed despite upcoming rule changes. Rick Shane from JPMorgan raises a question regarding the company's reserving strategy. He notes that the current reserve rate is at a cyclical high despite only 16 days of new information, suggesting a shift from a highly cautious to a less cautious outlook for the fourth quarter. Brian Wenzel attributes this shift primarily to changes in the denominator of their calculations, implying that while loss content remains significant, other factors have adjusted.

In the paragraph, a discussion takes place during Synchrony's earnings conference call about how the company calculates its financial projections, especially regarding fourth quarter losses and first quarter dollar losses. The focus is on the mechanics of using reserves over an end-of-period loan number, rather than indicating any significant change in the company's credit trajectory. The conversation concludes with an expression of gratitude and well-wishes as the call ends.

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