Release Date: October 16, 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 financial results with a 10% increase in net revenue to $3.8 billion, driven by higher interest fees and other income.
- The company launched strategic partnerships, including one with Albertsons, allowing CareCredit cardholders to pay for health and wellness items at over 2,200 stores.
- Synchrony Financial (SYF) introduced a new payment experience for pet owners, enhancing customer experience and expanding its market reach.
- The company maintained a strong capital position with a CET1 ratio of 13.1%, reflecting a 30 basis point increase from the previous year.
- Synchrony Financial (SYF) returned $399 million to shareholders through share repurchases and dividends, demonstrating a commitment to shareholder value.
Negative Points
- Loan receivables growth was modest at 4%, impacted by a 4% decline in purchase volume.
- The company experienced higher net charge-offs and a $47 million reserve build, indicating increased credit losses.
- Delinquency rates increased, with the 30-plus delinquency rate at 4.78% and the 90-plus rate at 2.33%, both above historical averages.
- Synchrony Financial (SYF) faced challenges with late fee rule changes, incurring $11 million in preparatory expenses.
- The company noted a slowdown in consumer spending, particularly in discretionary categories, impacting purchase volumes.
Q & A Highlights
Q: Can you unpack the NII guidance for us, considering the seasonal lower reversals and the impact of PPPCs? Do you expect the NIM to have an upward bias over the next several quarters?
A: Brian Doubles, CEO: As we step into the fourth quarter, the trends in delinquency and units flowing into delinquency will result in lower late fees, offsetting the positivity in interest income and expense. Looking forward, the interest component relative to PPPCs and declining payment rates should guide the NIM higher. Interest expense benefits will lag due to the debt stack reset, particularly in CDS, which happens over the first half of the year.
Q: Your outlook for credit calls for delinquencies to follow seasonality. Do you expect losses to do the same, and what does this mean for the trajectory of losses into 2025?
A: Brian Doubles, CEO: Delinquency trends are strong, with early-stage delinquency stable and late-stage collections improving. We've been better than seasonality compared to the 2017-2019 period. Our underwriting is designed for a 5.5% to 6% loss rate, and we expect to return to that range as delinquency growth continues to decelerate.
Q: Can you quantify the components of the 30 basis points increase in loan yields from PPPCs, lower payment rates, and interest reversals?
A: Brian Doubles, CEO: We won't break out individual components, but the benefit is showing up in the interest yield line. The first phase of CIT is in effect, and we expect it to build into next year. Customer attrition is lower than expected, indicating the value propositions of our cards are recognized.
Q: Is it harder to execute on collections today compared to prior years?
A: Brian Doubles, CEO: Yes, making customer contacts is tougher, but we've expanded digital collections and other channels like text. While late-stage collections are still worse than pre-pandemic levels, we've seen recent improvements, which is optimistic for performance.
Q: How do you expect net interest margins to perform in a declining rate environment, considering your portfolio's fixed-rate component?
A: Brian Doubles, CEO: We expect benefits from prime rate movements and declining payment rates, which should increase the revolve rate component. Digital banks have been proactive in lowering rates, creating additional tailwinds. The bulk of CDS will reprice in the first half of next year, capturing rate movements.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
